internal_revenue_service number release date index number --------------------- -------------------------------------------------- --------------- ------------------------------------------ -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ----------------- telephone number ---------------------- refer reply to cc corp b05 plr-132408-17 date april legend distributing distributing distributing distributing distributing distributing --------------- ---------------------------------------------- ------------------------- -------------------------------- ------------------------------------------------------------------------------------------- --------------------------------------- ------------------------- --------------------------------------- ------------------------------------------------------------------------------------- ----------------------------------------------------------- ------------------------- ----------------------------- -------------------------------- ------------------------- ----------------------------------- -------------------------------- ------------------------- --------------------------------------- -------------------------------------------------------------------------------------- ----------------------------------------------------------- ------------------------- distributing ----------------- plr-132408-17 distributing distributing controlled controlled controlled controlled controlled controlled controlled partnership --------------------------------- ------------------------- --------------------------------- -------------------------------- ------------------------- ----------------------------------------- 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----------------------------------- ------------------------------------- ----------------------------------------------------------------------------------- --------------------------------------- ------------------------- plr-132408-17 fsub fsub fsub fsub fsub sub fsub sub sub sub -------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------------------------------- ------------------------- ------------------------------------- ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------- ---------------------------- ------------------------------------------------ --------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------- 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-------------------------------- ------------------------- fsub dre dre dre dre dre dre dre ------------------------------------------------- ----------------------------------------------------------------------------------- --------------------------------------- ------------------------- ------------------------------------------------------ ---------------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------- ------------------------- ------------------------------------- ---------------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------- --------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------- ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------- ------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------------------------ ------------------------- ----------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------------------------ ------------------------- ----------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------- dre -------------------------------- plr-132408-17 dre dre dre dre dre dre dre dre 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------------------------------------------- ------------------------- dre ----------------------------------------------- plr-132408-17 --------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- ------------------------- dre dre dre branch business a business b business c business d segment a segment b country a country b country c country d a b c ----------------------------------------- ----------------------------------------------------------------------- ------------------------- ----------------------------------------------- -------------------------------------------------------------- ------------------------- ------------------------------ -------------------------------------------------------------- ------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------ ---------------------- ------------------------------------------- --------------------------------------------------- ------------------------------- ------------------------------------ ---------- ------------------ ------------- ----------------------- ------------ ---------- ---------- plr-132408-17 d e f g h i j k l m date date date date date date date entity type a entity type b service provider foreign tax notes ---- -------- ---- ------ -------- ------ -- ----------------- --------------------------------------- --------------------------------------- ------------------------ ------------------- ----------------- ----------------- ----------------- ---------------------------- -------------------------- ------------------------ ------------------------------------------ ------------------------------------------ ------------------------------- --------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- --------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------------------------- plr-132408-17 foreign court preparatory transactions dear ------------- this letter responds to your request dated date submitted by your authorized representatives on behalf of distributing for rulings on certain federal_income_tax consequences of a series of transactions the proposed transaction the material information provided in that request and in later correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the materials submitted in support of the request for rulings it is subject_to verification on examination this letter is issued pursuant to section dollar_figure of revproc_2017_1 2017_1_irb_1 regarding one or more significant issues under sec_332 and sec_355 of the internal_revenue_code the code the rulings contained in this letter only address one or more discrete legal issues involved in the transactions described herein this office expresses no opinion as to the overall tax consequences of these transactions described in this letter or as to any issue not specifically addressed by the rulings below summary of facts distributing a publicly-traded country a company is the ultimate parent of a worldwide group that includes corporations entities disregarded for federal_income_tax purposes from their sole regarded_owner under sec_301_7701-3 each a dre and partnerships for federal_income_tax purposes the distributing group the distributing group conducts business a and business b business b consists of two legacy business lines segment a and segment b distributing owns all of the stock of dre dre owns all of the stock of fsub and fsub fsub owns all of the stock of fsub plr-132408-17 fsub owns all of the stock or interests in fsub and the branch fsub owns all of the stock of distributing distributing owns all of the stock of fsub and distributing distributing is the common parent of an affiliated_group_of_corporations that file a consolidated federal_income_tax return fsub owns all of the stock of sub sub is the common parent of an affiliated_group_of_corporations that file a consolidated federal_income_tax return distributing owns all of the stock of distributing distributing owns all of the stock of or interests in controlled fsub sub distributing and dre controlled owns all of the stock of sub distributing owns all of the stock of distributing distributing owns all of the stock of distributing distributing owns all of the stock of distributing and sub distributing owns all of the interests in dre and a percent of the interests in distributing dre owns the remaining b percent interest in distributing distributing owns all of the interests in dre c percent of the interests in fsub and d percent of the interests in partnership a significant interest within the meaning of revrul_2007_42 c b dre owns the remaining e percent interest in fsub and fsub owns the remaining f percent interest in partnership prior to date an unrelated third party owned g percent of the interests in partnership distributing through a dre purchased this g percent interest in partnership and as a result distributing and fsub owned all of the outstanding interests in partnership which remained classified as a partnership for federal_income_tax purposes partnership owns all of the interests in dre dre owns all of the interests in dre dre owns all of the interests in dre and dre dre owns all of the interests in dre and dre plr-132408-17 dre owns all of the interests in dre dre and h percent of the interests in dre dre owns the remaining i percent of the interests in dre dre owns all of the interests in dre dre owns all of the interests in dre and dre fsub owns a general_partnership interest in dre with no equity value dre and dre collectively own all of the interests in dre dre dre and dre are primarily engaged in business c a part of business b dre is primarily engaged in business d a part of business a proposed transaction for what are represented to be valid corporate business purposes distributing proposes to separate business a and business b in the following steps some of which have already occurred on date controlled was formed with nominal shares issued to service provider on date an election pursuant to sec_301 an election was made for fsub to be treated as a dre liquidation on date an election was made for fsub to be treated as a dre liquidation on date an election was made for fsub to be treated as a dre liquidation and fsub 1converted from an entity type a to an entity type b on date dre formed controlled and on date dre formed controlled each a country b entity with an initial election to be classified as a dre fsub will make an election to be treated as a dre liquidation subsequently partnership and fsub will be formally liquidated under country c law and dre will be formally liquidated under state law as a result of liquidation distributing will be treated for federal_income_tax purposes as owning all of the outstanding interests in partnership as a result partnership will be deemed to terminate as a partnership for federal_income_tax purposes the partnership_termination for foreign tax purposes dre will make a contribution of cash to dre in exchange for a j percent preferred ownership_interest in dre plr-132408-17 distributing will engage in preparatory transactions which will result in its business a assets and liabilities including business d being transferred to controlled controlled will be treated as a dre at the time of the transfers accordingly these transactions will not be regarded for federal_income_tax purposes disregarded transactions certain assets related to business a held by corporate subsidiaries of distributing will be sold to entities held by distributing that will be contributed to controlled as part of step dre will contribute all of the interests in controlled to controlled and will distribute all of the interests in controlled to distributing in disregarded transactions controlled will make an election to be classified as a corporation for federal_income_tax purposes the internal contribution distributing will distribute all of the interests of controlled to distributing a percent of controlled will be distributed directly to distributing and the remaining b percent of controlled will be distributed to dre which will then be distributed to distributing in a disregarded distribution controlled will make an election to be treated as a corporation for federal_income_tax purposes distributing will distribute all of the stock of controlled to distributing distributing will contribute all of the stock of controlled to controlled a newly formed corporation distributing will distribute all of the stock of controlled to distributing distributing will distribute all of the stock of controlled to distributing distributing will distribute all of the stock of controlled to distributing distributing will contribute its stock of controlled and its interests in fsub and dre to controlled distributing will distribute all of the stock of controlled to distributing distributing will contribute all of the stock of controlled to a newly formed corporation controlled in exchange for controlled stock and the assumption of approximately k of distributing debt owed to distributing distributing will distribute all of the stock of controlled to distributing plr-132408-17 distributing will form controlled and contribute all of the interests in fsub an election will be made for fsub to be treated as a dre of controlled distributing will contribute all of the stock of controlled and certain notes to controlled controlled will be further contributed to fsub in a disregarded transaction distributing will distribute all of the stock of controlled to fsub a dre of distributing fsub4 will form dre and contribute all of the interests in controlled to it in a disregarded transaction fsub will distribute all of the interests of dre to fsub in a disregarded transaction fsub3 will form dre and contribute its business a assets including all of the interests in dre to it in a disregarded transaction fsub will distribute all of the interests in dre to fsub in a disregarded transaction fsub1 will form dre and contribute its business a assets to it in a disregarded transaction dre will borrow l from third-party lenders fsub will contribute all of the interests in dre to dre in exchange for interests in dre and dollar_figurem including the amount borrowed in step in a disregarded transaction fsub will use the cash received to repay a portion of its third-party debt fsub will distribute all of the interests in dre to dre in a disregarded transaction dre will distribute all of its interests in dre to distributing in a disregarded transaction prior to step controlled will establish its tax residency in country d controlled will issue one preferred share the first preferred share with nominal value to service provider the first preferred share will be held by the service provider prior to the completion of step subsequent to the issuance of the first preferred share and pursuant to country a corporate law distributing will transfer all of the interests in dre to controlled and controlled will simultaneously issue its plr-132408-17 common_stock pro_rata to the shareholders of distributing no earlier than one day after the issuance of the controlled common_stock to distributing common shareholders controlled will issue a second preferred share the second preferred share to the holder of the first preferred share which will create a share premium for country a corporate law purposes immediately after the issuance of the second preferred share the first preferred share and second preferred share will be cancelled for no consideration collectively the demerger dre will redeem the j percent preferred interest issued to dre in step for cash in an amount equal to the purchase_price of such interest in step rulings based solely on the information submitted and the representations made we rule as follow on the proposed transaction the acquisition by distributing of business c and business d in the partnership_termination will not preclude either business from qualifying as an active trade_or_business within the meaning of sec_355 the contribution of fsub 4’s business a assets to controlled will not preclude liquidation from qualifying as a complete_liquidation within the meaning of sec_332 the contribution of fsub 3’s business a assets to controlled will not preclude liquidation from qualifying as a complete_liquidation within the meaning of sec_332 the contribution of fsub 1’s business a assets to controlled will not preclude liquidation from qualifying as a complete_liquidation within the meaning of sec_332 the contribution of fsub 11’s business a assets to controlled in internal contribution will not preclude liquidation from qualifying as a complete_liquidation within the meaning of sec_332 for federal_income_tax purposes the demerger will be treated as if distributing contributed the interests of dre to controlled and then distributed all of the controlled stock to its shareholders see rev ru 1971_1_cb_94 revrul_57_311 1957_2_cb_243 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transaction under any provision of the plr-132408-17 code and 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 procedural statements this letter_ruling is directed only to the taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling 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 plr-132408-17 pursuant to the power_of_attorney on file in this matter a copy of this letter is being sent to each of your authorized representatives sincerely mark j weiss mark j weiss chief branch office of associate chief_counsel corporate cc


department of the treasury internal_revenue_service washington d c sep fa ty assistant_commissioner employee_plans and exempt orca legend church a plan x state b city c hospital d corporation e corporation f organization g committee h official k board l association m book n board p a n a t a n o i n o o a d o h dear this is in response to your request for a ruling dated as supplemented by correspondence dated ferrer wee rrrrrere re tee serre ee alien and in which your authorized representative requested a ruling on your behalf concerning the status of plan x under sec_414 of the internal_revenue_code the following facts and representations have been submitted in support of your request corporation e is a nonprofit corporation exempt from tax under sec_501 of the code as an organization described in sec_501 of the code corporation e is organized under the laws of state b corporation e sponsors plan x for the benefit of employees of corporation e hospital d and corporation f hospital d and corporation f are wholly owned nonprofit subsidiaries of corporation e exempt from tax under sec_501 of the code as organizations described in sec_501 of the code is a defined_benefit_plan that was originally established on is a qualified_plan under sec_401 of the code from that date forward plan x plan x plan x has had a committee committee h that has been charged with the responsibility of administering plan x and providing oversight with regard to investments by the plan fiduciaries committee h consists of at least persons who are appointed by and serve at the pleasure of the board_of directors of corporation e the sole purpose of committee h is to administer plan x corporation e traces its early beginnings to organization g established in in city c by a group of church a ladies who held in church a organization g cared for women who were pregnant and not married widows and orphans organization g also provided other kinds of medical_care to sick individuals and to those needing surgery procedures a separate hospital building was constructed and completed in this first hospital became known as the hospital that the ladies of church a operated and in the hospital was reincorporated under the name of hospital d with a maternity home department and a hospital department that operated the hospital portion of the business corporation e operates under the guidance and leadership of a board_of directors that has members the bylaws of corporation e require that a majority of its board_of directors be members in good standing of church a additionally a majority of the executive committee of corporation e must be members in good standing with church a corporation e’s amended and restated certificate of incorporation provides that corporation e was organized exclusively for charitable religious educational and scientific purposes and specifically for the benefit of hospital d on the articles of incorporation for corporation e were amended restated and filed with state b the articles state that the corporation is voluntarily affiliated with church a and will operate in a manner consistent with the doctrines and principles of church a contained in book n official k is responsible for providing ministerial oversight for church a and its agencies that are accredited by church a church a’s human services are organized under association m hospital d and corporation e are both members of association m members of association m including hospital d and corporation e must report to board p each year in order to maintain their accreditation with church a as an association m member hospital d and corporation e are in compliance with these requirements association m reports its findings concerning hospital d and corporation e to the budget and finance_committee of board l the chief_executive_officer ceo of corporation e reports to church a at annual church a conferences regarding the status and activities of hospital d and corporation e and the ceo also provides board l with annual audited financial statements for review and approval by board l this accreditation for both hospital d and corporation e and their ministries by church a as well as the staffing of chaplain services at hospital d and at corporation e’s facilities allows hospital d and corporation e to enter into fund raising and other activities stating to the public their affiliation with church a corporation e often consults with the of church a to obtain approval prior to implementing changes to ensure that the changes are not contrary to the discipline of church a in this case in summary hospital d and corporation e both are members of the human service agencies of church a and adhere to the ethical and religious directives of church a as communicated by official k and contained in book n article of corporation e’s bylaws provides that corporation e may form own operate and manage other subsidiary operations for the exclusive benefit and support of hospital d as indicated in its bylaws and articles of incorporation corporation e is a support organization whose sole purpose is to benefit and support hospital d and corporation e is recognized as a code sec_509 support organization corporation e’s dissolution clause provides that in the event of the dissolution of corporation e the board_of directors shall transfer its remaining assets to hospital d and in turn hospital d’s assets are distributable to the state b conference of church a upon its dissolution hospital d is recognized as exempt from tax under sec_501 of the code as an organization described in sec_501 of the code the mission statement of hospital d provides that the hospital is a institution serving as a ministry of church a according to article of hospital d's certificate of incorporation hospital d was organized and its policy is to carry out its purposes and objects under the auspices of and consistent with the doctrines and teachings of church a the bylaws provide in its delegation of authority and managing control of hospital d to the directors that the hospital is to operate in harmony with the tenets of church a hospital d’s bylaws also provide that the board_of directors consists of members of whom must be members of church a in good standing in addition article ix of hospital d’s certificate of incorporation provides that hospital d will have an executive committee that consists of between and saeee mmeambers a majority of the members of the executive committee of hospital d must be members in good standing of church a the certificate of incorporation of hospital d further requires that the president ceo and administrator all be active members in good standing of church a hospital d’s dissolution clause provides that in the event of the dissolution of hospital d the board_of directors shall transfer its remaining assets to state b conference of church a if in existence or directly to church a according to the official yearbook of church a hospital d is approved as a social service agency of church a and as such reports annually to the administrative committee of board l and must submit its annual financial report corporation f was organized exclusively for charitable religious educational and scientific purposes it is exempt from tax under sec_501 of the code article ll of the bylaws of corporation f provides that a majority of the board_of directors of corporation f shall be members of church a corporation f’s dissolution clause provides that in the event of the dissolution the board_of directors shall transfer remaining assets in the following order i to corporation e if it is a tax-exempt_entity under sec_501 of the code ii to hospital d if it is a tax-exempt_entity under sec_501 of the code ili if neither corporation e or hospital d is a tax-exempt_entity under sec_501 of the code the board_of directors shall transfer the assets to an entity that is exempt under c of the code based on the foregoing facts and representations corporation e requests a ruling that plan x is a church_plan described in sec_414 of the code and has been a church_plan since its inception on date sec_414 of the code generally defines a church_plan as a plan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches that is exempt from taxation under sec_501 of the code sec_414 of the code provides that a plan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches includes a plan maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association of churches if such organization is controlled by or associated with a church or a convention or association of churches in pertinent part sec_414 of the code provides that an employee of a church or a convention or association of churches includes an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 and which is controlled by or associated with a church or a convention or association of churches sec_414 of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 shall be deemed the employer of any individual included as an employee under subparagraph b of sec_414 sec_414 of the code provides that an organization whether a civil law corporation or otherwise is associated with a church or a convention or association of churches if the organization shares common religious bonds and convictions with that church_or_convention_or_association_of_churches sec_414 was added to the code by sec_1015 of the employee_retirement_income_security_act_of_1974 erisa public law 1974_3_cb_1 enacted date sec_1017 of erisa provides that code sec_414 applied as of the date of enactment of erisa however sec_414 was amended by sec_407 of the multiemployer pension_plan amendments act of mppaa public law to provide that sec_414 was effective as of date in order for an organization that is not itself a church or a convention or association of churches to have a church_plan under sec_414 of the code it must establish that its employees are employees or deemed employees of a church or a convention or association of churches under sec_414 of the code employees of an organization maintaining a plan are considered to be church employees if the organization is exempt from tax under sec_501 of the code is controlled by or associated with a church or a convention or association of churches and provides for administration or funding of the plan by an organization described in sec_414 of the code in this case corporation e is a nonprofit organization described under sec_501 of the code and exempt from tax under sec_501 a of the code corporation e’s amended and restated certificate of incorporation states that corporation e was organized exclusively for charitable religious educational and scientific purposes and specifically for the exclusive benefit of hospital d corporation e’s amended and restated certificate of incorporation states that corporation e is voluntarily affiliated with church a and will operate in a manner consistent with the doctrines principles and ethical and religious directives of church a contained in book n corporation e is a member of association m as indicated previously and members of association m must report on an annual basis to board l to maintain accreditation with church a the ceo of corporation e reports to church a at annual conferences regarding the status and activities of corporation e the ceo also provides church a with financial statements for review and approval article of the corporation e bylaws provides that corporation e may form own operate and manage other subsidiary operations for the exclusive benefit and support of hospital d corporation e’s bylaws also require that a majority of its board_of directors be members in good standing of church a and that a majority of the executive committee of corporation e must be members in good standing with church a corporation e’s dissolution clause provides that in the event of a dissolution the board_of directors of corporation e shall transfer all of its remaining assets to hospital d hospital d is a nonprofit organization described under sec_501 of the code and exempt from tax under sec_501 of the code hospital d is a wholly owned subsidiary of corporation e hospital d’s certificate of incorporation provides that hospital d was organized and its policy is to carry out its purposes and objects under the auspices of and consistent with the doctrines and teachings of church a hospital d’s bylaws provide that its board_of directors consists of e eeesee moammbers of whom must be members of church a in good standing article ix of hospital d’s certificate of incorporation provides that hospital d will have an executive committee that consists of between and members a majority of whom must be members in good standing of church a the administrator president and ceo of hospital d are also required by the certificate of incorporation to be members of church a in good standing further hospital d’s dissolution clause provides that in the event of dissolution the board_of directors shall transfer remaining assets either to the state b conference of church a or to church a itself hospital d is also approved as a social service agency of church a and as such reports annually to the administrative committee of board l corporation f is a nonprofit organization exempt from tax under sec_501 a of the code corporation f is a wholly owned subsidiary of corporation e corporation f was organized exclusively for charitable religious educational and scientific purposes the bylaws of corporation f provide that a majority of its board_of directors shall be members of church a corporation f’s dissolution clause provides that in the event of a dissolution of corporation f its board_of directors shall transfer the remaining assets of corporation f to either corporation e hospital d or another tax-exempt_entity described under sec_501 of the code if an organization is associated with church a and shares common religious bonds with church a that organization’s employees are deemed to be church a employees in view of the common religious bonds between church a and corporation e corporation f and hospital d and the association of all these entities with church a it is concluded that the employees of hospital d corporation e and corporation f meet the definition of employee under sec_414 of the code accordingly these individuals are deemed to be employees of church a for purposes of sec_414 of the code in addition under the rules of sec_414 church a is deemed to be the employer of employees of hospital d corporation e and corporation f for purposes of the church_plan rules having established that the above organizations’ employees are church a employees the remaining issue is whether committee h which administers plan x is an organization controlled by or associated with a church or a convention or association of churches and has as its principal purpose or function the administration or funding of a plan within the meaning of sec_414 of the code plan x is currently administered by committee h a retirement committee the sole purpose or function of committee h is to administer plan x committee h consists of at least persons who are appointed by and serve at the pleasure of the board_of directors of corporation e thus due to corporation e’s association with hospital d and church a and committee h’s control by corporation e committee h is an organization controlled by or associated with a church or a convention or association of churches and has as its sole purpose administration or funding of a plan for the provision of retirement benefits for individuals and their beneficiaries who are deemed to be employees of a church or a convention or association of churches it is concluded therefore that plan x as administered by committee h is a plan administered by an organization described in sec_414 of the code or function the plan x was originally established _ from that date forward committee h has administered plan x however pursuant to the rules of sec_407 of mppaa sec_414 of the code was effective as of date accordingly we conclude that plan x is a church_plan within the meaning of sec_414 of the code and has been a church_plan within the meaning of sec_414 of the code retroactive to date this ruling is directed solely to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this letter expresses no opinion as to whether plan x continues to be a qualified_plan under sec_401 of the code the determination as to whether a plan remains qualified under sec_401 a is within the jurisdiction of the appropriate office of the internal_revenue_service in accordance with a power_of_attorney on file with this office this letter is being sent to your authorized representative if you have any questions regarding this ruling you may contact at - sincerely yours ch the fer i jee alan pipkin manager employee_plans technical group tax_exempt_and_government_entities_division enclosures notice of intention to disclose deleted copy of letter


internal_revenue_service number release date index number ------------------------------------------------------------ ------------ --------------------------------------- ------------------------------------------------ ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no -------------- telephone number ---------------------- refer reply to cc psi plr-110341-16 date date trust a b c date date year state court ---------------------------------------------------------------------------------------------- ---------------------------------- ---------------------------------------------------------------------------------------------- -------------------------------- ---------------------------------------------------------------------------------------------- -------------------------------- ---------------------------------------------------------------------------------------------- -------------------------------------- ---------------------------- ------------------ ------- ---------- ---------------------------------------------------------------------- dear ------------------ this responds to your authorized representative’s letter dated date in which you requested rulings regarding a proposed division of a charitable_remainder_trust plr-110341-16 the facts submitted and the representations made are as follows a established trust on date b is a’s wife c is the trustee of trust a b and c represent that trust qualifies as a charitable_remainder_unitrust crut described in sec_664 of the internal_revenue_code the code while a and b took a deduction under sec_170 of the code at the time trust was established trust represents that no deduction was allowed under sec_170 sec_642 sec_2055 or sec_2522 with respect to the income_interest of any lifetime beneficiary a and b were married prior to date and thereafter during their marriage a and b have been residents of state a and b agreed to divorce and have filed in court a petition and cross-petition for dissolution of their marriage on date a and b incident to the divorce proceedings executed a written_agreement in settlement of their respective marital property rights the agreement under the agreement a and b agreed to delay entry of the final judgment of divorce until receipt of a private_letter_ruling from the irs a and b anticipate securing the final decree of divorce from court in year as part of their marriage dissolution proceedings a and b contemplate dividing trust into two new charitable_remainder unitrusts trust a and trust b a and b will execute a property settlement agreement which will specify the percentage division of trust between trust a and trust b as a result of the division of trust assets trust a and trust b will hold a pro_rata share of each asset of trust’s corpus a anticipates paying all expenses incident to the division of trust the general terms of trust a and trust b will be the same as those of trust with the following exceptions a and b will each possess no interest in the other’s charitable_remainder_unitrust on a’s death all the remaining assets in trust a will be distributed to the charitable beneficiaries designated by him and upon b’s death all remaining assets in trust b will be distributed to the charitable beneficiaries designated by her a and b will each be the sole non-charitable beneficiary of trust a and trust b respectively and a and b will receive their unitrust payments from their respective trusts trust a and b have requested rulings on the effect of trust’s division into trust a and trust b law and analysis ruling sec_664 provides generally that a charitable_remainder_unitrust shall be exempt from federal_income_tax plr-110341-16 sec_664 provides that a charitable_remainder_unitrust is a_trust a from which a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in sec_664 and other than qualified gratuitous transfers described in sec_664 may be paid to or for_the_use_of any person other than an organization described in sec_170 c following the termination of the payments described in sec_664 the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in sec_170 or is to be retained by the trust for such a use or to the extent the remainder_interest is in qualified_employer_securities as defined in sec_664 all or part of such securities are to be transferred to an employee_stock_ownership_plan as defined in sec_4975 in a qualified_gratuitous_transfer as defined by sec_664 and d with respect to each contribution of property to the trust the value determined under sec_7520 of such remainder_interest in such property is at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust based solely on the facts and the representations submitted that each of trust trust a and trust b meet the requirements of sec_664 the division of trust into trust a and trust b will not cause either trust trust a or trust b to fail to qualify as charitable_remainder trusts under sec_664 ruling sec_61 and of the internal_revenue_code provides that gross_income includes gains derived from dealings in property and income from an interest in a_trust sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized from the disposition 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 for determining loss over the amount_realized sec_1001 states that the amount_realized from the sale_or_other_disposition of property is the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 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 must be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for plr-110341-16 other_property differing materially either in_kind or in extent is treated as income or loss sustained a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result of the partition thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 conversion of a joint_tenancy in stock to a tenancy_in_common in order to eliminate the survivorship feature and the partition of a joint_tenancy in stock are not sales or exchanges similarly divisions of trusts are also not sales or exchanges of trust interests where each asset is divided pro_rata among the new trusts see revrul_69_486 1969_2_cb_159 pro_rata distribution of trust assets not a sale_or_exchange here the division of trust into trust a and trust b will not result in any shift in beneficial_interest in the assets of trust accordingly the division of trust as described will not result in the realization of gain_or_loss under sec_61 and sec_1001 in addition because the division of trust is not a taxable_event under sec_1001 the holding_period of the assets that trust a and trust b receive from trust will include the period that trust held those assets ruling sec_1041 provides that no gain_or_loss will be recognized on a transfer of property from an individual to or in trust for the benefit of a spouse or former spouse if the transfer is incident to the divorce under sec_1041 for the purposes of subtitle a of the internal_revenue_code the transferee is treated as having acquired the property by gift from the transferor with a carryover_basis from the transferor under sec_1041 the transfer of property is incident to the divorce if the transfer occurs within one year after the date the marriage ceases or is related to the cessation of the marriage sec_1 1041-lt b q a-7 of the income_tax regulations provides that a transfer of property is related to the cessation of the marriage if the transfer is pursuant to a divorce_or_separation_instrument as defined in sec_71 b and the transfer occurs not more than six years after the date on which the marriage ceases sec_1223 provides that a taxpayer’s holding_period for acquired property includes the period the property was held by any other person if under chapter one of the code the 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 the other person in the present case the partition of trust into trust a and trust b is a transfer by a of a portion of his interest in trust to b incident to their divorce therefore under sec_1041 neither a nor b has gain_or_loss on the division of trust into trust a and plr-110341-16 trust b in addition under sec_1041 b’s basis in trust b will be a pro_rata portion of a’s basis in trust as a result b’s holding_period in trust b will include a’s holding_period in trust a’s basis in trust a will be a pro_rata portion of his basis in trust ruling sec_2501 imposes a gift_tax for each calendar_year on the transfer of property by gift during the calendar_year sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that where property is transferred for less than an 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 shall be deemed a gift and shall be included in computing the amount of gifts made during the calendar_year sec_25_2512-8 of the gift_tax regulations provides in relevant part that a relinquishment or promised relinquishment of dower or curtesy or of a statutory estate created in lieu of dower or curtesy or other marital rights in the spouse’s property or estate shall not be considered to any extent a consideration in money or money’s worth however sec_25_2512-8 indicates that sec_2516 and the regulations thereunder provide specific rules with respect to certain transfers incident to a divorce sec_2516 provides in relevant part that where a husband and wife enter into a written_agreement relative to their marital and property rights and divorce occurs within the three-year period beginning on the date one year before such agreement is entered into whether or not such agreement is approved by the divorce decree any transfers of property or interests in property made pursuant to such agreement to either spouse in settlement of his or her marital or property rights shall be deemed to be transfers made for a full and adequate_consideration in money or money’s worth sec_25_2516-1 provides that transfers of property or interests in property made under the terms of a written_agreement between spouses in settlement of their marital or property rights are deemed to be for an adequate_and_full_consideration in money_or_money's_worth whether or not the agreement is approved by a divorce decree if the spouses obtain a final decree of divorce from each other within two years after entering the agreement in this case a and b entered into the written property settlement agreement on date a and b expect a final divorce decree to be entered the same year provided a’s and b’s divorce occurs within two years of date we rule that the division of trust and the plr-110341-16 pro_rata distribution of trust’s assets to trust a and trust b will be treated as transfers made for full and adequate_consideration in money or money’s worth and therefore will not be subject_to gift_tax under sec_2501 ruling sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_20_2036-1 of the estate_tax regulations provides that if the decedent retained or reserved an interest or right with respect to all of the property transferred by him the amount to be included in his gross_estate under sec_2036 is the value of the entire property less only the value of any outstanding income_interest which is not subject_to the decedent’s interest or right and which is actually being enjoyed by another person at the time of the decedent’s death if the decedent retained or reserved an interest or right with respect to only a part of the property transferred by him the amount to be included in his gross_estate under sec_2036 is only a corresponding proportion of the amount described in the preceding sentence sec_2055 provides for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the amount of all transfers for charitable purposes sec_20_2055-1 provides that a deduction is allowed under sec_2055 from the gross_estate of a decedent who was a citizen or resident_of_the_united_states at the time of his death for the value of property included in the decedent’s gross_estate and transferred by the decedent during his lifetime or by will for charitable purposes sec_2055 provides in relevant part that where an interest in property other than an interest described in sec_170 passes or has passed_from_the_decedent to a person or for a use described in sec_2055 and an interest other than an interest plr-110341-16 which is extinguished upon the decedent’s death in the same property passes or has passed for less than an adequate_and_full_consideration in money or money’s worth from the decedent to a person or for a use not described in sec_2055 no deduction shall be allowed under sec_2055 for the interest which passes or has passed to the person or for the use described in sec_2055 unless in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 in this case a and b entered into the agreement incident to their anticipated divorce which we assume for purposes of this ruling will occur within the time period specified in sec_2516 pursuant to the agreement each party has given up certain property rights and interests in exchange for the release by the other party of property rights and interests a and b have effectively agreed upon what percentage of the value of trust resulted from the contribution of each and as a result upon what percentage each party is entitled to after divorce accordingly we conclude that for purposes of sec_2036 a will be treated as having transferred the property distributed from trust to the new charitable_remainder_unitrust of which a is the non-charitable beneficiary and b will be treated as transferring the property distributed from trust to the new charitable_remainder_unitrust of which b is the non-charitable beneficiary a and b each retained the right to receive unitrust payments for life from his or her respective trust as well as the lifetime power over his or her respective trust to substitute the charitable beneficiaries designated in the trust instrument with one or more other charitable organizations described in sec_170 sec_170 sec_642 sec_2055 and sec_2522 with respect to a we rule that upon a’s death if a retains the right to receive unitrust payments for life and the power to substitute the charitable beneficiaries of trust a the value of the assets of trust a will be included in a’s gross_estate under sec_2036 further we rule that a’s estate will be entitled to an estate_tax charitable deduction under sec_2055 for the value of the assets of trust a that will pass upon a’s death to the charitable beneficiaries designated by a with respect to b we rule that upon b’s death if b retains the right to receive unitrust payments for life and the power to substitute the charitable beneficiaries designated of trust b the value of the assets of trust b will be included in b’s gross_estate under sec_2036 further we rule that b’s estate will be entitled to an estate_tax charitable deduction under sec_2055 for the value of the assets of trust b that will pass upon b’s death to the charitable beneficiaries of designated by b rulings and plr-110341-16 sec_507 provides that except as provided in sec_507 a private_foundation may terminate its private_foundation_status only if the private_foundation notifies the secretary of its intent to terminate its status as a private_foundation or it is involuntarily terminated by the secretary due repeated acts or a willful and flagrant act giving rise to chapter liability sec_507 provides that in the case of the transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as a newly created organization sec_507 imposes an excise_tax on any private_foundation which voluntarily terminates its private_foundation_status under sec_507 sec_507 provides that the term substantial_contributor means any person who contributed or bequeathed an aggregate amount of more than dollar_figure to the private_foundation if such amount is more than percent of the total contributions and bequests received by the foundation before the close of the taxable_year of the foundation in which the contribution or bequest is received by the foundation from such person in the case of a_trust the term substantial_contributor also means the creator of the trust sec_4941 provides that the term self-dealing includes any direct or indirect sale_or_exchange or leasing between a private_foundation and a disqualified_person sec_4941 provides that the term self-dealing includes any direct or indirect transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4945 imposes an excise_tax on each taxable_expenditure described in sec_4945 made by a private_foundation sec_4945 defines the term taxable_expenditure to include amounts paid_or_incurred by a private_foundation for certain activities for a purpose other than one specified in sec_170 or as a grant to certain organizations unless the private_foundation exercises expenditure_responsibility with respect to such a grant sec_4945 provides that a taxable_expenditure includes any amount_paid or incurred by a private_foundation as a grant to an organization unless the private_foundation exercises expenditure_responsibility with respect to such grant in accordance with sec_4945 sec_4946 b and d defines the term disqualified_person with respect to a private_foundation as including among others a substantial_contributor to the private plr-110341-16 foundation including the creator of a_trust a foundation_manager including a trustee and a member_of_the_family of a substantial_contributor or foundation_manager sec_4946 provides that substantial_contributor is defined as the term is described in sec_507 sec_4947 provides that for a split interest charitable_trust sec_507 sec_508 sec_4941 sec_4943 sec_4944 and sec_4945 apply as if such trust were a private_foundation sec_4947 provides that the provisions of sec_4947 do not apply to any amounts payable under the terms of a split interest charitable_trust to income beneficiaries unless a deduction was allowed under sec_170 sec_642 sec_2055 or sec_2522 sec_1_507-1 provides in part that if a private_foundation transfers all or part of its assets to one or more other private_foundations pursuant to a transfer described in sec_507 and sec_1_507-3 such transferor foundation will not have terminated its private_foundation_status under sec_507 sec_1_507-3 provides in general that in the event of a transfer of assets described in sec_507 any person who is a substantial_contributor within the meaning of sec_507 with respect to the transferor foundation shall be treated as a substantial_contributor with respect to the transferee foundation sec_1_507-3 provides in part that except as provided in sec_1 a if the transferor has disposed of all of its assets then during any period in which the transferor has no assets sec_4945 and h shall not apply to the transferee or the transferor with respect to any expenditure_responsibility grants by the transferor sec_1_507-3 provides that if a private_foundation transfers all of its assets to one or more private_foundations which are effectively controlled directly or indirectly by the same person or persons which effectively controlled the transferor private_foundation for purposes of chapter sec_4940 et seq and part ii of subchapter_f of chapter of the code sec_507 through such a transferee private_foundation shall be treated as if it were the transferor private_foundation sec_1_507-3 in pertinent part that as used in sec_507 the terms other adjustment organization or reorganization include any partial_liquidation or any other significant disposition of assets to one or more private_foundations other than transfers for full and adequate_consideration or distributions out of current income sec_1_507-3 provides that the term significant disposition of assets means the transfer of twenty-five percent or more of the fair_market_value of the plr-110341-16 net assets of the foundation at the beginning of the taxable_year which disposition may be made in a single year or in a series of related dispositions over more than one year sec_1_507-3 provides that unless a private_foundation voluntarily gives notice pursuant to sec_507 a transfer of assets described in sec_507 will not constitute a termination of the transferor's private_foundation_status under sec_507 sec_53_4945-5 of the foundation regulations confirms that sec_1 a a ii f and a govern the extent to which the expenditure_responsibility_rules contained in sec_4945 and h apply to transfers of assets described in sec_507 sec_53_4945-6 provides that expenditures_for unreasonable administrative expenses including compensation consultant fees and other fees for services will ordinarily be taxable_expenditures under sec_4945 sec_53_4945-6 states that a transfer of assets described in sec_1 c of the regulations applies only to organizations described in sec_501 or treated as so described under sec_4947 sec_53_4947-1 provides that a split-interest trust is subject_to the provisions of sec_507 except as provided in sec_53_4947-1 e to the extent applicable to a split-interest trust except as provided in sec_4947 except as provided in sec_4947 and of the code in the same manner as if such trust were a private_foundation sec_53_4947-1 of the foundation regulations provides that under sec_4947 sec_4941 does not apply to any amounts payable under the terms of a split interest trust to income beneficiaries unless a deduction was allowed under sec_170 sec_642 sec_2055 or sec_2522 with respect to the income_interest of any such beneficiary revrul_2002_28 2002_20_irb_941 provides in part that once a private_foundation distributes all of its assets to one or more other effectively controlled private_foundations under a plan of dissolution the obligation to exercise expenditure_responsibility under sec_4945 with respect to the transfers made by the transferor foundation passes from that foundation to the transferee foundation s revrul_2008_41 2008_30_irb_170 provides guidance regarding sec_507 sec_4941 sec_4945 and sec_4947 when a charitable_remainder_trust is divided into two or more separate and equal charitable_remainder trusts ruling plr-110341-16 as a split-interest trust trust is generally treated as if it were a private_foundation under sec_4947 thus except as provided in sec_4947 and sec_53_4947-1 of the foundation regulations it is subject_to the termination provisions of sec_507 as well as the provisions of sec_4941 and sec_4945 under sec_1_507-3 the proposed division of all of trust’s assets to trust a and trust b will constitute a significant disposition of trust’s assets because the transfer is greater than twenty-five percent of trust's assets trust a and trust b will both be treated as private_foundations with respect to sec_507 pursuant to sec_4947 therefore the proposed transfers are described in sec_507 a division of assets described in sec_507 does not constitute a termination of the transferor's private_foundation_status under sec_507 unless the transferor voluntarily gives notice pursuant to sec_507 since trust has not given notice of its intent to terminate it retains its private_foundation_status and the termination_tax imposed by sec_507 will not apply accordingly the division and distribution of trust assets into trust a and trust b does not terminate trust 's status under sec_507 as a_trust described in and subject_to the private_foundation provisions of sec_4947 and does not result in the imposition of an excise_tax under sec_507 ruling as a crut under sec_664 trust is a split-interest trust described in sec_4947 and treated as a private_foundation for purposes of sec_4941 sec_4941 imposes an excise_tax on acts of self-dealing a and b are disqualified persons with respect to trust under sec_4946 as substantial contributors to trust however the only interest a and b have in trust is the right to the payment of the unitrust_amount after division of trust the total unitrust_amount payment remains the same during the lives of a and b since the transferee cruts do not have survivorship provisions when a or b dies the remainder of each of their cruts is immediately distributed to qualified charities sec_4947 and sec_53_4947-1 provide that sec_4941 does not apply to any amounts payable under the terms of a split interest trust to income beneficiaries unless a deduction was allowed under sec_170 sec_642 sec_2055 or sec_2522 with respect to the income_interest of any such beneficiary based on the representation that no such deduction was allowed payments to a from trust a and to b from trust b as income beneficiaries will not be acts of self-dealing under sec_4941 ruling as a crut under sec_664 trust is a split-interest trust described in sec_4947 and treated as a private_foundation for purposes of sec_4945 thus an excise_tax is imposed on taxable_expenditures including any amount_paid or incurred by a private_foundation for a non-charitable purpose_trust a and trust b as charitable_remainder unitrusts under sec_664 are also treated as private_foundations for purposes of sec_4945 under the provisions of sec_4947 however pursuant to sec_4947 plr-110341-16 amounts payable to income beneficiaries under the terms of such a charitable_remainder_trust are not subject_to the provisions of sec_4945 unless a deduction was allowed for those amounts under sec_170 sec_2055 or sec_2522 based on the representation that no such deduction was allowed payments to a from trust a and to b from trust b as income beneficiaries will not be taxable_expenditures under sec_4945 trust will transfer all of its assets to trust a and trust b thus under revrul_2008_41 the transfer of trust’s assets are not expenditures that require expenditure_responsibility pursuant to sec_1_507-3 or sec_1_507-3 because trust has made no prior distributions for which expenditure_responsibility is required trust a and trust b assume no preexisting expenditure_responsibility from trust under sec_1_507-3 or sec_1_507-3 therefore the division of trust and the distribution of its assets to trust a and trust b do not constitute taxable_expenditures under sec_4945 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 furthermore the estate_tax rulings in this letter apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent 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 a power_of_attorney on file with this office a copy of this letter is being sent to trust’s authorized representative sincerely bradford poston senior counsel branch office of the associate chief_counsel passthroughs special industries cc