internal_revenue_service number release date index numbers ---------------------- -------- -------------------------------- ------------------------------------ department of the treasury washington dc person to contact ------------------ id no -------------- telephone number --------------------- refer reply to cc corp b04 - plr-160900-03 date march ------------ legend distributing ---------------------------------------------------------------------------- -------------------------------------------------------------------- controlled ---------------------------------------------------------------------------- -------------------------------------------------------------------- business z ---------------------------- ----------------------------------------------------------------------- --------------------------------------------------------------------- ----------------------------------- --- --- asset y ------------------------------------------------------------------------ a b c a ----------------------------------------------------------------------- ----------------------------------------------------------------------- b ----------------------------------------------------------------------- c ----------------------------------------------------------------------- ------------------ ----------------- ------------- ----------------------------------------------- ------------------ plr-160900-03 d ----------------------------------------------------------------------- e ------------------------- ----------------------------------------------------------------------- f ----------------------------------------------------------------------- dear ---------------- federal_income_tax consequences of a proposed transaction the information submitted in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of these facts or representations but such verification may be required as part of the audit process this letter responds to your date request for rulings on certain -------------------------- summary of facts distributing is a closely_held_corporation owned by two family shareholder groups shareholders a b and c family a own a percent of distributing and shareholders d e and f family b own the remaining b percent distributing directly engages in business z distributing has submitted financial information indicating that business z has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years relating to distributing’s business the conflicts between family a and family b are having an adverse effect on the day-to-day operations of distributing family a and family b have disagreed on a number of fundamental matters proposed transaction to eliminate the shareholder disputes distributing has proposed the following series of steps collectively the proposed transaction exchange for all of the voting_stock of controlled the assumption by controlled of liabilities related to asset y and dollar_figurec the contribution i distributing will transfer business z’s asset y to newly formed controlled in ii distributing will distribute all of the controlled stock to family a in exchange plr-160900-03 for all of their distributing stock the distribution representations a the fair_market_value of the controlled stock received by family a will d no part of the consideration distributed by distributing will be received by a b the total adjusted_basis and the fair_market_value of the assets transferred to c the liabilities assumed as determined under sec_357 in the transaction and the taxpayer has made the following representations concerning the proposed transaction approximately equal the fair_market_value of the distributing stock surrendered by family a in the exchange controlled by distributing will equal or exceed the liabilities assumed as determined under sec_357 by controlled plus the fair_market_value of any other_property distributed to its shareholders in pursuance of the plan_of_reorganization or to its creditors in connection with the reorganization the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred shareholder as a creditor employee or in any capacity other than that of a distributing shareholder representative of distributing’s present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted independently and with its separate employees the active_conduct of its share of all the integrated activities of the business conducted by distributing before consummation of the transaction g the distribution is carried out for the following corporate business_purpose to allow family a and family b to each go their own separate ways the distribution is motivated in whole or substantial part by this corporate business_purpose earnings_and_profits of distributing or controlled or both h the transaction is not used principally as a device for the distribution of the e the five years of financial information submitted on behalf of distributing is f following the transaction distributing and controlled each will continue i for purposes of sec_355 immediately after the proposed distribution of the j for purposes of sec_355 immediately after the distribution of the controlled plr-160900-03 controlled stock no person determined after applying sec_355 will hold stock possessing or more of the total combined voting power of all classes of distributing stock entitled to vote or or more of the total value of classes of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the proposed distributions stock no person determined after applying sec_355 will hold stock possessing or more of the total combined voting power of all classes of controlled stock entitled to vote or or more of the total value of the shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 and ending on the date of the distribution of the controlled stock or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution of the controlled stock time of or after the distribution payment of its payables in anticipation of the transaction between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length sec_368 and iv o there is no acquisition of stock of distributing or controlled including any predecessor or successor of any such corporation that is part of a plan or a series of related transactions within the meaning of sec_1_355-7t that includes the distribution of controlled stock k no intercorporate debt will exist between distributing and controlled at the n no two parties to the transaction are investment companies as defined in l distributing neither accumulated its receivables nor made extraordinary m payments made in connection with all continuing transactions if any rulings based solely upon the information submitted and the representations set forth above we rule as follows the holding_period for each asset received by controlled from distributing will the contribution followed by the distribution will be a reorganization under no gain_or_loss will be recognized by controlled on the contribution gain if any will be recognized by distributing on the contribution in an the basis that controlled has in each asset received from distributing will plr-160900-03 sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 amount not exceeding the amount of cash received by distributing sec_357 sec_361 and sec_361 no loss will be recognized sec_361 sec_1032 equal the basis of that asset in the hands of distributing increased by any gain recognized by distributing on the contribution sec_362 include the period during which distributing held the asset sec_1223 sec_361 included in the income of family a upon their receipt of controlled stock in exchange for their distributing stock sec_355 distribution will in each instance equal the basis of the respective distributing stock surrendered by the shareholder in exchange therefor sec_358 the holding_period of the controlled stock received by family a will in each instance include the holding_period of the respective distributing stock surrendered by the shareholder provided such stock is held as a capital_asset on the date of the distribution sec_1223 sec_312 and sec_1_312-10 proper allocation of distributing’s earnings_and_profits will be made under no gain_or_loss will be recognized by and no amount will otherwise be no gain_or_loss will be recognized by distributing on the distribution the basis of the controlled stock in the hands of family a after the caveats no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and 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 plr-160900-03 in particular we have not reviewed or verified any information submitted by the taxpayer in support of its representations that i the distribution satisfies the business_purpose requirement of sec_1_355-2 ii the proposed transaction is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both and iii the distribution and an acquisition or acquisitions are not part of a plan or series of related transactions under sec_355 procedural statements this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the proposed transaction should attach a copy of this ruling letter to the taxpayer’s federal_income_tax return for the taxable_year in which the proposed transaction is completed to the taxpayer under a power_of_attorney on file in this office a copy of this letter is being sent sincerely ________________ richard k passales senior counsel branch office of associate chief_counsel corporate cc


department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date conex-120481-10 o f f i c e o f t h e c h i e f c o u n s e l number release date uil the honorable bob corker united_states senator west end avenue suite nashville tn attention ------------------------- dear senator corker i am responding to your inquiry dated date on behalf of your constituent ---- -------------------------- ----------------asked whether taxpayers affected by the floods in tennessee that are presidentially-declared disasters can obtain an extension of the deadlines to complete the purchase of a home to qualify for the homebuyers tax_credit first-time homebuyers and long-time residents of the same principal_residence may qualify for a refundable tax_credit for the purchase of a principal_residence sec_36 of the internal_revenue_code the code to qualify for the credit a taxpayer must complete the purchase of a home before date or before date if the taxpayer enters into a binding contract before date to close on the purchase the home before date sec_36 of the code these deadlines apply regardless of whether the home is located in a presidentially-declared disaster_area i hope this information is helpful if you have any questions please contact me or ------------------------- at ---------------------- sincerely michael j montemurro chief branch office of associate chief_counsel income_tax accounting


t c memo united_states tax_court richard l hutcheson and dolores a hutcheson petitioners v commissioner of internal revenue respondent docket no filed date robert e bergin for petitioners ewan d purkiss for respondent memorandum opinion raum judge the commissioner determined a deficiency in petitioners' income_tax in the amount of dollar_figure the issues for decision are whether petitioners must recognize the entire gain from the sale of big_number shares of walmart stock in date even though they repurchased big_number shares of walmart in date and alternatively whether the sale and repurchase of the stock qualifies as an involuntary_conversion under sec_1033 at the time of the filing of the petition richard and dolores hutcheson petitioners resided in fresno california references to petitioner in the singular will be to petitioner husband in date petitioners opened a cash management account account no with the merrill lynch pierce fenner smith inc merrill lynch fort smith arkansas office account no managed and controlled by petitioner included a margin_account petitioner delivered walmart stock to merrill lynch for deposit in the account at all times the account held only walmart stock the account executive assigned to the account was ms ed dell wortz petitioner's maternal grandmother's niece she had been with merrill lynch in fort smith arkansas since and had been in the securities industry since petitioner's total annual sales through the account for through are summarized as follows unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue all rule references are to the tax_court rules_of_practice and procedure year shares -- big_number big_number big_number big_number big_number sales_price -- dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure late in petitioner was advised by his account executive ms wortz that he needed to reduce the amount owed in the margin_account between dollar_figure and dollar_figure petitioner and ms wortz agreed to make the margin_account reduction in early date this agreement was not reduced to writing prior to date merrill lynch held in the securities account big_number shares of walmart stock the stock was valued at dollar_figure by that time petitioners through their margin_account had borrowed dollar_figure and had dollar_figure of available credit the basis of the stock was eleven cents dollar_figure per share on date petitioner telephoned ms wortz from fresno california he understood his telephone instruction to ms wortz to be to sell dollar_figure worth of walmart she understood his instruction to be to sell big_number shares of walmart on that day date merrill lynch made the following sales on behalf of petitioner and account no charge or mark-up sec fees handling gross price walmart shares big_number dollar_figure dollar_figure dollar_figure dollar_figure big_number dollar_figure dollar_figure big_number dollar_figure dollar_figure dollar_figure big_number dollar_figure big_number merrill lynch sold big_number shares pincite big_number pincite and big_number pincite merrill lynch used the proceeds from the date sales to pay off most of petitioners' margin indebtedness a sale of big_number shares of walmart sales were always made in multiples of pincite the highest price received for walmart shares on january would have grossed dollar_figure and netted approximately dollar_figure to reduce petitioners' margin debt during subsequent attempts to resolve the dispute merrill lynch in order to accommodate petitioner offered to repurchase walmart stock in excess of big_number as stipulated by the parties and offered a refund of the commission on the january sales and to waive the commission on the repurchase petitioner rejected the offer on about date in a letter to merrill lynch's little rock arkansas manager petitioner closed account no on or about date by having merrill lynch retransfer the remaining walmart shares in the account by date the price of walmart had risen to on date petitioner and merrill lynch agreed to reopen account no merrill lynch provided dollar_figure of margin funds and petitioner deposited fresh funds of dollar_figure which he had borrowed from his father into the account to purchase walmart and to reestablish petitioner's position in walmart common_stock at petitioner's direction merrill lynch acquired shares of walmart common_stock on his behalf for the account for a total purchase_price of dollar_figure merrill lynch waived the purchase commissions and located year end sellers of stock which had recently increased substantially in value petitioner had borrowed the dollar_figure from his father as noted above in order to complete the date purchase prior to that time petitioner was not indebted to his father for the purchase of any walmart shares the parties stipulated that petitioner's purpose for the december purchase was to reacquire his investment in walmart and to formally implement a rescission of the january sales in the same year by attempting to bring the case within situation one of revrul_80_58 1980_1_cb_181 hereinafter described the irs did not stipulate that petitioner's action accomplished a rescission petitioners filed a formal arbitration claim for rescission against merrill lynch with the national association of securitie sec_2 petitioners do not contest the sale of the first big_number shares since their sale approximates the dollar_figure worth of walmart stock petitioner unquestionably authorized dealers as required by the cash management account agreement on date the arbitration claim was settled in date merrill lynch agreed to pay petitioners dollar_figure but did not admit any liability in making the january sales of petitioner's walmart stock the big_number shares of walmart stock purchased by merrill lynch on behalf of petitioner and account no on date were not the same shares of stock sold on date the number of purchased shares represented the equivalent shareholder rights as the big_number shares sold on date the date sales were to unrelated third parties and the sales were without condition other than payment for the shares of stock the january purchasers of the walmart shares did not agree at the time of sale or at any other time that merrill lynch on behalf of the account or petitioner could repurchase the shares sec_61 includes in gross_income all income from whatever source derived including gains derived from dealings in property sec_1001 defines the amount of gain from sale_or_other_disposition of property as the excess of the amount_realized therefrom over the adjusted_basis sec_1001 requires that except as otherwise provided in this subtitle the entire amount of the gain_or_loss on the sale_or_exchange of property shall be recognized petitioners do not dispute that there was a sale of stock which gave rise to a corresponding realization of gain they contend however that because they rescinded the january sale to the extent of big_number shares they need not recognize the gain on those big_number shares at this time alternatively they argue that the sale of the stock to the extent of big_number shares by merrill lynch was an involuntary_conversion pursuant to sec_1033 which enables them to claim nonrecognition treatment rescission revrul_80_58 1980_1_cb_181 discusses two situations involving the income_tax consequences of a reconveyance to a taxpayer of property previously sold by that taxpayer in the first situation a sold b a tract of land in the contract required a to accept the land back if b was unable to obtain business zoning within months after the sale later that year when b failed to get the zoning he returned the land to a and a returned the sales_price in the second situation the facts are the same except that the period within which b could reconvey the property to a wa sec_1 year and the reconveyance occurred in id pincite revrul_80_58 supra defines rescission as the abrogation canceling or voiding of a contract that has the effect of releasing the contracting parties from further obligations to each other and restoring the parties to the relative positions that they would have occupied had no contract been made a rescission may be effected by mutual agreement of the parties by one of the parties declaring a rescission of the contract without the consent of the other if sufficient grounds exist or by applying to the court for a decree of rescission id pincite when the annual accounting principle is taken into account however it supersedes the rescission if the rescission occurs in a different year id in situation one the rescission occurred in the same taxable_year as the sale as a result the income_tax consequences of the original sale would be disregarded for federal_income_tax purposes in situation two the rescission did not occur until the following year at the end of the sale year a and b were not in the same positions they were in before the sale in consequence only the events of the first year are considered in determining a's and b's income_tax liabilities for in both situations the annual_accounting_period principle requires the determination of income at the close of the taxable_year without regard to subsequent events id pincite petitioners liken themselves to the taxpayers in situation one above in petitioners' case the original sale took place on date when the big_number shares of walmart stock were sold after unsuccessful negotiations with merrill lynch petitioner attempted to utilize the unilateral rescission clause in revrul_80_58 supra a rescission may be effected by one of the parties declaring a rescission of the contract without the consent of the other if sufficient grounds exist id pincite as more fully set forth hereinafter petitioner on date through merrill lynch reacquired big_number shares of walmart stock petitioners assert that their repurchase of shares put them in all material respects in the same position they occupied in date they contend that the sufficient grounds for rescission with merrill lynch are either mutual mistake or conversion petitioner attempted to bring himself within the first situation described in revrul_80_58 supra to reflect a rescission to the extent of big_number of the big_number shares sold on date by having merrill lynch purchase for him big_number shares of walmart on date he wanted merrill lynch to report to the irs on form_1099 a sale of only big_number shares for however the record indicates that merrill lynch was advised by tax experts not to change form_1099 to reflect a rescission and was warned by the tax experts that it could be subject_to civil and possibly criminal sanctions by the irs if it did so nevertheless merrill lynch agreed to help petitioner repurchase big_number shares in his attempt to claim the benefits of revrul_80_58 supra but made no representation as to what effect such repurchase might have in a letter to petitioner's lawyer merrill lynch's counsel stated that it is merely treating this as a customer who is purchasing shares in his account however because it would be assisting in the transaction merrill lynch agreed not to charge commissions but required that petitioner deposit sufficient funds or stock to immediately pay for the purchase of big_number shares the record further indicates that petitioner accepted merrill lynch's offer and as previously stated above deposited cash with merrill lynch prior to the date purchase of big_number shares while petitioners focus on the misunderstanding between petitioner and merrill lynch on date it is the sale of the big_number share portion of the big_number shares of walmart stock that they are attempting to rescind in this attempt they have confused merrill lynch with the actual purchasers of the stock merrill lynch was merely the seller's agent revrul_80_58 supra discusses the income_tax consequences of a rescission between a buyer and a seller for the rescission to be effective both buyer and seller must be put back in their original positions revrul_80_58 supra 1980_1_cb_181 in their brief petitioners address only the relationship between themselves and merrill lynch however the buyer and the seller in the instant case are the january purchasers of the walmart stock and the petitioners respectively not merrill lynch and petitioners as noted above merrill lynch acted merely as an agent there is not here involved any issue as to merrill lynch's liability as an agent accordingly we need not address that subject here however even if petitioners could establish that merrill lynch was liable to petitioners see restatement neither buyer nor seller was put back into the relative positions that they would have occupied had no contract been made id pincite the parties petitioners and the irs stipulated that the january sales were made without condition the buyers never relinquished to petitioner the stock purchased on date although petitioner purchased big_number shares of walmart stock in date he stipulated that those shares were not the same shares of stock sold on date to facilitate the december purchase petitioner borrowed dollar_figure from his father petitioner did not owe any money to his father for stock purchases prior to the january sale even if the parties involved are petitioners and merrill lynch as petitioners contend the requirements of revrul_80_ supra have still not been satisfied before the end of petitioners submitted the rescission claim against merrill lynch to arbitration as an alternative to the unilateral rescission theory petitioners allege that this claim was the equivalent of application to a court for a decree of rescission because the agreement between petitioners and merrill lynch contained an enforceable arbitration provision agency sec_44 if an authorization is ambiguous because of facts of which the agent has no notice he has authority to act in accordance with what he reasonably believes to be the intent of the principal although this is contrary to the principal's intent petitioners would be bound to the january buyers by the apparent authority merrill lynch exercised on behalf of petitioners see am jur 2d agency sec_71 sec_270 in 55_tc_1020 affd 471_f2d_738 3d cir the taxpayer sold his stock for dollar_figure a share but later discovered that the stock at that time was trading for over dollar_figure a share on the market id pincite in the year of the sale he filed a complaint for rescission against the agent and the purchasers of the optioned stock id the following year the parties settled the dispute id pincite when his case came before the tax_court the taxpayer argued that his complaint requesting a rescission of the sale postponed his obligation to return the income from the sale until the year in which the suit was settled id pincite this court disagreed holding that since the taxpayer had unfettered discretion to use the funds when he received them the mere filing of the suit by the petitioner was not of itself sufficient to postpone the realization of gain on the completed sale id pincite1 the court also held that settlement of the suit was not the same as rescission id like the taxpayer in hope petitioners here had unhindered control_over the funds they received from the date sale although they brought proceedings for rescission since both the funds and the decision to seek a rescission were wholly within their control they have failed to demonstrate that a rescission occurred which would postpone realization of the gain see hope v commissioner 471_f2d_738 3d cir moreover the settlement of petitioners' proceedings which occurred in the year following the transaction does not amount to a rescission hope v commissioner t c pincite petitioners present other arguments explaining why they have sufficient grounds for a unilateral rescission under revrul_80_58 1980_1_cb_181 in light of our conclusions above that petitioners confused the buyers with the agent that neither buyers nor seller were put back into their pre-sale positions and that a settlement is not a rescission we need not address these arguments involuntary_conversion sec_1033 allows nonrecognition of gain 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 petitioners contend that the sale of the walmart stock by merrill lynch constituted a seizure and thus there was an involuntary_conversion under sec_1033 petitioners look to webster's third international dictionary and define seizure as to take by force or to take hold of because the sale by merrill lynch was unauthorized they argue the stock was seized petitioners equate merrill lynch's actions with common-law conversion since a common-law conversion has occurred they assert they should be given the benefit of sec_1033 we think that petitioner's argument stretches the statute beyond permissible limits petitioners' arguments to the contrary involuntary_conversion pursuant to sec_1033 is statutory not defined by the common_law indeed it has even been stated that congress clearly intended to extend the benefits of sec_1033 and its predecessor only to public takings and casualty-like conversions and the limitation of its benefits to involuntary conversions--ie those 'wholly beyond control of the one whose property has been taken'--reflects that intent 58_tc_459 in addition to their common-law conversion argument petitioners treat seizure defined by them as to take by force as equivalent to theft petitioners seek to compare themselves to the taxpayer in revrul_66_355 1966_2_cb_302 there the taxpayer's financial manager pledged shares of the taxpayer's stock to a bank without the taxpayer's permission to secure the manager's personal loan the bank subsequently sold the shares to liquidate the loan id pincite the ruling holds that the manager's actions amounted to theft for purposes of sec_1033 once again petitioners' situation is quite different despite the settlement between merrill lynch and petitioners merrill lynch has never agreed and petitioners have not demonstrated that merrill lynch was at fault civilly much less criminally at most there was only a mutual mistake of fact between petitioner and merrill lynch petitioners have failed to establish that an involuntary_conversion has occurred cf hope v commissioner t c pincite5 accordingly decision will be entered for respondent


internal_revenue_service department of the treasury index numbers washington dc number release date person to contact telephone number refer reply to cc dom p si plr-111205-98 date date legend corporation company plan trust trustee state exempt trusts date date dear this letter responds to your letter dated date and subsequent correspondence requesting rulings on the income_tax consequences of a_trust established to pay benefits under a plan to participating employees plr-111205-98 facts corporation a holding_company is incorporated in state and is the parent_corporation of company company is the principal subsidiary of corporation and is a regulated_public_utility principally engaged in the production purchase transmission distribution and sale of electricity to customers in northern state it is represented that corporation along with company and other wholly-owned subsidiaries of corporation affiliated companies are corporations under common_control within the meaning of sec_414 of the internal_revenue_code and file a consolidated federal_income_tax return company has for many years maintained plan to provide hospital and medical benefits to certain employees and retired employees of company and other affiliated companies collectively employers and their dependents that participate in plan the plan provides benefits to the dependents of such employees and retired employees as well in accordance with plan company established exempt trusts to fund benefits under plan it is represented that the service under a separate letter has determined that exempt trusts are voluntary_employees'_beneficiary_associations that are exempt from federal_income_tax under sec_501 pursuant to certain provisions in plan employers do not make contributions to exempt trusts to fund retiree benefits under plan for executives former executives or their dependents to provide a source of funds for retiree benefits for executives and former executives of the employers collectively executives company established trust on date between company and trustee the trust agreement was amended on date to the extent affiliated companies have employees who are on an executive payroll contributions would be made to the trust on behalf of such employees by their respective employer according to the language in the trust agreement trust is intended to be an unfunded arrangement and shall not affect the status of plan as an unfunded plan for the purpose of providing certain benefits for a select group of management or highly compensated employees for purposes of title of the employee retirement income security act erisa of the trust agreement provides that the trustee shall establish a separate_account employer fund under the trust for each participating employer whose employees are plan participants in addition the trust agreement provides that at all times during the duration of the trust the portion of principal and income of the trust trust assets that is attributable to each employer fund shall in the event of insolvency of the corresponding employer be subject_to the claims of that employer's general creditors if an employer becomes insolvent trustee shall immediately cease distributions from that employer's fund and shall hold such employer's fund for the benefit of that employer's general creditors trustee shall if ordered by a court of competent jurisdiction distribute the assets of the employer fund as such court may direct to pay the claims of creditors without regard to the amount of other assets of such employer plr-111205-98 available to pay such claims the trust agreement provides that an employer is insolvent if it is unable to pay its debts as they become due or if it is subject_to a pending proceeding as a debtor under the federal bankruptcy code the board_of directors and the chief_executive_officer of each employer has the duty to inform trustee in writing if the employer becomes insolvent if a person claiming to be a creditor of an employer alleges in writing to trustee that the employer has become insolvent trustee shall determine whether the employer is insolvent and pending the determination shall discontinue payment of benefits to plan participants and their beneficiaries unless trustee has actual knowledge of an employer’s insolvency or has received notice from an employer or person claiming to be a creditor alleging that an employer is insolvent trustee has no duty to inquire whether an employer is insolvent trustee may rely on evidence concerning an employer’s solvency as may be furnished to trustee and that provides trustee with a reasonable basis for making a determination concerning the employer’s solvency the trust agreement provides that if trustee discontinues the payment of benefits from the trust and subsequently resumes such payments the first payment following such discontinuance shall include the aggregate amount of all payments due to plan participants or their beneficiaries under the terms of the plan for the period of such discontinuance less the aggregate amount of any payments made to plan participants or their beneficiaries by the employers in lieu of the payments provided for hereunder during any such period of discontinuance the trust agreement provides that benefits payable to the executives and their dependents may not be anticipated assigned either at law or in equity alienated pledged encumbered or subjected to attachment garnishment levy execution or other legal or equitable process also the executives and their dependents have no preferred claim on or any beneficial_ownership interest in any trust assets and all rights created under the plan in the trust shall be nothing more than unsecured contractual rights against the employers sec_1 of the trust agreement provides that the trust is revocable but shall become irrevocable following the issuance of favorable rulings from the service the following rulings have been requested trust will be classified as a_trust under sec_301_7701-4 of the procedure and administration regulations trust is a grantor_trust under sec_677 trust is not a welfare_benefit_fund under sec_419 and plr-111205-98 the deposit of assets in trust is not a transfer of property to the executives or their dependents for purposes of sec_83 or a transfer to a nonexempt employees’ trust under sec_402 ruling_request sec_1 and law and analysis sec_301_7701-4 provides that generally an arrangement will be treated as a_trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit sec_671 provides that if the grantor or another person is treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account in computing the taxable_income or credits against the tax of an individual sec_677 provides that the grantor is treated as the owner of any portion of a_trust whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed or accumulated for future distribution to the grantor sec_1_677_a_-1 of the income_tax regulations provides that under sec_677 a grantor is treated as the owner of a portion of a_trust whose income is or in the discretion of the grantor or a nonadverse_party or both may be applied in discharge of a legal_obligation of the grantor the terms of the trust provide that the assets will be transferred to a trustee who will have responsibility for the management protection conservation and investment of the assets neither executives nor their dependents share in this responsibility accordingly the trust will be classified as a_trust for federal tax purposes under sec_301_7701-4 plr-111205-98 the purpose of the trust is to provide benefits to executives of employers however if an employer becomes insolvent the trustee has an obligation to cease payments from the employer’s fund and hold the employer’s fund for the benefit of the general creditors of the insolvent employer in the present case employers are grantors of the trust because they contribute funds to the trust because the principal and income of the trust may be applied to discharge legal obligations of each employer each employer will be treated as an owner of the trust under sec_677 and sec_1_677_a_-1 as owners of the trust each employer must include its share of the items of income deduction and credit against the tax of the trust in computing its taxable_income and credits under sec_671 ruling_request sec_419 provides that employer contributions to a welfare_benefit_fund are not deductible under chapter of the code but if they would otherwise be deductible then they are deductible subject_to the limitation of sec_419 under sec_419 for the taxable_year in which paid sec_419 defines welfare_benefit_fund to include any fund that is part of a plan of an employer and through which the employer provides welfare benefits to employees sec_419 defines welfare_benefit as any benefit other than a benefit with respect to which sec_83 applies sec_404 applies determined without regard to sec_404 or sec_404a applies in the present case trust will become irrevocable however the assets of trust are subject_to the claims of employer's creditors if an employer becomes insolvent thus its assets are not irrevocably set_aside apart from the claims of the employer's creditors for the provision of welfare benefits under plan accordingly trust is not a welfare_benefit_fund within the meaning of sec_419 ruling_request sec_83 provides that the excess if any of the fair_market_value of property transferred in_connection_with_the_performance_of_services over the amount if any paid for the property is includible in the gross_income of the person who performed the services for the first taxable_year in which the property becomes transferable or is not subject_to a substantial_risk_of_forfeiture sec_1_83-3 states that a transfer of property occurs when a person acquires a beneficial_interest in the property sec_1_83-8 provides generally that sec_83 applies to a transfer to or from a plr-111205-98 nonqualified trust for the benefit of employees independent contractors or their beneficiaries to the extent such a transfer is subject_to sec_402 however sec_83 applies to the transfer only as provided for in sec_402 sec_402 provides that contributions made by an employer to an employees' trust that is not exempt from tax under sec_501 are included in the employee's gross_income in accordance with sec_83 except that the value of the employee's interest in the trust is substituted for the fair_market_value of the property in applying sec_83 in the present case assets are placed in trust to provide benefits under plan to executives and their families trustee has the obligation to hold trust assets for the benefit of employer's general creditors in the event of insolvency the trust agreement provides that executives have no beneficial_interest in or preferred claim on trust assets thus trust assets are not irrevocably set_aside apart from the claims of employer's creditors for the provision of welfare benefits under plan and the executives do not acquire a beneficial_interest in trust accordingly there is no transfer of property to the executives for the purposes of sec_83 and the deposit of assets in trust is not a contribution to a nonexempt employees' trust under sec_402 conclusions accordingly we rule as follows trust will be classified as a_trust under sec_301_7701-4 each employer will be treated as an owner of the trust under sec_677 and sec_1_677_a_-1 under sec_671 each employer must include its share of the trust’s items of income deduction and credit against tax in computing its taxable_income and credits trust is not a welfare_benefit_fund under sec_419 and the deposit of assets in trust is not a transfer of property to the executives or their dependents for purposes of sec_83 or a transfer to a nonexempt employees' trust under sec_402 our conclusions are conditioned on the propositions that i plan is not funded in whole or in part through a cafeteria_plan under sec_125 and ii the assets of trust are not plan assets with respect to plan for purposes of title of erisa plr-111205-98 except as specifically ruled above no opinion is expressed as to the federal tax consequences of the transaction described above under any provision of the code if plan or trust is amended these rulings may not remain in effect these rulings are directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to sec_3 of revproc_98_3 1998_1_irb_100 or its successor these rulings are not applicable to any controlling shareholder of corporation or employer sincerely yours donna m young senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------------------------------------- ------------------------------------------- ---------------------- ---------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-151837-07 date date legend p ------------------------------------------- ------------------------------- a ------------------------- b --------------------------- x --- date1 ---------------------- date2 ----------------------- date3 -------------------------- state -------------- year ------- dear -------------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of p by p’s authorized representative requesting that p be granted an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make an election under sec_754 of the internal_revenue_code plr-151837-07 the information submitted states that p was formed as a general_partnership under the laws of state on date1 a and b owned as community_property a x percent interest in p on date2 a died on date3 p was converted to a limited_liability_company treated as a partnership for federal_income_tax purposes p relied on its tax advisor for tax_advice p however inadvertently failed to timely make an election under sec_754 for year the year of a’s death p represents that it has acted reasonably and in good_faith that granting relief will not prejudice the interests of the government and that it is not using hindsight in making the election sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of the partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year 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_9100-3 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 that granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result p is granted an extension of time of days from the date of this letter to make an election under sec_754 effective for year with the appropriate service_center a plr-151837-07 copy of this letter should be attached to the sec_754 election a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder specifically no opinion is expressed or implied concerning whether p was or is a partnership for federal tax purposes 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 in accordance with the power_of_attorney on file with this office copies of this letter are being sent to p’s authorized representatives sincerely william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number --------------------------- ------------------------------ ------------------------------------------ --------------------------------- in re ----------------------------------------- legend department of the treasury washington dc person to contact ----------------------- id no --------------- telephone number --------------------- refer reply to cc intl - plr-144834-02 date date ------------------------ ------------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------------------------- ------------------- ---------------------------- ------- parent corp a corp b date a date b year x individual a --------------------------------- individual b ---------------------- cpa firm dear ----------------- this replies to a letter dated date in which parent corp a and corp b sometimes collectively referred to as the taxpayers request an extension of time under sec_301_9100-3 to request a ruling under sec_1_884-2t that the transfer in year x is not a disposition for purposes of sec_1_884-2t additional information was submitted on date 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 in re plr-144834-02 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 on date a parent transferred its us branch operations to corp a and corp a transferred those operations to corp b in a transaction that taxpayers state was described in sec_351 for the tax_year ended on date b which included date a statements required under sec_1_884-2t and sec_1_884-2t were attached to the tax returns of parent and corp a respectively in year x parent transferred shares of corp a to corp b taxpayers believed that the transfer was a transfer described in sec_351 and therefore qualified for non- recognition of gain_or_loss to the parties involved in the transfer later cpa firm taxpayer’s outside tax advisors realized that a ruling should have been requested under 1884-2t d ii that the transfer in year x was not a disposition for purposes of sec_1_884-2t cpa firm then recommended that taxpayer request an extension of time under sec_301_9100-3 to request a ruling under 1884-2t d ii individual a is the head of parent’s tax department individual b is the vice president of corp a and of corp b the facts submitted under penalties of perjury by individuals a and b describe the circumstances that led to the discovery of and the reasons for the failure to request a prior ruling under sec_1_884-2t with respect to the transfer in year x the facts state that relief is being requested before the failure was discovered by the service 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 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 re plr-144834-02 under sec_301_9100-1 an election includes an application_for relief in respect of tax and the subject of this ruling_request qualifies for an application_for relief therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayers an extension of time provided that taxpayers satisfy the standards set forth in sec_301 a based solely on the facts and the representations submitted we conclude that taxpayers satisfy sec_301_9100-3 accordingly taxpayers are granted an extension of time until days from the date of this ruling letter to request a ruling under sec_1 2t d ii that the transfer in year x is not a disposition for purposes of sec_1 2t d i the granting of an extension of time is not a determination that taxpayers are otherwise eligible to request a ruling letter under sec_1_884-2t sec_301_9100-1 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 in particular no opinion is expressed as to whether the transfers on date a and in year x qualify for non- recognition treatment a copy of this ruling letter should be associated with taxpayers’ request for a ruling under sec_1_884-2t this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being sent to parent sincerely associate chief_counsel international by s allen goldstein allen goldstein reviewer in re plr-144834-02 enclosure copy for purposes


' department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number tax_exempt_and_government_entities_division release number release date date date uniform issue list 09-00__- legend date leaque industry members tri-state area union workers dear we have considered your ruling_request dated date and subsequent amendments requesting a ruling that the inclusion of certain employees will not adversely affect your status as a tax- exempt trust under internal_revenue_code i r c sec_501 facts you are a_trust tax-exempt under sec_501 you fund a voluntary employees’ beneficiary association plan veba’ you state that you currently provide health coverage to participants who are covered under collective bargaining agreements cba and employed in the industry you propose to add as new participants proposed participants to veba proposed participants consist of employees of members members are members of league you state that proposed participants all share an employment-related common bond with respect to the individuals otherwise covered by the fund’ you state that proposed participants consist solely of common_law employees who are not subject_to the terms of a collective bargaining agreement cba entered into with the union are employed by organizations whose principals are full or lifetime members of the leaque who are otherwise bound to a cba with union when employing workers who work for league located only in the tri-state area you state that in other words the proposed participants will be all non-union common_law employees of eligible league organization they will not include self-employed individuals sole proprietors partners llc members or any other individuals who are not common_law employees of eligible leaque members - as a result proposed participants consist of employees of members who are not covered under a collective bargaining agreement members already has some employees covered under the cba who are present participants of the veba last you represent that the proposed participants will consist only of employees of members who work in the tri-state area you will monitor closely the non-union participants of veba to ensure that at all times at least of the veba’s participants are covered by a cba with union in accordance with sec_1_419a-2t q a-2 ruling requested you requested the following ruling that the inclusion of the proposed participants located in the tri-state area will not adversely impact your exempt status as a veba under sec_501 law sec_501 provides that an organization described in subsection c or d or sec_401 a shall be exempt from taxation under this subtitle sec_1 et seq unless such exemption is denied under sec_502 or sec_503 sec_501 provides that organizations exempt from income_tax under sec_501 include a veba providing for the payment of life sick accident or other_benefits to the members of such association or their dependents or designated beneficiaries if no part of the net_earnings of such association inures other than through such payments to the benefit of any private_shareholder_or_individual sec_1_501_c_9_-1 provides that for an organization to be described in sec_501 it must be an empioyees' association membership in the association must be voluntary the organization must provide for the payment of life sick accident or other_benefits to its members or their dependents and substantially_all of its operations must be in furtherance of providing such benefits and no part of the net_earnings of the organization can inure other than by payment of permitted benefits to the benefit of any private_shareholder_or_individual sec_1_501_c_9_-2 provides that the membership of an organization described in sec_501 must consist of individuals who become entitled to participate by reason of their being employees and whose eligibility for membership is defined by reference to objective standards that constitute an employment-related common bond among such individuals typically those eligible for membership in an organization described in sec_501 are defined by reference to a common employer or affiliated employers to coverage under one or more collective bargaining agreements with respect to benefits provided by reason of such agreement s to membership in a labor_union or to membership in one or more locals of a national or international labor_union for example membership in an association might be open to all employees of a particular employer or to employees in specified job classifications working for certain employers at specified locations and who are entitled to benefits by reason of one or more collective bargaining agreements in addition employees of one or more employers engaged in the same line_of_business in the same geographic locale will be considered to share an employment-related bond for purposes of an organization through which their employers provide benefits employees of a labor_union also will be considered to share an employment-related common bond with members of the union and employees of an association will be considered to share an employment-related common bond with members of the association whether a group of individuals is defined by reference to a permissible standard or standards is a question to be determined with regard to all the facts and circumstances taking into account the guidelines set forth in this paragraph exemption will not be denied merely because the membership of an association includes some individuals who are not employees within the meaning of paragraph b of this section provided that such individuais share an employment-related bond with the employee-members such individuals may include for example the proprietor of a business whose employees are members of the association for purposes of the preceding two sentences an association will be considered to be composed of employees if percent of the total membership of the association on one day of each quarter of the association's taxable_year consists of employees within the meaning of paragraph b of this section sec_1_501_c_9_-2 provides generally that to be described in sec_501 there must be an entity such as a corporation or trust established under applicable local law having an existence independent of the member-employees or their employer sec_1 c -2 c provides that generally membership in an association is voluntary if an affirmative act is required on the part of an employee to become a member rather than the designation as a member due to employee status however an association shall be considered voluntary although membership is required of all employees provided that the employees do not incur a detriment as a result of membership in the association sec_1_501_c_9_-2 provides that a veba must be controlled by its membership by independent_trustee s or by trustees or other fiduciaries at least some of whom are designated by or on behalf of the membership sec_1_501_c_9_-3 provides that the life sick accident or other_benefits provided by a veba must be payable to its members their dependents or their designated beneficiaries sec_1_501_c_9_-3 through g detail the types of benefits that a tax-exempt veba may provide and who is eligible to receive the benefits sec_1_501_c_9_-3 provides that the term sick_and_accident_benefits means amounts furnished to or on behalf of a member or a member’s dependents in the event of illness or personal injury to a member or dependent sec_1_501_c_9_-4 provides that no part of the net_earnings of an employees’ association may inure to the benefit of any private_shareholder_or_individual other than through the payment of benefits permitted by sec_1_501_c_9_-3 treas reg 1-419a q a-2 provides that for purposes of q a-1 a collectively bargained welfare_benefit_fund is a welfare_benefit_fund that is maintained pursuant to an agreement which the secretary of labor determines to be a collective bargaining agreement and which meets the requirements of the secretary_of_the_treasury as set forth in paragraph below treas reg 1-419a q a-2 provides that notwithstanding a determination by the secretary of labor that an agreement is a collective bargaining agreement a welfare_benefit_fund is considered to be maintained pursuant to a collective bargaining agreement only if the benefits provided through the fund were the subject of arms-length negotiations between employee_representatives and one or more employers and if such agreement between employee_representatives and one or more employers satisfies sec_7701 of the code moreover the circumstances surrounding a collective bargaining agreement must evidence good_faith bargaining between adverse parties over the welfare benefits to be provided through the fund collective bargaining agreement unless at least percent of the employees eligible to receive benefits under the fund are covered by the collective bargaining agreement finally a welfare_benefit_fund is not considered to be maintained pursuant to a treas reg 1-419a q a-2 provides that notwithstanding the preceding paragraphs and pending the issuance of regulations setting account limits for collectively bargained welfare_benefit funds a welfare_benefit_fund will not be treated as a collectively bargained welfare_benefit_fund for purposes of q a-1 if and when after date the number of employees who are not covered by a collective bargaining agreement and are eligible to receive benefits under the fund increases by reason of an amendment merger or other action of the employer or the fund in addition pending the issuance of such regulations for purposes of applying the percent test of paragraph to a welfare_benefit_fund that is not in existence on date percent shall be substituted for percent analysis you seek to add to veba’s membership proposed participants who work only in the tri-state area sec_501 exempts from taxation in pertinent part organizations described in sec_501 sec_501 describes vebas as providing payment of life sick accident or other_benefits to their members sec_1_501_c_9_-2 provides that the membership of an organization described in sec_501 must consist of individuals who become entitled to participate by reason of their being employees and whose eligibility for membership is defined by reference to objective standards that constitute an employment-related common bond among such individuals typically those eligible for membership in an organization described in sec_501 includes among others to coverage under one or more collective bargaining agreements with respect to benefits provided by reason of such agreement s cm een tlt you were established pursuant to a cba between the league and union for the purpose of providing health coverage to participants employed in industry under sec_1_501_c_9_-2 employees covered under a collective bargaining agreement share an employment-related common bond and are deemed as employees further exemption will not be denied merely because the membership of an association includes some individuals who are not employees within the meaning of paragraph b of this section provided that such individuals share an employment-related bond with the employee- members see sec_1_501_c_9_-2 thus although proposed participants are not deemed as employee because they are not covered under a cba for the purpose of sec_1_501_c_9_-2 they still share an employment-related common bond with present participants of veba cba covered employees because both are employees of members further an association will be considered to be composed of employees if percent of the total membership of the association on one day of each quarter of the association's taxable_year consists of employees within the meaning of paragraph b of this section see sec_1_501_c_9_-2 therefore because of total membership of veba on one day of each quarter of veba’s taxable_year must compose of participants who qualify as employees within the meaning of sec_1_501_c_9_-2 the addition of proposed participants who are not covered under the cba and who work only in the tri-state area to participate in veba will not jeopardize your tax-exempt status as an organization described under sec_501 you represent that at all times at least of the individuals covered by veba are covered by a cba in accordance with sec_1_419a-2t q a-2 under treas reg 1-419a q a-2 a welfare_benefit_fund will not be treated as a collectively bargained welfare_benefit_fund for purposes of q a-1 if and when after date the number of employees who are not covered by a collective bargaining agreement and are eligible to receive benefits under the fund increases by reason of an amendment merger or other action of the employer or the fund in addition pending the issuance of such regulations for purposes of applying the percent test of paragraph to a welfare_benefit_fund that is not in existence on date percent shail be substituted for percent thus to continue to meet the employment-related common bond requirement based as a collective bargaining agreement veba as provided under sec_1_501_c_9_-2 sec_90 of your participants must consist of employees covered under the union cba ruling based on the information submitted representations made and the authorities cited above we conclude that the inclusion of employees of members of the league located in the tri-state area not covered in the cba with union will not adversely impact your exempt status as a veba under sec_501 this ruling will be made available for public inspection under sec_6110 after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it that it may not be used or cited by others as precedent sec_6110 provides this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely ronald shoemaker manager exempt_organizations technical group enclosure notice


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-109436-16 date date legend x ------------------- ------------------------ state -------------- dear ------------------- this letter responds to a letter dated date submitted by x’s authorized representative requesting certain rulings under sec_7704 of the internal_revenue_code on behalf of x facts x is a state corporation according to the information submitted x and its subsidiaries collectively x propose to create and operate an auction platform the platform which will provide limited and infrequent opportunities to buy and sell third party partnership interests x intends to structure the platform to satisfy the qualified matching service requirements set forth in sec_1_7704-1 of the procedure and administration regulations x represents that the platform is not a national securities exchange registered under section of the securities exchange act of u s c 78f the ‘34 act a national securities exchange exempt from registration under section of the ‘34 act because of the limited volume of transactions a foreign securities exchange that under the law of the jurisdiction where it is organized satisfies regulatory requirements that are analogous to the regulatory requirements under the ‘34 act a regional or local exchange or an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise plr-109436-16 description of the platform the platform will be an electronic system that conducts auctions via a secure internet-accessible application the public will not be able to access the platform or view any information regarding auctions and partnership interests available on the platform instead access to the platform will only be available to certain appropriately qualified investors that are represented by broker-dealers financial advisors or similar representatives and to certain qualified institutional buyers that are acting on their own behalf the general_partner of a partnership may request that the platform act as a qualified matching service under sec_1_7704-1 for transfers_of_partnership_interests by holders of such interests desiring to sell the potential seller will then enter into an agreement with x to obtain access to the platform on the date that a potential seller requests that its interest be placed on the platform the announcement date information regarding the offering will be made available to potential buyers following the announcement date potential buyers will have a period of discovery to review information about the partnership_interest potential buyers and sellers will submit orders to the platform the platform will not display price quotes that commit a person to buy or sell an interest at a quoted price after a period of no fewer than calendar days following the announcement date the platform will use an algorithm to pair potential buyers and sellers the platform’s algorithm seeks to define a set of orders that maximizes the total amount of interest paired when determining what orders to pair the algorithm prioritizes buy orders with a high bidding price and sell orders with a low asking price a buy order can only be paired with a sell order that has the same or lower price proceeds will be released to the seller days or more after the announcement date if no trade is executed for a particular interest within calendar days after the announcement date the platform will remove the listing the platform will not permit the potential seller to re-list an interest in the same partnership for days after its removal x will maintain contemporaneous_records to document the announcement date and compliance with the 15-day and 45-day periods the platform will monitor the transfers it makes with respect to each partnership such that the sum of percentage interests in partnership capital or profits transferred on the platform during a taxable_year of a partnership does not exceed percent of the total interests in partnership capital or profits law sec_7704 provides that a publicly_traded_partnership shall be treated as a corporation plr-109436-16 sec_7704 provides that for purposes of sec_7704 the term publicly_traded_partnership means any partnership if - interests in such partnership are traded on an established_securities_market or interests in such partnerships are readily_tradable on a secondary market or the substantial equivalent thereof sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 an established_securities_market includes - a national securities exchange registered under section of the ‘34 act a national securities exchange exempt from registration under section of the ‘34 act because of the limited volume of transactions a foreign securities exchange that under the law of the jurisdiction where it is organized satisfies regulatory requirements that are analogous to the regulatory requirements under the ‘34 act a regional or local exchange an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 interests in a partnership that are not traded on an established_securities_market within the meaning of sec_7704 and sec_1_7704-1 are readily_tradable on a secondary market or the substantial equivalent thereof if taking into account all of the facts and circumstances the partners are readily able to buy sell or exchange their partnership interests in a manner that is comparable economically to trading on an established_securities_market sec_1_7704-1 further clarifies that for purposes of sec_1_7704-1 interests in a partnership are readily_tradable on a secondary market or the substantial equivalent thereof if - i interests in the partnership are regularly quoted by any person such as a broker or dealer making a market in the interests ii any person regularly makes available to the public including customers or subscribers bid or offer quotes with respect to interests in the partnership and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others iii the holder of an interest in the partnership has a readily available regular and ongoing opportunity to sell or exchange the interest through a public means of obtaining or providing information of offers to buy sell or exchange the interests in the partnership or iv prospective buyers and sellers otherwise have the opportunity to buy sell or exchange interests in the partnership in a time frame and with the regularity and continuity that is comparable to that described in the other provisions of sec_1_7704-1 sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 the transfer of an interest in a partnership through a qualified matching service is disregarded in determining whether interests in the partnership are readily_tradable on a secondary market or the substantial equivalent thereof sec_1_7704-1 provides that a matching service is a qualified matching service only if - i the matching service consists of a computerized or printed listing plr-109436-16 system that lists customers’ bid and or ask quotes in order to match partners who want to sell their interests in a partnership the selling partner with persons who want to buy those interests ii matching occurs either by matching the list of interested buyers with the list of interested sellers or through a bid and ask process that allows interested buyers to bid on the listed interest iii the selling partner cannot enter into a binding agreement to sell the interest until the 15th calendar day after the date information regarding the offering of the interest for sale is made available to potential buyers and such time period is evidenced by contemporaneous_records ordinarily maintained by the operator at a central location iv the closing of the sale effected by virtue of the matching service does not occur prior to the 45th calendar day after the date information regarding the offering of the interest for sale is made available to potential buyers and such time period is evidenced by contemporaneous_records ordinarily maintained by the operator at a central location v the matching service displays only quotes that do not commit any person to buy or sell a partnership_interest at the quoted price nonfirm price quotes or quotes that express interest in a partnership_interest without an accompanying price nonbinding indications of interest and does not display quotes at which any person is committed to buy or sell a partnership_interest at the quoted price firm quotes vi the selling partner’s information is removed from the matching service within calendar days after the date information regarding the offering of the interest for sale is made available to potential buyers and following any removal other than removal by reason of a sale of any part of such interest of the selling partner’s information from the matching service no offer to sell an interest in the partnership is entered into the matching service by the selling partner for at least calendar days and vii the sum of the percentage interests in partnership capital or profits transferred during the taxable_year of the partnership other than in private transfers described in sec_1_7704-1 does not exceed percent of the total interests in partnership capital or profits sec_1_7704-1 provides that a qualified matching service may be sponsored or operated by a partner of the partnership either formally or informally the underwriter that handled the issuance of the partnership interests or an unrelated third party in addition a qualified matching service may offer the following features - i the matching service may provide prior pricing information including information regarding resales of interests and actual prices paid for interests a description of the business of the partnership financial and reporting information from the partnership’s financial statements and reports and information regarding material events involving the partnership including special distributions capital distributions and refinancings or sales of significant portions of partnership assets ii the operator may assist with the transfer documentation necessary to transfer the partnership_interest iii the operator may receive and deliver funds for completed transactions and iv the operator’s fee may consist of a flat fee for use of the service a fee or commission based on completed transactions or any combination thereof conclusions plr-109436-16 based solely on the submitted facts and representations we rule as follows the platform is not an established_securities_market under sec_1_7704-1 the platform meets the requirements to be a qualified matching service under sec_1_7704-1 a partnership whose interests are displayed or offered for purchase or sale on the platform will not be considered to be publicly traded solely by reason of being offered for purchase or sale and or sold through the platform and may rely on this ruling provided a it is not revoked b that the sum of the partnership interests transferred during the taxable_year of the partnership other than through private transfers described in sec_1_7704-1 does not exceed percent of the total interests in partnership capital or profits determined as provided in sec_1_7704-1 and c the platform continues to operate in a manner consistent with the facts as represented maintenance of information required to permit a partnership to make the calculations and the actual making of the calculations relating to qualification for any applicable safe_harbor in sec_1_7704-1 will be the sole responsibility of the partnerships whose interests are traded and not the responsibility of x except as specifically ruled upon above we express or imply no opinion concerning the federal tax consequences of this transaction under any other provisions of the code pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 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 enclosures copy of this letter copy for sec_6110 purposes sincerely _______________ holly a porter chief branch office of associate chief_counsel passthroughs special industries


t c memo united_states tax_court james m and karen k barton petitioners v commissioner of internal revenue respondent docket no filed date e rhett buck jr for petitioners w lance stodghill for respondent memorandum findings_of_fact and opinion kroupa judge respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax for after concessions we are asked to decide whether petitioners substantiated the amounts of automobile expenses and entertainment_expenses they claimed as unreimbursed business_expenses of james barton petitioner we hold that they did not unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts accompanying exhibits and stipulation of settled issues are incorporated by this reference petitioners resided in houston texas at the time they filed the petition petitioner was employed by armko industries inc armko a roof system consulting firm as a sales representative during petitioner was responsible for consulting with clients predominantly school districts regarding their roofing needs and assisting them in overseeing the planning and implementation of roofing projects this included identifying the condition of the current roof developing specifications for the project meeting with local construction contractors who bid on the project and attending preconstruction meetings with the school district and the contractors once construction began petitioner documented the progress and authorized payments to the contractors when the project was completed petitioner prepared a list of items that had to be remedied before the contractor would be paid and a warranty would be issued a typical job lasted months and required petitioner to travel to the jobsite five times or more during petitioner’s clients were located in texas and louisiana armko did not reimburse petitioner for expenses related to his sales activities petitioner claimed dollar_figurel5 of automobile expense sec_2 as unreimbursed employee business_expenses for he testified that he daily maintained a mileage log by recording the odometer reading for each sales call on the day that he made the sales call then transferred this information into a spreadsheet on his personal computer because as he testified he wanted to have a more efficient paperless office petitioner maintained no other paper records for the business use of his automobile the mileage log contained entries that were inconsistent with and in fact contradicted other evidence before the court for example there were numerous entries on the same day on both the flight log and the mileage log that showed times and distances traveled that could not have taken place on the same day petitioner 1all dollar amounts are rounded to the nearest dollar 2petitioner claimed big_number miles at the standard mileage rate of cents per mile as business_purpose miles on form_2106 employee business_expenses for the standard mileage rate for is set forth in revproc_99_38 1999_2_cb_525 3petitioner submitted a flight log to substantiate expenses he claimed involving his cessna 182-c airplane the parties settled the cessna airplane expense issue in the stipulation of settled issues accordingly we consider the flight log only as it relates to petitioner’s automobile expenses testified that he reconstructed significant portions of the mileage log years after the fact in preparing for trial petitioner also claimed dollar_figure of meals and entertainment_expenses as unreimbursed employee business_expenses for petitioner derived this number from the yearend summary statement he received from a credit card company that grouped restaurant and entertainment_expenses together master credit card summary petitioner admitted that he did not use this account exclusively for business purposes the master credit card summary showed dollar_figure under the category restaurants and dollar_figure under the category entertainment the master credit card summary listed only the date the name of the restaurant or other payee and the amount of the item the master credit card summary did not list the name of the business contact being entertained nor the business_purpose for the expense petitioner created another document months before trial which was approximately years after the fact on which he listed the name of the person with whom he dined his business relationship with the person the name of the restaurant the business_purpose and the amount for each meal reconstructed entertainment list the total 4this total amount of meals and entertainment_expenses was reduced by percent sec_274 petitioner therefore claimed dollar_figure for meals and entertainment_expenses for 5there is a dollar_figure difference between the sum of these two amounts and the total meals and entertainment_expenses petitioner claimed we assume this difference was a computational mistake amount shown on petitioner’s reconstructed entertainment list was dollar_figure petitioner failed to explain the discrepancy between the dollar_figure shown on the reconstructed entertainment list and the dollar_figure he had claimed nor could petitioner explain multiple discrepancies between the master credit card summary and his reconstructed entertainment list respondent disallowed the claimed expenses in a notice_of_deficiency dated date stating that petitioner had failed to provide supporting information required to substantiate the claimed expenses petitioners timely filed a petition for a redetermination with this court opinion this is a substantiation case in which we are asked to decide whether petitioner may deduct automobile expenses and certain entertainment_expenses he incurred in as a sales representative we explain the deductibility rules and then apply these rules to the facts we begin with who has the burden_of_proof burden_of_proof generally the determinations of the commissioner in a deficiency_notice are presumed correct and the taxpayer has the burden of proving the commissioner’s determinations to be in error rule a 290_us_111 the burden_of_proof may shift to the commissioner in certain circumstances however if the taxpayer introduces credible_evidence and establishes that he or she substantiated items maintained required records and fully cooperated with the commissioner’s reasonable requests sec_7491 and b the burden does not shift to respondent under sec_7491 however because we find that petitioner failed to provide credible_evidence failed to substantiate the claimed expenses and failed to maintain adequate_records the burden therefore remains with petitioner moreover deductions are a matter of legislative grace and the taxpayer bears the burden of proving that he or she is entitled to any deduction claimed rule a 503_us_79 292_us_435 a taxpayer is generally permitted to deduct all ordinary and necessary expenses paid_or_incurred in carrying_on_a_trade_or_business see sec_162 in contrast no deduction is allowed for personal living or family_expenses see sec_262 substantiation requirement a taxpayer must substantiate amounts claimed as deductions by maintaining the records necessary to establish that he or she sec_7491 is effective with respect to court proceedings arising in connection with examinations by the commissioner commencing after date the date of enactment of the internal_revenue_service restructuring and reform act of publaw_105_206 sec a 112_stat_726 is entitled to the deductions sec_6001 65_tc_87 affd per curiam 540_f2d_821 5th cir sec_1_6001-1 e income_tax regs if a taxpayer establishes that he or she paid_or_incurred a deductible business_expense but does not establish the amount of the deduction this court may approximate the amount of allowable business deductions bearing heavily against the taxpayer whose inexactitude is of his or her own making 39_f2d_540 2d cir for the cohan_rule to apply however a basis must exist on which this court can make an approximation 85_tc_731 without such a basis any allowance would amount to unguided largesse 245_f2d_559 5th cir strict substantiation with respect to certain business_expenses specified in sec_274 more stringent substantiation requirements apply no deduction may be allowed for expenses_incurred for travel_expenses specifically including meals and entertainment and listed_property unless the taxpayer substantiates certain elements passenger automobiles are listed_property under sec_280f 7listed property is defined in sec_280f under the strict substantiation requirements of sec_274 the taxpayer must substantiate the amount time and business_purpose of the expenditures and must provide adequate_records or sufficient evidence to corroborate his or her own statement adequate_records are defined as a diary a log or a similar record and documentary_evidence that in combination are sufficient to establish each element of each expenditure or use sec_1_274-5t temporary income_tax regs fed reg date to be adequate a record must generally be written and must be prepared at or near the time of the use or expenditure sec_1_274-5t temporary income_tax regs supra moreover the expenses subject_to the strict substantiation rules such as entertainment_expenses and passenger_automobile expenses may not be estimated ie sec_274 overrides the so-called cohan doctrine 50_tc_823 affd per curiam 412_f2d_201 2d cir sec_1_274-5t temporary income_tax regs fed reg date sec_1_280f-6t b temporary income_tax regs fed reg date for these expenses only strict substantiation will suffice 8the taxpayer must substantiate by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement the amount of the expense the time and place of the expense the business_purpose of the expense and the business relationship to the taxpayer of the persons involved in the expense sec_274 d f d a i and ii against this background we now analyze whether petitioner satisfied the strict substantiation requirements of sec_274 to allow him to deduct automobile expenses and meals and entertainment_expenses petitioner claims that he kept adequate_records and receipts to substantiate his automobile expenses and his meals and entertainment_expenses respondent argues that petitioner failed to satisfy the strict substantiation requirements because among other reasons petitioner failed to maintain written records of each business trip and petitioner failed to record the information contemporaneously with the expenditures we agree with respondent automobile expenses petitioner claimed dollar_figurelbig_number of automobile expenses or big_number miles as business-related miles to substantiate the claimed automobile expenses petitioner testified that he read the car’s odometer each day and recorded the business mileage petitioner then entered this information onto the mileage spreadsheet that was introduced into evidence the mileage spreadsheet listed the trips petitioner took the number of miles for each and the clients he visited on those dates petitioner introduced no written documentation to corroborate these entries instead petitioner testified that he discarded all notes records or other documentation in his quest to have a paperless office we do not accept this mileage spreadsheet as reliable evidence for several reasons first we are skeptical of the number of miles almost big_number in year that petitioner asserts were solely business related this car mileage we note is in addition to miles petitioner flew on his private airplane we also find numerous inconsistencies between the spreadsheet and other evidence before the court for example petitioner apparently drove to a location on the same day he claimed to have flown there and he claimed extensive mileage on days that he was involved in flight training for his private airplane moreover petitioner testified that he substantially reconstructed the mileage spreadsheet during respondent’s examination which occurred over years after the year in issue when petitioner could not explain certain discrepancies respondent raised petitioner responded that he could not remember because the trips had occurred so long ago also petitioner’s testimony supporting these expenses is vague and unclear in petitioner’s quest to have a paperless office petitioner produced no corroborating evidence other than his own self-serving testimony which we are not required to accept and which we do not in fact find to be credible see 99_tc_202 accordingly we do not give any weight to this mileage spreadsheet in lieu of using the standard mileage rate we can look to the actual automobile expenses petitioner incurred in we have similar concerns about the reliability of evidence in the record to prove petitioner’s actual automobile expenses first the master credit card summary showed dollar_figure for auto services we note that petitioner testified that this account was used for both business and personal expenses we further note that petitioner submitted no evidence to show which of these automobile fuel expenses were for business rather than personal_use the master credit card summary included a charge for car fuel on date when petitioner admitted that he and his family were on vacation in san francisco california in addition the court learned that the auto services amount on the master credit card summary included airplane fuel that petitioner claimed and was allowed as an airplane expense in respondent’s opening brief respondent conceded that petitioner would be entitled to dollar_figure of automobile expenses rather than the dollar_figure claimed although we did not find at trial that petitioner satisfied the strict substantiation requirements regarding the automobile expenses we shall not disturb respondent’s concession accordingly petitioner is entitled to an automobile expense deduction of dollar_figure for meals and entertainment_expenses we turn now to petitioner’s claim for meals and entertainment_expenses petitioner claimed dollar_figure of meals and entertainment_expenses on the basis of the master credit card summary which reflected dollar_figure under the category restaurants and dollar_figure under the category entertainment while the master credit card summary shows the name of the restaurant or payee and the date and the amount spent the master credit card summary does not show the business_purpose of the activity or the name of the person entertained in attempting to substantiate the business_purpose and the name of the person entertained petitioner prepared the reconstructed entertainment list years after the fact petitioner was unable to testify as to whom he entertained in some instances we have the same concerns regarding the meals and entertainment_expenses that we had with the automobile expenses the account was used for both personal and business purposes there was no breakdown on the master credit card statement between business and personal charges the credit card company simply lumped all charges to restaurants under the restaurants category in addition petitioner failed to explain which of the expenses claimed were for business not personal purposes and petitioner failed to heed the court’s advice to concede the personal charges several charges appeared for various ski resorts and what appear to be uniquely personal charges in addition petitioner could not explain the discrepancy between the dollar_figure shown on the reconstructed entertainment list and the dollar_figure he had claimed nor could petitioner explain multiple discrepancies between the master credit card summary and his reconstructed entertainment list moreover petitioner failed to produce receipts or any other corroborating evidence to comply with the strict substantiation requirements of sec_274 accordingly we sustain respondent’s disallowing the meals and entertainment_expenses to reflect the foregoing and the concessions of the parties decision will be entered under rule