t c summary opinion united_states tax_court charles marianne t anderson petitioners v commissioner of internal revenue respondent docket no 4656-02s filed date charles and marianne t anderson pro sese daniel n price for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time that the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined for a deficiency in petitioners’ federal_income_tax of dollar_figure after concessions the issue remaining for decision is whether petitioners failed to report cancellation_of_indebtedness_income in the amount of dollar_figure for taxable_year marianne anderson has already conceded this issue background the stipulation of facts and the exhibits received into evidence are incorporated herein by reference petitioners resided in georgetown texas at the time the petition was filed this case involves unreported cancellation_of_indebtedness_income charles anderson petitioner provided a credit card for a friend ms feathers on his existing citibank account although the account was in his name petitioner and ms feathers agreed she would be responsible for the debts she incurred the citibank card agreement applicable to petitioner’s account states you may request additional cards on your account for yourself or others and you may permit another person to have access to the card or account number however if you in the notice_of_deficiency respondent determined that petitioners failed to report interest_income in the amount of dollar_figure and dividend income in the amount of dollar_figure for taxable_year petitioners have conceded these issues do you must pay us for all charges made by those persons including charges for which you may not have intended to be responsible as petitioner received billing statements detailing charges to the account he forwarded them to ms feathers for payment ultimately ms feathers incurred dollar_figure in charges on the credit card petitioner was subsequently contacted by a collection agency on behalf of citibank he was informed of the dollar_figure delinquent balance and was offered the opportunity to settle the debt in date petitioner settled the outstanding debt for dollar_figure or percent of the total value citibank reported dollar_figure as cancellation_of_indebtedness_income to respondent on form 1099-c cancellation of debt petitioners did not report this income on their joint income_tax return petitioner denied receiving a form 1099-c reporting the amount of debt discharged petitioner disputes having income from the discharge of dollar_figure of the debt and raising a variety of arguments contends that a discharge_of_indebtedness does not constitute gross_income discussion respondent's determinations in the notice_of_deficiency are presumed correct and generally petitioners must prove those determinations wrong in order to prevail rule a 290_us_111 the burden_of_proof may shift to the commissioner under sec_7491 in certain circumstances see prince v commissioner tcmemo_2003_247 the issue in this case is a question of law and does not depend on which party has the burden_of_proof a discharge_of_indebtedness gross_income includes all income from whatever source derived sec_61 discharge_of_indebtedness is specifically included as an item_of_gross_income sec_61 this means that a taxpayer who has incurred a financial obligation which obligation is later discharged or released has realized an accession to income sec_61 284_us_1 216_f3d_537 6th cir affg tcmemo_1998_196 the rationale of this principle is that the discharge of a debt below the face value of the debt accords the debtor an economic benefit equivalent to income friedman v commissioner f 3d pincite the treatment of discharge-of-indebtedness income parallels the code's treatment of loans 294_f3d_985 8th cir affg in part and revg in part tcmemo_2000_221 borrowed funds are not included in a taxpayer’s income nor are repayments of a loan deductible from income when however one’s obligation to repay the funds is settled for less than the amount of the loan one ordinarily realizes income_from_discharge_of_indebtedness sec_61 110_tc_279 citing 790_f2d_1409 9th cir affg in part and revg in part t c memo the difference between the face value of the debt and the amount_paid in satisfaction of the debt is includable in the taxpayer’s gross_income 23_f3d_1032 6th cir affg tcmemo_1992_673 accompanying the discharge_of_indebtedness income rule are certain exclusions from gross_income sec_108 petitioner has not raised any of the exclusions and thus the court does not consider them b form_1099 petitioner claims he did not receive a form 1099-c from citibank discharging the debt the moment it becomes clear that a debt will never have to be paid such debt must be viewed as having been discharged 88_tc_435 the nonreceipt of a form_1099 does not convert a taxable item to a nontaxable item vaughan v commissioner tcmemo_1992_317 affd without published opinion 15_f3d_1095 9th cir conclusion the court has considered all arguments made by petitioner and to the extent they are not addressed herein concludes they are irrelevant or without merit the court holds petitioner had discharge_of_indebtedness income in the amount of dollar_figure reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c jan uilc number release date memorandum for director internal_revenue_service center kansas city mo attn entity control from subject chief branch office of the associate chief_counsel employee_benefits and exempt_organizations cc ebeo - railroad retirement act tax status attached for your information and appropriate action is a copy of a letter from the railroad retirement board concerning the status under the railroad retirement act and the railroad unemployment insurance act of we have reviewed the opinion of the railroad retirement board and based solely upon the information submitted concur in the conclusion that ceased to be an employer under the railroad retirement act and the railroad unemployment insurance act effective harry beker cc


number release date id office uilc cca_2009081310470241 ---------- from ------------------- sent thursday date am to ----------------- cc subject re stat_notice and carryback hi -------- the application of an accuracy related penalty depends upon the existence of an underpayment as defined in sec_6664 not a deficiency the penalty would apply to any portion of an underpayment for a year to which the loss is carried that is attributable to a valuation misstatement for the year in which the carryback over of the loss arises see c this means that the penalty could apply to any or all of the years the loss is carried to look at each year separately so long as there is an underpayment in those years see the explanation in fsa wl discussing the court's holding in 78_tc_100 where a tentative_carryback_adjustment resulted in a refund and the tc held that the refund was a rebate the fsa makes a connection between rebate defined for purposes of deficiency and underpayment let me know if you want to discuss ----------------------------


sep uniform issue list legend taxpayer a amount b ira c broker d date date dear for a waiver of the 60-day this is in response to your request dated march rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested page __ represents that she received a distribution from ira c totalling taxpayer a age amount b taxpayer a asserts that _ failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to a mistake made by broker d personal account the requested distribution was timely completed by broker taxpayer a maintained a personal account and ira c with broker d on date taxpayer a called an authorized agent of broker d to request a distribution of amount b from d however taxpayer a instead of ‘on date which was after the 60-day rollover period taxpayer a was unaware of does not understand why amount b broker d’s mistake and broker d stated that was distributed from ira c instead of from taxpayer a’s personal account amount b has remained in taxpayer a’s personal account did not learn that the money had been taken out of ira c personal account as received a form_1099 had requested until based on the above facts and representations you request that the service waive the 60-day rollover requirement with respect to the distribution of amount b sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 page sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred assertion that failure the information presented by taxpayer a is consistent with to accomplish a timely rollover was caused by broker d’s failure to distribute amount b had from ira c instead of from taxpayer a’s personal account with broker d as requested taxpayer a did not become aware of broker d’s mistake until after the day rollover period had expired therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount b taxpayer ais granted a period of days from the issuance of this ruling letter to contribute amount b into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution this amount will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto page this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact please address all correspondence to at sincerely yours - ct’ perey vev manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa br gl-147605-07 uilc date january to associate area_counsel indianapolis small_business self-employed from mitchel s hyman senior technician reviewer procedure administration subject levy on state retirement fund this chief_counsel_advice responds to your request for assistance in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent issue after serving a notice_of_levy on a state retirement fund can the service exercise the taxpayer’s right to suspend membership in the fund in order to obtain an immediate distribution of the taxpayer’s assets in the fund when the taxpayer has not yet reached retirement age conclusion no the service may not exercise the taxpayer’s right to suspend membership in the fund in order to obtain an immediate distribution of the taxpayer’s assets in the fund when the taxpayer has not yet reached retirement age the service may levy upon a retirement_plan even if a participant has no immediate right to receive benefits however the fund is not obligated to turn over any assets pursuant to the service’s levy until the taxpayer reaches the age in which she is eligible for retirement benefits under the plan or the taxpayer voluntarily suspends her membership in the plan gl-147605-07 facts married taxpayers have an unpaid joint income_tax_liability one spouse has an account with a state retirement fund she is fifty years old and not currently receiving benefits from the fund although the taxpayer no longer works for the state she has obtained other employment and is not retired according to the terms of the retirement fund the taxpayer may elect to suspend membership in the fund and receive a distribution of all assets in her account if she does not make such an election when the taxpayer reaches retirement age she will be eligible to receive her retirement benefits from the account the service served a notice_of_levy on the state retirement fund in order to collect the taxpayer’s assets in the fund the fund will not distribute the assets unless the taxpayer elects to suspend membership in the fund the revenue_officer asks whether the service can elect to suspend membership in the fund on the taxpayer’s behalf law and analysis for the reasons stated below the service cannot elect the suspension of membership in the state retirement fund on behalf of the taxpayer pursuant to sec_6321 a lien arises upon all property or rights to property of the taxpayer additionally sec_6331 authorizes the service to levy upon all property and rights to property of a taxpayer or on which there is a federal_tax_lien in order to collect delinquent taxes congress broadly defined property in sec_6331 to reach every interest a taxpayer might have in property see 472_us_713 only property that is specifically enumerated in sec_6334 is exempt from levy because the code does not specifically exempt funds in a state retirement fund from levy the service’s levy attaches to the taxpayers’ interest in the state retirement fund see 32_f3d_180 5th cir generally a levy extends only to property rights and obligations that exist at the time of the levy sec_301_6331-1 obligations exist for purposes of a levy when the liability of the obligor is fixed and determinable although the right to receive payment is deferred until a later date id see also 69_f3d_394 9th cir accordingly even if the taxpayer is not currently receiving benefits from the retirement fund if a present right to a future payment exists the levy reaches that present right see revrul_55_210 1955_1_cb_544 lien attaches to entire unqualified right to receive future_benefits only one notice_of_levy needs to be served to effectively reach benefits subsequently payable upon service of a notice_of_levy the service steps into the shoes of the taxpayer and acquires whatever rights to the property the taxpayer had possessed prior to the notice_of_levy nat’l bank of commerce u s pincite however the levy only reaches the gl-147605-07 taxpayer’s rights as it finds them united_states v sullivan f 2d big_number 3rd cir accordingly the levy only reaches property rights that exist at the time of the levy thus for example in sullivan the service levied on the taxpayer’s insurance_policy the insurance_policy had a cash_surrender_value the court held that the service’s levy did not require the insurance_company to turn over the cash_surrender_value of the policy the court reasoned that the levy reached only the taxpayer’s basic right under the policy to receive benefits upon the policy’s maturation the service had no authority through its levy to exercise the taxpayer’s right to cancel the policy id pincite in this case we similarly conclude that although the service’s levy reaches the taxpayer’s future right to retirement benefits when the taxpayer reaches retirement age2 it does not entitle the service to compel suspension of the taxpayer’s membership in the fund accordingly the service is not entitled to a distribution of the assets in the account before the taxpayer is eligible to receive benefits however the service may bring a lien foreclosure suit pursuant to sec_7403 a lien foreclosure suit is appropriate here because the administrative levy in this situation will not immediately entitle the service to any assets this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call --------------------- if you have any further questions by _____________________________ mitchel s hyman senior technician reviewer procedure administration congress subsequently enacted sec_6332 which created a special procedure by which the service can levy upon the cash_surrender_value of an insurance_policy levying on the present right to future payment would not require immediate distribution by the retirement fund honoring the levy would only be required when the benefits become payable to the taxpayer under the terms of the retirement fund see irm


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uniform issue list apr tr eri rav tl legend company a fund c company d individual e date f amount h plan x dear this is in response to your request dated on date submitted by your authorized representative for a ruling to waive the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code correspondence dated date date date and date supplemented the request - under penalty of perjury you have submitted the following facts and representations you represent that you received a distribution from plan x totaling amount h plan xis a plan qualified under sec_401 of the internal_revenue_code code you assert that your failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to a mistake made by individual e of fund c which led to amount h being placed into a non-ira account you further represent that amount h has remained in the non-ira account and has not been used for any other purposes in you participated in plan x with company a amount h from plan x and invest it in fund c company d was the manager of fund c individual e who works for company d advised you to invest amount h in fund c in an in you decided to withdraw page ira relying on individual e’s expertise and fund c’s offering memorandum you withdrew amount h from plan x and within days of receiving the distribution you deposited in an account with fund c documentation submitted by you demonstrates that amount h at all times both you and fund c believed your interest in fund c was validly invested in an ira it was not until date that you learned from individual e that fund ci is nota bank or an approved non-bank trustee eligible to hold ira funds in an affidavit dated date f individual e acknowledged that he advised you that you could invest amount h in fund c individual e states that he did not realize that an ira had to be in the name of the financial_institution as trustee or custodian for your ira he accepted your subscription without a financial_institution as trustee or custodian as soon as you learned about the error you arranged to seek a waiver of the 60-day requirement based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement with respect to the distribution of amount h contained in sec_402 of the code in this instance sec_402 of the code provides that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution and the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 states that such rollover must be accomplished within days following the day on which the distributee received the property an individual_retirement_account ira constitutes one form of eligible_retirement_plan that the secretary may waive sec_402 of the cdde provides in relevant part the 60-day requirement under sec_402 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_402 of the code sec_401 provides the rules for governing direct transfers of eligible rollover distributions sec_1 a of the income_tax regulations question and answer-15 provides in relevant part that an eligible_rollover_distribution that is paid to an eligible_retirement_plan in a direct_rollover is a distribution and rollover and not a transfer of assets and liabilities revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred page the information presented and documentation submitted by you is consistent with your assertion that your failure to accomplish a timely rollover was caused by a mistake made by individual e of fund c which led to amount h being placed into a non-ira account the information presented by you is consistent with your assertion that you attempted to rollover amount h therefore pursuant to sec_408 of the code the service waives the 60-day rollover requirement with respect to the distribution of amount h from plan x you are granted a period of days measured from the date of the issuance of this letter to make your rollover provided all other requirements of sec_402 c a of the code except the 60-day requirement are met with respect to amount d such amount will be considered a rollover_contribution within the meaning of sec_408 d of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t3 id - - d at sincerely yours frances v sloa employee plang technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number uil tax_exempt_and_government_entities_division number release date date date legends parent aso hospital b foundation dear we have considered your ruling_request in regard to your continued exemption as an organization described in sec_501 of the internal_revenue_code and your continued status as an organization classified under sec_509 and sec_170 b a iii facts you operate an acute-care hospital with emergency room services that provides uncompensated care for indigent persons as part of a healthcare system you provide hospital and medical_care to the community on a nondiscriminatory basis and without regard to a patient’s ability to pay you have been recognized as tax exempt for over fifty years you operate as part of a healthcare system parent performs administrative and management functions for the system of exempt hospitals and exempt and for-profit affiliated entities your wholly owned subsidiary is foundation foundation is exempt under sec_501 and classified as a non-private foundation under sec_509 in response to a request for a private_letter_ruling we approved your prior hospital system structure at that time bylaws required parent to have directors on its board the board was self-perpetuating with staggered four year terms the board was and is a community-based board with members selected based on community standing civic participation and leadership interest in health care services and issues and knowledge of or experience in corporate management and governance no board member could serve more than two successive four year terms and had to wait one year to be eligible once again to be a member of the board new board members were elected at the regular meeting of the board each year your bylaws required you to have the identical directors as your parent you also have the requirement that no board member could serve more than two successive four year terms without waiting one year to be eligible again to serve on the board subsequent to the issuance of the above mentioned private_letter_ruling your healthcare system has added to its structure parent is now also the sole member of hospital b hospital b is an organization described in sec_501 seeking classification as a non private_foundation under sec_509 and sec_170 parent is also the sole member of aso which is an administrative services organization aso is an organization described in sec_501 seeking classification as a non private_foundation classified in sec_509 aso supports you and hospital b foundation is seeking classification as a non private_foundation under a and b a vi in order to more efficiently manage the expanded system certain changes have been made to the relationships among the entities the boards of directors of you and parent will be reorganized by removing the requirement that the boards of directors be identical parent's bylaws have been changed so that one member of parent’s board shall be elected by your board_of directors and the remaining members of parent’s board shall be elected by parent's board your board will continue to be a community-based board selected as described above among the changes described in your ruling_request the bylaws of parent have been amended to provide a reduction in the number of board members from the current members to no fewer then seven including your president ceo nor more then nine members your bylaws have been amended to provide that your board is comprised of not less than nor more then members including your president ceo and all members shall be elected by the board subject_to the approval of your parent’s board_of directors no person except your president ceo may serve for more than two consecutive four year terms however after waiting one year a director will again be eligible to be serve as a member of the board the chairman of your parent's board will serve on your board as an ex-officio member you anticipate that these changes will improve the decision-making efficiency for both entities by allowing your board to focus on managing a hospital and allowing parent’s board to focus on the broader issues facing the entire system rulings requested you have requested the following rulings that following the described change in relationship between you and parent you will continue to be an exempt non-private foundation described in sec_501 sec_509 and sec_170 following the change in foundation’s corporate member it will be an exempt non-private foundation described in sec_501 sec_509 and sec_170 hospital b will continue to be a public charity recognized in sec_501 sec_509 and sec_3 b a iii asovwill continue to be an organization described in sec_509 law sec_170 describes an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical_research sec_501 exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of the net_earnings inure to the benefit of any private_shareholder_or_individual sec_509 excludes from private_foundation_status organizations that are listed in sec_170 other than clauses vii and viii generally those having broad public support sec_170 specifically identifies organizations that have a principal purpose of providing medical or hospital care sec_1_501_c_3_-1 of the income_tax regulations provides that an organization will be it engages primarily regarded as operated exclusively for one or more exempt purposes only if in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities are not in furtherance of an exempt_purpose sec_1 c - d provides that the term charitable is used in sec_501 in its generally accepted legal sense the promotion of health has long been recognized as a charitable purpose see restatement second of trusts sec_368 sec_372 iv scott on trusts sec_368 sec_372 3rd ed and revrul_69_545 1969_2_cb_117 revrul_69_545 1969_2_cb_117 sets forth standards under which a nonprofit_hospital may qualify for recognition of exemption under sec_501 this revenue_ruling gave consideration to two separate hospitals only one of which was determined to qualify for exempt status under sec_501 by weighing all the relevant facts and circumstances the revenue_ruling analyzed whether both the control and use of the hospitals were for the benefit of the public or for the benefit of private interests the hospital that qualified for exemption was found to be organized and operated to further the charitable purpose of promoting health by satisfying a community benefit standard that included among other factors a board_of directors that broadly represented the interests of the community the hospital that did not qualify for recognition of exemption was found to be operating for the private benefit of those who controlled it rather than for the benefit of the public revproc_2012_4 2012_1_cb_125 explains how the internal_revenue_service gives guidance to taxpayers on issues under the jurisdiction of the commissioner tax_exempt_and_government_entities_division except when the issue is presented in an initial application_for recognition of exemption eo determinations rather than eo technical issues determination letters regarding classification and reclassification of private_foundation_status under the procedures set forth in rev_proc revproc_2012_10 2012_1_cb_273 sets forth updated procedures with respect to rulings and determination letters on organizations exempt from federal_income_tax under sec_501 it directs an organization seeking to change its foundation status to submit a form_8940 to eo determinations analysis that following the described change in relationship between you and parent you will ruling continue to be an exempt non-private foundation described in sec_501 sec_509 and sec_170 iii after the proposed reorganization you will continue to provide health care services to the community in the manner described in revrul_69_545 supra see also restatement second trusts sec_368 and sec_372 iv scott on trusts 3rd ed sec_368 and sec_372 the only significant structural change resulting from the reorganization affecting you is the change in the relationship between your board_of directors and that of parent that change does not alter your purpose of providing health care services to the community and will not alter the purpose of your parent in supporting you and operating a health care delivery system you will continue to provide hospital and medical_care of the community on a nondiscriminatory basis and without regard to a patient’s ability to pay therefore you continue to meet the criteria of organizations primarily engaged in the charitable purpose of promoting health as described in sec_1_501_c_3_-1 the above described reorganization of the boards will not affect your exempt or foundation status your status as an exempt public charity recognized under sec_501 sec_509 and sec_170 is based upon your exempt_purpose and activities as a functioning hospital rather than your relationship to the parent of your healthcare system ruling sec_2 and regarding respectively whether following the change in foundation’s corporate member it will be an exempt non-private foundation described in sec_501 sec_509 and sec_170 hospital b will continue to be a public charity recognized in sec_501 sec_509 and sec_170 and aso will continue to be an organization described in sec_509 pursuant to rev procs and the eo determinations office issues determination letters on reclassification of public charity status thus foundation hospital b and aso should request determination letters regarding their current public charity status from eo determinations therefore we decline to rule on these issues ruling based on the information submitted you will continue to be exempt from federal_income_tax under the provisions of sec_501 as an organization described in sec_501 and will continue to be an organization classified under sec_509 and sec_170 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 if you disagree with our proposed deletions you public inspection is attached to notice 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 this ruling is based upon current regulations and may only be relied upon until final regulations are published because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely mary jo salins manager exempt_organizations technical group enclosure notice


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 b03 plr-112449-17 date june ty ------- legend taxpayer ------------------------------------------------------- company --------------------------------------- merger sub -------------------------------- target ------------------------ adviser a ----------------------------- adviser b ----------------------------------------- adviser c ---------------------------------------------------------- tax preparer --------------------------- date --------------------------- date --------------------------- date -------------------------- date ------------------------ date ------------------------ date ------------------- date ------------------- date ------------------ date ------------------- date ------------------------ year ------- dollar_figured ---------------- dollar_figuree ----------------- dollar_figuref -------------- dear ----------------------- this is in response to a letter sent on your behalf by your representatives dated ----------- ------- in the letter your representatives requested on your behalf an extension of time plr-112449-17 to file the forms necessary to make a safe_harbor election under revproc_2011_29 to allocate success-based fees between facilitative and non-facilitative amounts incurred for a covered transaction for taxpayer’s tax_year ending date the request is based on sec_301_9100-1 and sec_301_9100-3 of the procedure and administrative regulations facts taxpayer is a company on date taxpayer target and merger sub a wholly- owned subsidiary of taxpayer entered into a merger agreement on date pursuant to the merger agreement merger sub commenced a tender offer to purchase all of the outstanding shares of common_stock of target on date taxpayer announced that it had successfully completed the tender offer for all outstanding shares of common_stock of target and had accepted for payment all shares validly tendered and not withdrawn as of the expiration time of the tender offer and would promptly pay for such shares on date pursuant to the terms of the merger agreement merger sub merged with and into target the separate corporate existence of merger sub ceased and target continued as the surviving corporation as a result of the completion of the merger target became a wholly-owned subsidiary of taxpayer taxpayer represents that for federal_income_tax purposes the transaction was a direct taxable purchase of stock of target by taxpayer as part of the transaction taxpayer paid adviser a adviser b and adviser c success-based fees of dollar_figured dollar_figuree and dollar_figuref respectively that were contingent upon the successful closing of the merger transaction tax preparer prepared taxpayer’s consolidated u s federal_income_tax return for the tax_year ending on year tax preparer worked closely with taxpayer in the preparation of the year tax_return with taxpayer’s tax department providing among other items its year workpapers reflecting the calculation of the revproc_2011_29 safe_harbor amount taxpayer performed its own technical analysis of the year transaction costs relying on the methodology of the year transaction costs analysis which tax preparer performed for the merger transaction tax preparer’s team reviewed and approved taxpayer’s year transaction costs methodology taxpayer represents that tax preparer’s team complied with the substantive requirements of revproc_2011_29 by deducting percent of the success-based fees and capitalizing percent of the success-based fees on the year tax_return but the team was not aware of the ministerial requirement of filing the election statement required by revproc_2011_29 and thus it was not filed with the year return on or around date a member of tax preparer’s team learned through an internal communication that an election statement is a requirement for making a valid election realizing that tax preparer had inadvertently failed to include the election statement in the year return filing tax preparer alerted taxpayer’s tax department on or around the same time the internal_revenue_service which was examining the year return inquired as to whether the election statement was included with the year return on plr-112449-17 date taxpayer responded that it had erroneously omitted the election statement from the year return in the period following this communication to the internal revenue service’s examination team employee turnover occurred in both taxpayer’s tax department and on tax preparer’s team resulting in none of the persons most familiar with the missed election statement remaining on hand to address this unresolved issue on or around date during the internal revenue service’s audit of the year return the examining agent issued a draft form_5701 notice of proposed_adjustment proposing the disallowance of the safe_harbor treatment taxpayer immediately started discussions with the agent and scheduled a formal meeting with the examination team on date during the meeting taxpayer represents that it reiterated the substantive correctness of its year return position ie the deduction of of the success-based fees and capitalization of the remaining as permitted by revproc_2011_29 and specifically addressed the potential relief under sec_301_9100-1 through of the procedure and administration regulations for the missing election statement taxpayer represents that the examining agent agreed to reconsider and discuss the election with the team manager however taxpayer represents that it did not receive any further communication from the internal_revenue_service until date when the internal_revenue_service issued the final form_5701 disallowing the safe_harbor treatment taxpayer represents that the examining agent advised taxpayer to request relief under sec_301_9100-1 the procedure and administration regulations through of law and analysis sec_263 of the internal_revenue_code and sec_1_263_a_-2 of the income_tax regulations provide that no deduction shall be allowed for any amount_paid out for property having a useful_life substantially beyond the taxable_year in the case of an acquisition or reorganization of a business_entity costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized 503_us_79 397_us_572 under sec_1_263_a_-5 a taxpayer must capitalize an amount_paid to facilitate a business acquisition or reorganization transaction described in sec_1_263_a_-5 an amount is paid to facilitate a transaction described in sec_1_263_a_-5 if the amount is paid in the process of investigating or otherwise pursuing the transaction sec_1_263_a_-5 of the regulations provides that an amount that is contingent on the successful closing of a transaction described in sec_1_263_a_-5 or success- based fee is presumed to facilitate the transaction a taxpayer may rebut the presumption by maintaining sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction plr-112449-17 to reduce controversy between the irs and taxpayers over the documentation required to allocate success-based fees alternatively to the regulatory presumption the irs issued revproc_2011_29 2011_1_cb_746 the revenue_procedure states that the irs would not challenge a taxpayer's allocation of a success-based_fee between activities that facilitate a transaction described in sec_1_263_a_-5 and activities that do not facilitate the transaction if the taxpayer -- treats percent of the amount of the success-based_fee as an amount that does not facilitate the transaction capitalizes the remaining percent as an amount that does facilitate the transaction and attaches a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized the revenue_procedure applies to covered transactions described in sec_1 a - e which include -- i a taxable_acquisition by the taxpayer of assets that constitute a trade_or_business ii a taxable_acquisition of an ownership_interest in a business_entity whether the taxpayer is the acquirer in the acquisition or the target of the acquisition if immediately after the acquisition the acquirer and the target are related within the meaning of sec_267 or sec_707 or iii a reorganization described in sec_368 b or c or a reorganization described in sec_368 in which stock_or_securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under sec_354 or sec_356 whether the taxpayer is the acquirer or the target in the reorganization sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner uses to determine whether to grant an extension of time to make a regulatory 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 sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling procedure notice or announcement published in the internal_revenue_bulletin plr-112449-17 sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides extensions of time to make a regulatory election under code sections other than those for which sec_301_9100-2 expressly permits automatic extensions requests for extensions of time for regulatory elections will be granted when the taxpayer provides evidence including affidavits described in the regulations to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 states that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer -- i requests relief before the failure to make the regulatory election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking into account sec_1_6664-2 and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief plr-112449-17 if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief taxpayer represents that for federal_income_tax purposes the transaction was a direct taxable purchase of stock of target by taxpayer thus immediately after the transaction taxpayer and target were related within the meaning of sec_267 or sec_707 the transaction thus qualifies as a covered transaction described in sec_1_263_a_-5 taxpayer in this case has represented that it reasonably relied on a qualified_tax professional and the tax professional failed to make or advise taxpayer to make the election thus under sec_301_9100-3 taxpayer will be deemed to have acted reasonably and in good_faith taxpayer has also represented that none of the circumstances listed in sec_301_9100-3 apply sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under these criteria the interests of the government are not prejudiced in this case taxpayer has represented that granting relief would not result in a lower tax_liability in the aggregate for all taxable years affected by the election than taxpayer would have had if the election had been timely made taking into account the time_value_of_money furthermore the taxable_year in which the regulatory election should have been made and any taxable years that would have been affected had it been timely made are not closed by the period of assessment conclusion taxpayer's election is a regulatory election as defined under sec_301_9100-1 because the due_date of the election is prescribed in revproc_2011_29 in the present situation the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been satisfied the information and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith furthermore granting an extension will not prejudice the interests of the government taxpayer represented that it will not have a lower tax_liability in the aggregate for all taxable years affected by the election if given permission to make the election than taxpayer would plr-112449-17 have if the election were made by the original deadline for making the election taxpayer also represented that the period of assessment for year will not be closed before receipt of a ruling accordingly taxpayer is granted an extension of time to file the statement required by sec_4 of revproc_2011_29 until days following the date of this letter except as expressly provided herein no opinion is expressed or implied concerning the federal_income_tax consequences of any aspect of any transaction or item discussed or referenced in this ruling including whether taxpayer properly included the correct costs as its success-based fees subject_to the election or whether taxpayer’s transaction was within the scope of revproc_2011_29 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling 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 christopher f kane branch chief branch income_tax accounting cc internal_revenue_service


internal_revenue_service number release date index number ------------------------------------------ ---------------------------------------- ------------------- ---------------------------- - - department of the treasury washington dc person to contact -------------------- id no ------------- telephone number -------------------- refer reply to cc psi plr-156277-05 date date company -------------------------------------------- ---------------------- ---------------------------------------- shareholders ------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------- -------------------------------------------------- ------------------------------------------------------- ---------------------------------------------------- ------------------------------------------------------- ---------------------------------------------------------------------- ------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------- ----------------------------------------------------------------------------- ------------------------------------------------------- --------------------------------------------------------- ------------------------------------------------------- --------------------------------------------------- ------------------------------------------------------- ----------------------- ------------------------------------------------------- ----------------------------------------------------------------------------------- ----------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------------------------------------ ----------------------------------------------------- -------------------------------------------------------------------------- ------------------------------------------------------- plr-156277-05 -------------------------------------------------------------------------- ----------------------------------------------------- --------------------------------------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------------------------------------------ ----------------------------------------------------- -------------------------------------------------------------------------------- ------------------------------------------------------- ---------------------------------------------------- ------------------------------------------------------- --------------------------------------------- ------------------------------------------------------- -------------------------------------------------- ------------------------------------------------------- ------------------------------------------ ------------------------------------------------------- ------------------------------------------------------ --------------------------------------------------------------------------------- trusts ----------------------------------------------------- ------------------------------------------------------------------------------------ ----------------------------------------------------- ------------------------------------------------------------------------------------------------- ----------------------------------------------------- ------------------------------------------------------------------------------------------ ----------------------------------------------------- beneficiaries - a ------------------------------------------------------- b ------------------------------------------------------- c ------------------------------------------------------- d ------------------------------------------------------- a ------------------------------------------------------------ ------------------------------------------------------------ ----------------------------------------------------- ------------------------------------------------ ----------------------------------------------- ----------------------- ---------------- ------- -------------- -------------------- --------------------- ---------------------- plr-156277-05 b c d e f g dear ---------------- we received a letter from your authorized representative dated date and subsequent correspondence submitted on behalf of company requesting rulings under ' f of the internal_revenue_code this letter responds to that request facts company elected under sec_1362 to be an s_corporation effective a shareholders of company include the trusts which were intended to be qualified subchapter_s trusts qssts in b in the process of having its c form_1120s u s income_tax return for an s_corporation prepared company discovered that qsst elections had not been made when filing its form_2553 election by a small_business_corporation qsst elections for the trusts signed by the parents of beneficiaries were filed that same month under revproc_2003_43 2003_1_cb_998 in preparing the ruling_request under sec_1362 company discovered that beneficiaries c and d were not minors at the time their parents signed the qsst elections in d company became aware that for tax years e the trusts failed to distribute to beneficiaries all trust income as required by sec_1361 the trusts distributed the trust income balances for e in f company represents that the failure to make the required distributions or to have the adult beneficiaries sign the qsst elections was inadvertent and was not motivated by tax_avoidance nor was there any intent to terminate company’s s_corporation_election plr-156277-05 company and its shareholders agree to make any adjustments during the termination period consistent with the treatment of company as an s_corporation as might be required by the service law except as provided in ' g ' a provides that a small_business_corporation may elect in accordance with the provisions of ' to be an s_corporation sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 sec_1361 provides that a such trust shall be treated as a_trust described in sec_1361 and b for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1361 shall be effective up to days and months before the date of the election sec_1361 provides that the term qsst means a_trust all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1361 provides that if any qsst ceases to meet any requirements of sec_1361 but continues to meet the requirements of sec_1361 the provision of sec_1361 shall not apply to such trust as of the first plr-156277-05 day of the first taxable_year beginning after the first taxable_year for which it failed to meet the requirements of sec_1361 sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of the trust must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax return the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation for which the election was made or the termination occurred is a small_business_corporation or b to acquire the required shareholder consents and the corporation for which the election was made or the termination occurred and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary in ann 1997_3_irb_14 the service informed taxpayers that in general in order to obtain relief for inadvertent invalid elections a corporation must request a private_letter_ruling the rules under sec_1_1362-4 through f for corporations requesting inadvertent termination relief also apply to corporations requesting inadvertent invalid election relief sec_1_1362-4 provides that the determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was plr-156277-05 not reasonably within the control of the corporation and was not part of a plan to terminate the election or the fact that the event took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event tends to establish that the termination was inadvertent sec_1_1362-4 provides that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner conclusion based on the facts and representations submitted we conclude that company's ineffective s_corporation_election due to the failure of beneficiaries c and d to make qsst elections was inadvertent within the meaning of ' f company represents that the failure of beneficiaries a and b to make such elections was corrected pursuant to rev_proc in addition we conclude that the termination of company’s election on g because of the failure of the trusts to distribute all trust income to beneficiaries had company’s election not been ineffective due to the absence of qsst elections would have been inadvertent within the meaning of ' f consequently we rule that company will continue to be treated as an s_corporation from a and thereafter unless company's s election otherwise terminates under ' d as conditions for this ruling- beneficiaries c and d each must file a qsst election as prescribed by sec_1_1361-1 with an effective date of a within days of the date of this ruling letter a copy of this letter must be attached to each election and each shareholder in determining its income_tax_liability for the termination period and thereafter must take into account its prorata share of the separately_stated items and nonseparately computed income and loss of company as provided in ' make any adjustments to stock or debt basis as provided in ' and take into account any distributions by company as provided in ' except for the specific ruling above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed or implied regarding company's eligibility to be an s_corporation or regarding the eligibility of the trusts to be qssts plr-156277-05 letter to your authorized representative under a power_of_attorney on file with this office we are sending a copy of this this ruling is directed only to the taxpayer who requested it according to ' k this ruling may not be used or cited as precedent s sincerely christine ellison chief branch office of associate chief_counsel passthroughs and special industries copy of this letter copy for ' purposes enclosure cc--


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp plr-146228-02 date date legend distributing sub controlled sub business a business b business c a b c d e plr-146228-02 f g h i j k a dear this letter responds to your date request for rulings regarding certain federal_income_tax consequences of a proposed transaction the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts distributing is engaged in business a and has voting common and nonvoting common_stock outstanding the distributing voting_stock and the distributing nonvoting_stock respectively and collectively the distributing stock the distributing voting_stock is owned by a while the distributing nonvoting_stock is owned by b c d e f g h i and j a is a revocable_trust under the terms of the trust agreement governing a neither b c d or e can acquire any of a’s distributing voting_stock after the distribution as defined below j is the estate of the late k under the documents governing j neither b c d or e can acquire any distributing nonvoting_stock owned by j after the distribution plr-146228-02 distributing wholly owns controlled sub and sub and as common parent files a consolidated_return on behalf of these subsidiaries controlled is engaged in business b and has voting common and nonvoting common_stock outstanding the controlled voting_stock and the controlled nonvoting_stock respectively and collectively the controlled stock sub and sub are both engaged in business c and before the closing of the proposed transaction as defined below sub will be liquidated the liquidation b who currently serves as a director of sub will relinquish this board position simultaneous with the effective date of the distribution financial information has been submitted which indicates that distributing and controlled each has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction to eliminate disagreements among the shareholders regarding the future direction of distributing controlled and sub and to allow b c d and e the opportunity to devote their undivided attention to controlled’s business without interference from the remaining distributing shareholders who are only interested in the businesses of distributing and sub the following series of steps have been proposed collectively the proposed transaction i distributing will transfer certain business b assets to controlled in constructive exchange for additional controlled stock the contribution ii controlled will borrow approximately a dollars from unrelated third parties and will distribute these proceeds the proceeds to distributing in order to equalize the values between distributing and controlled distributing will transfer all of the proceeds to its creditors in connection with its reorganization iii distributing will distribute its controlled voting_stock and controlled nonvoting_stock to b c d and e in proportion to their existing stock ownership in distributing the distribution b c d and e will surrender all of their distributing nonvoting_stock in exchange for the controlled stock in the distribution representations the taxpayer has made the following representations regarding the proposed transaction a the fair_market_value of the controlled stock received by b c d and e will approximately equal the fair_market_value of the respective distributing nonvoting_stock surrendered by these shareholders in the exchange plr-146228-02 b no part of the consideration distributed by distributing will be received by a shareholder as a creditor employee or in any other capacity other than that of a distributing shareholder c the five years of financial information submitted on behalf of distributing and controlled represents the present operations of these corporations and there have been no substantial operational changes to these corporations since the date of the last submitted financial statements d following the distribution distributing and controlled will each continue the active_conduct of its respective business independently and with its own employees e the distribution will i eliminate shareholder disagreements as to the future direction of the businesses of distributing controlled and sub and ii allow certain distributing shareholders to own and operate controlled’s business without interference from the remaining distributing shareholders who are only interested in owning and operating the businesses of distributing and sub the distribution is motivated in whole or substantial part by this corporate business_purpose f the difference between the total adjusted_basis of the assets to be transferred by distributing to controlled in the contribution and the proceeds will not exceed distributing's adjusted_basis in its controlled stock at the time of the contribution as a result distributing which currently does not have an excess_loss_account in its controlled stock will not have such an account after the contribution and receiving the proceeds controlled will not assume any liabilities of distributing in connection with the contribution and the assets that controlled will receive from distributing in the contribution will not be subject_to any liabilities g there is no plan or intention by the shareholders of either distributing or controlled to sell exchange transfer by gift or otherwise dispose_of any of their stock in either distributing or controlled after the proposed transaction except that certain shareholders of distributing may gift shares of their distributing stock to other family members who are also distributing shareholders and certain controlled shareholders may gift shares of their controlled stock to family members who are also controlled shareholders however no distributing shareholder will transfer by sale gift exchange or otherwise any of their distributing stock to any controlled shareholder after the proposed transaction and no controlled shareholder will transfer by sale gift exchange or otherwise any of their controlled stock to any distributing shareholder after the proposed transaction h there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the proposed transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 plr-146228-02 i there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the proposed transaction except in the ordinary course of business j no intercorporate debt will exist between distributing and controlled at the time of or after the distribution k no two parties to the proposed transaction are investment companies as defined in sec_368 and iv l immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account distributing may have in controlled stock will be included in income immediately before the distribution to the extent required by applicable regulations see sec_1_1502-19 m to the extent any transfer in the proposed transaction results in an early disposition of property for which an investment_credit has been or will be claimed under sec_46 the income_tax_liability for the taxable_year in which investment_credit_property including any building to which sec_47 applies is transferred will be adjusted pursuant to sec_50 or a or sec_47 as in effect before amendment by public law title 104_stat_1388 if applicable to reflect the early disposition of the property n b c d and e will not acquire any distributing stock after the proposed transaction b c d and e will not be shareholders employees officers or directors of distributing or sub after the proposed transaction a f g h i and j will not acquire any controlled stock after the proposed transaction a f g h i and j will not be shareholders employees officers or directors of controlled after the proposed transaction o there will be no continuing transactions between distributing and controlled after the proposed transaction there will be no continuing transactions between controlled and sub after the proposed transaction p the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled q distributing will not retain any of the proceeds that it will receive from plr-146228-02 controlled in the proposed transaction rather distributing will transfer all of the proceeds to its creditors pursuant to the plan_of_reorganization r controlled will not transfer any assets other than the proceeds to distributing in the proposed transaction s distributing is not an s_corporation under sec_1361 and neither distributing nor controlled expects or plans to make an s_corporation_election under sec_1362 after the proposed transaction t for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution u for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution rulings based solely on the information submitted and the representations made we rule as follows regarding the proposed transaction the contribution followed by the distribution will be a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing on the contribution sec_361 and sec_361 no gain_or_loss will be recognized by controlled on the contribution sec_1032 the basis that controlled has in each asset received from distributing will equal the basis of that asset in the hands of distributing immediately before the plr-146228-02 contribution sec_362 the holding_period for each asset received by controlled in the contribution will include the period during which distributing held that asset sec_1223 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of b c d or e upon their receipt of the controlled stock in exchange for their distributing nonvoting_stock sec_355 the aggregate basis of the controlled stock in the hands of b c d and e after the distribution will in each instance equal the aggregate basis of the respective distributing nonvoting_stock surrendered by the shareholder in the exchange sec_358 the holding_period of the controlled stock received by b c d and e will in each instance include the holding_period of the respective distributing nonvoting_stock surrendered by the shareholder provided such stock is held as a capital_asset on the date of the exchange sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 as provided in sec_312 proper allocation of earnings_and_profits will be made between distributing and controlled in accordance with sec_1_312-10 of the income_tax regulations caveats no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed as to the federal_income_tax consequences of the liquidation procedural statements this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer affected by the proposed transaction should attach a copy of this ruling letter to its his or her federal_income_tax return for the taxable_year in which the proposed transaction is completed plr-146228-02 under a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely richard k passales senior counsel branch office of associate chief_counsel corporate