internal_revenue_service number release date index number 7702a 7702a ----------------- -------------------------- --------------------- ---------------------------------------------------- ----------------------------- - 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 fip plr-152051-04 date date ----------------------- ----------------------------- legend taxpayer ---------------------------------------------------- parent ---------------------------------------------------- old parent new corp bank a bank b entity ------------------------- ------------------------------------------------ ------ --------------------------------------- ------------------------------------------------ --------------------------------------------------------------------------------- ------- state state city state ------------ ------ --------------- ----------- plr-152051-04 date date date m n p q trustee original contract ------------------------- ---------------------- ------------------------ -- ------- --- --- ---------------------------------- ---------------------------------- -------------------------------------------------------------------------------- ------------------------------------------------------------------ --------------------------------------------------------- ---------------------------------------------------------------------------------- insurance_company dear ------------ on date your authorized representatives submitted a letter requesting several rulings concerning a group master life_insurance_policy that was purchased to provide employee_benefits for old parent and its banking affiliates legal_title of the policy is held by entity after subsequent communications and a taxpayer conference it was determined that entity should be treated as a partnership for federal tax purposes and your authorized representatives submitted a revised request for rulings to which this letter responds facts taxpayer is incorporated in state and is engaged in the banking business it is a member_of_an_affiliated_group of corporations filing a consolidated u s federal_income_tax return for which parent is the common parent taxpayer is subject_to the audit jurisdiction of the large midsize operating division in the state city district_office of the internal_revenue_service taxpayer uses the accrual_method of accounting and the last day of its taxable_year is december on date old parent and its banking affiliates entered into an agreement plr-152051-04 establishing entity under state law for the purpose of purchasing a group flexible premium variable life_insurance_policy original contract and approximately n associated unleveraged life_insurance certificates original certificates insuring the lives of employees of old parent and its banking affiliates the life_insurance was purchased as a financing or cost_recovery vehicle for pre-and post-retirement employee_benefits the original contract and original certificates were issued by insurance_company in state on date the banking affiliates have contributed funds to entity which have been used to pay insurance premiums relating to the original contract old parent has maintained an accounting of the premiums_paid by each affiliate bank upon which allocations of net realizable value and death_benefits are made the net realizable value includes the cash_surrender_value contingency mortality reserve amounts and deferred acquisition_cost dac reserve amounts the net realizable value and death_benefits were initially allocated to each bank proportionately based on its percentage share of initial contributions the ownership percentage upon the contribution of additional premiums the ownership percentage was recalculated to account for the total contributions of each bank if two banks merged their initial and additional contributions were combined in order to determine the ownership percentage of the surviving bank death_benefits are allocated to each bank based on relative ownership percentages and original certificates several of the banking affiliates were consolidated through merger transactions which ultimately resulted in bank b and bank a remaining as the only surviving banking affiliates on date old parent engaged in a series of transactions including contributing all of the outstanding_stock of bank a to new corp a newly formed wholly-owned subsidiary of old parent and the pro_rata distribution by old parent of the stock of new corp to the public shareholders of old parent old parent represents that it received a private_letter_ruling from the service that the spin-off transaction would be treated as a tax-free distribution pursuant to sec_355 and sec_368 of the code on date new corp was acquired by a subsidiary of parent and bank a was merged into taxpayer a second tier wholly owned subsidiary of parent in a transaction intended to qualify under sec_368 of the code with taxpayer succeeding to the rights and obligations of bank a currently taxpayer and bank b are the sole joint owners of entity the only assets of which are the original contract and original certificates and each is entitled to its ownership percentage of the cash_surrender_value and death_benefits of approximately p and q respectively as a result of the transactions described above taxpayer and bank b are no longer commonly owned and have different business interests subsequent to the establishment of entity and issuance of the original contract the proposed transaction taxpayer makes the following representations taxpayer proposes the following two-step transaction the proposed insurance_company will partition partition the life_insurance contracts by each original certificate is a life_insurance_contract as that term is defined in thereafter entity will liquidate by distributing to each of taxpayer and bank b plr-152051-04 transaction replacing the original contract with two separate contracts and each original certificate with two separate certificates each with terms identical to the original contract and the corresponding original certificates except that the premiums_paid the death_benefits and the cash_value will be partitioned between each separate contract and each separate certificate based on taxpayer’s and bank b’s respective ownership percentages of the original contract and each of the corresponding original certificates a separate contract and separate certificates representing each party’s beneficial_ownership of the original contract and original certificates sec_7702 of the code because it is a life_insurance_contract under state law and it meets the cash_value_accumulation_test of sec_7702 defined in sec_7702a original certificates original certificates since issuance original certificates will be identical to those provided in the separate contract and corresponding separate certificates and the investment allocations as in effect with respect to the original contract and original certificates will be in effect with respect to the separate contract and corresponding separate certificates immediately after the proposed transaction applicable state law no withdrawals or loans have been taken against the original contract and the separate certificates will qualify as life_insurance contracts under the no original certificate is a modified_endowment_contract as that term i sec_3 under state law entity is the legal owner of the original contract and the available investment options provided in the original contract and requested ruling sec_1 the partition of the original contract and the original certificates will not plr-152051-04 constitute a sale_or_other_disposition under sec_1001 and neither the entity nor taxpayer or bank b will recognize income on the distribution of the separate contracts and separate certificates life_insurance contracts pursuant to sec_1035 the partition will not be treated as an exchange of life_insurance contracts for taxpayer’s investment_in_the_contract for the separate certificates for the proposed transaction will not result in a transfer for valuable there will not be a material_change under sec_7702a by reason of the the separate certificates will not fail to qualify as life_insurance_contract sec_5 for purposes of sec_7702 each separate certificate will have the same issue the partition will not be considered a change in the terms of the original purposes of sec_72 and e will when the partition is consummated be based on its relative ownership share of entity consideration under sec_101 of code date as the corresponding original certificate under sec_7702 by reason of the partition of the original certificates and the distribution of those certificates in liquidation of entity certificates requiring adjustments in future determinations under sec_7702 partition of the original contract and certificates into the separate contract and separate certificates accordingly the original certificates and taxpayer’s separate certificates will be considered as entered into on the same dates date as each respective corresponding original certificate treated as a reduction in benefits under sec_7702a reason of the partition of the original certificates and the distribution of the separate certificates in liquidation of entity be allocated its relative ownership share of the accumulated amount_paid under the original certificates likewise for purposes of the 7-pay test of sec_7702a the sum of the seven annual net level premiums that will be treated as having been paid will be the the separate certificates will not become modified endowment contracts by for purposes of sec_7702a each separate certificate will have the same issue at the time the partition is consummated each of taxpayer and bank b will the partition of the original contract and original certificates will not be plr-152051-04 separate certificate's relative ownership percentage of the sum of the net level premiums_paid on or before such time if the contract provided for paid-up future_benefits after the payment of the level annual payments for purposes of sec_264 each separate contract and separate certificate will be treated as having the same issue purchase and premium paid dates as the original contract and corresponding original certificate in sec_264 at the time first covered by the original contract and original certificates sec_264 will continue to apply to each respective separate contract and separate certificate for purposes of sec_264 if the insured individual was a person described law and analysis sec_1001 provides that the gain from the sale_or_other_disposition of ruling property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained accordingly an inherent element of sec_1001 is the general requirement that a transaction must be a sale exchange or other_disposition to result in a taxable_event 499_us_554 in the instant case the issue is whether the partition constitutes a sale exchange or other_disposition that the partition of property between two co-owners is a nontaxable event similarly published rulings concerning the division of jointly held property have concluded that if the division is characterized as a partition the transaction is nontaxable undivided interests_in_real_property the taxpayer wanted to purchase the interest of one of the other tenants-in-common but no price could be agreed on the taxpayer brought a partition action in accordance with state law forcing the sale of the property the taxpayer and four of the other tenants purchased the property at the partition sale the local commissioner appointed by the court distributed the proceeds of the sale among the purchasing tenants in accordance with their respective interests prior to the partition sale and conveyed the entire title to the property to the taxpayer and the four other tenants in common who purchased the property at the partition sale the revenue in 370_us_65 the supreme court concluded in revrul_55_77 1955_1_cb_339 the taxpayer and five others owned revrul_56_437 1956_2_cb_507 concerned two situations involving joint after the partition the separate contract and separate certificates held by each plr-152051-04 ruling concluded that the taxpayer neither realized a taxable gain nor sustained a deductible loss on the sale or sale of the undivided_interest in the property that he owned immediately before the partition proceedings revrul_55_77 reasoned that this was because the taxpayer still owned the same interest that he owned before he sold nothing ownership of personal_property in the first situation the conversion of a joint_tenancy in corporate stock into a tenancy_in_common for the purposes of eliminating a survivorship feature was held to be a nontaxable_transaction for federal_income_tax purposes in the second situation two joint_tenants of corporate stock brought an action under state law compelling partition and the issuance of two separate stock certificates in each of their names the service ruled that this transaction also was nontaxable because there was no sale_or_exchange each of the stockholders received separate stock certificates representing the same relative ownership share in the corporation that they had held before of taxpayer and bank b will reflect the same relative ownership percentage in the original contract and original certificates that were held by taxpayer and bank b before the transaction moreover the separate contract and separate certificates have in the aggregate the exact same terms as the original contract and original certificates and each separate certificate insures the same life as the corresponding original certificate this is analogous to the partition of corporate stock in revrul_56_437 accordingly taxpayer’s receipt of the separate contract and separate certificates does not result in a sale exchange or other_disposition under sec_1001 partner gain shall not be recognized to such partner except to the extent that any money distributed exceeds the adjusted_basis of such partner’s interest in the partnership immediately before the distribution sec_731 provides that no gain_or_loss shall be recognized to a partnership on a distribution to a partner of property including money money includes marketable_securities and that such securities shall be taken into account at their fair_market_value as of the date of the distribution sec_731 in general provides that the term marketable_securities means financial instruments and foreign_currencies which are as of the date of the distribution actively_traded within the meaning of sec_1092 sec_731 provides that the term financial_instrument includes stocks and other equity interests evidences of indebtedness options forward or futures contracts notional_principal_contracts and derivatives sec_731 provides that in the case of a distribution by a partnership to a sec_731 provides inter alia that for purposes of sec_731 the term sec_1035 provides that no gain_or_loss shall be recognized on the plr-152051-04 in the instant case entity will liquidate and distribute the separate contracts and the separate certificates since the separate contracts and the separate certificates are neither money nor marketable_securities neither the entity nor the taxpayer and bank b will recognize gain on the transfer of the policies to the taxpayer and bank b in liquidation of entity ruling exchange of a life_insurance_contract for another life_insurance_contract sec_1035 is a nonrecognition_provision in ruling we concluded that taxpayer's receipt of the separate certificates for its ownership percentage in the original certificates is a nontaxable event therefore the application of a nonrecognition_provision is moot ruling in both sec_72 and e investment_in_the_contract is defined as of any date as - a the aggregate amount of premiums or other consideration paid for the contract before such date minus b the aggregate amount received under the contract before such date to the extent that such amount was excludable from income under this subtitle or prior income_tax laws taxpayer and bank b are treated as owning their respective shares of partnership property p for taxpayer q for bank b which consists of the original contract and original certificates for which they have paid the premiums the premiums_paid also represent the investment_in_the_contract for each separate certificate because there have been no withdrawals will be based on relative ownership percentage consequently taxpayer will be considered to have paid premiums for the separate certificates equal to p of the total premiums_paid for the original certificates while bank b will be considered to have paid premiums for the separate certificates equal to q of the total premiums_paid for the original certificates accordingly taxpayer’s investment_in_the_contract of the separate certificates will be based on its ownership percentage in the original certificates ruling sec_101 of the code generally provides that gross_income does not include amounts received under a life_insurance_contract by reason of the insured’s death sec_101 provides that this exclusion_from_gross_income provided by the distribution of the separate contract and separate certificates from entity for federal_income_tax purposes entity is treated as a partnership and the term transfer for a valuable consideration is defined for purposes of ruling concludes that the partition will not be a sale exchange or other plr-152051-04 a is limited to an amount equal to the sum of the actual value of the consideration and the premiums and other_amounts subsequently paid_by the transferee sec_101 of the code in sec_1_101-1 of the regulations as any absolute transfer for value of a right to receive all or a part of the proceeds of a life_insurance_policy additionally sec_101 provides that even if there has been a transfer for valuable consideration the rule does not apply if the basis for purposes of determining gain_or_loss in the hands of the transferee is determined in whole or in part by reference to such basis in the hands of the transferor disposition and that the liquidating_distribution of the separate contracts and separate certificates will not result in income to the taxpayer and bank b thus the proposed transaction will not result in a transfer for a valuable consideration under sec_101 of the code rulings code to be a contract that is a life_insurance_contract under the applicable law and that either meets the cash_value_accumulation_test of sec_7702 or both a meets the guideline premium requirements of sec_7702 and b falls within the cash_value corridor of sec_7702 taxpayer represents that the separate certificates qualify as life_insurance contracts under the applicable state law thus to be life_insurance contracts under sec_7702 the separate certificates need only meet one of the mathematical tests in general a contract meets the cash_value_accumulation_test if by the terms of the contract the cash_surrender_value of such contract may not at any time exceed the net_single_premium which would have to be paid at such time to fund future_benefits under the contract the issue_date of a potential life_insurance_contract is a factor in the application of the cash_value_accumulation_test because the net_single_premium at any time to fund the future_benefits under the contract depends on the insured’s age at issue assignment of the same issue_date by insurance_company the issue dates of the original certificates and the separate certificates will be the same for purposes of the cash_value_accumulation_test the separate certificates will have the same dates assigned by insurance_company and will in substance continue the coverage provided by the original certificates with at most a minor administrative change contract the cash_surrender_value of the contract may not at any time exceed the net the original certificates and the separate certificates will be identical including the cash_value_accumulation_test of sec_7702 requires that by the terms of the the term life_insurance_contract is defined in sec_7702 for purposes of the sec_7702 provides generally that if there is a change in benefits for purposes of testing under sec_7702 after the proposed transaction taxpayer plr-152051-04 single premium which would have to paid at such time to fund future_benefits under the contract taxpayer represents that the original certificates satisfy this test the separate certificates will be considered to be issued on the same dates as the original certificates in substance the proposed transaction is a partition of the original certificates in which the separate certificates will have the same terms and the same issue dates as the original certificates and in the aggregate will provide the same cash_value and death_benefits accordingly the proposed transaction will not cause the separate certificates to fail to meet the cash_value_accumulation_test and bank b will be allocated their relative ownership percentages of premiums_paid cash_surrender_value death_benefits and allocations to the separate_accounts paid under original certificates this reflects that the proposed transaction is a partition after the partition determinations under sec_7702 for taxpayer’s separate certificates will be made without regard to taxpayer’s relative ownership existing at the time of the proposed transaction under or in other terms of the contract which was not reflected in any previous determination or adjustment made under sec_7702 there shall be proper adjustments made in future determinations under sec_7702 in the instant case there will be no change_of benefits under the separate certificates taxpayer represents that the terms of the separate contracts and separate certificates and the original contract and original certificates will be identical taxpayer and bank b will retain the same benefits and other terms both before and after the proposed transaction accordingly the proposed transaction will not require adjustments in future determinations under sec_7702 rulings - sec_7702a provides in relevant part that for purposes of sec_72 the term modified_endowment_contract means any contract meeting the requirements of sec_7702 that is entered into on or after date and fails the 7-pay test of sec_7702a sec_7702a provides that for purposes of sec_7702a a contract fails to meet the 7-pay test of this section if the accumulated amount_paid under the contract at any time during the first contract years exceeds the sum of the net level premiums which would have been paid on or before such time if the contract provided for paid-up future_benefits after the payment of level annual premiums sec_7702a of the level annual premiums shall be made as of the time the contract is issued sec_7702a fails to provide a definition concerning when a contract is issued however sec_7702a states that except as otherwise provided in sec_7702a the terms used in sec_7702a shall have the same meaning as when used in sec_7702 as a general_rule sec_7702a provides that the determination under plr-152051-04 since the separate certificates will be treated as issued on the same dates as the original certificates for purposes of sec_7702 the separate certificates should be treated as issued on the same dates as the original certificates for purposes of sec_7702a unless there is an overriding reason to do otherwise if however there is a material_change in the benefits under or in other terms of the contract which was not reflected in any previous determination under sec_7702a then i such contract shall be treated as a new contract entered into on the day on which such material_change takes effect and ii appropriate adjustments shall be made in determining whether such contract meets the 7-pay test of sec_7702a to take into account the cash_surrender_value of the contract sec_7702a there will be no material_change between the original certificates and the separate certificates because the sum of the benefits under the separate certificates is equal to the sum of the benefits under the original certificates and the terms of the original certificates are identical to the terms of the separate certificates to apply the 7-pay test after the partition taxpayer and bank b will be allocated their relative ownership percentage of the accumulated amount_paid under the original certificates as of the time of the partition and the sum of the net level premiums which would have been paid on or before such time if the contract provided for paid-up future_benefits after the payment of level annual payments given taxpayer’s representation that the original certificates are not modified endowment contracts the separate certificates will also not become modified endowment contracts by reason of the proposed transaction after the partition taxpayer’s and bank b’s separate certificates will be tested separately for modified_endowment_contract status rulings -14 with respect to indebtedness on life_insurance policies sec_264 except as provided in sec_264 provides that any interest_paid or accrued on any indebtedness with respect to one or more life_insurance policies owned by the taxpayer covering the life of any individual is not deductible the exception in sec_264 is for policies covering key persons amount_paid or accrued on indebtedness incurred or continued to purchase or carry a life_insurance_contract other than a single premium contract pursuant to a plan of purchase that contemplates the systematic direct or indirect borrowing of part or all of the increases in the cash_value of such contract either from the insurer or otherwise sec_264 provides generally that sec_264 shall not apply to any amount_paid or accrued by a person during a taxable_year on indebtedness incurred or continued as part of a plan referred to in sec_264 if no part of four of the annual premiums due sec_264 of the code denies in certain circumstances an interest_deduction sec_264 except as provided in sec_264 denies a deduction on any plr-152051-04 during the 7-year period beginning with the date the first premium on the contract to which such plan relates was paid is paid under such plan by reason of indebtedness sec_264 provides generally that no deduction shall be allowed for that portion of a taxpayer’s interest_expense which is allocable to unborrowed cash values sec_264 provides an exception from the general_rule of sec_264 for any policy or contract owned by an entity engaged in a trade_or_business if such policy or contract covers only one individual and if such individual is at the time first covered by the policy or contract either i a 20-percent_owner of such entity or ii an individual not described in clause i who is an officer director or employee of such trade_or_business under sec_264 each of the certificates in this case will be treated as a separate contract for purposes of sec_264 because pursuant to sec_848 the separate contracts are not group_life_insurance contracts the separate contract and certificates will be the issue dates of the original contract and certificates this followed from our earlier conclusion that the proposed transaction is a partition not a taxable_event under sec_1001 the same logic applies to sec_264 the issuance of the separate contracts and certificates to entity and the distribution of a separate contract and separate certificates to taxpayer in lieu of its interest in the original contract and certificates will be a nontaxable event under sec_1001 thus the issue purchase and premium paid dates of the separate contracts and certificates will be treated the same as the issue purchase and premium paid dates of the original certificates for purposes of sec_264 therefore for purposes of determining whether the exception in sec_264 applies to the separate certificates the date that the insured was first covered under the original certificates date will be used as the initial date of coverage under the separate certificates for purposes of sec_7702 and sec_7702a we concluded above that the issue dates of conclusion sec_1 the partition of the original contract and the original certificates will not the partition will not be treated as an exchange of life_insurance contracts for constitute a sale_or_other_disposition under sec_1001 and neither the entity nor taxpayer or bank b will recognize income on the distribution of the separate contracts and separate certificates life_insurance contracts pursuant to sec_1035 purposes of sec_72 and e will when the partition is consummated be based on its relative ownership share of entity consideration under sec_101 of code taxpayer’s investment_in_the_contract for the separate certificates for the proposed transaction will not result in a transfer for valuable the partition will not be considered a change in the terms of the original there will not be a material_change under sec_7702a by reason of the the separate certificates will not fail to qualify as life_insurance contracts the partition of the original contract and original certificates will not be for purposes of sec_7702 each separate certificate will have the same issue for purposes of sec_7702a each separate certificate will have the same issue plr-152051-04 date as the corresponding original certificate under sec_7702 by reason of the partition of the original certificates and the distribution of those certificates in liquidation of entity certificates requiring adjustments in future determinations under sec_7702 partition of the original contract and certificates into the separate contract and separate certificates accordingly the original certificates and taxpayer’s separate certificates will be considered as entered into on the same dates date as each respective corresponding original certificate treated as a reduction in benefits under sec_7702a reason of the partition of the original certificates and the distribution of the separate certificates in liquidation of entity be allocated its relative ownership share of the accumulated amount_paid under the original certificates likewise for purposes of the 7-pay test of sec_7702a the sum of the seven annual net level premiums that will be treated as having been paid will be the separate certificate's relative ownership percentage of the sum of the net level premiums_paid on or before such time if the contract provided for paid-up future_benefits after the payment of the level annual payments for purposes of sec_264 each separate contract and separate certificate will be treated as having the same issue purchase and premium paid dates as the original contract and corresponding original certificate in sec_264 at the time first covered by the original contract and original certificates sec_264 will continue to apply to each respective separate contract and separate certificate the separate certificates will not become modified endowment contracts by for purposes of sec_264 if the insured individual was a person described at the time the partition is consummated each of taxpayer and bank b will except as expressly provided herein no opinion is expressed or implied plr-152051-04 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s thomas m preston senior counsel branch office of associate chief_counsel financial institutions and products


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 intl b01 plr-147895-12 date date ty x province r the fund ------------------------------------- -------------------------- ----------------------------------------- trust agreement ---------------------------------------------------------------------------------------- ------------------ --------------------------------------------------------------------------------- ------------------ y -------------------------------- dear ------------------------------------- this is in response to a letter from your authorized representative dated --------------------- ------- requesting a ruling that interest and dividends derived by the fund will be exempt from u s withholding_tax under article xxi of the u s -canada income_tax treaty the treaty the information submitted is substantially as set forth below the ruling contained in this letter is 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 x is a corporation amalgamated and governed under the laws of the province r x serves as investment manager of the fund which is a_trust organized under the laws of the province r the fund’s objective is to track the performance of the standard poor’s composite stock index and it invests primarily in common shares of u s_corporations included in that index y a_trust company resident in canada and incorporated under and governed by the laws of canada acts as trustee for the fund plr-147895-12 the beneficiaries of the fund are its investors or unitholders x represents that all of the fund’s current unitholders are exempt from canadian income_tax the fund’s unitholders consist of i canadian registered pension plans whose assets are held in trust or by a pension corporation established for the purpose of administering the pension_plan canadian rpp investors and ii charitable organizations and charitable foundations registered charities collectively canadian exempt entities x represents that none of the canadian exempt entities currently holds units of the fund as part of carrying_on_a_trade_or_business in the united_states x also represents that each canadian exempt entity is a_trust company organization or other arrangement referred to in either article xxi or of the treaty x represents that each canadian exempt entity that is a registered charity and that will invest directly or indirectly in the fund is a qualifying person within the meaning of article xxix a of the treaty by virtue of satisfying subparagraph g of that paragraph x also represents that each canadian exempt entity that is a canadian rpp investor and that will invest directly or indirectly in the fund is a qualifying person within the meaning of article xxix a of the treaty by virtue of satisfying subparagraph h of that paragraph x represents that the fund is resident in canada for canadian legal and tax purposes as a_trust resident in canada the fund is potentially liable for canadian income_tax under part i of the income_tax act canada the ita x represents however that part i of the ita permits a canadian trust to deduct any amount that is paid or payable in the year by the trust to beneficiaries of the trust x represents that the trust agreement provides that the income of the fund for each year will be paid or be made payable to its beneficiaries in an amount sufficient to ensure that the fund will not have any income subject_to canadian income_tax because the fund is a_trust for canadian income_tax purposes and is required to pay or make payable all of its income to its beneficiaries under the trust agreement x represents the fund is exempt from canadian income_tax x represents that the fund is currently a_trust company or other arrangement within the meaning of article xxi of the treaty x represents that the fund is a resident of canada under article iv of the treaty x represents that the fund is a qualifying person within the meaning of article xxix a of the treaty by virtue of satisfying subparagraph i of that paragraph under the trust agreement x has the authority as manager to introduce new investors to the fund and to approve or reject subscriptions for units in the fund pursuant to that authority x proposes to permit the investment in the fund of monies held in segregated funds established solely in connection with a segregated fund contract defined below between a canadian life_insurance corporation and a canadian exempt entity plr-147895-12 a segregated fund refers to a portfolio of investments that is acquired and administered by a canadian life_insurance corporation and that is segregated from the insurance company’s other assets the segregated fund is established in connection with one or more variable_annuity contracts entered into by the canadian life_insurance corporation and a policyholder a segregated fund contract under a segregated fund contract all income and gains earned on the portfolio held in the related segregated fund that are proportionally allocable to an investor are reinvested on behalf of the investor or if so requested paid out to the investor under paragraph a of the ita a segregated fund is deemed to be an inter_vivos_trust for canadian tax purposes and is referred to as a segregated fund trust the insurance corporation that has set_aside assets pursuant to a segregated fund contract is deemed to be the trustee of the deemed segregated fund trust the deemed segregated fund trust is considered to be a resident of canada unless the trustee holds the segregated fund trust property in the course of carrying_on_a_trade_or_business outside canada x represents that the segregated funds at issue which are established in connection with a segregated fund contract between a canadian life_insurance corporation and a canadian exempt entity will not be held by the relevant insurance corporations in the course of carrying_on_a_trade_or_business outside of canada the ita provides that the amount of income of a deemed segregated fund trust for any year is deemed to be an amount that has become payable to the beneficiaries ie the investors under the related annuity_contracts pursuant to the provisions under the ita regarding the taxation of trusts described above a deemed segregated fund will be entitled to a deduction that will fully offset its income with respect to the segregated funds at issue x represents that the entire portfolio will be funded solely with premiums_paid by canadian exempt entities none of the assets held in the segregated funds will be funded by an insurance corporation and such assets will be segregated from other assets of the life_insurance corporation x represents that following the proposed investment all issued and outstanding units of the fund will be held either directly by canadian exempt entities or within a segregated fund established pursuant to a contract between a canadian exempt entity and a canadian life_insurance corporation x represents that all relevant canadian exempt entities whether they invest directly or indirectly in the fund will be resident in canada for canadian income_tax purposes and will be exempt from canadian income_tax under sub sec_149 of the ita x represents that the u s source interest and dividends derived by the fund will not be income from carrying_on_a_trade_or_business in the united_states or income from a related_person within the meaning of article xxi of the treaty plr-147895-12 sec_894 of the code provides that the provisions of the code shall be applied with due regard to any treaty obligation of the united_states which applies to a taxpayer article iv residence paragraph of the treaty provides for the purposes of this convention the term resident of a contracting state means any person that under the laws of that state is liable to tax therein by reason of that person’s domicile residence citizenship place of management place of incorporation or any other criterion of a similar nature but in the case of an estate_or_trust only to the extent that income derived by the estate_or_trust is liable to tax in that state either in its hands or in the hands of its beneficiaries article xxi exempt_organizations provides in relevant part subject_to the provisions of paragraph income derived by a religious scientific literary educational or charitable_organization shall be exempt from tax in a contracting state if it is resident in the other contracting state but only to the extent that such income is exempt from tax in that other contracting state subject_to the provisions of paragraph income referred to in articles x dividends and xi interest derived by a_trust company organization or other arrangement that is a resident of a contracting state generally exempt from income_taxation in a taxable_year in that state and operated exclusively to administer or provide pension retirement or employee_benefits shall be exempt from income_taxation in that taxable_year in the other contracting state subject_to the provisions of paragraph income referred to in articles x dividends and xi interest derived by a_trust company organization or other arrangement that is a resident of a contracting state generally exempt from income_taxation in a taxable_year in that state and operated exclusively to earn income for the benefit of one or more of the following a an organization referred to in paragraph or b a_trust company organization or other arrangement referred to in paragraph shall be exempt from income_taxation in that taxable_year in the other contracting state the provisions of paragraph sec_1 and shall not apply with respect to the income of a_trust company organization or other arrangement from carrying_on_a_trade_or_business or from a related_person other than a person referred to in paragraph or plr-147895-12 article xxix a limitation_on_benefits provides in relevant part for purposes of the application of this convention by a contracting state a a qualifying person shall be entitled to all of the benefits of this convention and b except as provided in paragraph and a person that is not a qualifying person shall not be entitled to any benefits of this convention for the purposes of this article a qualifying person is a resident of a contracting state that is g a not-for-profit organization provided that more than half of the beneficiaries members or participants of the organization are qualifying persons h a_trust company organization or other arrangement described in paragraph of article xxi exempt_organizations and established for the purposes of providing benefits primarily to individuals who are qualifying persons or persons who were qualifying persons within the five preceding years or i a_trust company organization or other arrangement described in paragraph of article xxi exempt_organizations provided that the beneficiaries of the trust company organization or other arrangement are described in subparagraph g or h based solely on the information submitted and on the representations made by the taxpayer and provided that the fund is a resident of canada within the meaning of article iv of the treaty and a qualifying person within the meaning of subparagraph i of article xxix a of the treaty and further provided that i each canadian exempt entity that invests directly in the fund is a_trust company organization or other arrangement described in either article xxi or of the treaty ii each canadian exempt entity that invests indirectly in the fund pursuant to a contract between the canadian exempt entity and a canadian life_insurance corporation is a_trust company organization or other arrangement described in either article xxi or of the treaty and plr-147895-12 iii the units of the fund are held at all relevant times exclusively by or for the benefit of canadian exempt entities as described in clause i or ii above we conclude that following the investment proposed by x described above u s source dividends and interest derived by the fund will be exempt from u s income_tax pursuant to article xxi of the treaty the above ruling is not applicable to any dividend or interest_income derived from carrying_on_a_trade_or_business in the united_states or from a related_person under article xxi of the treaty except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely m grace fleeman senior technical reviewer cc intl br cc


department of the treasury internal_revenue_service q tax_exempt_and_government_entities_division ll so o7-os8 redaction legend x organization elizabeth ave independence mo date taxpayer_identification_number form p hile per er contact num telephone fax certified mail - return receipt requested ear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization's exempt status is necessary if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues ifa determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter modifying or revoking exempt status if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a‘ petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and letter catalog number 34801v thank you for your cooperation sincerely r c johnson director eo examinations enclosures publication publication form_6018 report of examination envelope letter catalog number 34801v


internal_revenue_service number release date index number -------------------------------------- ------------------------------------------------- ------------------------------------------ -------------------------------- in re ----------------------------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-105243-12 date august legend settlor child grandchild a grandchild b grandchild c corporate fiduciary trust --------------------- ------------------------- --------------------------- --------------------------- ---------------------------------- ------------------------------------------------- ----------------------------------------------------------------------- ---------------------------------------------------------------------------------------- date year state state statute ----------------------------------------------------------------------------------------------------------------- state court -------------------------------------------------------------- -------------------------- ------- -------------------- ------------------------------------------------------------------------ ---------------------------------------------- grandchild trusts grandchild a_trust --------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- -- ----------- grandchild b_trust --------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- -- grandchild c trust ----------- --------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------ plr-105243-12 dear ----------------- this letter responds to your authorized representative's letter dated date requesting rulings concerning the federal income gift estate and generation-skipping_transfer gst tax consequences of the proposed division and modification of a_trust the facts submitted and representations made are as follows settlor created the trust an irrevocable_trust on date a date before date for the benefit of child’s descendants the trust is administered under the laws of state settlor died in year item ii a of the trust provides that the trustees are authorized to pay out or use part or all of the trust income and principal to or for the benefit of child’s descendants at such times and in such amounts as the trustees in their sole judgment and discretion deem best to provide for the descendants’ support education health maintenance comfort and well-being under item ii c and d on child’s death the property remaining in the trust is to be divided per stirpes into trusts for child’s then living descendants the trustees of each trust for a descendant of child are authorized to pay out or use part or all of the income and principal of that trust to or for the benefit of that descendant his or her descendants and their respective spouses at such times and in such amounts as the trustees in their sole judgment and discretion deem best to provide for their support education health maintenance comfort and well-being item ii e provides that when a descendant of child for whose benefit a_trust is established attains age twenty-five one-half of that trust’s property is to be distributed to him or her when the descendant attains age thirty all of that trust’s property is to be distributed to him or her if a descendant dies after a_trust is set apart for him or her but before receiving all of that trust’s property that descendant’s trust is to be distributed as that descendant directs in his or her will except that he or she cannot appoint the property to himself or herself his or her estate his or her creditors or the creditors of his or her estate if the descendant fails to direct any part of his or her trust then that part of the descendant’s trust is to be distributed per stirpes among his or her then living descendants if any and if none per stirpes among the descendants of settlor’s descendant who is his or her nearest ancestor who has descendants then living at the present time child is living child has three children grandchild a grandchild b and grandchild c each of whom has attained age corporate fiduciary is the trustee of trust it is represented that no additions have been made to trust after date plr-105243-12 proposed transaction the beneficiaries have different investment goals and financial situations accordingly the trustee proposes to divide the trust into three separate trusts the grandchild a_trust grandchild b_trust and grandchild c trust the division will be accomplished by a pro_rata division of each asset of the trust the dispositive terms of each resulting separate trust will be identical to the dispositive terms of the trust and to each other except that the beneficiaries will be limited to the grandchild or grandchild’s issue for whom the respective trust is set_aside because each grandchild has attained age his or her separate trust will terminate on child’s death and the principal of that grandchild’s trust will be distributed outright to that grandchild or pursuant to that grandchild’s testamentary_disposition if the grandchild fails to direct any part of his or her trust then that part of that grandchild’s trust is to be distributed per stirpes among his or her then living descendants if any and if none per stirpes among the descendants of settlor’s descendant who is his or her nearest ancestor who has descendants then living the trustee filed a petition in the state court pursuant to state statute requesting an order modifying the trust as described above state court has approved the division and issued an order to reform and divide the trust accordingly the order is subject_to the internal revenue service’s approval of the transaction you have asked us to rule that the proposed division of trust into three separate equal trusts and the pro_rata allocation of each trust asset to those trusts will not cause the trust or a resulting grandchild trust to lose its exempt status under b a of the tax_reform_act_of_1986 and will not cause a distribution from or termination of any interest in trust or a grandchild trust to be subject_to gst tax under sec_2601 of the internal_revenue_code will not result in the realization by the trust a grandchild trust or a beneficiary of such trusts of income gain_or_loss under sec_661 sec_61 or sec_1001 will result in each grandchild trust being treated as a separate trust under sec_643 will result in each grandchild trust holding its share of trust property with the same basis as when owned by the trust at the time of the division under sec_1015 and with a holding_period for such property that includes the trust's holding_period under sec_1223 will not cause any portion of the assets of the trust or a grandchild trust to be includible in the gross_estate of any beneficiary of the trust or a grandchild’s plr-105243-12 trust under sec_2036 through will not be a transfer by any beneficiary of the trust or a grandchild trust subject_to gift_tax under sec_2501 ruling sec_2601 imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under of the tax_reform_act_of_1986 the act the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after 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 generation-skipping_transfer_tax under sec_26_2601-1 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes 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 of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law 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_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a plr-105243-12 beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a 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 a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example considers a situation in which in grantor established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate state court approved the division of the trust into two equal trusts one for the benefit of a and a's issue and one for the benefit of b and b's issue the trust for a and a's issue provides that the trustee has the discretion to distribute trust income and principal to a and a's issue in such amounts as the trustee deems appropriate on a's death the trust principal is to be distributed equally to a's issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b's issue the trust for b and b's issue is identical except for the beneficiaries and terminates at b's death at which time the trust principal is to be distributed equally to b's issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a's issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter in the present case the trust was irrevocable on date it is represented that no additions have been made after date the proposed division of the trust into grandchild a_trust grandchild b_trust and grandchild c trust is substantially_similar to the situation described in example of sec_26_2601-1 under the proposed division and modification the grandchild a_trust grandchild b_trust and grandchild c trust will be administered under the original terms of trust based on the facts submitted and the representations made and provided the state court order is effective under state law and includes the modifications as plr-105243-12 described above we conclude that the proposed division and modification of trust will not shift a beneficial_interest in trust to any beneficiary who occupies a lower generation than the persons holding the beneficial interests prior to the division and modification in addition the proposed division and modification will not extend the time for vesting of any beneficial_interest in the grandchild trusts beyond the period provided in the original terms of the trust accordingly the proposed division and modification will not cause trust or any grandchild trust to lose its exempt status and will not cause any distribution from or termination of any interest in the trust or a grandchild trust to be subject_to gst tax under sec_2601 ruling sec_61 provides that gross_income includes gain derived from dealings in property sec_661 provides that in any taxable_year a deduction is allowed in computing the taxable_income of a_trust other than a_trust to which subpart b applies for the sum of the amount of income for such taxable_year required to be distributed currently and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year sec_662 provides that there shall be included in the gross_income of a beneficiary to whom an amount specified in sec_661 is paid credited or required to be distributed by an estate_or_trust described in sec_661 the sum of the following amounts the amount of income_for_the_taxable_year_required_to_be_distributed_currently to such beneficiary whether distributed or not and all other_amounts properly paid credited or required to be distributed to such beneficiary for the taxable_year sec_1_661_a_-2 of the income_tax regulations provides that gain_or_loss is realized by the trust or estate or the other beneficiaries by reason of a distribution_of_property in_kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount of specific property other than that distributed or of income as defined under sec_643 and the applicable regulations if income is required to be distributed currently sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the entire amount of gain_or_loss must be recognized except as otherwise provided sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a the gain_or_loss realized from the exchange of property plr-105243-12 for cash or for other_property differing materially either in_kind or in extent is treated as income or loss sustained revrul_56_437 1956_2_cb_507 holds that the conversion of a joint_tenancy in stock to a tenancy_in_common in order to eliminate the survivorship feature and the partition of a joint_tenancy in stock are not sales or exchanges similarly divisions of trusts are also not sales or exchanges of trust interests where each asset is divided pro_rata among the new trusts see revrul_69_486 1969_2_cb_159 pro_rata distribution of trust assets not a sale_or_exchange the trust assets will be distributed equally among each grandchild trust each grandchild trust will contain a proportionate share of the assets of the trust equal to a respective beneficiary’s beneficial_interest in the trust’s assets accordingly the modification and severance of the trust will not result in the realization of gain_or_loss under sec_61 and sec_1001 in addition because the modification and severance of the trust is not a taxable_event under sec_1001 the holding_period of the assets that the grandchild trusts receive from the trust will include the period that the trust held those assets the transfer of assets from the trust to the grandchild trusts will not be treated as a distribution or termination under sec_661 and will not result in the realization by the trust a grandchild trust or by any beneficiary of the trust or a grandchild trust of any income gain_or_loss under sec_662 ruling sec_643 provides that for purposes of subchapter_j of chapter of subtitle a under regulations prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of the tax_imposed_by_chapter_1 section b of the act provides that sec_643 shall apply to taxable years beginning after date except that in the case of a_trust which was irrevocable on date it shall apply only to that portion of the trust which is attributable to contributions to corpus after date based solely on the facts and representations submitted we conclude that as long as each grandchild trust created by the division of the trust is separately managed and administered they will be treated as separate trusts for federal_income_tax purposes ruling plr-105243-12 sec_1015 generally provides that the basis in property acquired by a transfer in trust is the same as it would be in the hands of the grantor with adjustments for gain and loss recognized sec_1_1015-1 provides that property acquired by gift has a single uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 sec_1_1015-2 provides that in the case of property acquired after date by a transfer in trust other than a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor under the law applicable to the year in which the transfer was made sec_1_1015-2 provides that the principles in sec_1_1015-1 concerning the uniform basis are applicable in determining basis_of_property where more than one person acquires an interest in property by transfer in trust sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if the property has the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of the other person here since the division of the trust is not a sale_or_other_disposition of property and the property has the same basis in the hands each grandchild trust as it would have had in the hands of the trust the holding_period of the assets in the hands of the grandchild trusts will include the holding periods of the assets in the hands of the trust pursuant to sec_1223 accordingly under sec_1223 the holding periods of the assets received by the grandchild trusts will include the holding periods of those assets in the trust ruling sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in plr-105243-12 conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise 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 but in the case of a transfer made before date only if such reversionary_interest arose by the express terms of the instrument of transfer 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 shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for 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 in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period on the date of the decedent's death in the present case the distribution management and termination provisions of the grandchild trusts will be substantially_similar to the current_distribution management and termination provisions of the trust accordingly based on the facts submitted and the representations made the division and modification of the trust will not cause any property of the trust or a grandchild trust to be includible in the gross_estate of any beneficiary of any such trust under sec_2036 sec_2037 or sec_2038 ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible sec_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift plr-105243-12 in this case the beneficiaries of the grandchild a_trust grandchild b_trust and grandchild c trust will have the same interests after the division that they had as beneficiaries under the trust because the beneficial interests rights and expectancies of the beneficiaries are substantially_similar both before and after the division no transfer of property will be deemed to occur as a result of the division and modification accordingly based on the facts submitted and the representations made we conclude that the division and modification of the trust as described above will not constitute a transfer by any beneficiary of the trust or a grandchild trust subject_to federal gift_tax under sec_2501 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely leslie h finlow senior technician reviewer branch associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter