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-128693-08 date date x y state date ------------------------------- ----------------------- ----------------------------------- --------------------------- ------------- ----------------------- dear ----------------- this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-1 of the procedure and administration regulations to elect to treat y as a qualified_subchapter_s_subsidiary qsub for federal tax purposes the information submitted states that x was incorporated under the laws of state on date also on date y was incorporated under the laws of state as a wholly owned subsidiary of x x had intended to elect to treat y as a qsub effective as of the date of formation of y however due to inadvertence x failed to timely file form_8869 qualified_subchapter_s_subsidiary election x represents that x and y have filed tax returns for all of the relevant tax years consistent with the tax treatment of y as a qsub from the date of formation of y sec_1362 generally provides that a small_business_corporation may elect to be an s_corporation sec_1361 defines a qualified_subchapter_s_subsidiary as a domestic_corporation which is not an ineligible_corporation if percent of the stock of the corporation is owned by the s_corporation and the s_corporation elects to treat the corporation as a qualified_subchapter_s_subsidiary plr-128693-08 sec_1_1361-3 of the income_tax regulations prescribes the time and manner for making an election to be classified a qualified_subchapter_s_subsidiary sec_1_1361-3 provides that an election to treat an eligible subsidiary as a qualified_subchapter_s_subsidiary may be effective up to two months and days prior to the date the election is filed or not more than months after the election is filed the proper form for making the election is form_8869 qualified_subchapter_s_subsidiary 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_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based solely upon the information submitted and the representations made we conclude that the requirements of sec_301 have been satisfied accordingly x is granted an extension of time of days from the date of this letter to file form_8869 qualified_subchapter_s_subsidiary election with the appropriate service_center to elect to treat y as a qualified_subchapter_s_subsidiary effective date a copy of this letter should be attached to the form_8869 a copy is enclosed for that purpose except for the specific rulings above we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the internal_revenue_code specifically we express no opinion regarding whether x qualifies as a small_business_corporation under sec_1361 or whether y otherwise meets the definition of qualified_subchapter_s_subsidiary under sec_1361 plr-128693-08 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to y's authorized representative sincerely curt g wilson deputy associate 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 corp plr-124552-11 date august legend parent sub sub sub date date year state a date business a accounting firm year date ---------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------------------------- ---------------------------- --------------------------- ------- ------------- ---------------------- ------------------------------------- ----------------- ------- --------------------------- plr-124552-11 dear --------------- this letter responds to your request for rulings dated date submitted by your authorized representative requesting that the commissioner make a determination under sec_1_1502-75 that sub sub and sub have joined in the making of an initial consolidated_return filed by parent for the taxable_period beginning on date and ending on date the year tax period additional information was submitted in a letter dated date the information is summarized below summary of facts parent is a state a corporation incorporated on date shortly after its formation parent acquired all of the outstanding_stock of sub from an unrelated party in a taxable transaction prior to such acquisition sub was the common parent of an affiliated_group_of_corporations that joined in the filing of a consolidated federal_income_tax return which affiliated_group consisted of sub sub and sub parent sub and sub are holding_companies doing business through sub which engages in business a sub is a wholly-owned subsidiary of sub which is a wholly-owned subsidiary of sub which is a wholly-owned subsidiary of parent parent sub sub and sub are collectively parent and the subsidiaries or taxpayer parent retained accounting firm to provide audit and tax services to parent and the subsidiaries in connection with the preparation of the federal_income_tax return for the year tax period accounting firm advised parent and the subsidiaries to file such tax_return on a consolidated basis because filing on such basis would allow parent and the subsidiaries to achieve significant tax compliance efficiencies as well as properly reflect the combined business operations of all companies parent directed accounting firm to prepare the federal_income_tax return on a consolidated basis accounting firm prepared parent’s federal_income_tax return for the year tax period such tax_return included all income and deductions of the parent and the subsidiaries as well as a form_851 affiliations schedule identifying and including sub and sub but failed to include sub additionally accounting firm failed to prepare and file any forms authorization and consent of subsidiary_corporation to be included in consolidated_income_tax_return the taxpayer has made the following representations representation sec_1 for the year tax period and all subsequent taxable years ending on or prior to date including the taxable_year ending date the taxable_year in which parent and the subsidiaries were sold to an unrelated party parent and the plr-124552-11 subsidiaries have reported and will report all of their income and deductions on timely-filed consolidated federal_income_tax returns except for the failure_to_file forms with the consolidated federal_income_tax return that parent and the subsidiaries filed for the year tax period parent and the subsidiaries were eligible to file a consolidated federal_income_tax return for the year tax period none of the subsidiaries filed or will file separate federal_income_tax returns for the year tax period or for any subsequent taxable_year ending on or prior to date including the taxable_year ending date the taxable_year in which parent and the subsidiaries were sold to an unrelated party except for sub not being included in the affiliations schedule form_851 attached to the consolidated federal_income_tax return filed for the year tax period each of the subsidiaries was included and for future filings will be included on the form sec_851 attached to the consolidated federal_income_tax returns for the year tax period and for subsequent taxable years ending on or prior to date including the taxable_year ending date the taxable_year in which parent and the subsidiaries were sold to an unrelated party as of the date the taxpayer submitted its ruling_request the service had not contacted parent or any of the subsidiaries concerning the failure_to_file any forms with the consolidated federal_income_tax return for the year tax period or for any subsequent taxable_year nor has the service notified parent or any of the subsidiaries that sub was not included on the form_851 filed for the year tax period applicable law sec_1_1502-75 provides in part that an affiliated_group_of_corporations which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents in accordance with sec_1_1502-75 sec_1_1502-75 provides that a group which filed or was required to file a consolidated_return for the immediately preceding_taxable_year is required to file a consolidated_return for the taxable_year unless it has been granted permission by the commissioner to discontinue filing consolidated_returns with regard to the consent of a corporation for a group's first consolidated_year sec_1_1502-75 provides as a general_rule that the consent of a corporation shall be made by such corporation joining in the making of the consolidated_return for plr-124552-11 such year and that a corporation shall be deemed to have joined in the making of such return for such year if it files a form_1122 in the manner specified in sec_1_1502-75 sec_1_1502-75 provides that if under the provisions of sec_1_1502-75 a group wishes to file a consolidated_return for a taxable_year a form_1122 must be executed by each subsidiary this regulation provides rules for properly executing forms and attaching them to a consolidated_return and also provides that a form_1122 shall not be required for a taxable_year if a consolidated_return was filed or was required to be filed by the group for the immediately preceding_taxable_year sec_1_1502-75 of the regulations provides that if a member of the group fails to file the form_1122 the commissioner may under the facts and circumstances determine that such member has nevertheless joined in the making of a consolidated_return by such group factors among others that the commissioner will take into account in making this determination include the following i whether or not the income and deductions of each member for such taxable_year were included in the consolidated_return ii whether or not a separate_return was filed by any member for that taxable_year and iii whether or not the member of the group was included in the affiliations schedule form_851 for such taxable_year where the commissioner under the facts and circumstances determines that the member has joined in the making of a consolidated_return such member will be treated for purposes of sec_1_1502-75 as if it had filed a form_1122 for such year ruling based solely on the information submitted and the representations made this office rules that pursuant to sec_1_1502-75 each of sub sub and sub is treated under sec_1_1502-75 as if it had filed a form_1122 with the consolidated_return of the parent consolidated_group for the taxable_year beginning on date and ending on date thus in accordance with the requirements for joining in filing a consolidated_return as set forth in sec_1501 of the internal_revenue_code each of sub sub and sub is determined to have consented to all consolidated_return_regulations prescribed under sec_1502 prior to the last day prescribed by law for the filing of such return caveats we express no opinion about the tax treatment of the facts described above under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from these facts that are not specifically covered by the above ruling plr-124552-11 the ruling contained in this letter is based on information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the taxpayer's ruling_request verification of this material may be required as part of the audit process procedural statements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely ______________________ bruce a decker senior technician reviewer office of associate chief_counsel corporate cc


internal_revenue_service p o box cincinnati oh date date number release date department of the treasury employer_identification_number contact person - id number contact telephone number legend uil y state z dollars amount dear you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request your letter indicates that you will operate an educational grant program the purpose of your grant making program is to provide fellowship grants to encourage the development of innovative ideas that further your charitable mission of improving the quality of life for persons in the state of y you will do this by providing financial aid and other support to young innovators and leaders in the state of y initially you anticipate awarding five fellowships per year during a trial period of three to five years at the end of the trial period you will evaluate whether to increase or decrease the number of fellowship grants to be awarded based upon the number of applications received the quality of the work produced by fellows and other factors related to the overall success of your program each fellow will receive a stipend of z dollars payable over the course of the fellowship period in addition to the monetary stipend you will provide fellowship recipients with support services which may include one-on-one coaching meetings with other fellows and thought leaders and skills training if intellectual_property will be created as a part of the fellowship you will negotiate an intellectual_property agreement with the prospective fellow you will not award loans you will publicize your fellowship program on your website and social media platforms as well as through a printed brochure which you will distribute broadly through your network of charitable and civic organizations in the state of y you will encourage people from all parts of the state of y to apply including people of color women lgbtq persons and immigrants so that each cohort of fellows has the potential to reflect the diversity and changing demographics of the state of y you have selected the following criteria for your program e e e e e applicants must be between the ages of to at the time of the application deadline applicants must be a resident of the state of y as of the application deadline applicants must be able to commit significant time to their fellowship project over months applicants must participate in three cohort convenings seminars held in different sites over the months of the program applicants must propose ideas that have an anticipated public benefit for persons in the state of y and describe how their proposal may benefit persons in the state of y and applicant’s proposal must reflect one or more of your core values which include fairness dignity integrity and equity your employees officers directors members of the selection committee and the relatives of all these individuals as well as government officials as defined in sec_4946 of the code will not be eligible to receive fellowships as part of your program your fellowship recipients will be selected by a committee appointed by your board_of trustees members of your selection committee may include your directors and employees as well as community and civic leaders from across the state of y you will not impose any subject-matter field of interest or similar restrictions on the work to be performed by recipients of fellowships except that the fellows’ work must be consistent with your mission and core values which include fairness dignity integrity and equity you expect the range of projects will include artistic endeavors technological innovations public private nonprofit sector initiatives community-based projects efforts to improve racial equity and beyond your selection decision will focus primarily on the promise of the applicant's ideas for improving the lives of those in the state of y and the quality of the applicant’s proposed plan of work for their fellowship terms as described in their written application you will consider the following factors in your selection process e preference is given to projects that have moved beyond an initial idea and have some momentum letter catalog number 58222y e consideration is given to the diversity of the cohort - you encourage people of color women lgbtq persons and rural residents to apply consideration is given to the geographic representation of fellows across the state of y consideration is given to the diversity of project ideas when selecting fellows and consideration of whether the project furthers your core values - your selection committee derives information from the application and interview process the fellowship term will last to months at the conclusion of the fellowship term fellows will be required to submit a written report describing the work performed and results achieved during the fellowship term you will also have regular communication and contacts with your fellows throughout the fellowship which may include formal meetings training sessions and in-formal check-ins all fellows will complete a report at the 12-month mark regardless of the length of the fellowship you will review all interim and final reports submitted by fellows and will take appropriate actions you represent that you will complete the following arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversion of funds from their intended purposes and take all reasonable and appropriate steps to recover the diverted funds ensure other grant funds held by the grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees' assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversions from occurring you represent that you will maintain all records related to the following individual grants including information to evaluate grantees grantees which are identified as a disqualified_person how the amount and purpose of each grant was established and how you established supervision and investigation of the grants described above basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or aprize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or letter catalog number 58222y - to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records letter catalog number 58222y if you have any questions please contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements letter catalog number 58222y


department of the treasury internal_revenue_service washington d c l194 contact person identification_number telephone number et bh employer_identification_number z x tax_exempt_and_government_entities_division date oct legend foundation bank corporation b d t m o r c g a y y g u o h dear taxpayer we have considered foundation’s ruling_request dated date concerning the proper treatment of its proposed engagement of bank to provide cash management investment planning legal accounting and other comparable services under sec_4941 of the internal_revenue_code facts foundation is exempt from federal income taxes under sec_501 of the code and is a private_foundation under sec_509 foundation is managed and operated by its board_of trustees made up of d e f g h j and k foundation’s activities include responsible philanthropy through active roles in organizations it supports by monitoring their operations serving on governing boards reviewing organizational materials and offering consultations bank was organized as the first merchant bank with fiduciary powers to be chartered in the state of b the voting interests in bank are owned by f g and h and are subject_to a voting_trust agreement of which j is the voting trustee the non-voting interests in bank are owned by trusts created for the benefit of f g and h and for their children bank is a disqualified_person with respect to the foundation as defined in sec_4946 initially bank consisted of two separate departments an investment banking department and a_trust department the investment banking department was intended to provide venture capital to various start-up corporations in the state of b and elsewhere the department has made investments with varying success however because of market conditions and changes in personnel the department has been deemphasized and bank is no longer actively seeking new investments ’ the trust department was organized principally to provide full service fiduciary and trust-related business and personal financial services inter-generationally among d and e and their issue collectively the family the family assets are held by various trusts foundations corporations limited_liability companies and partnerships and are also held individually by various family members the trust department has developed extensive policies and procedures which are based upon the statement of principles of trust department management promulgated by the fdic and utilized by the b agency which direct how trust assets are to be managed invested and distributed bank has created trust and investment committees including some of the officers and directors of bank to oversee trust department activities the committees meet quarterly to review ail trust accounts as well as the trust department's purchase and sale activity balance_sheet and financial condition currently the trust department maintains trust accounts for the family and serves as investment manager for the family's primary financial-holding partnership d owns all of the stock of corporation which provides personal and financial management services to the family both directly and indirectly through bank accordingly corporation is a disqualified_person with respect to foundation as defined in sec_4946 bank and corporation entered into a service agreement in accordance with which bank has outsourced certain functions to corporation for a fixed fee corporation operates on a cost_recovery basis and earns little or no profit from its activities merged into bank and bank will thereafter perform all such services it is anticipated that corporation may eventually be among the many services that bank and corporation provide to the family are i cash management ii investment counseling iii household management iv personal financial planning v trust and estate administration vi financial statement preparation vii accounting services including tax_return preparation viii legal services and ix custody of assets collectively the services bank also serves as liaison with and manager of outside advisors such as legal counsel financial planners investment managers tax and accounting advisors and banks bank employs two individuals on a full-time basis a senior trust officer and her assistant no member_of_the_family is active in the management of bank with the exception of d who serves as chairman and director for which he receives no compensation corporation currently employs seventeen people seven of whom provide financial_accounting and legal services to the family and to bank on a full-time basis the remaining employees provide other services for the family such as maintenance transportation and household management services d and e serve as uncompensated officers of corporation no other member_of_the_family is active in the management of corporation a principal purpose for developing bank was to be able to provide services efficiently under one roof inter-generationally for the benefit of the family as a private trust company bank charges each of its accounts a fixed annual fee which is based upon bank's relative responsibility and effort provided to each account all fees charged are in accordance with industry practice and are permitted under the applicable local laws governing fiduciary activities bank and corporation provide services for a lower cost than could be obtained by the family elsewhere in addition bank acts as a buffer to protect the individual family members from investment business political and charitable solicitations the use of bank also ensures that confidentiality of family information is preserved finally aggregating family assets into one entity provides the family with consolidated financial analysis and reporting as well as economies of scale that cannot be realized when assets are held in various institutions currently neither bank nor corporation provides services for anyone outside the family in order to carry out its exempt purposes foundation requires investment counseling financial planning and legal and accounting services bank and corporation employ accounting legal bookkeeping and other personnel and provides services which include the services required by the foundation foundation would like to engage bank and corporation to perform such services for foundation foundation represents that bank is able to provide these services to foundation at a discounted rate because it has a cost advantage over area trust departments because bank has only one client family it does not need to engage in any advertising for its services nor does it need to offer discounts special promotions or other incentives to attract investment additionally bank by law does not accept deposits and therefore has no interest obligations these cost advantages are passed on to family and would be passed on to foundation as well foundation represents that bank trust departments that operate in bank’s area are currently charging an average fee of approximately z of assets managed solely for portfolio management these charges in general do not reflect accounting tax legal or other services that the family requires and that bank and the corporation provide the addition of such services could increase the management fee to as high as y of assets managed foundation represents that charges by bank and corporation to foundation for these services will be less than x ruling requested foundation requests a ruling that the engagement of the bank by foundation to perform the professional services described herein that are reasonable and necessary for compensation that is not excessive constitutes an exception from self-dealing defined in sec_4941 of the code law sec_4941 of the code defines an act of self-dealing to include any direct or indirect payment of compensation or payment or reimbursement of expenses by a private_foundation to a disqualified_person ' sec_4941 of the code provides that except in the case of a government_official the payment of compensation and the payment or reimbursement of expenses by a private_foundation to a disqualified_person for personal services which are reasonable and necessary to carrying out the exempt_purpose of the private_foundation shalt not be an act of self-dealing if the compensation or payment or reimbursement is not excessive sec_53 d -3 c of the foundation and similar excise_taxes regulations provides in part that the payment of compensation and the payment or reimbursement of expenses including reasonable advances for expenses anticipated in the immediate future by a private_foundation to a disqualified_person for the performance of personal services which are reasonable and necessary to carry out the exempt_purpose of the private_foundation shall not be an act of self-dealing if such compensation or payment or reimbursement is not excessive sec_53 d -3 c of the regulations provides the following examples example m a partnership is a firm of lawyers engaged in the practice of law a and b partners in m serve as trustees to private_foundation w and therefore are disqualified persons in addition a and b own more than percent of the profits interest in m thereby making m a disqualified_person m performs various legal services for w from time to time as such services are requested the payment of compensation by w to m shall not constitute an act of self-dealing if the services performed are reasonable and necessary for the carrying out of w's exempt purposes and the amount_paid by w for such services is not excessive example business acting in his capacity as an investment counselor c manages x's investment portfolio for which he receives an amount which is determined to be not excessive the payment of such compensation to c shall not constitute an act of self-dealing c a manager of private_foundation x owns an investment counseling sec_4946 of the code defines the term disqualified_person to include a a substantial_contributor to the foundation b a foundation_manager within the meaning of sec_4946 c an owner of more than percent of - i the total combined voting power of a corporation ii the profits interest of a partnership or iii the beneficial_interest of a_trust or unincorporated enterprise which is a substantial_contributor to the foundation d a member_of_the_family as defined in sec_4946 of any individual described in subparagraph a b or c e a corporation of which persons described in subparagraph a b c or d own more than percent of the total combined voting power or f a partnership in which persons described in subparagraph a b c or d own more than percent of the profits interest sec_4946 of the code defines the term foundation_manager to mean with respect'to any private_foundation - an officer director or trustee of a foundation or an individual having powers or responsibilities similar to those of officers directors or trustees of the foundation and with respect to any act or failure to act the employees of the foundation having authority or responsibility with respect to such act or failure to act sec_4946 of the code defines the family members of an individual as such individual's spouse ancestors children grandchildren great grandchildren and the spouses of children grandchildren and great grandchildren analysis bank and corporation employ accounting legal bookkeeping and other personnel to provide investment counseling financial planning and legal and accounting services to family in order to carry out its exempt purposes foundation requires such services the services are comparable to those listed in sec_53 d -3 c of the regulations foundation represents that the services rendered by bank and corporation are necessary for the carrying out of foundation's exempt purposes foundation takes an active role in the organizations it supports by monitoring their operations serving on governing boards reviewing organizational materials and offering consultations accounting services assist the taxpayer in monitoring the performance of its donee organizations and legal services assist in preparing and reviewing pledge agreements and provide advices on administrative and operational issues in addition foundation's contributions are derived from the earnings generated by its assets the pooling of investment management under the direction of bank will enable foundation to maximize funds available for contributions make projections regarding cash_flow needs and fufid availability consolidate financial information facilitate financial long-range planning and coordinate foundation’s accounting and bookkeeping requirements foundation acknowledges that bank and corporation are disqualified persons with respect to foundation because they are owned and controlled by persons who are themselves disqualified persons foundation represents that the fees paid to bank and corporation are reasonable trust departments that operate in bank’s area are currently charging an average fee of approximately z of assets managed solely for portfolio management these charges in general do not reflect accounting tax legal or other services when these additional services are taken into account trust fees increase to as high as y of assets managed foundation will be charged a flat fee which represents less than x of assets managed ruling based upon the information and representations that you have submitted under the facts _ described above the engagement of bank by foundation to perform the professional services described herein that are reasonable and necessary for compensation that is not excessive constitutes an exception from self-dealing defined in sec_4941 of the code this ruling is limited to the applicability of the provisions of sec_4941 of the code to the issue raised and does not purport to rule on any facts that were not represented in the ruling_request or on any changes of those facts also in this ruling we have not determined whether the fees paid to bank are reasonable but merely accepted your representations that they are in fact reasonable this ruling is based on the understanding that there will be no material changes in the facts upon which it is based except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transactions described above under any other provision of the internal_revenue_code additionally it does purport to rule on any investment activity of the foundation see sec_4941 because this ruling could help resolve future questions about your federal_income_tax liabilities you should keep it in your permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent 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 sincerely fictiw e j mececec s debra j kawecki acting manager exempt_organizations technical group


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 it a plr-149169-11 date date legend taxpayers taxpayers’ ids -------------------------------------------- ---------------------------------------------------- ------------------------------------------------- taxable_year ------- month month ----------------------------- ------------------ cpa -------------------------------- dear -------------------------------- this letter responds to your letter dated date requesting an extension of time to make an election under sec_172 of the internal_revenue_code in particular you are requesting that additional time be granted to make the election under sec_301_9100-3 of the income_tax regulations we rely on the facts and conditions set forth in your submissions dated date and date your business consists of constructing houses and condominiums developing land and engaging in other activities relating to real_estate the real_estate business because of adverse changes in the real_estate market you incurred substantial losses attributable to the real_estate business which caused you to incur a net_operating_loss nol in taxable_year for several years a management company provided daily accounting services for the real_estate business however the downturn in the real_estate market resulted in adverse effects on your cash_flow this eventually caused the personnel who worked for the management company to either quit or be laid off at the end of month as a plr-149169-11 necessary step in preparing your income_tax returns for taxable_year you hired an outside firm to provide bookkeeping services pertaining to the records of the real_estate business the bookkeeping firm prepared a trial balance for use in preparing your federal_income_tax return for taxable_year your submission does not indicate whether this was a working trial balance or a final trial balance however in any event your federal_income_tax return for taxable_year was not prepared and filed by the due_date of the return you sought tax_advice from cpa regarding the filing of your federal_income_tax return for taxable_year cpa advised you not to file a tax_return with estimated figures for taxable_year by the due_date for that return because since there were losses no penalties would be imposed finally in month all the necessary work was done to prepare your federal_income_tax return for taxable_year and in that month you filed the return the return was prepared by cpa however because the return was filed late it was filed after the due_date for making an election to carry back the nol either or taxable years under sec_172 you have asked us to grant you an extension of time to make a sec_172 election pursuant to sec_301_9100-3 primarily on the grounds that you failed to make a timely election due to reasonable reliance on a professional tax advisor cpa who failed to properly advise you sec_172 allows a deduction equal to the aggregate of the nol carryovers and carrybacks to the taxable_year sec_172 provides that an nol for any taxable_year generally must be carried back to each of the years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back its applicable nol to or years preceding the taxable_year of the applicable nol sec_172 provides that the applicable nol means the taxpayer’s nol for a taxable_year ending after date and beginning before date sec_172 provides that the election under sec_172 is required to be made in a manner prescribed by the secretary and must be made by the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in sec_301_9100-1 through provide the standards the commissioner of internal revenue uses to determine whether to grant an extension of time to make statutory and regulatory elections sec_301_9100-1 defines a a statutory election as an election whose due_date is prescribed by statute and b a regulatory election as an election whose due plr-149169-11 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_9100-2 provides a taxpayer with an automatic_extension of months from the due_date of a timely filed return excluding extensions provided the taxpayer takes corrective action within that 6-month period under sec_301_9100-2 a taxpayer cannot extend the due_date of a statutory election beyond the extended due_date of the return on which the election should have been made sec_301_9100-3 provides the standard the commissioner of internal revenue uses to determine whether to grant an extension of time to make regulatory elections because the due_date for an election under sec_172 is expressly prescribed by the statutory provision the election is by definition a statutory election within the meaning of sec_301_9100-1 revproc_2009_52 2009_2_cb_744 specifies the manner in which an election under sec_172 must be made however the revenue_procedure does not dictate the due_date for the election but simply restates the statutory due_date with reference to sec_172 the mere incorporation of a statutory due_date in a revenue_procedure does not change a statutory election into a regulatory election as a statutory election sec_301_9100-2 applies to determine relief for late elections under sec_172 under sec_301_9100-2 taxpayers would need to take corrective action within months after the unextended due_date for filing their return for the taxpayer’s last taxable_year beginning in while the service has authority under sec_301_9100-3 to grant relief in the case of a regulatory election sec_301_9100-3 does not apply in the case of a statutory election accordingly the service does not have authority under sec_301_9100-3 to grant an extension to the statutory election as set forth in sec_172 under the given facts information and representations sec_301_9100-3 relief is not available in you disclaimers except as provided above no opinion is expressed as to the federal tax treatment of the transaction under any other provisions of the internal_revenue_code and the income_tax regulations that may be applicable or under any other general principles of federal income_taxation neither is any opinion expressed as to the tax treatment of any conditions existing at the time of nor effects resulting from the transaction that are not specifically covered by the above ruling plr-149169-11 this ruling is directed only to the taxpayers who requested it sec_6110 k provides that it may not be cited as precedent pursuant to the power_of_attorney submitted by you a copy of this letter will be sent to your authorized representatives sincerely william a jackson branch chief branch office of associate chief_counsel income_tax and accounting


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa cbs b01 gthomas gl-110742-04 uilc date july small_business self-employed procedure administration to associate area_counsel for portland oregon from chief collection bankruptcy summonses branch subject collection of assessments from forfeited corporations this chief_counsel_advice responds to your request for assistance dated date specifically you asked us to review your memorandum on the issues of whether assessments of an employer’s payroll_taxes are valid against a forfeited corporation when it was the only person listed as the employer on the payroll tax returns and whether the service can take enforced collection action against the assets of that corporation this memorandum has been coordinated with the administrative provisions and judicial practice division of the office of procedure administration this advice may not be used or cited as precedent legend st -------- tp -------------------------------- sh1 ---------------------- sh2 -------------------------- tr ---------------------------------- ty1 ------- gl-110742-04 ty2 ------- ty3 ------- ty4 ------- ty5 ------- y1 ------- y2 ------- issues whether assessments against tp a forfeited corporation are valid to use enforced collection against the assets of the tp conclusions the assessments are valid and enforced collection may be commenced against sh2 because under st law sh2 is liable for the debts of tp and sh2 is the trustee owner of tp’s assets facts sh1 was a shareholder in tp tp is a forfeited corporation under the laws of st because it failed to timely file reports and pay fees to maintain its corporate charter at all relevant times tp’s charter has been forfeited sh1 transferred real_property to tp by warranty deed the next day sh1 transferred all of its shares to sh2 for a specific sum to be paid in installments sh2 continued the operations of tp and fulfilled its obligations under the sale agreement in y1 a year later in ty1 sh2 opened a bank account in the name of the business using the same employer_identification_number ein listed on the payroll tax returns for tp and declaring that the account was for a corporation about five years later in y2 sh2 opened an account in the name of the business using the same ein listed on the payroll tax returns for tp but declaring that the business was a sole_proprietorship tp filed payroll tax returns for ty1 ty2 ty3 ty4 and ty5 the service assessed these liabilities provided notice_and_demand and filed a notice_of_federal_tax_lien nftl against tp for these years in y2 tp requested a collection_due_process_hearing after being notified of its rights gl-110742-04 also in y2 sh1 executed a quit claim deed conveying the real_property of tp to tr a_trust the deed states that sh1 is the last known director of tp a defunct corporation the deed was properly filed under local law tr lists sh2 as the trustor trustee and beneficiary subsequent to the filing of the quit claim deed sh2 in its capacity as trustee gave a mortgage from tr secured_by tp’s real_property law and analysis equitable_estoppel duty_of_consistency in your memorandum you conclude that tp is equitably estopped from denying its corporate existence for tax purposes because it held itself out as a corporation while it was pyramiding payroll tax_liabilities and the service relied on that representation in making its assessment against tp equitable_estoppel applies when a taxpayer makes a representation of fact on which the service relies to its detriment and through such reliance and ignorance of the true facts is prevented from avoiding such detriment before the expiration of the statute_of_limitations on its actions see 72_tc_105 here either the statute_of_limitations have not expired or the service will be able to enforce the assessment against sh2 as explained below therefore equitable_estoppel should not be used as a basis for collection in this case you also conclude that tp has a duty_of_consistency to continue to be treated as a corporation because it held itself out to the service as a corporation while pyramiding its payroll tax_liabilities the duty_of_consistency also known as quasi-estoppel applies when the taxpayer has made a representation for tax purposes in one year the service has acquiesced in the fact for that year and the taxpayer desires to change the representation previously made in a later year after the statute_of_limitations on assessments bars the adjustment for the initial year see hollen v commissioner tcmemo_2000_99 the purpose of the duty_of_consistency is to prevent a taxpayer who makes an error or omission in a return for an earlier year from taking a contrary position in a return to avoid paying federal taxes in a later year as with equitable_estoppel the duty_of_consistency only applies when the government encounters detriment in tp’s case either the statute_of_limitations have not expired or the service will be able to enforce the assessment against sh2 as explained below therefore the duty_of_consistency should not be used as a basis for collection in this case you also conclude that if tp is not estopped from claiming that it is not a corporation the assessment against the tp is valid against the tp in the form of a sole_proprietorship and sh2 as director of the forfeited corporation state law determines assessments valid against tp and sh2 gl-110742-04 the nature of a property right federal_law determines the appropriate tax treatment when such property rights are transferred 109_f3d_231 5th cir you have indicated that under st law tp’s corporate charter has been forfeited and for purposes of debts incurred while in forfeiture that st does not recognize de_facto corporate existence but rather corporate directors are liable for these debts you have also indicated that federal_law treats an owner of an entity without a corporate charter as a sole_proprietorship cesa cartage inc v commissioner tcmemo_1989_76 although your conclusions in the memorandum are correct your reliance on united_states v galletti should be limited to the proposition that o nce a tax is properly assessed nothing requires the service to separately assess the same tax against an individual or entity who is not the actual taxpayer but is by reason of state law liable for the payment of taxpayer’s debts 124_sct_1548 the holding of galletti is distinguished from tp’s case because that case involved the secondary liability of general partners for the debts of a general_partnership under state law here sh2 the owner and director of the corporation is not secondarily liable but is solely liable for the entity’s debts because tp is merely a trade_name of sh2 tp is a sole_proprietorship not a corporation for all of the tax years involved the owner of a sole_proprietorship is liable for its debts the assessment was made using tp’s name and ein and tp although now holding itself out as a sole_proprietorship is using the same ein for purposes of sec_6203 a valid assessment must identify the taxpayer sec_301_6203-1 the taxpayer is the same entity as it was when the assessment was made and thus the assessment is valid against tp and sh2 tp’s sole owner -- see 719_f2d_1507 10th cir holding that an assessment made in the taxpayer’s trade_name rather than the taxpayers’ individual names properly identified the individuals as the taxpayers for purposes of sec_6203 see also galletti supra before sh1 executed a quit claim deed transferring the title to tp’s real_property to tr the tax_lien under sec_6321 attached to such property the sec_6321 lien also attached to the property of sh2 as the owner of the sole_proprietorship as noted in your memorandum under st law the director of the forfeited corporation is the trustee of that forfeited corporation’s assets ------------------------------------------------------------------- ----------- a quit claim deed does not prove that sh1 had any ownership_interest in tp’s property however to protect the government’s interest sh1 should be considered a nominee of tp until information is obtained that the original agreement was not rescinded by sh1 and sh2 for mutual mistake --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------- collection against tp’s property gl-110742-04 case development hazards and other considerations tr is not a purchaser mechanic’s_lienor holder of a security_interest or judgment lien creditor and as a result does not have priority over the filed federal_tax_lien on tp’s property under sec_6323 however the mortgagee who obtained a security_interest over tp’s property has priority over the federal_tax_lien presuming the mortgage has been recorded------------------------------------------------------------------------------------------------- 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t c no united_states tax_court estate of clyde w turner sr deceased w barclay rushton executor petitioner v commissioner of internal revenue respondent docket no filed date decedent d transferred property to a family limited_partnership flp in exchange for general and limited_partnership interests and then transferred portions of his limited_partnership_interest as gifts during his lifetime in estate of turner v commissioner tcmemo_2011_209 we held that the inter_vivos transfer of property to the flp was subject_to sec_2036 in 138_tc_306 we held that d’s estate is not entitled to a marital_deduction with respect to the value of certain property included in d’s gross_estate under sec_2036 because the property was the subject of lifetime gifts and did not pass to d’s surviving_spouse under sec_2036 the value of the property transferred to the flp is included in d’s gross_estate and results in federal estate this opinion supplements our previously filed opinion in 138_tc_306 supplementing tcmemo_2011_209 and state death_tax liabilities d’s estate’s liability for federal estate and state_death_taxes arises solely because of the sec_2036 inclusion r filed computations and amended computations for entry of decision pursuant to rule tax_court rules_of_practice and procedure d’s estate objected the parties disagree as to whether d’s estate must reduce the sec_2056 marital_deduction by the amounts of the federal estate and state_death_taxes owed that r claims must be paid from estate assets passing to the surviving_spouse_marital_deduction property and whether d’s estate may increase the marital_deduction by postdeath income that was not included in the gross_estate but was generated by marital_deduction property held d’s estate is not required to reduce the marital_deduction by the amounts of the federal estate and state_death_taxes it owes because those taxes are attributable solely to the value of property included in the gross_estate under sec_2036 the executor has a right under sec_2207b to recover from the beneficiaries who received the property during d’s lifetime an amount equal to the federal estate and state_death_taxes plus interest attributable to those transfers and the executor must exercise the right of recovery under sec_2207b to prevent the marital_deduction property from bearing d’s estate’s tax burden contrary to d’s intent held further d’s estate may not increase the marital_deduction by the amount of postdeath income generated by the marital_deduction property charles e hodges ii and rose k drupiewski for petitioner caroline r krivacka william walter kiessling and beth a nunnink for respondent supplemental opinion marvel judge this matter is before the court on the objection by the estate of clyde w turner sr estate to respondent’s proposed amended computation for entry of decision submitted in response to our holdings in estate of turner v commissioner estate of turner i tcmemo_2011_209 supplemented by 138_tc_306 the parties ask the court to resolve the continuing controversy regarding the computation of the marital_deduction under sec_2056 the court held a hearing and counsel for both parties appeared and were heard the parties’ arguments regarding the correct computation of the marital_deduction require the court to decide two questions whether the estate is required to reduce the marital_deduction by the amounts of federal estate and state_death_taxes it owes when those taxes are attributable to the values of gifts made during decedent’s lifetime but included in the gross_estate by reason of sec_2036 sometimes referred to as sec_2036 assets and whether the estate is entitled to increase the marital_deduction by postdeath income generated by estate 1unless otherwise indicated section references are to the internal_revenue_code code in effect for the date of decedent’s death and rule references are to the tax_court rules_of_practice and procedure assets that was reported on form_1041 u s income_tax return for estates and trusts and paid to the surviving_spouse background we adopt the findings_of_fact in estate of turner i and estate of turner ii for convenience and clarity we repeat the necessary facts below clyde w turner sr clyde sr resided in georgia when he died testate on date estate of turner i slip op pincite w barclay rushton is the executor of the estate id mr rushton resided in georgia when he petitioned this court on behalf of the estate id on date clyde sr and his wife jewell h turner established turner co a family limited_partnership flp that qualified as a georgia limited_liability partnership id pincite upon the formation of the flp clyde sr and jewell each contributed assets with a fair_market_value of dollar_figure total value of dollar_figure to the flp estate of turner ii t c pincite in exchange each received a general_partnership interest and a limited_partnership_interest id by date clyde sr had transferred in the 2jewell h turner died on date and a related case estate of turner v commissioner docket no involving her estate is pending for purposes of this opinion we refer to jewell and or her estate collectively as jewell aggregate limited_partnership interests totaling to family members as gifts in estate of turner i slip op pincite we held inter alia that under sec_2036 the value of the property that clyde sr had transferred to the flp must be included in the value of his gross_estate in estate of turner ii t c pincite- we held that the estate is not entitled to a marital_deduction for the value of the property that was brought back into the gross_estate by sec_2036 sometimes referred to as the sec_2036 inclusion before we filed our report in estate of turner ii we received and filed respondent’s computation for entry of decision first computation respondent calculated that the estate owed an estate_tax deficiency of dollar_figure after we filed our report in estate of turner ii the estate filed a notice of objection to the first computation presenting two alternative computations respondent filed a response to the estate’s notice of objection on date with leave of court respondent filed an amended computation for entry of decision amended computation as respondent explained in the motion for leave to file the amended computation in the first computation he allowed a deduction for the interest on the estate_tax but did not correspondingly reduce the marital_deduction by that amount according to respondent the amended computation corrects that mistake respondent’s amended computation shows an estate_tax deficiency of dollar_figure the estate filed a notice of objection to respondent’s amended computation which presented two alternative computations option shows an estate_tax deficiency of dollar_figure and option shows an estate_tax deficiency of dollar_figure after concessions the parties disagree as to whether the estate must reduce the marital_deduction by the amounts of the federal estate and state_death_taxes and related interest it owes and whether the estate may increase the marital_deduction by the amount of postdeath income that was not included in the calculation of the gross_estate but was instead reported on form_1041 and distributed to the surviving_spouse 3a comparison of the estate’s objections to the first and amended computations shows that the estate no longer disagrees that dollar_figure of funeral and legal and accounting expenses reduces the marital_deduction respondent concedes that interest on the state death_tax is deductible during the hearing the estate conceded that as of the hearing date expenses reportable on schedule j funeral_expenses and expenses_incurred in administering property_subject_to_claims and schedule k debts of the decedent and mortgages and liens of form_706 united_states estate and generation-skipping_transfer_tax return totaled dollar_figure and that the estate is not entitled to deduct dollar_figure of legal and accounting fees the estate also concedes that the marital_deduction should be reduced by dollar_figure the amount of expenses claimed on form_1041 that were charged to residue respondent filed a response to the estate’s notice of objection to respondent’s amended computation the estate with leave of court filed a reply and respondent filed his response to the estate’s reply to respondent’s amended computation the parties’ evolving positions are described below i federal estate and state_death_taxes discussion the parties agree that the only taxable_portion of the estate is the portion attributable to the sec_2036 inclusion the parties disagree as to whether the estate should reduce the marital_deduction by the resulting federal estate and state death_tax liabilities including interest respondent’s position is that the estate must reduce the marital_deduction by the amounts of federal estate and state_death_taxes the estate must pay because the only property available to fund the payments is property that would otherwise pass to jewell and qualify for the marital_deduction citing the estate’s sec_2207b right of recovery the estate disagrees we start with the basics of subchapter_a of subtitle b of the code sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2031 provides that the value of the decedent’s gross_estate includes the values of interests described in sec_2033 through an estate may deduct from the value of the gross_estate the value of certain property passing from the decedent to his or her surviving_spouse_marital_deduction see sec_2056 as relevant to this case sec_2056 provides that in determining the value of any interest in property passing to the surviving_spouse for which a marital_deduction is allowed we must take into account the effect which the tax imposed by sec_2001 or any estate succession legacy or inheritance_tax has on the net value to the surviving_spouse of such interest sec_2010 allows an estate a credit unified_credit that reduces its estate_tax liability sec_2002 requires the executor of the estate to pay the estate_tax regardless of the source of funds the executor uses to pay the estate_tax however an issue remains regarding which beneficiary’s interest bears the financial burden of the tax often the decedent’s will provides guidance to the executor regarding how the executor should allocate the tax burden among the heirs but the parties agree that clyde sr ’s will has no express provision regarding federal estate and state_death_taxes or their apportionment and we so find 4these findings_of_fact supplement our findings_of_fact in estate of turner i and estate of turner ii when a decedent fails to specify how an estate’s tax_liabilities should be allocated state law governs the manner in which those tax_liabilities are allocated among estate assets see 317_us_95 the parties agree that under georgia law the federal estate and state_death_taxes and accompanying interest are paid from the residue see ga code ann sec a west in an effort to identify and define the residue the parties focus on items eight and nine of clyde sr ’s will item eight expresses clyde sr ’s intent to leave assets to jewell undiminished by any estate inheritance succession death or similar taxes and having a value equal to the maximum marital_deduction 5the term residue as it relates to a decedent’s estate generally means the property comprising a decedent’s estate after payment of the estate’s debts funeral_expenses costs of administration and all specific and demonstrative bequests bryan a garner a dictionary of modern legal usage 2d ed quoting concise dictionary of law 2d ed 6the relevant portion of item eight of clyde sr ’s will reads as follows if jewell survives me and if there is a federal estate_tax in effect at the time of my death i give devise and bequeath to her cash securities or other_property of my estate undiminished by any estate inheritance succession death or similar taxes having a value equal to the maximum marital_deduction as finally determined in my federal estate_tax proceedings less the aggregate amount of marital deductions if any allowed for such tax purposes by reason of property or interests in property passing or which have passed to my continued item nine of clyde sr ’s will provides for the establishment of a_trust for the benefit of the children and grandchildren of clyde sr and jewell if certain conditions are met because of the reference in item nine to the rest residue continued said wife otherwise than pursuant to the provisions of this item provided however the amount of this bequest shall be reduced by the amount if any needed to increase my taxable_estate for federal estate_tax purposes to the largest amount that after allowing for the unified_credit against the federal estate_tax and the state_death_tax_credit against such tax but only to the extent that the use of such state_death_tax_credit does not increase the death_tax payable to any state will result in the smallest if any federal estate_tax being imposed on my estate 7item nine of clyde sr ’s will states if jewell survives me i give devise and bequeath all the rest residue and remainder of my property of every kind and description including lapsed legacies and devises wherever situated and whether acquired before or after the execution of this will to the trustee hereinafter named to be held administered and distributed as follows a commencing with the date of my death my trustee shall pay to or apply for the benefit of my wife and my issue such sums from the principal of and income from this trust in such shares and proportions as in its sole discretion shall be necessary or advisable from time to time for the medical_care education support and maintenance in reasonable comfort of my said wife and my issue taking into consideration to the extent my trustee deems advisable any other income or resources of my said wife and my issue known to my trustee and remainder of property the estate contends that item nine is the residuary clause of the will the estate argues that the assets passing to the trust under item nine and not the assets passing to jewell under item eight must bear the burden of the federal estate and state_death_taxes and other expenses respondent argues that because of the sec_2036 inclusion the unified_credit has been fully used and no trust under item nine comes into existence respondent urges us to conclude that the property passing to jewell under item eight is the residue and is the only source available to pay the estate’s tax_liabilities the parties’ argument regarding which provision of the will constitutes the residuary clause however fails to focus on important facts in this case items eight and nine of clyde sr ’s will in effect require the executor to distribute to jewell all property qualifying for the marital_deduction unless a credit bypass_trust was necessary to take advantage of the unified_credit available to the estate pursuant to these provisions the estate reported on the form_706 that an flp interest was allocated to jewell pursuant to item eight of clyde sr ’s will and the remaining flp interest was allocated to a credit bypass_trust pursuant to item nine of the will see estate of turner ii t c pincite because we held in estate of turner i that the value of the sec_2036 assets must be included in the value of the gross_estate the allocations described above have changed the sec_2036 inclusion exhausted the unified_credit under sec_2010 and generated an estate_tax liability because the unified_credit has been fully used it is no longer necessary to fund a credit bypass_trust under item nine of clyde sr ’s will and respondent’s first and amended calculations correctly reflect this in fact both parties’ computations recognize that the trust under item nine has not been and will not be established or funded and jewell is entitled to a distribution of the value of any property interest included in the estate except the sec_2036 assets that clyde sr transferred during his lifetime adjusted as legally required the problem we must solve here arises from the sec_2036 inclusion that inclusion created federal estate and state death_tax liabilities but the only assets presently available to the executor from which he can pay the liabilities are assets that should pass to jewell and which qualify for the marital_deduction respondent argues that because clyde sr transferred the sec_2036 assets during his lifetime and those assets are not available to the executor to fund the payment of the federal estate and state death_tax liabilities the assets that would otherwise pass to jewell and qualify for the marital_deduction are the only source of payment available to the estate and some part of those assets must be used to pay the liabilities thereby reducing the marital_deduction in respondent’s view jewell is the only heir and the assets cannot pass to her undiminished by taxes as item eight of the will mandates accordingly respondent contends because the marital_deduction is available only with respect to assets actually passing from the decedent to the surviving_spouse see sec_2056 sec_20_2056_a_-1 b ii estate_tax regs the marital_deduction must be reduced to account for the assets used to pay federal estate and state_death_taxes and related interest the estate disagrees and points to sec_2207b which provides in part sec_2207b estate_tax -- in general --if any part of the gross_estate on which tax has been paid consists of the value of property included in the gross_estate by reason of sec_2036 relating to transfers with retained_life_estate the decedent’s estate shall be entitled to recover from the person receiving the property the amount which bears the same ratio to the total_tax under this chapter which has been paid as-- a the value of such property bears to b the taxable_estate decedent may otherwise direct --paragraph shall not apply with respect to any property to the extent that the decedent in his will or a revocable_trust specifically indicates an intent to waive any right of recovery under this subchapter with respect to such property the estate contends that under sec_2207b the recipients of the sec_2036 assets during clyde sr ’s lifetime bear the burden of any taxes attributable to the sec_2036 inclusion we agree sec_2207b is one of several code sections that provide for a right of recovery for certain types of property or dispositions unless the will of a georgia decedent expressly directs otherwise georgia law does not limit any rights to reimbursement for federal_estate_taxes and other taxes that may be available to the executor under federal_law see ga code ann sec e as discussed above clyde sr ’s will does not address the payment of taxes or their apportionment nor does it express any intent regarding the right of recovery under sec_2207b or any other right of recovery provision this is not surprising because clyde sr did not know that the court would apply sec_2036 to his lifetime transfers item eight of clyde sr ’s will however clearly manifests his intention that the marital_deduction not be reduced or diminished by 8other right of recovery provisions are sec_2206 which allows a right of recovery for taxes generated by the inclusion of life_insurance_proceeds in the decedent’s gross_estate sec_2207 which provides for a right of recovery for taxes generated by property included in the gross_estate by virtue of the decedent’s having possessed a power_of_appointment and sec_2207a which provides for a right of recovery for the tax attributable to qualified_terminable_interest_property assets the estate’s tax_liabilities it is reasonable to assume that clyde sr would want his executor to take all steps necessary to ensure that the property passing to his surviving_spouse and qualifying for the marital_deduction not be impaired respondent argues that the right of recovery under sec_2207b cannot preserve the maximum marital_deduction because the right of recovery can be exercised only after taxes have been paid however the fact that the estate may exercise the right of recovery under sec_2207b only after the taxes have been 9the parties do not address 506_f2d_1144 10th cir aff’g 59_tc_617 but we find it appropriate to distinguish this case in estate of wycoff v commissioner f 2d pincite the decedent’s will created two trusts one in favor of his wife and the other for the benefit of his son the decedent directed that federal estate and state_death_taxes be paid out of the portion of his estate that was not in the marital trust but at the same time he granted the executor discretion to pay these taxes out of the marital trust if the executor considered it prudent to do so the u s court_of_appeals for the tenth circuit reasoned that although the will expressed a preference for payment from the part of the estate not included in the marital trust the will contained no positive direction that federal estate and state_death_taxes be paid from the part of the estate not included in the marital share id pincite the court_of_appeals stated a s we view it such an express provision would be necessary to justify a ruling for the executor and held that sec_2056 renders the marital share available to the surviving_spouse subject_to the payment of death taxes id as a result the court_of_appeals held that the value of the marital_deduction had to be reduced by the amount of the applicable taxes estate of wycoff is distinguishable because the executor of the estate could choose from which trust to pay the expenses in this case however clyde sr ’s will is silent as to the payment of taxes and we have found that clyde sr wanted to maximize the marital_deduction and that the executor must exercise the right of recovery under sec_2207b paid does not require that the marital_deduction be reduced by the tax payment amounts the process of administering an estate is multifaceted and can be quite complex and time consuming it involves some or all of the following actions the opening of a probate proceeding the identification and valuation of a decedent’s assets and liabilities the preparation of required tax returns and probate papers the payment of relevant liabilities and bequests the resolution of any disputes affecting the estate such as estate_tax disputes and beneficiary litigation and the distribution of the residue in accordance with a decedent’s will or if none with applicable state intestacy laws see generally c j s executors administrators sec_212 westlaw in an estate that includes the value of sec_2036 assets an executor must find a way to pay the tax_liabilities created by the sec_2036 assets while dealing with the reality created by sec_2036 the actual sec_2036 assets are not in the possession or control of the executor and cannot be used by the executor to pay the tax_liabilities they create sec_2207b gives an executor a mechanism to replenish estate assets that the executor uses to pay the federal estate and state death_tax liabilities attributable to the values of the phantom sec_2036 assets included in the estate because the value of the sec_2036 assets is already included in the calculation of the gross_estate any recovery under sec_2207b should not increase the gross_estate but will enable the executor to distribute to the surviving_spouse the net value of the estate undiminished by the tax_liabilities attributable to the sec_2036 inclusion respondent also argues that the effect of failing to reduce the marital_deduction by the tax_liabilities attributable to the sec_2036 assets is to shelter from the estate_tax the property brought into a decedent’s estate pursuant to sec_2036 respondent states that this would effectively undo what has been accomplished by sec_2036 respondent points out that if the executor pursues the recovery the subsequent recovery_of the estate_tax amount makes the beneficiary who bore the burden whole respondent cites sec_20_2056_b_-4 estate_tax regs in support of his argument that section provides in the determination of the value of any property interest which passed_from_the_decedent_to_his_surviving_spouse there must be taken into account the effect which the federal estate_tax or any estate succession legacy or inheritance_tax has upon the net value to the surviving_spouse of the property interest however it does not support respondent’s position because its application turns on whether the federal estate_tax has an effect upon the net value of the property interest passing to the surviving_spouse the regulation does not state that the federal estate_tax always has an effect on the net value of the surviving spouse’s interest the examples in the regulation support a more limited and nuanced application of the regulation sec_20_2056_b_-4 estate_tax regs explains that if the decedent’s only bequest to the surviving_spouse is dollar_figure and the spouse is required to pay a state inheritance_tax of dollar_figure the value of the marital_deduction is dollar_figure unlike in the case at hand in this example it is the spouse and not the executor of the estate who is required to pay a state death_tax sec_20_2056_b_-4 estate_tax regs addresses a situation where a decedent devised real_property to his surviving_spouse and also bequeathed to her a nondeductible interest for life under a_trust in this example the state of residence imposed an inheritance_tax with respect to the two interests again the example assumes that the surviving_spouse bears the burden of paying the inheritance_tax liability and concludes that the tax payment reduces the marital_deduction sec_20_2056_b_-4 estate_tax regs further supports the conclusion that in evaluating the effect of the federal estate_tax upon the value of the interest passing to the surviving_spouse the regulation applies only when the surviving spouse’s share bears the tax burden it provides if the decedent bequeaths his residuary_estate or a portion of it to his surviving_spouse and his will contains a direction that all death taxes shall be payable out of the residuary_estate the value of the bequest for the purpose of the marital_deduction is based upon the amount of the residue as reduced pursuant to such direction if the residuary_estate or a portion of it is bequeathed to the surviving_spouse and by the local law the federal estate_tax is payable out of the residuary_estate the value of the bequest for the purpose of the marital_deduction may not exceed its value as reduced by the federal estate_tax unlike the examples discussed above because of sec_2207b the estate_tax burden in this case is not imposed on the surviving spouse’s share of the estate and does not require a reduction in the marital_deduction consequently we conclude that respondent’s reliance on sec_20_2056_b_-4 estate_tax regs is misplaced under sec_2036 the gross_estate includes the values of the sec_2036 assets that clyde sr transferred during his lifetime the fact that property that might otherwise go to the surviving_spouse would be used to pay the estate_tax liabilities attributable to the sec_2036 assets does not compel a conclusion that the marital_deduction must be reduced the estate is entitled to recover from the recipients of sec_2036 assets during clyde sr ’s lifetime an amount equal to the liability attributable to the sec_2036 inclusion that the estate pays that recovery will enable the estate to distribute to the surviving_spouse property value undiminished by the tax_payments sec_20_2056_b_-4 estate_tax regs does not require a different result when the federal estate and state_death_taxes have no effect upon the net value distributable to the surviving_spouse see eg estate of gill v commissioner tcmemo_2012_7 marital_deduction not reduced where marital_deduction property does not bear the economic burden of the tax accordingly we hold that the estate need not reduce the marital_deduction by the amount of federal estate and state_death_taxes it must pay because the tax_liabilities are attributable to the sec_2036 assets the estate has the right to recover the amount_paid under sec_2207b and the estate must exercise that right to recover to give effect to clyde sr ’s intention that jewell receive her share of the estate undiminished by the estate’s tax obligations respondent makes an additional argument that focuses on the interest owed on the federal estate_tax liability respondent contends that under sec_20_2056_b_-4 estate_tax regs the estate_tax interest_expense is a transmission expense and therefore it reduces the residue and correspondingly reduces the marital_deduction however under sec_2207b i n the case of penalties sec_20_2056_b_-4 estate_tax regs defines estate transmission expenses as expenses that would not have been incurred but for the decedent’s death and the consequent necessity of collecting the decedent’s assets paying the decedent’s debts and death taxes and distributing the decedent’s property to those who are entitled to receive it and interest attributable to the additional taxes described in subsection a rules similar to the rules of subsections a and b of sec_2207b shall apply accordingly the amount that the estate is entitled to recover from the sec_2036 asset recipients includes applicable_interest ii postdeath income relying on sec_20_2056_b_-4 estate_tax regs the estate contends that the marital_deduction should be increased by the amount of income generated by estate assets ie postdeath income allocated to the marital sharedollar_figure respondent disagrees according to respondent income from estate assets which was reported on the form_1041 was not included in the gross_estate and therefore is not a deductible_interest within the meaning of sec_20_2056_a_-1 and b estate_tax regs sec_20_2056_a_-1 estate_tax regs provides a deduction is allowed under sec_2056 from the gross_estate of a decedent for the value of any property interest which passes from the decedent to the decedent’s surviving_spouse if the interest is a deductible_interest as defined in a - see also sec_20_2056_a_-1 estate_tax regs property interest qualifying for the marital_deduction must be a deductible_interest sec_11the estate contends and respondent does not appear to dispute that the amount of postdeath income as of the hearing date was dollar_figure a -2 b estate_tax regs defines deductible interests as interests that do not fall within one of the categories of nondeductible_interests described in sec_20_2056_a_-2 through estate_tax regs section a - b estate_tax regs provides that a ny property interest which passed_from_the_decedent_to_his_surviving_spouse is a ‘nondeductible interest’ to the extent it is not included in the decedent’s gross_estate in respondent’s view because the postdeath income was not included in the gross_estate here it cannot increase the marital_deduction we start and end our analysis with the relevant estate_tax provisions sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states the value of the gross_estate is determined by adding the value of all property owned by the decedent at the time of death sec_2031 the taxable_estate is then determined by subtracting certain deductions from the value of the decedent’s gross_estate sec_2051 among the deductions allowed is the marital_deduction under sec_2056 sec_2056 provides that the value of the taxable_estate shall be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to a surviving_spouse it contains an important caveat the marital_deduction is permitted only to the extent that such interest is included in determining the value of the gross_estate sec_2056 any income that estate assets may generate after the date of the decedent’s death must be reported as ordinary_income for federal_income_tax purposes and income_tax paid as appropriate sec_1 the income earned by an estate during the estate’s administration is not included in the gross_estate and is not subject_to federal estate_tax see 91_tc_100 sec_20_2056_b_-4 estate_tax regs is part of a broader set of regulations that explain how the marital_deduction is calculated the regulation provides rules for determining the effect of administration_expenses upon the marital_deduction it defines three terms used in determining the effect of administration expenses--management expenses transmission expenses and marital share for purposes of sec_20_2056_b_-4 estate_tax regs marital share is defined as the property or interest in property that passed_from_the_decedent for which a deduction is allowable under sec_2056 sec_20_2056_b_-4 estate_tax regs marital share includes the income produced by the property or interest in property during the period of administration if the income under the terms of the governing instrument or applicable local law is payable to the surviving_spouse or is to be added to the principal of the property interest passing to or for the benefit of the surviving_spouse id the estate contends that sec_20_2056_b_-4 estate_tax regs entitles the estate to increase the marital_deduction by the amount of income earned after clyde sr ’s death during the administration of the estate because the regulation provides that the income is included in the marital share respondent disagrees for two reasons first the postdeath income_interest is not a deductible_interest under the regulation because it was not included in the gross_estate second the estate misreads sec_20_2056_b_-4 estate_tax regs because it fails to consider it in context respondent notes that paragraph d was added to sec_20_2056_b_-4 estate_tax regs in in response to the supreme court’s opinion in 520_us_93 in commissioner v estate of hubert u s pincite the supreme court relying on a prior regulation held that the estate was not required to reduce marital and charitable deductions by the amount of administration_expenses paid from income generated by assets allocated to marital and charitable_bequests under the regulation as applicable in estate of hubert i n determining the value of the interest in property passing to the spouse account must be taken of the effect of any material limitations upon her right to income from the property sec_20_2056_b_-4 estate_tax regs as in effect in the department of the treasury subsequently amended the regulation to delete the material limitations standard see t d 1999_2_cb_679 and to introduce the principles for evaluating the effect of administration_expenses upon the marital_deduction that are currently found in sec_20_2056_b_-4 estate_tax regs sec_20_2056_b_-4 through estate_tax regs classifies expenses into three categories transmission expenses management expenses attributable to the marital share and management expenses not attributable to the marital share it also provides three rules for taking into account the effect of those expenses first for purposes of determining the marital_deduction if transmission expenses are paid from the marital share the value of the marital share is reduced by the amount of the estate transmission expenses see sec_20_2056_b_-4 estate_tax regs second the value of the marital share is not reduced by the amount of the estate management expenses attributable to and paid from the marital sharedollar_figure see id subpara third for purposes of determining 12pursuant to sec_2056 however the allowable marital_deduction must be reduced by the amount of any such management expenses that are continued the marital_deduction the value of the marital share is reduced by the estate management expenses that are paid from the marital share but attributable to a property interest not included in the marital share see id subpara the estate points to the definition of marital share in section b - d iii estate_tax regs as the authority for increasing the marital_deduction by the amount of postdeath income allocated and paid to the surviving_spouse at first blush the estate would appear to be right but while portions of sec_20_2056_b_-4 estate_tax regs are confusing we will accept respondent’s contention that marital share is defined solely for the purpose of calculating the effect of administration_expenses on the marital_deduction it does not purport to increase the marital_deduction otherwise allowable under sec_2056 nor could it sec_2056 limits the marital_deduction to the value of the interest that is included in the value of the gross_estate income produced by the estate’s assets after the decedent’s death is not included in the calculation of the gross_estate and therefore does not increase the marital_deduction allowable under sec_2056 see also sec_20_2056_a_-1 estate_tax regs accordingly although the postdeath income may increase the marital share under specified circumstance sec_12 continued deducted under sec_2053 on the decedent’s federal estate_tax_return sec_20_2056_b_-4 estate_tax regs for purposes of calculating the impact of administration_expenses on the marital_deduction under sec_20_2056_b_-4 estate_tax regs it does not and cannot increase the amount of the marital_deduction otherwise allowable under sec_2056 and related regulations we hold that the estate may not increase the marital_deduction by the amount of postdeath income generated by assets passing to jewell we have considered the remaining arguments of both parties for results contrary to those expressed herein and to the extent not discussed above find those arguments to be irrelevant moot or without merit to reflect the foregoing an appropriate order will be issued