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 b04 plr-104377-08 date august re ----------------------------------------- ---------------------------- ------------------- ----------------------------------------------- ---------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------- ------------------------------------------- --------------------- decedent spouse trust trust trust trust trustee cpa accounting firm -------------- date year x z ------------------ ------- -------------- ----------- dear ---------------- this is in response to your authorized representative’s letter dated date and prior correspondence requesting an extension of time under sec_301_9100-3 of the procedure and administrative regulations to sever a_trust make a reverse qualified_terminable_interest_property qtip_election under sec_2652 of the internal_revenue_code and allocate generation-skipping_transfer gst_exemption pursuant to sec_2642 to a_trust facts the facts and representations submitted are summarized as follows prior to his death decedent established a living_trust trust sec_4 of trust provides that at the decedent’s death the trust was to be divided into two parts plr-104377-08 the marital share and the bypass share trust further provides that the marital share is to be further divided into two parts the gst marital trust trust and the residuary marital trust trust the bypass_trust trust is held for the benefit of spouse decedent’s children and grandchildren and a charity sec_4 a iii a requires that trust be funded with an amount equal to decedent’s available gst_exemption under sec_4 c at the death of spouse trust and trust are to be combined and distributed under sec_4 b outright to decedent’s children and grandchildren and if none of the beneficiaries are then living to a charity sec_5 q provides that trustees are instructed to divide a_trust which would otherwise be partially exempt from gst prior to funding into two trusts so that one of these trusts is entirely exempt from gst tax decedent died on date survived by spouse their children and grandchildren spouse retained cpa to prepare decedent’s form_706 united state estate and generation-skipping_transfer_tax return on schedule m of form_706 an election was made under sec_2056 to treat trust and trust as qualified_terminable_interest_property however no reverse_qtip_election under sec_2652 was made accordingly decedent’s gst_exemption was not allocated to trust or trust under sec_2632 dollar_figurex of decedent’s gst_exemption was automatically allocated to trust because decedent was the transferor for purposes of sec_2652 and a taxable_distribution or taxable_termination could be made from trust decedent’s remaining gst_exemption equal to dollar_figurey was not automatically allocated under sec_2632 to trust or trust because without the reverse_qtip_election decedent is not treated as the transferor for purposes of sec_2652 in year when accounting firm was planning for spouse’s estate accounting firm advised spouse that trust should have been divided into two trusts pursuant to trust and a reverse_qtip_election should have been made with respect to one of the divided trusts in order to allocate decedent’s remaining gst_exemption to the trust you have requested the following rulings an extension of time under sec_301_9100-3 and sec_26_2654-1 to sever gst marital trust into a gst exempt marital trust and a gst non-exempt marital trust an extension of time under sec_301_9100-3 to make a reverse_qtip_election under sec_2652 with respect to gst exempt marital trust an extension of time under sec_301_9100-3 and sec_2642 to allocate decedent’s remaining gst_exemption to gst exempt marital trust to be effective as of decedent’s date of death plr-104377-08 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is except as limited by sec_2056 to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate under sec_2056 no deduction is allowed for an interest passing to the surviving_spouse if on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur the interest will terminate or fail sec_2056 provides that in the case of qualified_terminable_interest_property for purposes of sec_2056 such property is treated as passing to the surviving_spouse and for purposes of sec_2056 no part of such property is treated as passing to any person other than the surviving_spouse sec_2056 defines the term qualified_terminable_interest_property as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii to which an election under sec_2056 applies under sec_2044 property subject_to a qtip_election for which a deduction is allowed under sec_2056 applies is includible in the surviving spouse’s gross_estate on that spouse’s subsequent death sec_2601 imposes a tax on every generation-skipping_transfer a generation- skipping transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 as in effect for the tax_year at issue provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed plr-104377-08 for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of decedent's unused gst_exemption by the executor of the decedent's_estate is made on the form_706 filed on or before the date prescribed for filing the return by sec_6075 including any extensions actually granted sec_2632 provides that any portion of an individual's gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows a first to property which is the subject of a direct_skip occurring at such individual's death and b second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or taxable_termination might occur at or after such individual's death however no automatic allocation of gst_exemption is made to a_trust that will have a new transferor with respect to the entire trust prior to the occurrence of any gst with respect to the new trust see reg sec_26_2632-1 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute sec_2652 provides that for purposes of chapter the term transferor means in the case of property subject_to the tax imposed by chapter the decedent an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 the estate of the decedent may elect to treat all of the property in the trust for purposes of chapter as if the qtip_election had not been made reverse_qtip_election sec_26_2652-2 provides that a reverse_qtip_election is not effective unless it is made with respect to all of the property in the trust to which the qtip_election plr-104377-08 applies sec_26_2652-2 provides that a reverse_qtip_election is made on the return on which the qtip_election is made sec_26_2654-1 provides that the severance of a_trust that is included in the transferor’s gross_estate or created under the transferor’s will into two or more trusts is recognized for purposes of chapter if the trust is severed pursuant to a direction in the governing instrument providing that the trust be divided upon the death of the transferor sec_26_2654-1 provides that an individual’s gst_exemption under sec_2632 may be allocated to the separate trusts created pursuant to sec_26_2654-1 at the discretion of the executor or trustee under sec_301_9100-1 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 code except subtitles e g h and i sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301 b a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin notice_2001_50 2001_2_cb_189 provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner 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 reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election in this case as a result of the qtip_election made on decedent’s form_706 the assets of trust and trust are includible in spouse’s gross_estate pursuant to sec_2044 spouse is considered the transferor of trust and trust assets for gst tax purposes therefore decedent’s gst_exemption could not be allocated to those trusts at his death however if trust is severed into two trusts a gst exempt marital trust and a gst non-exempt marital trust and a reverse_qtip_election is made with respect to gst exempt marital trust then decedent will be treated as the transferor of the gst plr-104377-08 exempt marital trust assets and decedent’s remaining gst_exemption may be allocated to that trust based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 and sec_26_2654-1 have been satisfied therefore decedent’s estate is granted an extension of time of days from the date of this letter to sever trust into a gst exempt marital trust and a gst non-exempt marital trust to make a reverse_qtip_election pursuant to sec_2652 with respect to gst exempt marital trust and to allocate decedent’s remaining gst_exemption to gst exempt marital trust the allocation will be effective as of the date of decedent’s death the reverse_qtip_election and the allocation should be made on a supplemental form_706 and filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the supplemental form sec_706 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 except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely william p o'shea associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number info release date index number ---------------------------------------- --------------------------------- ------------------------------ ------------------------------ department of the treasury washington dc person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - genin-148293-03 date dec we are responding to your letter dated date on behalf of taxpayer -------------------------------- dear -------------- taxpayer requesting relief in order to establish as the effective taxable_year for its s_corporation_election the internal_revenue_service has no record of the form_2553 having been timely filed although we are unable to respond to your request as submitted this letter provides information relating to your request announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late s_corporation_election you must request a private_letter_ruling from the national_office the information forwarded to our office is insufficient for us to process a private_letter_ruling request the procedures for requesting a private_letter_ruling are set forth in revproc_2003_1 copy enclosed in addition taxpayers must submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their tax_return for the most recent 12-month taxable_year qualify for a reduced user_fee in the amount of dollar_figure if you qualify for the reduced fee you must include a statement claiming that your gross_income for the last 12-month taxable_year was less than one million dollars if you decide to submit a formal request for a private_letter_ruling please follow the sample format provided in appendix b of revproc_2003_1 your request should include all required procedural statements a check for the user_fee and any documents that substantiate your intent to be an s_corporation from inception please refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room incidentally the irs has developed two compact discs to help educate small_business owners on their tax responsibilities introduction to federal taxes for small_business self-employed and a virtual small_business workshop these items are free and can be ordered by calling the irs also makes information available to small_business taxpayers online at www irs gov businesses small index please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful s dianna k miosi enclosures dianna k miosi chief branch associate chief_counsel passthroughs and special industries announcement revproc_2003_1 sincerely yours


