internal_revenue_service department of the treasury washington oc contact person telephone number in reference to date t ep ra t3 mar ae asl y4 qo 4d 00-0v legend association a entity g plan x plan y state o state m dear in correspondence dated date your authorized representatives requested a ruling on your behalf that the employee benefit plans maintained by entity g quality as church plans under sec_414 of the internal_revenue_code the following facts and representations have been submitted on your behalf entity g is a not-for-profit religious corporation organized and operated under the laws of state o entity g received a determination_letter in which the internal_revenue_service recognized entity g as exempt from federal income_taxation under sec_501 and sec_501 of the code as an integrated auxiliary of an association of churches association a pursuant to sec_170 and sec_1_6033-2 of the income_tax regulations association a is a not-for-profit state m corporation exempt from federal income_taxation under sec_501 as a convention or association of churches entity g is exempt from the form_990 annual filing requirement as an integrated auxiliary of a convention or association of churches under sec_6033 the general purposes for which entity g was formed are to preach the gospel of jesus christ to conduct and extend missionary work to lead souls to a saving knowledge of our lord jesus christ to teach the word of god and to instruct and edify the body of christ by a true and faithful ministry of his precious word to train and raise up workers for mission fields both within the united_states of america and abroad and to establish maintain and conduct schools_for training missionaries to spread the gospel of jesus christ to all of humanity and to that end to use all methods of communication including but not limited to public speech concerts audio-visual recordings and the publication printing duplication and dissemination of the written word entity g has all such powers as may be necessary to carry out its purposes page including the power to pay reasonable_compensation to any person or organization for services rendered and to make distributions in pursuance of its purposes pursuant to entity g's articles of incorporation and bylaws entity g is controlled by and associated with association a sec_5 of entity g's bylaws provides that when applicable law the corporation's articles or the corporation's bylaws as amended from time to time refer to the 'members' of the corporation said term shall be construed to mean the then current members of the board_of directors of association a a state m religious corporation sec_3_3 of entity g’s bylaws provides that entity g's board_of directors shall be elected by the association a board_of directors article of entity g’s bylaws provides that entity g shares a statement of faith in common with association a section dollar_figure of entity g’s bylaws incorporates the association a book of discipline as the standard for determining whether an entity g director may be removed as explained in bylaws sec_3 an entity g director may be removed by the entity g board in accordance with the association a book of discipline section of entity g's bylaws provides that it shall provide the audited financial statements as well as any periodic financial statements to the board_of directors of association a for their timely review and consultation sec_9_1 of entity g's bylaws provides a special process for amending the bylaws to alter the manner of election of directors this process requires among other things approval by percent of the then current directors of entity g and by percent of the then current directors of association a plan x is a defined contribution retirement savings_plan described in sec_401 of the code established by entity g for the benefit of certain entity g employees the effective date of plan x is date entity g is the employer and plan_administrator for plan x as those terms are defined in article of the plan x document article viii section delegation of authority of the plan x document provides that all or any part of the administrative duties and responsibilities of the plan_administrator under this article may be delegated by the plan_administrator to a retirement committee the duties and responsibilities of the retirement committee shall be set out in a separate written_agreement by board resolution adopted by unanimous written consent on or about date the board_of directors of association a established a retirement committee as that term is defined in the plan x document to maintain and administer plan x and to exercise all of the duties and responsibilities of the plan_administrator as delegated and ultimately supervised by the entity g board this association a board resolution also a appointed all members of this retirement committee that serves as plan_administrator of plan x b provided that the retirement page -_ committee and all members thereof shall serve at the convenience of association a and may be removed by the association a board and c gave association a the ability to fill all vacancies on the retirement committee concurrently by board resolution adopted by unanimous written consent on or about date the board_of directors of entity g expressly recognized this retirement committee established and appointed by the board_of directors of association a and delegated to this retirement committee entity g's administrative duties and responsibilities as plan_administrator of plan x pursuant to article viii section dollar_figure of the plan x document to the extent permitted by the plan x document and applicable aws this entity g resolution also invested in the board_of directors of association a full authority to define the structure and membership of this retirement committee and to appoint and remove all members of this retirement committee consistent with the plan x document and applicable laws this retirement committee established and appointed by the board_of directors of association a exercises all of the administrative duties and responsibilities of the plan_administrator of plan x in accordance with the plan x document the principal purpose or function of the retirement committee is the administration of plan x plan y is an employee_benefits plan comprised of the gold silver comprehensive and dental plans established by entity g and association a to provide certain medical benefits for certain entity g employees pursuant to a resolution of the board_of directors of entity g adopted by unanimous written consent on or about date the first paragraph of the section of the plan y document was amended effective date to provide as follows plan_administrator plan y is the benefit plan of entity g an integrated auxiliary controlled by and associated with association a it has been established and is maintained by association a which has appointed a plan administration committee to serve as the plan_administrator also called the plan_sponsor it is to be administered by the plan_administrator in accordance with the provisions of the employee_retirement_income_security_act_of_1974 the plan administration committee shall serve as plan_administrator at the convenience of association a member thereof resigns dies or is otherwise removed from the position association a shall appoint a new plan_administrator or member thereof as soon as is reasonably possible if the plan_administrator or any by board resolution adopted by unanimous written consent on or about date the board_of directors of association a established a plan administration committee to serve as plan_administrator as that term is defined in the plan y documents and applicable law of plan y this association a board resolution also appointed all members of this plan administration committee who serve at the convenience of and therefore may be removed by the association a board the principal purpose or function of the plan administration committee is the administration of plan y page os based on the aforementioned facts and representations your authorized representative requests a ruling that plans x and y qualify as church plans in accordance with sec_414 of the code sec_414 of the code 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 which is exempt from taxation under sec_501 of the code sec_414 of the code provides that a plan otherwise qualified will qualify as a church_plan if it is 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 sec_414 of the code defines employee to include a duly ordained commissioned or licensed minister of a church in the exercise of a ministry regardless of the source of his or her compensation and 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_50 shall be deemed the employer of any individual included as an employee under subparagraph b sec_414 of the code provides that an organization whether a civil law corporation or otherwise is associated with a church_or_convention_or_association_of_churches ifthe organization shares common religious bonds and convictions with that church_or_convention_or_association_of_churches in order for an organization to have a qualified church_plan it must establish that its employees are employees or deemed employees of the church_or_convention_or_association_of_churches under sec_414 of the code by virtue of the organization's affiliation with the church_or_convention_or_association_of_churches and that the plan will be administered by an organization of the type described in sec_414 you have represented that under entity g’s bylaws the members of the association a board_of directors serve as the members of entity g that the entity g board_of directors is elected by association a's board_of directors and that entity g is an integrated auxiliary of association a an association of churches dedicated to carrying out a common religious mission therefore the employees of entity g under the principles of sec_414 of the code are deemed to be employees of a church or a convention or association of churches however an organization must also establish that its retirement and welfare plans are established and maintained by a church or a convention or association of churches since entity g is not in itself a church plans x and y must be maintained either by association a or by an page organization described in sec_414 of the code to be described in sec_414 of the code an organization must have as its principal purpose the administration of the plan and must also be controlled by or associated with a church_or_convention_or_association_of_churches it has been submitted that plans x and y are managed and controlled by a retirement committee and plan administration committee respectively under an entity g resolution the board_of directors of association a has full authority to define the structure and membership of this retirement committee and to appoint and remove all members of this retirement committee consistent with the plan x document and applicable laws this retirement committee exercises all of the administrative duties and responsibilities of the plan_administrator of plan x in accordance with the plan x document also it has been submitted that association a appointed a plan administration committee to serve as the plan_administrator of plan y and that the plan administration committee shall serve as plan_administrator for plan y at the convenience of association a the principal purpose or function of the retirement committee and plan administration committee is the administration of plans x and y respectively as such the retirement committee and plan administration committee are organizations described in sec_414 of the code therefore we conclude that plans x and y are church plans within the meaning of sec_414 of the code these conclusions apply only with respect to the organizations identified in this ruling and express no opinion with respect to organizations that subsequently adopt plans x and y this ruling is directed only 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 satisfies the requirements for qualification under sec_401 of the code the determination as to whether a plan is qualified under sec_401 a is within the jurisdiction of the appropriate key district director's office of the internal_revenue_service a copy of this letter has been sent to your authorized representatives in accordance with a power_of_attorney on file in this office sincerely yours feances u hear frances v sloan manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of this letter notice of intention to disclose


t c summary opinion united_states tax_court keith robert caldwell petitioner v commissioner of internal revenue respondent docket no 9011-08s filed date keith robert caldwell pro_se scott little for respondent morrison judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure background petitioner keith robert caldwell1 resided in virginia at the time his petition was filed this case which relates to caldwell’s tax is very similar to caldwell v commissioner t c summary opinion which related to his tax the procedural history of each case is similar in the following respects caldwell filed a petition disputing respondent irs’s disallowance of his alimony deduction for the relevant year the irs conceded that the alimony deduction was to be allowed in full and that he would have no deficiency for the year the irs conceded the previous case ie the case relating to his tax because caldwell supplied additional substantiation for the alimony deduction including a the court order requiring caldwell to pay the alimony and b documents showing that the amount of retirement income caldwell reported on his return was being reported to him gross not net of the alimony a tax deduction in the latter situation would have been duplicative we infer that this additional substantiation may 1caldwell has previously represented to the court that he has a doctorate in management be what led the irs to concede the alimony deduction in this case as well caldwell refused to agree to any stipulations reflecting the irs’s concession in the previous case he refused to agree to the stipulations at least in part because he wanted the irs to also stipulate an issue relating to his tax_year even though the court advised him that the issue was not before it and to stipulate that it would not audit him with respect to the alimony issue for other years we do not know why he refused to agree to stipulations in this case he simply stated that he would not do so until the court responded to the motion discussed below caldwell filed a motion for a reasonable litigation and administrative costs under sec_7430 and b other types of relief that we do not have authority to provide caldwell’s request in the previous case purportedly entirely under sec_7430 was for dollar_figure tax-free we infer from the amount requested the absence of any indication that he had costs potentially recoverable under that section which generally allows recovery only of a taxpayer’s direct costs of an audit or litigation such as accountant’s and attorney’s fees and court costs and his vague reference in the motion in that case to significant physical and mental harm as well as financial loss that most of the amount instead reflected compensation_for generalized distress caused by the litigation and preceding audit caldwell’s request in this case is for reasonable litigation and administrative costs and for an apology from the commissioner of internal revenue and a change in the irs’s procedures to protect him from erroneous audits caldwell titled the motion in this case ie the case motion to require the respondent to provide a written letter of apology to the petitioner and to reimburse the petitioner administrative costs related to filing and processing legal actions relevant to this case for convenience we refer to the parts requesting reimbursement of costs as the request for costs and to the parts requesting an apology and other relief as the request for apology the irs filed an objection to the motion in this case which we discuss below to the extent necessary to decide the motion in neither case did caldwell’s motion state nor did anything else before the court indicate what caldwell’s litigation and administrative costs were aside from a dollar_figure filing 2rule b requires in relevant part that unless otherwise permitted by the court motions shall be separately_stated and not joined together although caldwell’s motion might more properly have been made as two separate motions we decline to question it on that ground because neither the irs’s ability to respond to the motion nor the court’s ability to decide it have been adversely affected see rule d the court’s rules shall be construed to secure the just speedy and inexpensive determination of every case fee for each case or suggest that the costs were substantial caldwell did not pay a lawyer or other representative to represent him in this case in the previous case the court issued an order on date before caldwell filed the foregoing motion in that case or the corresponding motion in this case which provided in part as follows at an oral status report on this matter petitioner indicated his desire to seek administrative and or litigation costs pursuant to sec_7430 and rule et seq fn ref omitted the court advises petitioner that litigation and administrative costs are limited to substantiated out of pocket costs incurred in addressing the tax dispute currently before the court in the event that petitioner elects to request an award of reasonable litigation and administrative costs pursuant to sec_7430 petitioner should review sec_7430 and follow the requirements outlined in rules through particularly rule b requiring certain specific assertions and d requiring an affidavit describing the costs in sec_4 of his petition petitioner states in part the petitioner’s requested relief in this matter is dollar_figure in his date memorandum petitioner demands a dollar_figure tax-free payment from the government to avoid public disclosure of respondent’s actions in challenging petitioner’s claimed alimony deduction the tax_court is a court with jurisdiction strictly limited by statute we may exercise our jurisdiction only to the extent authorized by congress see sec_7442 85_tc_527 petitioner should be mindful of the court’s limited jurisdiction in any claim he might choose to make in this proceeding for example the tax_court does not have jurisdiction to consider claims for punitive_damages against the internal_revenue_service 122_tc_272 petito v commissioner t c memo see also chocallo v commissioner t c memo discussion no deficiency or overpayment the irs has conceded all issues other than those relating to caldwell’s motion discussed below and we accept the irs’s concessions accordingly the court will enter a decision of no deficiency or overpayment for caldwell’s taxable_year see 105_tc_436 it is within this court’s discretion to accept or reject a concession request for apology the part of caldwell’s motion which we characterize as a request for apology asks that we require the irs to enter into the record a written apology to the petitioner signed by the commissioner internal_revenue_service which must explain the steps that the irs has taken to prevent future acts of erroneous tax audits that were demonstrated in the irs audit of the petitioner’s tax filings for and the tax_court may exercise jurisdiction only to the extent authorized by congress see sec_7442 85_tc_527 the question of the court’s jurisdiction is fundamental and must be addressed when raised by a party or on the court’s own motion see 81_tc_879 if we find that we do not have jurisdiction to consider an issue then despite a party’s choice of the tax_court as a forum to settle the dispute we may not decide the issue naftel v commissioner supra pincite despite the court’s warning to him in the previous case that the court’s powers to grant relief are limited caldwell has not stated why he believes that we have jurisdiction to order the commissioner of internal revenue to apologize to him or to order the irs prospectively to change its procedures the irs objected to the request for apology on the ground that congress has not through sec_7430 relating to administrative or litigation costs or otherwise authorized us to grant such relief we agree we lack jurisdiction to order the irs to grant the relief requested in the request for apology or similar relief and will accordingly deny the request for apology request for costs we construe the remainder of caldwell’s motion request for costs as a motion for reasonable litigation and administrative costs under sec_7430 caldwell has not stated what rule_of 3the irs further argued that the federal government’s sovereign immunity would prevent us from granting such relief since nothing of which we are aware even suggests we could grant the relief we need not consider whether sovereign immunity prevents us from granting it law may authorize us to consider the request for costs but we are not aware of any other than possibly sec_7430 rule b requires that a sec_7430 motion be in writing and contain among other things a statement that the moving party has exhausted the administrative remedies available to such party within the irs a statement that the moving party has not unreasonably protracted the court_proceeding and if the claim includes a claim for administrative costs the administrative_proceeding and a statement of the specific litigation and administrative costs for which the moving party claims an award supported by an affidavit in the form specified by rule d despite being directed by this court to present his motion for costs in the previous case in accordance with rule and receiving an explanation in the court’s opinion in that case that his failure to do so was one of the reasons his motion for costs was denied caldwell appears to have ignored rule b entirely in filing the request for costs he did not include any of the statements discussed above or ever indicate what his administrative or litigation costs may have been aside from his dollar_figure filing fee the irs objected to caldwell’s request for costs stating among other things that caldwell failed to exhaust his administrative remedies failing for example to participate in an irs appeals_office conference that he unreasonably protracted administrative and court proceedings by not responding to an irs auditor’s requests for information and by refusing to agree to the irs’s full concession of this case aside from the motion and that he failed to state what costs he is claiming since it is clear that caldwell failed to state that he exhausted his administrative remedies within the irs--and the record before the court does not otherwise indicate that he exhausted them--we shall simply deny the motion on that ground although rule b provides that t rials of small tax cases will be conducted as informally as possible consistent with orderly procedure and we on occasion relax procedural rules in such cases we see no reason to direct that any further action be taken before denying the request for costs for failure to comply with our rules which sec_7463 authorizes us to apply to a 4the request for costs does not clearly indicate whether it seeks administrative costs which sec_7430 defines basically as costs associated with an irs audit litigation costs which sec_7430 defines basically as costs associated with a tax_court case or both we infer from its title’s reference to filing and processing legal actions relevant to this case and its statement that the irs forced him to file the petition that the motion seeks litigation costs at least we observe from the absence of any mention in the record before the court of an unsuccessful request to the irs for administrative costs that caldwell likely did not make such a request such a failure would leave us without jurisdiction even to consider whether to award him administrative costs see sec_7430 f bent v commissioner tcmemo_2009_146 a taxpayer who wants to claim administrative costs must first file an application with the irs and then file a petition with the tax_court so-called small_tax_case such as this one although this court has twice before explained to caldwell that a motion for administrative or litigation costs must conform to sec_7430 and rules he has made no effort to comply with these rules moreover he declined the court’s offer at a calendar call for this case in a trial session at washington d c close to his address--his home we infer--in an outer suburb of the city to schedule a hearing to discuss the case and motion the court has considered all of caldwell’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service number release date index number 6050p ---------------------------- ----------------------------- -------------------------------------------- ----------------------- ------------------------------ 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 pa plr-147680-09 date february february legend entity entity entity state x date date date asset collection remedy ----------------------------------- -------------------------------------------- -------------------------------------- ---------------------------- ----------- ------------------------- ------------------------- ---------------------- --------------- dear ---------------------------- this letter responds to the letter dated date submitted on behalf of entity requesting the following ruling entity is not required to file forms 1099-c with respect to the write-off of balances and charges pursuant to its settlement agreement because the discharge was not the result of an identifiable_event listed in sec_1_6050p-1 but rather was required by operation of state law facts entity is a financial_institution chartered by state x providing its members thrift services such as checking and savings accounts certificates of deposit a source of credit and other fiscal and financial_services_entity was a financial_institution chartered by state x which provided similar services to its members entity is the surviving party and successor to entity by merger effective date entity was a plr-147680-09 service company that offered asset sale installment contracts from dealers to financial institutions for the financing of assets and serviced such contracts including when necessary initiating default proceedings on behalf of the financial_institution that held a security_interest in the asset entity acquired several asset loan installment contracts and retained entity for servicing collection and enforcement on those contracts on date a class action lawsuit was filed by consumers in state x against entity and entity alleging violations of state x state law with respect to asset financing contracts owned by entity and serviced by entity the lawsuit alleged several violations of state x law including that notices related to collection remedy did not meet statutory notice requirements entity was subsequently dismissed from the lawsuit and entity was ordered to be the proper remaining defendant pursuant to its merger with entity on date entity and class plaintiffs signed a memorandum of understanding mou settling the entire class action lawsuit the mou provides inter alia that the lawsuit be dismissed with prejudice and that entity has agreed under the mou to close all accounts and write off all balances owed including judgment balances law analysis sec_6050p of the internal_revenue_code requires that an applicable_entity report any discharges in whole or in part of indebtedness of any person in excess of dollar_figure in addition sec_1_6050p-1 of the treasury regulations provides that a discharge_of_indebtedness occurs if one of the following identifiable events takes place a a discharge_of_indebtedness under title of the united_states_code bankruptcy b a cancellation or extinguishment of an indebtedness that renders a debt unenforceable in a receivership foreclosure or similar proceeding in a federal or state court as described in sec_368 other than a discharge described in paragraph b i a of this section c a cancellation or extinguishment of an indebtedness upon the expiration of the statute_of_limitations for collection of an indebtedness subject_to the limitations described in paragraph b ii of this section or upon the expiration of a statutory period for filing a claim or commencing a deficiency judgment proceeding d a cancellation or extinguishment of an indebtedness pursuant to an election of foreclosure remedies by a creditor that statutorily extinguishes or bars the creditor's right to pursue collection of the indebtedness e a cancellation or extinguishment of an indebtedness that renders a debt unenforceable pursuant to a probate or similar proceeding f a discharge_of_indebtedness pursuant to an agreement between an applicable_financial_entity and a debtor to discharge indebtedness at less than full consideration g a discharge_of_indebtedness pursuant to a decision by the creditor or the application of a defined policy of the creditor to discontinue collection activity and discharge debt or h the expiration of the non-payment testing_period as described in paragraph b iv of this section plr-147680-09 out of the above events only two have a potential bearing on the requested ruling the first possible event sec_1_6050p-1 states that an identifiable_event exists where the applicable_financial_entity and debtor agree to discharge the indebtedness for less than full consideration to establish consideration there must be a performance or a return promised which has been bargained for by the parties restatement second contracts sec_71 in this case entity an applicable_financial_entity and the debtors are agreeing to the entry of a court approved and supervised judgment which incorporates the mou at first blush it appears that there is an agreement between entity and its debtors to discharge indebtedness the agreement however merely reflects the operation of state law the write-off of all collection remedy deficiency balances is based upon applicable state x law which bars recovery_of any deficiency balance remaining after collection remedy for failure to strictly comply with notice requirements therefore the decision to discharge these balances and charges is not triggered by an agreement between entity and the debtors the discharge is triggered by the applicable state x case law and statutes the agreement simply reflects the law the fact that entity and plaintiffs chose to settle the lawsuit as opposed to going to trial is immaterial thus sec_1_6050p-1 of the treasury regulations does not apply the second possible event sec_1_6050p-1 holds that a discharge_of_indebtedness exists where a creditor discontinues collection activity pursuant to a decision by the creditor or a defined policy of the creditor according to sec_1 6050p- b iii a creditor's defined policy includes both a written policy and the creditor's established business practice neither a decision nor a policy triggers the cancellation of indebtedness in this case as stated above the applicable state x statutory provisions trigger the discontinuance of entity 1's collection activity thus sec_1 6050p- b g does not apply based on the above analysis the discharges by entity are not subject_to the reporting requirements of sec_6050p or the regulations thereunder conclusion based solely on the information provided and the representations made we conclude that entity is not required to file forms 1099-c with respect to the write-off of balances and charges pursuant to its settlement agreement because the discharge was not the result of an identifiable_event listed in sec_1_6050p-1 but rather was required by operation of state law 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 plr-147680-09 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely charles a hall senior technician reviewer procedure administration enclosures


t c memo united_states tax_court mark s and cheryl r gardner petitioners v commissioner of internal revenue respondent docket no filed date gregory p white for petitioners molly h donohue and mary p hamilton for respondent memorandum findings_of_fact and opinion halpern judge respondent determined a dollar_figure deficiency in and a dollar_figure addition_to_tax with respect to petitioners’ federal_income_tax the parties have resolved several of the adjustments giving rise to that deficiency and some are only computational they have left two issues for us to decide the character of gain realized on petitioner husband’s disposition of a portion of one parcel of real_property and his purpose in holding a second parcel of real_property petitioners assigned no error to respondent’s determination of the addition_to_tax for failure_to_file timely their return nor do they address it on brief beyond conceding that they were late in filing that return we assume therefore that they concede their liability for the addition_to_tax adjusted to take account of the deficiency we redetermine and we shall not further address it see rule e and 96_tc_226 unless otherwise stated section references are to the internal_revenue_code in effect for and rule references are to the tax_court rules_of_practice and procedure petitioners bear the burden_of_proof see rule a 1petitioners have not raised the issue of sec_7491 which shifts the burden_of_proof to the commissioner in certain situations we conclude that sec_7491 does not apply here because petitioners have not produced any evidence that they have satisfied the preconditions for its application findings_of_fact introduction some facts have been stipulated and are so found the stipulation of facts with accompanying exhibits is incorporated herein by this reference petitioners husband and wife resided in massachusetts at the time they filed the petition for they made a joint_return of income on form_1040 u s individual_income_tax_return for that year petitioner’s real_estate activities in general petitioner husband petitioner is self-employed on a schedule c profit or loss from business attached to their form_1040 petitioner described his business as carpentry site contracting over approximately the last years petitioner bought and sold parcels of real_property often he would buy unimproved land build a single-family residence thereon and immediately sell the improved property occasionally he bought and sold unimproved land petitioner also bought unimproved land and constructed multifamily housing thereon or bought land improved with multifamily housing and improved the housing petitioner did not immediately sell his multifamily housing properties but kept them for rental income petitioner used brokers to assist in the sale of many of the properties he sold he maintains a business office outside his home but employs no staff at the office petitioner’s purchases and sales of multifamily properties petitioner purchased a five-family property on school street in rockland massachusetts rockland in and still owns it he acquired property on myrtle street in rockland in constructed a two-family rental unit thereon and sold the property in he purchased property improved by a two-family rental unit on blanchard street in rockland in and sold it in he purchased rental property on church and howard streets in rockland in and still owns it he purchased property improved by a five-family rental unit on oak street in middleboro massachusetts in and still owns it east water street property in date petitioner purchased from his brother and sister-in-law property on east water street in rockland that had been approved for subdivision into five lots after acquiring the property petitioner built a road on it which was necessary to access the five lots he conveyed to his brother one of the lots on which he constructed a house for his brother and his family in date petitioner sold three of the remaining lots the three lots for dollar_figure petitioners reported the gain from the sale of the three lots on schedule d capital_gains_and_losses to their form_1040 claiming a basis of dollar_figure and showing a short-term_capital_gain of dollar_figure petitioner sold the remaining lot in for dollar_figure respondent disallowed petitioners’ treatment of the gain from the sale of the three lots as short-term_capital_gain and recharacterized the transaction as a sale of property_held_for_sale to customers in the ordinary course of petitioner’s trade_or_business which respondent treated as a transaction reportable on the schedule c because of the resulting increase in petitioner’s schedule c income respondent increased petitioner’s net_earnings from self- employment which gave rise to a dollar_figure increase in petitioner’s self-employment_tax and an offsetting self-employment_tax deduction of dollar_figure petitioner testified that the three lots were duplex lots we assume lots appropriate for building duplex housing and his original intention was to keep those lots to add to my investor status but unfortunately the roadway cost me so much i had to sell those lots i had no choice beech street property in petitioner purchased a 34-acre industrial lot pincite beech street in rockland he testified that he had purchased the property for investment and thought that he had paid dollar_figure for it thereafter he obtained approval to subdivide the property into lots in he sold the property for dollar_figure million during petitioner kept heavy equipment related to his carpentry contracting business on the property petitioner did not rent the property to anyone during the time he owned it on schedule e supplemental income and loss to their form_1040 with respect to the property petitioners claimed a dollar_figure deduction for legal and other professional fees of dollar_figure mortgage interest of dollar_figure and real_estate_taxes of dollar_figure together the schedule e expenses all of which respondent disallowed on the ground that the schedule e expenses did not relate to rental of the property petitioner actually paid the dollar_figure claimed to be for legal and other professional fees for engineering services attendant to surveying and subdividing the property opinion i gain from the sale of the three lots we must determine whether the character of petitioner’s gain from the sale of the three lots was capital_gain short-term_capital_gain or gain from the sale of property_held_primarily_for_sale to customers in the ordinary course of his business if the latter the principal negative consequence to petitioner appears to be an increase in his net_earnings from self- employment and the imposition of a self-employment_tax offset in part by a self-employment_tax deduction in relevant part sec_1221 excludes from the definition of a capital_asset property held by the taxpayer primarily_for_sale_to_customers in the ordinary_course_of_his_trade_or_business respondent argues that petitioner has a 20-year history of buying real properties improving them and then selling them respondent would include in that description the east water street property which included the three lots respondent states petitioner’s purpose in acquiring and holding the east water street property was to sell the subdivided lots respondent argues that a consideration of the factors that courts have recognized as helpful guides in determining whether a taxpayer is holding property for sale in the business of buying developing and selling property indicates just that with respect to petitioner and the three lots petitioner concedes that he was a dealer in real properties but argues that he was also an investor the difference being delineated in is the variety in nature and extent of his various business interests there is little long term investment profit in the single family rental business but the extent and duration of the petitioner’s holdings of multi-family properties inventory evidences the investment value of the multi family rental business he adds the ‘multis’ were investment portfolio properties held not to be sold in the ordinary course but to generate rental income the parties agree that 315_f2d_101 6th cir affg tcmemo_1961_213 is representative of the numerous cases distinguishing between property a taxpayer holds for investment and property he holds primarily_for_sale_to_customers in the ordinary course of his business in mathews v commissioner supra pincite the court_of_appeals stated it is true that a taxpayer may hold lands primarily_for_sale_to_customers in the ordinary_course_of_his_trade_or_business and at the same time hold other lands for investment it continued it is well settled that the question whether property sold by a taxpayer at a profit was property held by the taxpayer primarily_for_sale_to_customers in the ordinary_course_of_his_trade_or_business within the meaning of the statute is essentially a question of fact no single factor or test is dispositive among the factors considered are the purpose for which the property was acquired the purpose for which it was held improvements and their extent made to the property by taxpayer frequency number and continuity of sales the extent and substantiality of the transactions the nature and extent of taxpayer’s business the extent of advertising to promote sales or the lack of such advertising and listing of the property for sale directly or through brokers id pincite petitioner was a credible witness and we accept his testimony and find accordingly that he purchased the east water street property for investment purposes in part to build duplex rental units on the three lots petitioner also convinced us that he purchased or constructed multifamily rental units not for immediate sale to customers but rather as an investment for rental income and we assume appreciation certainly he did sell two of the multifamily rental units see supra p but only after holding them for or years he has owned two other of those units for over years and the fifth for years while petitioner did not detail for us the financial pressures that caused him to conclude that he could not develop the three lots as multifamily housing notwithstanding that he could sell them at what appears to be a substantial profit we are persuaded that the three lots were intended for petitioner’s multifamily rental_activity and not his build-and-sell activity we therefore find that petitioner did not hold the three lots primarily_for_sale_to_customers in the ordinary course of his business the lots were capital assets and the resulting gain was short-term_capital_gain ii schedule e expenses petitioner purchased beech street in he held the property for years and then sold it for a substantial profit during the interval he incurred expenses for engineering services attendant to surveying and subdividing the property and he obtained permission to subdivide it into lots he kept heavy equipment on a portion of the property he obtained no rental income from it petitioner argues that the property was integral to his business and that the schedule e expenses_incurred with respect to the property for engineering services interest and taxes are deductible under sec_162 as ordinary and necessary business_expenses sec_263a requires the capitalization of certain costs eg interest and taxes that might otherwise be deductible respondent argues that the schedule e expenses must be capitalized pursuant to sec_263a because they are direct or indirect_costs of the property and the property is property to which that section applies viz real_property produced by petitioner see sec_263a and b 2at trial on questioning by the court respondent’s counsel conceded that the schedule e expenses consisting of interest and taxes would be deductible whether they were properly reportable on schedule e or on the schedule c subsequently counsel asked to address on brief whether they should be deductible we agreed in his brief respondent argues that the interest and taxes are capital expenditures and not immediately deductible petitioner had the opportunity in his reply brief to address respondent’s arguments with respect to the interest and taxes but chose not to do so we shall therefore relieve respondent of his concession for purposes of sec_263a the term produce includes construct build install manufacture develop or improve sec_263a in pertinent part sec_1_263a-2 income_tax regs provides ii pre-production costs if property is held for future production taxpayers must capitalize direct and indirect_costs allocable to such property eg purchasing storage handling and other costs even though production has not begun if property is not held for production indirect_costs incurred prior to the beginning of the production_period must be allocated to the property and capitalized if at the time the costs are incurred it is reasonably likely that production will occur at some future date thus for example a real_estate developer must capitalize property taxes incurred with respect to property if at the time the taxes are incurred it is reasonably likely that the property will be subsequently developed among the indirect_costs of property that must be capitalized under sec_263a are taxes see sec_1 263a- e ii l income_tax regs and engineering and design costs see sec_1_263a-1 income_tax regs also interest_paid or incurred during the production_period of real_property must be capitalized under the special rules of sec_263a sec_263a b i a i sec_1_263a-12 income_tax regs in contrast to interest commencement of production_period is not a threshold for capitalization of other direct and indirect_costs associated with production the term production_period means the period beginning on the date on which production of the property begins and ending on the date on which the property is ready to be placed_in_service or is ready to be held_for_sale sec_263a the production_period for real_property begins when any physical production activity begins see sec_1 263a- c e f income_tax regs planning and design activities however are not considered physical production activities sec_1_263a-12 income_tax regs petitioner testified that he purchased the property for investment but he did not further describe his investment objectives we take from the fact that he did not rent the property but prepared it for subdivision that his investment objective was to subdivide the property and sell it while he did keep heavy equipment on the property we are unconvinced that such use was other than incidental to his objective of developing the property by subdividing it and then reselling it we conclude that during petitioner held the property for production within the meaning of sec_263a and the regulations thereunder see sec_263a including as production development and improvement we further conclude however that during no physical production activity on the property had commenced petitioner’s planning and design activities did not constitute physical production see sec_1_263a-12 income_tax regs nor without more do we consider the storage of vehicles on the property a physical production activity therefore the schedule e expenses of dollar_figure and dollar_figure for engineering services and real_estate_taxes respectively must be capitalized the mortgage interest_expense of dollar_figure is not capitalized decision will be entered under rule


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 intl br2 plr-144492-10 date date internal_revenue_service number release date index number -------------------------- -------------------------------------------- ------------------------ --------------------------------------- ----------------------------------- legend taxpayer -------------------------- country --------------------------- date --------------------------- x -------------------------------- xsub ------------------------------ state ------------- date --------------------- dear ----------------- this is in response to your request dated date submitted on behalf of taxpayer by taxpayer’s authorized representative requesting a ruling under sec_1441 of the internal_revenue_code facts taxpayer an entity organized under the laws of country is an investment vehicle that is treated as a corporation for u s tax purposes on date x a domestic_corporation and xsub one of x’s subsidiaries together with x the debtors commenced voluntary cases under chapter of the bankruptcy code in the united_states bankruptcy court for the district of state taxpayer is a holder of the debtors’ debt on date the debtors filed a proposed plan_of_reorganization under chapter of the bankruptcy code the plan premised on the bankruptcy court’s approval of a global_settlement agreement between the debtors and other interested parties under the terms of this agreement x and other interested parties will jointly direct all tax authorities to pay certain anticipated tax refunds and stated_interest to a master plr-144492-10 escrow account the funds in this master escrow account will eventually be released to separate escrow accounts for x and other interested parties the timing and amount of the funds to be released is uncertain because it depends in part on the receipt of all tax refunds and the final settlement of tax_liabilities under the plan a_trust will be established for the sole purpose of liquidating the assets of the debtors and distributing the resulting proceeds to creditors on account of their claims against the debtors with creditors receiving beneficial interests in the trust taxpayer is expected to receive trust interests pursuant to the plan the trust intends to qualify as a liquidating_trust for federal_income_tax purposes which will be treated as a grantor_trust with the holders of trust interests initially taxpayer and other creditors treated as the owners and grantors of the trust see revproc_94_45 1994_2_cb_684 the trustee of the trust will be a u s citizen and the trust agreement will provide that the trust will be administered and governed in all respects exclusively within the united_states the trust will receive x’s interest in and be the beneficiary of x’s separate escrow account thus the trust interests represent the ownership interests in the underlying refund claims and a holder of trust interests including taxpayer will be deemed to own its pro_rata share of each of the refund claims held through the trust consistent with the plan and revproc_94_45 the refund claims transferred to the trust will be treated for federal_income_tax purposes as having been first transferred at their fair_market_value directly to taxpayer and other holders of claims in satisfaction of such claims followed by the transfer of such assets by taxpayer and other holders to the trust in exchange for trust interests taxpayer and the trust are expected to receive certain of the tax refunds at a discount to their face_amount ie fair_market_value basis is expected to be less than the face_amount of the tax refunds because of the uncertainty in the timing and the amount of the tax refunds in addition it is expected that if the trust interests are tradable on a secondary market the trust interests will also trade at a discount relative to the face_amount of the underlying claims it is expected that when the trust interests are traded at a discount the adjusted_basis at which the trust will hold a corresponding portion of the refund claims will reflect an adjusted discount level ie the basis will reflect the current trading price the receipt of tax refunds by the trust will result in income equal to the difference if any between the basis in the trust interests and the underlying amount of the tax_refund received on the trust interests thus when the tax_refund proceeds are received by the trust it is expected that taxpayer and other holders of trust interests will recognize income plr-144492-10 rulings requested you have requested the following two rulings stated_interest earned on the tax_refund claims qualifies as interest for federal_income_tax purposes gain from the collection of tax refunds and any distribution by the trust of cash related to such gain is not subject_to_withholding under sec_1 b i law analysis sec_61 of the internal_revenue_code provides that gross_income means all income from whatever sourced derived including interest sec_1_61-7 of the income_tax regulations provides that as a general_rule interest received by or credited to the taxpayer constitutes gross_income and is fully taxable furthermore interest_income includes interest on refunds of federal taxes sec_6611 provides that interest shall be allowed and paid upon any overpayment in respect of any internal revenue tax sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis of such property sec_1_1441-2 provides that gains derived from the sale of property including market_discount and option premiums are not subject_to_withholding under sec_6611 x is entitled to interest on its refunds due to overpayments of tax such interest falls under sec_1_61-7 as taxable interest for federal_income_tax purposes similarly interest on state tax refunds is taxable as interest for federal_income_tax purposes therefore under these facts interest on the tax_refund claims will be interest for federal_income_tax purposes the trust will likely hold the tax_refund claims at a discount therefore when the trust receives the tax_refund proceeds in excess of the fair_market_value of the trust interests taxpayer and other holders of trust interests will recognize gain under sec_1001 such gain should be measured by the difference between the amount a_trust interest holder receives from the tax refunds and the holder’s basis in its trust interest however under sec_1_1441-2 gain that arises on the collection of a tax_refund and distributions of related cash by the trust is not subject_to_withholding plr-144492-10 ruling sec_1 stated_interest earned on the tax_refund claims during the time that taxpayer holds the trust interest qualifies as interest for federal_income_tax purposes gain from the collection of tax refunds and any distribution by the trust of cash related to such gain is not subject_to_withholding under sec_1 b i caveats 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 in particular no opinion is expressed regarding the tax treatment of any income generated by a subsequent disposition of the trust certificates by taxpayer to any subsequent trust certificate holders this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely jeffery g mitchell chief branch international


internal_revenue_service number release date index number 468a ------------------------------ --------------------------------------- --------------------------------- ---------------------------- ------------------------- 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 b6 plr-113043-10 date date re schedule of deductions ----------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------- ------------------------------------- -------------------------------------------------------------------------------- legend taxpayer parent plant location independent study ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------ method year a year b year c year d year e year f year g ba bats fv fvts x y p a ----------- ------- ------- ------- ------- ------- ------- -------------- ------------------- ------------------- --------------------- ------------------- ------------ --------- -------- ---- ---- ---------- --------- --------------- ------------- ------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- plr-113043-10 b c d st ad fund director dear ---------------- this letter responds to your request dated date for an initial schedule of deduction amounts pursuant to sec_468a of the internal_revenue_code and sec_1_468a-8t of the temporary income_tax regulations we note that when a taxpayer requests a schedule of deduction amounts sec_468a requires that taxpayer to also request a revised schedule of ruling amounts the taxpayer has satisfied this statutory requirement by requesting a schedule of ruling amounts providing for no additional contributions to the fund this original request was supplemented by letters dated date and date taxpayer represents the facts and information relating to its request for rulings as follows taxpayer is a wholly-owned subsidiary of parent parent files a consolidated federal_income_tax return with its affiliated corporations including taxpayer the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method the operating license for plant was originally scheduled to expire in year a but that license has been extended to year b in the past several public_utility commissions have established or approved rates for the furnishing or sale of electricity generated by plant however no public_utility commission currently specifically authorizes taxpayer to currently include decommissioning costs in taxpayer’s cost of service for ratemaking purposes therefore the taxpayer has calculated the value of its decommissioning liability based on the independent study the estimated cost of dollar_figureba year c dollars was used as a base cost for decommissioning the plant of which taxpayer’s share p percent is dollar_figurebats the estimated cost of decommissioning the plant in year b dollars is dollar_figurefv of which taxpayer’s share is dollar_figurefvts it is estimated that substantial decommissioning costs will first be incurred in year b and that decommissioning will be substantially complete at the end of year d the methodology used to convert the year c dollars to year b dollars was by escalating the estimated costs at an inflation rate of x percent to year b the assumed after-tax rate of return to be earned by the amount collected for decommissioning is y percent plr-113043-10 taxpayer has a leasehold interest of p percent in plant in a prior schedule of ruling amounts issued under sec_468a of the code as in effect prior to taxpayer represented that the funding_period for the plant extends from year e through year c and the level_funding limitation period for the plant extends from year e through year c the estimated period for which the fund will be in effect is a years year e through year a the estimated_useful_life of the plant is b years year f through year a thus percentage of the total estimated costs qualifying for deduction in the schedule of ruling amounts under prior_law was c percent further the last day of the useful_life based on the first rate proceeding determining the estimated date on which plant would no longer be included in the rate base for ratemaking purposes is year a sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer to fund the plant’s post-1983 nuclear decommissioning costs determined as if decommissioning costs accrued ratably over the estimated_useful_life of the plant provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established plr-113043-10 sec_468a now allows a taxpayer to contribute to a nuclear decommissioning fund the entire cost of decommissioning the plant including both the pre-1984 amount that was denied under the law prior to the act as well as any amount attributable to any year after in which a taxpayer had not established a fund under sec_468a sec_468a provides that the deduction for the contribution of the previously-excluded amount is allowed ratably over the remaining useful_life of the nuclear plant sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1t a provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1t b of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2t b provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- 2t b does not apply to any special transfer permitted under sec_1_468a-8t sec_1_468a-3t a provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3t a provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3t a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section plr-113043-10 sec_1_468a-3t a provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the temporary regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3t a further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3t b provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3t c the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3t c provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3t c i a if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3t c i b provides that if the nuclear plant is not described in sec_1_468a-3t c i a the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3t c i c any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3t c i a sec_1_468a-3t d provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total plr-113043-10 estimated cost of decommissioning the nuclear power plant sec_1_468a-3t d provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3t e enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3t f provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3t e the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sec_1_468a-8t a provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2005 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8t a defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer sec_1_468a-8t a provides that the taxpayer is not required to transfer the entire amount eligible for the special transfer in one year but must take any prior special transfers into account in calculating the pre-2005 qualifying percentage further pursuant to sec_1_468a-8t c a taxpayer making a special transfer in more than one year must request a new schedule of deduction amounts in connection with each special transfer sec_1_468a-8t b provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant under sec_1 468a- 8t b ii the remaining useful_life is defined as the period beginning on the first day of the taxable_year during which the transfer is made and ending on the last day of the taxable_year that includes the last day of the useful_life of the nuclear power plant as determined under sec_1_468a-3t c under sec_1_468a-8t b iii the deduction for property contributed in a special transfer is limited to the lesser_of the fair_market_value of the property or the taxpayer’s basis in the property under sec_1_468a-8t b the taxpayer recognizes no gain_or_loss on the special transfer of property the taxpayer’s plr-113043-10 basis in the fund is not increased by reason of the special transfer of property and the fund’s basis in the property transferred in the special transfer is the same as the transferee’s basis in that property immediately prior to the special transfer sec_1_468a-8t c provides that taxpayer may not make a special transfer to a qualified nuclear decommissioning fund unless the taxpayer requests from the irs a schedule of deduction amounts in connection with such transfer a request for a schedule of deduction amounts may be made in connection with a request for a schedule of ruling amounts but in such case the calculations for both the schedule of ruling amounts and the schedule of deduction amounts must be separately_stated as stated above prior to the changes made by the act deductible contributions were limited to the lesser_of the amount necessary to fund the plant’s post-1983 nuclear decommissioning costs or the amount necessary to fund the plant’s decommissioning costs for that portion of the plant’s estimated_useful_life for which a fund had been established under that prior_law taxpayer was allowed to contribute c percent of the amounts necessary to fully decommission its share of the plant sec_468a allows a taxpayer to contribute to the nuclear decommissioning fund the pre- amount that was denied under the law prior to the act thus taxpayer is able to contribute the additional d percent of the amounts necessary to decommission its ownership share of plant further the useful_life of plant for purposes of sec_1 468a- 3t c and 468a-8t b ii ends in year a we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we conclude that the taxpayer may make a special transfer of dollar_figurest in year g and may ratably deduct the amount contributed for the year g through year a tax years as set forth below schedule of deduction amounts year each year year g - year a deduction amount dollar_figuread the special transfer amount stated above is the maximum amount permitted to be transferred to the fund under sec_468a if taxpayer transfers a lesser amount to the fund the taxpayer may deduct that lesser amount ratably over the period of years described above further in the event that taxpayer transfers a lesser amount for year g in order to make an additional special transfer in a later year including a special transfer of the difference between the special transfer amount stated above and the lesser amount transferred in year g taxpayer must request a new schedule of deduction amounts and in that request must take the year g transfer into account and recalculate the pre-2005 qualifying percentage in such request plr-113043-10 we note that if taxpayer elects to make a special transfer of property for all or a portion of this special transfer the amount of the deduction is the lesser_of the fair_market_value of the property transferred or the basis of the property in the hands of the taxpayer immediately prior to the transfer in either event the deduction of the taxpayer with respect to the property is limited to the taxpayer’s basis in the property sec_1_468a-3t f describes the circumstances under which a taxpayer must request a revised schedule of ruling amounts sec_1_468a-3t f iii provides that a taxpayer must request a revised schedule of ruling amounts if the taxpayer requests a schedule of deduction amounts we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3t a taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1t b of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3t d of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in an independent decommissioning study that taxpayer has represented is a standard type study used in the industry based on that representation taxpayer has demonstrated pursuant to sec_1_468a-3t a that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2t b of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts approved schedule of ruling amounts amount year plr-113043-10 each year dollar_figure if any of the events described in sec_1_468a-3t f occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides 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 we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7t a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


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-139716-08 date february ------------------------------------------- x ----------------------------------------- country date ---------------------- -------------------------- dear ---------------------- this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an entity classification election the information submitted states that x was formed under the laws of country x represents that x is a foreign_entity eligible to be treated as a partnership and that it was intended that an election would be make to elect to treat x as a partnership effective date however x failed to timely file a form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 plr-139716-08 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center and that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed 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 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_9100-1 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 revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a partnership effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 plr-139716-08 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely curt g wilson associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes