internal_revenue_service number release date index number ------------------- ------------------------- --------------------------------- -------------------------------------------- ------------------------------------------- -------------------- -------------------------------- in re ---------------------------------------------------- ----------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ---------------- telephone number -------------------- refer reply to cc psi plr-145294-14 date february legend taxpayer ------------------------------------------------- --------------------------------------------- corp entity generator state town dear --------------- ---------------------------------------- ---------------------------- ------------------------------ ------------------- ------------------------------ this letter responds to a request for a ruling dated date submitted on behalf of taxpayer by your authorized representative taxpayer requested a ruling that certain payments by generator to taxpayer do not constitute a contribution_in_aid_of_construction under sec_118 of the internal_revenue_code and are excludable from gross_income as a nonshareholder contribution_to_capital under sec_118 the relevant facts as represented in your submission are set forth below taxpayer is a an electric distribution company providing electric distribution services to approximately --------------customers in ----- cities and towns in state its properties consist principally of substations and distribution lines interconnected with transmission lines and other facilities of corp taxpayer entered into an ------------------ plr-145294-14 ----------------------------------------------- the interconnection agreement with generator with respect to generator’s stand-alone solar electric generation facility the facility located in town all of the electricity generated by the facility other than the electricity consumed by the facility for its operations is sold to entity following the sale of electricity from the facility to entity the electricity passes through taxpayer’s intertie and is delivered to taxpayer’s distribution system there is no direct interconnection between the facility and any electric transmission system the interconnection agreement effective as of --------------------- permits generator to connect the facility to the electric grid system the interconnection agreement has an indefinite term but is terminable by either party upon --- days written notice or upon certain specified events pursuant to the interconnection agreement taxpayer agreed to construct the taxpayer intertie the intertie which involved constructing a ------------------------------------------------------------------------------------------------- ------------------------------------------ removing a ----------------------- replacing a -------- ------------------------------------- upgrading a ----------------------------- and undertaking ---------------------------------------------------------------------------------------------------------- the total cost of the intertie was dollar_figure---------- which generator paid taxpayer in two equal payments of dollar_figure---------on ----------------------- and ----------------- taxpayer holds legal_title to the intertie and the intertie is a permanent part of taxpayer’s electric distribution system the generator and entity are parties to a power purchase agreement the ppa the term of the ppa is --- years commencing on -------------------------- which is the effective date of the ppa under the ppa entity purchases and takes legal_title and ownership of all electricity generated by the facility not used by the facility itself and title and ownership passes to entity before it travels through the busbar at the intertie and onto taxpayer’s distribution line all of the electricity purchased by entity under the ppa is delivered through taxpayer’s electric distribution system taxpayer makes the following representations the facility is a qf the intertie will be used in connection with the distribution of electricity for sale to third parties the cost of the intertie will not be included in taxpayer’s rate base the term of the ppa is --- years title and ownership of the electricity generated by the facility passes from the generator to entity at or prior to the busbar on the facility’s end of the intertie taxpayer will not claim depreciation or amortization deductions with respect to the intertie the amount of the interconnection payment will be capitalized by generator as an intangible asset and amortized over years no more than of the electricity will flow from taxpayer over the intertie during the first ten years beginning on the date on which the intertie was placed_in_service there is no direct interconnection between the facility and an electric transmission system and there is a direct interconnection between the facility and an electric distribution system plr-145294-14 taxpayer requests a ruling that the amount of the payment by generator to taxpayer for the intertie will not constitute a contribution_in_aid_of_construction under sec_118 and will be excludable from the gross_income of taxpayer as a nonshareholder contribution_to_capital under sec_118 sec_61 and sec_1_61-1 of the income_tax regulations provide that gross_income means all income from whatever source derived unless excluded by law sec_118 provides that in the case of a corporation gross_income does not include any contribution_to_the_capital_of_the_taxpayer sec_118 provides that the term contribution to the capital of taxpayer does not include any contribution_in_aid_of_construction or any other contribution as a customer or potential customer sec_1_118-1 of the income_tax regulations provides in part that sec_118 also applies to contributions to capital made by persons other than shareholders for example the exclusion applies to the value of land or other_property contributed to a corporation by a governmental_unit or by a civic group for the purpose of enabling the corporation to expand its operating facilities however the exclusion does not apply to any money or property transferred to the corporation in consideration for goods or services rendered or to subsidies paid to induce the taxpayer to limit production the legislative_history to sec_118 indicates that the exclusion_from_gross_income for nonshareholder contributions to capital of a corporation was intended to apply to those contributions that are neither gifts because the contributor expects to derive indirect benefits nor payments for future services because the anticipated future_benefits are too intangible the legislative_history also indicates that the provision was intended to codify the existing law that had developed through administrative and court decisions on the subject h_r rep no 83rd cong 2d sess s rep no 83d cong 2d sess notice_88_129 1988_2_cb_541 as modified and amended by notice_90_60 1990_2_cb_345 and notice_2001_82 2001_2_cb_619 provides specific guidance with respect to the treatment of transfers of property to regulated public_utilities by qualifying small power producers and qualifying cogenerators collectively qualifying facilities as defined in sec_3 of the federal power act as amended by section of purpa the amendment of sec_118 by the act was intended to require utilities to include in income the value of any ciacs made to encourage the provision of services by a utility to a customer see h_r rep no 99th cong 2d sess in a ciac transaction the purpose of the contribution of property to the utility is to facilitate the sale of power by the utility to a customer in contrast the purpose of the plr-145294-14 contribution by a qualifying_facility to a utility is to permit the sale of power by the qualifying_facility to the utility accordingly the fact that the amendments to sec_118 render ciac transactions taxable to the utility does not require a similar conclusion with respect to transfers from qualifying facilities to utilities notice_88_129 provides that with respect to transfers made by a qualifying_facility to a utility exclusively in connection with the sale of electricity by the qualifying_facility to the utility a utility will not realize income upon transfer of interconnection equipment intertie by a qualifying_facility the possibility that an intertie may be used to transmit power to a utility that will in turn transmit the power across its transmission network for sale by the qualifying_facility to another utility wheeling will not cause the contribution to be treated as a ciac further the notice provides that a transfer from a qualifying_facility to a utility will not be treated as a qualifying_facility transfer qf transfer under this notice to the extent the intertie is included in the utility’s rate base moreover a transfer of an intertie to a utility will not be treated as a qf transfer under this notice if the term of the power purchase contract is less than ten years the notice also provides that a utility that constructs an intertie in exchange for a cash payment from a qualifying_facility pursuant to a purpa contract will be deemed to construct the property under contract and will recognize income from the construction in the same manner as any other taxpayer constructing similar_property under contract subsequent to the construction of the property the qualifying_facility will be deemed to transfer the property to the utility in a qf transfer that will be treated in exactly the same manner as an in-kind qf transfer notice_2001_82 amplifies and modifies notice_88_129 notice_2001_82 extends the safe_harbor provisions of notice_88_129 to include transfers of interties from non- qualifying facilities and transfers of interties used exclusively or in part to transmit power over the utility’s transmission grid for sale to consumers or intermediaries wheeling the notice requires that ownership of the electricity wheeled passes to the purchaser prior to its transmission on the utility’s transmission grid this ownership requirement is deemed satisfied if title passes at the busbar on the generator’s end of the intertie further notice_2001_82 provides that a long-term interconnection agreement in lieu of a long-term power purchase contract may be used to satisfy the safe_harbor provisions of notice_88_129 in wheeling transactions finally notice_2001_82 requires that the generator must capitalize the cost of the property transferred as an intangible asset and recover such cost using the straight-line method over a useful_life of years the legislative_history of sec_118 provides in part as follows plr-145294-14 this sec_118 in effect places in the code the court decisions on the subject it deals with cases where a contribution is made to a corporation by a governmental_unit chamber of commerce or other association of individuals having no proprietary interest in the corporation in many such cases because the contributor expects to derive indirect benefits the contribution cannot be called a gift yet the anticipated future_benefits may also be so intangible as to not warrant treating the treating the contribution as a payment for future services s rep no 83d cong 2d sess in 319_us_98 the court held that payments by prospective customers to an electric utility company to cover the cost of extending the utility’s facilities to their homes were part of the price of service rather than contributions to capital the case concerned customers’ payments to a utility company for the estimated cost of constructing service facilities primary power lines that the utility company otherwise was not obligated to provide the customers intended no contribution to the company’s capital later in 339_us_583 1950_1_cb_38 the court held that money and property contributions by community groups to induce a shoe company to locate or expand its factory operations in the contributing communities were nonshareholder contributions to capital the court reasoned that when the motivation of the contributors is to benefit the community at large and the contributors do not anticipate any direct benefit from their contributions the contributions are nonshareholder contributions to capital id pincite finally in 412_us_401 the court in determining whether a taxpayer was entitled to depreciate the cost of certain facilities that had been funded by the federal government held that the governmental subsidies were not contributions to the taxpayer’s capital the court recognized that the holding in detroit edison co had been qualified by its decision in brown shoe co the court in chicago burlington quincy railroad co found that the distinguishing characteristic between those two cases was the differing purpose motivating the respective transfers in brown shoe co the only expectation of the contributors was that such contributions might prove advantageous to the community at large thus in brown shoe co since the transfers were made with the purpose not of receiving direct services or recompense but only of obtaining advantage for the general community the result was a contribution_to_capital the court in chicago burlington quincy railroad co also stated that there were other characteristics of a nonshareholder contribution_to_capital implicit in detroit edison co and brown shoe co from these two cases the court distilled some of the plr-145294-14 characteristics of a nonshareholder contribution_to_capital under both the and codes first the payment must become a permanent part of the transferee’s working_capital structure second it may not be compensation such as a direct payment for a specific quantifiable service provided for the transferor by the transferee third it must be bargained for fourth the asset transferred foreseeably must benefit the transferee in an amount commensurate with its value fifth the asset ordinarily if not always will be employed in or contribute to the production of additional income and its value assured in that respect in the instant case the transfer of the intertie is not subject_to the guidance set forth in notice_88_129 notice_90_60 and notice_2001_82 because there is no direct interconnection between the facility and an electric transmission system as contemplated under notice_88_129 and notice_2001_82 in addition we believe that generator lacked the requisite motivation to make a nonshareholder contribution_to_capital under brown shoe co v commissioner and united_states v chicago burlington quincy railroad co because the generator made the contribution in order to sell electricity accordingly based solely on the foregoing analysis and the representations made by taxpayer we rule that the transfer of the intertie by generator to taxpayer is a ciac under sec_118 and is not excludable from the gross_income of taxpayer as a nonshareholder contribution_to_capital under sec_118 except as specifically set forth above no opinion is expressed or implied concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations 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 this ruling is based upon information and representations submitted by 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 plr-145294-14 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 nicole cimino senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court agostinho dias reis petitioner v commissioner of internal revenue respondent docket no filed date agostinho dias reis pro_se tyrone j montague for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined the following defi- ciencies in additions to and accuracy-related_penalty on petitioner's federal_income_tax year deficiency dollar_figure big_number additions to tax sec_6651 accuracy-related_penalty sec_6662 dollar_figure big_number -- dollar_figure the issue remaining for decision is whether petitioner is entitled for to deduct under sec_165 a theft_loss in the amount of dollar_figure we hold that he is not findings_of_fact some of the facts have been stipulated and are so found at the time the petition was filed petitioner lived in new york new york he filed his federal_income_tax returns for and on date in the law firm of stanley r stern p c stanley r stern p c hired petitioner who is an attorney pursuant to an arrangement that included provisions for petitioner's compensa- tion all earned legal fees to which petitioner was entitled during for his work on behalf of clients of and other attorneys with stanley r stern p c were set_aside escrowed funds in an escrow account escrow account established by stanley r stern mr stern for those funds and other funds petitioner did not have the authority to withdraw the escrowed funds or any other funds from the escrow account except as discussed below when petitioner needed money he all section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure typically asked mr stern to give him a portion of the escrowed funds and mr stern promptly complied with those requests on or about date stanley r stern p c merged with another law firm merger and became known as stern sherman tamsen the firm petitioner continued to work for the firm under the same arrangement that he had had with stanley r stern p c although his responsibilities were reduced at the time of the merger the escrowed funds to which petitioner was entitled equaled dollar_figure on date petitioner asked mr stern for those escrowed funds mr stern did not comply with that request and petitioner did not receive the escrowed funds during or any other year because those funds were stolen by third parties during the year at issue petitioner was a cash_basis taxpayer he did not report the dollar_figure of escrowed funds as income in his or any other federal_income_tax return that he filed and he did not pay any federal_income_tax on those funds in or any other year opinion petitioner has the burden of proving that he is entitled to the deduction that he is claiming under sec_165 see rule a 290_us_111 petitioner contends that he is entitled under sec_165 to deduct the dollar_figure of escrowed funds that were stolen respon- dent counters that petitioner did not receive those funds and did not include them in income according to respondent petitioner therefore has no basis in those funds and consequently is not entitled to the deduction claimed under sec_165 sec_165 provides in pertinent part a general_rule --there shall be allowed as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise b amount of deduction --for purposes of subsection a the basis for determining the amount of the deduction for any loss shall be the adjusted_basis provided in sec_1011 for determining the loss from the sale_or_other_disposition of property e theft losses --for purposes of subsection a any loss arising from theft shall be treated as sus- tained during the taxable_year in which the taxpayer discovers such loss thus the amount of the deduction allowable under sec_165 is the amount prescribed by sec_1011 as the adjusted_basis for determining the loss from the sale_or_other_disposition of property see also sec_1_165-1 income_tax regs as pertinent here sec_1011 defines the term adjusted_basis as the basis determined under sec_1012 adjusted as provided in sec_1016 and sec_1012 provides that the basis_of_property is its cost petitioner claims that respondent's position in effect re- quires him to report the escrowed funds as income even though he never received them we disagree respondent does not contend that petitioner is required to include the escrowed funds in income to the contrary respondent agrees that those funds are not includible in petitioner's income because he never received them petitioner a cash_basis taxpayer never received the escrowed funds and did not include those funds in income or pay tax thereon for or any other year petitioner therefore has no basis in the escrowed funds accordingly petitioner is not entitled to a deduction under sec_165 for the theft_loss of those funds see 557_f2d_1293 9th cir 290_f2d_726 2d cir affg 34_tc_606 based on the record before us we find that petitioner is not entitled to a deduction under sec_165 for the dollar_figure of escrowed funds that were stolen to reflect the concessions of the parties decision will be entered under rule although it is not altogether clear petitioner appears to claim that mr stern paid income_tax on some of the escrowed funds the record does not support petitioner's claim even assuming arguendo that it did petitioner would still not have a basis in the escrowed funds and would not be entitled to a deduction for those funds under sec_165


t c memo united_states tax_court katherine cowan petitioner v commissioner of internal revenue respondent docket no 3539-06l filed date katherine cowan pro_se memorandum opinion ruwe judge this case is before the court on petitioner’s motion for leave to file motion to vacate order of dismissal for lack of jurisdiction hereinafter referred to as petitioner’s motion for leave we must decide whether to grant petitioner’s motion for leave when the petition was filed petitioner resided in kilauea hawaii background on date respondent issued to petitioner a decision letter concerning equivalent_hearing under sec_6320 and or of the internal_revenue_code decision letter regarding proposed collection action for petitioner’s tax years and in the decision letter respondent’s office of appeals informed petitioner that her due process hearing request was not filed within the time prescribed under sec_6320 and or respondent’s office of appeals further informed petitioner that she received a hearing equivalent to a due process hearing except that there was no right to dispute a decision by the appeals_office in court under sec_6320 and or in the decision letter the appeals_office sustained the proposed collection action on date petitioner sent to the court a document which states in relevant part dear tax_court judge the collection_due_process hereafter cdp hearing that i requested has been decided i need your assistance regarding a notice_of_determination i received from the internal_revenue_service for the tax_year sic and the internal_revenue_service hereafter irs did not grant me a cdp hearing which i have requested the hearing they attempt sic to conduct was unfair and biased i wa sec_1 unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure not provided information that i requested from the hearing agent i think the irs is wrong but i am not sure if i am doing this protest right i told the irs i didn’t owe them anything and they still have not shown me any proof to support their claim could you please write to me and let me know the procedure i need the help of the tax_court to clarify this matter i am unclear as to what rules of procedure and evidence were to preside over my cdp hearing although i asked many times i never received any information on such procedures the agent was no help at all now a whole new procedure is beginning and i am more confused i am unsure of what to do from here will you please advise what my next steps are and if there is public council sic available for my assistance when am i supposed to go to court over this would i receive the assistance of a public defender thank you for reading my letter and trying to help me this document failed to comply with the rules of the court as to the form and content of a proper petition petitioner also failed to submit the required filing fee nevertheless on date the court filed petitioner’s document as an imperfect petition by order dated date the court directed petitioner to file a proper amended petition and to pay the filing fee on or before date the order stated that if an amended petition and the filing fee were not received on or before date the case would be dismissed petitioner failed to timely respond to the court’s order to file an amended petition or to pay the filing fee on date the court entered an order of dismissal for lack of jurisdiction order of dismissal on date days after the order of dismissal was entered petitioner mailed to the court two documents entitled request permission to file motion to vacate order of dismissal for lack of jurisdiction motion for leave and motion to vacate order of dismissal for lack of jurisdiction motion to vacate the documents state in relevant part request permission to file motion to vacate order of dismissal for lack of jurisdiction petitioner respectfully requests permission from the court to file this motion to vacate order of dismissal for lack of jurisdiction for the tax_year s and with docket no 3539-06l petitioner also requests leave from the court to accept petitioner’s amended petition petitioner desires to dispute the respondent’s determination made with respect to petitioner’s income taxes for the tax_year petitioner will file motion to vacate order of dismissal for lack of jurisdiction concurrently with this motion motion to vacate order of dismissal for lack of jurisdiction petitioner respectfully requests that the court vacate its order of dismissal for lack of jurisdiction with the docket no 3539-06l for the tax years and petitioner also request sic for the court to determine the case lay sic out by the petitioner’s amended petition which will be filed concurrently with this motion petitioner will also file an amended petition and the designation of place of trial concurrently with this motion the envelope containing these documents was postmarked date on date days after the order of dismissal was entered the court filed the first mentioned document as a motion for leave to file motion to vacate order of dismissal for lack of jurisdiction motion for leave the court received petitioner’s amended petition with attached copy of the decision letter concurrently with the motion for leave and the motion to vacate paragraph of the amended petition states petitioner s disagree s with the determination contained in the notice issued by the internal_revenue_service for the year s or period s as set forth in such notice decision letter concerning equivalent_hearing under sec_6320 and or dated a copy of which attached sic do not attach any other documents to this petition the attached decision letter states in relevant part dear ms mcclelland cowan we have reviewed the proposed collection action for the period s shown above this letter is our decision on your case a summary of our decision is stated below and the enclosed statement shows in detail the matters we considered at your appeals hearing and our conclusions your due process hearing request was not filed within the time prescribed under sec_6320 and or however you received a hearing equivalent to a due process hearing except that there is no right to dispute a decision by the appeals_office in court under sec_6320 and or your case will be returned to the originating irs office for action consistent with the decision summarized below and described on the attached page s summary of decision the collection action is sustained discussion this court can proceed in a case only if it has jurisdiction and either party or the court sua sponte can question jurisdiction at any time stewart v commissioner t c ___ ___ slip op pincite 81_tc_879 on date we dismissed petitioner’s case for lack of jurisdiction an order of dismissal for lack of jurisdiction is treated as the court’s decision stewart v commissioner supra at ___ slip op pincite 82_tc_471 sec_7459 provides in relevant part sec_7459 date of decision -- if the tax_court dismisses a proceeding for lack of jurisdiction an order to that effect shall be entered in the records of the tax_court and the decision of the tax_court shall be held to be rendered upon the date of such entry the word decision refers to decisions determining a deficiency and orders of dismissal for lack of jurisdiction 517_f2d_13 7th cir 228_f2d_478 3d cir stewart v commissioner supra at ___ slip op pincite except for very limited exceptions none of which applies here this court lacks jurisdiction once an order of dismissal for lack of jurisdiction becomes final within the meaning of sec_7481 stewart v commissioner supra at ___ slip op pincite n a decision of the tax_court becomes final upon the expiration of the time allowed for filing a notice of appeal if no such notice has been duly filed within such time sec_7481 sec_7483 provides that a notice of appeal may be filed within days after a decision is entered pursuant to rule a of the federal rules of appellate procedure if under the tax court’s rules a party makes a timely motion to vacate or revise a decision the time to file a notice of appeal runs from the entry of the order disposing of the motion or from the entry of a new decision whichever is later our rule provides that any motion to vacate or revise a as previously explained an order of dismissal for lack of jurisdiction is treated as the court’s decision fed r app p a provides rule review of a decision of the tax_court a how obtained time for filing notice of appeal review of a decision of the united_states tax_court is commenced by filing a notice of appeal with the tax_court clerk within days after the entry of the tax court’s decision at the time of filing the appellant must furnish the clerk with enough copies of the notice to enable the clerk to comply with rule d if one party files a timely notice of appeal any other party may file a notice of appeal within days after the tax court’s decision is entered if under tax_court rules a party makes a timely motion to vacate or revise the tax court’s decision the time to file a notice of appeal runs from the entry of the order disposing of the motion or from the entry of a new decision whichever is later decision with or without a new or further trial shall be filed within days after the decision has been entered unless the court shall otherwise permit emphasis added petitioner did not file a motion to vacate or revise within days after the court’s order of dismissal was entered therefore in order for her motion to vacate to be considered timely filed rule required petitioner to file a motion for leave to file a motion to vacate or revise the granting of which lies within the sound discretion of the court see rule 872_f2d_245 8th cir affg tcmemo_1987_1 stewart v commissioner supra at ___ slip op pincite 108_tc_1 the envelope containing petitioner’s motion for leave was postmarked and mailed prior to the expiration of the 90-day appeal period the timely-mailing timely-filing provisions of sec_7502 apply to a motion for leave to file a motion to vacate a decision that is mailed and postmarked prior to but received by the court after the expiration of the 90-day appeal period stewart v commissioner supra at ___ slip op pincite therefore we have jurisdiction to consider petitioner’s motion for leave however whether the court retains jurisdiction over petitioner’s case depends on whether the court grants leave to file petitioner’s motion to vacate id at ___ slip op pincite if the court grants the motion for leave then the time for appeal is extended 113_f3d_1087 9th cir revg tcmemo_1994_604 67_f3d_1489 9th cir affg tcmemo_1992_731 stewart v commissioner supra at ___ slip op pincite however if the motion for leave is not granted the motion to vacate cannot be filed if the motion to vacate is not filed the appeal period is not extended and the order of dismissal for lack of jurisdiction is final the filing of a taxpayer’s motion for leave to file a motion to vacate does not extend the time for appeal unless the court grants the motion for leave and permits the filing of the motion to vacate nordvik v commissioner supra pincite stewart v commissioner supra at ___ slip op pincite 805_fsupp_834 e d cal affd without published opinion 5_f3d_536 9th cir whether to grant petitioner’s motion for leave is discretionary stewart v commissioner supra at ___ slip op pincite however a timely motion for leave without more is not necessarily sufficient to persuade the court to grant such motion in deciding what action to take we are guided in 67_f3d_1489 n 9th cir affg tcmemo_1992_731 the court_of_appeals for the ninth circuit expressly adopted the reasoning of the district_court in 805_fsupp_834 e d cal affd without published opinion 5_f3d_536 9th cir primarily by whether it would be in the interest of justice to vacate the prior decision but we also recognize that litigation must end at sometime 92_tc_1079 manchester group v commissioner tcmemo_1997_576 this court’s jurisdiction to review certain collection activity by the internal_revenue_service depends in part upon the issuance of a valid notice_of_determination by an internal_revenue_service appeals officer under sec_6320 or sec_6330 sec_6320 sec_6330 rule b 114_tc_492 where the appeals_office issues a determination_letter sec_6330 provides a taxpayer days in which to file a petition for review with the tax_court we have held that the court’s jurisdiction depends on the issuance of a valid determination_letter and the filing of a timely petition for review 116_tc_255 petitioner attached to her amended petition the decision letter concerning an equivalent_hearing she received from respondent’s appeals_office in her amended petition petitioner avers that she disagrees with the determination relating to the years and contained in the decision letter concerning equivalent_hearing under sec_6320 and or the decision letter specifies that it was issued after petitioner received an equivalent_hearing a decision letter issued pursuant to an equivalent_hearing is not a notice_of_determination sufficient to invoke the court’s jurisdiction under sec_6320 or sec_6330 kennedy v commissioner supra pincite respondent’s appeals_office made it clear in the decision letter that the decision made in an equivalent_hearing as opposed to a determination resulting from a collection_due_process_hearing is not disputable in court the decision letter states that petitioner received an equivalent_hearing instead of a collection_due_process_hearing because petitioner failed to timely request a collection_due_process_hearing as we stated in kennedy v commissioner supra pincite petitioner’s position ignores the unambiguous statement in the decision letter that the equivalent_hearing was not intended to serve as an appeals_office hearing within the meaning of sec_6320 or sec_6330 as previously discussed because petitioner failed to file a timely request for an appeals_office hearing the appeals_office was not obliged to conduct such a hearing in this regard the decision letter was not and did not purport to be a determination_letter pursuant to sec_6320 or sec_6330 see offiler v commissioner supra pincite in sum we hold that respondent did not issue a determination_letter to petitioner sufficient to invoke the court’s jurisdiction to review the notice_of_intent_to_levy insofar as the petition filed herein purports to be a petition for review pursuant to sec_6330 we will dismiss the petition for lack of jurisdiction on the ground that respondent did not make a determination pursuant to sec_6330 because petitioner failed to file a timely request for an appeals_office hearing pursuant to sec_6330 and b and b the decision letter regarding an equivalent_hearing concerning collection action upon which petitioner bases her amended petition would be insufficient to invoke this court’s jurisdiction to review the merits of the proposed collection activity even if we granted petitioner’s motion for leave under these circumstances and considering the length of time petitioner had to file an amended petition before her case was dismissed we will deny petitioner’s motion for leave it follows that the court’s order of dismissal for lack of jurisdiction in this case became final on date days after the order of dismissal was entered to reflect the foregoing an appropriate order will be issued


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 ita b05 plr-135733-10 date february legend taxpayer ----------------------------------------------------------------------------------------------------------- authority ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ---------------------------------------------- -------------------------------- ---------------------------------------------------- ------- ------------------------------------------------------- ---- ---- ------------------------------- ----------------- ----------------- ------------------- partnership llc tax_year property a b cpa date date date dear ----------- this is in response to your letter of date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the regulations on procedure and administration for taxpayer to file an election under sec_168 of the internal_revenue_code facts taxpayer is wholly-owned by authority a tax-exempt_entity taxpayer is a member of partnership a limited_liability_company taxpayer owns a percent of partnership llc an unrelated party owns the remaining b percent of partnership partnership was formed to acquire rehabilitate and renovate property a historic building the plr-135733-10 submission represents that expenditures relating to the project to rehabilitate and renovate property are qualified_rehabilitation_expenditures within the meaning of the historic rehabilitation tax_credit under sec_47 in order for the partners of partnership to claim the historic rehabilitation tax_credit for certain expenditures property cannot be tax-exempt_use_property under sec_168 since taxpayer is wholly-owned by authority taxpayer is a tax-exempt_controlled_entity within the meaning of sec_168 and a portion of property is tax-exempt_use_property taxpayer may elect under sec_168 not to be treated as a tax- exempt entity for purposes of sec_168 this election must comply with the requirements of sec_301_9100-7t of the temporary regulations on procedure and administration taxpayer intended to file the sec_168 election for tax_year and for all taxable years thereafter on date an attorney for taxpayer sent instructions to authority requesting that authority confirm that cpa was aware of the requirement to file the election and would file the election on date cpa e-mailed authority and its attorneys a confirmation that cpa will make the irrevocable elections under sec_168 for taxpayer and certain other relevant entities for their tax years starting in tax_year taxpayer’s election dated date was forwarded to cpa taxpayer’s tax_return for tax_year was filed pursuant to an extension at which time cpa’s firm could not locate the original file for taxpayer cpa’s firm opened a new file for taxpayer but overlooked taxpayer’s election due to cpa’s error taxpayer’s tax_year return was filed without the election attached subsequently cpa’s firm located taxpayer’s original files and recognized that it should have filed the election with the tax_year return taxpayer is seeking relief under sec_301_9100-1 and sec_301_9100-3 to make a late sec_168 election law sec_168 provides that for purposes of sec_168 if any property which is not tax-exempt_use_property is owned by a partnership which has both a tax-exempt_entity and a person who is not a tax-exempt_entity as partners and any allocation to the tax-exempt_entity of partnership items is not a qualified_allocation then an amount equal to such tax-exempt entity's proportionate share of such property shall be treated as tax-exempt_use_property sec_168 provides that for purposes of sec_168 any tax-exempt_controlled_entity shall be treated as a tax-exempt_entity plr-135733-10 sec_168 provides that for purposes of sec_168 a tax-exempt_controlled_entity may elect not to be treated as a tax-exempt_entity such an election is irrevocable and will bind all tax-exempt entities holding an interest in the tax-exempt_controlled_entity sec_301_9100-7t requires elections under sec_168 to be made by the due_date of the tax_return including extensions for the first taxable_year for which the election is to be effective under sec_301_9100-1 and sec_301_9100-3 and b the commissioner has discretion to grant a reasonable extension of time to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i provided the taxpayer demonstrates 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 under sec_301_9100-3 a taxpayer is deemed to have acted reasonably and in good_faith if 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 based on all of the facts and information submitted and the representations made taxpayer relied on a qualified_tax professional to make the election under sec_168 that tax professional failed to make a timely election we therefore conclude that taxpayer has acted reasonably and in good_faith as described in sec_301_9100-3 and granting the requested relief will not prejudice the interests of the government taxpayer is granted an extension of time of days from the date of this letter_ruling to file an amended_return for tax_year making the election under sec_168 taxpayer must attach the aforementioned election and the information set forth in sec_301_9100-7t to the amended_return taxpayer also must attach a copy of this letter to the amended_return pursuant to sec_301_9100-7t a copy of the election statement also should be attached to the federal_income_tax returns of each of the tax- exempt shareholders or beneficiaries of taxpayer caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular we express no opinion as to whether taxpayer qualifies to make the election set forth in sec_168 we express no opinion as to whether any partners of partnership are entitled to the historic rehabilitation tax_credit under sec_47 plr-135733-10 this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by 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 accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely amy pfalzgraf senior counsel branch office_of_chief_counsel income_tax accounting enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------- ------------- ---------------------------------------------------- -------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc corp plr-124003-09 date october legend distributing ----------------------------------------------------------------------------------- ------------------------------------------------------------------------------ -------------------------------------- state x date ----------- -------------------------- controlled ---------------------------------------------- ----------------------------------------------------------------------------------------------------- controlled ----------------------------------------------------------------------------------------------------- ---------------------------------------- controlled -------------------------------------------------------------------------------------------------- --------------------------------------- group a shareholders ------------------------------------------------------------------------------ ---------------------------------------- ------------------------------------------------------------------------------- --------------------------------- ------------------------------------------------------------------------------ ------------------------------ ------------------------------------------------------------------------------- ----------------------------------- plr-124003-09 ------------------------------------------------------------------------------- --------------------------------------------------------------- ------------------------------------------------------------------------------- ---------------------------- ------------------------------------------------------------------------------- ----------------------------- ------------------------------------------------------------------------------- ---------------------------- ------------------------------------------------------------------------------- ---------------------------- -------------------------- ------------------------------------------------------------------------------- ----------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- --------------------------- ------------------------------------------------------------------------------- ---------------------------- ------------------------------------------------------------------------------- ------------------------------ ------------------------------------------------------------------------------- ----------------------------- ------------------------------------------------------------------------------ --------------------------- ------------------------------------------------------------------------------ --------------------------------------------------------------- group b shareholders ------------------------------------------------------------------------------ ------------------------------------- ----------------------- plr-124003-09 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- ---------------------- -------------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------- ------------ ------------------------ ------------------------------------------------------------- ------------------------ ------------------------------------------------------------------------------- --------------------------- group c shareholders ------------------------------------------------------------------------------- -------------------------------- ------------------------------------------------------------------------------ ------------------------------- ----------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- ------------------- ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------- ----------------------------------- --------------------------- ------------------------------------------------------------------------------- ------------------------------------- ------------------------------------------------------------------------------- ------------------ plr-124003-09 ------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------- -------------------------------- ----------------- ------------------------------------------------------------------------------------------ ---------------------------- -------------------------------------------------------------- --- ------------------------ --------------------------------------- ------------------------ ------------------------------------------------------------------------------- ---------------------------------------------------------- group d shareholders ------------------------------------------------------------------------------ ------------------------------------ ------------------------------------------------------------------------------- --------------------------------- ------------------------------------------------------------------------------- ---------------------------- ------------------------------------------------------------------------------- -------------------------------------------------------------- ------------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- ---------------------- w x y -------- -------- -------- plr-124003-09 z busine sec_1 dear ---------------------- -------- ------------------------------------------- this letter responds to your representative’s letter dated date requesting rulings as to the federal_income_tax consequences of the proposed transaction set forth below additional information was submitted by letters dated date date date and date the material information submitted for consideration is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer distributing and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent or greater interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 summary of facts distributing is a closely-held state x corporation that was organized as a subchapter_c_corporation on date distributing is owned by four family shareholder groups group a shareholders together own w group b shareholders together own x group c shareholders together own y and group d shareholders together own z of the stock of distributing distributing is engaged in busine sec_1 distributing has submitted financial information which indicates that busine sec_1 has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction for what are represented as valid business reasons distributing proposes the following transactions the proposed transaction plr-124003-09 i ii iii controlled controlled and controlled will be incorporated in state x controlled controlled and controlled will each have one class of common_stock outstanding all of which will be owned directly by distributing distributing will transfer various assets related to the conduct of busine sec_1 to each of controlled controlled and controlled in exchange for all of the stock of each of controlled controlled and controlled the contributions none of any of the corporations controlled controlled or controlled will assume any liabilities of distributing other than obligations existing with respect to certain leases immediately after the contributions distributing will distribute all of the controlled stock to the group b shareholders in exchange for all of their distributing stock all of the controlled stock to the group c shareholders in exchange for all of their distributing stock and all of the controlled stock to the group d shareholders in exchange for all of their distributing stock together the distributions thereafter the group a shareholders will own all of the remaining distributing stock the group b shareholders will own all of the controlled stock the group c shareholders will own all of the controlled stock and the group d shareholders will own all of the controlled stock representations a b c d the controlled stock the fair_market_value of the controlled stock to be received by the group b shareholders the group c shareholders and the controlled stock to be received by the group d shareholders respectively will be approximately equal to the fair_market_value of the distributing stock surrendered by each of the group b shareholders group c shareholders and group d shareholders respectively in the exchange to be received by no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a distributing shareholder the five years of financial information submitted on behalf of distributing concerning busine sec_1 represents its present operations and there have been no substantial operational changes since the date of the last financial statements submitted following the transaction distributing and each of controlled controlled and controlled will each continue the active_conduct of its business independently and with its separate employees plr-124003-09 e f g h i j neither busine sec_1 nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part the distribution is carried out for the following corporate business purposes to end disputes between those shareholders that own voting control of distributing and distributing’s other shareholders as the management of distributing and the strategies employed by and the long-term business plan being implemented by the shareholder group exercising voting control with respect to distributing the distribution of the stock or stock and securities of controlled controlled and controlled is motivated in whole or substantial part by this corporate business_purpose to among other matters the proposed transaction is not used principally as a device for the distribution of the earnings_and_profits of distributing or any controlled or any combination of distributing and any of the controlled corporations the total adjusted bases of the assets to be transferred to each of controlled controlled and controlled respectively by distributing in the transaction will equal or exceed the sum of the total liabilities assumed within the meaning of sec_357 by each of controlled controlled and controlled respectively the liabilities assumed within the meaning of sec_357 by each of controlled controlled and controlled respectively in the contribution were incurred in the ordinary course of business and are associated with the assets being transferred to each of controlled controlled and controlled respectively the total fair_market_value of the assets transferred to each of controlled controlled and controlled respectively by distributing in the transaction will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by each of controlled controlled and controlled respectively in the exchange and ii the amount of any liabilities owed to each of controlled controlled and controlled respectively by distributing that are discharged or extinguished in connection with the exchange the total fair_market_value of the assets of each of controlled controlled and controlled respectively will exceed the amount of the liabilities of controlled controlled and controlled respectively immediately_after_the_exchange k distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction plr-124003-09 l m n o p q r no income items including accounts_receivable or any item resulting from a sale exchange or disposition of property that would have resulted in income to the distributing_corporation and no items of expense will be transferred to the controlled_corporation if the distributing_corporation has earned the right to receive the income or could claim a deduction for the expense under the accrual or similar method_of_accounting no intercorporate debt will exist between distributing and each of controlled controlled and controlled respectively at the time of or subsequent to the distribution for purposes of sec_355 immediately after the distributions no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of each of the distributions for purposes of sec_355 immediately after the distributions no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of each of controlled controlled and controlled respectively stock entitled to vote or percent or more of the total value of shares of all classes of controlled controlled and controlled respectively stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of each of the distributions or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of each of the distributions payments made in connection with all continuing transactions if any between distributing and each of controlled controlled and controlled respectively will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length no two parties to the transaction are investment companies as defined in sec_368 and iv the distributions are not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent or greater interest within the meaning of sec_355 in distributing or each of controlled controlled plr-124003-09 or controlled or also including any predecessor or successor of any such corporation s immediately after the transaction as defined in sec_355 none of distributing controlled controlled or controlled will be a disqualified_investment_corporation within the meaning of sec_355 rulings based solely on information submitted and the representations set forth above this office rules as follows the transfer by distributing to controlled of part of its assets in exchange for all of the controlled stock and assumption of lease obligations followed by the distribution of all of the controlled stock to group b shareholders will constitute a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 the transfer by distributing to controlled of part of its assets in exchange for all of the controlled stock and assumption of lease obligations followed by the distribution of all of the controlled stock to group c shareholders will constitute a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 the transfer by distributing to controlled of part of its assets in exchange for all of the controlled stock and assumption of lease obligations followed by the distribution of all of the controlled stock to group d shareholders will constitute a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing upon the transfer of assets to controlled in exchange for controlled stock and the assumption of lease obligations the transfer of assets to controlled in exchange for controlled stock and the assumption of any lease obligations or the transfer of assets to controlled in exchange for controlled stock and the assumption of any lease obligations sec_361 and sec_357 no gain_or_loss will be recognized by each of controlled controlled and controlled on receipt of assets in exchange for respective controlled stock and the assumption of any lease obligations sec_1032 each of controlled 1’s controlled 2’s and controlled 3’s basis for each of its assets received from distributing will equal the basis of that asset in the hands of distributing immediately prior to the proposed transaction sec_362 plr-124003-09 each of controlled 1’s controlled 2’s and controlled 3’s holding_period for each of its asset received from distributing will include the period during which distributing held the asset sec_1223 no gain_or_loss will be recognized by distributing on each of the distributions of the stock of controlled controlled and controlled sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the group b shareholders the group c shareholders and the group d shareholders respectively upon their receipt of controlled controlled and controlled stock respectively in exchange for each shareholder’s distributing stock sec_355 the basis of a the controlled stock in the hands of the group b shareholders b the controlled stock in the hands of the group c shareholders and c the controlled stock in the hands of the group d shareholders after the distribution will in each instance equal the basis of the respective distributing stock surrendered by each shareholder in each shareholder group in exchange therefor sec_358 the holding_period of the controlled stock received by each of the group b shareholders the controlled stock received by each of the group c shareholders and the controlled stock received by each of the group d shareholders will in each instance include the holding_period of the distributing stock held by each respective shareholder provided that each respective shareholder held the distributing stock as a capital_asset on the date of each of the distributions sec_1223 proper allocations of distributing's earnings_and_profits will be made in accordance with the provisions of sec_312 and sec_1_312-10 between distributing and each of the three controlled corporations controlled controlled and controlled caveats no opinion is expressed about the tax treatment of the proposed transaction described above under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the proposed transaction satisfies the business_purpose requirement of sec_1_355-2 ii whether the proposed transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or plr-124003-09 both see sec_355 and sec_1_355-2 and iii whether the proposed transaction is part of a plan or series of related transactions under sec_355 procedural statements this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely ___________________________ steven j hankin senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service department of thet o uniform issue list washington dc person to contact telephone number refer reply to t ep ra t3 mae gu legend grantor ira x custodian a beneficiary e beneficiary f beneficiary g this is in response to your request for a private_letter_ruling dated date submitted on your behalf by your authorized representative in support of your request your authorized representative has submitted the following facts and representations grantor was born on date and maintained ira x with custodian a grantor attained age during the calendar_year and his date of death was date grantor's required_beginning_date with respect to the commencement of required minimum distributions under sec_401 of the internal_revenue_code code from ira x was date your authorized representative asserts that grantor received his required minimum distributions during his lifetime based upon a single life expectancy which was recalculated each year grantor designated his three children beneficiary e beneficiary f and beneficiary g as designated death beneficiaries of ira x on date each having an equal interest in ira x beneficiary e whose birthday is date yl page is older than either beneficiary f or beneficiary g his single life expectancy wa sec_43 in the calendar_year grantor attained age the remaining term-certain with respect to beneficiary e as of the year the calendar_year following the grantor's death wa sec_36 grantor received part of his minimum_required_distribution prior to his death on date and beneficiaries e f and g received the balance of grantor’s minimum_required_distribution based on the above you request the following letter rulings that beneficiaries e f and g are designated beneficiaries for purposes of sec_401 of the code with respect to ira x that beneficiaries e f and g were timely selected as designated beneficiaries of ira x for purposes of sec_401 of the code that grantor's use of the single recalculated life expectancy in determining his required minimum distributions during his lifetime does not preclude the use of the term certain life expectancy of the oldest desiqnated beneficiary in the calendar_year after the death of grantor that in determining the required minimum distributions after the death of grantor that beneficiary f may use the remaining term-certain life expectancy of beneficiary e since he is the oldest non-spouse designated_beneficiary commencing in the calendar_year and reduced by one for each calendar_year thereafter sec_408 of the code defines an individual_retirement_account as a_trust which meets the requirements of sec_408 through a sec_408 of the code states that under regulations prescribed by the secretary rules similar to the rules of sec_401 and the incidental death_benefit requirements of sec_401 shail apply to the distribution of the entire_interest of an individual for whose benefit the ira trust is maintained sec_401 of the code sets forth the general rules applicable to required minimum distributions from qualified pians sec_401 of the code provides that a_trust shall not constitute a qualified_trust under this subsection unless the plan provides that the entire_interest of each employee will be distributed beginning not later than the required_beginning_date in accordance with regulations over the life of such employee or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary ye page under sec_401 and ii of the code the term required_beginning_date as it applies to ira’s means april of the calendar_year following the year in which the employee attains age sec_401 of the code provides that where distributions have begun under subparagraph a ii a_trust shall not constitute a qualified_trust under this section unless the plan provides that if - the distribution of the employee's interest has begun in accordance with subparagraph a ii and il the employee dies before his entire_interest has been distributed to him the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph a ii as of the date of his death sec_1_401_a_9_-1 of the proposed income_tax regulations proposed_regulations q a-d-2 a provides in pertinent part that designated beneficiaries are only individuals who are designated as beneficiaries under the pian in general it provides that an individual may be designated as a beneficiary under the plan either by the terms of the plan or if the plan provides by an affirmative election by the employee or the employee's surviving_spouse specifying the beneficiary a beneficiary designated as such under the pian is an individual who is entitled to a portion of an employee's benefit contingent on the employee's death or another specified event sec_1_401_a_9_-1 of the proposed_regulations q a-d-3 a provides that for purposes of calculating the distribution period described in sec_401 a a ii for distributions before death the designated_beneficiary will be determined as of the employee's required_beginning_date if as of that date there is no designated_beneficiary under the pian to receive the employee's benefit upon the employee's death the distribution period is limited to the employee's life or a period not extending beyond the employee's life expectancy in the present case since beneficiaries e f and g were named beneficiaries on date a date before grantor's required_beginning_date of date beneficiaries e f and g were selected in a timely manner for purposes of calculating the distribution period described in sec_401 of the code accordingly with regard to ruling requests one and two we conclude that beneficiaries e f and g are timely selected designated beneficiaries of ira x for purposes of sec_401 of the code puy page sec_401 of the code permits an employee and his spouse to recalculate their life expectancies annually sec_1_401_a_9_-1 of the proposed_regulations q a-e-8 a provides guidance on how an employee's fife expectancy is recalculated and provides that upon the death of the employee the recalculated life expectancy of the employee or the employee's spouse will be reduced to zero in the calendar_year following the calendar_year of death in any calendar_year in which the last applicable life expectancy is reduced to zero the plan must distribute the employee's entire remaining interest prior to the last day of such year in order to satisfy sec_401 sec_1_401_a_9_-1 of the proposed_regulations q a-e-8 b provides guidance on calculating the applicable life expectancy when the employee's life expectancy is being recalculated and the life expectancy of his designated_beneficiary is not recalculated it provides in relevant part that if the designated_beneficiary is not the employee's spouse and the life expectancy of the employee is being recalculated annually the applicable life expectancy for determining the minimum distribution for each distribution calendar_year will be determined by recalculating the employee's life expectancy but not recalculating the beneficiary's life expectancy such applicable life expectancy is the joint and last survivor expectancy using the employee's attained age as of the employee's birthday in the distribution calendar_year and an adjusted age of the designated_beneficiary the adjusted age of the designated_beneficiary is determined as follows first the beneficiary's applicable life expectancy is calculated based on the beneficiary's’ attained age as of the beneficiary's birthday in the calendar_year described in e-1 reduced by one for each calendar_year which has elapsed since that calendar_year the age rounded if necessary to the higher age in table v of sec_1_72-9 is then located which corresponds to the designated beneficiary's applicable life expectancy such age is the adjusted age of the designated_beneficiary as provided in paragraph a upon the death of the employee the life expectancy of the empioyee is reduced to zero in the calendar_year following the calendar_year of the employee's death thus for determining the minimum distribution for such calendar_year and subsequent calendar years the applicable life expectancy is the applicable life expectancy of the designated_beneficiary determined under this paragraph sec_1_401_a_9_-1 of the proposed_regulations q a-e-i a provides generally that for required distributions under sec_401 of the code life expectancies are calculated using the employee's and the designated beneficiary's attained age as of the employee's birthday and the designated beneficiary's birthday in the calendar_year in which the employee attains age zy page sec_1_401_a_9_-1 of the proposed_regulations q a-e-5 a provides generally that if more than one individual is designated as a beneficiary with respect to an employee as of the applicable_date for determining the designated_beneficiary the designated_beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining the distribution period because grantor's life expectancy was being recalculated upon his death in accordance with q a-e-8 a of sec_1_401_a_9_-1 of the proposed_regulations his life expectancy was reduced to zero although his benefit was paid in the form of a single life expectancy upon his death his life expectancy was not the last applicable life expectancy because he timely designated his beneficiaries by his required_beginning_date in accordance with q a-d-3 a of the proposed_regulations therefore pursuant to q a-e-8 b of sec_1_401_a_9_-1 of the proposed_regulations for purposes of determining the minimum distribution in the calendar_year after the death of grantor the applicable life expectancy is the life expectancy of the designated_beneficiary as determined under that section since more than one individual was designated as a beneficiary with respect to the grantor as of date pursuant to sec_1_401_a_9_-1 of the proposed_regulations q a-e-5 a the beneficiary who is the oldest and correspondingly who has the shortest life expectancy will be the designated_beneficiary for purposes of determining the distribution period under ira x therefore with regard to ruling_request three we conclude that grantor's use of the single recalculated life expectancy in determining the required minimum distributions during his lifetime does not preclude the use of the term-certain life expectancy of the oldest designated_beneficiary in the calendar_year after grantor's death beneficiary e had the shortest life expectancy of the three designated beneficiaries on grantor's required_beginning_date date therefore he is the designated_beneficiary whose life expectancy will be used when determining the minimum distribution period under ira x for the calendar_year commencing after the year of grantor's death and for ail subsequent years thereafter pursuant to q as e-i a and e-8 b of the proposed_regulations beneficiary e's applicable life expectancy is caiculated based on his attained age as of his birthday in the calendar_year in which grantor attained age reduced by one for each calendar_year which has elapsed since that calendar_year his single life expectancy in the year that grantor attained age wa sec_43 therefore as of the calendar_year the remaining term-certain period with respect to beneficiary e i sec_36 years y aus page accordingly with respect to ruling_request four we conclude that in determining the required minimum distributions after grantor's death beneficiary f may use the remaining term-certain life expectancy of beneficiary e since he is the oldest non-spouse designated_beneficiary commencing in the calendar_year and reduced by one for each calendar_year thereafter the above ruling is contingent upon the continuation of ira x as one described under sec_408 of the code the original of this ruling is being sent to your authorized representative in accordance with a power_of_attorney on file in this office sincerely yours vanco uv geom frances v sloan manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy form_437 24p


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date gl-508596-99 cc pa cbs b2 ulic memorandum for associate area_counsel sb_se area cleveland from lawrence h schattner chief branch collection bankruptcy and summonses subject priority status of interest on administrative tax claims this chief_counsel_advice responds to your email dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent issue sec_1 whether interest that accrues on an administrative tax_liability incurred during a chapter reorganization case prior to a conversion to chapter is entitled to first priority status in distribution under the bankruptcy code after the case is converted whether interest continues to accrue on the chapter administrative tax_liability after the case is converted to chapter conclusion sec_1 yes interest that accrues pre-conversion on an administrative tax_liability incurred during a chapter reorganization is considered an administrative expense under sec_503 of the bankruptcy code and is entitled to first priority in distribution even after the case is converted to one under chapter yes interest continues to accrue however it is not entitled to first priority status under sec_507 of the bankruptcy code because it is not an administrative expense under sec_503 therefore the interest is relegated to fifth priority in distribution under section a facts debtor filed a petition for reorganization under chapter of the bankruptcy code two years later the case was converted to a chapter liquidation during the chapter portion of the bankruptcy the chapter estate incurred administrative tax_liabilities which remained unpaid when the case was converted the internal gl-508596-99 revenue service service filed administrative claims in both the chapter and chapter cases the service also filed a proof_of_claim for pre-petition secured claims priority claims and general unsecured claims it is anticipated that after liquidation there will be some money remaining to pay the general unsecured claims the chapter trustee objected to the service’s claims the trustee contends that post-petition_interest on an administrative claim is not entitled to first priority status for distribution instead the trustee argues that the interest should be paid as a fifth level priority pursuant to section a of the bankruptcy code for support the trustee relies on in re weinstein 251_br_174 b a p 1st cir and 212_br_188 bankr d n h law and analysis on date the first circuit_court of appeals overturned the decision in in re weinsein the trustee’s primary support in re weinstein u s app lexis 1st cir our position which we review below is fully set out in the government’s brief in weinstein analyzing the priority status of post-petition_interest on the administrative tax_liabilities in this case requires looking at distinct stages of interest accrual first we must determine the priority status of the service’s claim for post-petition_interest that accrued on administrative liabilities incurred during the chapter portion of the case prior to the conversion to chapter next we must determine whether the conversion to chapter affects the priority status of the service’s claim for post-petition_interest last we must determine the priority status of the service’s claim for interest on the chapter administrative tax_liabilities that continues to accrue after the case has been converted priority status of accrued interest on chapter administrative claims under sec_507 of the bankruptcy code administrative expenses have first priority in bankruptcy distribution administrative expenses are defined in sec_503 sec_503 provides in relevant part b after notice and a hearing there shall be allowed administrative expenses other than claims allowed under sec_502 of this title including - b any_tax - i incurred by the estate except a tax of a kind specified in sec_507 of this title gl-508596-99 c any fine penalty or reduction in credit relating to a tax of a kind specified in subparagraph b of this paragraph b c sec_503 unless the creditor agrees otherwise a court will only confirm a chapter reorganization plan if the holder of an administrative claim receives cash equal to the allowed amount of its claim on the effective date of the plan b c a a interest is not expressly mentioned as an administrative expense in sec_503 the trustee in this case argues that because it is not expressly mentioned it can not be an administrative expense therefore it is not entitled to first priority status however this argument ignores the fact that every circuit to have addressed post- petition interest on administrative tax claims has found that the interest itself is an administrative expense entitled to the same priority as the underlying tax in re weinstein u s app lexis 1st cir in re flo-lizer inc 916_f2d_363 6th cir in re allied mechanical services inc 885_f2d_837 11th cir in re mark anthony constr inc 886_f2d_1101 9th cir 737_f2d_430 4th cir see also in re preferred door co inc 990_f2d_547 10th cir citing these circuit_court cases favorably to determine whether interest is included as an administrative expense requires close analysis of sec_503 the starting point of any statutory analysis must be the language of the statute itself 447_us_102 sec_503 lists various administrative expenses because it uses the term including the statute suggests that the list is not exhaustive the bankruptcy code itself states that the use of including is not limiting b c sec_102 therefore interest could be included as an administrative expense this uncertainty over what exactly is included as an administrative expense makes the statute ambiguous flo-lizer f 2d pincite allied mechanical f 2d pincite mark anthony 886_f2d_1106 when a statute is ambiguous the court must look to the legislative_history to determine what it means flo-lizer f 2d pincite relying on 489_us_235 the senate’s version of sec_503 expressly provided for interest as an administrative expense s rep no 95th cong 2nd sess the final version of the statute did not congress gave no explanation for why it did not expressly include interest in the list of expenses given first priority status mark anthony f 2d pincite under the prior_law the bankruptcy act of interest was included as an administrative expense pursuant to the supreme court decision in 384_us_678 although the bankruptcy act did not specifically mention interest the supreme court concluded that interest earned on taxes incurred during a chapter reorganization was entitled to the same priority status as the administrative tax id pincite nowhere has congress expressed an intent to abrogate the rule as laid out in nicholas mark anthony f 2d pincite there is no indication anywhere in the legislative gl-508596-99 history that congress intended to or even was aware that its failure to list interest specifically would alter the priority of post-petition_interest it is a well established principle of statutory construction that no changes in law or policy are to be presumed from changes in language in a statute’s revision unless an intent to make such changes is clearly expressed 490_us_545 without clear evidence that congress intended to change the common_law a court cannot construe a statute to establish a new rule_of law mark anthony f 2d pincite thus the rule that post-petition_interest on a post-petition tax_liability of a bankruptcy_estate is an administrative expense remains the law even after enactment of the bankruptcy code this rule is consistent with the general treatment of interest on tax claims the supreme court has recognized that i n most situations interest is considered to be the cost of use of the amounts owing a creditor and an incentive to prompt repayment and thus an integral part of a continuing debt interest on a tax debt would seem to fit that description 376_us_358 thus a claim for post-petition_interest is part and parcel with a claim for administrative tax_liabilities this is especially true given the importance of post- petition creditors to a debtor’s ability to reorganize the priority status given to the costs of administering the estate including interest is meant to encourage those who either help preserve and administer the estate or who assist with the rehabilitation of the creditor so that all creditors will benefit in re colortex industries inc 19_f3d_1371 11th cir it is also meant to promote an overriding policy that a debtor’s efforts to reorganize shall be financed by the debtor not the debtor’s post-petition creditors allied mechanical f 3d pincite congress recognizes that the government is in a unique position as a creditor first the government cannot chose to whom it extends credit h_r rep no 95th cong 1st sess second businesses often pay other creditors before paying their taxes id given these realities it would be unfair to require the government to make interest-free loans while a debtor attempts to reorganize its financial affairs mark anthony f 2d pincite n another reason for concluding that the post-petition_interest is included as an administrative claim is the fact that sec_503 expressly provides for penalties 1we recognize that post-petition_interest does not accrue on pre-petition claims there are two reasons for this rule first because the interest accrues at different rates interest on pre-petition claims is suspended upon filing so that one creditor is not advantaged over another in re colortex industries 19_f3d_1371 citing 233_us_261 second interest is suspended to avoid administrative inconvenience colortex f 3d pincite citing bruning u s pincite neither of these concerns is implicated by allowing post-petition_interest to accrue on post-petition claims in nicholas the supreme court determined that allowing interest on an administrative claim to accrue during a reorganization neither unfairly burdened the trustee nor disadvantaged other creditors 384_us_678 gl-508596-99 the inclusion of penalties as an administrative expense shows that congress was willing to have the bankruptcy_estate pay for expenses that arise out of a debtor’s failure to pay taxes flo-lizer 916_f2d_363 all of the circuit courts to have considered this issue agree that it makes no sense for congress to give penalties a higher priority than interest instead a rule which treats interest in the same manner as the underlying tax is consistent with the general treatment of taxes and interest in the bankruptcy code and in the tax laws mark anthony f 2d pincite priority status of accrued interest on chapter administrative claims after conversion to chapter as the above discussion shows the great weight of authority concludes that post- petition interest is entitled to first priority status as an administrative claim in chapter cases the trustee argues that post-petition_interest can not be entitled to first priority status because section a already provides for interest as a fifth priority however section a is not implicated in this case the interest at issue here accrued pre-conversion during the chapter portion of the case therefore t he chapter priority scheme should not affect the chapter claims which were fixed at the time of conversion except as expressly provided for in chapter of the bankruptcy code in re rocky mtn refractories 208_br_709 b a p 10th cir 138_br_458 bankr d n j finding that interest which accrued pre- conversion retains its administrative expense status and is not affected by the conversion several of the circuit_court cases considering the priority status of interest on administrative tax claims involved cases which had been converted from chapter to chapter and none of them found that the conversion affected the analysis allied mechanical 885_f2d_837 mark anthony 886_f2d_1101 see preferred door 990_f2d_547 see also colortex 19_f3d_1371 section provides for first priority_distribution of administrative claims and fifth priority_distribution of certain claims for interest except as provided in section of this title property of the estate shall be distributed - first in payment of claims of the kind specified in and in the order specified in sec_507 of this title fifth in payment of interest at the legal rate from the date of the filing of the petition on any claim paid under paragraph or of this subsection 2however the administrative expenses_incurred pre-conversion are paid after the chapter administrative claims are paid b c b gl-508596-99 b c a sec_507 gives first priority for administrative expenses allowed under sec_503 b c sec_507 section a limits fifth priority to payment of interest from the date of the petition thus a does not apply to interest accrual during a prior chapter the first circuit goes even further and says that a does not apply to payment of interest accruing after the petition date on post-petition liabilities in weinstein a case dealing with the priority status of post-petition_interest that accrued on administrative tax claims in a chapter case the court examined the interplay between sec_503 sec_507 and u s app lexis first the court found that although section a seems to provide for interest as a fifth priority status in distribution when read in conjunction with sec_503 and sec_507 it is unclear exactly how section a is meant to apply id at therefore the court looked at the prior_law the legislative_history and the policy considerations behind the relevant code sections in order to clarify section a the court’s analysis mirrored the prior circuit decisions discussed above therefore we will not repeat it ultimately the court concluded that a proper reading of sec_503 includes post-petition_interest incurred on administrative tax_liabilities therefore the interest should be paid as a first priority administrative expense under section a interest accrual on chapter administrative tax_liabilities post-conversion the last issue to be considered is whether interest continues to accrue on the administrative tax_liabilities incurred during the chapter portion of the case after it is converted to chapter and if so what is its priority status under section generally a creditor may not file a claim for unmatured interest accruing after a bankruptcy petition is filed b c sec_502 however post-petition_interest on non-dischargeable debts can be collected directly from the debtor after bankruptcy 376_us_358 in re cousins 209_f3d_38 1st cir 49_f3d_98 3d cir the rationale for this is based on the recognition that there is a difference between allowing claims for interest on debts collectible from the bankruptcy_estate and those collectible directly from the debtor leeper f 3d pincite the purpose of not allowing claims for interest accrual once a bankruptcy petition is filed is to protect the assets of the estate for all creditors bruning u s pincite if a debt with a high interest rate is allowed to deplete the assets of the estate the other creditors will be disadvantaged id prohibiting claims for post-petition_interest also makes the estate easier to administer and less burdensome for the trustee id neither of these concerns are at issue once the bankruptcy is over and the debt is collected directly from the debtor id pincite an exception to prohibiting claims for unmatured interest is section a a codification of the solvent debtor rule which provides that any money remaining after distribution should be paid to compensate the creditors rather than the debtor colortex f 3d pincite thus post-petition_interest will only be paid as fifth gl-508596-99 priority before any excess_assets of the estate is paid back to the debtor in nicholas the supreme court seems to hold that interest accruing during a chapter reorganization stops accruing after conversion to a liquidation case this holding was based on the court’s determination that it would be inequitable to allow the interest accruing on a debt owed by the estate to absorb the assets available for the debtor’s creditors nicholas pincite see also in re sun cliff 143_br_789 bankr d colo 138_br_458 bankr d n j in this case however because the post-petition_interest is being paid out of funds that would otherwise go back to the debtor this situation is different from the one presented in nicholas although the interest on the chapter administrative liabilities continues to accrue it cannot be characterized as an administrative expense of the chapter estate under sec_503 see b c b therefore the post-petition_interest on the chapter administrative liabilities continues to accrue but will be paid as a fifth priority expense under section a this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views if you have any further 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