internal_revenue_service national_office technical_advice_memorandum may third party communication none date of communication not applicable tam-103300-05 number release date index uil no case-mis no director ------------------ --------------------------------------------------------------- taxpayer's name taxpayer's address ---------------------- -------------------- --------------------------------------- -------------------------------------------- ---------------- ----------------- --------------------- taxpayer's identification no year s involved date of conference legend taxpayer unit location a b c date date date date project_area date d e f g --------------------------------------- ------------------------ ----------------------------------- --------------------------- ---- -------- ----- ------------- ------- ------------- ------------- ------------------------------------------------ --------------------------- ---- -- ---- ---- tam-103300-05 h date i j k date state date date date date l m date n o p q r issue s -------- -------------------- ----------------- --------------- --------------- ---------------------- ------------ ------------------- ---------------------- ----------------------- -------------------- ---- ---- ------------------- --------------- --------------- --------------- --------------- -------------- whether the taxpayer’s post-1990 activities on its pre-1991 project_area constitute a significant expansion of the project under sec_1_43-2 conclusion s because the taxpayer has not established that it has increased its expected ultimate recovery due to the recovery_of oil from substantially unaffected reservoir volume the taxpayer’s post-1990 activities on its pre-1991 project_area do not constitute a significant expansion of the project under sec_1_43-2 facts the taxpayer holds a working_interest in and operates the unit the unit is an oil_and_gas producing field in location with a surface area of approximately a square miles the reservoirs from which the oil_and_gas are produced have an average depth of b feet and an average thickness of c feet the field has been continuously producing since date the unit was formed and a waterflood project was implemented in date taxpayer first considered implementing a carbon dioxide augmented waterflood co2 tertiary recovery project on the unit in date but did not because of the high cost and lack of a reliable source of co2 in date a reliable source of co2 was obtained and the taxpayer constructed a co2 recycling plant at the unit to maximize its use of the purchased co2 on or around date the taxpayer submitted to the service a self-certification for purposes of the tam-103300-05 windfall profits tax describing the project plan for a miscible co2 water alternating gas wag tertiary recovery project to be implemented on the unit a miscible wag project involves first the injection of co2 which mixes with the oil to expand the oil’s volume and reduce its viscosity followed by the injection of water to sweep the oil_and_gas mixture towards the producing wells according to the self-certification the taxpayer intended to implement the miscible wag project on the project_area the self-certification stated that a d hydrocarbon pore volume hcpv of co2 would be injected in the project_area in a e e wag ratio each injection well would receive a f hcpv slug of co2 which would be followed by an equal hcpv slug of water the self-certification stated that this process was to be repeated g times the minimum miscibility pressure to be obtained for the implementation of the project was h psi according to the self-certification as of date the estimated total recoverable reserves of the project_area were i stock tank barrels of oil stbo of this taxpayer could recover j stbo without the miscible wag project the miscible wag project would allow the taxpayer to recover an additional k stbo on date the taxpayer filed an application with the relevant jurisdictional agencies for state requesting that the agencies certify the project on the project_area the agencies certified the project prior to date in date the taxpayer began implementing the project on a portion of the project_area as of the end of the project was being implemented in accordance with the certification namely that co2 was being injected in the project_area in a e e wag ratio and that each injection well was receiving a f hcpv slug of co2 which would be followed by an equal hcpv slug of water with a target hcpv of d by the end of the taxpayer’s co2 recycling plant had reached its original planned capacity and was undergoing an expansion to increase capacity in the taxpayer formed a wag management team which was tasked with developing a methodology which optimized wag ratios determined the size of the co2 slugs the timing of pattern abandonment and determining expected performance in date the wag management team submitted a report discussing its conclusions and recommendations on date the taxpayer formed a conformance improvement team which was tasked with determining which profile or sweep improvement methods could be applied economically on a scale which could significantly impact co2 recovery in the unit and providing a resource base for conformance options and their applicability on date the conformance improvement team submitted a report discussing its conclusions and recommendations based on the reports submitted by the wag management and conformance improvement teams the taxpayer made certain adjustments to the project as implemented prior to taxpayer increased its target hcpv from d to l in some portions of the project_area and an overall average hcpv of m taxpayer also tam-103300-05 decreased the co2 and water slug sizes varied its wag ratio and improved the placement of injectants by using polymer gel technology and drilling directional wells on date one of taxpayer’s engineers drafted a memorandum discussing the expected impact of these changes with the modifications to the project discussed above the taxpayer will be able to recover an additional n stbo from the project_area after date of this expected recovery o stbo would be attributable to injections made prior to and the remaining p stbo recovered would be attributable to the taxpayer’s activities after date if the project plan as implemented in date were continued for the expected life of the project the project would recover q stbo from the project_area the modifications will result in an increased recovery_of r stbo from the project_area over the project as implemented with respect to the activities at issue in this request the taxpayer has not drilled new wells or perforated new intervals within the reservoir the taxpayer has claimed credits under sec_43 with respect to its post-1990 activities in its pre-1991 project_area the taxpayer has also claimed credits under sec_43 with respect to portions of the unit which were not in the pre-1991 project_area which are not at issue in this request law and regulations sec_43 provides an enhanced_oil_recovery_credit in an amount equal to percent of the taxpayer's qualified_enhanced_oil_recovery_costs for such taxable_year sec_43 provides that the term qualified_enhanced_oil_recovery_project means any project-- i which involves the application in accordance with sound engineering principles of or more tertiary recovery methods as defined in sec_193 which can reasonably be expected to result in more than an insignificant increase in the amount of crude_oil which will ultimately be recovered ii which is located within the united_states within the meaning of sec_638 and iii with respect to which the first injection of liquids gases or other matter commences after date a qualified eor project must result in more than an insignificant increase in the amount of crude_oil that ultimately will be recovered sec_1_43-2 provides that all the facts and circumstances determine whether the application of a tertiary_recovery_method can reasonably be expected to result in more than an insignificant increase in the amount of crude_oil that ultimately will be recovered certain information submitted as part of a project certification is relevant to this determination see sec_1_43-3 in no event is the application of a recovery method that merely accelerates the recovery_of crude_oil considered an application of one or more qualified tertiary recovery methods that can reasonably be expected to result in more than an insignificant increase in the amount of crude_oil that ultimately will be recovered sec_43 is available to a new qualified eor project commenced after date sec_43 was enacted as part of the revenue reconciliation act of p l section d of the act contained an exception to the december tam-103300-05 requirement where a pre-existing project is significantly expanded the senate_finance_committee states that a project will not be considered as substantially expanded to the extent it affects acreage to which an eor method has previously been applied see cong rec s15629 date reprinted in h_r rep no however the significant expansion provision was not included in sec_43 as it was enacted proposed_regulations under sec_43 were published on date see fr the proposed_regulations pursuant to the legislative_history of sec_43 contained an exception to sec_43 for a significant expansion in addition to the unaffected acreage language from the legislative_history the proposed_regulations provided for significant expansions into a new reservoir and due to the termination of the pre-existing project the preamble to the final regulations states that the comments received suggest that in lieu of the requirement that a significant expansion must affect substantially unaffected acreage or a previously unaffected reservoir a project should be considered significantly expanded if it affects previously unaffected reservoir volume commentators indicate that the term ‘reservoir volume’ more realistically reflects the three-dimensional concept petroleum engineers use in measuring reserves and the ultimate recovery_of oil in place see td fr final regulations under sec_43 were promulgated on date reflecting the comments received sec_1_43-2 provides that if a project for which the first injection of liquids gases or other matter within the meaning of sec_43 occurred before date is significantly expanded after date the expansion is treated as a separate project for which the first injection of liquids gases or other matter occurs after date sec_1_43-2 provides that a project is considered significantly expanded if the injection of liquids gases or other matter after date is reasonably expected to result in more than an insignificant increase in the amount of crude_oil that ultimately will be recovered from reservoir volume that was substantially unaffected by the injection of liquids gases or other matter before date in addition sec_1_43-2 provides rules for a significant expansion due to the termination of the pre-existing project and sec_1_43-2 provides for a significant expansion due to a change in the tertiary_recovery_method example of sec_1_43-2 illustrates the more intensive application of a tertiary_recovery_method in f the owner of an operating_mineral_interest in a property undertook an immiscible carbon dioxide displacement enhanced oil recovery project f began injecting carbon dioxide into the reservoir under immiscible conditions the injection of carbon dioxide under immiscible conditions resulted in more than an insignificant increase in the ultimate recovery_of crude_oil from the property f continues to inject the same amount of carbon dioxide into the reservoir until when new engineering studies indicate that an increase in the amount of carbon dioxide injected is reasonably expected to result in a more than insignificant increase in the amount of crude_oil that would be recovered from the property as a result of the previous injection tam-103300-05 of carbon dioxide the increase in the amount of carbon dioxide injected affects the same reservoir volume that was affected by the previous injection of carbon dioxide because the additional carbon dioxide injected in does not affect reservoir volume that was substantially unaffected by the previous injection of carbon dioxide and the previous immiscible carbon dioxide displacement method was not terminated for more than months before additional carbon dioxide was injected the increase in the amount of carbon dioxide injected into the reservoir is not a significant expansion therefore it is not a separate project for which the first injection of liquids gases or other matter occurs after date in summary sec_43 requires that a qualified eor project can reasonably be expected to result in more than an insignificant increase in the amount of crude_oil which will ultimately be recovered where an eor project that was implemented before date is significantly expanded the expansion will be treated as a separate project the significant expansion of an eor project must reasonably be expected to result in more than an insignificant increase in the amount of crude_oil which will ultimately be recovered in addition to the expected ultimate recovery_of the pre-existing eor project the significant expansion at issue in this request requires a showing that the increase in the expected ultimate recovery will be recovered from reservoir volume that was substantially unaffected by the injection of liquids gases or other matter before date taxpayer’s position the taxpayer’s theory of a significant expansion is based on a hypothetical termination of the eor project commenced in date the taxpayer defines substantially unaffected reservoir volume as any pore volume that has not been physically contacted or occupied by injectant as of date under this snapshot theory any incremental oil which the taxpayer would not have recovered had the original eor project been terminated on date is necessarily from unaffected reservoir volume any injection after date that leads to the recovery_of incremental oil which would not have been recovered but for the post-1990 injections establishes that the pre-existing eor project has been significantly expanded further the taxpayer takes the position that it may demonstrate an increase in the expected ultimate recovery by comparing the amount of additional recovery over the intended life of the project with the additional recovery possible had the project been terminated on date by this measure taxpayers increase their expected ultimate recovery every day that they do not choose to terminate a project in the alternative the taxpayer argues that it may show an increase in the expected ultimate recovery by comparing the expected ultimate recovery_of the project as implemented before with the expected ultimate recovery with the modifications made to the project after tam-103300-05 analysis as an initial matter it would appear that the taxpayer’s activities at best fall squarely within the description of a more intensive application of a tertiary_recovery_method contained in example of sec_1_43-2 in both cases the taxpayer is undertaking a co2 project and alters the injection volume to improve performance the taxpayer’s expansion theory is based on modifications consistent with its original project plan which reduce the individual wag slug size and result in an expected increase in target hcpv while these modifications could be resulting in an additional r stbo the facts of example also assume an increase in ultimate recovery example shows a scenario where a taxpayer continues to operate a pre-1991 eor project in the same reservoir volume with only modifications that are consistent with the original project plan the phrase more intensive application is not limited to an increase in the volume of injectant used while the size of individual injection cycles may be reduced the overall amount of injectant can be increased by maintaining the injections over a longer period of time where as here a taxpayer accomplishes a more effective and efficient application of the tertiary method through a reduction of the volume injected the taxpayer has nonetheless achieved a more intensive application of the method further alterations to improve the efficiency of the project are routinely done by engineers throughout the life of an eor project the taxpayer takes the position that unlike example of sec_1_43-2 the taxpayer has significantly expanded the project to affect previously unaffected reservoir volume the taxpayer’s theory of significant expansion is based on a snapshot of the project on date as if there had been a hypothetical termination of the eor project commenced in date on date the taxpayer’s snapshot theory has no support in the regulations under sec_43 the taxpayer’s definition of substantially unaffected reservoir volume is based on the incremental oil that would remain unrecovered had the original eor project been terminated on date the sec_43 regulations provide separate rules governing a significant expansion due to an actual termination of the original eor project section sec_1_43-2 allows a taxpayer that has terminated its eor project for more than months or for less than months with permission to restart the pre-existing eor project as a new project for purposes of sec_43 in contrast sec_1_43-2 assumes that the taxpayer will continue to operate the pre-existing nonqualifying eor project in the affected reservoir volume with the expansion treated as a separate eor project sec_1_43-2 cannot be interpreted as allowing the mere continuation of the same eor project to be considered a significant expansion because sec_1_43-2 presupposes that the pre-existing project will continue parallel to the expansion while the taxpayer bases its position on sec_1_43-2 the taxpayer seeks to apply the theory behind sec_1_43-2 to justify the continuation of the same project essentially unchanged without the need to have terminated its project as required by sec_1_43-2 because sec_1_43-2 and sec_1 tam-103300-05 d operate as separate provisions the taxpayer may not selectively borrow from either to achieve the most advantageous result the taxpayer’s reading of the sec_43 regulations would produce the absurd result of creating a rule for terminated projects that is appreciably more harsh than for a taxpayer who uses a hypothetical termination of the project as the basis of a significant expansion the significant expansion exception should not be interpreted as creating a contradiction between sec_1_43-2 and sec_1_43-2 further the taxpayer’s reading of the regulations would rob sec_43 of all meaning the taxpayer’s interpretation would leave virtually no chance that a nonqualifying eor project implemented before date would fail to meet the significant expansion exception the possibility is remote that the continuation of an ongoing eor project will not result in the recovery_of more oil than would have been recovered had the project been terminated on date given that there is no statutory provision for significant expansions the statutory authority for the exception is very limited therefore the regulation should not be interpreted as the taxpayer has in such a way as to render sec_43 meaningless there is no indication that congress would have intended such a result there is no guidance in sec_1_43-2 as to what is meant by the term substantially unaffected reservoir volume there is no provision in the statute which provides for a significant expansion of any kind and therefore there is no definition of substantially unaffected reservoir volume contained in the code under the legislative_history of sec_43 a significant expansion was to be treated as if it were a new project as discussed above the senate_finance_committee states that a project will not be considered as significantly expanded to the extent it affects acreage to which an eor method has previously applied see cong rec s15629 date reprinted in h_r rep no in finalizing sec_1_43-2 the service felt that the acreage concept was too restrictive in that it did not allow for expansions in a vertical sense leading to the reservoir volume language published in the final regulations the reservoir volume language included in the final regulations allowed a taxpayer to receive the credit for undertaking new activities in a portion of the reservoir which would not have been reached by the pre-existing eor project without the taxpayer having to show that the project reached new acreage or a new reservoir in order to produce oil from a reservoir the well bore must be open to the flow of oil from the reservoir rock this is accomplished through the use of perforations in the well casing perforations are also the means by which liquids gases or other matter is injected into the reservoir in efforts to enhance oil recovery thus the wells and their perforations are the means to access volumes of reservoir rock that are potentially affected by an eor method essentially between the injection wells and the producing wells lies the reservoir volume that is affected by the eor project in order to affect volumes of the reservoir unaffected by previous eor efforts we believe it obvious that at the least new wells or new perforations are required tam-103300-05 the legislative_history and the preamble to the final regulations supports interpreting sec_1_43-2 such that a project will not be considered significantly expanded to the extent that it affects a reservoir volume to which an eor method has been previously applied as mentioned above sec_1_43-2 assumes that the pre-existing eor project will continue in the previously affected reservoir volume as a result to demonstrate a significant expansion into previously unaffected reservoir volume a taxpayer must be able to demonstrate that it began injecting into new acreage a new reservoir or a new portion of the reservoir such as a new interval or zone in the reservoir into which it had not been injecting the tertiary_injectant under the pre-existing eor project this can be demonstrated by a showing that new wells were drilled to new acreage new reservoirs or a new interval or zone in the reservoir that perforations were made in new intervals of the reservoir or that injections were made into pre-existing perforations which had never received injections prior to a taxpayer must also demonstrate that the first injection into these new portions of the reservoir was made after date sec_1_43-3 sets out the detailed information required for certification under sec_1_43-3 necessary for demonstrating that an eor project has been significantly expanded sec_1_43-3 requires an adequate delineation of the reservoir or portion of the reservoir from which the ultimate recovery_of crude_oil is expected to be increased as a result of the implementation and operation of the project additionally sec_1_43-3 provides that if an expansion affects reservoir volume that was substantially unaffected by a previously implemented project the taxpayer must provide an adequate delineation of the reservoir volume affected by the previously implemented project therefore to certify that a project has been significantly expanded a taxpayer must be able to compare the portion of the reservoir from which the increase in ultimate recovery is expected with the reservoir volume affected by the pre-existing eor project because a reservoir has a shape in three dimensions an adequate delineation of necessity requires a three dimensional depiction of the portion to be affected delineation of a reservoir or portion thereof is virtually always accomplished through the use of specialized diagrams such as contour maps cross sections or drawings using perspective in order to show the reservoir in three dimensions while it is conceivable that this delineation can be accomplished by a detailed narrative description this is rarely if ever done as a matter of industry practice the use of these representational tools is universal in the oil industry indeed their use is fundamental to the training of industry professionals at the most basic level moreover the oil industry well understands this type of adequate delineation as a similar delineation was required for the administration of the windfall profit tax of the taxpayer submitted such representational tools in its original self-certification of the pre-existing eor project under the windfall profit tax these tools were also used by taxpayers commenting on the proposed_regulations under sec_43 these comments provided the basis for the more liberal substantially unaffected reservoir volume rule_of the final regulations which was substituted for the acreage rule_of the proposed_regulations tam-103300-05 the requirement of a three dimensional representation which compares the pre-existing eor project_area with the area in which the additional expansion project will be implemented reflects the assumption in sec_1_43-2 that the pre-existing eor project will continue in addition to the expansion as discussed above the taxpayer’s claim of a significant expansion is based on a hypothetical termination of the process rather than the legislative intent of the significant expansion exception the taxpayer’s submission including the taxpayer’s sec_1_43-3 certification does not provide a basis on which a determination that there has been a significant expansion into substantially unaffected reservoir volume can be made because technical_advice has not been requested on the sufficiency of the taxpayer’s certification no opinion is expressed here however the taxpayer has not submitted an adequate delineation of the reservoir volumes affected by the pre-existing project and the claimed expansion as required by sec_1_43-3 the taxpayer has not submitted the representational tools generally used for the delineation of the reservoir volume nor has the taxpayer submitted a detailed narrative containing the information which would have been provided by these tools the taxpayer has shown that it continued the same project first implemented in date at no point was the project terminated with respect to the activities subject_to this request the taxpayer has continued its injections into the same reservoir volume and has not demonstrated that it has injected into a reservoir volume which had not received injections before date where the taxpayer has injected into new portions of the reservoir the service has allowed the taxpayer’s credit and those activities were not included in this request the new activities which the taxpayer points to as evidence of an expansion are intended to improve the efficiency and effectiveness of the pre-existing project rather than reach new portions of the reservoir the taxpayer’s modifications of its pre-existing project are consistent with its original project plan and the taxpayer has provided no evidence that the modifications required any new permitting further while the taxpayer’s definition of unaffected reservoir volume has no legal support it also ignores the factual realities of its own eor project under the taxpayer’s definition of unaffected reservoir volume only that portion of the reservoir that has been actually swept by the injectant has been affected by the pre-existing eor project however this theory is simply does not accurately represent the mechanics of the taxpayer’s miscible wag method as described above under a miscible wag project the viscosity of the oil is reduced by co2 allowing the water drive mechanism to sweep the oil toward producing wells the taxpayer’s theory does not take into account the effect of the drive mechanism on the entire project_area the taxpayer’s pre-existing eor project would by design affect a much larger portion of the reservoir than that which was actually swept before date if the reservoir volume already swept was the only portion of the reservoir affected by the project the miscible wag method would not function as described therefore the taxpayer’s definition of unaffected reservoir volume is overly broad tam-103300-05 in conclusion the taxpayer has not shown that it has undertaken anything more than the continuation of the original eor project in the same reservoir volume with the expected engineering modifications aimed at optimizing the project as originally implemented because taxpayer has not shown any activities beyond the modification of the amount of injectant injected into the same reservoir volume it has not established that it has increased the expected ultimate recovery_of the pre-existing eor project through the recovery_of oil from reservoir volume that was substantially unaffected by the injection of liquids gases or other matter before date further the taxpayer has not terminated the pre-existing project or utilized a new eor recovery method therefore based on the foregoing we conclude that the taxpayer has not significantly expanded its pre-existing eor project caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


department of the treasury internal_revenue_service washington d c r tax exempt and government entities jan uic t ep rat legend taxpayer a taxpayer b ira x roth_ira y tra z roth_ira w company l company m accounting firm n date date page country k dear this is in response to the letter submitted by your authorized representative on your behalf as supplemented by correspondence dated in which you request relief under sec_301_9100-3 of the procedure and administration regulations the following facts and representations support your ruling_request taxpayer a maintained ira x an individual_retirement_arrangement described in code sec_408 with company l on date taxpayer a converted ira x to a roth_ira roth_ira y also with company l taxpayer a also maintained ira z an individual_retirement_arrangement described in code sec_408 with company m on date taxpayer a converted ira z to a roth_ira roth_ira w also with company m at the time of the ira conversion referenced above taxpayer a resided in country k taxpayer b an enrolled_agent advised taxpayer a to convert her iras x and z to roth iras y and w because taxpayer b who prepared taxpayer a’s federal_income_tax return believed that taxpayer a’s conversion of her traditional iras to roth iras was valid since taxpayer a’s adjusted_gross_income as shown on the federal_income_tax return which she prepared did not exceed dollar_figure thus taxpayer a whose filed her federal_income_tax return as head_of_household believed on date that her taxable_income did not exceed dollar_figure taxpayer a engaged accounting firm n to prepare her federal_income_tax return during the preparation of said return on date accounting firm n advised taxpayer a that her federal_income_tax return was erroneous because she failed to report income that she earned outside of the united_states accounting firm n subsequently prepared an amended federal_income_tax return for taxpayer a which indicated that her adjusted_gross_income exceeded dollar_figure thus taxpayer a was ineligible to convert her traditional iras iras x and z to roth iras iras y and w accounting firm n subsequently filed this request for relief under sec_301_9100-3 of the procedure and administration regulations on behalf of taxpayer a this request for relief under sec_301_9100-3 of the procedure and administration regulations was filed with the internal_revenue_service prior to the service’s discovering that taxpayer a was not eligible to convert her iras x and z to hee page roth iras y and w and also prior to the service’s discovering that taxpayer a had not timely recharacterized her roth iras y and w as traditional iras as of the date of this ruling_request taxpayer a’s roth iras y and w had not been recharacterized as noted above although the return did not reflect her correct federal adjusted_gross_income taxpayer a timely filed her calendar_year federal_income_tax return is not a closed tax_year based on the above you through your authorized representative request the following letter_ruling that pursuant to sec_301_9100-3 of the regulations taxpayer a is granted a period not to exceed six months from the date of this ruling letter to recharacterize her roth iras roth iras y and w as traditional iras with respect to your request for relief under sec_301_9100-3 of the regulations sec_408a of the internal_revenue_code and sec_1_408a-5 of the income_tax regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer’s federal_income_tax returns for the year of contributions sec_1_408a-5 question and answer-6 describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer’s intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer code sec_408a provides in relevant part that an individual with adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to make a qualified_rollover_contribution to a roth_ira from an individual_retirement_plan other than a roth_ira during that taxable_year page sec_1_408a-4 q a-2 provides in summary that an individual with modified_adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the procedure and administration regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 of the regulations provides that the commissioner of the internal_revenue_service in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 of the regulations generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section of page announcement lr b date provided that a taxpayer who timely filed his her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira announcement ilr b date provided that a taxpayer who timely filed his her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira taxpayer a timely filed her federal_income_tax return as a result taxpayer b was eligible for relief under either announcement or announcement however she missed the deadlines found in said announcements therefore it is necessary to determine if she is eligible for relief under the provisions of sec_301_9100-3 of the regulations in this case taxpayer a was ineligible to convert her iras x and z to roth iras y and w since her adjusted_gross_income exceeded dollar_figure however at the time of the conversion and until she discovered otherwise as a result of her contacts with accounting firm n during calendar_year taxpayer a believed that her iras x and z had been properly converted to roth iras roth_ira y and roth_ira w furthermore taxpayer a’s ineligibility to convert her iras x and z to roth iras y and w and her failure to timely recharacterize her roth iras y and w were not discovered by the service prior to her filing this request for letter_ruling with respect to your request for relief we believe that based on the information submitted and the representations contained herein the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been met and that you have acted reasonably and in good_faith with respect to making the election to recharacterize your roth iras as traditional iras specifically the service has concluded that you have met the requirements of clauses i and v of sec_301_9100-3 of the regulations therefore with respect to your ruling_request the service concludes as follows that pursuant to sec_301_9100-3 of the regulations taxpayer a is granted a period of time not to exceed six months from the date of this letter_ruling or if shorter a period of time not to exceed the remaining statute_of_limitations applicable to taxpayer a’s federal_income_tax return to recharacterize her roth iras y and w to traditional iras 2k page no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer that requested it section j of the code provides that it may not be used or cited as precedent please note that in conjunction with recharacterizing taxpayer a’s roth iras y and w taxpayer a must file an amended calendar_year federal_income_tax return consistent with this ruling letter pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative this letter_ruling was prepared by he can be reached at of this branch sincerely yours cw som manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of ruling letter notice of intention to disclose hy7


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b05 - plr-109772-00 date date acquiring target state a this letter responds to your representative’s date request for rulings on the federal_income_tax consequences of a proposed transaction additional information was submitted in a letter dated date the information submitted for consideration is summarized below acquiring is organized under the laws of state a and operates as a diversified open-end management company acquiring has elected to be taxed as a regulated_investment_company ric under of the internal_revenue_code target is organized under the laws of state a and operates as a non-diversified open-end management company target has elected to be taxed as a ric under plr-109772-00 acquiring and target each offers four classes of shares class a class b class c and class d with identical rights and fees with respect to each class each of acquiring and target is widely held both file their income_tax returns based on the accrual_method of accounting each of acquiring and target is registered under the investment_company act of the directors of acquiring and target have approved a plan_of_reorganization for what is represented to be valid business reasons pursuant to the plan the following transaction is proposed the transaction target will transfer all of its assets and liabilities to acquiring in exchange for equal value of newly issued acquiring class a class b class c and class d shares the total value of the newly issued shares received by target shareholders will represent less then of the value of acquiring after the transaction target will liquidate and distribute to its shareholders all of the acquiring stock received in the exchange each target shareholder will receive on a pro_rata basis shares of the class of acquiring stock with the same class designation and respective rights as the target stock held by such shareholder immediately prior to the transfer target will dissolve in accordance with the laws of state a and will terminate its registration under the act acquiring may sell up to of the assets received in the transaction to unrelated purchasers and will reinvest any proceeds consistent with its investment objectives and policies the following representations have been made in connection with the transaction a b the fair_market_value of the acquiring stock received by each target shareholder will be approximately equal to the fair_market_value of the target stock surrendered in the exchange acquiring will acquire at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by target immediately prior to the transaction for purposes of this representation amounts paid_by target to shareholders who receive cash or other_property amounts used by target to pay its reorganization expenses and all redemptions and distributions except for redemptions in the ordinary course of target’s business as an open-end investment_company as required by sec_22 of the act pursuant to a plr-109772-00 demand of a shareholder and regular normal dividends made by target immediately preceding the transfer will be included as assets of target held immediately prior to the transaction there will be no payments to dissenters acquiring has no plan or intention to reacquire any of its stock issued in the transaction except in connection with its legal obligations under sec_22 of the act after the transaction acquiring will use the assets acquired from target in its business except that a portion of these assets may be sold or otherwise_disposed_of in the ordinary course of acquiring’s business any proceeds will be invested in accordance with acquiring’s investment objectives acquiring has no plan or intention to sell or dispose_of any of the assets of target acquired in the transaction except for dispositions made in the ordinary course of business target will distribute to its shareholders the stock of acquiring it receives pursuant to the plan_of_reorganization the liabilities of target assumed by acquiring and any liabilities to which the transferred assets of target are subject were incurred by target in the ordinary course of its business following the transaction acquiring will continue the historic_business of target or use a significant portion of target’s historic_business_assets in the continuing business acquiring target and the shareholders of target will pay their respective expenses if any incurred in connection with the transaction there is no intercorporate indebtedness existing between target and acquiring that was issued acquired or will be settled at a discount acquiring and target each meets the requirements of a regulated_investment_company as defined in sec_368 acquiring does not own directly or indirectly nor has it owned during the past five years directly or indirectly any stock of target the fair_market_value of the assets of target transferred to acquiring will equal or exceed the sum of the liabilities assumed by acquiring plus the amount of liabilities if any to which the transferred assets are subject c d e f g h i j k l plr-109772-00 m n o p target is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 target and acquiring have elected to be taxed as rics under sec_851 and for all of their taxable periods including target’s last short taxable_period ending on the date of the transaction have qualified for the special tax treatment afforded rics under the internal_revenue_code after the transaction acquiring intends to continue to so qualify there is no plan or intention for acquiring the issuing_corporation as defined in sec_1_368-1 or any person related as defined in sec_1 e to acquiring to acquire during the five year period beginning on the date of the transaction with consideration other than acquiring stock acquiring stock furnished in exchange for a proprietary interest in target in the transaction either directly or through any transaction agreement or arrangement with any other person except for redemptions in the ordinary course of acquiring’s business as an open-end investment_company as required under sec_22 of the investment_company act of as amended act during the five year period ending on the date of the transaction i neither acquiring nor any person related as defined in sec_1_368-1 to acquiring will have acquired target stock with consideration other than acquiring stock ii neither target nor any person related as defined in sec_1_368-1 without regard to sec_1_368-1 to target will have acquired target stock with consideration other than acquiring stock or target stock and iii no distributions will have been made with respect to target stock except for redemptions in the ordinary course of target’s business as an open-end investment_company as required under sec_22 of the act of and iii no distributions will have been made with respect to target stock other than regular normal dividend distributions made pursuant to target’s historic dividend paying practice either directly or through any transaction agreement or arrangement with any other person except for a cash paid to dissenters and b distributions described in sec_852 and sec_4982 as required for target’s tax treatment as a ric q the aggregate value of the acquisitions redemptions and distributions described in paragraphs o and p above will not exceed percent of the value without giving effect to the acquisitions redemptions and distributions of the proprietary interest in target on the effective date of the transaction based solely on the information submitted and on the representations set forth plr-109772-00 above we hold as follows the acquisition by acquiring of substantially_all of the assets of target in exchange for voting_stock of acquiring and acquiring’s assumption of target’s liabilities followed by the distribution by target to its shareholders of acquiring stock and any remaining assets in complete_liquidation will qualify as a reorganization within the meaning of sec_368 target and acquiring will each be a_party_to_a_reorganization within the meaning of sec_368 target will recognize no gain_or_loss upon the transfer of substantially_all of its assets to acquiring in exchange for voting_stock of acquiring and acquiring’s assumption of target’s liabilities or upon the distribution of the acquiring stock to the target shareholders sec_361 and c and a acquiring will recognize no gain_or_loss on the receipt of the assets of target in exchange for voting_stock of acquiring sec_1032 the basis of target’s assets in the hands of acquiring will be the same as the basis of those assets in the hands of target immediately prior to the transaction sec_362 acquiring’s holding_period for the target assets acquired will include the period during which such assets were held by target sec_1223 the target shareholders will recognize no gain_or_loss on the receipt of voting_stock of acquiring solely in exchange for their target stock including fractional shares to which they may be entitled sec_354 the basis of the acquiring stock received by the target shareholders will be the same as the basis of the target stock surrendered in exchange therefor sec_358 the holding_period of the acquiring stock received by the target shareholders in exchange for their target stock including fractional shares to which they may be entitled will include the period that the shareholder held the target stock exchanged therefor provided that the shareholder held such stock as a capital_asset on the date of the exchange sec_1223 pursuant to sec_381 and sec_1_381_a_-1 the tax_year of target will end on the effective date of the transaction and acquiring will succeed to and take into account the items of target described in sec_381 subject_to the provisions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the plr-109772-00 regulations thereunder no opinion is expressed about the tax treatment of the transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above rulings specifically no opinion was requested and none is expressed about whether acquiring or target qualify as a ric that is taxable under subchapter_m part of the code the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant sincerely yours associate chief_counsel corporate by debra carlisle chief branch cc


internal_revenue_service department of the treasury index number washington dc number release date x a b d1 person to contact telephone number refer reply to cc dom p si - plr-118586-98 date date year dear this letter responds to your letter dated date and subsequent correspondence submitted by you as x’s authorized representative on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a and b are the sole shareholders of x a x’s president represents that x originally intended to be an s_corporation however although a form_2553 election by a small_business_corporation was prepared and signed by the shareholders the shareholder responsible for filing the form failed to do so sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours h grace kim assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------------------ ------------------------------ ------------------------------------------------------------ ---------------------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b07 plr-137633-06 date date grantors trust trust trust trust ----------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- ----------------------- ----------------------- ----------------------- ----------------------- -------------------------------------------------------------------------------------------- ------------------ date grandchild ------------------------------------------- grandchild ------------------------------------------------ grandchild -------------------------------------------- grandchild ----------------------------- trust date date date date trustee trustee state trustee ----------------------- -------------------------- ------------------ ------------------------- ----------------------- ------------------------------------ -------------------------- ------------- -------------------- dear -------------------- plr-137633-06 this letter responds to your letter dated date requesting that the proposed modifications to trust will not cause certain trusts to lose their status as exempt from the generation-skipping_transfer gst tax grantors created trust trust trust and trust collectively the grandchildren’s trusts on date the grandchildren’s trusts have identical trust terms except for the identity of the primary beneficiary trust is for the benefit of grandchild and her lineal_descendants trust is for the benefit of grandchild and her lineal_descendants trust is for the benefit of grandchild and her lineal_descendants trust is for the benefit of grandchild and her lineal_descendants grantors created trust on date for the benefit of their great-grandchildren the provisions of the trusts governing trustee succession were modified by court order on date on date trust was reformed to conform with the grantors’ intentions regarding accumulation and distribution of income for the benefit of the trust beneficiaries on date the service ruled that the reformation of trust would not cause trust to lose its status as exempt from the gst tax the service further ruled that the reformation would not cause any party to be subject_to income or gift_tax date date and date are before date date and date are after date trustee and trustee currently serve as trustees of trust trust trust trust and trust the taxpayer represents that trust trust trust trust and trust were irrevocable on date and no additions actual or constructive have been made to any of the trusts after date the trustees propose to modify various administration provisions of the trusts paragraph of the each trust agreement as amended on date provides that there shall be at least two co-trustees either individual or corporate trustee and any co-trustee who is a lineal descendant of the grantors shall have the right to appoint his or her successor after reaching thirty-five years of age each grandchild has the right to become a co-trustee or appoint a co-trustee and successors if there are more than three co-trustees serving a majority may remove any co-trustee who is not a lineal descendant of the grantors trustee may remove any co-trustee other than a grandchild of the grantors or a co-trustee appointed by a grandchild of the grantors if there are not at least two co-trustees a successor co-trustee shall be named by a co- trustee who is a lineal descendant of the grantors if there is none a successor shall be named by the co-trustee and a majority of the then adult income beneficiaries and the guardians of any other income beneficiaries paragraph of each trust will be replaced with a new paragraph the new paragraph a will provide that the current co-trustees shall be trustee and trustee collectively current co-trustees if either current co-trustee becomes unwilling or plr-137633-06 unable to serve the remaining current co-trustee and the independent_trustee shall serve as co-trustees and thereafter there shall be an independent_trustee serving at all times if neither current co-trustee is willing and able to serve the successor co- trustees shall be the independent_trustee and those of the grantors’ grandchildren who are willing and able to serve and thereafter there shall be at least three co-trustees serving at all times one of whom shall be the independent_trustee and the rest of whom shall be referred to as other trustees the new paragraph b shall provide that at any time both current co-trustees are serving the eligible voters by a vote of at least of the eligible votes shall have the power to remove either acting current co-trustee at any time that only one current co-trustee is serving the eligible voters shall have the power to remove that acting current co-trustee with a vote of at least of the eligible votes the new paragraph c shall provide that each other trustee shall have the power to designate his or her immediate successor unless that other trustee is removed by the eligible voters pursuant to paragraph d except as otherwise provided in paragraph d if an other trustee becomes unwilling or unable to serve and no successor designated by that other trustee is willing and able to serve the remaining co-trustees may but are not required to appoint a successor other trustee to fill that vacancy if at least two other trustees are then serving or shall be required to appoint a successor other trustee if the vacancy would result in fewer than two other trustees serving in the event that fewer than two other trustees are serving and the vacancy is not filled as provided in the preceding provisions of paragraph c that vacancy may be filled by a successor other trustee appointed by the eligible voters by a vote of at least of the eligible votes in the event that fewer than two other trustees are serving and the vacancy is not filled as provided in the preceding provisions of paragraph c a successor other trustee shall be selected by a court of competent jurisdiction all trusts created under the trust agreements that hold interests in the same family business shall have the same other trustees the new paragraph d shall provide that the eligible voters by a vote of at least shall have the power to remove any acting other trustee if the removal would reduce the number of other trustees below two the eligible voters may not remove the other trustee unless they appoint a successor other trustee by a vote of at least of the eligible voters at any time that two or more other trustees are serving the eligible voters by a vote of at least may appoint one or more additional other trustees to serve with the co-trustees the new paragraph e shall provide that the original independent_trustee will be trustee if trustee or any successor independent_trustee is or becomes unwilling or unable to serve and if the remaining current co-trustee is serving the remaining current co-trustee shall select a successor independent_trustee except as otherwise provided each independent_trustee shall have the power to designate his or her immediate plr-137633-06 successor if an independent_trustee fails to name a successor the other trustees who are then serving shall appoint a successor independent_trustee if the other trustees fail to appoint a successor the eligible voters by a vote of at least may appoint a successor independent_trustee if the eligible voters fail to appoint a successor a court of competent jurisdiction shall appoint a successor independent_trustee no person who is a_related_or_subordinate_party as defined in sec_672 of the code with respect to any income_beneficiary of trust trust trust trust or trust shall be eligible to serve as an independent_trustee the new paragraph f shall provide that at any time that an independent_trustee other than trustee is serving with the remaining current co-trustee the remaining current co-trustee shall have the power to remove that independent_trustee and to appoint a successor independent_trustee at any time that trustee is serving as the independent_trustee with the remaining current co-trustee or at any time that neither current co-trustee is serving the eligible voters by a vote of at least shall have the power to remove the independent_trustee and to appoint a successor the new paragraph g shall provide that the eligible votes shall be determined in the following manner trustee and trustee shall each be entitled to three votes each living grandchild of the grantors shall be entitled to one vote the descendants of each grantors’ grandchild who is then deceased and survived by descendants collectively shall be entitled to one vote which shall be allocated among those descendants who shall be permitted to cast their votes independently and shall not be required to vote as a block by right of representation for purposes of the preceding provisions of this paragraph any person who has resigned as an eligible voter is incapacitated or is a minor shall be treated as if he or she were deceased the new paragraph n shall provide that except as otherwise provided if there are two co-trustees serving all decisions shall be unanimous and if more than two co- trustees are serving the decision of the majority shall control if a trustee is prohibited under the terms of the trust agreement from exercising any power authority or discretion that power authority or discretion shall be exercisable by any co-trustees who are not so prohibited or if there are none shall not be exercisable the new paragraph t shall provide that no trustee shall exercise any power authority or discretion otherwise granted to the trustees in the trust agreement if that power authority or discretion would cause that trustee to be treated as having a general_power_of_appointment under sec_2041 of the code any power authority or discretion that a trustee is prohibited from exercising pursuant to the provisions of this paragraph shall be exercisable by any acting trustees who are not so prohibited or if there are none shall not be exercisable the trusts’ assets consist of bank accounts and ownership_interest in a limited_liability_company that manages farming enterprises commercial real_estate and stock plr-137633-06 portfolios the trustees also propose to modify certain trust provisions relating to the trustees’ powers and duties in connection with managing the limited_liability_company the provisions allow trustees to serve in management positions in the limited_liability_company and protect against liability for management decisions except in the case of gross negligence bad faith or reckless indifference the proposed modifications further permit amendments to the trust agreements with respect to the provisions relating to the management of the limited_liability_company and the exculpation of the trustees by a vote of of the eligible voters the eligible voters are not authorized to change any other terms of the trusts or to retroactively increase a trustee’s liability sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 defines the term generation-skipping_transfer as a taxable_distribution a taxable_termination and a direct_skip under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax provisions do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date however this exemption does not apply if additions actual or constructive are made to the trust after date sec_26_2601-1 of the generation-skipping_transfer_tax regulations provides that any trust in existence on date will be considered an irrevocable_trust except as provided in sec_26_2601-1 or c which relate to property includible in a grantor’s gross_estate under sec_2038 and sec_2042 sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in sec_26_2601-1 are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification plr-137633-06 does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust in addition administration of a_trust in conformance with applicable local law that defines the term income as a unitrust_amount or permits a right to income to be satisfied by such an amount or that permits the trustee to adjust between principal and income to fulfill the trustee’s duty_of impartiality between income and principal beneficiaries will not be considered to shift a beneficial_interest in the trust if applicable local law provides for a reasonable apportionment between the income and remainder beneficiaries of the total return of the trust and meets the requirements of sec_1_643_b_-1 of the income_tax regulations in the present case trust trust trust trust and trust are considered irrevocable because neither sec_2038 nor sec_2042 apply and each trust was irrevocable as of date in addition there have been no actual or constructive additions made to either trust since date accordingly trust trust trust trust and trust are exempt from gst tax the proposed modifications to trust trust trust trust and trust are administrative in nature and do not shift a beneficial_interest in any trust to any beneficiary who occupies a lower generation than the person or persons who hold the beneficial_interest prior to the modifications in addition the proposed modifications do not extend the time for vesting of any beneficial_interest beyond the period provided for in the original trust agreements thus the proposed modifications of trust trust trust trust and trust will not constitute an addition to any of the trusts will not cause any of the trusts to lose their exempt status under b a of the tax_reform_act_of_1986 and sec_26_2601-1 and will not subject distributions from any of the trusts to the gst tax plr-137633-06 except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s representatives sincerely melissa c liquerman melissa c liquerman senior technician reviewer branch passthroughs special industries cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 7-plr-109959-99 date date re ruling under sec_2702 of the internal_revenue_code legend taxpayer spouse trustee ranch date date a b dear we received your letter dated date in which you request several rulings on behalf of taxpayers concerning the application of sec_2702 of the internal_revenue_code this letter is in response to your request the represented facts are as follows on date taxpayer and spouse purchased an a acre tract of land taxpayer and spouse built a house garage and caretakers quarters on a on date taxpayer and spouse acquired a b acre tract of land adjacent a together the a and b tracts of land make up the ranch taxpayer and spouse own the ranch as tenants in common taxpayer and spouse use the ranch as a vacation home exclusively for residential purposes taxpayer and spouse represent that they have no intention at this time of selling any portion of the ranch in addition taxpayer and spouse represent that the property is not used for any business_purpose taxpayer and spouse also represent that they receive no rent from any guests or family members who may use the ranch generally taxpayer and spouse are present when guests use the ranch taxpayer and spouse each propose to create an irrevocable_trust and transfer their individual interests in the ranch to their respective trusts these trusts are intended to satisfy the requirements of a qualified_personal_residence_trust qprt under sec_25_2702-5 taxpayer and spouse expect that the ranch will be held for family residential purposes at the expiration of the qprt the terms of the trusts for taxpayer and spouse are identical paragraph a of article first of the proposed irrevocable trusts provides that the trusts will hold an interest_in_real_property constituting the personal_residence of the grantors taxpayer and spouse the grantors will have the right rent free to the use possession and enjoyment of the ranch as a personal_residence the grantors will pay all carrying costs associated with the ranch held in the trust from time to time and properly chargeable to grantor's interest hereunder and may at grantor's election pay all other costs associated with the ranch including costs of extraordinary repairs and improvements the trustee of the trusts shall have no responsibility for the payment of costs associated with the ranch except to the extent funds available therefor are held by the trustee in a separate_account pursuant to article fourth d hereof the trustee is to pay over or apply any net_income of each trust at the end of each calendar_year to or for the benefit of the grantors during the term of the trusts under this article first the trustees shall not pay over or apply any portion of the income or principal of the trust estate to or for the benefit of any person other than the grantor provided however that this sentence shall not be construed to prevent the payment by the trustee of expenses properly chargeable to the trust estate paragraph a of article first further provides that the trusts held under this article first shall terminate upon the first to occur of the death of the grantor of the trust or the expiration of a term of years from the date of this agreement the fixed term and the trustee shall thereupon dispose_of the principal of the trust estate as it is then constituted pursuant to the provisions of article second paragraph b of article first provides that during the term of the trusts under this article first the trustees may sell the personal_residence then held in the trusts at the request of the grantors and use the proceeds of any such sale to acquire a successor personal_residence satisfactory to the grantors which shall thereafter be held hereunder for the benefit of the grantors as provided above subject however to the provisions of paragraph d of this article first paragraph c of article first provides that if cash is held by the trustee pursuant to article fourth d a hereof the trustee shall determine at the end of each calendar_quarter whether the amounts held by the trust for the payment of expenses are in excess of the amounts permitted by article fourth d a and sec_25 c ii a of the special valuation rules and shall distribute immediately to the grantor any amounts in excess of the amounts so permitted paragraph d of article first states that notwithstanding the foregoing provisions if during the fixed term the trusts held under this article first ceases to be a qualified_personal_residence_trust qprt with respect to some or all of the trust assets then within thirty days after the date on which the trusts have ceased to be a qprt with respect to such assets the trustee shall convert and hold such assets in a separate trust pursuant to the terms and conditions of article third paragraph a of article second provides that if the grantor dies prior to the expiration of the fixed term then upon the grantor’s death the trust estate as it is then constituted shall be transferred conveyed and paid over to the grantor’s estate to be disposed of by the grantor’s executors or personal_representatives as provided in grantor’s last will and testament paragraph b and of article second provides that if the grantor survives the fixed term the trust estate as it is then constituted shall be disposed of as follows any amounts of cash held by the trustee pursuant to article fourth d a in excess of the amounts used to pay trust expenses due and payable on the date of termination of the fixed term including expenses related to termination shall be distributed to the grantor within thirty days of the expiration of the fixed term the principal of the trust estate as it is then constituted shall continue to be held by the trustee who shall pay over or apply the net_income and the principal to such extent in such amounts and proportions at such time or times as the trustee in the exercise of absolute discretion shall determine to or for the benefit of such one or more of the grantor’s descendants who are living at the time of payment in such shares as the trustee may determine in the exercise of absolute discretion any net_income not so paid over or applied shall be accumulated and added to the principal of the trust estate at least annually and thereafter held administered and disposed of as a part thereof paragraph b of article second provides that the trustee is authorized in the exercise of sole and absolute discretion to hold and maintain any residential_real_property or any interest therein at any time forming a part of the trust estate under this paragraph b of article second and to permit the grantor’s descendants living from time to time to occupy and to use any such residence either rent free or upon such terms and conditions as the trustee shall in the exercise of sole and absolute discretion deem appropriate paragraph b of article second provides that upon the death of the survivor of the grantor and the grantor’s spouse this trust shall terminate and the principal of the trust estate as it is then constituted shall be transferred conveyed and paid over to such of the grantor’s descendants who are then living per stirpes or if none to the descendants of the grantor’s parents who are then living per stirpes such beneficiaries to take any interest_in_real_property received hereunder as tenants in common paragraph a of article third provides in part that all property directed to be held in a separate trust pursuant to the terms and conditions of this article third shall be held by the trustee who shall pay to the grantor in each taxable_year of the trust held under this article third the amount the annuity amount determined under paragraph b of this article third paragraph a of article third further provides that the trustee shall not pay over or apply any portion of the income or principal of the trust estate to or for the benefit of any person other than the grantor provided however that this sentence shall not be construed to prevent the payment by the trustee of expenses properly chargeable to the trust estate paragraph b of article third provides that the annuity amount shall be the amount determined under sec_25_2702-5 as follows if on the conversion date the assets of the trusts held under this article third do not include a residence used or held for use as a personal_residence the annuity amount shall be an amount determined by dividing the lesser_of a the value of all interests retained by the grantors as of the date of the original transfer or transfers to the trusts held under article first or b the value of all the trust assets as of the conversion date by an annuity factor determined i for the original term of the trusts held under article first and ii using the rate used in valuing the retained_interest at the time of the original transfer to the trusts held under article first if on the conversion date the assets of the trusts include a residence used or held for use as a personal_residence the annuity amount shall be the amount determined under subparagraph of this paragraph b multiplied by a fraction a the numerator of which is the excess of i the fair_market_value of all the trust assets on the conversion date over ii the fair_market_value of the assets as to which the trust continues as a qprt and b the denominator of which is the fair_market_value of all the trust assets on the conversion date paragraph c of article third provides that for purposes of determining the annuity amount the value of the trust assets will be their fair_market_value for federal gift_tax purposes paragraph a of article fourth provides that it is the grantors’ intention by this agreement to create a qprt within the meaning of sec_2702 of the code and sec_25_2702-5 of the income_tax regulations accordingly the provisions of this agreement shall be construed and the trusts created hereunder shall be administered solely in accordance with said intention and in a manner consistent with that section of the code and those treasury regulations and with any successor section or regulations and any revenue rulings revenue procedures notices or other administrative pronouncements that may be issued thereunder by the internal_revenue_service should the provisions of the agreement be inconsistent or in conflict with such section regulations any successor section or regulations or any revenue rulings notices or other administrative pronouncements in effector issued from time to time then such section regulations successor section or regulations or rulings notices or administrative pronouncements shall be deemed to override and supercede the provisions which are set forth herein paragraph b of article fourth provides that except as otherwise provided in paragraph d of article fourth during the fixed term created under article first the trustee is prohibited from holding any asset in that trust other than one residence or an undivided fractional interest in one residence to be used or held for use withing the meaning of sec_25_2702-5 as a personal_residence by the grantor paragraph e of article fourth provides that the interest of the grantor in any trust created hereunder shall not be commuted paragraph f of article fourth provides that the trustee is prohibited from selling or transferring any personal_residence referred to in article first directly or indirectly to the grantor the grantor’s spouse or an entity controlled by the grantor or the grantor’s spouse during the fixed term created under article first or during any time after the fixed term during which time the trust is treated as owned by the grantor or the grantor’s spouse within the meaning of sec_671 to of the code if doing so would cause the trust to cease to qualify as a qprt under sec_25_2702-5 of the income_tax regulations you have requested the following rulings the ranch that taxpayer and spouse propose to transfer to the trusts satisfies the requirements of sec_2702 and sec_25_2702-5 the trust agreements satisfy the requirements of a qprt under sec_25_2702-5 sec_2702 provides that solely for purposes of determining whether a transfer of an interest in trust to or for the benefit of a member_of_the_transferor's_family is a gift and the value of the transfer the value of any interest in the trust retained by the transferor or any applicable_family_member as defined in sec_2701 will be determined as provided in sec_2702 sec_2702 provides that the value of any retained_interest which is not a qualified_interest will be treated as being zero the value of any retained_interest which is a qualified_interest will be determined under sec_7520 sec_2702 provides an exception to sec_2702 if such transfer involves the transfer of an interest in trust all the property in which consists of a residence to be used as a personal_residence by persons holding term interests in such trust sec_25_2702-5 of the gift_tax regulations provides in part that sec_2702 does not apply to a transfer in trust meeting the requirements of this section a_trust meeting the requirements of a qprt as defined in sec_25_2702-5 is treated as a personal_residence_trust sec_25_2702-5 provides that a qprt is a_trust meeting all the requirements of sec_25_2702-5 these requirements must be met by provisions in the governing instrument and these governing instrument provisions must by their terms continue in effect during the existence of any term_interest in the trust sec_25_2702-5 provides that for the purposes of sec_25_2702-5 a personal_residence of a term holder is either-- a the principal_residence of the term holder within the meaning of sec_1034 b one other residence of the term holder within the meaning of sec_280a but without regard to sec_280a or c an undivided fractional interest in either sec_25_2702-5 provides that a personal_residence may include appurtenant_structures used by the term holder for residential purposes and adjacent land not in excess of that which is reasonably appropriate for residential purposes taking into account the residence's size and location the fact that a residence is subject_to a mortgage does not affect its status as a personal_residence the term personal_residence does not include any personal_property eg household furnishings sec_25_2702-5 provides that the governing instrument must require that any income of the trust be distributed to the term holder not less frequently than annually sec_25_2702-5 provides that the governing instrument must prohibit distributions of corpus to any beneficiary other than the transferor prior to the expiration of the retained term_interest sec_25_2702-5 provides that in general except as otherwise provided in paragraphs c ii and c of this section the governing instrument of a qprt must prohibit the trust from holding for the entire term of the trust any asset other than one residence to be used or held for use within the meaning of paragraph c i of this section as a personal_residence of the term holder the residence under sec_25_2702-5 the trust may hold certain assets listed in that section in addition to the personal_residence sec_25_2702-5 provides that the governing instrument must prohibit commutation prepayment of the term holder's interest sec_25_2702-5 provides that the governing instrument must provide that a_trust ceases to be a qprt if the residence ceases to be used or held for use as a personal_residence of the term holder a residence is held for use as a personal_residence of the term holder so long as the residence is not occupied by any other person other than the spouse or a dependent of the term holder and is available at all times for use by the term holder as a personal_residence sec_25_2702-5 provides that i the governing instrument must provide that within days after the date on which the trust has ceased to be a qprt with respect to certain assets either a the assets be distributed outright to the term holder b the assets be converted to and held for the balance of the term holder’s term in a separate share of the trust meeting the requirements of a qualified_annuity_interest or c in the trustee’s sole discretion the trustee may elect to comply with either paragraph c i a or b of this section pursuant to their terms ii a for assets subject_to this paragraph c to be converted to and held as a qualified_annuity_interest the governing instrument must contain all the provisions required by sec_25_2702-3 with respect to a qualified_annuity_interest sec_25_2702-5 provides that the governing instrument must prohibit the trust from selling or transferring the residence directly or indirectly to the grantor the grantor's spouse or an entity controlled by the grantor or the grantor's spouse during the retained term_interest of the trust or at any time after the retained term_interest that the trust is a grantor_trust based on the information submitted and the representations made we conclude that the ranch as described above constitutes a personal_residence of taxpayer and spouse within the meaning of sec_2702 and sec_25_2702-5 because the trusts contain all the provisions required under sec_25_2702-5 and sec_25_2702-3 we conclude that each trust constitutes a qualified_personal_residence_trust within the meaning of sec_25_2702-5 except as ruled above we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions of the code or any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours christine e ellison branch chief branch office of the assistant chief_counsel passthroughs and special industries


internal_revenue_service number release date index number 00-00r89 ------------------------------------------- ------------------------------- ------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-163184-04 date june re ---------------------------- legend decedent ---------------------------------- date ---------------------- dear --------------- this is in response to your letter dated date and prior correspondence submitted by your authorized representative requesting an extension of time under sec_301 of the procedure and administration regulations to make a qualified family- owned business election under sec_2057 of the internal_revenue_code the facts submitted and representations made are as follows decedent died on date prior to date decedent’s gross_estate consisted primarily of marketable_securities and a majority interest in two closely-held businesses prior to filing decedent’s form_706 united_states estate and generation-skipping_transfer_tax return the qualified_family-owned_business_interest deduction was considered but it was determined that the estate did not meet the threshold requirements to make the election on audit of decedent’s estate it was determined that decedent’s estate satisfies the requirements for making the sec_2057 election therefore the estate requests an extension of time under sec_301_9100-1 and sec_301_9100-3 to make the election sec_2057 provides that for purposes of the tax imposed by sec_2001 in the case of an estate of a decedent to which sec_2057 applies the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the adjusted_value of the qualified family-owned business interests of the decedent sec_2057 provides that the deduction allowed by sec_2057 shall not exceed dollar_figure plr-163184-04 sec_2057 provides that sec_2057 shall apply to an estate if the executor elects the application of this section and files the agreement referred to in sec_2057 sec_301_9100-1 provides that the commissioner has discretion to grant a sec_2057 provides that for purposes of making the election and filing the agreement under sec_2057 rules similar to the rules under sec_2032a and regarding the election of special_use_valuation of farm and other qualified_real_property shall apply reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute sec_301_9100-1 through provides the standards used to sec_301_9100-3 sets forth the standards that the commissioner uses to determine whether to grant a discretionary extension of time these standards indicate that the commissioner should grant relief when the taxpayer provides evidence proving 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 on the facts submitted and the representations made we conclude that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government therefore an extension of time is granted until days from the date of this letter for making an election under sec_2057 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination in particular the burden is on the estate to establish to the service's satisfaction that all of the requirements of sec_2057 are met except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express or imply no opinion on whether the estate qualifies for the deduction under sec_2057 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this letter plr-163184-04 is being sent to your authorized representative sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes cc


internal_revenue_service number release date index numbers ------------------------------- ------------------------------------------------- ------------------------------------------------ ---------------------------------------------------------- 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 b01 plr-140077-12 date february legend x ----------------------------------------------------- ------------------------------- d country --------------------------- ----------------------- dear ------------- this is in response to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership plr-140077-12 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with two or more members having limited_liability may elect to be treated as a partnership pursuant to the rules of sec_301 c sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-140077-12 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely curt g wilson associate chief_counsel passthroughs special industries by _____________________________ david r haglund branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc