internal_revenue_service number release date index number --------------------------------------------------- -------------------------------------- ---------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b02 plr-137639-13 date date x a legend -------------------------------------- ---------------------- ------------------------------------------------------------------ ------------------------------- b ------------------------------------------------- ------------------------------------------ c -------------------------------- ---------------------- d ------------------------------------------------- ------------------------------ e ------------------------------------------------- ---------------------------------- f ------------------------------------------------- ------------------------------------ g ------------------------------------------------- ---------------------------------- country country country -------------------- --------- --------------------- plr-137639-13 date date date date date date ---------------- ---------------------- ------------------ ---------------------- ---------------------- ------------------------ dear -------------- this is in response to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting that the service grant x an extension of time under sec_301_9100-1 of the procedure and administration regulations to elect to treat a b c d e f and g which x wholly owns as disregarded entities for federal tax purposes the facts submitted and representations made are summarized as follows a was formed on date under the laws of country x acquired b on date under the laws of country c was formed on date under the laws of country d was formed on date under the laws of country e and f were formed on date under the laws of country g was formed on date under the laws of country each of a b c d e f and g is a foreign_entity eligible to be treated as a disregarded_entity for u s income_tax purposes however x failed to timely file forms entity classification election electing to treat a b c d e f and g as disregarded entities for federal tax purposes sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides than an entity classification election must be filed on form_8832 and can be effective up to days prior to the election filing_date or more than months after the election filing_date sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than plr-137639-13 six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards by which the commissioner will determine whether to grant an extension of time to make an election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 describes the conditions under which the commissioner will grant requests for relief that do not meet the requirements of sec_301_9100-2 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 granting relief will not prejudice the interests of the government based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly a b c d e f and g are granted an extension of days from the date of this letter to file form_8832 with the appropriate service_center to elect to be classified as disregarded entities effective on the following dates a on date b on date c on date d on date e and f on date and g on date a copy of this letter should be attached to the forms this ruling is contingent on x filing all required federal_income_tax and information returns including amended returns consistent with the requested relief being effective on the relevant dates provided above any amended returns should be filed within days of the date of this letter and a copy of this letter should be attached to each such return failure_to_file the amended returns will cause this letter to be null and void the owners' filing obligations may include those required under sec_6038 and the regulations except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent 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 ruling_request it is subject_to verification on examination plr-137639-13 in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to x’s authorized representative sincerely associate chief_counsel passthroughs special industries by _______________________________ bradford poston senior counsel branch office of the associate chief_counsel passthroughs special industries cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date contact person identification_number telephone number employer_identification_number uniform ssue list z i legend dear a this is in response to n's request for a ruling that certain proposed contractual m is the trustee of a number of charitable_remainder trusts collectively the trusts’ relationships will not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code the code’ m is exempt under sec_501 of the code as an organization described in sec_501 and has been classified as an educational_organization under sec_509 and sec_170 the assets will be managed to achieve the greatest possible return on investment as a result of the relationship with the trusts as both trustee and beneficiary m has a substantial interest in the value of each trust moreover the donors to the trusts have funded the trusts with the intention that m benefit substantially from the assets of the trusts and that and as trustee m is the legal owner of the trusts’ assets in addition m has a remainder_interest in each of the trusts n is one such charitable_remainder_trust in which m is trustee and remainder beneficiary m's endowment is invested in traditional publicly traded assets and private investments m’s private investments include real_estate and certain other venture investments undertaken primarily through partnership structures much of the income earned by the portfolio consists of passive dividends interest rents and long and short-term_capital_gains but some income is debt-financed or otherwise treated as unrelated_business_taxable_income m proposes to create a contractual obligation pursuant to which it would issue a contract right to each of the trusts for a proportionate share of m's endowment the cumulative value of the shares would be the dollar value of the assets held by the individual trusts combined with the shares of the endowment held by the various of departments and schools making up m’s institution the contract right would entitle the trusts to receive periodic_payments based on the shares owned by each of the trusts the trusts would thereby be able to receive an investment return equal to that of the endowment m determines a payout rate on the endowment each year based in part on the endowment’s investment performance through a custodian bank m calculates the market_value of each endowment share on a monthly basis the market_value of each endowment share initially equals the value_of_the_gift or contribution to the endowment and is subsequently adjusted in accordance with the market_value of the endowment each department and division is entitled to an amount equal to the payout rate times the number of shares it holds m seeks to enable the trusts to invest in the endowment in a manner identical to m's departments or schools a_trust would acquire a share in the endowment which would give the trusts a contractual right against the university but no interest whatsoever in the underlying investment_assets of the endowment the shares would have the same value that m uses for internal accounting purposes the contract would provide that each trust would receive payments on the shares held by it equal to the payout rate m has established for the endowment with payouts made at least annually or more frequently as appropriate a_trust could choose either to reinvest part of the payout or redeem additional shares depending on its cash requirements the trusts will treat payduts as ordinary_income regardless of the character of the underlying income of the endowment whether capital_gain ordinary_income or return_of_capital and regardless of whether the payout is made entirely by distributions of income or in part by redemption of shares the trusts will treat redemptions of shares over and above receipt of the payout rate as generating long or short-term_capital_gain or loss depending on the holding_period of the redeemed shares under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment or any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m's business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have the right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of shares m is neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by m or for which is liable or responsible relating to the endowment or the underlying endowment assets and m m would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to the endowment or the underlying endowment assets n has requested the following ruling the issuance of shares by m to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to n law sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code sets forth so-called modifications which are excluded from the computation of unrelated_business_taxable_income these modifications include dividends interest royalties rent from real_property and gain from the sale of property sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 of the code provides that the term trade or business’ includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_514 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved revrul_69_528 1969_2_cb_127 describes an organization that was formed to provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code it receives funds from the participating exempt_organizations invests in common stocks reinvests income and realized appreciation and upon request liquidates a participant's interest and distributes the proceeds to the participant the rev_rul states that providing investment services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit tax-exempt organizations such activity would constitute unrelated_trade_or_business the rev_rul holds that the organization is not exempt under sec_501 if the services were regularly provided by one tax-exempt_organization for other as noted previously organizations described in sec_501 of the code are subject in order for such an organization's to tax on their unrelated_business_income under sec_511 income to be subject_to the unrelated_business_income_tax three requirement must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization's exempt_purpose or function see sec_1_513-1 of the regulations analysis m proposes to enter into a contractual relationship with certain trusts that are charitable_remainder trusts in which m has an interest as a beneficiary and serves as trustee of the trust under such a contractual relationship each trust would receive payments on the shares held by it equal to the payout rate m establishes for its endowment with payouts made in accordance with the trust instruments a_trust would acquire shares from m’s endowment which would give the trusts a contractual right against m but no interest whatsoever in the underlying investment_assets of the endowment the contract between m and the trusts would provide that the price of the shares would equal their value at the time of acquisition the shares would have the same value that m uses for internal accounting purposes consequently a_trust could choose either to reinvest part of the payout or redeem a portion of the shares depending on its cash requirements thus under the contractual relationship with m the trusts would have a right to the payout declared by m plus the right to redeem the shares at the value that m uses for internal accounting purposes generally an organization that otherwise qualifies for recognition of exemption under sec_501 of the code and provides investment services on a regular basis for a fee to other exempt or nonexempt organizations would be engaged in an unrelated_trade_or_business under sec_513 see revrul_69_528 supra such an activity would constitute a trade_or_business under sec_513 and sec_1_513-1 of the regulations and would be regularly carried on under sec_512 and sec_1_513-1 thus if m charged a fee for investment management services provided to organizations unrelated to m or generated income from the management of the funds invested by such organizations these activities could result in unrelated_business_taxable_income under sec_512 here however m is not charging a fee for its services and not otherwise receiving income from the services it provides to the trusts thus under these circumstances m will not receive unrelated_business_taxable_income under sec_512 the fact that m will engage in the investment activity for the benefit of individuals who are co-beneficiaries of the trusts at the same time that it engages in investment activity for its own benefit as the remainder beneficiary limits the scope of the service provided to others and distinguishes it from a commercial venture as stated above under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment nor any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m’s business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have any right to veto or opt_out of - any of the underlying endowment investments the contract would provide that with respect to the issuance of the shares m would never be or become liable for any cost expense or payment incurred or due by m or for which m is liable or responsible relating to the endowment or the underlying endowment assets and m would indemnify and hold the trusts harmless from and against any liability is neither a partner nor an agent of the trusts that the trusts arising out of any_action or inaction by m with respect to the endowment or the underlying endowment assets the trusts do not have a position of ownership in the underlying assets of m’s endowment since the contractual relationship between m and the trusts is not in the nature of a partnership or agency the income earned by the trusts from the payout m establishes for the shares reflects ordinary_income and does not take on the character of the income of the underlying assets or debt-financed or unrelated_business_taxable_income m would pay any_tax owed on ubti earned by the endowment portfolio with no deduction taken against ubti for any payments made to the trusts in view of the foregoing we rule as follows the issuance of shares from m to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to n a charitable_remainder_trust this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code telephone number are shown in the heading of this letter code provides that it may not be used or cited by others as precedent this ruling is directed only to the organization that requested it sec_6110 of the if there are any questions about this ruling please contact the person whose name and pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to n's authorized representatives a copy of this letter should be kept in its permanent records robert c harper jr manager exempt_organizations technical group notice enclosure sincerely


internal_revenue_service number release date index number --------------------------------------- ------------------------------------------- ---------------------------------------------------- ---------------------- -------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-121902-09 date date ------------------------------------------- x -------------------------------------------------- country date ------------- -------------------------- dear ------------ this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an entity classification election the information submitted states that x was formed under the laws of country x represents that x is a foreign_entity eligible to be treated as a disregarded_entity but that it failed to timely file a form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 plr-121902-09 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center and that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-121902-09 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely curt g wilson associate chief_counsel office_of_chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


id office uilc cca_2012020115031016 -------------- number release date from ---------------------- sent wednesday february pm to -------------------- cc ----------------------- subject re power_of_attorney question hi ---------- you asked whether the durable powers of attorney signed by the taxpayers in these cases are sufficient to authorize the named family members to execute a form_2848 on behalf of the taxpayers to authorize add another eligible representative to represent the taxpayers before the irs we have reviewed the powers of attorney in these cases and conclude that the durable powers of attorney authorize the family members to add other eligible representatives to represent the taxpayers before the irs please note that if the family members intend to submit these forms to the caf they must also complete and submit forms that explicitly identify them as powers of attorney who have the authority to add representatives the family members could sign this form_2848 on behalf of the taxpayer and they should attach their durable powers of attorney to the form_2848 see conference and practice requirements statement of procedural rules sec_601_503 and b please contact me with any further questions or concerns thank you ------------------------ ------------------------- ---------------------------------------- ------------------------------------- ------------------- _____________________________________________


t c summary opinion united_states tax_court matthew d gilmore petitioner v commissioner of internal revenue respondent docket no 15518-03s filed date matthew d gilmore pro_se albert g kobylarz jr for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the taxable_year the issues for decision are whether petitioner is entitled to dependency_exemption deductions for ileane gilmore2 and janiah gilmore whether petitioner is entitled to head-of-household filing_status whether petitioner is entitled to an earned_income_credit and whether petitioner is entitled to child tax_credits background some of the facts have been stipulated and they are so found the stipulation of facts and attached exhibits are incorporated herein by this reference at the time of filing the petition petitioner resided in elizabeth new jersey during the year in issue petitioner was years old petitioner lived in a three-bedroom apartment with his mother chanel gilmore and three siblings chantel sonora and tim chantel had two children ileane born date and janiah born date who also lived in the household during petitioner worked for friendly’s and ruby tuesday and earned a total of approximately dollar_figure petitioner also received unemployment_compensation from the new jersey we note that the tax_return listed the child as ileane gilmore but the child’s birth certificate listed her as ileane celine robbins and that chantel gilmore is reflected as the mother department of labor in the amount of dollar_figure petitioner’s mother worked full time during the year in issue and received minimum wage from a local hotel chantel did not work during the year in issue however she did receive some public assistance the record is incomplete as to the expenses_incurred and paid_by the household the expenses for support of the household were shared between petitioner’s mother petitioner and chantel the amount of the expenses relating to support of ileane and janiah is unclear as is the allocation of support of the household between petitioner’s mother petitioner and chantel petitioner did however treat ileane and janiah as his own children in providing some support and caretaking on hi sec_2002 federal_income_tax return petitioner reported wage income of dollar_figure and unemployment_compensation of dollar_figure petitioner claimed dependency_exemption deductions for ileane and janiah an earned_income_credit and child tax_credits and computed his tax using head-of-household status rates in the notice_of_deficiency respondent disallowed the claimed dependency_exemption deductions the earned_income and child tax_credits and adjusted the filing_status to single discussion the burden_of_proof is on petitioner sec_7491 may shift the burden_of_proof to the commissioner under certain circumstances petitioner has not established that he complied with the requirements of sec_7491 and b to substantiate items maintain required records and fully cooperate with respondent’s reasonable requests accordingly the burden does not shift dependency_exemption deductions a taxpayer may be entitled to claim as a deduction an exemption_amount for each of his or her dependents over half of whose support is provided by the taxpayer sec_151 sec_152 a dependent includes a son or daughter of a sister of the taxpayer sec_152 as to the support_test a taxpayer generally must provide more than half of a claimed dependent’s support for the calendar_year in which the taxable_year of the taxpayer begins sec_152 in order to satisfy this test a taxpayer must establish the total support expended on behalf of the claimed dependents from all sources for the year and demonstrate that he provided more than half of this amount see 73_tc_963 56_tc_512 there is an absence of evidence relating to the total amount of support as well as petitioner’s share of support while there is some general information as to purchase of groceries payment of rent and payments of other household expenses by petitioner we cannot conclude from this meager record the amount of the total support provided to ileane and janiah nor the amount of support provided by petitioner respondent is sustained on this issue head_of_household sec_1 imposes a special tax_rate on individuals filing as head_of_household as relevant herein sec_2 defines a head_of_household as an unmarried individual who maintains as his home a household that for more than one-half of the taxable_year constitutes the principal_place_of_abode of a person who is a dependent of the taxpayer if the taxpayer is entitled to a deduction for the taxable_year for that dependent under sec_151 the court has sustained respondent’s determination disallowing the claimed dependency_exemption deductions and as a result petitioner is not entitled to head-of-household filing_status for thus respondent’s determination that petitioner is not entitled to head-of-household filing_status is sustained earned_income_credit sec_32 provides for an earned_income_credit in the case of an eligible_individual sec_32 in pertinent part defines an eligible_individual as any individual who has a qualifying_child for the taxable_year a qualifying_child is one who satisfies a relationship_test a residency test and an age_test sec_32 ileane and janiah clearly satisfy the residency test and the age_test we thus consider whether they satisfy the relationship_test for the tax_year in issue the relationship_test under sec_32 required as follows b relationship_test -- i in general --an individual bears a relationship to the taxpayer described in this subparagraph if such individual is-- i a son daughter stepson or stepdaughter or a descendant of any such individual ii a brother sister stepbrother or stepsister or a descendant of any such individual who the taxpayer cares for as the taxpayer’s own child or it is clear that ileane and janiah are petitioner’s nieces the descendants of his sister the remaining part of the relationship_test under sec_32 is that the sec_32 sets forth the conditions when an individual shall be treated as the qualifying_child of the taxpayer where two or more taxpayers claim an individual as a qualifying_child respondent has not argued that ileane or janiah was a qualifying_child to someone other than petitioner nor is there any evidence in this record upon which the court could make such a finding respondent incorrectly referred to sec_32 as in effect for years prior to asserting that petitioner did not satisfy the relationship_test taxpayer cares for the individual as his own child thus we must also decide whether petitioner cared for ileane and janiah as his own children in this connection ileane and janiah lived with petitioner for the entire year and petitioner assisted in support and caretaking of the children petitioner even at the young age of was the oldest male in the household and contributed to the household while the children’s grandmother worked it is not entirely clear the extent to which parenting responsibilities were shared by members of the household we conclude based on the entire record that petitioner cared for his nieces as his own children and thus the children are qualifying children for purposes of computation of the earned_income_credit under sec_32 we find for petitioner on this issue child tax_credits we next consider the child tax_credits a taxpayer may be entitled to a credit against tax with respect to each qualifying_child sec_24 the plain language of sec_24 establishes a three-pronged test to determine whether a taxpayer has a qualifying_child if one of the qualifications is not met the claimed child_tax_credit must be disallowed the first element of the three-pronged test requires that a taxpayer must have been allowed a deduction for that child under sec_151 sec_24 as stated supra the court has sustained respondent’s determination that petitioner is not entitled to dependency_exemption deductions for the children thus petitioner fails the first prong of the test of sec_24 the court sustains respondent’s determination regarding the child tax_credits under sec_24 reviewed and adopted as the report of the small_tax_case division under rule decision will be entered


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uniform issue list mar t ep ra legend taxpayer a decedent b_trust t company c ira x date date date state s amount a tae ve page dear this is in response to the date letter submitted on your behalf by your authorized representative as supplemented by correspondence dated april and date in which you request several letter rulings under sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested decedent b established trust t a revocable_living_trust on date on date decedent b died at age and was survived by his wife taxpayer a and four children trust t became irrevocable upon decedent b’s death taxpayer a represents that trust t is governed by and valid under the laws of state s at the time of his death decedent b owned ira x an individual_retirement_account within the meaning of code sec_408 with company c pursuant to a beneficiary designation form dated date decedent b designated the trustee of trust t as beneficiary of ira x the balance of decedent b’s interest in ira x on his date of death was amount a_trust t provides for the creation of two funds upon the death of decedent b fund a and fund b under the terms of article ii of the trust fund a is to be funded first with an amount equal to the maximum marital_deduction allowable in determining the federal estate_tax on decedent b’s estate less the aggregate value of all other_property included in decedent b’s estate for federal estate_tax purposes that qualifies for the marital_deduction and that passes or has passed to decedent b's spouse under decedent 8's will as a surviving joint tenant as a beneficiary of life_insurance or otherwise article il of trust t further provides that the other part of the trust remaining after fund a has been created shall be held in a separate trust designated fund b taxpayer a represents that the full marital_deduction applies with respect to decedent b’s estate taxpayer a further represents that the laws of state s in conjunction with the terms of trust t compel the trustee of trust t to allocate the proceeds of ira x to fund a article ill of trust t provides that the net_income from fund a shall be paid to taxpayer a as decedent b’s spouse and that taxpayer a shall have the right to require the trustee to deliver to her any part or all of the principal of fund a at any time based on the above you through your authorized representative request the following letter rulings taxpayer a as decedent b’s spouse will be treated as having acquired ira x directly from decedent b for purposes of sec_408 of the code and not from trust t wes page the proceeds of ira x to be distributed from fund a of trust t to taxpayer a do not represent an inherited ira within the meaning of code sec_408 taxpayer a is eligible to roll over the distribution from ira x to an ira established and maintained in her own name pursuant to code sec_408 provided that the rollover occurs no later than the sixtieth day following the day the proceeds of ira x are distributed taxpayer a will not be required to include in her gross_income for federal income_tax purposes for the calendar_year in which the distribution and rollover occur the amount distributed from ira x and timely rolled over into the ira established and maintained in taxpayer a’s name with respect to the requested rulings code sec_408 provides generally that in accordance with the rules of code sec_72 amounts paid or distributed from an ira are included in gross_income by the payee or distributee - code sec_408 provides that paragraph d of this section does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code code sec_408 provides generally that amounts from an inherited ira cannot be rolled over into another ira in general an inherited ira is an ira maintained by an individual who acquired said ira by reason of the death of another if the acquiring individual is not the surviving_spouse of said other individual sec_1_408-8 of the regulations q a-5 provides that a surviving_spouse of an ira owner may elect to treat the spouse's entire_interest as a beneficiary in an individual's ira as the spouse's own ira in order to make this election the spouse must be the sole beneficiary of the ira and have an unlimited right to withdraw amounts from the ira if a_trust is named as beneficiary of the ira this requirement is not satisfied even if the spouse is the sole beneficiary of the trust khokk page however the preamble to the regulations under code sec_401 and sec_408 provides in relevant part that e surviving_spouse who actually receives a distribution from an ira 's permitted to roll that distribution over into his her own ira even if the surviving_spouse i3 not the sole beneficiary of the deceased's ira as long as the rollover is accomplished within the requisite day period a rollover may be accomplished even if ira assets pass through either a_trust and or an estate with respect to your ruling requests you have represented and have provided supporting documentation that the laws of state s in conjunction with the terms of trust t compel the trustee of trust t to allocate the proceeds of ira x to fund a as decedent b's spouse taxpayer a has a complete right of withdrawal with respect to the assets in fund a as noted above trust t obligates the trustee to pay all net_income from fund a to taxpayer a and taxpayer a has the right to require the trustee to deliver the entire principal of fund a at any time thus we believe it is appropriate to treat taxpayer a as the payee or distributee of ira x for purposes of code sec_408 even though ira x must originally pass through trust t as such she is eligible to roll over or transfer by means of a trustee-to-trustee transfer her portion of ira x into an ira established in her name therefore we conclude taxpayer a as decedent b’s spouse will be treated as having acquired the proceeds of ira x directly from decedent b for purposes of sec_408 of the code and not from trust t the proceeds of ira x to be distributed from fund a of trust t to taxpayer a do not represent an inherited ira within the meaning of code sec_408 taxpayer a is eligible to roll over the distribution from ira x to an ira established and maintained in har own name pursuant to code sec_408 provided that the rollover occurs no later than the sixtieth day following the day the proceeds of ira x are distributed taxpayer a will not be required to include in her gross_income for federal income_tax purposes for the calendar_year in wnich the distrioution and rollover occur the amount distributed from ira x and timely rolled over into the ira establisned and maintained in taxpayer a's name no opinion is expressed as to the iax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto that ira x and the ira to be established meet the requirements of code section this letter_ruling is based on the assumption page a at all relevant times it also assumes the correctness of all facts and representations alluded to therein this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t2 sincerely yours dineethleetlehew donzell latflejohn manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc kx


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp plr-119206-99 date date re parent psub1 subsidiary psub2 psub2-llc psub2-llc-a subsidiary plr-119206-99 llc-a2 llc-a2’s subsidiary llc-a1 psub2-llc-b llc-b1 llc-b2 llc-c1 llc-c2 psub3 plr-119206-99 psub4 subsidiary psub5 psub6 psub7 subsidiary 7a subsidiary 7b subsidiary 7c psub8 distributing plr-119206-99 dsub1 dsub1’s subsidiaries dsub2 dsub3 corporation d-llc1 d-llc-a1 d-llc-a2 d-llc plr-119206-99 controlled csub csub csub3 csub4 csub4’s llc c-llc1 c-llc2 c-llc4 c-llc3 c-llc5 plr-119206-99 serviceco new llc state x state y business a activity a1 activity a2 activity a3 asset group asset group asset group asset group asset group asset group plr-119206-99 asset group asset group asset group agreements state commission federal commission d e f dollar_figureg dollar_figureh i j we reply to your letter dated date in which you request rulings as to the federal tax consequences of a proposed transaction additional information was received in subsequent submissions the information provided is summarized below parent an accrual basis taxpayer is a holding_company and the common parent of an affiliated_group_of_corporations filing consolidated federal_income_tax returns parent’s common_stock is publicly traded on national exchanges parent has no preferred_stock outstanding parent conducts its various businesses through directly and indirectly owned subsidiaries and limited_liability companies parent owns percent of the stock of psub1 psub2 psub3 psub4 psub5 psub6 psub7 and psub8 psub1 wholly owns the stock of subsidiary psub2 owns various subsidiaries and psub2-llc which owns the limited_liability companies plr-119206-99 and subsidiaries that comprise group and group specifically group includes wholly-owned psub2-llc-a which holds all of the stock of subsidiary subsidiary holds an f percent interest in llc-a2 which in turn wholly owns the stock of llc-a2’s subsidiary psub2-llc-a also wholly owns llc-a1 group includes psub2-llc-b which wholly owns llc-b1 and llc-b2 llc-b2 in turn wholly owns llc-c1 and llc- c2 psub4 owns d percent of the stock of subsidiary psub7 owns all of the stock of subsidiary 7a subsidiary 7b and subsidiary 7c parent also owns all of the outstanding common_stock of distributing a state x corporation the outstanding preferred_stock of distributing is publicly traded and its market_value represents approximately e percent of the total value of all outstanding capital stock of distributing distributing is engaged in all aspects of business a including activity a1 activity a2 and activity a3 distributing operates business a directly and through a wholly- owned limited_liability_company d-llc1 for which distributing has elected treatment as a disregarded_entity activity a1 is accomplished through the operation of certain facilities in state x asset group asset group asset group asset group and asset group activity a2 involves the provision of services to approximately i customers in state x utilizing asset group distributing conducts the retail aspects of activity a3 through d-llc1 and asset group and the wholesale aspects through a division of distributing division and asset group distributing also owns all of the stock of dsub1 dsub2 dsub3 d-llc2 and j percent of the stock of corporation dsub1 owns all of the stock of each of dsub1’s subsidiaries controlled a wholly-owned subsidiary of distributing is a state x corporation controlled currently owns all of the outstanding_stock of csub1 a group finance subsidiary csub2 which owns asset group csub3 which is currently dormant and csub4 which provides cash management services and intragroup loans to members of the distributing group distributing is subject_to regulation by state commission and certain of its activities are subject_to regulation by federal commission parent’s objective in this proposed transaction is to restructure its operations and assets related to business a through a series of steps to place all of its unregulated activities activity a1 and activity a3 in controlled distributing will continue to own and operate the regulated activity a2 controlled will become and distributing will remain a first-tier subsidiary of parent thus parent has proposed the following steps i controlled has formed a number of limited_liability companies in state y of which it will be the sole owner and member each limited_liability plr-119206-99 ii iii iv company will be a disregarded_entity treated as a division of controlled for federal_income_tax purposes distributing will transfer assets associated with activity a1 and the liabilities associated with those assets to each of controlled’s new limited_liability companies formed in step i in constructive exchange for controlled stock specifically distributing will transfer asset group to c-llc1 asset group to c-llc2 asset group to c-llc3 asset group to c-llc4 and asset group which includes distributing’s j percent stock ownership in corporation to c-llc5 controlled has formed new llc in state y of which it will be the sole owner and member and which will be a disregarded_entity treated as a division of controlled for federal_income_tax purposes controlled will transfer c-llc1 c-llc2 c-llc3 c-llc4 and c-llc5 to new llc distributing will transfer division which currently holds all of distributing’s assets associated with the wholesale aspect of unregulated activity a3 and its related liabilities to d-llc1 distributing then will transfer d-llc1 and all of its stock interests in dsub1 dsub2 and dsub3 to controlled in constructive exchange for controlled stock controlled then will transfer dsub1 dsub2 and dsub3 to new llc v in connection with these transfers controlled will assume distributing’s obligation under two debt instruments the debt assumption note with a remaining principal balance of approximately dollar_figureg and note payable to psub3 in the amount of approximately dollar_figureh which evidences a loan to be made by psub3 to distributing in connection with the proposed transaction psub3 will fund the loan with cash borrowed from unrelated third parties and distributing will use the cash to retire existing debt vi distributing will distribute the stock of controlled to parent in order to fully accomplish its internal restructuring parent proposes the following additional steps vii prior to distributing’s distribution of the controlled stock subject_to state commission approval controlled will distribute the stock of csub3 to distributing csub3 will be converted into a limited_liability_company viii controlled will transfer the stock of csub2 to new llc which in turn will transfer that stock to c-llc2 c-llc3 and c-llc4 csub2 owns asset plr-119206-99 group which is associated with the assets held by c-llc2 c-llc3 and c-llc4 psub2 will be converted into a limited_liability_company by merger into a limited_liability_company newly formed by parent psub2-llc a wholly-owned limited_liability_company of psub2 will distribute all of its ownership interests in group and group to psub2 psub2 will distribute all of its ownership interests in group and group to parent ix x xi xii parent will transfer its interests in group and group to controlled which will transfer those interests to new llc xiii parent will transfer all of its ownership_interest in psub2 and all of the outstanding_stock of psub1 psub4 psub6 psub8 and psub5 to controlled xiv controlled will transfer all of the stock of psub1 psub4 psub5 psub6 and psub8 to d-llc1 xv psub1 will distribute the stock of its wholly-owned subsidiary to d-llc1 xvi parent will transfer certain contracts and other assets related to activity a3 to controlled controlled then will transfer those items to d-llc1 xvii parent will form a new subsidiary serviceco which will perform certain administrative services for all members of the distributing group we have received financial information indicating that business a has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years the taxpayer has not made any representations nor requested any rulings with respect to and we express no opinion about steps vii through xvii taxpayer has made the following representations with respect to steps i through vi a other than amounts owing from time to time under the agreements no intercorporate debt will exist between distributing and controlled or controlled_subsidiaries at the time of or subsequent to the transaction none of such obligations are or will be stock_or_securities b no part of the consideration distributed by distributing will be received by plr-119206-99 parent as a creditor employee or in any capacity other than as a shareholder of distributing the five years of financial information submitted on behalf of distributing represents the corporation’s present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statement submitted following the transaction distributing and controlled each will continue the active_conduct of its business independently and with its separate employees the distribution of the stock of controlled is motivated in whole or substantial part by the corporate business_purpose of fit and focus no securities other than stock of controlled will be distributed there is no plan or intention by parent to sell exchange transfer by gift or otherwise dispose_of any distributing or controlled stock after the transaction except for periodic sinking_fund redemptions of distributing’s publicly traded preferred_stock there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing will equal or exceed the amount of the liabilities assumed as determined under sec_357 of the internal_revenue_code by controlled the liabilities assumed as determined under sec_357 in the transaction except for note and note were incurred in the ordinary course of business and are associated with the assets being transferred immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and c d e f g h i j k plr-119206-99 sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d distributing will not have an excess_loss_account with respect to the controlled stock immediately before the distribution none of the assets transferred from distributing to controlled will be subject_to investment_tax_credit_recapture no two parties to the transaction are investment companies as defined in sec_368 and iv the distribution is not part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the combined voting power of all classes of stock of distributing or controlled entitled to vote or percent or more of the total value of shares of all classes of distributing or controlled stock within the meaning of sec_355 payments made in connection with all continuing transactions between distributing and controlled will be at arm’s length prices determined with reference to market conditions subject_to where applicable terms and conditions approved by the state commission and or federal commission l m n o based solely on the information submitted and the representations set forth above we rule as follows the transfer of assets described in steps ii and iv by distributing in constructive exchange for the stock of controlled and controlled’s assumptions of note and note will qualify as a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 no gain will be recognized by distributing upon the transfers of assets to controlled in constructive exchange for stock of controlled and controlled’s assumptions of note and note sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the receipt of the assets from distributing in constructive exchange for controlled stock sec_1032 the basis of the assets to be received by controlled in the transaction will be the same as the basis of such assets in the hands of distributing immediately prior to the transfer of such assets to controlled sec_362 plr-119206-99 the holding_period of each asset to be received by controlled will include the period during which such assets were held by distributing sec_1223 no gain_or_loss will be recognized to distributing on the distribution of all of the controlled stock to parent sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of parent on its receipt of controlled stock in the distribution sec_355 the basis of the stock of distributing and controlled in the hands of parent will be the same as the basis of the distributing stock held by parent immediately before the distribution allocated between the distributing stock and the controlled stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 of the income_tax regulations sec_358 and b the holding_period of the controlled stock to be received by parent will include the holding_period of its distributing stock on which the distribution is made provided the stock is held as a capital_asset on the date of the distribution sec_1223 proper allocation of earnings_and_profits between distributing and controlled will be made in accordance with sec_312 sec_1_312-10 and sec_1_1502-33 we express no opinion on the federal_income_tax treatment of the proposed transaction under other provisions of the code or regulations including the consolidated_return_regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings specifically the taxpayer understands that the national_office of the internal_revenue_service as requested by the taxpayer has considered and rules on only steps i through vi the taxpayer acknowledges that all other steps including but not limited to steps vii through xvii have not been reviewed or ruled upon by the national_office the taxpayer further acknowledges that the federal_income_tax consequences of these other related steps may be examined and determined by the appropriate district director’s office on audit of the federal tax returns filed by parent and its affiliates in which these steps are reported temporary or final regulations relating to one or more of the issues addressed in this ruling including regulations under sec_358 have yet to be adopted therefore this ruling letter may be modified or revoked if adopted temporary or final regulations are inconsistent with any provision conclusions reached herein see section dollar_figure of revproc_2000_1 2000_1_irb_4 which addresses in greater detail when a plr-119206-99 ruling will be revoked or modified however when the criteria in section dollar_figure of revproc_2000_1 are satisfied a ruling is seldom revoked or modified retroactively except in rare or unusual circumstances this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the transaction should attach a copy of this letter to the taxpayer’s federal_income_tax return for the taxable_year in which the transaction is completed in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely assistant chief_counsel corporate by filiz a serbes assistant to the chief branch


department of the treasury internal_revenue_service l i exempt government entities division washington d c apr uniform issue list reiter ati legend taxpayer a ira b ira c financial_institution d financial_institution e financial_institution f amount amount dear this letter is in response to a request for a letter_ruling dated date as supplemented by additional correspondence dated september and date from your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that she received a distribution from ira b and ira c totaling amount and amount respectively taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to her reliance on instructions given to her by a representative of financial_institution d where ira b resided which resulted in the funds being placed in non-ira accounts taxpayer a further represents that amount and amount have not been used for any other purpose taxpayer a maintained ira b and ira c individual_retirement_accounts under sec_408 of the code with financial institutions d and e respectively documentation submitted indicates that in early taxpayer a discussed with a representative of financial_institution d where ira b resided moving ira b to another financial_institution because of the high fees at financial_institution d the representative at financial_institution d had been taxpayer a’s advisor since and taxpayer a always relied on the advice provided by the representative the representative instructed taxpayer a not to spend any of the funds but place the funds in a certificate of deposit at a bank within days of receiving the funds so she would not incur any taxes or penalties following financial_institution d's representative's instructions taxpayer a withdrew amount from ira b on date and deposited it into a certificate of deposit at financial_institution f on date in addition using the same instructions taxpayer a withdrew amount from ira c on date and deposited it into a certificate of deposit at financial_institution f on date to consolidate her investments at one place however the certificates of deposits at that taxpayer a established at financial_institution f were non-ira accounts taxpayer a's error was discovered by her tax preparer while preparing her ‘tax return based on the above facts and representations you request that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount and amount sec_408 of the code provides that except as otherwise provided in sec_408 of the code any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 of the code does not apply to any amount described in sec_408 of the code received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 of the code from an ira which was not includible in gross_income because of the application of sec_408 of the code sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the facts and representations submitted for this ruling_request do not demonstrate how taxpayer a was prevented from completing the timely rollover of her iras to an eligible_retirement_plan such as an ira you have not presented any evidence to the service as to how any of the factors outlined in revproc_2003_16 affected your inability to timely roll over amount sec_1 and or any portion thereof to an ira we do not believe that the advice given to taxpayer - a by financial_institution d’s representative rises to the level of financial advisor error financial_institution d’s representative told taxpayer a to deposit the funds in a cd within days which is well within the 60-day rollover period window taxpayer a knew the funds were being distributed from iras and since it was her stated purpose to move her iras it is reasonable to assume that taxpayer a should have known that the funds had to be deposited into another ira the information submitted by you demonstrates that you are solely responsible for failing to timely deposit amount sec_1 and into an ira therefore pursuant to sec_408 of the code the service declines to waive the 60-day rollover requirement with respect to amount sec_1 and amount amount sec_1 and amount are not eligible to be treated as rollover_contributions within the meaning of sec_408 and must be included in taxpayer a's gross_income for the taxable_year no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations that may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact at sincerely yours cling miller carlton a watkins manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice cc


t c memo united_states tax_court david c loeb petitioner v commissioner of internal revenue respondent harold e molaison petitioner v commissioner of internal revenue respondent docket nos filed date michael e guarisco and jean k niederberger for petitioners joseph ineich and mary beth calkins for respondent memorandum findings_of_fact and opinion haines judge these cases are before the court consolidated for purposes of trial briefing and opinion respondent determined deficiencies and penalties with respect to petitioners’ federal income taxes as follows david c loeb docket no year deficiency dollar_figure fraud_penalty sec_6663 dollar_figure harold e molaison docket no year deficiency dollar_figure fraud_penalty sec_6663 dollar_figure the issue for decision is whether the statute_of_limitations under sec_6501 a bars the issuance of the notices of deficiency we hold that it does findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts the supplemental stipulation of facts and the second supplemental stipulation of facts together with the attached exhibits are incorporated herein by this reference at the time petitioners filed their petitions they resided in louisiana petitioners are attorneys who represented landowners in a regulatory takings case referred to as the bayou aux carpes bac litigation mr molaison’s practice dealt with general civil 1all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated litigation and succession work while mr loeb’s practice dealt with land use and real_property law mr molaison was intimately familiar with the property underlying the bac litigation his father who passed away in was also an attorney and had represented bac landowners in a prior action against the environmental protection agency epa in the 1970s in louisiana state court mr molaison had helped his father in that action as a law clerk and an attorney he also inherited a small tract of bac property from his father the bac suits comprised four cases that were filed in in response to a determination by the epa that approximately big_number acres of land located in southern louisiana constituted nonpermitable wetland the landowners of the bac property sought to develop the property and brought suit in order to contest the epa’s designation of the property as wetland the landowners in two of the bac suits hired petitioners to represent them the four cases were eventually consolidated and petitioners represented all of the landowners in the consolidated bac litigation petitioners entered into contracts for legal services with the landowners which gave petitioners an undivided 25-percent interest in any recovery and prohibited the clients from settling or otherwise discontinuing the suit without the consent of petitioners in late date petitioners reached an agreement with the u s government to settle the case for dollar_figure in order to determine the tax issues associated with the likely settlement petitioners who had no expertise in tax law sought help from david lukinovich an attorney certified as a tax specialist by the louisiana state bar on date after an initial telephone conversation with mr loeb mr lukinovich wrote a letter to mr loeb offering his services to petitioners’ clients on the tax aspects of the settlement in his letter mr lukinovich discussed sec_1033 and the income deferral benefits it extended to landowners in involuntary_conversion proceedings petitioners believed they had an ownership_interest in the land subject_to the bac litigation as a result of their contingency fee agreement with the bac landowners on date mr loeb wrote to ann navaro one of the assistant u s attorneys ausas handling the bac litigation in response to her request that he identify all parties to the settlement who had not been identified in the government’s initial draft of the settlement agreement in his letter mr loeb identified several 2this was separate and in addition to mr molaison’s status as an owner because of the small parcel of bac property he inherited from his father mr molaison received settlement proceeds of dollar_figure from the involuntary_conversion of his inherited property he elected to defer recognition of the proceeds under sec_1033 the validity of that election is not in dispute parties including himself and mr molaison who should be added to the settlement agreement and to the act of sale ausas ann navaro and marc smith agreed to add petitioners as landowners to the settlement agreement and act of sale ms navaro and mr smith were aware that petitioners intended to classify themselves as owners in part to take advantage of sec_1033 on date petitioners were listed as owners on the executed settlement agreement on date mr lukinovich sent mr loeb a letter suggesting that petitioners could potentially defer their contingency fee income under sec_1033 if the government recognized them as landowners in the bac litigation on date petitioners entered into a joint stipulation for entry of judgment in the bac cases with the government on date the u s court of federal claims entered judgment settling the bac cases with the payment of dollar_figure by the government in exchange for the bac property on date petitioners met with gerald duhon mr loeb’s certified_public_accountant c p a shannon chabaud mr molaison’s c p a and mr lukinovich at petitioners’ office regarding tax planning for petitioners and the preparation of their federal_income_tax returns mr lukinovich conducted the meeting and explained that his research indicated that petitioners were entitled to defer recognition of their bac litigation fees under sec_1033 mr lukinovich also proposed that petitioners prepare a document clarifying that the intent of petitioners’ clients was to transfer an ownership_interest in the bac property to petitioners as compensation_for their representation petitioners decided to prepare acts of correction for their clients to sign petitioners prepared the acts of correction with the input of mr lukinovich petitioners did not believe that they had to obtain the signatures of all of their clients on the acts of correction for their bac litigation fees to be qualified under sec_1033 in late september and early date petitioners held a series of meetings with their clients to have them sign pre- closing documents during these meetings petitioners requested that the clients sign the acts of correction petitioners exerted no pressure or undue influence on any client petitioners did not misrepresent the contents of the acts of correction to any client out of clients chose to sign the acts of correction chose not to sign and were never offered the chance to sign two clients consulted with mr lukinovich regarding the acts of correction before signing them on date petitioners executed the act of sale of the bac property to the government petitioners executed the act of sale individually as vendors all clients including those who did not execute an act of correction received all of the proceeds due to them under the act of sale as a result of the settlement mr loeb and mr molaison received dollar_figure and dollar_figure respectively on date and date mr lukinovich wrote petitioners letters regarding petitioners’ reinvestment of the proceeds from the act of sale in order to qualify for rollover treatment under sec_1033 mr lukinovich provided the language for sec_1033 elections attached to petitioners’ and income_tax returns and reviewed the language before the submission of petitioners’ form sec_1040 u s individual_income_tax_return for and at no time did mr lukinovich indicate that petitioners were barred from making the sec_1033 election if not all of their clients signed the acts of correction in petitioners purchased replacement_property and listed said property on their federal_income_tax returns in an effort to comply with the requirements of sec_1033 on date revenue_agent william witteman sent mr loeb a letter indicating that he was auditing mr loeb’s federal_income_tax return on date mr witteman sent mr molaison a letter indicating that he was auditing mr molaison’s federal_income_tax return petitioners fully complied with their audits and produced all documents requested by mr witteman including all acts of correction both signed and unsigned respondent prosecuted petitioners for committing criminal_fraud on their federal_income_tax returns in date petitioners were acquitted of all criminal_fraud charges related to their federal_income_tax returns at a trial held in new orleans louisiana on date respondent issued notices of deficiency to petitioners petitioners filed timely petitions with this court and trial was held in new orleans louisiana on september and opinion petitioners contend that the 3-year period of limitations on assessment in sec_6501 expired before respondent issued the notices of deficiency and respondent’s assessment is barred respondent argues that the period of limitations in sec_6501 does not apply because petitioners filed false or fraudulent_returns with the intent to evade taxes for see sec_6501 accordingly our determination of whether the period of limitations expired before the notice_of_deficiency was issued depends on whether petitioners committed fraud in the filing of their returns the determination of fraud for purposes of sec_6501 is the same as the determination of fraud for purposes of the penalty under sec_6663 116_tc_79 114_tc_533 sec_6663 provides if any part of any underpayment_of_tax required to be shown on a return is due to fraud there shall be added to the tax an amount equal to percent of the portion of the underpayment which is attributable to fraud the commissioner bears the burden of proving by clear_and_convincing evidence that an underpayment_of_tax was attributable to fraud sec_7454 rule b in order to show fraud respondent must prove an underpayment exists and petitioners intended to evade taxes known to be owing by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes see 94_tc_654 a underpayment_of_tax respondent must first show by clear_and_convincing evidence that there was an underpayment_of_tax in as discussed below respondent has satisfied his burden_of_proof on this issue respondent has shown that petitioners received income in for legal services rendered in the bac cases petitioners’ sole argument is that their fees constituted a property interest in the bac land by virtue of the contracts for legal services and acts of correction they executed with the bac landowners pursuant to this property interest petitioners claim they qualified for the nonrecognition provisions of sec_1033 gross_income means all income from whatever source derived unless excluded by law sec_61 348_us_426 contingency fees are not excluded by law from the gross_income of an attorney who earns them through the performance of legal services see eg kochansky v commissioner tcmemo_1994_160 affd in part and revd in part 92_f3d_957 9th cir 3petitioners further claim that they obtained their property interest in the bac land when it was nonpermitable wetland and effectively worthless thus precluding the recognition of income upon receipt of the interest sec_1033 provides under prescribed circumstances for relief from taxpayers’ gains realized from involuntary_conversion of property the relief provided by sec_1033 is deferral of the gain from involuntary_conversion so long as the proceeds are used to acquire qualified_replacement_property see eg 118_tc_126 sec_1033 provides in pertinent part as follows sec_1033 general_rule --if property as a result of its destruction in whole or in part theft seizure or requisition or condemnation or threat or imminence thereof is compulsorily or involuntarily converted-- conversion into money --into money or into property not similar_or_related_in_service_or_use to the converted property the gain if any shall be recognized except to the extent hereinafter provided in this paragraph a nonrecognition of gain --if the taxpayer during the period specified in subparagraph b for the purpose of replacing the property so converted purchases other_property similar_or_related_in_service_or_use to the property so converted or purchases stock in the acquisition of control of a corporation owning such other_property at the election of the taxpayer the gain shall be recognized only to the extent that the amount_realized upon such conversion regardless of whether such amount is received in one or more taxable years exceeds the cost of such other_property or such stock such election shall be made at such time and in such manner as the secretary may by regulations prescribe state law does not convert an attorney-client relationship into a partnership or joint_venture for purposes of federal tax law 543_us_426 stating that no state laws even those that purport to give attorneys an ownership_interest in their fees convert the attorney from an agent to a partner accordingly petitioners erred in believing their fees qualified for the nonrecognition provisions of sec_1033 and made an underpayment_of_tax in b fraudulent intent because direct evidence of fraud is rarely available fraud may be proved by circumstantial evidence and reasonable inferences from the facts 92_tc_661 courts have developed a nonexclusive list of factors or badges_of_fraud that demonstrate fraudulent intent 99_tc_202 these badges_of_fraud include understating income maintaining inadequate records implausible or inconsistent explanations of behavior concealment of income or assets failing to cooperate with tax authorities engaging in illegal activities an intent to mislead which may be inferred from a pattern of conduct lack of credibility of 5however for reasons discussed below our holding that petitioners made an underpayment under the law as it exists today does not militate in favor of determining that petitioners intended to commit fraud in the taxpayer’s testimony filing false documents failing to file tax returns and dealing in cash id see also 317_us_492 343_f3d_478 5th cir affg tcmemo_2002_217 91_tc_874 although no single factor is necessarily sufficient to establish fraud the combination of a number of factors constitutes persuasive evidence niedringhaus v commissioner supra pincite petitioners’ behavior with respect to their income may be evaluated in the light of these factors as follows understated income respondent has disproved petitioners’ assertion that their fees reflected an interest in the underlying bac property however this factor is mitigated by petitioners’ inclusion of these proceeds on their federal_income_tax returns as funds related to a sec_1033 election unlike other fraud cases where taxpayers attempted to conceal their fees for services or characterize them as something entirely different petitioners never characterized their fees from the bac cases as anything but fees see eg talmage v commissioner tcmemo_2008_34 fraudulent taxpayers attempted to characterize their fees for services as loans or hide them altogether inadequate records the record does not indicate that petitioners maintained inadequate records to the contrary petitioners’ client fee agreements and sec_1033 election were well documented plausible behavior petitioners believed because of the assertions of mr lukinovich that their fees represented an interest in bac property under louisiana law mr lukinovich believed that petitioners possessed an interest in the bac property because of the acts of correction and the property sale restrictions petitioners’ contingency fee agreement placed on the bac landowners mr lukinovich based his advice to petitioners on 263_f2d_119 5th cir affg in part and revg in part 28_tc_947 overruled by commissioner v banks supra and its application to louisiana law for purposes of examining fraudulent intent it is not necessary for us to determine petitioners’ specific rights to their contingency fees in under louisiana law petitioners’ reliance on mr lukinovich’s assertion that their fees represented an interest in bac property was plausible given the perceived ambiguity of the law in louisiana in 6before the supreme court’s decision in 543_us_426 the effect of state law on a continued further petitioners received affirmation of this belief when ausas marc smith and ann navaro added petitioners’ names to the list of bac landowners on the settlement agreement and act of sale accordingly we find petitioners’ behavior regarding their contingency fees to be both plausible and consistent concealment of income petitioners did not conceal income or assets the proceeds they received from the bac cases were listed on their federal_income_tax returns as being subject_to a sec_1033 election compliance with tax officials petitioners fully complied with the audit process and all court proceedings continued lawyer’s right to a contingency fee was unclear see 263_f2d_119 5th cir affg in part and revg in part 28_tc_947 overruled by commissioner v banks supra in cotnam the old court_of_appeals for the fifth circuit held that the amount of the contingent_fee paid out of a judgment to a taxpayer’s attorneys was not income to the taxpayer id pincite the court reasoned that a contingent_fee contract operated as a lien on the recovery under alabama law and thus served to transfer a part of the taxpayer’s claim to the attorneys id pincite as late a sec_2001 other courts of appeals followed cotnam for the proposition that state law determines the rights and interests of an attorney to a contingency fee particularly in the context of postjudgment interest see eg 249_f3d_1275 11th cir overruled by commissioner v banks supra 202_f3d_854 6th cir overruled in part by commissioner v banks supra illegal activities petitioners never engaged in illegal activities none of their clients were subject_to undue influence in signing the acts of correction and all received the settlement proceeds to which they were entitled pattern of misconduct with intent to mislead petitioners did not engage in a pattern of conduct to mislead tax authorities as previously stated petitioners honestly believed they were entitled to a sec_1033 election and their actions reflect this credibility of testimony petitioners’ testimony was credible false documents petitioners never intentionally filed a false document failing to file tax returns petitioners timely filed their federal_income_tax returns dealing in cash petitioners did not deal in cash as a result of the paucity of badges_of_fraud in this case we find that respondent has failed to show by clear_and_convincing evidence that petitioners filed their returns with the intent to evade tax therefore the 3-year period of limitations under sec_6501 applies to petitioners’ tax_year and respondent is barred from assessing any deficiencies in petitioners’ tax for that year to reflect the foregoing decisions will be entered for petitioners


internal_revenue_service number release date index number -------------------- ------------------------------------------ ------------------------------- ----------------------------- ------------------------- ---------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ------------------ telephone number ---------------------- refer reply to cc psi plr-106229-15 date date legend x y z date country ------------------------------------------------------------------------------------------------ ------------------------ ------------------------------------------------------------------------------------------------ -------------------- ------------------------------------------------------------------------------------------------ ------------------------------ ------------------- --------- dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts the information submitted states that x was formed under the laws of country on date x is wholly owned by y a foreign_entity disregarded for u s income_tax purposes and indirectly owned by z a u s_corporation x represents that as of date it was a foreign_entity eligible to elect to be a disregarded_entity for u s federal tax purposes and at all times y intended x to be treated as a disregarded_entity x represents that it was not advised of the need to make an election for u s federal_income_tax purposes to be treated as a disregarded_entity as a result x failed to timely file a form_8832 entity classification election electing to be treated as a disregarded_entity for u s federal tax purposes effective date plr-106229-15 x represents that y consistently filed u s tax returns treating x as a disregarded_entity x also represents that granting relief will not prejudice the interests of the government and that hindsight is not involved in seeking relief to file a late election x further represents that such relief would not result in a lower tax_liability in the aggregate for all years to which the request applies as the owner of x properly reported the net_income of x on its return finally x represents that it acted reasonably and in good_faith 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 can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and no more than months after the date the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic_extension of time for making certain elections sec_301_9100-3 provides the standards the plr-106229-15 commissioner will use to determine whether to grant an extension of time for the regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when a taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonable and in good_faith and granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of one hundred twenty days from the date of this letter to file form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter is attached for that purpose this ruling is contingent on the owners of x filing within days of this letter all required returns for all open years consistent with the requested relief to the extent appropriate these returns must include but are not limited to form_8858 information_return of u s persons with respect to disregarded entities such that the forms and returns reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as expressly set forth herein no opinion is expressed or implied concerning the federal tax consequences 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 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by david r haglund david r haglund branch chief branch passthroughs special industries enclosures copy of letter copy for purposes