department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 - plr-139685-04 date date internal_revenue_service number release date index number ------------------------ -------------------------------------------- --------------------------------- - legend llc ----------------------------------- ----------------------------------- state ------------- d1 dear --------------- ------------------ this responds to your letter dated date and subsequent correspondence submitted on behalf of llc requesting an extension of time under ' of the procedure and administration regulations for llc to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes the information submitted states that llc was formed on d1 under the laws of state llc intended to elect to be treated as a corporation under ' c effective on d1 however llc inadvertently 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 ' b 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 ' or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 an eligible_entity with at least two members can elect either to be classified as an association and thus a corporation under ' b or a partnership sec_301_7701-3 provides that an eligible_entity with at least two owners will be classified as a partnership unless it elects otherwise plr-139685-04 sec_301_7701-3 provides that to elect to be classified other than as provided in ' b an eligible_entity must file form_8832 with the designated service_center sec_301_7701-3 provides that an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed under c the commissioner may grant a reasonable extension of sec_301_9100-3 provides that requests for relief under ' will be sec_301_9100-1 and sec_301_9100-3 provide the standards the commissioner will time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i 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 an announcement published in the internal_revenue_bulletin use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election based solely on the facts submitted and representations made we conclude that the requirements of ' have been satisfied as a result llc is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center electing under ' c to be classified as an association taxable as corporation for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter except as expressly provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer requesting it sec_6110 of plr-139685-04 the internal_revenue_code provides that it may not be used or cited as precedent is being sent to llc in accordance with a power_of_attorney on file with this office a copy of this letter sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number --------------------------- ---------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b02 plr-134662-13 date date ------------------------------------------------ ------ ----------------------------------------------------------------------------- grantor distribution committee ------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- trust state trustees ------------------------------------------------ ---------- ------------------------------------------------------ dear --------------- this responds to a letter dated date and subsequent correspondence requesting rulings under sec_671 sec_2501 and sec_2514 of the internal_revenue_code the information submitted states that grantor proposes to create an irrevocable_trust trust for the benefit of himself his parents siblings and issue which he intends to execute upon receipt of a favorable private_letter_ruling from the internal_revenue_service two independent trustees are the trustees trustees of trust during grantor’s lifetime the beneficiaries of trust are grantor and his siblings however if grantor’s siblings are not living the class of permissible beneficiaries will include grantor’s parents trustees must make distributions of income and principal as directed by distribution committee and or grantor as follows at any time trustees pursuant to the direction of a majority of distribution committee with the written consent of grantor shall distribute to grantor or the beneficiaries such amounts of the net_income or principal as directed by distribution committee grantor’s consent power plr-134662-13 at any time trustees pursuant to the direction of all distribution committee members other than grantor shall distribute to the beneficiaries such amounts of the net_income or principal as directed by distribution committee unanimous member power and at any time grantor in a nonfiduciary capacity may but shall not be required to distribute to any one or more of the beneficiaries other than himself such amounts of the principal including the whole thereof as grantor deems advisable to provide for the health maintenance support and education of grantor’s issue grantor’s sole power the distribution committee may direct that distributions be made equally or unequally and to or for the benefit of any one or more of the beneficiaries of trust to the exclusion of others any net_income not distributed by trustee will be accumulated and added to principal distribution committee will be initially composed of grantor grantor’s son grantor’s siblings and grantor’s nephew and will cease to exist upon grantor’s death trust provides that at all times the distribution committee must consist of at least two adults other than grantor either who are members of the class of persons eligible to receive distributions of income or principal under trust or if there are not two adult members of such class who are willing and able to serve who are the parent or guardian of a member of such class of eligible distributes eligible individuals if at any time fewer than two eligible individuals are members the distribution committee shall be deemed not to exist a vacancy on distribution committee must be filled in the following order the oldest of the grantor’s adult issue who willing to serve and is not already serving as a member of distribution committee the oldest of the adult issue of grantor’s parents who is willing to serve and who is not already serving as a member of distribution committee the legal guardian if any or the parent of the oldest of the grantor’s minor issue who is not already serving as a member of distribution committee the legal guardian if any or the parent of the oldest minor issue of grantor’s parents who is willing to serve and is not already serving as a member of distribution committee grantor’s father or grantor’s mother if at any time distribution committee does not include at least two members distribution committee shall be deemed not to exist the distribution committee will cease to exist upon grantor’s death upon grantor’s death the trustee will dispose_of the then-remaining principal and undistributed_income of trust as grantor directs by a will specifically referring to this power_of_appointment the testamentary power provided that no such appointment may be made to grantor’s estate grantor’s creditors or the creditors of grantor’s estate grantor’s power includes the power to appoint outright or in trust and to create new powers in default of the exercise of grantor’s testamentary power the balance of plr-134662-13 trust will be distributed per stirpes to grantor’s then living issue in further trust if none of grantor’s issue is then living but any descendant of grantor’s parents is then living trustees are to allocate income and principal per stirpes among grantor’s parents issue in further trust if no descendant of grantor’s parents is then living trustees are to distribute the remaining income and principal pursuant to state law as if grantor had died intestate and unmarried you have requested the following rulings during the period distribution committee is serving no portion of the items of income deductions and credits against tax of the trust will be included in computing the taxable_income deductions and credits of the grantor under sec_671 the contribution of property to trust by grantor will not be a completed_gift subject_to federal gift_tax any distribution_of_property by the distribution committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee any distribution_of_property by distribution committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee other than grantor ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides that for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or plr-134662-13 the income therefrom if as of the inception of that portion of the trust the value of such interest exceed sec_5 percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the power in sec_674 regardless of by whom held sec_674 describes a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard which is set forth in the trust instrument sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant to its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to re-vest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof plr-134662-13 based solely on the facts submitted and representations made we conclude an examination of trust reveals none of the circumstances that would cause grantor to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 or sec_677 because none of the other distribution committee members has a power exercisable solely by himself to vest trust income or corpus in himself none shall be treated as the owner of any portion of the trust under sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of grantor under sec_675 thus the circumstances attendant on the operation of trust will determine whether grantor will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition whether for the donor’s own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 also provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor’s descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to re-vest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name plr-134662-13 new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard sec_25_2511-2 provides that a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a coholder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer’s gift was complete in when he relinquished his right to change the beneficiaries of the trust a grantor’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantor retained the grantor’s consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial plr-134662-13 adverse_interest in the disposition of the transferred property or the income therefrom the distribution committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power the distribution committee ceases to exist upon the death of grantor under sec_25_2514-3 a co- holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case the distribution committee ceases to exist upon grantor’s death accordingly the distribution committee members do not have interests adverse to grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore grantor is considered as possessing the power to distribute income and principal to any beneficiary himself because he retained the grantor’s consent power the retention of this power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes grantor also retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries in this case grantor’s sole power gives grantor the power to change the interests of the beneficiaries accordingly the retention of the grantor’s sole power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further grantor retained grantor’s testamentary power to appoint the property in trust to anyone including trusts other than grantor’s estate grantor’s creditors or the creditors of grantor’s estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal gift_tax purposes finally the distribution committee possesses the unanimous member power over income and principal this power is not a condition_precedent to grantor’s powers grantor’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent grantor retains dominion and control_over the income and principal of trust until the distribution committee members exercise their unanimous member power accordingly this power does not cause the transfer of property to be complete for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax any distribution from trust to grantor is merely a return of grantor’s property therefore we conclude that any distribution_of_property by the distribution committee from trust to grantor will not be a completed_gift subject_to plr-134662-13 federal gift_tax by any member of the distribution committee further upon grantor’s death the fair_market_value of the property in trust is includible in grantor’s gross_estate for federal estate_tax purposes ruling sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor’s estate the possessor’s creditors or the creditors of the individual’s estate sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor’s estate or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor’s power sec_25_2514-3 provides in part that a co-holder of a power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have plr-134662-13 interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the powers held by the distribution committee members under the grantor’s consent power are powers that are exercisable only in conjunction with the creator grantor accordingly under sec_2514 the distribution committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the distribution committee members under the unanimous member powers are not general powers of appointment as in the example in sec_25_2514-3 the distribution committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than grantor pursuant to the exercise of these powers the grantor’s consent power and the unanimous member powers are not gifts by the distribution committee members instead such distributions are gifts by grantor based upon the facts submitted and representations made we conclude that any distribution_of_property by the distribution committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further we conclude that any distribution_of_property from trust to a beneficiary other than grantor will be a completed_gift by grantor except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on the trust provisions permitting trustee to distribute income or principal to trustees of other qualified trusts decanting plr-134662-13 this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury washington dc index number number release date x person to contact telephone number refer reply to cc psi - plr-106761-00 date date a d1 d2 d3 d4 d5 y dear this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x elected to be an s_corporation effective for its taxable_year beginning d1 in d2 x revoked its s election effective as of d3 on d4 a acquired y shares of x stock from x which represent more than percent of the issued and outstanding_stock of x a did not own any shares of stock in x on the date of the termination of x’s s_corporation_election a as x’s vice-president represents that x meets the criteria of a small_business_corporation under sec_1361 x is requesting permission to reelect to be an s_corporation effective d5 prior to the termination of the five-year waiting_period imposed by sec_1362 sec_1362 provides that if a small_business_corporation has made an election under sec_1362 and if such election has been terminated under sec_1362 the corporation and any successor_corporation is not eligible to make an election under sec_1362 for any taxable_year before its fifth taxable_year which begins after its first taxable_year for which mr harry e peden iii the termination is effective unless the secretary consents to the election sec_1_1362-5 of the income_tax regulations provides that the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should consent to a new election the fact that more than percent of the stock in the corporation is owned by persons who did not own any stock in the corporation on the date of the termination tends to establish that consent should be granted in the absence of this fact consent ordinarily is denied unless the corporation shows that the event causing termination was not reasonably within the control of the corporation or shareholders having a substantial interest in the corporation and was not part of a plan on the part of the corporation or of such shareholders to terminate the election based solely on the information submitted and the representations made permission is granted to x to elect to be an s_corporation effective d5 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code in particular no opinion is expressed or implied regarding x’s eligibility to elect to be an s_corporation a copy of this letter should be attached to x’s federal_income_tax return for its taxable_year for which the s_corporation_election is accepted as timely filed a copy of this letter is being sent to x for that purpose 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 as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours h grace kim assistant to the chief branch office of the associate chief_counsel passthroughs and special industries