internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b09 plr-162065-02 date date legend grantor_trust agreement date child trust child trust child trust trustee trustee date patriarch x state date plr-162065-02 date child 1's spouse date date trust trust date family x family y trust company state date patriarch y measuring life person trust y trust z measuring life measuring life measuring life measuring life measuring life measuring life date plr-162065-02 probate_court trustee dear sirs this letter responds to your letter dated date and prior correspondence requesting rulings under sec_2041 and sec_2601 of the internal_revenue_code grantor executed trust agreement on date date is before date trust agreement creates a series of irrevocable trusts for the grantor’s children child trust child trust and child trust trust agreement designates trustee as the initial family trustee and trustee as the initial independent_trustee grantor died on date article of the trust agreement provides the dispositive provisions of the trusts sec_1 provides that the trustees without the necessity of physical segregation shall divide the initial trust property into equal parts one part each for child child and child each of the parts shall constitute the corpus of a separate and distinct trust for the primary benefit of each child of grantor the child for whom the trust benefit shall be referred to as the beneficiary of that particular separate trust sec_1 of the trust agreement provides that at convenient intervals but at least annually during the remainder of the lifetime of the beneficiary of the separate trust its trustees shall distribute to or for the benefit of the trust’s beneficiary all of the net_income of the separate trust and so much of the corpus of the separate trust even to the exhaustion thereof as may in the sole and uncontrolled discretion of the independent_trustee of the trust be deemed necessary and proper under all of the then circumstances insofar as they can reasonably be ascertained by the trustee for the health and support in reasonable comfort of the beneficiary or for any other purposes that the trustee shall deem to be in the best interests of the beneficiary sec_1 of the trust agreement provides that from time to time after the death of the grantor during the remainder of the lifetime of each beneficiary of a separate trust by written instrument executed by him or her with all the formalities of a deed and delivered to one of the trustees effective upon such delivery unless the instrument specifically postpones the effective date to a later time or to the beneficiary’s death rescindable by him or her in a similar manner any time prior to the effective date the beneficiary shall have the right and power to appoint any part or all of the net assets contained in the separate trust on the effective date to or among or for the benefit of any person s whether or not then in being in any amounts or proportions provided however that the power shall not be exercisable to any extent for the benefit of the beneficiary his or her estate his or her creditors or the creditors of his or her estate any appointment under the power may be made for any present or future vested or contingent estate s either outright or in trust and if in trust subject_to the plr-162065-02 limitations of sec_3_1 of the trust agreement and with one or more objects as beneficiaries and with the trustee s the administrative_powers any newly created powers of appointment and subject_to lawful spendthrift provisions all as specified in the instrument provided always however that no appointment under the power shall benefit directly or indirectly one who is not a permissible object of the power sec_1 of the trust agreement provides that upon the death of the beneficiary of a separate trust all of the then remaining net assets of the trust to the extent not effectively appointed under sec_1 of the trust agreement shall be disposed of as follows and the trust shall terminate sec_1 a provides that all the net assets shall be distributed to among or for the benefit of the person s in the amounts and proportions and for the estates and interests and outright or upon the terms trusts as limited by sec_3_1 of the trust agreement conditions and limitations as the beneficiary may appoint in and by a provision in his or her last will and testament specifically referring to the power no appointment however under the power shall benefit directly or indirectly either the beneficiary his or her estate his or her creditors or the creditors of his or her estate sec_1 b provides that in the event that the beneficiary fails to exercise his or her testamentary special_power_of_appointment or insofar as any appointment shall be void or not take effect then upon the beneficiary’s death the net assets or the part thereof not effectively appointed shall be divided among those of the beneficiary’s lineal_descendants who are then living per stirpes or if there be none then living then among those of the grantor’s lineal_descendants who are then living per stirpes if there is in existence a_trust for the primary benefit of any above-designated descendant however his or her share shall be transferred and added to the corpus of the trust and thereafter held managed and disposed of in the same manner as the corpus to which the share is added if however at the time thus specified for the termination of a separate trust there shall be no lineal descendant of the grantor then living the net assets shall be disposed of as provided in sec_1 of the trust agreement sec_1 of the trust agreement provides that if no lineal descendant of grantor is then living the trustees shall instead distribute the assets one-half to the heirs of grantor and one-half to the heirs of patriarch x other than grantor as defined by the state intestacy laws at the time of the termination sec_3_1 of the trust agreement provides that all other provisions to the contrary notwithstanding each and every trust coming into existence under the trust agreement either directly or indirectly or by the exercise of any power contained in the trust shall unless earlier terminated terminate on the day prior to the expiration of twenty-one years after the death of the last survivor of those living persons who are named in the instrument other than as witnesses and notaries and those of their respective lineal_descendants living on date plr-162065-02 sec_4 of the trust agreement provides in part that the absolute right and power at any time s with or without cause to remove any then acting family trustee of a particular trust or trusts under the trust agreement is given to the first in order of the following-listed persons indicated as having removal rights with respect to the particular trust involved who is not then deceased or incapacitated a grantor’s son child as to each and every trust created under the trust agreement b grantor’s daughter child with respect to the trust under trust agreement for the principal benefit of herself c grantor’s daughter child with respect to the trust under trust agreement for the principal benefit of herself and d the then beneficiary or beneficiaries of the trust acting by majority vote if there be more than one each beneficiary being entitled to one vote the vote to be cast by written ballot signed by the beneficiary and for these purposes if a beneficiary is not then sui juris his or her parent spouse or legally appointed guardian in that order of preference shall take such action in his or her place and stead any such removal being by written notice setting forth the effective time and date thereof delivered personally or sent by certified mail to the trustee being removed prior to the effective time furthermore the then acting family trustee of each separate trust shall have the right and power at any time or times to remove by the foregoing procedure the then acting independent_trustee of the separate trust provided the family trustee sets forth in the notice of removal some reasonable_cause for the removal such as a personality conflict with the trustee or its personnel assigned that the trustee’s fees are not competitive or that the trust would be more conveniently administered in another city sec_4 of the trust agreement provides that in the event of any vacancy at any time or times occurring in the office of the independent_trustee with respect to any trust under trust agreement whether caused by resignation removal incapacity death or otherwise the vacancy in office shall be promptly filled by a bank or trust company that is located in some state of the united_states that has trust powers and that has a combined capital and surplus in excess of dollar_figure or by an individual who is sui juris who is experienced in business and finance or who is an attorney experienced in the trust and tax fields and who is neither the grantor nor a beneficiary nor related to the grantor or to any beneficiary in any of the following classifications spouse ancestor lineal descendant brother or sister nor an employee of the grantor or of any beneficiary or of any corporation firm or partnership in which the grantor or any beneficiary is an executive or has stock or other holdings that are significant from the viewpoint of control the selection and appointment of a successor independent_trustee shall be made in the following order of preference a by the then acting family trustee of the trust or if there is none b by the person then having the right under sec_4 of the trust agreement to fill a vacancy in the office of family trustee with respect to the affected trust or if there is no person then having the right c by the then beneficiary or beneficiaries as that term is used in sec_4 of the trust agreement of the trust acting by majority vote if there be more than one each beneficiary being entitled to one vote the vote to be case by written ballot signed by the beneficiary and for these purposes if a beneficiary is not then sui juris his or her parent spouse or legally appointed guardian in that order of preference shall take such action in his or her place and stead unless the appointment is made by the plr-162065-02 original family trustee the successor independent_trustee shall not be an individual but must be a bank or trust company furthermore upon the death or incapacity of the original family trustee if the then acting independent_trustee is an individual he or she shall resign sec_4 of the trust agreement provides that in the event of any vacancy at any time s occurring in the office of family trustee with respect to any trust under the trust agreement whether caused by resignation removal incapacity death or otherwise the person then and subsequently at any specific point in time involved having the right under sec_4 of the trust agreement to remove a family trustee of the trust may at any subsequent time select and appoint an individual who is sui juris and who is at least twenty-five years of age including the person making the appointment to fill the vacancy in the absence of or until an appointment is made the independent_trustee of the trust shall act alone as the sole trustee of the trust whenever under the provisions of the instrument one or more separate trusts are created out of the assets of a then existing trust the then acting trustee s of the existing trust shall automatically be the initial trustee s of the new separate trust s child died on date according to a power_of_appointment exercised by child on date the net assets contained in trust remained in trust for the benefit of child 1's spouse child 1's spouse died on date on the death of child 1's spouse trust terminated and the assets were transferred one-half to trust and one-half to trust as directed in sec_1 of trust agreement the trustees represent that additions were made to trust and trust after date pursuant to the terms of a separate trust agreement dated date the date trust agreement requires that undistributed_net_income from trust and trust be distributed to certain trusts at the end of each income_tax year including trust and trust the trustees represent that trust and trust were irrevocable prior to date and are exempt from the generation-skipping_transfer_tax pursuant to sec_26_2601-1 on date family x and family y entered into a participation_agreement and later filed the articles of association for trust company a limited banking association in state as part of that agreement the initial participants adopted bylaws to provide for the orderly management of trust company trust company was formed to provide specialized services to individuals and families facing the same challenges in trust management as family x and family y the bylaws and participation_agreement were amended and restated on date additional modifications have been proposed that are the subject of this private_letter_ruling request excerpts from the bylaws and participation_agreement in this letter reflect the date modifications and the proposed modifications trust company initially had two classes of shares class a and class b each of which represent fifty percent of the total voting power of all trust company’s outstanding shares family x owns all of the class a shares and family y owns all of plr-162065-02 the class b shares the class a shares were initially issued to and are still held by two trusts not the subject of this letter_ruling whose grantor and beneficiaries are members_of_family x and whose trustees are unrelated to members_of_family y the class b shares were initially issued to a voting_trust of which eleven trusts for the benefit of the members_of_family y are the beneficial owners grantor is a member of family x on date the articles of association of trust company were amended to authorize the issuance of shares of class e stock the class e stock will have no voting rights except as set forth in sec_4 b of the bylaws and participation_agreement relating to the authorization of additional class e shares and the amendment of the restrictions on transfer of ownership of the class e shares under the amendment class a shares may only be transferred to class a permitted transferees class b shares may only be transferred to class b permitted transferees and class e shares may only be transferred with the approval the holders of more than sixty-five percent of the issued and outstanding class e shares section of the bylaws and participation_agreement of trust company provides in part that there shall initially be nine directors of trust company the board_of directors may expand the number of director positions notwithstanding the foregoing trust company shall not have less than five or more than fifteen directors section a of the bylaws and participation_agreement of trust company provides that no officer or director of trust company shall participate in a decision of trust company nor be present during any board or committee discussion of or vote on such a decision involving the exercise of any discretionary power other than investment powers with respect to any trust of which trust company is a trustee if the officer director or spouse of the officer or director is a grantor or donor to the trust a current or contingent beneficiary of the trust or a descendant or spouse or former spouse of a descendant of either patriarch x or patriarch y section a however shall apply only to a_trust a current or contingent beneficiary of which is a descendant or a spouse or former spouse of a descendant of either patriarch x or patriarch y section b provides that no officer or director of trust company shall participate in a decision of trust company nor be present during any board or committee discussion of or vote on such a decision involving the exercise of any incidents_of_ownership of any life_insurance_policy insuring the life of the officer or director section dollar_figure further provides that a director that is subject_to the restrictions of section dollar_figure with respect to a decision of trust company although absent from at least that part of the meeting shall be deemed present for the purpose of determining whether a quorum is present for that part of the meeting plr-162065-02 section dollar_figure of the bylaws and participation_agreement provides that an independent director is a director who is neither an employee of trust company nor with respect to a particular trust of which trust company is a trustee related or subordinate within the meaning of sec_672 to any individual described in section a or the board_of directors and the participants shall take all necessary actions to cause there to be in office at all times at least one director who is not precluded under section dollar_figure or section dollar_figure from participating in the making of any decisions of trust company described in section section dollar_figure of the bylaws and participation_agreement provides that subject_to the requirements of applicable law and to enable directors to comply when advisable with taxation laws restrictions on self-dealing or other matters a director is authorized to renounce either revocably or irrevocably for any period of time by an instrument in writing delivered to and accepted by trust company his or her right and power to participate in the making of any trust company decision involving the exercise of any discretionary power other than investment or administrative_powers not affecting any beneficiary’s beneficial_enjoyment with respect to any trust of which trust company is a trustee the current trustees propose to modify trust agreement to update each trust’s administrative provisions and to revise each trust’s trustee requirements trustee selection and trustee succession provisions to better provide for the long-term management of the trusts some of the modifications to the trusts redesignate substantive provisions from one article to another in order to provide uniformity in the structure of the family x trusts in addition to the proposed modifications the current trustees intend to appoint trust company to serve as an independent_trustee the modified trust will incorporate comprehensive technical provisions that govern all aspects of the administration of the trusts created under the trust agreement sec_1 of the trust agreement will provide that at least annually during the remainder of the primary beneficiary’s lifetime the trustee s shall distribute to or for the direct benefit of the primary beneficiary a all of the trust’s net_income and in addition b any part or all of the trust’s principal as may in the sole and uncontrolled discretion of the independent_trustee s be necessary and proper for any purpose that the trustee s deem to be in the primary beneficiary’s best interests sec_1 of the trust agreement will provide that the primary beneficiary shall have the power to appoint any part or all of that trust’s assets effective at any time during the affected trust’s existence to or for the benefit of any person s whether or not then in being but the power shall not be used to benefit the primary beneficiary the primary beneficiary’s estate or the creditors of either sec_1 of the trust agreement will provide for the distribution of the assets of each trust on the death of the primary beneficiary in the event that the primary plr-162065-02 beneficiary has not directed otherwise by exercise of power_of_appointment under sec_1 of the trust agreement sec_1 a will provide that the primary beneficiary has the power by a provision in his or her will to appoint any part or all of that trust’s assets effective upon his or her death to or in trust for any person s but the power shall not be used to benefit the primary beneficiary the primary beneficiary’s estate or the creditors of either sec_1 b of the trust agreement will provide that all unappointed trust assets shall be divided per stirpes among the then living lineal_descendants of the primary beneficiary or if none grantor the share of each descendant shall be added to the trust for the primary benefit of the descendant under the agreement or constitute the principal of a separate trust of which the descendant shall be the primary beneficiary sec_1 of the trust agreement will provide that if no family_member is then living that is no descendant designated in sec_1 the trustees shall instead distribute the assets one-half to the heirs of patriarch x and one-half to the heirs of grantor all as set forth in the technical provisions sec_3_1 of the trust agreement will provide that any one or more of the three trustee offices may either be occupied or left vacant provided that at least one of the two independent_trustee offices must at all times be occupied sec_3_1 will provide that two of the trustee positions are independent_trustee offices one may be occupied by an individual and the second may be occupied by a properly qualified_individual or bank or trust company appointed by the family trustee sec_3_1 will provide that the third trustee position will be the family trustee office sec_3_2 of the trust agreement will provide that the family trustee may remove the corporate independent_trustee for the reasons set forth in sec_3_2 of the trust technical provisions the individual independent_trustee may remove the corporate independent_trustee with or without cause sec_3_2 of the trust technical provisions will describe the circumstances in which the family trustee may remove the corporate independent_trustee sec_3_2 will provide that the removal power may not be exercised in a manner contrary to the specific restrictions on fiduciary actions listed in sec_4 a of the trust technical provisions sec_3_2 of the trust technical provisions will provide that the notice of removal will set forth the reason s for the removal of the corporate independent_trustee the reasons need not be such as to justify judicial removal and include the following i the family trustee believes the expense of administering the trust can be reduced or its investment needs can be better served by a trustee change ii a personality conflict or difference of opinion as to the investment philosophy to be followed by the trust has arisen with the trustee or the trust officer assigned iii the trustee’s reports are not responsive to the needs of the family trustee iv the trust plr-162065-02 would be more conveniently administered in another location or v the trustee’s services are being adversely affected by ineffectiveness unavailability trust officer turnover or inexperience sec_3_2 of the trust agreement will provide that the family trustee may remove the then acting individual independent_trustee for the reasons set forth in sec_3_2 of the trust technical provisions sec_3_2 of the trust technical provisions will describe the circumstances in which the family trustee may remove the individual independent_trustee sec_3_2 will provide that the power may not be exercised in a manner contrary to the specific restrictions on fiduciary actions listed in sec_4 a of the trust technical provisions sec_3_2 will provide that the notice of removal will set forth the reason s for removal that must meet the criteria and in general be similar to those described in sec_3_2 except for sub- sec_3_2 in addition sec_3_2 will provide that the individual independent_trustee may be removed if the trustee’s services are being adversely affected by age health ineffectiveness unavailability or inexperience sec_3_2 of the trust agreement will provide that the right to remove the family trustee of each trust with or without cause is held by the top control list person s who shall be the first in order and is eligible to act sec_3_2 will provide that first level of the control list includes child or his designees for any period of time following child 2's death or incapacity during which child measuring life or any designee s of measuring life would be the top control list person or persons of any particular trust but for the appointment of such designees by child such designees appointed by child shall be deemed to have relinquished such top control list_position sec_3_2 will provide that the second level of the control list includes child as to the trust with respect to which she is the primary beneficiary sec_3_2 will provide that the third level of the control list includes the most senior generation descendant of grantor if any who is an ancestor of the primary beneficiary or the ancestor’s designees sec_3_2 will provide that the fourth level of the control list includes the primary beneficiary or that individual’s designees sec_3_2 will provide that the fifth level of the control list includes the primary beneficiary’s descendant s of the most senior generation having an eligible descendant or the descendant’s or descendants’ designees sec_3_2 will provide that the last level of the control list includes the most senior generation descendant s of the closest ancestor of any of that trust’s primary beneficiary who has an eligible descendant provided that each most senior generation descendant is a descendant of grantor or the descendant’s or descendants’ designees an individual is eligible to act as a family trustee control list person if he or she is not incapacitated and at least twenty-five years old or at least twenty-one years old if he or she is one of the most senior generation descendants of a particular individual when two or more persons occupy a place on a control list their removal appointment and other actions must be by a majority of them sec_3_2 of the trust technical provisions will provide that when only two people hold a right or power with respect to a_trust the two must act together unanimously plr-162065-02 sec_3_3 of the trust agreement will provide that whenever a vacancy exists in the office of family trustee for any trust created under the trust instrument the control list person s then having and while continuing to have the right to remove the family trustee of that trust may at any time select and appoint an individual age twenty-five or older even the appointor himself or herself to fill the vacancy that until thus filled shall remain vacant sec_3_3 of the trust agreement will provide that when child is the top control list person however notwithstanding the provisions that generally apply to top control list persons the sole individual child may appoint as family trustee in the event of a vacancy in office exists shall be person person 1's sole powers as family trustee shall be to remove any corporate independent_trustee to select and appoint a qualified_successor independent_trustee and to expend trust funds in order to evaluate any corporate independent trustee’s investment management performance sec_3_3 will provide that in the event that child becomes the top control list person of a_trust under the agreement that at that time owns participant shares of trust company the trustee s shall distribute the shares equally to trust y and trust z sec_3_3 of the trust agreement will provide that whenever a vacancy exists in i the office of the sole remaining independent_trustee of any trust or ii one of the two independent_trustee offices if the office is required to be kept filled under the provisions of sec_3_5 the office shall be promptly filled by a qualified_successor to that office or to either office if there is not stipulation then in effect under sec_3_5 the successor independent_trustee shall be selected and appointed by the family trustee of the trust if the vacancy is not filled within thirty days or if there is no family trustee when the vacancy occurs the successor independent_trustee shall be selected and appointed by the top control list person s for the trust if the vacancy is not filled within thirty days of when the top control list person or all of those persons first becomes aware that the vacancy had not been or could not be filled the successor shall be selected and appointed by the representative beneficiary or the representative beneficiaries of the trust if the vacancy is not filled within sixty days of when the representative beneficiary or all of them first becomes aware that the vacancy had not been filled the successor shall be selected and appointed by the court having jurisdiction over the trust sec_3_3 of the trust agreement will provide that whenever a_trust has only one independent_trustee then acting and its other independent_trustee office is not then required to be kept filled or left vacant under sec_3_5 that trust’s then family trustee may at any time appoint a second independent_trustee meeting the qualifications of the vacant office until such appointment is made or until the circumstances change the other independent_trustee office shall remain vacant sec_3_4 of the trust agreement will provide that a corporate independent_trustee must be an independent bank or trust company as described in sec_3_4 of the trust technical provisions sec_3_4 of the trust technical provisions will plr-162065-02 provide that to be eligible to serve as an independent_trustee of a specific trust under the trust agreement a bank or trust company must have certain corporate independent_trustee qualifications sec_3_4 of the trust technical provisions will provide that an independent_trustee position not filled by an individual must be filled by a bank or trust company with respect to which no donor to or current or contingent beneficiary of that trust personally holds voting rights regardless of whether the rights are held in an individual or a fiduciary capacity or both that when aggregated with any voting rights held by that trust are more than fifty percent of the total voting rights relating to the control of the bank or trust company sec_3_4 of the trust technical provisions will provide that the bank or trust company must maintain and enforce firewall rules prohibiting any individual who is connected to the bank or trust company including an officer director employee or one percent shareholder as defined in the document from participating in a decision of the bank or trust company involving the exercise of either a any incidents_of_ownership with respect to any insurance on the life of such individual whether owned by the bank or trust company or owned by any trust as to which the bank or trust company is acting as an independent_trustee and or b any discretionary power other than investment or administrative_powers not affecting any current or contingent beneficiary’s enjoyment of that trust the effect of which would be to make or withhold any distribution from or to grant or withhold permission to enjoy any asset of that trust in favor of i any individual if the connected individual is a living donor or an individual related to a living donor or ii a current or contingent beneficiary or any individual whom the beneficiary is then under an obligation to support if the connected individual is the beneficiary or an individual related to the beneficiary but the paragraph b restriction shall not apply to any individual who would be eligible to serve as an individual independent_trustee of that trust under paragraph b of sec_3_4 substituting for this purpose one percent for fifty percent in subparagraph b of sec_3_4 sec_3_4 of the trust technical provisions will provide that a one percent shareholder shall mean any individual who holds voting rights whether the rights are held in an individual or a fiduciary capacity or both that when aggregated with the voting rights of any trust of which the individual is a donor or a current or contingent beneficiary represent more than one percent of the voting rights of all of the then issued and outstanding shares of the bank or trust company sec_3_4 of the trust technical provisions will provide that an individual shall be considered to be related to a living donor or current or contingent beneficiary if related in any of the following classifications spouse ancestor lineal descendant brother or sister sec_3_4 of the trust agreement will provide that each individual independent_trustee shall be an independent and experienced individual who is not plr-162065-02 related to nor employed by any trust donor or beneficiary as described in sec_3_4 of the trust technical provisions sec_3_4 of the trust technical provisions will provide that to be eligible to serve as an independent_trustee of a specific trust under the trust agreement an individual must have certain individual independent_trustee qualifications sec_3_4 will provide the individual may not be either a a donor to or a current or contingent beneficiary of the trust nor related to a donor or beneficiary who is then living in any of the following classifications spouse ancestor lineal descendant brother or sister or b an employee of a donor to or current or contingent beneficiary of the trust or of any corporation firm or partnership i in which a donor or beneficiary is an executive or ii with respect to which a donor or beneficiary personally holds voting rights regardless of whether the rights are held in an individual or a fiduciary capacity or both that when aggregated with any voting rights held by that trust are more than fifty percent of the total voting rights relating to the control of the corporation firm or partnership sec_3_5 of the trust agreement will provide that the top control list person s for any present or future trust under the agreement may by stipulation require that under certain circumstances a the office of either individual or corporate independent_trustee for the trust shall while circumstances continue be kept filled and b the other independent_trustee office shall be i kept filled ii left vacant or iii be filled or left vacant as the family trustee may from time to time determine in the case of any trust for the benefit of child or any members of his family however the corporate trustee office must be kept filled after child 2's incapacity or death unless an individual nominated by child serves as the individual independent_trustee of the affected trust during any period of time in which child is the top control list person with respect to any trust under the trust agreement the corporate trustee office must be kept filled and the office of individual independent_trustee will be kept vacant sec_4 a of the trust technical provisions will provide that all trustees at any time acting with respect to any trust under the trust agreement when exercising their powers and discretions as trustees shall act as fiduciaries and not as the holders of powers for their own benefit specifically sec_4 a provides that any power that any trustee of any trust s established under trust agreement may have to remove any trustee s shall be exercisable in accordance with the terms and procedures set forth regarding removal furthermore unless a trustee removal power is expressly referred to or described either a as an absolute right and power that the powerholder may exercise to remove a trustee from office that is exercisable by the powerholder with or without cause or b as a power that is not held or not intended to be held in a fiduciary capacity all trustee removal rights shall be exercisable only in furtherance of trust purposes and not as a means of obtaining the personal goals of the powerholder or a_trust beneficiary by influencing through trustee removal the manner in which discretions granted exclusively to the trustee s subject_to removal are to be exercised sec_4 a b will provide a procedure for a removed trustee to obtain judicial review regarding whether a decision to remove a trustee was in furtherance of trust purposes or intended to achieve personal goals plr-162065-02 sec_5 b of the trust technical provisions will provide that all other provisions of the agreement to the contrary notwithstanding trust and trust unless earlier terminated shall terminate on the rule_against_perpetuities required termination_date applicable to that trust the required termination_date on which these trusts shall terminate shall be the day prior to the expiration of twenty-one years after the death of the last survivor of a group of individuals composed of the lineal_descendants of patriarch x trustee and trustee 2's lineal_descendants who were living on date namely child child child measuring life measuring life measuring life measuring life trustee measuring life measuring life and measuring life on date probate_court in state issued an order affecting the trusts that are the subject of this private_letter_ruling the order approves an interim trustee succession plan proposed by the trustees and agreed to by the adult beneficiaries of the various trusts and a guardian ad litem representing the minor and unborn beneficiaries the agreement signed by the parties defines a_trust restructuring period that begins on date the trust restructuring period ends when the internal_revenue_service issues a private_letter_ruling and probate_court issues a final order approving the trust restructuring plan with respect to trust the date probate_court order provides that during the trust restructuring period the requirement that a currently acting individual trustee must resign in favor of a bank or trust company upon the death of child is suspended in addition the order creates an additional independent_trustee office and appoints trustee to fill the office if a vacancy occurs in a co-independent trustee office during the trust restructuring period the vacancy shall be filled by a qualified_individual or left vacant in the discretion of the person s who hold the power to appoint a successor independent_trustee under the applicable_section of the original trust agreement with respect to trust the date probate_court order provides that during the trust restructuring period the requirement that a currently acting individual trustee must resign in favor of a bank or trust company upon the death of child is suspended if a vacancy occurs in a co-independent trustee office during the trust restructuring period the vacancy shall be filled by a qualified_individual or left vacant in the discretion of the person s who hold the power to appoint a successor independent_trustee under the applicable_section of the original trust agreement the trustees have requested the following rulings the implementation of the proposed trust restructuring plan will not cause the value of the assets of the trusts created under trust agreement to be included in the gross_estate of any beneficiary under sec_2041 and the implementation of the proposed trust restructuring plan will not affect the status of any of the trusts created under trust agreement as exempt from the generation-skipping_transfer_tax ruling plr-162065-02 sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 to inclusive for purposes of sec_2041 the power_of_appointment shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject_to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent’s estate the decedent’s creditors or the creditors of the decedent’s estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_20_2041-1 provides in part that a power in a donee to remove or discharge a trustee and appoint himself may be a power_of_appointment for example if under the terms of the instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has not power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment revrul_95_58 1995_2_cb_191 holds that a decedent grantor’s reservation of an unqualified power to remove a trustee and appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee’s discretionary powers of distribution over the property transferred by the decedent grantor to the trust accordingly the trust corpus was not included in the decedent’s gross_estate under sec_2036 or sec_2038 the ruling notes that the eighth circuit in 973_f2d_1409 8th cir concluded that the decedent had not retained dominion and control_over assets transferred to a_trust by reason of his power to remove and replace the trustee with a party that was not related or subordinate to the decedent accordingly the court held that under sec_25_2511-2 the decedent made a completed_gift when he created the trust and transferred assets to it plr-162065-02 sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor’s spouse if living with the grantor or any one of the following the grantor’s father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in the present case only the independent_trustee s possess the power to make discretionary distributions from trust and trust sec_3_2 of the trust agreement and technical provisions governing both trusts will authorize the removal of the independent_trustee s by either the family trustee that may include a beneficiary of the trusts or the other independent_trustee that may include trust company sec_3_3 of the trust agreement and technical provisions will describe how vacant trustee positions will be filled sec_3_3 of the trust agreement will provide that if a vacancy occurs in an independent_trustee office and that office is required to be filled under sec_3_5 the appointment of a successor trustee will be made in order of preference by the family trustee the top control list person the representative beneficiary or a court having jurisdiction over the trust sec_3_3 of the trust agreement will provide that if a vacancy in an independent_trustee office is not required to be filled under sec_3_5 the family trustee may fill the vacancy or allow the office to remain vacant in either case the person or corporation filling the independent_trustee office must fill the requirements of the office as described in sec_3_4 of the trust technical provisions sec_3_4 of the trust technical provisions will preclude a current or contingent beneficiary of a_trust from serving as the individual independent_trustee in addition sec_3_4 of the trust technical provisions will preclude any current or contingent beneficiary of a_trust from participating in discretionary distribution decisions if they are connected to a bank or trust company serving as the corporate independent_trustee sec_3_4 and sec_3_4 of the trust technical provisions will further preclude any individual related to a beneficiary as spouse ancestor lineal descendant brother sister or employee from serving as the individual independent_trustee of a_trust in addition these sections preclude these individuals from participating in discretionary distribution decisions if they are connected to a bank or trust company serving as the corporate independent_trustee sec_3_4 will provide that no employee of any corporation firm or partnership in which a beneficiary is an executive or with respect to which a beneficiary personally holds voting rights regardless of whether the rights are held in an individual or a fiduciary capacity or both that when aggregated with any voting rights held by that trust are more than fifty percent of the total voting rights relating to the control of the corporation firm or partnership may serve as the individual independent_trustee sec_3_4 requires that the corporate independent_trustee be a bank or trust company in which no current or contingent beneficiary of the trust personally holds voting rights that when aggregated with any voting rights held by that trust are more plr-162065-02 than fifty percent of the total voting rights relating to the control of the bank or trust company sec_3_4 will also include a firewall provision precluding anyone connected to the bank from participating in discretionary distribution decisions in favor of a current or contingent beneficiary or any individual whom the beneficiary is then under an obligation to support if the connected individual is or is related to the beneficiary unless the connected individual meets the requirements of an individual independent_trustee and is not an employee of any corporation firm or partnership in which a beneficiary personally holds voting rights regardless of whether the rights are held in an individual or a fiduciary capacity or both that when aggregated with any voting rights held by the trust are more than one percent of the total voting rights relating to the control of the corporation firm or partnership the provisions described above thus prohibit any individual beneficiary from participating directly or indirectly in discretionary distribution decisions in addition the provisions preclude anyone closely related to a current or contingent beneficiary from participating in discretionary distribution decisions furthermore under the trust company bylaws and participation_agreement the beneficiaries and other family members are all eligible to participate as a director of trust company however section dollar_figure expressly prohibits any officer or director from participating in a decision of trust company involving the exercise of a discretionary power other than investment powers of any trust of which the officer director or spouse of the officer or director is a current or contingent beneficiary of the trust in addition family members are prohibited from participating in trust company decisions relating to discretionary distributions from trusts where the current or contingent beneficiary of the trust or his or her spouse is a descendant of either patriarch x or patriarch y therefore the beneficiaries of the trusts created under trust agreement are sufficiently prohibited from participating in decisions regarding discretionary distributions from their own trusts in addition the structure of the bylaws prohibits the beneficiaries of the family x and family y trusts from participating in trust company’s exercise of discretion to make distributions from any of either family’s trusts preventing the possibility of outside reciprocal agreements that may indirectly give members_of_family x effective_control over the discretionary distributions from trust and trust the combination of firewall provisions in the revised trust agreement trust technical provisions and the trust company bylaws preclude a beneficiary from having the power to affect the beneficial_enjoyment of the trust property as contemplated by sec_2041 no beneficiary therefore will be considered as having the powers of the trustee under sec_20_2041-1 solely as a result of possessing directly or indirectly the power to remove and or replace either independent_trustee under trust agreement in addition although beneficiaries may be shareholders in and participate in the daily activities of trust company they are precluded from participating in discretionary distribution decisions made by trust company with respect to trusts created under trust agreement accordingly based on the facts submitted and the representations made we conclude that the implementation of the proposed trust restructuring plan including the appointment of trust company as trustee of the trusts plr-162065-02 and trust company’s future exercise of discretionary powers over distributions to the beneficiaries of the trusts will not result in the inclusion of any portion of the trusts in the estate of a beneficiary under sec_2041 ruling sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 defines the term generation-skipping_transfer to include a taxable_distribution taxable_termination and a direct_skip under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax provisions do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date but only to the extent that the transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date is considered an irrevocable_trust except as provided in sec_26_2601-1 or c that relate to property includible in a grantor’s gross_estate under sec_2038 and sec_2042 the trusts created under trust agreement are generation-skipping_transfer trusts because they provide for distributions to one or more generations of beneficiaries below the grantor’s generation date is prior to date and trust and trust were irrevocable on date in the present case the trusts created under trust agreement are considered to have been irrevocable on date because neither sec_2038 nor sec_2042 applies trust and trust therefore are exempt from the generation-skipping_transfer_tax pursuant to sec_26_2601-1 the trustees represent that the only additions made to trust and trust after date were income distributions from trust and trust as required under the date trust agreement governing trust and trust sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status the rules contained in sec_26_2601-1 are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 plr-162065-02 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided in the original trust furthermore a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered a shift in a beneficial_interest in a_trust sec_26_2601-1 provides that any addition to a_trust made pursuant to an instrument or arrangement covered by the transition_rules in paragraph b or of this section is not treated as an addition for purposes of this section in this case the trustees represent that trust and trust are exempt from the generation-skipping_transfer_tax under the effective date provision in sec_26_2601-1 therefore under sec_26_2601-1 the income distributions from trust and trust do not constitute constructive additions to trust or trust with respect to trust and trust the proposed modifications do not shift a beneficial_interest in any trust to a beneficiary who occupies a lower generation than the person s who held the beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided in the original trust we therefore conclude that the proposed modifications will not affect the status of either trust or trust as exempt from the generation-skipping_transfer_tax except as expressly provided herein no opinion is expressed or implied concerning the federal 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 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent your attorney plr-162065-02 this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely james f hogan acting branch chief branch office of associate chief_counsel passthroughs and special industries enclosure copy of this letter 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 ---------------------- id no ----------------- telephone number ---- refer reply to cc psi plr-130068-11 date date grantor grantor trustee trust trust trust trust date date date date date year year year merger agreement court state state state statute beneficiaries individually beneficiary ------------------------ -------------------------- --------------------------------------- ----------------------------------------------------------- ---------------------------------------------------------------------------------------- ------------------------------------------- -------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- --------------------------- ----------------- --------------------- --------------------------- -------------------------- ------------------ ------- ------- ------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ----------------- ---------------------------------------------------------------------------------------- --------------------------------------------- -------- ------------- ---------------------------------------- ---------------------------------------------------------------------------------------- ------------------------------------ plr-130068-11 daughter ------------------------------- dear -------------- this responds to your letter dated date and subsequent correspondence requesting rulings regarding the generation-skipping_transfer gst income and gift_tax consequences of a proposed merger of trust trust trust and trust the facts submitted and representations made are as follows grantor and grantor are husband and wife beneficiaries are the grandchildren of grantors on date grantor created a revocable_trust trust for the benefit of grantor 1’s and grantor 2’s daughter daughter and her issue in year grantor died at which time trust became irrevocable on date grantor created a revocable_trust trust for the benefit of daughter and her issue thereafter grantor created two additional trusts trust on date and trust on date trust and trust are for the benefit of beneficiaries in year grantor died at which time trust became irrevocable daughter died in year survived by four children beneficiaries date date date date year and year are all dates prior to date under the terms of each of the four trust instruments four separate subtrusts were created one for the benefit of each of daughter’s four children thus a total of subtrusts were created four for each child each trust is governed by the laws of state under the terms of each trust trustee currently must distribute all of the income to beneficiaries during their lifetime no principal may be distributed to any beneficiary while the distribution provisions of the trusts are the same the ultimate period for vesting and termination of the trusts itself differs the parties propose certain modifications to trust trust trust and trust as set forth in an agreement merger agreement the parties propose to merge the sixteen trusts into four trusts one for each respective beneficiary paragraph of merger agreement provides that on its effective date trust trust and trust shall merge into trust to be known as surviving trust merger agreement provides that trustee has determined the fair_market_value of all trusts as well as the fractional portion of each surviving trust attributable to the original trusts merger agreement provides for the same mandatory income distribution to all beneficiaries as set forth in the original trusts and upon the death of a beneficiary the fractional portions of surviving trust will be interpreted construed and administered by reference to the original trust documents merger agreement also provides that although all plr-130068-11 beneficiaries currently have living descendants in the event any beneficiary dies without living descendants the fractional portions of surviving trust shall be interpreted construed and administered by reference to the original trust documents with respect to the termination provisions and the vesting of assets in beneficiaries merger agreement also provides that the fractional portions of surviving trust shall be interpreted construed and administered by reference to the original trust documents the parties also propose to change the situs of each trust to state with respect to questions concerning the administration of the trusts the laws of state will continue to apply with respect to questions of validity including whether and when a_trust terminates pursuant to their terms state statute provides that after notice to the qualified beneficiaries a trustee may combine two or more trusts into a single trust or divide a_trust into two or more separate trusts if the result does not impair the rights of any beneficiary or adversely affect achievement of the purposes of the trust on date court issued an order approving the above modifications to trust trust trust and trust subject_to the issuance of a favorable private_letter_ruling from the internal_revenue_service that the proposed modifications would not impact the gst exempt nature of the trusts you represent that no additions have been made to trust trust trust or trust after date requested ruling sec_1 the modification of trust trust trust and trust so that the laws of state apply to such trusts with respect to questions of administration will not impact the gst exempt nature of such trusts the merger of certain trusts within trust trust trust and trust will not impact the gst exempt nature of such trusts no gain_or_loss will be recognized for federal_income_tax purposes under sec_1001 by the trusts or by any of the beneficiaries of the trusts as a result of the proposed merger of certain trusts within trust trust trust and trust the assets of the merged trusts under the proposed merger will have the same basis under sec_1015 and the same holding_period under sec_1223 before and after the proposed merger and the proposed merger will not constitute a taxable gift by any person under sec_2501 plr-130068-11 generation-skipping_transfer_tax issue -- rulings no and sec_2601 imposes a tax on every gst which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip section b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the gst tax shall not apply to any gst under a_trust that was irrevocable on date but only to the extent that such transfer was not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in settlor’s gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status in general unless specifically provided otherwise these rules are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26 b i d provides that a modification will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in a beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer furthermore a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered a shift in a beneficial_interest in a_trust sec_26_2601-1 example considers a situation where in grantor established an irrevocable_trust trust for the benefit of grantor’s child a and a’s issue in grantor’s spouse also established a separate irrevocable_trust for the benefit of the same child and issue the terms of the spouse’s trust and grantor’s plr-130068-11 trust are identical in the appropriate local court approved the merger of the two trusts into one trust to save administrative costs and enhance the management of the investments the merger of the two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the merger in addition the merger does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust that resulted from the merger will not be subject_to the provisions of chapter in the present case trust trust trust and trust were irrevocable on date you have represented that no additions actual or constructive have been made to any of the trusts after that date accordingly pursuant to b a of the act and sec_26_2601-1 the trusts are not subject_to the gst tax the proposed merger pursuant to merger agreement is similar to example in sec_26_2601-1 state statute permits a trustee to merge the assets of the trust into a single trust estate after giving notice to the qualified beneficiaries and provided that the result does not impair the rights of any beneficiary or adversely affect achievement of the purposes of the trust although the vesting periods and termination dates of trust trust trust and trust differ merger agreement contains provisions to ensure that surviving trust does not extend the time for vesting of any beneficial_interest in the trusts and further provides that each trust will terminate on the same date on which each trust would have terminated prior to the proposed merger court has approved the proposed merger agreement under these circumstances the proposed merger will not shift a beneficial_interest to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the proposed merger will not extend the time for vesting of any beneficial_interest in the trusts beyond the period provided for in the original trusts finally the proposed modification to provide that the laws of state apply with respect to questions of administration is administrative in nature see sec_26_2601-1 example accordingly based on the facts submitted and the representations made we conclude that the proposed merger of trust trust trust and trust pursuant to merger agreement will not affect the grandfathered status of these trusts and will not cause any distributions from surviving trust or distributions upon termination to become subject_to gst tax provided there are no post-merger additions to surviving trust the proposed modification that the laws of state apply to such trusts with respect to questions of administration will not affect the gst exempt nature of such trusts plr-130068-11 income_tax issues - rulings no and sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 over the amount_realized sec_1001 defines the amount_realized from the sale or disposition of property as the sum of any money received plus the fair_market_value of any property received sec_1001 provides that except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides as a general_rule that except as otherwise provided in subtitle a the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained an exchange of property results in the realization of gain under sec_1001 if the properties exchanged are materially different 499_us_554 there is a material difference when the exchanged properties embody legal entitlements different in_kind or extent or if they confer different rights and powers id pincite sec_1015 provides that the basis in property acquired by a transfer in trust is the same as it would be in the hands of the grantor with adjustments for gain and loss sec_1223 provides that in determining the period for which a taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under chapter of the code such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person in the present case there will be no sale_or_exchange because there will be no transfer of money or property the beneficiaries will possess the same interests before and after the merger of the trusts into surviving trust the proposed transaction is merely a merging of the assets for administrative convenience accordingly neither the trusts nor their beneficiaries will recognize gain_or_loss under sec_1001 as a result of the proposed merger plr-130068-11 based on the facts submitted and the representations made we conclude that the assets of the merged trusts will have the same basis under sec_1015 and the same holding periods under sec_1223 before and after the proposed merger gift_tax issue - ruling no sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar_year sec_25_2511-1 of the gift_tax regulations 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 based on the facts submitted and the representations made we conclude that the beneficial interests of the trust beneficiaries will not change as a result of the proposed merger of the trusts as described above accordingly we conclude that the proposed merger pursuant to merger agreement as described above will not cause any beneficiary to be considered as having made a taxable gift and will not constitute a taxable gift to any beneficiary under sec_2501 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the code are in effect during the period at issue this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-130068-11 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil contact person identification_number telephone number employer_identification_number legend llc e o - investment_advisor dear l t u o h this is in response to your letter dated date in which you requested certain rulings with respect to sec_512 sec_4943 and sec_4944 background you are an exempt_organization described in sec_501 and classified as a private_foundation under sec_509 llc is a manager-managed llc under the laws of state and is treated as a partnership for federal tax purposes llc’s sole activity is the operation of an investment hedge fund llc has three classes of membership interests - class a class b and class c llc uses its funds for the sale purchase and trading of financial instruments traded on public financial markets including stocks stock indices exchanged-traded funds real_estate_investment_trusts mutual funds bonds currencies and derivatives of these instruments you represent that at least ninety-five percent of llc’s income is derived from passive sources as that term is defined in sec_4943 llc is managed solely by an investment_advisor investment_advisor a for-profit limited_liability_company manages the investments for llc and another unrelated company the class b membership interest in llc is owned solely by donor class b membership interests represent ten percent of the income_interest of llc the income for class b interests is paid out on a monthly basis if the class b interest_income is not claimed each month it is attributed to the class a membership interests you represent that your holdings in llc and llc’s holdings in investment_property will not constitute debt-financed_property giving rise to unrelated_debt-financed_income under sec_512 and sec_514 and that all of your income from llc will be from passive sources of one or more types excepted under sec_512 from unrelated_business_taxable_income you also represent that the holdings of llc in business enterprises that are attributed to you and to any disquaiified person owners of llc along with any other holdings of you and of disqualified persons in such business enterprises will be permitted holdings under sec_4943 donor proposes to contribute all of her class b membership interest in llc to you so that you may use the proceeds to further your charitable purpose rulings requested the investment activities conducted by llc will not generate unrelated_business_taxable_income for you with respect to your class a membership interest and the proposed gift to you of the class b membership interest your ownership of class a membership interest in llc and or your proposed ownership of a class b interest in llc will not cause you to be liable for an excess business holding excise_tax under sec_4943 your acceptance of the proposed gift of a class b membership interest in llc from donor will not constitute a jeopardizing investment under sec_4944 law sec_512 provides that the term unrelated_business_taxable_income means the gross_income derived by an organization from an unrelated_trade_or_business as defined in sec_513 regularly carried on by it less the deductions allowed for expenses directly connected with the carrying on of such trade_or_business sec_512 outlines several modifications that remove certain types of income from being included in unrelated_business_income the types of income excluded from unrelated taxable_income include dividends interest payments annuities royalties rents and the gains and losses from the sale exchange or other_disposition of property other than inventory or property_held_primarily_for_sale to customers sec_513 defines unrelated_trade_or_business any trade_or_business the conduct of which is not substantially related aside from the need for income or funds or the use it makes of the profits derived to the exercise of performance by such organization of its charitable educational or other purpose constituting the basis for its exemption under sec_501 sec_4943 imposes a ten percent excise_tax on the excess_business_holdings of any private_foundation in a business_enterprise sec_4943 defines excess_business_holdings as the amount of stock or other interest in the enterprise which the foundation would have to dispose_of to a person other than a disqualified_person in order for the remaining holdings of the foundation in such enterprise to be permitted holdings il r c sec_4943 defines permitted holdings as twenty percent of the voting_stock of any corporation reduced by the percentage of stock owned by all disqualified persons sec_4943 provides that for interest in any partnership or joint_venture the word profit interest should be substituted for the word voting_stock in the definition of permitted holdings ilr c sec_4943 states that in computing the holdings of a private_foundation or a disqualified_person as defined in sec_4946 with respect thereto in any business_enterprise any stock or other interest owned directly or indirectly by or for a corporation partnership estate_or_trust shall be considered as being owned proportionately by or for its shareholders partners or beneficiaries sec_4943 stipulates that business_enterprise does not include a trade_or_business where at least ninety-five percent of the gross_income is derived from passive sources for purposes of this section passive_income includes income from the sources described in sec_512 and sec_4944 imposes a ten percent tax on private_foundations that invest any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes sec_1_513-1 provides that the term unrelated_business_taxable_income means the gross_income derived by an organization from any unrelated_trade_or_business regularly carried on by it less the deductions and subject_to the modifications provided in sec_512 of the code unless one of the specific exceptions of sec_512 or sec_513 is applicable gross_income of an exempt_organization subject_to the tax imposed by sec_511 is includible in the computation of unrelated_business_taxable_income if it is income from trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions 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 thus stock in a passive holding_company is not to be considered a holding in a business_enterprise even if the company is controlled by the foundation instead the foundation is treated as owning its proportionate share of any interests in a business_enterprise held by such company under sec_4943 sec_53_4944-1 provides that sec_4944 shall not apply to an investment made by any person that is later gratuitously transferred to a private_foundation provided the foundation furnishes no consideration to such person upon the transfer analysis ruling sec_512 provides that unrelated_business_income is the gross_income derived by an organization from an unrelated_trade_or_business as defined in sec_513 regularly carried on by it less the deductions allowed for expenses directly connected with the carrying on of such trade_or_business sec_513 provides that an unrelated_trade_or_business is any trade_or_business the conduct of which is not substantially related aside from the need for income or funds or the use it makes of the profits derived to the exercise of performance by such organization of its purpose constituting the basis for its exemption under sec_501 under these definitions the income you earn from your investments in llc would constitute unrelated_business_income sec_512 however outlines several modifications to unrelated_business_income given that your income from the llc will meet one of these exceptions it will not be unrelated_business_taxable_income ruling sec_4943 imposes an excise_tax on the excess business holding of private_foundations sec_4943 defines excess business holding as the amount of stock in a corporation that a foundation would have to dispose_of to a person other than a disqualified_person in order for the remaining holdings of the foundation in the corporation to be permitted holdings sec_4943 provides that the permitted holdings of a foundation in a corporation are twenty percent of the voting_stock reduce by the percentage of the voting_stock owned by all disqualified persons in any case in which all disqualified persons together do not own more than twenty percent of the voting_stock of a corporation nonvoting_stock held by a private_foundation is treated as permitted holdings sec_4943 and sec_43 b when discussing an entity treated as a partnership sec_4943 provides that profit interest may be substituted for the word voting_stock in the definition of permitted interest despite the size of your holdings in llc such holdings do not constitute excess_business_holdings under sec_4943 sec_4943 provides that in order for your holdings to constitute excess_business_holdings llc must qualify as a business_enterprise sec_53 c provides that if a trade_or_business derives ninety-five percent of its income from passive sources as demonstrated by sources described in sec_512 and as does llc then it is not considered a business_enterprise however the proportionate share of the holdings of llc in business enterprises are imputed to you and other owners of llc under the rules in sec_4943 id in your situation llc is not a business_enterprise since all of its income is derived from passive sources described in sec_512 moreover the holdings of llc will not be excess_business_holdings thus your holdings in llc will not result in excess_business_holdings under sec_4943 ruling sec_4944 imposes a ten percent tax on private_foundations that invest any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes sec_53_4944-1 provides that when a private_foundation receives a gratuitous transfer of investments from any person such investments will not be considered jeopardizing investments under sec_4944 as long as the private_foundation did not pay for the investments here the class b membership interest which has no debt or any other encumbrance is being transferred to you for no consideration therefore the transfer of class b membership interest to you is not a jeopardizing investment rulings the investment activities conducted by llc will not generate unrelated_business_taxable_income for you with respect to your class a investment and the proposed class b investments your ownership of class a membership interest in llc and or your proposed ownership of a class b interest in llc will not cause you to be liable for an excess business holding excise_tax under sec_4943 your acceptance of the proposed gift of a class b membership interest in llc from donor will not constitute a jeopardizing investment under sec_4944 this ruling supersedes a prior ruling issued on date this ruling will be made available for public inspection under sec_6110 of the code 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 of the code 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 specifically this ruling does not address the issue of self-dealing in regards to the initial investments by you in llc because it could help resoive 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 internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely ronald shoemaker manager exempt_organizations technical group enclosure notice


department of the treasury internal_revenue_service washington d c date number release date cc dom fs it a tl-n-2571-99 uilc internal_revenue_service national_office field_service_advice memorandum for from assistant chief_counsel field service cc dom fs subject commissions paid to independent sales representatives this field_service_advice responds to your memorandum dated july field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent issue whether commissions paid to independent representatives for the signing of customers to the cellular telephone service provided by the taxpayer are currently deductible by the taxpayer conclusion further case development is required law and analysis sec_162 provides that there will be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business sec_263 generally provides that no deduction shall be allowed for the cost of permanent improvements or betterments made to increase the value of any property further clarification is found in sec_1 a - a specifying that costs incurred to acquire property having a useful_life substantially beyond the close of the taxable_year are required to be capitalized under sec_263 it is well-established that deductions are a matter of legislative grace and that the taxpayer bears the burden of proving entitlement to the deduction sought 292_us_435 403_us_345 503_us_79 the case law illustrates the highly factual nature of the inquiry and that the distinction between capital and deductible items is often a matter of degree and not kind 503_us_79 quoting 290_us_111 and therefore each case turns on its own special facts id quoting deputy v du pont case development hazards and other considerations deborah a butler by clifford m harbourt senior technician reviewer income_tax accounting branch field service


internal_revenue_service number release date index number ----------------------------------------------------- ------------------------------------------ ---------------------------------- -------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------- id no ----------------- telephone number --------------------- refer reply to cc ita plr-128167-10 date november re request for extension of time to make the election not to deduct the additional re request for extension of time to make the election not to deduct the additional first year depreciation taxpayer a b c d e date1 date2 date3 date4 lb_i official ---------------------- -------------------------------------------------------------------- -------- ---------------------------------------- --------------- ---------------------- ---------------------------------------------------------- --------------------------- --------------------------- --------------------------- --------------------------- dear -------------- this letter responds to a letter dated date and subsequent correspondence requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the elections not to deduct the additional first year depreciation under sec_168 of the internal_revenue_code for all classes of qualified_property placed_in_service in the taxable years ended date1 date2 and date3 facts taxpayer represents that the facts are as follows taxpayer is a a corporation engaged in the business of acquiring and processing e for clients such as major oil_and_gas companies independent oil_and_gas operators and providers of multi-client data libraries taxpayer timely filed its federal_income_tax returns for the taxable years ended date1 date2 and date3 on each of the federal plr-128167-10 tax returns for the taxable years ended date1 date2 and date3 taxpayer did not claim the additional first year depreciation deduction for all classes of qualified_property placed_in_service by taxpayer during each of those taxable years taxpayer however inadvertently failed to attach the election statement not to claim the additional first year depreciation deduction for all classes of qualified_property placed_in_service by taxpayer for the taxable years ended date1 date2 and date3 for the taxable years ended date1 and date2 taxpayer’s tax returns were prepared by b for the taxable_year ended date3 taxpayer’s tax_return was prepared by c while preparing its federal tax_return for the taxable_year ended date4 taxpayer discovered that it had failed to attach the election statement to the federal tax returns for the taxable years ended date1 date2 and date3 with respect to all classes of qualified_property thereafter taxpayer contacted d for advice to correct these mistakes ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the elections not to deduct the additional first year depreciation under sec_168 for all classes of qualified_property placed_in_service by taxpayer in the taxable years ended date1 date2 and date3 law and analysis sec_168 as in effect on the day before the date of the enactment of the economic stimulus act of pub_l_no 122_stat_613 date provides a 30-percent additional first year depreciation deduction for the taxable_year in which qualified_property acquired after date and before date and placed_in_service before date is placed_in_service by taxpayer sec_168 as in effect on the day before the date of the enactment of the economic stimulus act of and of the housing and economic recovery act of pub_l_no 122_stat_2654 date provides a 50-percent additional first year depreciation deduction for the taxable_year in which 50-percent bonus_depreciation property acquired after date and placed_in_service before date is placed_in_service by a taxpayer sec_103 of the economic stimulus act of amended sec_168 to allow a 50-percent additional first year depreciation deduction for qualified_property acquired and placed_in_service during see sec_168 sec_168 as in effect on the day before the date of the enactment of the economic stimulus act of and of the housing and economic recovery act of and k -1 for the definitions of qualified_property and percent bonus_depreciation property sec_168 provides that a taxpayer may elect not to deduct the percent additional first year depreciation for any class of property placed_in_service during the taxable_year sec_168 as in effect on the day before the date plr-128167-10 of the enactment of the economic stimulus act of and of the housing and economic recovery act of provided that a taxpayer may elect not to deduct the 30-percent additional first year depreciation for any class of property placed_in_service during the taxable_year the term class of property is defined in sec_1_168_k_-1 of the income_tax regulations as meaning in general each class of property described in sec_168 for example 5-year_property see section dollar_figure of revproc_2008_54 2008_38_irb_722 rules similar to the rules in sec_1_168_k_-1 for qualified_property or for percent additional first year depreciation deduction apply for purposes of sec_168 as currently in effect sec_168 as in effect on the day before the date of the enactment of the economic stimulus act of and of the housing and economic recovery act of provides that a taxpayer may elect to deduct 30-percent instead of 50-percent additional first year depreciation for any class of property that is 50-percent bonus_depreciation property placed_in_service during the taxable_year if this election is made sec_1_168_k_-1 provides that the allowable additional first year depreciation deduction is determined as though the class of property is qualified_property under sec_168 sec_1_168_k_-1 further provides that a taxpayer may elect not to deduct both 30-percent and 50-percent additional first year depreciation for any class of property that is 50-percent bonus_depreciation property placed_in_service during the taxable_year sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made by the due_date including extensions of the federal tax_return for the taxable_year in which the property is placed_in_service by the taxpayer sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made in the manner prescribed on form_4562 depreciation and amortization and its instructions the instructions to form_4562 for the taxable_year ended date1 date2 and date3 provide that the election not to deduct the additional first year depreciation is made by attaching a statement to the taxpayer’s timely filed tax_return indicating that the taxpayer is electing not to deduct the additional first year depreciation and the class of property for which the taxpayer is making the election under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 plr-128167-10 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusions based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer is granted calendar days from the date of this letter to make the elections not to deduct the additional first year depreciation under sec_168 for all classes of property placed_in_service by taxpayer during the taxable years ended date1 date2 and date3 that qualify for the additional first year depreciation for the taxable years closed by the period of limitations on assessment under sec_6501 this election must be made by taxpayer filing a statement indicating that taxpayer is making the election not to deduct the additional first year depreciation under sec_168 for all classes of qualified_property placed_in_service during such taxable years along with a copy of this letter_ruling with the irs service_center s where taxpayer filed its original federal tax returns for such taxable years for the open taxable_year this election must be made by taxpayer filing an amended federal tax_return for that taxable_year with a statement indicating that taxpayer is electing not to deduct the additional first year depreciation for all classes of property placed_in_service by taxpayer during that taxable_year a copy of this letter_ruling should be attached to the amended_return except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code specifically no opinion is expressed or implied on whether any item of depreciable_property placed_in_service by taxpayer during the taxable years ended date1 date2 and date3 is eligible for the additional first year depreciation deduction in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representative we are also sending a copy of this letter to the appropriate lb_i official plr-128167-10 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes sincerely willie e armstrong jr willie e armstrong jr senior technician reviewer branch office of associate chief_counsel income_tax and accounting