internal_revenue_service number release date index number ------------------------------- ------------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-141072-09 date december re -------------------------------------------------------------------- ------------------------------------------------------------------------ legend settlor ---------------- son ------------------------------- daughter --------------------- grandchild --------------------------- grandchild ---------------------------- grandchild ----------------------------- grandchild ------------------------------ trust a -------------------------------------------------------------------------------------- trust b -------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- trustee ------------------------------ date ------------------ date ---------------------- company ---------------------------------- x ------------- y ------------- z ---- plr-141072-09 state ------------------- statute --------------------------------------------------------------------- statute --------------------------------------------------------------------- dear --------------- this responds to a letter from your authorized representative dated date and subsequent correspondence requesting rulings on the generation-skipping_transfer gst and estate_tax consequences resulting from the proposed modifications to two trusts you represent the facts to be as follows on date settlor created an irrevocable_trust trust a for the primary benefit of his son son and son’s issue son has four children grandchild grandchild grandchild and grandchild date is prior to date trust a is governed by the laws of state and trustee a bank is currently serving as trustee article two sec_2 a of trust a provides for mandatory distributions of net_income to son in quarterly payments sec_2 b provides for specified distributions of principal to son upon reaching certain age requirements upon son’s death if son has then living issue the remaining trust assets remain in trust for such surviving issue and will be divided into shares for each such surviving issue per stirpes the trust for each of son’s issue provides for mandatory distributions of net_income in quarterly installments and when such issue attains the age of twenty-one the trust held for such issue is distributed to each such issue free of any trust under sec_2 f the trustee in the trustee’s discretion may distribute principal to a beneficiary who is then drawing all or part of the net_income after taking into consideration other assets and means of support available to such beneficiary for the beneficiary’s education or to pay the medical hospital or related expenses of such beneficiary occasioned by such beneficiary’s illness or the illness of such beneficiary’s spouse or children if upon the death of son son does not have then surviving issue but is survived by sister all of the remaining assets of trust a shall be distributed to a separate trust created for sister on date sec_2 j provides that unless sooner terminated by its terms trust a will terminate twenty-one years after the death of the survivor of settlor son and daughter on date settlor created another irrevocable_trust trust b also for the benefit of son and son’s issue_date is prior to date trust b is governing by the laws of state and trustee is currently serving as trustee with certain exceptions the terms of trust b are substantially identical to those of trust a_trust b provides for mandatory distributions of net_income to son in quarterly payments however the ages of principal distribution and the amounts of principal distribution to son as well as the plr-141072-09 conditions for discretionary principal distributions to son and other beneficiaries are slightly different the terms of succession of the trustees are also different state statute generally provides that a settlor and all beneficiaries of a_trust without court approval may modify a_trust instrument pursuant to state statute settlor and the beneficiaries of trust a and trust b propose to execute an agreement to modify both trusts specifically sec_3_3 through of article iii of trust a will be removed and replaced with new sec_3_3 through with respect to trust b article iii sec_3_1 will be modified and sec_3_3 through will be removed and replaced with new sec_3_3 through article iii of trust a and trust b generally contain provisions relating to the trustee some of the proposed modifications include provisions relating to the removal of a trustee resignation of a trustee the appointment of successor trustees and co- trustees and trustee compensation in addition a provision will be added authorizing the appointment of an investment_advisor and a company investment_advisor the company investment_advisor will have the sole discretion to direct the investment decisions with respect to any company stock held by the trusts including the right to vote the company stock held in trust a and trust b son will serve as the initial company investment_advisor during son’s lifetime son will have the power to appoint remove and replace investment advisors including the power to appoint himself as investment_advisor son will also have the power to remove and replace the trustee any successor trustee must be a corporate trustee that is not a_related_or_subordinate_party as defined in sec_672 with respect to settlor or any then living beneficiaries of the trust the successor corporate trustee must have capital and surplus of not less than dollar_figure including the capital and surplus of any subsidiary affiliate or related_entity trust a and trust b specifically provide that any company investment_advisor and any investment_advisor will be considered a fiduciary with such duties and obligations as provided in state statute trust a and trust b also provide that in addition to the powers conferred by law or elsewhere in the trust instrument the trustee shall have the power to adjust between principal and income to the extent the trustee considers necessary as provided in state statute company is a publicly traded company son owns x shares of company stock trust a and trust b combined own y shares of company stock the combined ownership of company stock by son trust a and trust b equates to z of the outstanding common_stock of company you represent that there have been no additions to trust a or trust b since date you have requested the following rulings the modifications to trust a and trust b as provided under the proposed agreement will not cause trust a or trust b to lose its status under of the tax_reform_act_of_1986 as exempt from gst tax under chapter plr-141072-09 the modifications to trust a and trust b will not cause any portion of the assets of trust a or trust b to be includible in the gross_estate of settlor son or any beneficiary of trust a or trust b except to the extent of property that is distributed to such person and remains in his or her estate at the date of his or her death generation-skipping_transfer_tax issue -- ruling no sec_2601 imposes a tax on every gst which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip section b a of the act and sec_26_2601-1 provide that the gst tax shall not apply to any gst under a_trust that was irrevocable on date but only to the extent that such transfer was not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in settlor’s gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status in general unless specifically provided otherwise these rules are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in a beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer in the present case trust a and trust b are exempt from the gst tax because trust a and trust b were irrevocable on date you have represented that no additions actual or constructive have been made to any of the trusts after that plr-141072-09 date accordingly pursuant to b a of the act and sec_26_2601-1 the trusts are not subject_to the gst tax you represent that the proposed modifications are authorized under state law based on the facts and representations we conclude that the proposed modifications will not result in a shift of any beneficial_interest in trust a or trust b to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the modifications do not extend the time for vesting of any beneficial_interest in trust a or trust b beyond the period provided for in the original trust therefore the proposed modifications will not cause trust a or trust b to be subject_to the provisions of chapter estate_tax issues - ruling no sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2035 provides that if the decedent transferred an interest in property or relinquished a power with respect to any property during the 3-year period ending on the date of the decedent’s death and the value of the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the interest or power had been retained by the decedent on the date of death then the value of the gross_estate includes the value of any property or interest therein that would have been so included under sec_2035 the gross_estate shall be increased by the amount of any gift_tax paid_by the decedent or his estate on any gift made by the decedent or his spouse during the three year period ending on the date of decedent’s death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period that does not in fact end before his death possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income from the property sec_2037 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time plr-141072-09 made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona fine sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend or revoke or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent’s death sec_20_2038-1 of the estate_tax regulations provides that sec_2038 does not apply if the decedent’s retained power could be exercised only with the consent of all parties having an interest in the property and the power adds nothing to the rights of the parties under local law sec_2041 provides that the value of the gross_estate shall include the value of all property with respect to which the decedent possessed a general_power_of_appointment at the time of death sec_2041 defines the term general_power_of_appointment as a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate in order for sec_2035 through to apply a decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth under which the decedent retained an interest in or power over the income or corpus of the transferred property in the present case the proposed modifications to trust a and trust b do not change the beneficial interests of the beneficiaries thus the proposed modifications will not constitute a transfer by any beneficiary within the meaning of sec_2035 through further under the facts presented the proposed modifications will not result in the grant of a power_of_appointment to any beneficiary finally trust a and trust b are being modified pursuant to authority granted under statute accordingly settlor’s act of consenting to the modifications does not constitute the exercise of any retained power over the trusts we therefore conclude that the proposed modifications to trust a and trust b will not cause any portion of the assets of trust a or trust b to be includible in the gross_estate of settlor son or any beneficiary of trust a or trust b except to the extent of property that is distributed to such person and remains in his or her estate at the date of his or her death plr-141072-09 except as specifically ruled above no opinion is expressed as to the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code or regulations the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statements executed by the appropriate parties while this office has not verified any part of the material submitted in support of the request for rulings it is subject_to verification and examination this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative sincerely yours george l masnik chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------ ------------------------------ ------------- ----------------------------- --------------------------------------- ------------------------------------------------------------ --- department of the treasury washington dc person to contact ---------------------- id no --------------- telephone number --------------------- refer reply to cc intl - plr-169197-02 date date taxpayer legend ------------ ------------- --------------- ------------------------------ -------------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------- --------------------------------------------------- ------- ------- ---------------------------------------------------------------- entity a entity b y percent z percent dates one and two affiliate individual a individual b cpa firm dear ---------------- this replies to a letter dated date in which taxpayer requests an extension of time under sec_301_9100-3 to make the election and file the agreement described in sec_1_1503-2 with respect to entity a’s dual_consolidated_loss incurred in the tax_year ended on date one and with respect to the portions of entity b’s dual_consolidated_loss incurred in the tax_year ended on date two attributable to taxpayer’s y percent interest in entity b and affiliate’s z percent interest in entity b taxpayer also requests an extension of time to file the annual certification described in sec_1_1503-2 for the tax_year ended on date two with respect to entity a’s in re plr - dual_consolidated_loss incurred in the tax_year ended on date one the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process entity a generated a net_operating_loss for the tax_year ended on date one entity b generated a net_operating_loss for the tax_year ended on date two taxpayer held a y percent interest in entity b and affiliate held a z percent interest in entity b affiliate is wholly owned by taxpayer during the tax years ended on dates one and two taxpayer as common parent of the consolidated_group retained primary responsibility for reporting all dual consolidated losses with regard to its foreign entities taxpayer personnel were responsible for the preparation of all corporate tax filings as well as all applicable corporate elections for the same tax years taxpayer engaged cpa firm an outside tax consulting firm to perform a limited review of taxpayer’s consolidated tax returns for those same tax years individual a served as the tax director of taxpayer for the tax years at issue in that capacity individual a acted on behalf of taxpayer with respect to the u s tax information reporting related to taxpayer’s foreign operations and interests which included the interests in entity a and entity b individual b is employed by cpa firm as an international tax manager and was responsible for the initial review of taxpayer’s consolidated federal tax_return for the tax_year ended on date two the affidavits of individuals a and b and the facts submitted show that taxpayer relied on its tax professionals individual a and cpa firm to make the filings required under sec_1_1503-2 however the tax professionals failed to make the required filings on behalf of taxpayer sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement in re plr - sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the agreements and annual certifications are regulatory elections within the meaning of sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to make the election and file the agreement described in sec_1_1503-2 with respect to entity a’s dual_consolidated_loss incurred in the tax_year ended on date one and with respect to the portions of entity b’s dual_consolidated_loss incurred in the tax_year ended on date two attributable to taxpayer’s y percent interest in entity b and affiliate’s z percent interest in entity b and to file the annual certification described in sec_1_1503-2 for the tax_year ended on date two with respect to entity a’s dual_consolidated_loss incurred in the tax_year ended on date one as provided in a the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the agreements and annual certification this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling letter should be associated with the agreements and annual certification in re plr - no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to taxpayer and the other authorized representative sincerely associate chief_counsel international by s allen goldstein allen goldstein reviewer attachment copy for purposes


t c memo united_states tax_court william m mcneil and catherine a mcneil petitioners v commissioner of internal revenue respondent docket no filed date larry d harvey for petitioners sara j barkley and tamara l kotzker for respondent memorandum opinion cohen judge respondent determined deficiencies of dollar_figure and dollar_figure in petitioners’ federal income taxes for and respectively and penalties of dollar_figure and dollar_figure under sec_6662 for each of those years respectively after concessions the issues for decision are whether petitioners’ sales of colorado state tax_credits qualify for capital_gain treatment or should be taxed as ordinary_income and if capital_gain treatment applies when the holding_period for the assets sold begins those issues are before the court on cross-motions for summary_judgment on undisputed facts unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure background petitioners resided in colorado at the time that they filed their petition at all material times they have been members of mcneil ranch l l c the partnership for tax years beginning on or after date a colorado state_income_tax credit is available for the donation of all or part of the value of a perpetual conservation_easement in gross by resident individuals c corporations partnerships s_corporations and other passthrough entities estates and trusts state conservation_easement credit colo rev stat sec for the and tax years the state conservation_easement credit is equal to percent of the first dollar_figure of the fair_market_value of the donated portion of a perpetual conservation_easement in gross created upon real_property in colorado and percent of all amounts of the donation in excess of dollar_figure except that the total state conservation_easement credit cannot exceed dollar_figure per donation id sec a any unused portion of the state conservation_easement credit may be carried forward for successive tax years id sec a if colorado has a budget surplus for a tax_year when the state conservation_easement credit exceeds the original recipient’s state_income_tax liability the taxpayer may receive a cash payment from colorado id sec b for donations made during and the aggregate amount of the payment and the amount used as an offset against income_tax for that year cannot exceed dollar_figure id sec b iii the original recipient can also transfer a state conservation_easement credit that is not used to certain eligible third-party taxpayers id sec the transferee can use the state conservation_easement credit to reduce its colorado income_tax_liability id transferees are ineligible for a refund and may not transfer their credits id in the partnership sold a conservation_easement encumbering approximately acres of real_property to american farmland trust in a bargain sale american farmland easement the partnership received proceeds of dollar_figure from the sale the fair_market_value of the american farmland easement was dollar_figure in the partnership sold a conservation_easement to the wetlands america trust inc a k a ducks unlimited encumbering approximately acres of real_property in rio grande county colorado in a bargain sale ducks unlimited easement the partnership received proceeds of dollar_figure from the sale the fair_market_value of the ducks unlimited easement was dollar_figure the sale of the american farmland easement and the ducks unlimited easement gave rise to a state conservation_easement credit of dollar_figure see colo rev stat sec a i on date the partnership sold dollar_figure of its available dollar_figure state conservation_easement credit for dollar_figure transferred credit petitioners were the only members of the partnership in and all of the income deductions and credits reported on the partnership’s and partnership returns flowed through the partnership to petitioners’ and individual income_tax returns the partnership filed a form_1065 u s return of partnership income for the tax_year the partnership reported a charitable_contribution_deduction with respect to the american farmland easement of dollar_figure representing the difference between the fair_market_value of dollar_figure and the amount_realized of dollar_figure the partnership reported a charitable_contribution_deduction with respect to the ducks unlimited easement of dollar_figure representing the difference between the fair_market_value of dollar_figure and the amount_realized of dollar_figure on the form_1065 the partnership also reported a net_long-term_capital_gain of dollar_figure representing the gain from the following transactions dollar_figure of net gain from the sale of the ducks unlimited easement dollar_figure of net gain from the sale of the american farmland easement and dollar_figure of net gain from the sale of the transferred credit calculated as the difference between the dollar_figure realized and the basis of dollar_figure on petitioners’ jointly filed form_1040 u s individual_income_tax_return they reported noncash charitable_contributions of dollar_figure subject_to the limitations of sec_170 related to the sales of the american farmland easement and the ducks unlimited easement on schedule d capital_gains_and_losses of petitioners’ form_1040 they reported the dollar_figure of net_long-term_capital_gain reported on the form_1065 as long-term_capital_gain including the dollar_figure of net gain from the sale of the transferred credit consistent with the form_1065 petitioners excluded the partnership’s basis of dollar_figure in the transferred credit in calculating the net_long-term_capital_gain on their form_1040 in the partnership sold a conservation_easement in a bargain sale to the wetlands america trust inc encumbering approximately acres of real_property in rio grande county colorado ducks unlimited easement the partnership received proceeds of dollar_figure from the sale the fair_market_value of the ducks unlimited easement was dollar_figure the sale of the ducks unlimited easement gave rise to a state conservation_easement credit of dollar_figure see colo rev stat sec a i on date the partnership sold all of the dollar_figure state conservation_easement credit for dollar_figure transferred credit the partnership filed a form_1065 for the tax_year the partnership reported a charitable_contribution_deduction with respect to the ducks unlimited easement of dollar_figure representing the difference between the fair_market_value of dollar_figure and the amount_realized of dollar_figure the partnership reported net_long-term_capital_gain of dollar_figure from the sale of the transferred credit calculated as the difference between the dollar_figure realized and a basis of dollar_figure on petitioners’ jointly filed form_1040 they reported the charitable_contribution_deduction with respect to the ducks unlimited easement of dollar_figure from the form_1065 subject_to the limitations of sec_170 on schedule d petitioners reported the dollar_figure of net gain from the sale of the transferred credit reported on the form_1065 as long-term_capital_gain consistent with the form_1065 petitioners excluded the partnership’s basis of dollar_figure in the transferred credit in calculating the net_long-term_capital_gain on their return on date respondent sent a notice_of_deficiency to petitioners concerning their and income taxes recharacterizing the dollar_figure of gain petitioners realized from the sale of their transferred credit and the dollar_figure of gain petitioners realized from the sale of the transferred credit as ordinary_income rather than long-term_capital_gain in the notice_of_deficiency respondent further disallowed petitioners’ purported bases of dollar_figure in the transferred credit and dollar_figure in the transferred credit petitioners conceded this issue in the petition discussion the issues in this case and the arguments made here by the parties were recently addressed by this court in tempel v commissioner t c ___ we there held that colorado state credits such as those sold by the taxpayers were capital assets we also held that the holding_period of the credits commenced at the time that the taxpayers received them and not when they acquired the real_property that was the subject of the conservation_easement as explained at length in tempel v commissioner supra at ___ slip op pincite sec_1221 defines capital_asset as property held by the taxpayer other than eight specifically excluded categories none of the eight excluded categories describes state tax_credits such as those received and sold by the taxpayers we considered however whether the judicially created substitute_for_ordinary_income doctrine applied to the state tax_credits received and sold by the taxpayers id at ___ slip op pincite we concluded that it did not because the credits the taxpayers sold did not represent a right to income id at ___ slip op pincite with reference to the holding_period of the credits which in turn determines whether capital_gains are long term or short term in tempel we rejected the taxpayers’ argument that their holding_period in the land would be carried over or tacked on to their holding_period in the credits we reasoned that the credits arose on account of the grant from the state only after the easement donation was complete thus the credits were never part of the taxpayers’ real_property rights the same reasoning applies here petitioners’ attempt to characterize their credits as lesser estates in the real_property citing cases such as 618_f2d_1001 3d cir leasehold interests 71_tc_650 easement or development grants and 27_tc_866 air rights is not persuasive and does not justify a different result in tempel v commissioner supra at ___ n slip op pincite n the commissioner did not challenge classification of the tax_credits as property here too respondent acknowledged in respondent’s motion for summary_judgment that there is no dispute that the sales of the credits were sales of property and that the disagreement is over characterization of the profits as gain from the sale of a capital_asset as defined for purposes of sec_1221 respondent later clarified that respondent’s position is that the transferable state_income_tax credit is an intangible personal_property interest the sale of which is a disposition of property under sec_1001 it is not however an interest_in_real_property and it is not ‘property’ as that term has been interpreted under sec_1221 following our holdings in tempel v commissioner supra we conclude that proceeds of petitioners’ sales of colorado state conservation_easement tax_credits in and are taxable as short-term_capital_gains to reflect the foregoing an order and decision will be entered under rule


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 corp b03 plr-159214-05 date date ------------------------------------------ parent ---------------------------------------------------------- -------------------------------------------------------------------- sub ----------------------------------------------------------- ---------------------------------------------------------------------------- oldco -------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------ newco ----------------------------------------------------------------- --------------------------------------------------------------------------------- sub ---------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ sub ------------------------------------------------------------- ------------------------------------------------------------------------------------------ management company ------------------------------------ sub ------------------------------------------------- ------------------------------------------------------------- ----------------------------------------------------- ---------------------------------------- ---------------------------------------- ---------- ------------ ------------------- ------------------------------ ------------------------------------------------------- plr-159214-05 ------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ sub --------------------------------------------------------------------------------------------------------------------- -------------------------------------- state x country a country b date date date xx yy zz aa bb cc --------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- dear ------------ -------------------------- --------------------- ---------------- -------------- --------- -- -- we respond to your representative’s letter dated date requesting rulings concerning the federal tax consequences of a proposed and partially consummated transaction including whether the transaction qualifies as a reorganization under sec_368 of the internal_revenue_code additional information was submitted in letters dated january march march and date the material information submitted for consideration is summarized below corporations that files a consolidated federal_income_tax return parent owns among other assets all of the outstanding_stock of sub sub owns all of the outstanding parent a state x corporation is the common parent of an affiliated_group of plr-159214-05 stock of sub and an interest in sub the remaining interest in sub is owned by sub less than xx percent sub and sub have each respectively elected to be disregarded as an entity separate from its owner sub for u s federal tax purposes sub owns all of the outstanding_stock of oldco a country a entity oldco owns all of the outstanding_stock of sub and sub each of which have elected to be disregarded as an entity separate from its owner for u s federal tax purposes sub and sub own directly and indirectly the stock of numerous subsidiaries all of which have elected to be disregarded as an entity separate from its owner for u s federal tax purposes parent’s principle purpose for engaging in the following proposed and partially consummated transaction is to change the place of incorporation of oldco from country a to country b to achieve foreign tax savings i ii on date oldco and management company formed newco oldco transferred yy in exchange for aa percent of newco stock and management company transferred zz in exchange for bb percent of newco stock management company had no rights economic or otherwise by virtue of its initial receipt of the newco stock other than the right to vote and was a necessary party solely for country b law purposes as a result newco was viewed for federal_income_tax purposes as having a single economic owner oldco under sec_301 a newco elected to be an entity disregarded as separate from its owner for u s federal tax purposes effective as of date on date oldco contributed the stock of sub and its subsidiaries but retained some cash as well as all of its cc to newco in exchange for newly-issued newco stock pursuant to the same transfer management company transferred its stock in newco to oldco pursuant to these transfers oldco became the sole owner of all of the outstanding_stock of newco iii on date oldco will transfer sub and its subsidiaries to newco in exchange for additional stock of newco iv newco will elect to be treated as a corporation for u s federal_income_tax purposes and oldco will elect to be treated as an entity disregarded as separate from its owner for u s federal_income_tax purposes with both elections to be effective on or before date steps i through iv are hereinafter collectively referred to as the proposed transaction v on or after date but before date oldco will distribute the excess cash described in step ii above to its sole shareholder sub the distribution plr-159214-05 the taxpayer has made the following representations in connection with the proposed transaction a b c d e f g h i the fair_market_value of the newco stock and other consideration deemed received by sub when oldco is deemed to liquidate as a result of step iv above will be approximately equal to the fair_market_value of the oldco stock surrendered in the exchange there is no plan or intention by sub to sell exchange or otherwise dispose_of any of the shares of newco stock received in the proposed transaction immediately following the consummation of the proposed transaction sub will own all of the outstanding newco stock and will own those shares solely by reason of its ownership of all of the stock of oldco immediately prior to the proposed transaction newco has no plan or intention to issue additional shares of its stock following the proposed transaction immediately following consummation of the proposed transaction newco will possess the same assets and liabilities as those possessed by oldco immediately prior to the proposed transaction except for i assets distributed to sub who received cash or other_property and ii assets used to pay expenses_incurred in connection with the proposed transaction assets distributed to sub assets used to pay expenses and all redemptions and distributions except for regular normal dividends made by oldco immediately preceding the proposed transaction will in the aggregate constitute less than one percent of the net assets of oldco at the time of the proposed transaction oldco will not have outstanding any warrants options convertible securities or any other type of right pursuant to which any person could acquire stock in oldco newco has no plan or intention to reacquire any of its newco stock issued in the proposed transaction newco has no plan or intention to sell or otherwise dispose_of any of the assets of oldco acquired in the proposed transaction except for dispositions made in the ordinary course of business the liabilities of oldco assumed by newco plus the liabilities if any to which the transferred assets are subject were incurred by oldco in the plr-159214-05 j k l ordinary course of oldco’s business and are associated with the assets transferred following the proposed transaction newco will continue the historic_business of oldco or use a significant portion of oldco’s historic_business_assets in a business sub will pay its respective expenses if any incurred in connection with the proposed transaction oldco is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 based solely on the information submitted and the representations set forth herein we rule as follows the proposed transaction will qualify as a reorganization within the meaning of sec_368 oldco and newco will each be a party to the reorganization under sec_368 the distribution will not prevent the proposed transaction from qualifying as a reorganization under sec_368 rev_rul c b sub will not recognize any gain_or_loss upon the deemed exchange of oldco stock for newco stock sec_354 oldco will not recognize any gain_or_loss on the transfer of its assets to newco in exchange for newco stock and the assumption by newco of the liabilities of oldco sec_361 and sec_357 newco will not recognize any gain_or_loss on the receipt of oldco’s assets and the assumption of oldco’s liabilities in exchange for newco stock in the proposed transaction sec_1032 the basis of the assets of oldco in the hands of newco will be the same as the basis of such assets in the hands of oldco immediately prior to the proposed transaction sec_362 the holding_period of the oldco assets held by newco will include the period during which such assets were held by oldco sec_1223 the basis of the newco stock received by sub will be the same as the basis of the oldco stock surrendered in the deemed exchange thereof sec_358 plr-159214-05 the holding_period of the newco stock received by sub will include the period during which the oldco stock surrendered in deemed exchange thereof was held by sub provided that the stock was held as a capital_asset on the date of the deemed exchange sec_1223 the distribution will be treated as a distribution_of_property from oldco to sub separate from the reorganization described in the proposed transaction rev_rul and sec_1_301-1 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed about the tax treatment of the above transactions under the international provisions of the code specifically no opinion is expressed or implied as to the application of sec_1_367_b_-4 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination a copy of this letter must be attached to any income_tax return to which it is relevant this ruling is directed only to the taxpayer requesting it sec_6110 of in accordance with the power_of_attorney on file with this office a copy of this the code provides that it may not be used or cited as precedent letter is being sent to your authorized representative sincerely richard e coss senior counsel branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index number ------------------ ------------------------------------------- ---------------------------- ------------------------------- in re ----------------------------------------- ---------------------------- --------------------------------- department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc ita b03 - plr-159495-02 date date ----------------------------------------- ein ---------------- ----------------------------------------- --------------------------------------------------------- ------------------ --------------------------- ------------ legend taxpayer designation a business b service c d taxpayer dear ----------- this letter is in response to your request on behalf of taxpayer for a private_letter_ruling providing that certain activities of the taxpayer come within the scope of revproc_2002_12 2002_3_irb_374 and therefore taxpayer is permitted to use the safe_harbor method_of_accounting for smallwares permitted under the revenue_procedure facts taxpayer is a domestic_corporation that has an election under subchapter_s in effect for taxable_year the principal business activity code on the taxpayer’s federal_income_tax return is designation a with a business description of business b and product service listed as service c taxpayer specializes in providing coffee and related food and refreshment products and small appliances to customers via a national network of route sales personnel sales personnel and field technicians are assigned routes ie designated areas throughout the united_states taxpayer is engaged in several related lines of business the office beverage and breakroom supplies line the food service line and within the food service line the d line through the office beverage and breakroom supplies line taxpayer provides a wide products such as coffees teas sweeteners juices soups creamers cups plastic flatware etc for consumption by the customer’s employees and visitors taxpayer typically contracts with and is paid_by the institution in which the services and appliances are provided and not the ultimate consumer of the product taxpayer purchases products such coffees teas and other food items from vendors taxpayer does not manufacture any of the products it sells in addition to providing food and beverages to its customers taxpayer also provides appliances these appliances include coffee brewers coffee grinders cappuccino machines espresso machines single-cup coffee machines iced tea brewers hot beverage thermos cold beverage urns microwaves warmer plates decanters small soda fountain machines that dispense soft drinks filtered water apparatus and cabinets and stands for brewers and other appliances the route sales personnel service customers by keeping beverage and food items in stock and also perform minor in-field maintenance and repairs to taxpayer’s small appliances which are generally placed at no-additional cost for customers at their business_premises approximately every three weeks route sales personnel place orders for merchandise which includes coffee teas juices soups sweeteners condiments’ popcorn and a variety of food and related non-food items taxpayer’s food service line includes customers such as convenience stores supermarket delis fast food outlets and other recreational locations the primary difference between the food service line and the office beverage and breakroom supplies line is the size of the appliances used by the customer for example coffee brewers used in the food service line have a greater capacity and included those with up to five warmers within the food service line taxpayer conducts some of its business under alliances with food service companies pursuant to which it is the preferred beverage service provider for dining clients these alliance members are contract food service companies with many locations taxpayer provides the beverage service portion of the larger food service operation under one such agreement taxpayer operates some routes that exclusively serve the alliance member taxpayer’s employee goes from one beverage service area to another stocks products maintains the brewer cleans the brewer and other equipment and brews fresh coffee as needed as a general_rule it is difficult to predict the useful_life of the appliances provided by taxpayer since they are relatively inexpensive under dollar_figure sustain significant wear_and_tear and are subject_to repeated repairs most of the small appliances used by taxpayer do not have unique serial numbers rather they are tracked by an identifying number based on the type of appliance because this information is maintained by taxpayer it is capable of identifying and segregating items that may or may not qualify as smallwares under revproc_2002_12 law sec_162 of the internal_revenue_code allows a deduction for ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business under sec_1_162-3 of the income_tax regulations the cost of materials_and_supplies other than incidental materials_and_supplies may be deducted to the extent that the materials_and_supplies are actually consumed and used in the taxpayer’s business during the taxable_year sec_263 provides that no deduction is allowed for the cost of new buildings or of permanent improvements of betterments made to increase the value of any property or estate sec_1_263_a_-2 provides examples of capital expenditures such as the cost of acquisition construction or erection of buildings machinery and equipment furniture and fixtures and similar_property having a useful_life substantially beyond the taxable_year revproc_2002_12 provides taxpayers engaged in the trade of business of operating a restaurant or tavern with a safe_harbor method_of_accounting for the cost of smallwares for this purpose a taxpayer is engaged in the trade_or_business of operating a restaurant or tavern if the taxpayer’s business consists of preparing food and beverages to customer order for immediate on-premises or off-premises consumption these businesses include for example full-service restaurants limited-service eating places cafeterias special food services such as food service contractors caterers and mobile food services and bars taverns and other drinking places the trade_or_business of operating a restaurant or tavern may include food or beverage services at grocery stores hotels and motels and social or recreational facilities smallwares include small appliances that cost dollar_figure or less and service items small appliances include ice tea dispensers individual food warmers heat lamps blenders juicers and nonindustrial mixers service items include pepper mills pitchers and coffee pots taxpayers within the scope of revproc_2002_12 are permitted to account for smallwares in the same manner as materials_and_supplies that are not incidental under sec_1_162-3 for purposes of the revenue_procedure smallwares are treated as consumed and used in the taxpayer’s business in the year in which they are received at the restaurant and are available for use this does not include smallwares purchased and stored at a warehouse or facility other than the restaurant where they will be used the safe_harbor method_of_accounting for smallwares provided in revproc_2002_12 was intended to resolve disputes concerning whether the cost of smallwares should be accounted for as currently deductible expenses under sec_162 or capital expenditures within the meaning of sec_263 and to simplify the record keeping requirements with respect to smallwares analysis taxpayer argues that its activities come within the scope of those listed in revproc_2002_12 because the taxpayer’s equipment is the same as that used in restaurants and taverns the tracking and administrative problems are the same as those encountered by restaurants and taverns and it is providing coffee and related items to customers additionally taxpayer argues that in many of its contracts particularly those in the d line it provides a significant service component in the preparation of beverages for immediate customer consumption within the meaning of the revenue_procedure in its original submission taxpayer proved that its equipment is of the type that would be used in restaurants and taverns this equipment which is of relatively small value and is located in various locations provides tracking and administrative problems similar to those experienced by more traditional restaurants and taverns at the taxpayer conference of right the service informed taxpayer that many of its activities appeared outside the scope of revproc_2002_12 because the service provided by the taxpayer in most circumstance is that of making the equipment and supplies necessary to prepare a beverage available to the ultimate consumer rather than preparing the beverage taxpayer responded with supplemental information that some of its contracts within the d line entail more direct beverage preparation activities revproc_2002_12 requires that an eligible taxpayer’s business consist of preparing food and beverage to customer order for immediate on-premises or off-premises consumption to the extent taxpayer’s employees routinely engage in beverage preparation using the appliances and supplies described above taxpayer’s activities are within the scope of the revenue_procedure thus where taxpayer’s employees are regularly in attendance during a facility’s operating hours and are monitoring the operation of appliances and directing providing the supplies needed for beverage production to these appliances taxpayer is within the scope of the revenue_procedure however where taxpayer’s employees only occasionally prepare beverages such as preparing a fresh pot of coffee after a once-every-three-week visit to clean and restock a breakroom taxpayer is not within the scope of the revenue_procedure conclusion accordingly based upon your submission and the above analysis we rule that taxpayer comes within the scope of revproc_2002_12 for those contracts within the d line pursuant to which taxpayer’s employees are routinely directly involved in making beverage at the customer’s location and therefore is permitted to use the smallwares safe_harbor method described in sec_5 of revproc_2002_12 for the cost of the smallwares used in those contracts caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect or any item discussed or referenced in this letter the ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent cc ------------------------------------------------------------------ -------------------------------------------------- --------------------------------- ------------------------------------------- ------------------------ ----------------------------------------- --------------------------------------------------- ------------------------------------------- robert m casey senior technician reviewer office of associate chief_counsel income_tax accounting ---------------------------------- ------------------------------------------------------------------------------------------------------------ --------------- ----------------------------- ----------------------- sincerely -------------------------------------------------- --------------------------------------------


t c memo united_states tax_court life care communities of america ltd a florida limited_partnership robert w and johanna mcmichael partners other than the tax_matters_partner petitioners v commissioner of internal revenue respondent docket no filed date stanley w rosenkranz leonard l kleinman and glenn m burton for petitioners francis c mucciolo and benjamin a deluna for respondent memorandum opinion panuthos chief special_trial_judge this matter is before the court on two unrelated motions respondent's motion to dismiss for lack of jurisdiction and to strike allegations set forth in the petition that johanna mcmichael is entitled to innocent spouse relief pursuant to sec_6013 and respondent's motion for partial summary_judgment that robert w mcmichael remained a partner of life care communities of america ltd until date as explained in greater detail below we shall grant respondent's motion to dismiss and to strike and deny respondent's motion for partial summary_judgment background3 during and petitioner joined with raymond smith smith and hudson fowler fowler in organizing several business entities including a florida limited_partnership known as life care communities of america ltd life care or the partnership for the purpose of developing constructing and owning a retirement center known as bentley village although initially a limited_partner petitioner became a general_partner of life care in date in date smith and fowler used their combined voting power to remove petitioner from managerial positions in the unless otherwise indicated section references are to the internal_revenue_code as amended and rule references are to the tax_court rules_of_practice and procedure references to petitioner in the singular are to robert w mcmichael the following is a summary of the relevant facts drawn from the entire record that do not appear to be in dispute these facts are stated solely for purposes of deciding the pending motions fed r civ p a 98_tc_518 affd 17_f3d_965 7th cir partnership and other bentley village entities shortly thereafter petitioner was excluded from all further partnership business--his office was locked and he was told not to return to the site or to make contact with the partnership's employees in addition smith and fowler transferred a management_contract held by a corporation equally owned by petitioner smith and fowler to an entity controlled by smith and fowler in petitioner filed suit in florida state court against fowler smith the partnership and related bentley village entities alleging various causes of action including theft fraud and embezzlement the above-described litigation was eventually the subject of a negotiated settlement in discussions culminating in the settlement of the aforementioned litigation petitioner smith and fowler understood that they would not be able to reconcile their differences and that either smith and fowler on the one hand or petitioner on the other would have to relinquish their ownership interests in life care and the related bentley village entities initially attempts at settling the dispute were hampered by the parties' inability to agree as to the value of the various bentley village entities in this regard by letter dated date marshall g reissman mr reissman counsel for smith and fowler wrote to stanley w rosenkranz mr rosenkranz counsel for petitioner proposing that the litigation be settled by petitioner's relinquishing his interests in the various bentley village entities including life care to smith and fowler for an immediate payment of dollar_figure a dollar_figure annual consulting fee for years and a lump-sum payment at the end of years at a price to be determined under a mutually agreeable formula the litigation eventually was settled on date pursuant to an agreement entitled mutual release and settlement agreement the settlement agreement contrary to the terms set forth in mr reissman's date letter the settlement agreement provides alternative options respecting the sale of the parties' respective partnership interests specifically the settlement agreement allowed petitioner an 8-month period within which to exercise an option to purchase smith's and fowler's partnership interests in life care however during this same 8-month period smith and fowler could preempt petitioner by exercising their own options to purchase petitioner's partnership_interest in life care the settlement agreement further stated that in the event that petitioner did not exercise his option within the prescribed 8-month period smith and fowler would be required to pay petitioner dollar_figure that would be allocated percent to a consulting fee and percent to the purchase of petitioner's interests in the various bentley village entities including petitioner's partnership_interest in life care the settlement agreement includes a paragraph that states in exchange for a cash payment of two hundred thousand dollars dollar_figure at the time the mutual release and settlement agreement is executed all existing lawsuits would be dismissed with prejudice and complete releases would be exchanged with mcmichael petitioner was paid dollar_figure upon the execution of the settlement agreement petitioner did not exercise his option to purchase smith's and fowler's partnership interests in life care by letter dated date mr reissman advised mr rosenkranz that smith and fowler would purchase petitioner's interests in the various bentley village entities pursuant to the agreement dated date and that it was his clients' position that the sale would be effective date on date petitioner smith fowler and other interested parties executed an agreement the sale agreement providing for the transfer of petitioner's interests in the bentley village entities including life care to smith fowler and others for dollar_figure the agreement states that dollar_figure of the purchase_price was paid upon execution of the settlement agreement life care issued petitioner forms k-1 for each of the taxable years and however petitioners decided to exclude petitioner's distributive_share of the partnership's items of income loss deduction and credit in their joint federal_income_tax returns for and on the ground that petitioner was no longer a partner in life care after date on date respondent mailed separate notices of final_partnership_administrative_adjustment fpaa to the tax_matters_partner tmp for life care determining adjustments to the partnership's tax returns for and on date respondent mailed a copy of the fpaa to petitioners each of the fpaa's contains identical language stating it is determined that the purchase and sale of partnership interests between partners robert mcmichael hudson fowler and raymond smith was effective on date rather than on date the correct distributive shares of partnership income loss deductions and credits have been determined based on their ownership percentages in accordance with sec_706 of the internal_revenue_code the tmp for life care did not file a petition_for_readjustment with the court respecting the above-described fpaa's however petitioners filed a timely petition with the court ostensibly as partners other than the tmp discussion respondent's motion to dismiss for lack of jurisdiction and to strike as indicated the petition_for_readjustment includes allegations that johanna mcmichael is entitled to relief as an at the time the petition was filed life care maintained its principal_place_of_business in naples florida innocent spouse under sec_6013 respondent moves to dismiss for lack of jurisdiction and to strike asserting that the court lacks jurisdiction to address the matter in this partnership level proceeding it is now well settled that the tax_court lacks jurisdiction to consider whether a taxpayer partner is entitled to innocent spouse relief under sec_6013 in the context of partnership level proceedings see 98_tc_48 marthinuss v commissioner tcmemo_1995_58 and cases cited therein the question of whether johanna mcmichael is entitled to innocent spouse relief can be raised in a partner level affected items proceeding following the issuance of a notice_of_deficiency by invoking the tax court's overpayment jurisdiction see eg mann-howard v commissioner tcmemo_1992_537 consequently we shall grant respondent's motion to dismiss for lack of jurisdiction and to strike respondent's motion for partial summary_judgment summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials 90_tc_678 summary_judgment upon all or any part of the legal issues in controversy is appropriate if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 85_tc_527 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in a manner most favorable to the party opposing summary_judgment 85_tc_812 79_tc_340 respondent argues for partial summary_judgment on the basis that petitioner remained a life care partner until date respondent contends that the clear and unambiguous terms of the settlement agreement executed date and the sale agreement executed date support her position further respondent contends that petitioner is precluded by the rule articulated in 378_f2d_771 3d cir vacating and remanding 44_tc_549 as adopted by the court_of_appeals for the eleventh circuit in 730_f2d_718 11th cir from offering evidence to vary or counter the terms of the two agreements this case is appealable to the court_of_appeals for the eleventh circuit thus although this court has declined to adopt the rule_of 378_f2d_771 3d cir vacating and remanding 44_tc_549 see continued petitioners assert that material issues of fact regarding the termination of petitioner's status as a life care partner remain in dispute and that the rule in commissioner v danielson supra is not applicable under the circumstances presented for federal tax purposes the terms partnership and partner are defined in sec_7701 as follows partnership and partner --the term partnership includes a syndicate group pool joint_venture or other unincorporated organization through or by means of which any business financial operation or venture is carried on and which is not within the meaning of this title a_trust or estate or a corporation and the term partner includes a member in such a syndicate group pool joint_venture or organization see sec_761 the existence or nonexistence of a partnership under state law is not determinative for federal tax purposes 327_us_280 88_tc_1405 74_tc_939 affd 703_f2d_485 10th cir in 337_us_733 the supreme court held that in determining whether a partnership has been formed for tax purposes the proper inquiry is continued 87_tc_178 ndollar_figure affd without published opinion 833_f2d_303 3d cir we would be obliged to follow the holding of 730_f2d_718 11th cir if that case were directly on point 54_tc_742 affd 445_f2d_985 10th cir whether considering all the facts--the agreement the conduct of the parties in execution of its provisions their statements the testimony of disinterested persons the relationship of the parties their respective abilities and capital contributions the actual control of income and the purposes for which it is used and any other facts throwing light on their true intent--the parties in good_faith and acting with a business_purpose intended to join together in the present conduct of the enterprise fn ref omitted as we see it a similar inquiry is required where as in the present case the dispute concerns the date that an individual's status as a partner of a limited_partnership is terminated although one can draw an inference from both the settlement agreement and sale agreement that petitioner remained a life care partner until date the agreements do not define the membership of the life care partnership or otherwise address petitioner's status the agreements do little more than describe the terms and conditions by which petitioner ultimately transferred his life care partnership_interest in this regard we are not persuaded that the duration of petitioner's status as a life care partner is prescribed solely or unambiguously by the terms of the agreements consistent with the preceding discussion we conclude that respondent's reliance on commissioner v danielson supra is misplaced in short danielson stands for the proposition that absent proof showing mistake fraud undue influence duress or the like a taxpayer generally is bound by the terms of an agreement to which he is a party where the agreement includes specific allocations or characterizations evincing tax consequences see 746_f2d_319 6th cir per curiam bradley v united_states supra 641_f2d_376 5th cir revg 71_tc_1017 accordingly an application of the danielson_rule does not abrogate our obligation to consider other factors such as the conduct and relationship of the parties commissioner v culbertson supra the record in this case includes conflicting assertions as to whether petitioner remained a life care partner following the execution of the settlement agreement on date in addition to the inferences that may be drawn from the agreements we note that life care issued forms k-1 to petitioner for the taxable years and suggesting that the partnership considered petitioner a partner during those periods on the other hand there is no dispute that the parties negotiating the settlement agreement recognized that the animosity between petitioner and smith and fowler would preclude the continuation of the partnership as originally formed in addition petitioner submitted an affidavit stating that it was the intent of the parties to the settlement agreement that petitioner would no it appears that petitioner concedes that he was a partner until jan longer act as a life care partner after the execution of the settlement agreement and that he was in fact excluded from partnership activities after date consistent with these assertions mr reissman sent a letter to mr rosenkranz dated date advising that smith and fowler would purchase petitioner's interest in the various bentley village entities pursuant to the agreement dated date and that it was their position that the sale would be effective date viewing the known facts in a light most favorable to petitioner we conclude that material facts remain in dispute and that additional factual development is necessary to resolve the question of whether petitioner remained a partner of life care until date in particular we are unable to determine from the record presented the intent of the parties respecting the composition of the life care partnership after the execution of the settlement agreement on date consequently we will deny respondent's motion for partial summary_judgment to reflect the foregoing an order will be issued granting respondent's motion to dismiss for lack of jurisdiction and to strike and denying respondent's motion for partial summary_judgment


internal_revenue_service number release date index number ---------------------------------------- ----------------------------------------------- ---------------------------------- ------------------------------ in re -------------------------------------------- ---------------------------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-128609-05 date may legend donor trust a_trust trust state court date date date date date date order order daughter daughter gc1 ------------------------------- ----------------------------------------------------------------------- -------------------------------------------- -------------------------------------------------------------- -------------------------------------------- --------------------------------- ------------------------------------------------------------------------ ------------------- ------------------- ------------------------- --------------------------- ----------------------- ------------------ ----------------------- ------------------------------------------------------------------------ -------------------------------------------------------------------- ------------------------------------------------------------------------ -------------------------------------------------------------------- ---------------------------------------------------------- -------------------------- ----------------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------------------ ------------- plr-128609-05 gc2 gc3 gc4 individual trustee state dear -------------------- this is in response to your date letter and other correspondence requesting a ruling concerning the income gift and generation-skipping_transfer gst tax consequences of the proposed division of trust you have requested the following rulings the division of trust into separate trusts in accordance with the terms of order will not affect the gst exempt status of trust no taxable gift will be made by any party as a result of the implementation of order and such party’s compliance therewith neither trust nor any beneficiary thereof will realize gain_or_loss as a result of compliance with the terms of order each divided share of trust will be taxable as a separate trust the facts submitted are as follows article first of trust a provides in part that the trustee is to pay over to donor donor established trust a a revocable_trust on date trust a was restated in its entirety on date it is represented that no additions were made to trust a after date trustee was designated as trustee of trust a all income during her lifetime article first also provides that during donor’s life she shall act as the adviser to the trustee in that capacity she shall have the power to direct the carrying into effect of the provisions of trust a and directions so given shall always be in writing and binding on the trustee the trustee is exonerated from any liability for any act by the trustee made under the direction of the adviser specific pecuniary amounts the trustee is to distribute income up to dollar_figure per annum for the support maintenance education use or benefit of donor’s children until article third provides in part upon donor’s death after distribution of certain article third paragraph provides that the trustee with the consent and plr-128609-05 such children reach the age of thereafter the trustee is to pay all the income of the trust to such child or children of donor but in no event to exceed his or her proportionate share of income as long as other child or children of the donor be living or shall have died leaving issue surviving on the death of the last survivor of donor’s children the trustee is to distribute the residue of the trust estate equally to the use and for the benefit of the lawful issue of donor’s children by representation approval of the adviser is authorized from time to time during the term of the trust to expend such part of the income and of the principal of the share or shares of the trust estate to which any remote issue of the donor shall for the time being be presumptively entitled as the trustee with the consent and approval of the adviser deems proper for the support maintenance education use and benefit of such presumptive beneficiary article nineteenth provides that unless sooner terminated the trust is to end immediately prior to the expiration of years from and after the death of the last survivor of the donor and her husband and issue living on date on termination the trustee is to pay over the principal of the trust fund free from trust to the living issue of the donor per stirpes and not per capita article twenty-first provides that trust a is to be governed under the laws of state irrevocable upon her death donor was survived by daughter and daughter daughter died on date and daughter is still living daughter currently has four children gc1 gc2 gc3 and gc4 court on date county court issued order in settlement of this litigation which divided trust a into two trusts trust for the benefit of daughter and her issue and trust for the benefit of daughter 2’s issue during her lifetime upon the death of daughter trust is to be distributed to the then living issue of daughter by right of representation the principal of trust during the life of daughter however an amount the distribution amount equal to one-half of the income of trust is to be distributed to trust and added to the principal of trust upon the death of daughter trust is to be distributed to the then living issue of daughter by right of representation paragraph is less than one percent of the fair_market_value of trust determined as of the last business_day of the year preceding the year in which distribution of the under paragraph of order the income of trust is to be paid to daughter under paragraph the income from trust is to be accumulated and added to it is represented that trust a was the subject of protracted litigation in state under paragraph to the extent the distribution amount provided under donor died on date before date and trust a became under paragraph the trustee’s power to invade trust principal to or for the trustee petitioned state court to divide trust into four separate trusts on under paragraph except as may be otherwise provided in order or by further plr-128609-05 distribution amount occurs then the trustee is to also distribute from principal an additional_amount such that the distribution equals one percent of the value of trust benefit of the remote issue of donor during the lifetime of daughter is subject_to the following conditions i any discretionary distribution of principal to or for the benefit of the issue of daughter is to be made solely out of trust and ii any discretionary distribution of principal to or for the benefit of the issue of daughter is to be made solely out of trust order of the court trust and trust are to be held administered and distributed under the terms of trust a date state court issued order authorizing trustee to divide trust into four parts each part is to be held as a separate trust each separate trust will be held for the benefit of daughter and one of her respective children gc1 gc2 gc3 and gc4 and their issue otherwise the trusts will be subject_to the same terms and conditions as described in order gc1 is appointed the trust adviser with respect to the trust established for his benefit and the benefit of gc4 individual an unrelated_person is appointed the trust adviser with respect to the trusts created for gc2 and gc3 of the trust established for his benefit gc1 shall not participate in any decision to distribute income or principal of said trust to gc1 pursuant to article third paragraph of trust a law and analysis ruling the taxpayer represents that order will be amended to provide that as adviser sec_2601 imposes a tax on every generation-skipping_transfer the term ageneration-skipping transfer is defined in sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under section a of the tax_reform_act_of_1986 act and sec_26_2601-1 of the generation-skipping_transfer gst tax regulations the gst tax is generally applicable to generation-skipping transfers made after date however under section b a of the act and sec_26_2601-1 the gst tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides rules for determining when a modification plr-128609-05 judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer a modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example illustrates a situation where a_trust that is otherwise exempt from the gst tax is divided into two trusts under the facts presented the division of a_trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division and the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust accordingly the two partitioned trusts will not be subject_to the provisions of chapter in this case the proposed division will not result in a shift of any beneficial_interest in trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests further the proposed division will not extend the time for vesting of any beneficial_interest in the new trusts beyond the period provided for in trust accordingly based on the facts submitted and representations made we conclude that the division of trust into separate trusts in accordance with the terms of order will not affect the gst exempt status of trust sec_2501 provides that a tax is imposed for each calendar_year on the ruling transfer of property by gift during such calendar_year or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible the date of the gift shall be considered the amount_of_the_gift sec_2512 provides that if a gift is made in property the value thereof at sec_2511 provides that the gift_tax applies whether the transfer is in trust in this case upon the division of trust into four separate trusts each sec_1001 provides that the gain from the sale_or_other_disposition of sec_61 provides that gross_income includes gains derived from dealings sec_1001 states that the amount_realized from the sale_or_other_disposition plr-128609-05 beneficiary will have substantially the same beneficial_interest as he or she had under trust prior to the division because the beneficial interests of the beneficiaries are substantially the same both before and after the proposed division no transfer of property will be deemed to occur as a result of the division accordingly based on the facts submitted and the representations made we conclude that no taxable gift will be made by any party as a result of the implementation of order and such party’s compliance therewith ruling in property and under sec_61 from an interest in a_trust property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained the co-owner of the joint property sever their joint_interests but do not acquire a new or additional interest as a result of the transaction thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 institution exchanged its interests in one group of residential mortgage loans for another lender’s interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution realization events for purposes of sec_1001 the court concluded that sec_1_1001-1 reasonably interprets sec_1001 and therefore an exchange of property a partition of jointly owned property is not a sale_or_other_disposition of property if the issue presented was whether the exchange of mortgage loans constituted in 499_us_554 a financial plr-128609-05 gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite in the instant case the interests of the beneficiaries after the division will not differ materially from the interests in the original trust in accordance with the state court approved order the trust will be divided on a pro_rata basis except for the changes described above all other provisions of trust will remain unchanged accordingly the proposed transaction will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries and no gain_or_loss is recognized by the beneficiaries or the trusts on the division for purposes of sec_1001 ruling two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of federal_income_tax different beneficiaries therefore based solely on the facts as presented in this ruling_request we conclude that as long as the four subtrusts are separately managed and administered they will be treated as separate trusts for federal_income_tax purposes although the divided shares of the trust have the same grantor they have sec_643 provides that under regulations to be prescribed by the secretary in accordance with the power_of_attorney on file with this office copies of this except as expressly provided herein no opinion is expressed or implied letter are being sent to your authorized representative concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter we are specifically not addressing any gst tax and gift_tax consequences regarding order representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination the rulings contained in this letter are based upon information and plr-128609-05 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer s requesting it sec_6110 of sincerely yours _________________________ george masnik chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy of letter for sec_6110 purposes


significant index number department of the treasury internal_revenue_service washington d c feb i tep ra ar re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning january this extension applies to the amortization charge bases as identified in your application submission established as of date with a total outstanding balance of dollar_figure as of that date the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the and to the this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours manager ep actuarial group