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom p si plr-114549-98 date date legend x country d1 d2 d3 requesting a ruling that x be given an extension of time to elect to be treated as a partnership for federal tax purposes for its taxable_year beginning d2 this responds to your letter dated date written on behalf of x facts x is a closed-end investment_trust formed on d1 under country law no owner of an interest in x has unlimited liability as defined under sec_301_7701-3 of the procedure and administration regulations x intended to elect partnership tax treatment for federal tax purposes effective on d2 the election however which was filed on d3 was not timely law and analysis 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 cc dom p si plr-114549-98 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 code sec_301_7701-2 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 provides that unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 an election can 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 sec_301_7701-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election sec_301_9100-1 defines a 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 requests for relief under sec_301_9100-3 will be 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 conclusions based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9000-3 have been satisfied as a result x is granted an extension of time to elect to be treated as a partnership for federal tax purposes furthermore the election filed on d3 effective d2 is deemed timely filed cc dom p si plr-114549-98 except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely signed paul f kugler paul f kugler assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-160147-04 uilc date date to director submission processing cincinnati oh attn entity unit from office of division counsel associate chief_counsel tax exempt government entities subject railroad_retirement_tax_act status ---------------------------------------- in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion dated ---------------------------- that the following business became a rail carrier employer under the railroad retirement act and the railroad unemployment insurance act effective ---- ------------------- ----------------------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------- we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we agree with the rrb’s determination that ------------------------------------- became a rail carrier employer under the railroad_retirement_tax_act on ------------------- -------------------------------------------------------------------------------------------------------------------- however we note that the submitted facts indicate that the entity’s representative states the entity has no employees please take the appropriate action regarding this business cc ________________ janine cook


t c memo united_states tax_court raymond e crittenden petitioner v commissioner of internal revenue respondent docket no filed date raymond e crittenden pro_se john f driscoll for respondent memorandum opinion powell special_trial_judge respondent determined a deficiency of dollar_figure and an addition_to_tax of dollar_figure under sec_6651 in petitioner’s federal_income_tax after concessions the issue is whether petitioner is liable for unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue the addition_to_tax under sec_6651 for failure to timely file a federal_income_tax return petitioner resided in tuscaloosa alabama at the time the petition was filed background on date petitioner timely filed an extension of time to file his federal_income_tax return and remitted a payment of dollar_figure petitioner however did not file his return on or before the expiration of the extended time on date respondent issued a so-called 30-day_letter to petitioner petitioner did not directly respond to the 30-day_letter instead petitioner filed his return on date petitioner reported inter alia a tax due of dollar_figure an estimated_tax penalty of dollar_figure and the amount_paid of dollar_figure petitioner submitted an additional payment of dollar_figure with his return on date respondent sent a letter entitled we changed your account date letter to petitioner the date letter notified petitioner that respondent had received petitioner’s return and assessed the tax due reported on the return the date letter stated in pertinent part statement of account account balance before examination action 1dollar_figurecr increase in tax because of examination action dollar_figure filing late penalty added dollar_figure interest charged dollar_figure amount you now owe dollar_figure this amount reflects the dollar_figure petitioner paid on date at the time he filed the extension and the dollar_figure paid at time of filing his return this amount reflects the tax due reported by petitioner on his return petitioner remitted dollar_figure to respondent on date date payment on date respondent issued petitioner a notice_of_deficiency determining a deficiency and an addition_to_tax under sec_6651 for at trial petitioner and respondent agreed to a reduced deficiency of dollar_figure and as a result the addition_to_tax under sec_6651 was reduced to dollar_figure petitioner does not dispute the amount of the reduced deficiency and the only issue is whether he is liable for the reduced addition_to_tax under sec_6651 discussion sec_6651 provides in relevant part sec_6651 addition to the tax --in case of failure-- to file any return required on the date prescribed therefor determined with regard to any extension of time for filing unless it is shown that such failure is due to reasonable_cause and not due to willful neglect there shall be added to the amount_required_to_be_shown_as_tax on such return percent of the amount of such tax if the failure is for not more than month with an additional percent for each additional month or fraction thereof during which such failure continues not exceeding percent in the aggregate a delay is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time sec_301_6651-1 proced admin regs see also 469_us_241 there is no question here that petitioner’s return was not timely filed petitioner argues that he had reasonable_cause for the failure to timely file his return due to being overwhelmed with work and doing a lot of traveling and that he believed he overpaid it tax due and expected to get a refund generally a busy work schedule or heavy workload does not constitute reasonable_cause for the untimely filing of a tax_return 53_tc_491 affd 467_f2d_47 9th cir nauman v commissioner tcmemo_1998_217 this is certainly true when the delay as here was approximately 3½ years further petitioner’s belief that no tax was due or that he was entitled to a refund does not constitute when respondent determined a deficiency in petitioner’s federal_income_tax the addition_to_tax under sec_6651 increased the addition_to_tax under sec_6651 which is attributable to a deficiency in taxes is subject_to the deficiency procedures and we have jurisdiction to review such determination sec_6665 see also 78_tc_19 reasonable_cause see ferguson v commissioner tcmemo_1994_ lastly petitioner filed an extension of time to file his return but the return was filed long after the extension period expired see sandoval v commissioner tcmemo_2000_189 zaban v commissioner tcmemo_1997_479 we find that petitioner did not have reasonable_cause for the failure to timely file his return petitioner argues in the alternative that the sec_6651 addition_to_tax should be limited to the date payment in this regard petitioner seems to believe that there was some type of accord and satisfaction when he paid the dollar_figure pursuant to the date letter respondent issued the date letter to notify petitioner that respondent had summarily assessed both the tax shown on petitioner’s delinquent return and the addition_to_tax that was due under sec_6651 it was this addition_to_tax that petitioner paid sec_7491 and c concerning the burdens of proof and production have no bearing on the underlying substantive issue with respect to the addition_to_tax the burden of showing reasonable_cause under sec_6651 remains on petitioner 116_tc_438 respondent is authorized to immediately summarily assess and collect the amount of taxes that are computed and shown due on a taxpayer’s original income_tax return meyer v commissioner 97_tc_555 see also sec_6201 additionally respondent may summarily assess the addition_to_tax under sec_6651 if such additions are determined by the amount of tax shown on the taxpayer’s return sec_6665 see also meyer v commissioner supra pincite summary assessments continued the record however is devoid of any evidence that petitioner and respondent entered into an agreement that limited the addition_to_tax to the date payment see sec_7121 278_us_282 58_tc_69 finally petitioner appears to argue that respondent was somehow at fault because the notice_of_deficiency overstated the tax_liability and the addition_to_tax this is a non sequitur the addition_to_tax under sec_6651 flows from the fact that the return was not timely filed the additional addition_to_tax was computed on the deficiency that was ultimately agreed by the parties the fact that the notice_of_deficiency may have asserted a higher deficiency had no bearing on the ultimate determination of the addition_to_tax decision will be entered for respondent in the amounts of dollar_figure for the deficiency and dollar_figure for the addition_to_tax under sec_6651 continued are assessments not subject_to the deficiency procedures and thus are not within the deficiency jurisdiction of this court see sec_6211 sec_6212 sec_6213 see also 115_tc_142 meyer v commissioner supra pincite


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 b04 plr-108707-10 date june re ---------------------------------------------- legend settlor --------------------- son -------------------------- son ----------------------- daughter ------------------------- daughter --------------------- grandchild ----------------------- grandchild ------------------------- grandchild --------------------- grandchild --------------------- grandchild ------------------------ grandchild -------------------------- grandchild -------------------------- grandchild ----------------------- grandchild --------------------- great-grandchild ------------------ a --------------------------- b ----------------------------- trust ---------------------------------------------------------------------------- plr-108707-10 trust a -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- trust b -------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ trust c ------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- trust d ------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- trustee -------------------------------- date ---------------------- date ----------------------- state ------ statute ---------------------------------------------------------------- statute --------------------------------------------------------------- statute --------------------------------------------------------------- dear ------------- this responds to a letter from your authorized representative dated date and subsequent correspondence requesting rulings on the gift estate and generation-skipping_transfer gst consequences resulting from the proposed modifications to a_trust you represent the facts to be as follows on date settlor created an irrevocable_trust trust date is prior to date trust is governed by the laws of state and trustee a corporation is currently serving as trustee sec_1 of trust provides that trust is to be divided into four equal trusts one for each of settlor’s children trust a for son trust b for son trust c for daughter and trust d for daughter separate trusts sec_2 of trust provides that the net_income of each separate trust shall be distributed to or applied for the beneficiary thereof at least quarterly during that beneficiary’s lifetime sec_2 provides that the corporate trustee if any may in its sole discretion pay over to or apply for the beneficiary of each separate trust so much of the principal of such beneficiary’s trust as the trustee deems necessary for the education support maintenance or health of the beneficiary in the standard of living to which the beneficiary is accustomed as of date but in determining need the corporate trustee shall take into consideration such beneficiary’s other sources of funds under sec_2 of trust each beneficiary has a testamentary special_power_of_appointment with respect to his or her separate trust in default of an exercise of the power such beneficiary’s separate trust is to be distributed in the following order a to such beneficiary’s then living issue per stirpes b but if none to settlor’s then living plr-108707-10 issue per stirpes c but if none among the then living issue of a and b in equal shares per stirpes son has two children and one grandchild grandchild grandchild and great-grandchild son has two children grandchild and grandchild daughter has two children grandchild and grandchild daughter has three children grandchild grandchild and grandchild you represent that each separate trust consists almost exclusively of only concentrated positions of a single issue of non-voting common_stock of a privately held corporation and that the administration of such trusts by a corporate trustee confronted with both the fiduciary investment diversification considerations associated therewith and compliance with federal regulations imposed on a corporate trustee would be burdensome to the corporate trustee and costly to trust and each separate trust statute authorizes a settlor if living all beneficiaries the currently serving trustee and any creditors whose interests may be affected to by written instrument enter into an agreement with respect to any matter concerning the construction of administration of or distributions under the terms of a_trust pursuant to statute the parties have executed an agreement agreement dated date to modify trust as follows the second paragraph of sec_5 of trust and each separate trust thereunder is modified as follows at any time during the continuance of a separate trust the then current beneficiary of such separate trust or a majority of all the then current beneficiaries thereof who have reached the age of twenty-one years if such separate trust has more than one then current beneficiary may remove or cause the removal of any corporate trustee or individual successor trustee as trustee under such separate trust upon such removal or in the event of the resignation of the trustee corporate trustee or individual successor trustee of a separate trust the then current beneficiary of such separate trust or a majority of all the then current beneficiaries thereof who have reached the age of twenty-one years if such separate trust has more than one then current beneficiary may designate at their own discretion another corporate trustee and or individual successor trustee s to serve as successor trustee s of such separate trust hereunder in addition sec_2 of trust and each separate trust thereunder is modified as follows plr-108707-10 b any corporate trustee or individual successor trustee may in its sole discretion pay over to or apply for a beneficiary so much of the principal of such beneficiary’s separate trust as the trustee deems necessary for the education support maintenance or health of such beneficiary in the standard of living to which such beneficiary was accustomed at the date of this agreement but in determining need the corporate trustee or individual successor trustee as the case may be shall take into consideration such beneficiary’s other sources of funds agreement is expressly contingent upon receiving a favorable letter_ruling from the internal_revenue_service you represent that there have been no additions to trust since date you request the following rulings agreement will not result in the making of a gift_for federal gift_tax purposes by any beneficiary of any separate trust established under trust agreement will not result in the inclusion of the value of any trust assets in the estate of any beneficiary of any separate trust established under trust for federal estate_tax purposes agreement will not cause trust or any separate trust established thereunder or any distributions from trust or any separate trust established thereunder to be subject_to gst tax gift_tax issue - ruling no sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that 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 him or her no power to change its disposition whether for his or her own benefit or for the benefit of another the gift is complete but if upon a transfer a 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 fact in the particular case sec_25_2511-1 provides that any transaction in which an interest in plr-108707-10 property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax agreement modifies trust to permit the designation of individual successor trustees as well as corporate successor trustees agreement further modifies trust to grant an individual successor trustee or individual successor co-trustees the same discretionary authority as the corporate trustee to make principal distributions for the education support maintenance or health of the beneficiary these modifications are administrative in nature and do not affect the interests of the beneficiaries the beneficiaries of trust and each separate trust will have the same interests before and after the modification accordingly based on the facts submitted and representations made we conclude that agreement will not cause any beneficiary of any separate trust established under trust to make a taxable gift_for purposes of the federal gift_tax under sec_2501 estate_tax issue - ruling no sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2035 provides that if the decedent transferred an interest in property or relinquished a power with respect to any property during the 3-year period ending on the date of the decedent’s death and the value of the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the interest or power had been retained by the decedent on the date of death then the value of the gross_estate includes the value of any property or interest therein that would have been so included under sec_2035 the gross_estate shall be increased by the amount of any gift_tax paid_by the decedent or his estate on any gift made by the decedent or his spouse during the three-year period ending on the date of decedent’s death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period that does not in fact end before his death possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income from the property plr-108707-10 sec_2037 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona fine sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend or revoke or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent’s death sec_20_2038-1 of the estate_tax regulations provides that sec_2038 does not apply if the decedent’s retained power could be exercised only with the consent of all parties having an interest in the property and the power adds nothing to the rights of the parties under local law sec_2041 provides that the value of the gross_estate shall include the value of all property with respect to which the decedent possessed a general_power_of_appointment at the time of death sec_2041 defines the term general_power_of_appointment as a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate under sec_2041 a power to consume invade or appropriate property for the benefit of the decedent relating to the health education support or maintenance of the decedent shall not be considered a general_power_of_appointment sec_20_2041-1 provides in part that if a_trust instrument provides that the beneficiary may appropriate or consume the principal of the trust the power to consume or appropriate is a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no interest therein except as an incidental consequence of the discharge of such fiduciary duties is not a power_of_appointment sec_20_2041-1 provides in part that the term general_power_of_appointment as defined in sec_2041 means any power_of_appointment exercisable in favor of the decedent his estate his creditors or the creditors of his estate except i joint powers to the extent provided in sec_20_2041-2 and and ii certain powers limited by an ascertainable_standard to the extent provided in sec_20_2041-1 a power_of_appointment exercisable for the purpose of discharging a plr-108707-10 legal_obligation of the decedent or for his pecuniary benefit is considered a power_of_appointment exercisable in favor of the decedent or his creditors sec_20_2041-1 provides that a power to consume invade appropriate income or corpus or both for the benefit of the decedent which is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent is by reason of sec_2041 not a general_power_of_appointment a power is limited by such a standard if the extent of the holder's duty to exercise and not to exercise the power is reasonably measurable in terms of his needs for health education or support or any combination of them the words support and maintenance are synonymous and their meaning is not limited to the bare necessities of life a power to use property for the comfort welfare or happiness of the holder of the power is not limited by the requisite standard examples of powers which are limited by the requisite standard are powers exercisable for the holder's support support in reasonable comfort maintenance in health and reasonable comfort support in his accustomed manner of living education including college and professional education health and medical dental hospital and nursing expenses and expenses of invalidism in determining whether a power is limited by an ascertainable_standard it is immaterial whether the beneficiary is required to exhaust his other income before the power can be exercised sec_2514 provides for a similar definition of a general_power_of_appointment for gift_tax purposes and sec_25_2514-1 contains provisions similar to sec_20_2041-1 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 statute provides that the judicial standard of review for discretionary trusts is that the trustee shall exercise a discretionary power reasonably in good_faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries except that with respect to distribution decisions a reasonableness standard shall not be applied to the exercise of discretion by the trustee of a wholly discretionary_trust a person other than a settlor who is a beneficiary and trustee of a_trust that confers on the trustee a power to make discretionary distributions to or for the trustee’s personal benefit may exercise the power only in accordance with an ascertainable_standard statute provides that ascertainable_standard means a standard relating to an individual’s health education support or maintenance within the meaning of sec_2041 or sec_2514 in order for sec_2035 through to apply a decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth under which the decedent retained an interest in or power over the income or corpus of the transferred property plr-108707-10 in the present case the proposed modifications to trust do not change the beneficial interests of the beneficiaries thus the proposed modifications do not constitute a transfer by any beneficiary within the meaning of sec_2035 through further under the facts presented the power of a trustee to distribute principal from a_trust is limited by an ascertainable_standard relating to health maintenance support and education under the terms of the trust instrument and state law accordingly pursuant to sec_20_2041-1 and sec_25_2514-1 a successor trustee will not possess a general_power_of_appointment that will cause the corpus of trust to be included in a beneficiary’s gross_estate under sec_2041 see revrul_78_398 1978_2_cb_237 we therefore conclude that the proposed modifications to trust will not cause any portion of the assets of trust to be includible in the gross_estate of any beneficiary of trust or any separate trust established under trust except to the extent of property that is distributed to such person and remains in his or her estate at the date of his or her death generation-skipping_transfer_tax issue -- ruling no sec_2601 imposes a tax on every gst which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip section b a of the tax_reform_act_of_1986 act and sec_26_2601-1 provide that the gst tax shall not apply to any gst under a_trust that was irrevocable on date but only to the extent that such transfer was not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in settlor’s gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status in general unless specifically provided otherwise these rules are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial plr-108707-10 interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in a beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer in the present case trust is exempt from the gst tax because trust was irrevocable on date you represented that no additions actual or constructive have been made to trust after that date accordingly pursuant to b a of the act and sec_26_2601-1 trust and the separate trusts created under trust are not subject_to the gst tax you represent that the proposed modifications are authorized under state law based on the facts and representations we conclude that the proposed modifications will not result in a shift of any beneficial_interest in trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modifications or extend the time for vesting of any beneficial_interest in trust beyond the period provided for in the original trust therefore the proposed modifications will not cause trust or any separate trust created under trust to be subject_to the provisions of chapter except as specifically ruled above no opinion is expressed as to the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code or regulations the rulings in this letter pertaining to the federal estate and or generation- skipping transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue 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 the appropriate parties while this office has not verified any part of the material submitted in support of the request for rulings it is subject_to verification and examination this ruling is directed only to the taxpayers 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 ruling is being sent to your authorized representative sincerely yours ____________________________________ plr-108707-10 leslie h finlow acting senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


t c memo united_states tax_court frank a sonier petitioner v commissioner of internal revenue respondent docket no 13527-98r filed date frank a sonier pro_se lawrence h ackerman for respondent memorandum opinion dean special_trial_judge this matter is before the court on respondent's motion to dismiss for lack of jurisdiction the issues for decision are whether petitioner has alleged that there is an actual controversy and whether petitioner is an interested_party entitled to file a petition for declaratory_judgment pursuant to sec_7476 with respect to the continuing qualification of the maritime association international longshoremen's retirement_plan number mail plan background petitioner is a participant in the mail plan before its approval for tax-exempt status under sec_401 and sec_501 on date the board_of trustees for the mail plan filed an application_for determination for collectively_bargained_plan with the internal_revenue_service irs the mail plan_administrator issued a letter to all contributing employers on date asking that the notification to interested parties with respect to the application filed by the mail plan be posted at the principal places of employment and where notices concerning employee-management issues are usually posted petitioner found out about the pending application from his employer's human resources office and filed comments with the district_director which were sent on date opposing approval of the plan ‘unless otherwise indicated all chapter subchapter and section references are to chapters subchapters and sections of the internal_revenue_code_of_1986 as in effect at the time the petition herein was filed all rule references are to the tax_court rules_of_practice and procedure petitioner commented to the district_director that he was unhappy with the plan that he did not vote for the plan and that it was not in his best interest petitioner did not note in the comment that he was dissatisfied with the form of notice he received about the pending application_for determination the irs issued a favorable determination_letter on date finding that the mail plan satisfied the requirements for a gualified tax-exempt retirement_plan petitioner filed a pleading on date which the court filed as a petition for declaratory_judgment pursuant to the order of the court dated date petitioner filed on date a pleading which was filed by the court as an amended petition in his pleadings petitioner requested that the mail plan be disqualified under sec_401 and thus not be exempt from tax under sec_501 petitioner also requested that the plan be terminated when the petition for declaratory_judgment was filed the address of the board_of trustees of the mail plan was in houston texas respondent subsequently filed a motion to dismiss for lack of jurisdiction on the grounds that petitioner is not an interested_party and that there is no actual controversy involving the qualification of the plan discussion respondent's motion to dismiss for lack of jurisdiction makes the following arguments there is no actual controversy because petitioner fails to set forth any grounds which if proven would result in plan disqualification and petitioner does not gualify as an interested_party because he has not alleged or shown that he is a present employee or that he is covered by a collective-bargaining agreement under which the matl plan is maintained sec_7476 provides that this court may exercise jurisdiction over a declaratory_judgment action if there is an actual controversy involving a determination by the secretary with respect to the initial or continuing gualification of a retirement_plan or involving a failure by the secretary to make a determination with respect to such initial qualification or with respect to such continuing qualification if the controversy arises from a plan amendment or plan termination see 90_tc_845 affd without published opinion 872_f2d_1021 2d cir petitioner bears the burden of proving that the jurisdictional requirements of sec_7476 have been met see rule c a 98_tc_88 we shall first address whether an actual controversy exists as previously stated in order for us to exercise jurisdiction over a declaratory_judgment action under sec_7476 there must be an actual controversy involving a determination by the secretary with respect to the initial or continuing qualification of a retirement_plan see sec_7476 in deciding whether an actual controversy exists we look to the standard set forth by the supreme court in 312_us_270 the standard is whether under all the facts and circumstances there is a substantial controversy between parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory_judgment id see also loftus v commissioner supra pincite we have noted that an actual controversy under sec_7476 generally arises from some disagreement between a petitioner and the commissioner as to the qualified status of the plan see halliburton co v commissioner supra pincite loftus v commissioner supra pincite we begin therefore by examining petitioner's arguments with respect to the qualified status of the plan petitioner claims that the irs should not have approved the plan because the rate of return is unfavorable petitioner preferred a sec_401 plan and the proper notice requirements were not met we address his defective notice argument first in his comment to the district_director petitioner did not raise the issue of defective notice assuming arguendo that in the absence of such an argument in the administrative record we can address petitioner's concern we examine whether petitioner's complaint is grounds for disqualification of the plan cf halliburton co v commissioner supra 71_tc_32 petitioner alleges that he never saw any posted notices at his place of employment and only found out about the application pending before the irs when he called the human resources department to inguire about the status of the matl plan application petitioner claims that the board_of trustees failed to post the requisite notice so the plan should never have been approved and therefore there is a disagreement between him and the irs regarding the qualified status of the plan respondent on the other hand claims that notice was properly given and irrespective of petitioner's claim petitioner received actual notice of the pending application in time to file a comment with the irs in general before a determination as to the qualified status of a retirement_plan can be made notice must be given to all interested parties see sec_1_7476-1 and sec_1_7476-2 income_tax regs see also employee_retirement_income_security_act_of_1974 publaw_93_406 sec a 88_stat_829 notice may be given in person by mailing by posting or by printing it in a publication of the employer or an employee_organization sec_1_7476-2 income_tax regs failure to give proper notice may result in the petition's being dismissed as premature and the court will not conduct a review of the plan see sec_7476 73_tc_916 in the present case petitioner does not contend that he failed to receive notice in fact petitioner concedes that he did indeed receive notice in person of the pending application and filed timely comments with the district_director before the determination was made see sec_1_7476-2 income_tax regs the irs considered petitioner's comments while the application was pending and issued a determination with respect to the plan under these circumstances we do not find that defective notice is a ground for plan disqualification or that petitioner's filing of his petition was premature see sec_7476 accordingly we do not dismiss his petition on this basis petitioner also complains about the rate of return on plan assets and expresses his desire for a sec_401 plan instead of the mail plan respondent contends that petitioner's arguments regarding the low rate of return and his desire to have his assets transferred into another type of plan would not result in plan disqualification and therefore do not amount to an actual controversy we agree with respondent that even if the plan has a low rate of return no actual controversy exists because petitioner has not raised an issue that would put at risk the qualification of the plan under sec_401 petitioner complains that the mail plan's rate of return is unsatisfactory and that he did not vote for this plan there is no requirement in sec_401 or in related provisions that a retirement_plan grow at a specified rate or that its participants be satisfied with the rate of return likewise there is no requirement that the plan be approved by all present employees thus petitioner raises no argument that calls into guestion the qualified status of the plan under sec_401 and related provisions petitioner's primary request is that we terminate the matl plan however sec_7476 authorizes the court only to make declarations with respect to the initial qualification the continuing qualification or the failure to make a determination with respect to a retirement_plan thus sec_7476 allows us only to review the qualification of the plan it does not afford the remedy of termination of a retirement_plan this appears to be a dispute between petitioner and the matl plan administrators accordingly we find that there is no actual controversy over which we have jurisdiction under sec_7476 and we do not address whether petitioner is an interested_party respondent's motion to dismiss will be granted an appropriate order of dismissal for lack of jurisdiction will be entered


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom p si 1-plr-115320-99 date date legend portfolio trust fund fund fund fund co-administrator advisor state declaration plr-115320-99 date date date date dollar_figurea this letter responds to your submission of date together with subsequent correspondence in which you requested certain rulings under sec_704 sec_721 sec_851 and sec_7704 of the internal_revenue_code facts portfolio is a series of trust which was organized as a business_trust under the laws of state pursuant to the declaration of trust the trust is registered as an open- end management investment_company under the investment_company act of act portfolio is a separate business_trust under the laws of state which recognize that separate trusts established under a single instrument with common trustees are independent legal entities portfolio is registered as a series_fund an open-end management investment_company under the act portfolio is classified as a partnership under sec_301_7701-3 of the procedure and administration regulations co-administrator is a co-administrator of portfolio portfolio serves as an investment vehicle for fund fund fund and fund the funds each fund is a series in a business_trust or business corporation that is an open-end management investment_company under the act each fund invests substantially_all of its assets available for investment in portfolio and has the same investment objective as portfolio each fund is treated as a corporation for federal_income_tax purposes and has elected or will elect to be taxed as a regulated_investment_company ric under part i of subchapter_m of chapter of subtitle a of the code each fund intends to be operated in a manner which would permit it to continue to qualify as a ric on date co-administrator became a partner in portfolio in exchange for cash and fund became a partner in portfolio in exchange for securities and other assets with a fair_market_value of dollar_figurea on date fund became a partner in portfolio in plr-115320-99 exchange for cash on date fund became a partner in portfolio in exchange for cash on date fund became a partner in portfolio in exchange for cash beneficial interests in portfolio are issued solely in private_placement transactions that do not involve any public offering within the meaning of sec_4 of the securities act of as amended act portfolio will not register its shares under the act because shares in portfolio may be issued solely in private_placement transactions that do not involve any public offering within the meaning of sec_4 of the act investments in portfolio only may be made by investment companies or certain other entities that are accredited investors within the meaning of regulation d under the act the interest of each partner in portfolio is limited to the net assets of portfolio and does not extend to the assets of any other investment vehicles of trust portfolio has not invested in any of trust’s other investment vehicles nor are any of trust’s other investment vehicles invested in portfolio except as required by sec_704 and sec_1_704-1 each partner will be allocated a pro_rata share of partnership income gain loss deduction and credit in accordance with the regulations under sec_704 each partner’s initial capital_account balance will be the amount of money and the fair_market_value of the property contributed to portfolio by the partner under sec_1_704-1 portfolio will revalue its investment portfolio to fair_market_value as of the close of each day portfolio will adjust each partner’s capital_account to reflect the partner’s share of the net change in the value of its portfolio of securities from the close of the prior day to the close of the current day portfolio intends to qualify as a securities_partnership under sec_1_704-3 the number of partners in portfolio will be limited to or fewer calculated pursuant to sec_1_7704-1 portfolio has made the following additional representations each of the funds has contributed or will contribute either solely cash and or a portfolio of stocks and securities that meets the diversification requirements of sec_368 and sec_1_351-1 for purposes of this test government securities are not included within the meaning of securities under sec_368 but are included within the meaning of total assets in sec_368 cash contributed by co-administrator and each fund has been and will be used only to carry on the normal operating and investment activities of portfolio normal operating activities would include payment of partnership level expenses and periodic withdrawals of partnership capital normal investment activities would consist only of investments that are consistent with the portfolio holding itself out to investors as a money market fund which is a type of investment fund that seeks to provide investors with a high level of income while preserving capital and liquidity by investing in high quality short-term investments plr-115320-99 for purposes of determining the required_distribution under sec_4982 each fund will account for its share of partnership items of income gain loss and deduction as they are taken into account by portfolio as required by revrul_94_40 the organization of portfolio was done in a manner to enable it to be classified as a partnership and was not done to enable a partner that is a ric to make distributions that would be prohibited under revrul_89_81 had the ric invested directly in the assets of portfolio portfolio intends to invest its assets in a manner that will allow each fund that invests in portfolio to meet the requirements specified for rics in sec_851 law and analysis ruling portfolio and funds have requested a ruling that portfolio will not be a publicly_traded_partnership within the meaning of sec_7704 sec_7704 provides that a publicly_traded_partnership is treated as a corporation sec_7704 and sec_1_7704-1 provide that for purposes of sec_7704 the term publicly_traded_partnership means any partnership if interests in the partnership are traded on an established_securities_market or readily_tradable on a secondary market or the substantial equivalent thereof sec_1_7704-1 provides that interests in a partnership are readily_tradable on a secondary market or the substantial equivalent thereof if taking into account all of the facts and circumstances the partners are readily able to buy sell or exchange their partnership interests in a manner that is comparable economically to trading on an established_securities_market sec_1_7704-1 provides that interests in a partnership are not readily_tradable on a secondary market or the substantial equivalent thereof for purposes of sec_7704 if i all interests in the partnership were issued in a transaction or transactions that was not required to be registered under the act and ii the partnership does not have more than partners at any time during the taxable_year sec_1_7704-1 provides that for purposes of sec_1_7704-1 a person owning an interest in a partnership grantor_trust or s_corporation flow-through_entity that owns directly or through other flow-through entities an interest in the partnership is treated as a partner in the partnership only if i substantially_all of the value of the beneficial owner’s interest in the flow-through_entity is attributable to the flow-through entity’s interest direct or indirect in the partnership and ii a principal purpose of the plr-115320-99 use of the tiered arrangement is to permit the partnership to satisfy the 100-partner limitation of sec_1_7704-1 portfolio has represented that the number of partners in portfolio will be limited to or fewer calculated pursuant to sec_1_7704-1 no interest in portfolio has been or will be issued in a transaction or transactions required to be registered under the act accordingly portfolio will not be a publicly_traded_partnership within the meaning of sec_7704 ruling portfolio and funds have requested rulings that the transfers of property to portfolio by the funds would not be transfers to an investment_company within the meaning of sec_351 and sec_1_351-1 if portfolio were incorporated sec_721 a provides that neither a partner nor a partnership will recognize gain_or_loss on a contribution of assets to a partnership in exchange for a partnership_interest sec_721 provides that subsection a shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment_company within the meaning of sec_351 if the partnership were incorporated sec_351 a provides that no gain_or_loss will be recognized if one or more persons transfers property to a corporation solely in exchange for stock_or_securities in the corporation and immediately_after_the_exchange the transferors control the transferee corporation sec_351 provides that sec_351 will not apply to a transfer of property to an investment_company sec_1_351-1 provides that a transfer to an investment_company will occur when i the transfer results directly or indirectly in diversification of the transferors' interests and ii the transferee is a regulated_investment_company ric real_estate_investment_trust reit or a corporation more than percent of the value of whose assets excluding cash and non-convertible debt obligations from consideration are held for investment and are readily marketable stocks or securities or interests in rics or reits sec_1002 of the taxpayer_relief_act_of_1997 pub_l_no 111_stat_788 the act amends sec_351 for transfers after date in taxable years ending after such date subject_to certain transitional relief provisions sec_1002 of the act is intended to expand the types of assets considered in determining whether a transfer is to a transferee described in sec_1_351-1 to include certain assets in addition to readily marketable stocks or securities and interests in rics or reits however the act is not in intended to alter the requirement of sec_1_351-1 that a transfer of property will be considered to be a transfer to an investment_company under sec_351 only if the transfer results directly or indirectly in diversification of the plr-115320-99 transferors’ interests see s rep no 105th cong 1st sess h_r rep no 105th cong 1st sess h_r rep no 105th cong 1st sess sec_1_351-1 provides that a transfer ordinarily results in diversification of the transferors’ interests if two or more persons transfer nonidentical assets to a corporation in the exchange it further provides that if a transfer is part of a plan to achieve diversification without recognition of gain such as a plan which contemplates a subsequent transfer however delayed of the corporate assets or of the stock_or_securities received in the earlier exchange to an investment_company in a transaction purporting to qualify for nonrecognition treatment the original transfer will be treated as resulting in diversification revrul_87_9 1987_1_cb_133 provides that a transfer to a corporation of shares of corporation y stock by one transferor and a transfer of cash by another transferor will be treated as a transfer of nonidentical assets under sec_1_351-1 sec_1_351-1 provides that a transfer of stocks and securities will not be treated as resulting in a diversification of the transferors' interests if each transferor transfers a diversified portfolio of stocks and securities and a portfolio of stocks and securities is considered to be diversified if it satisfies the and 50-percent tests of sec_368 applying the relevant provisions of sec_368 except that government securities are included in total assets for purposes of the denominator of the and 50-percent tests unless acquired to meet the and 50-percent tests but are not treated as securities of an issuer for purpose of the numerator of the and 50-percent tests an investment_company is diversified within the meaning of sec_368 if not more than percent of the value of its assets is invested in the stock and securities of any one issuer and not more than percent of the value of its total assets is invested in the stock and securities of five or fewer issuers after applying the law to the facts submitted and representations made we conclude that the transfers of property to portfolio by the funds would not be transfers to an investment_company within the meaning of sec_351 and sec_1_351-1 if portfolio were incorporated provided that these are the only transfers to portfolio except for transfers solely of cash and or a diversified portfolio of stocks and securities however we express no opinion about whether subsequent transfers of stock and securities to portfolio by any transferor will affect the tax consequences of the original transfers ruling portfolio and funds have requested a ruling that a fund holding a beneficial_interest in portfolio is deemed to own a proportionate share of each of the assets and earn a proportionate share of partnership income in portfolio attributable to that share plr-115320-99 for purposes of determining whether the fund satisfies the requirements of sec_851 and sec_851 of the code sec_851 defines a ric in part as a domestic_corporation registered under the act as a management company sec_851 limits the definition of a ric to a corporation meeting certain election gross_income and diversification requirements sec_851 of the code provides that to qualify as a ric percent of a corporation's gross_income must be derived from dividends interest payments_with_respect_to_securities_loans as defined in sec_512 gains from the sale_or_other_disposition of stocks securities foreign_currencies or other income derived with respect to the business of investing in such stocks securities or currencies sec_851 of the code requires that to qualify as a ric at the close of each quarter of the taxable_year at least percent of the value of a corporation's total assets must be represented by cash and cash items including receivables government securities securities of other rics and other_securities generally limited in respect of one issuer to an amount not greater in value than percent of the value of the total assets of the corporation and to not more than percent of the outstanding_voting_securities_of_such_issuer sec_851 of the code provides that to qualify as a ric not more than percent of the corporation's total assets may be invested in the securities other than government securities and securities of other rics of any one issuer or two or more issuers that the corporation controls and which are determined under regulations to be engaged in the same or similar trades_or_businesses or related trades_or_businesses sec_702 of the code provides that the character of items stated in sec_702 that are included in a partner's_distributive_share shall be determined as if such items were realized directly from the source from which realized by the partnership or incurred in the same manner as incurred by the partnership sec_702 provides that where it is necessary to determine the amount or character of the gross_income of a partner such amount shall include his distributive_share of the gross_income of the partnership section n of the technical_and_miscellaneous_revenue_act_of_1988 added a sentence to the flush language of sec_851 of the code that states that income derived from a partnership or trust shall be treated as satisfying the percent test of sec_851 only to the extent that such income is attributable to items of income of the partnership or trust which would be described in sec_851 if earned directly by the ric the legislative_history of that sentence indicates that it was intended to clarify the plr-115320-99 general_rule used to characterize items of income gain loss deduction or credit includible in a partner’s distributive_share as applied to rics that are partners it therefore explains the relationship of sec_702 to the percent test under sec_851 see s rep no 100th cong 2d sess under subchapter_k of the code a partnership is considered to be either an aggregate of its members or a separate_entity under the aggregate approach each partner is treated as an owner of an undivided_interest in partnership assets and operations the entity_theory provides that the partnership is a separate_entity in which partners have no direct interest in partnership assets and operations see s rep no 83d cong 2d sess and h_r rep no 83d cong 2d sess in order for the funds to qualify as rics under the diversification tests of sec_851 of the code the aggregate approach will have to be applied to each fund’s partnership_interest in portfolio as an aggregate each fund will be able to take into account its share of the individual items of income and assets of portfolio revrul_75_62 1975_1_cb_188 concerns a life_insurance_company that contributed cash to a partnership in exchange for a percent interest in the partnership the partnership held real_estate as its principal asset for the taxable_year in question sec_805 of the code required life_insurance_companies to value their assets each taxable_year for this purpose sec_805 required that shares of stock and real_estate be valued at their fair market values and that other assets be valued at their adjusted_basis the issue presented in the ruling is whether for purposes of sec_805 the life_insurance company's interest in the partnership is considered to be an investment in the real_estate held by the partnership an aggregate approach or an investment in other_property an entity approach revrul_75_62 holds that the partnership_interest held by the life_insurance_company must be accounted for as other_property for purposes of sec_805 the ruling cites sec_705 and sec_741 of the code both of which generally treat an interest in a partnership as an interest in an entity as evidence of an intent in subchapter_k to take the entity approach in questions concerning the nature of an interest in a partnership the ruling states that the legislative_history of sec_805 does not indicate that application of the entity approach to the facts of the ruling is inappropriate and that there is no compelling reason to take the aggregate approach the flush language of sec_851 and its legislative_history indicate that here unlike the situation described in revrul_75_62 congress intended that an aggregate approach be taken in determining the nature of the partnership interests held by the funds the flush language of sec_851 mandates an aggregate approach in applying the percent gross_income_test of sec_851 to rics that hold partnership interests it would be anomalous to suggest that congress intended that a ric's interest in a plr-115320-99 partnership be viewed as a direct investment in the partnership’s assets for purposes of the sec_851 test but not be viewed as a direct investment in those assets for purposes of the tests set out in inter alia sec_851 the tax treatment accorded real_estate_investment_trusts reits lends further support to applying the aggregate approach to the present case reits were created to provide an investment vehicle similar to the ric for small investors to invest in real_estate and real_estate mortgages see h_r rep no 86th cong 2d sess like rics reits are subject_to restrictions on the type of assets they can hold if they want to retain the benefits accorded them under subchapter_m for example under sec_856 of the code at least percent of the gross_income of a reit must be derived from any or all of nine sources including rents_from_real_property interest on obligations secured_by mortgages gain from the sale or disposition of real_property and income and gain derived from foreclosure_property reits and rics also have similar distribution and holding_period requirements sec_1_856-3 of the income_tax regulations provides that in the case of a real_estate_investment_trust which is a partner in a partnership as defined in sec_7701 and the regulations thereunder the trust will be deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share for purposes of sec_856 the interest of a partner in a partnership's assets shall be determined in accordance with his capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership shall retain the same character in the hands of the partners for all purposes of sec_856 thus for example if the trust owns a 30-percent capital interest in a partnership which owns a piece of rental property the trust will be treated as owning percent of such property and as being entitled to percent of the rent derived from the property by the partnership similarly if the partnership holds any property primarily_for_sale_to_customers in the ordinary course of its trade_or_business the trust will be treated as holding its proportionate share of such property primarily for such purpose also for example where a partnership sells real_property or a_trust sells its interest in a partnership which owns real_property any gross_income realized from such sale to the extent that it is attributable to the real_property shall be deemed gross_income from the sale or disposition of real_property held for either the period that the partnership has held the real_property or the period that the trust was a member of the partnership whichever is shorter thus the regulations adopt the language of the aggregate look-through approach in determining how a reit should account for its partnership interests for purposes of all of the income and asset qualification tests under sec_856 of the code plr-115320-99 the legislative purpose underlying the creation of both rics and reits was to provide small investors a means of pooling their resources to invest in a particular type of assets without the imposition of the corporate_income_tax the qualification tests are similar for each therefore although the ric regulations do not specifically address the issue herein it is appropriate to adopt an approach for rics that parallels that set forth for reits each of the funds as a partner in portfolio will be deemed to own a proportionate share of the assets of portfolio and will be deemed to be entitled to the income of portfolio attributable to such share for purposes of determining whether the fund satisfies the requirements of sec_851 and sec_851 for purposes of these sections the interest of a fund in portfolio shall be determined in accordance with the fund's capital interest in portfolio ruling portfolio and funds have requested a ruling that portfolio’s method of aggregating gains and losses from qualified_financial_assets for the purpose of making reverse sec_704 allocations is reasonable within the meaning of sec_1_704-3 sec_704 provides that income gain loss and deduction with respect to property contributed to the partnership by a partner is shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair_market_value at the time of contribution sec_1_704-3 states that the purpose of sec_704 is to prevent the shifting of tax consequences among partners with respect to precontribution gain_or_loss under sec_704 a partnership must allocate income gain loss and deductions with respect to property contributed by a partner to the partnership so as to take into account any variation between the adjusted tax basis of the property and its fair_market_value at the time of the contribution this allocation must be made using a reasonable method that is consistent with the purpose of sec_704 sec_1_704-3 provides that the principles of sec_1_704-3 apply to allocations with respect to property for which differences between book_value and adjusted tax basis are created when a partnership revalues partnership property under sec_1_704-1 reverse sec_704 allocations a partnership that makes allocations with respect to revalued property must use a reasonable method that is consistent with the purposes of sec_704 and c sec_1_704-3 indicates that sec_704 generally applies on a property-by- property basis therefore in determining whether there is a disparity between adjusted tax basis and fair_market_value the built-in gains and built-in losses on items of plr-115320-99 contributed or revalued property generally cannot be aggregated sec_1_704-3 sets forth a special rule allowing certain securities partnerships to make reverse sec_704 allocations on an aggregate basis specifically sec_1_704-3 provides that for purposes of making reverse sec_704 allocations a securities_partnership may aggregate gains and losses from qualified_financial_assets using any reasonable approach that is consistent with the purposes of sec_704 once a partnership adopts an aggregate approach the partnership must apply the same aggregate approach to all of its qualified_financial_assets for all taxable years in which the partnership qualifies as a securities_partnership sec_1_704-3 defines a securities_partnership as a partnership that is either a management company or an investment_partnership and that makes all of its book allocations in proportion to the partners’ relative book capital accounts except for reasonable special allocations to a partner that provides management services or investment advisory services to the partnership under sec_1_704-3 a partnership is a management company if it is registered as a management company under the act sec_1_704-3 defines qualified_financial_assets as any personal_property including stock that is actively_traded as defined in sec_1_1092_d_-1 defining actively_traded property for purposes of the straddle rules for a management company qualified_financial_assets also include the following even if not actively_traded shares of stock in a corporation notes bonds debentures or other evidences of indebtedness interest rate currency or equity notional_principal_contracts evidences of an interest in or derivative financial instruments in any security currency or commodity including any option forward or futures_contract or short position or any similar financial_instrument sec_1_704-3 and e v describe two approaches to making aggregate reverse sec_704 allocations that are generally reasonable -- the partial netting approach and the full netting approach however sec_1_704-3 provides that other approaches may be reasonable in appropriate circumstances sec_1_704-3 provides that an allocation method or combination of methods is not reasonable if the contribution of property or event that results in reverse sec_704 allocations and the corresponding allocation of tax items with respect to the property are made with a view to shifting the tax consequence of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the partners' aggregate tax_liability furthermore sec_1_704-3 provides that the character and other tax_attributes of gain_or_loss allocated to the partners under an aggregate approach must a preserve the tax_attributes of each item of gain_or_loss realized by the partnership plr-115320-99 b be determined under an approach that is consistently applied and c not be determined with a view to reducing substantially the present_value of the partners’ aggregate tax_liability portfolio has represented that its allocations have complied and will comply with sec_1_704-3 portfolio has elected to use an aggregate method for making reverse sec_704 allocations under the method adopted portfolio has established two revaluation accounts for each partner -- an unrealized_gain account urga and an unrealized_loss account urla each time portfolio restates its capital accounts to reflect a revaluation of its assets portfolio credits each partner's urga with the partner's share of the change in unrealized gains since the last capital_account restatement by the partnership similarly portfolio credits each partner's urla with the partner's share of the change in unrealized losses since the last partnership restatement after portfolio makes the book adjustments it allocates tax gains and tax losses for securities sold since portfolio's last capital_account restatement tax gain is allocated among the partners in accordance with the relative balances in the partners' urgas tax loss is allocated among the partners in accordance with the relative balances in the partners' urlas portfolio then reduces each partner's urga and urla by the amount of tax gain and loss allocated to that partner after applying the relevant law to the information and representations submitted we rule that portfolio’s method of making reverse sec_704 allocations is a reasonable method within the meaning of sec_1_704-3 provided that a contribution or revaluation of property and the corresponding allocation of tax items with respect to the property are not made with a view to shifting the tax consequences of built-in_gain or loss among the partnership in a manner that substantially reduces the present_value of the partners' aggregate tax_liability ruling portfolio and funds also have requested permission to aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for the purpose of making sec_704 and reverse sec_704 allocations the aggregation rule_of sec_1_704-3 applies only to reverse sec_704 allocations therefore a securities_partnership using an aggregate approach must generally account for any built-in_gain or loss from contributed_property separately the preamble to sec_1_704-3 explains that the final regulations do not authorize aggregation of built-in gains and losses from contributed_property with built-in gains and losses from revaluations because this type of aggregation can lead to substantial distortions in the character and timing of income and loss recognized by contributing partners t d 1995_1_cb_120 however the preamble also recognizes that plr-115320-99 there may be instances in which the likelihood of character and timing distortions is minimal and the burden of making sec_704 allocations separate from reverse sec_704 allocations is great consequently sec_1 e iii authorizes the commissioner to permit by published guidance or letter_ruling aggregation of qualified_financial_assets for purposes of making sec_704 allocations in the same manner as that described in sec_1_704-3 in this case portfolio’s burden of making sec_704 allocations separate from reverse sec_704 allocations is represented to be substantial in addition the likelihood that this type of aggregation could be abused by portfolio and its partners is minimal it is represented that fund fund and fund each is a publicly_offered_regulated_investment_company as defined in sec_67 and sec_1_67-2t a qualified contributor and upon commencement of operations fund also will be a qualified contributor after applying the relevant law to the facts presented and the representations made we conclude that portfolio may aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio by fund with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for purposes of making sec_704 and reverse sec_704 allocations provided that a contribution or revaluation of property and the corresponding allocation of tax items with respect to the property are not made with a view to shifting the tax consequences of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the partners' aggregate tax_liability and that each of the partners other than co- administrator is a qualified contributor ruling portfolio and funds also have requested permission to use portfolio’s method for making sec_704 allocations including reverse allocations for qualified contributors that become partners in portfolio it is anticipated that qualified contributors may become partners in portfolio in the future these new partners may contribute securities with built-in_gain or loss to portfolio but only securities consistent with portfolio’s investment objective after applying the relevant law to the information and representations submitted we rule that portfolio’s method of making sec_704 allocations including reverse allocations for new partners who invest in portfolio is a reasonable method within the meaning of sec_1_704-3 and is permitted by the commissioner under sec_1_704-3 provided that i a contribution or revaluation of property and the corresponding allocation of tax items with respect to the property are not made with a view to shifting the tax consequences of built-in_gain or loss among the partnership in a manner that substantially reduces the present_value of the partners' aggregate tax plr-115320-99 liability ii the partner is registered as an open-end management company under the act and is a qualified contributor and iii to the extent portfolio relies on this ruling with respect to the contribution portfolio will document any such contribution on its tax_return filed subsequent to the contribution except as specifically ruled upon above we express no opinion on the federal tax consequences of the transactions described above under any other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction s that are not specifically covered by the above rulings rulings four through six are limited to allocations of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets made under sec_704 sec_704 and sec_1_704-3 specifically no opinion is expressed concerning i whether any fund qualifies as a ric that is taxable under subchapter_m part i of the code ii allocations of items other than items of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets or iii the aggregation of built-in gains and losses from qualified_financial_assets contributed to portfolio by any partner other than the funds and future new partners that qualify as qualified contributors in addition portfolio must maintain sufficient records to enable it and its partners to comply with sec_704 and sec_737 this ruling is directed only to the taxpayer s 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 portfolio and portfolio’s second authorized representative signed david r haglund sincerely david r haglund senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes