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 intl b04 plr-120662-04 date date tax_year foreign parent domestic parent foreign d e ------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------- --------------------------------------------------------------------------------- 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--------------------------------------------------------------------------------- ---------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------- ------------------------------- plr-120662-04 country x business a business b business c --------------------------------------------------------------------------------- ------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------- 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------------------------------------ ------------------------------------ ------------------------------------ --------------------------------------------------------------------------------- ---------------------- --------------------------------------------------------------------------------- ----------------- --------------------------------------------------------------------------------- plr-120662-04 business d business e --------------------------------------------------------------------------------- ------------ --------------------------------------------------------------------------------- ------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------------------------- this is in response to a letter dated date submitted on your behalf by dear -------------------- your authorized representative requesting a ruling regarding the application of sec_367 of the internal_revenue_code with respect to a proposed transaction you have not requested a ruling with respect to any other transaction that would precede the proposed transaction additional information was submitted in letters dated date date date date date date and date representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination ownership structure the rulings contained in this letter are based upon information and foreign parent a country x corporation is a corporation engaged through its subsidiaries in businesses a b c and d foreign parent currently owns all of the outstanding_stock of foreign d e a country x corporation that is treated for u s federal_income_tax purposes as a disregarded_entity under sec_301_7701-3 foreign d e owns all of the stock of domestic parent a domestic_corporation that is the parent of a consolidated_return group domestic parent currently owns directly indirectly or a combination thereof all of the stock of --- domestic subsidiaries--------------- some of domestic parent’s subsidiaries in turn own additional subsidiaries subs -------engage directly or indirectly through subsidiaries in businesses a b c and d in the following manner subs -----engage in business a subs ------------- engage in business b subs -------engage in business c sub --- has additional subsidiary corporations that engage in businesses b c and d sub --- engages in business e plr-120662-04 proposed transaction domestic parent will completely liquidate and distribute its assets including the shares of its subsidiaries to foreign d e which will be treated as a distribution to foreign parent for u s federal_income_tax purposes the transaction the transaction is intended to qualify as a liquidation under sec_332 foreign d e will form -- ----- country x holding_companies corresponding to businesses a b c and d the country x holding_companies will be treated as corporations for country x purposes but as disregarded entities for u s federal_income_tax purposes under sec_301 a for valid business reasons foreign d e then will transfer the stock of subs ------ that it will receive in the liquidation to the newly formed country x holding_companies that correspond with their different lines of business thus foreign d e will transfer the stock of subs ------to foreign holding -- subs -------------to foreign holding -- and subs -------to foreign holding -- foreign d e will transfer the stock of sub ---- to foreign holding ---------------- foreign d e will not transfer the stock of sub ---- to any of the country x holding_companies the transaction will be undertaken for valid business reasons that include focusing management review on specific business lines and developing brand identities additionally the transaction is intended to create an overall corporate structure that will facilitate the formation of joint ventures and a more effective evaluation of the performance of the various business lines domestic parent and foreign parent also have undertaken various restructurings the preliminary transactions within the affiliated_group in preparation for the transaction the u s federal_income_tax consequences of the preliminary transactions are not discussed in this letter representations the taxpayer has provided the following representations with regard to this request for a private_letter_ruling there are no plans or intent to sell or otherwise dispose_of any of domestic parent’s stock prior to the transaction or for domestic parent to issue any additional shares of its stock foreign parent domestic parent and the domestic subsidiary corporations will be duly formed and in good standing under all applicable laws and regulations and will be treated as corporations for u s federal_income_tax purposes under sec_301_7701-1 through foreign d e is duly formed and in good standing under all applicable laws and regulations and treated as a disregarded_entity for u s federal_income_tax purposes under sec_301_7701-3 plr-120662-04 foreign parent’s principal class of shares is and will be listed on and is and will be regularly_traded on a recognized stock exchange foreign parent and foreign d e are liable to tax in country x on all of their income by reason of their domicile residence place of management place of incorporation or any other criterion of a similar nature foreign d e will not be subject_to u s federal_income_tax withholding on a dividend received from domestic parent pursuant to the u s -country x treaty the distribution by domestic parent of its assets in complete_liquidation in the transaction will be done for valid business reasons and the transaction will satisfy the requirements of sec_332 foreign parent is not an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code all of the preliminary transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the transaction have been fully disclosed and such preliminary transactions have been or will be entered into for valid business reasons the occurrence of some of the preliminary transactions is subject_to change primarily for foreign legal and regulatory reasons and such changes will be disclosed as these issues are resolved the liquidating_distribution in the transaction will consist solely of stock of domestic corporations owned by domestic parent domestic parent will not distribute any intangible_property within the meaning of sec_936 in the transaction none of the domestic subsidiaries is a foreign_corporation that has made an election under sec_897 to be treated as a u s_corporation for purposes of sec_897 on the date of the liquidating_distribution and at all times until the final liquidating_distribution is completed domestic parent will own directly without regard to sec_1_367_e_-2 percent of the total voting power and value of all stock of each of the domestic corporations distributed in the liquidation except for sub -- domestic parent will own directly ---- and indirectly ---- of the total voting power and value of the outstanding_stock of sub -- at the time of the liquidating_distribution domestic parent will not be a u s real_property_holding_company as defined in sec_897 and will not be a plr-120662-04 former u s real_property holding corporation the stock of which is treated as a u s real_property interest for years under sec_897 the sole purposes for the transaction are as described in the ruling_request domestic parent will comply with the reporting requirements of sec_6038b and sec_1_6038b-1 analysis and rulings sec_337 generally provides that a liquidating corporation does not recognize gain_or_loss on the distribution of any property to an 80-percent_distributee as defined in sec_337 in a complete_liquidation to which sec_332 applies sec_367 provides that in the case of any liquidation to which sec_332 applies except as provided in regulations sec_337 and b shall not apply where the 80-percent_distributee is a foreign_corporation therefore absent an exception under the regulations under sec_367 a domestic_corporation must recognize gain_or_loss on a sec_332 liquidating_distribution to an 80-percent foreign_distributee if certain requirements are satisfied the regulations under sec_367 provide a nonrecognition exception to this general_rule for distributions of stock of domestic subsidiary corporations sec_1_367_e_-2 to qualify for this exception the domestic subsidiary_corporation must be an percent domestic subsidiary as described in sec_1_367_e_-2 and the domestic liquidating corporation must attach a statement described in sec_1 e - b iii d to its u s income_tax return for the year of the distribution of such stock however this nonrecognition exception is subject_to both a specific and a general anti- abuse rule the specific anti-abuse rule provides that the above exception will not apply if a principal purpose of the distribution of the percent domestic subsidiary corporation's stock is the avoidance of u s tax that would have been imposed on the domestic liquidating corporation's disposition of such stock directly or indirectly to an unrelated party sec_1_367_e_-2 additionally the general anti-abuse rule provides that the commissioner may require a domestic liquidating corporation to recognize gain on a distribution in liquidation or treat the liquidating corporation as if it had recognized loss on a distribution in liquidation if a principal purpose of the liquidation is the avoidance of u s tax including but not limited to the distribution of a liquidating corporation's earnings_and_profits with a principal purpose of avoiding u s tax a liquidation may have a principal purpose of tax_avoidance even though the tax_avoidance purpose is outweighed by other purposes when taken together sec_1_367_e_-2 plr-120662-04 based solely on the information submitted the representations set forth above the specific circumstances in this case the entry into the closing_agreement attached hereto and made a part hereof and continuing to meet the requirements of sec_1_367_e_-2 it is held as follows domestic parent will not recognize gain on the distribution of the shares of the domestic subsidiary corporations in liquidation to foreign parent under sec_367 and the regulations thereunder sec_1_367_e_-2 and -2 d we have approved and executed a closing_agreement with the taxpayer with respect to the application of sec_367 to the liquidating_distribution by domestic parent the necessary closing_agreement for domestic parent foreign parent and foreign d e has been prepared with six originals and is enclosed in pursuance of our practice with respect to such agreements the agreement contains a stipulation to the effect that any change or modification of the applicable statutes will render the agreement ineffective to the extent that the agreement is dependent upon such statutes 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 no opinion is expressed on any related transaction a copy of this letter and the executed closing_agreement must be attached to the taxpayer’s federal_income_tax return for the year in which the transaction is consummated this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-120662-04 is being sent to your authorized representatives in accordance with a power_of_attorney on file with this office a copy of this letter sincerely harry j hicks iii harry j hicks iii associate chief_counsel office of the associate chief_counsel international attachments copy for sec_6110 purposes closing_agreement plr-120662-04 department of the treasury-internal revenue service closing_agreement on final_determination covering specific matters under sec_7121 of the internal_revenue_code_of_1986 as amended the code -------------------------- foreign parent ------------------------a ------ corporation ------------------------------------------------------ foreign d e -------------- -------------a ------- corporation that has elected to be treated as a disregarded_entity for u s federal_income_tax purposes -------------------------------- ----------------- domestic parent -------------------------------------------------------------- ---------------------------------------------------- as a domestic_corporation and as common parent on behalf of all the members of a consolidated_group the domestic parent group and the commissioner of internal revenue hereby make the following closing_agreement closing_agreement based on the representations made by domestic parent foreign parent and foreign d e in the paragraphs below whereas based on the information submitted with the taxpayer’s request dated date and in additional letters dated date date date date date date and date in the absence of other material circumstances as part of the proposed transaction and in conjunction with a letter from the associate chief_counsel international to domestic parent that will be issued in connection with this closing_agreement it has been determined for federal_income_tax purposes that except as provided in paragraph domestic parent or foreign parent on behalf of domestic parent shall include in income for the taxable_year of the liquidation of domestic parent all of the gain realized on the liquidating_distribution of the stock of a subject domestic_corporation if for u s federal_income_tax purposes there is a direct or indirect sale exchange distribution contribution transfer or other_disposition collectively a disposition of any of the stock of that subject domestic_corporation within the two year period beginning on the date of the liquidating_distribution to foreign parent by domestic parent for purposes of this closing_agreement if a subject domestic_corporation distributes stock of a controlled_corporation controlled as defined in sec_355 to its shareholder s in a transaction described in sec_355 such shareholder s shall be considered as having exchanged its stock in such subject domestic_corporation and such exchange shall be considered a disposition if the disposition described in plr-120662-04 the preceding sentence qualifies for the exception to gain recognition contained in paragraph such controlled stock also shall be treated as stock of such subject domestic_corporation for purposes of this closing_agreement foreign parent shall be the successor-in-interest to domestic parent upon its liquidation under sec_332 of the code the stock of the following domestic corporations is subject_to the provisions of this closing_agreement and is sometimes referred to as the stock of the subject domestic corporations -------------------------------------------------------- ----------------------------------------------- ---------------------------------------------------------- -------------------------------------------- -------------------------------------------------------------------------------------------- ---------------------------------- ------------------------------------------------------- ----------------------------------------------- ------------------------------------ ----------------------------------- -------------------------------------- -------------------------------- ------------------------------------------------------------------------------- ------------------------------------------------- ------------------------------- ------------------------------------------------- --------------------------- ----------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------- domestic parent or foreign parent on behalf of domestic parent shall not be required to recognize gain under paragraph upon a disposition of the stock of a subject domestic_corporation to a member of the foreign parent’s affiliated_group as described in sec_1504 without applying the exceptions contained in sec_1504 if foreign parent directly indirectly or a combination thereof owns i percent of the stock of the subject domestic_corporation distributed in the liquidation and ii percent of the affiliated transferee corporation for the remainder of the two year period beginning on the date of the liquidation the stock of the affiliated transferee corporation shall be treated as stock of a subject domestic_corporation for purposes of paragraph and a direct or indirect disposition of such stock by foreign parent shall plr-120662-04 be subject_to the provisions of paragraph and the other provisions of this closing_agreement the transfer by foreign parent of its property to another corporation in exchange for stock of that corporation under sec_361 of the code pursuant to a reorganization under sec_368 of the code shall be subject_to the recognition provisions of paragraph of this closing_agreement in appropriate instances the commissioner may consider entering into a subsequent closing_agreement with additional terms and conditions substituting the acquiring_corporation under sec_381 for foreign parent so that the recognition provisions of paragraph are not applicable to the exchange under sec_361 subject_to all of the provisions of this closing_agreement the liquidating_distribution of the stock of the subject domestic corporations by domestic parent to foreign parent through its ownership in foreign d e shall not be considered to have been done for i a principal purpose of avoidance of u s tax that would have been imposed on domestic parent’s direct or indirect disposition of the stock of the subject domestic corporations to an unrelated party under sec_1_367_e_-2 of the regulations or ii a principal purpose of the avoidance of u s tax including but not limited to the distribution of a liquidating corporation’s earnings_and_profits with a principal purpose of avoiding u s tax under sec_1_367_e_-2 of the regulations any gain recognized under the provisions of this closing_agreement shall be included on the consolidated_income_tax_return or an amended_return for the domestic parent group for the year of the liquidating_distribution to foreign parent if the income_tax return has already been filed foreign parent as successor to domestic parent shall cause an amended u s income_tax return for domestic parent to be filed to include the gain recognized domestic parent the members of the domestic parent group and foreign parent including foreign d e shall be jointly and severally liable for any_tax resulting from the gain recognized under this closing_agreement and any interest that must be paid on any additional tax due if any additional tax is required to be paid then interest must be paid on that amount at the rates determined under sec_6621 with respect to the period between the date that was prescribed for filing the consolidated_income_tax_return for the year of the liquidating_distribution and the date on which the additional tax for that year is paid a copy of this closing_agreement shall be attached to the form_926 required to be filed with the income_tax return of domestic parent for the taxable_year of the liquidation and to the income_tax returns of the subject domestic corporations for the first taxable_year following the liquidation each subject domestic_corporation shall attach a certification to its income_tax return for its plr-120662-04 taxable years covering the two year period after the liquidation that there has not been a direct or indirect disposition of its stock during the taxable_year under the provisions of this closing_agreement if there has been a direct or indirect disposition of its stock during the taxable_year under the provisions of this closing_agreement during the taxable_year then the subject domestic_corporation shall attach a statement to its income_tax return detailing the facts and circumstances and fully explaining how this closing_agreement applies on the consolidated_income_tax_return or amendment thereof filed domestic parent only may use losses or credits existing in the year of the distribution that were otherwise available to domestic parent in that year and not used in another year to offset the gain or tax thereon required to be recognized any amended consolidated_income_tax_return shall be filed no later than days after the event causing the inclusion of the gain under this closing_agreement domestic parent and foreign parent including foreign d e agree to extend the statute_of_limitations on assessments and collections under sec_6501 in regard solely to the distribution of the stock of the subject domestic corporations in the liquidation until date foreign parent including foreign d e irrevocably waives any benefits that could be claimed under any applicable income_tax treaty or any other treaty in regard to any provision of this closing_agreement including the inclusion of any gain in income whereas the determinations set forth above are hereby agreed to by said taxpayers plr-120662-04 now this closing_agreement witnesseth that the taxpayers and the commissioner of internal revenue hereby mutually agree to the determinations set forth above and further mutually agree that those determinations shall be final and conclusive subject however to reopening in the event of fraud malfeasance or misrepresentation of material fact and provided that any change or modification of applicable statutes or tax conventions shall render this closing_agreement ineffective to the extent that it is dependent upon such statutes or tax conventions in witness whereof by signing the foregoing the above parties signify that they have read and agreed to the terms of this document ------------------------ foreign parent by ______________________ date ___________ title _____________________ --------------------------------------------------------------- foreign d e -------------------------------------------- domestic parent title ____________________ by _____________________ date ___________ by _____________________ title ____________________ date ___________ commissioner of internal revenue by ______________________ title associate chief_counsel international date ___________


number release date uil criminal tax bulletin department of treasury internal_revenue_service office_of_chief_counsel criminal tax_division april this bulletin is for informational purposes it is not a directive title_26 and title_26 related cases publicly available material not subject_to brady request in 277_f3d_1026 8th cir willis appealed his conviction on two counts of income_tax evasion under u s c sec_7201 to the eighth circuit alleging inter alia the government failed to disclose brady material before trial willis made a brady motion requesting any exculpatory evidence specifically any documents in the government’s possession relating to a program known as de-taxing america willis testified at trial he had relied on materials from de-taxing america in forming his belief he was not legally obligated to pay federal income taxes willis received no documents from the government regarding de-taxing america although its founders had been investigated by the irs and permanently enjoined from marketing the program to establish a brady violation a defendant must show the government withheld material evidence favorable to the defendant evidence is considered material only if there is a reasonable probability the result of the trial would have been different had the material been disclosed to the defendant 147_f3d_662 8th cir the eighth circuit opined the de-taxing america materials did not meet the materiality standard moreover the court observed the injunction against the de- taxing america program was a matter of public record at the time of trial and all the information willis sought could have been obtained by him independently through basic_research publicly available information which a defendant could have discovered through reasonable diligence cannot be the basis for a brady violation 160_f3d_473 8th cir additionally the eighth circuit concluded evidence showing other people had followed the de-taxing america program would not have created a reasonable probability of a different result at willis’ trial accordingly the eighth circuit concluded there was no brady violation and affirmed the judgment of the district_court hyde amendment - attorney’s fees in 281_f3d_982 9th cir date the ninth circuit held braunstein’s hyde amendment appeal for attorney’s fee was timely filed pursuant to fed r app p a and was meritorious based on the government’s frivolous prosecution the hyde amendment enacted by congress in provides courts may award attorney’s fees to prevailing criminal defendants where the court finds that the position_of_the_united_states was vexatious frivolous or in bad faith before addressing the merits of braunstein’s appeal the court considered the government’s claim that the appeal was untimely the issue concerning which statute_of_limitations civil or criminal applies was one of first impression in the ninth circuit the fourth fifth and d c circuits have held hyde amendment appeals are civil matters governed by fed r app p a which requires a notice of appeal to be filed within days after the judgement or order appealed from is entered the tenth circuit has held hyde amendment appeals are criminal matters governed by fed r cr p b which requires a notice of appeal to be filed within days the ninth circuit ultimately adopted the reasoning of the fifth circuit in 211_f3d_898 5th cir which rejected the argument hyde amendment appeals are criminal matters for three reasons first a motion under the hyde amendment does not implicate the movant’s liberty interests requiring the short day statute second the hyde amendment adopted substantially_all of the procedures and limitations of the equal_access_to_justice_act which provides for recovery_of attorney’s fees in unjustified civil actions brought by the government third the court noted the government cannot without statutory authority appeal from a decision in a criminal case a practical problem which might arise from characterizing a hyde amendment appeal as a criminal matter grand jury lawyer cannot be forced to tell grand jury what client said to irs special agents in interview in in re grand jury subpoena date date john 282_f3d_156 2nd cir the second circuit held the work product doctrine shields a lawyer from having to tell a grand jury what her client said to government agents during an interview in the lawyer’s presence if the testimony may be used to indict the client for previous criminal conduct the attorney moved to quash a subpoena compelling her testimony before the grand jury regarding statements her client a corporate general counsel made in a meeting with two irs special agents arguing her testimony would violate the work product privilege initially the subpoena sought a factual report of what her client said in the meeting with the special agents however during oral argument the government stated it also intended to use the attorney’s testimony to support charges the general counsel committed fraud prior to the meeting in which the attorney was representing him in reversing the district_court the court found a key factor in its decision was the government now intended to use the lawyer’s testimony in part to prove the client committed the very crime for which the lawyer was representing the client at the time of the meeting the court found the two uses of the attorney’s testimony had an important bearing on the resolution of the work product privilege claim the court concluded the use of the testimony for the purpose of proving the client committed a crime fell within the work product privilege’s zone of privacy of a lawyer’s preparation to represent a client in anticipation of litigation forfeiture commingled funds in 279_f3d_62 1st cir mcgauley obtained fraudulent refunds by returning large to forfeit dollar_figure pursuant amounts of allegedly stolen merchandise to retail stores as a result of her scheme mcgauley received refund checks totalling dollar_figure and deposited the checks into various bank accounts some of which were held jointly with her parents mcgauley conducted financial transactions using the accounts that held the refund money the transactions included transfers between banks and withdrawals of over dollar_figure mcgauley was convicted inter alia mail fraud and money laundering and was ordered to u s c sec_982 mcgauley appealed the forfeiture order arguing u s c sec_982 does not authorize forfeiture of legitimate funds commingled with proceeds of unlawful activity the first circuit disagreed in her appeal mcgauley argued the forfeiture of dollar_figure was excessive since the total amount of refund checks she received was dollar_figure therefore the legitimate funds commingled with the fraudulent funds were not subject_to forfeiture under u s c sec_982 the first circuit affirmed mcgauley’s conviction as well as the forfeiture of the commingled funds and noted the district_court gave proper jury instructions regarding the forfeiture in its instructions the district_court cited language from both the money laundering and forfeiture statutes stating the commingling of legitimate and tainted funds may expose legitimate funds to forfeiture if the commingling was involved in concealing the nature or source of the tainted funds in this case the first circuit held a reasonable jury could find the extensive series of financial transactions mcgauley initiated within two weeks of the search of her home was designed to conceal the nature of the proceeds of her unlawful refund scheme the court also noted the district_court cited similar findings in the fifth seventh and tenth circuits to support its decision investigative techniques recordings obtained from a wiretap order admissible despite flaws in application in 278_f3d_1168 10th cir smart appealed his conviction of bribing a government_official alleging taped telephone conversations obtained by f b i agents through a wiretap should be suppressed because the government’s authorization was materially flawed rendering the recordings inadmissible federal agents may obtain authorization to use a wiretap to intercept telephone calls only if they are investigating certain serious offenses enumerated in the wiretap statute u s c sec_2516 in smart’s case of the seven offenses listed in the government’s application_for a wiretap order five of the offenses were clearly enumerated in the statute however the remaining two offenses were not enumerated offenses in considering whether a reference to non-enumerated offenses in a wiretap application invalidates the applicable order the tenth circuit first determined the wiretap statute does not indicate where investigators suspect both enumerated and non-enumerated offenses wiretaps are impermissible the supreme court made clear in 416_us_505 suppression is not required under the wiretap statute unless there is failure to satisfy any of those statutory requirements that directly and substantially implement the congressional intention to limit the use of intercept procedures id pincite the tenth circuit opined this standard is not met by a reference to non-enumerated offenses or even incorrectly describing non-enumerated offenses as enumerated ones in smart’s case the court noted the scope of the wiretap investigation was limited to only three enumerated offenses while the court was troubled by the wiretap application’s incorrect characterizations the tenth circuit nevertheless ruled the incorrect description of suspected non-enumerated offenses as enumerated offenses does not invalidate a wiretap order as long as the authorization to wiretap was limited to only enumerated offenses accordingly the tenth circuit affirmed the district court’s order denying smart’s motion to suppress the recordings sentencing tax offense relevant conduct allowed in concurrent sentence for fraud offense in 275_f3d_216 2nd cir feola was sentenced to concurrent terms of months’ imprisonment for bank fraud in violation of u s c and months’ imprisonment for willfully failing to file a federal_income_tax return in violation of sec_7203 between and feola’s wife embezzled nearly four million dollars joint tax returns filed by the feolas for and failed to report the embezzled money and the couple did not file returns for and additionally the feolas submitted a copy of a false tax_return to a bank in support of a loan application feola contended the district_court erred by using conduct relevant to the tax offense to impose a sentence for the bank fraud charge in excess of the statutory maximum for the tax offense feola claimed the court should not have considered the embezzlement income generated by his wife in calculating the tax loss attributable to him and his sentence was contrary to the court’s holding in 530_us_466 holding a fact must be alleged in an indictment and determined by a jury if it results in a sentence for an offense above the statutorily specified maximum because conduct relevant to the tax offense resulted in a concurrent sentence on the fraud count exceeding the statutory maximum of months for the tax offense rejecting feola’s first claim the court found feola’s assertion he was unaware the funds the couple received were the result of embezzlement completely lacked credibility regarding the second claim the court noted t he propriety of permitting relevant conduct for one offense to enhance an aggregate sentence on multiple counts has already been upheld in this circuit in feola’s case the second circuit opined conduct relevant to the tax offense will result in an aggregate sentence greater than the statutory maximum for that offense however the aggregate sentence is imposed because appellant has committed two offenses not because a statutory maximum for any one offense has been exceeded accordingly the second circuit ruled feola’s sentence did not violate the rule articulated in apprendi and affirmed the sentence imposed by the district_court organizer leader of a criminal activity in 280_f3d_694 6th cir anthony engaged in a scheme to remove federally required child-proof safety mechanisms from disposable cigarette lighters he also orchestrated an effort to conceal his conduct from investigators anthony pleaded guilty to making a materially false statement to a federal investigator in violation of u s c sec_1001 the sole issue on appeal was whether the district_court erred by increasing anthony’s offense four levels pursuant to u s s g sec_3b1 a which states if the defendant was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive increase by four- levels the sixth circuit noted two reasons why the number of participants did not warrant a four level increase the first required the identity of the offense in question since established case precedent in the circuit stated only conduct which could lead to a criminal conviction could be factored into its sentencing analysis since the removal of safety devices was not a criminal offense the participants involved in this activity were irrelevant to the sentencing analysis the second was based on the distinction between participants and non-participants cases applying this guideline uniformly count as participants persons who were aware of the criminal objective and knowingly offered their assistance there was nothing in the record to suggest the fifth participant anthony’s attorney was a knowing and willing participant in the cover up scheme since the five participant test failed the pivotal question in the case concerned whether the criminal activity was otherwise extensive the sixth circuit adopted the second circuit’s analysis which authorizes a four level enhancement when the combination of knowing participants and non-participants in the offense is the functional equivalent of an activity involving five criminally responsible participants the final test is to identify individuals whose contribution was so essential to the criminal objective they should be counted as a participant irrespective of their true criminal intent ultimately the sixth circuit held the district_court based their findings on a consideration of impermissible factors and thus remanded the case and directed the district_court to examine the respective contributions of the participants and non- participants to determine whether the combined effort was equal to five criminally responsible participants untruthful defendant properly denied a government motion for substantial assistance to conspiring in 270_f3d_1188 8th cir wolf pled guilty to distribute methamphetamine and was sentenced to a ten year prison term wolf appealed his sentence arguing the government’s refusal to move for a substantial assistance downward departure was unconstitutional or motivated by bad faith wolf argued the district_court erred when it denied his presentence motion to compel the government to file a motion for a substantial assistance downward departure pursuant to u s s g sec_5k1 or u s c e at wolf’s sentencing the government presented evidence wolf had been untruthful and his continued illegal conduct hampered his potential assistance against at least four co- defendants setting the government’s investigation back four months thus the court found the government’s refusal to move for a substantial assistance downward departure pursuant to u s s g sec_5k1 or u s c e did not violate constitutional standards because it was rationally related to a legitimate governmental purpose- encouraging criminal defendants to be fully cooperative and forthright with the government further the court explained because there was no plea agreement requiring the government to file a substantial assistance motion the filing of such a motion was at the government’s discretion accordingly the court found absent a motion by the government the district_court generally lacked the authority to grant a downward departure based on a defendant’s substantial assistance unless the refusal was based upon or motivated by some form of invidious discrimination wolf had made no claim of discrimination the essence of wolf’s allegation of bad faith was the more lenient treatment some of his co-conspirators received demonstrated the government’s refusal was an attempt to dictate the length of his sentence and punish him for his lies and recalcitrance the court found the government’s refusal was based on the destructive effect of wolf’s recalcitrance upon its investigation and other prosecutions the court ruling wolf had not made the required threshold showing the government’s refusal to file a substantial assistance motion was improper affirmed wolf’s sentence amendment to money laundering sentencing guideline is substantive not clarifying in 277_f3d_94 2nd cir sabbeth filed a motion for reconsideration of his sentence asserting the amendment to the money laundering sentencing guideline was a clarifying amendment and should be applied retroactively to his sentence the amended guideline instructs courts to group two separate counts where one count is a money laundering offense and the other is an underlying offense sabbeth was convicted of bankruptcy fraud and money laundering in and was sentenced to ninety-seven months imprisonment at sentencing the court refused to group the offenses and found sabbeth should be sentenced a criminal history category i with an offense level of in his motion for reconsideration sabbeth argued the amendment required grouping his fraud and money laundering offenses resulting in an offense level of the second circuit disagreed although it acknowledged defendants generally may benefit from an amendment to the sentencing guidelines if the revision is a mere clarification and not a substantive change in this case however the court found the amendment to the money laundering guideline to be substantive rather than clarifying and refused to apply the amended guideline retroactively to sabbeth’s sentence the court noted the sentencing commission did not characterize the amendment as clarifying and explained application note of the money laundering guideline resolved a circuit conflict on the issue of grouping money laundering offenses sabbeth argued resolving a circuit split was evidence the amendment was a mere clarification sabbeth argued this intent was also supported by the fact the grouping guideline u s s g sec_3d1 was not amended the second circuit examined the entire amendment instead which substantively redefined the way offense levels for money laundering are calculated the purpose and effect of the revision of sec_2s1 demonstrates that application note is the result of the substantive revision of the money laundering guidelines and not simply a separate independent clarification of that provision of the existing law id the second circuit affirmed sabbeth’s sentence criminal tax bulletin april table of cases title_26 and title_26 related cases 277_f3d_1026 8th cir 281_f3d_982 9th cir date grand jury in re grand jury subpoena date date john 282_f3d_156 2nd cir forfeiture 279_f3d_62 1st cir investigative techniques 278_f3d_1168 10th cir sentencing 275_f3d_216 2nd cir 280_f3d_694 6th cir 270_f3d_1188 8th cir 277_f3d_94 2nd cir department of the treasury internal_revenue_service document catalog number 24304b


internal_revenue_service national_office technical_advice_memorandum release number release date date date uil se t eo ra t e o exams programs and review internal_revenue_service commerce street mc dal dallas tx taxpayer's name taxpayer's address taxpayer's identification_number years involved date of conference legend m m1 m2 q r s t u u1 u2 u3 u4 a b c d account account date date year a b c d issues as self-dealing under sec_4941 of the internal_revenue_code represents indirect self-dealing under sec_4941 of the internal_revenue_code facts contributor to q and is therefore a disqualified_person with respect to q under both sec_4946 of the code as foundation_manager and sec_4946 for a familial relationship m a bank is a disqualified_person with respect to q because the majority of interest in m is indirectly owned by u the collective name for the following trusts u1 u2 u3 and u4 each of these trusts is for the benefit of one of a’s children the four trusts are governed by a single trust_indenture and various amendments executed by a in a private_letter_ruling the four trusts were held to be disqualified persons to q u own sec_50 of the class a stock and of the class b stock of m1 which in turn owns of the stock of m2 which itself owns of the voting_stock of m whether m’s failure to pay interest on checking accounts held by q should be treated whether rent paid_by r to m a disqualified_person to q for leased office space a is a trustee of q a private_foundation as well as a descendant of a substantial a has generally served as president chief_executive_officer etc of m from at least the early 80's until the present time although his exact positions have varied somewhat over time during he was chairman of the board and a director of m he was also president and a director of m1 and president of m2 a is currently the chairman of the board_of m b one of a’s sons is a director as is c another relative all three are disqualified persons to q m has a ten-member board_of directors including an employee of the bank r a business corporation was originally a family-owned entity as of date it was owned by q and by s a split-interest trust as defined by sec_4947 of the code with primarily charitable beneficial_ownership the ownership was unchanged when as of date a private_letter_ruling was requested as to whether r represented an excess business holding the service ruled that q eventually had to reduce its holdings in r below as of ownership of r has been as follows owner of shares owned percentage s q t total a b c ____ ____ d according to the minutes of r a received the proxies in a fiduciary capacity from each of t is a tax-exempt_organization as described in sec_501 and is currently classified as other than a private_foundation under sec_509 t receives a substantial amount of its funding from m t’s amended articles of incorporation provides for a three- member board_of directors currently composed of a as lifetime director and b and d as the other two directors q s and t each year for several years for the sole purpose of authorizing him to vote their r shares on their behalf at the annual shareholders meeting in ------- ------ ------ and ------ a also serves on the board_of r and was its chairman in ------ and ------ of years the services include the collection of all income and receipts the payment of all expenses grants and other disbursements the preparation of financial statements and the custody of assets in year q received a private_letter_ruling holding as follows bank account q has had a banking and custodial relationship with the trust department of m for a number the maintaining of a checking account with the bank is not an act of self-dealing where the banking services are reasonable and necessary to carry out your exempt purposes and the compensation paid to the bank taking into account the fair interest rate for_the_use_of the funds by the bank for such services is not excessive during ------ q maintained a bank account at m account which paid interest during --- ------ at the rate of large sums of money ie dollar_figure on ------------ dollar_figure on ------------ were frequently deposited into this account these amounts sometimes remained in the account for several days before being reinvested or transferred to other checking accounts account is a_trust department clearing account that m states is used solely for disbursements on behalf of q for grants expenses and other disbursements this account received funds transferred from q’s bank account deposits in excess of dollar_figure million were frequently made into this account most deposits into this account were transfers from account the funds remained in account for no more than five days a typical transaction is described as follows when a determination is made that a disbursement is needed funds are transferred from one of q’s bank accounts into account m then issues a check for such disbursement from account that same day once the funds are transferred from q’s account into account the funds are no longer included as assets on q’s books the account typically had a minimum balance well over dollar_figurelbig_number the balance of account represents only the total of checks that have been written but not yet presented for payment the account did not pay interest during ------- ------ and ------ m began paying interest prospectively in after the start of the examination and an initial discussion with q m states that it did so as a precaution until the issue is resolved disbursements from all of its customer accounts however after q expressed a desire that q’s disbursements be made using checks bearing the foundation’s name and address rather than m as custodian the separate clearing account for q was established such practice is the common practice of national bank trust departments with respect to clearing accounts used by the trust departments to issue trust department checks the bank cited the american bankers association’s trust operations manual pp m wrote a letter to the office of the comptroller of the currency occ in to verify that historically m’s trust department maintained a single clearing account used for in some ways a_trust checking account works differently than a personal checking account instead of making a large_deposit and then writing checks against it the trust organization makes deposits on the same day the checks are written rather than the trust organization keeping an unused balance in the account waiting for more checks to be issued money is deposited into the trust checking account to exactly cover the checks written each day thus balancing is a simpler chore and excess cash is kept elsewhere in interest-bearing form thereby offering increased investment return for individual accounts the occ responded favorably my understanding of the industry norm is that a bank’s trust department typically disburses funds on an as needed basis from a customer’s trust or custody account to a non-interest paying demand clearing account on any given day a bank typically only transfers sufficient funds into a demand clearing account to cover checks that were written that day in contrast to the clearing account excess cash in the customer’s trust or custody account is customarily placed in an interest bearing account either at the bank or with a third party eg invested in a money market mutual_fund in addition the asset management division of the comptroller indicated that a clearing account is a standard demand account outside the trust department but in the name of the trust department once funds have been disbursed from a_trust account into the clearing account the funds are no longer treated as assets of the particular trust the letter went on sec_4941 of the internal_revenue_code provides a tax on each act of self- sec_4941 of the code defines self dealing as any direct or indirect a sale or office lease during the time period at issue r paid rent to m of dollar_figure------------per month based on two to further indicate that the balance in the clearing account is always equal to the total of all unpaid checks and that it is industry practice to disburse funds from a customer’s trust account into a non-interest paying demand account contracts that started date and date r has continuously leased space from m since at least some time in the actual room numbers leased have changed over time three rooms are currently being leased compared to only one in the per month lease payments for ------ through ------ were approximately times greater than the payments in effect for through because q is not a party to the transactions the issue is whether the lease constitutes an act of indirect self-dealing law dealing between a disqualified_person and a private_foundation exchange or leasing of property between a private_foundation and a disqualified_person b lending of money or other extension of credit between a private_foundation and a disqualified_person c furnishing of goods services or facilities between a private_foundation and disqualified_person d payment of compensation or payment or reimbursement of expense by a private_foundation to a disqualified_person e transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation and f agreement by a private_foundation to make any payment of money or other_property to a government_official as defined in section c other than an agreement to employ such individual for any period after termination of his government service if such individual is terminating his government service within a 90-day period private_foundation to a disqualified_person for person services which are reasonable and necessary to carrying out the exempt purposes of the foundation is not self-dealing if the compensation is not excessive provides that an organization is controlled by a private_foundation if the foundation or one or more of its foundation managers acting only in such capacity may only by aggregating their votes or positions of authority require the organization to engage in a transaction which if engaged in with the private_foundation would constitute self-dealing similarly an organization is controlled by a private_foundation in the case of such a transaction between the organization and a disqualified_person if such disqualified_person together with one or more persons who are disqualified persons by reason of such a person's relationship within the meaning of sec_4946 c through g to such disqualified_person may only by aggregating their votes or positions of authority with that of the foundation require the organization to engage in such a transaction the controlled organization need not be a private_foundation for example it may be any type of exempt or nonexempt organization including a school hospital operating_foundation or social_welfare_organization an organization will be considered to be controlled sec_4941 of the code provides generally that payment of compensation by a sec_53_4941_d_-1 of the foundation and similar excise_taxes regulations in sec_53_4941_d_-1 example of the regulations private_foundation p owns the by a private_foundation or by a private_foundation and disqualified persons referred to in the second sentence of this subparagraph if such persons are able in fact to control the organization even if their aggregate voting power is less than percent of the total voting power of the organization's governing body or if one or more of such persons has the right to exercise veto power over the actions of such organization relevant to any potential acts of self- dealing controlling_interest of the voting_stock of corporation x and as a result of such interest elects a majority of the board_of directors of x two of the foundation managers a and b who are also directors of corporation x form corporation y for the purpose of building and managing a country club a and b receive a total of percent of y's stock making y a disqualified_person with respect to p under sec_4946 in order to finance the construction and operation of the country club y requested and received a loan in the amount of dollar_figure million from x the making of the loan by x to y shall constitute an indirect act of self-dealing between p and y in sec_53_4941_d_-1 example of the regulations private_foundation p owns percent of the voting_stock of corporation w a a substantial_contributor with respect to p owns percent of the voting_stock of corporation w b a's son own sec_15 percent of the voting_stock of corporation w the terms of the voting_stock are such that p a and b could vote their stock in a block to elect a majority of the board_of directors of w w is treated as controlled by p within the meaning of subparagraph of this paragraph for purposes of this example a and b also own percent of the stock of corporation y making y a disqualified_person with respect to p under sec_4946 w makes a loan to y of dollar_figure million the making of this loan by w to y shall constitute an indirect act of self-dealing between p and y respect to private_foundation p enters into a contract with corporation m which is also a disqualified_person with respect to p p owns percent of m's stock and controls m within the meaning of subparagraph of this paragraph m is in the retail department store business purchases by a of goods sold by m in the normal and customary course of business at retail or higher prices are not indirect acts of self-dealing so long as the total of the amounts involved in all of such purchases by a in any one year does not exceed dollar_figure-------- sec_53_4941_d_-2 of the regulations provides that under sec_4941 of the code the personal services exception the performance by a bank or trust company which is a disqualified_person of trust functions and certain general banking services for a private_foundation is not an act of self-dealing where the banking services are reasonable and necessary to carrying out the exempt purposes of the private_foundation if the compensation paid to the bank or trust company taking into account the fair interest rate for_the_use_of the funds by the bank or trust company for such services is not excessive the general banking services allowed are i checking accounts as long as the bank does not charge interest on any over withdrawals ii savings accounts as long as the private_foundation may withdraw its funds on no more than days notice without subjecting itself to a loss of interest on its money for the time during which the money was on deposit and iii safekeeping activities revrul_76_158 held that a private_foundation that owned of the voting_stock of a corporation and whose foundation_manager personally owned the remaining percent but did in sec_53_4941_d_-1 example of the regulations a a disqualified_person with moody v commissioner tcmemo_1995_195 involved a similar issue where the court not hold a position of authority in the corporation by virtue of being foundation_manager did not control the corporation for purposes of sec_4941 of the code the private_foundation did not have the right to exercise veto power over the actions of the corporation and had no authority over the corporation's actions other than that represented by it sec_35 stock ownership did not find indirect self-dealing shearn moody jr a trustee of the moody foundation and a director of gal-tex incurred a large bill at a hotel owned by gal-tex which at the time was owned by the foundation and the libbie shearn moody trust mr moody billed the foundation for the expenses the foundation refused to pay as mr moody failed to substantiate a business_purpose for the expenses mr moody filed for bankruptcy and the hotel sought to collect in the bankruptcy proceedings unsuccessfully the court agreed with the premise that a disqualified_person can engage in indirect self-dealing with private_foundation assets by engaging in transactions with an organization controlled by the private_foundation but held that the foundation did not control gal-tex under the circumstances applying sec_53_4941_d_-1 of the regulations the court reasoned that the foundation or its foundation managers acting in such capacity did not control gal-tex reasoning that ownership is ordinarily not enough to constitute control that mr moody together with others who are disqualified persons by virtue of their relationship to mr moody there were none could not require gal-tex to engage in self- dealing only by aggregating their influence with that of the foundation that mr moody lacked actual control or a veto power over the activities of gal-tex and that to the contrary gal-tex exercised considerable independence from both mr moody and the foundation in seeking payment from them the court also reasoned that failure of an organization to come within the control tests of the regulations may not be determinative there may exist other ways to engage in self-dealing through organizations that are related to the private_foundation though the facts did not support indirect self-dealing in this instance the court went on to find indirect self-dealing in other transactions involving foundation grants to charities that used some of the funds for the personal benefit of mr moody eg paying his bankruptcy lawyers for research projects rationale issue whether m’s failure to pay interest on checking accounts held by q should be treated as self-dealing under sec_4941 of the internal_revenue_code sec_4941 of the code generally prohibits lending of money between a private_foundation and a disqualified_person furnishing of services between a private_foundation and disqualified persons payment of compensation by a private_foundation and a disqualified_person and use of private_foundation assets by a disqualified_person general banking services and trust functions are permissible where reasonable taking into account the fair interest rate for use of funds between m and q during the years in issue was a common business practice for trust departments on any given day funds were transferred into the clearing account only in an amount sufficient to cover the checks written that day when the check was later presented for payment the funds were withdrawn from the clearing account the balance was shown to be equal to the amount of the checks outstanding taxpayer has established that the non-interest bearing clearing account arrangement based on the particular facts and circumstances including taxpayer’s representations even though q’s accounts generally held large sums of money the average balance of sec_4941 of the code prohibits indirect as well as direct acts of self-dealing between both accounts combined amounted to less than of q’s total assets while funds held in the accounts were in excess of the dollar_figure fdic-insured limits taxpayer represents that such practice has not been uncommon among large organizations taxpayer established that under the state law q was required to have sufficient funds in an account to cover the total amount of all outstanding checks in addition m’s access to the funds was the same as with any other depositor with the bank further we believe it particularly persuasive that taxpayer has been paying q reasonable interest on the accounts since we conclude that m’s practices during the years in issue support the conclusion that such services provided by m to q fell within the exception to self-dealing for general banking services and trust functions described in section d -2 c of the regulations issue whether rent paid_by r to m a disqualified_person to q for leased office space represents indirect self-dealing under sec_4941 of the internal_revenue_code private_foundations and disqualified persons one form of indirect self-dealing is between a disqualified_person and an organization controlled by the private_foundation transactions between a disqualified_person and an organization not controlled by the private_foundation are not indirect acts of self-dealing in most cases however the code and regulations do not systematically define all manner of indirect self-dealing instead the facts and circumstances must be considered in each case we think that a case of unreasonable dealing between a disqualified_person and an organization in which a private_foundation has an interest short of control may result in indirect self-dealing whether an organization is controlled by a private_foundation for purposes of indirect acts of self- dealing in the first second and fourth sentences considering the first sentence of sec_53_4941_d_-1 q owns less than a minority interest of r and as such is unable to force r to enter into any lease arrangement also the facts provided do not indicate that any of q’s foundation managers in their capacity as foundation managers had such control thus q did not control r under this test engaging in the purported act of indirect self-dealing is m the facts do not indicate that there are any persons who are disqualified persons by reason of an ownership relationship to m m as trustee of the majority owner s was in a position of authority to force the transaction but m did not need q’s votes to undertake such action thus q did not control r under this test in fact even if less than voting power or relevant veto power the first contemplates a situation where there is no majority owner but a plurality owner exercising control see example which does not appear to be the case here moreover there are no facts indicating that q exercises actual control_over r the fourth sentence also indicates that a relevant veto power may be regarded as control viewed in light of revrul_76_158 q did not control r through veto power the fourth sentence of sec_53_4941_d_-1 references two types of control control sec_53_4941_d_-1 of the regulations provides several tests for determining under the second sentence of sec_53_4941_d_-1 the disqualified_person we considered whether q controlled r for the period of the first lease covering the first three months of because the lease was executed in when q had ownership of r the regulations treat each year of a lease as a separate act of self-dealing see sec_53_4941_e_-1 of the regulations which suggests a year-by-year analysis is more appropriate for considering control than merely when the lease was negotiated and executed we also note that the tax_court held ownership insufficient on similar facts see moody v commissioner tcmemo_1995_195 based on the foregoing we find that the lease transaction was not between a disqualified_person and an organization controlled by q however we lack sufficient information to determine whether the leases otherwise constituted indirect self-dealing between q and m the rents between the parties appear to have risen dramatically over the course of years also significant in this regard are that r is beneficially owned primarily by charitable interests including but not limited to q and the dealings between r and m are not at arm’s length given a’s pervasive influence over both r and m if the amounts paid_by r to m are clearly excessive then we think the leases would constitute indirect acts of self-dealing obtaining information on the fair rental value of the leases is necessary to resolve this issue we recognize that the self-dealing rules of sec_4941 were intended to avoid irs determinations of reasonableness but we consider the issue unavoidable for certain indirect self-dealing questions as we have here conclusion dealing under sec_4941 of the internal_revenue_code as if falls within a specific exception provided by section d -2 c of the regulations section d -2 c provides a specific exception to the self-dealing rules for the performance of certain trust functions and certain general banking services the facts presented indicate that it is a common business practice by trust departments to use non-interest bearing clearing accounts to disburse funds from a_trust represent indirect self-dealing under sec_4941 of the code on the ground that q controlled r the facts indicate that there was no control_over r by q we lack sufficient facts to determine whether the rent paid_by r to m otherwise constituted an indirect act of self-dealing m‘s failure to pay interest on the clearing account held by q is not an act of self- rent paid_by r to m a disqualified_person to q for leased office space does not a copy of this memorandum is to be given to m sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent -end-


internal_revenue_service department of the treasury index numbers 1015-dollar_figure 2601-dollar_figure washington dc number release date person to contact telephone number refer reply to cc dom p si 4-plr-113557-99 date date re legend a b child a child b child c child a1 child a2 trust a_trust a-a1 trust a-a2 dear this is in response to your letter dated date and prior correspondence submitted on behalf of the trustees and trust beneficiaries requesting income_tax and generation-skipping_transfer_tax rulings concerning the merger of identical trusts a and b both deceased had three children child a child b and child c in child a created and funded an irrevocable_trust trust a for the lifetime benefit of her two children child a1 and child a2 under the terms of trust a two identical trusts were created trust a-a1 for child a1 and trust a-a2 for child a2 upon the death of either child a1 or a2 the trust for the deceased child is to be divided into separate trusts for the child’s issue per stirpes or if none the trust shall be held for the benefit of the surviving child under the same terms and conditions as the surviving child’s trust child a1 died in and was not survived by issue accordingly after child a1's death the provisions governing trust a-a1 have been identical to the provisions plr-113557-99 governing trust a-a2 including present and future beneficiaries distribution standards trustee provisions trustee powers and termination provisions the trustees propose to merge trust a-a1 into trust a-a2 the trustees intend to petition the appropriate state court to determine that each trust proposed to be merged is identical and ii order the consolidation of the trusts upon receipt of a favorable private_letter_ruling it is represented that there have been no additions to the subject trusts constructive or otherwise after date the following rulings have been requested the trusts were irrevocable on date and are not subject_to the generation-skipping_transfer_tax by reason of b a of the tax_reform_act_of_1986 the merger will not constitute an addition to the surviving trust nor cause a change in the substance of the surviving trust that will cause the surviving trust to lose its exempt status under sec_26_2601-1 of the generation-skipping_transfer_tax regulations the merger does not constitute a gift by the trust beneficiaries for purposes of sec_2511 of the internal_revenue_code neither the merger nor the distribution of assets to the surviving trust will result in recognition of gain_or_loss to any trust or the beneficiary of any trust assets of the merged trusts will have the same basis and holding periods under sec_1015 and sec_1223 in the surviving trust afer the merger as they did prior to the merger ruling requests sec_2501 imposes a gift_tax on the transfer of property by gift sec_2511 provides that the gift_tax shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2601 imposes a tax on every generation-skipping_transfer section b a of the act and sec_26_2601-1 provide that the generation-skipping_transfer_tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added plr-113557-99 sec_26_2601-1 provides that if an addition is made after date to an irrevocable_trust that is otherwise exempted from the application of chapter by b a of the act a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter in general any modification of an irrevocable_trust that results in a change in the quality value or timing of any interest in the trust will cause the trust to lose exempt status in the present situation after the merger there will be no change in the dispositive provisions with respect to the property previously held in each particular trust the trustees will hold the same property after the merger and the interests of all beneficiaries will be unchanged the surviving trust will terminate at the same time as provided with respect to each separate trust prior to the merger thus the proposed merger of the trusts as described will not effect the quality value or timing of any beneficial_interest under the original trusts accordingly we conclude that based on the representations made all the trusts were irrevocable on date and are not subject_to the generation-skipping_transfer_tax by reason of b a of the act further we conclude that the mergers as described will not constitute an addition to any surviving trust and will not otherwise cause any surviving trust to lose exempt status under sec_26_2601-1 lastly we conclude that the mergers do not constitute gifts by the trust beneficiaries for purposes of sec_2511 ruling_request sec_4 and sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis over the amount_realized sec_1001 provides that except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that generally the gain_or_loss realized from a conversion of property into cash or from an exchange of property for other_property differing materially either in_kind or extent is treated as income or as loss sustained an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties exchanged are materially different 499_us_554 there is a material difference when the exchanged properties embody legal entitlements different in_kind or extent or if they confer different rights and powers cottage savings u s pincite plr-113557-99 in this case the merger of trust a-a1 into trust a-a2 surviving trust will not constitute a sale_or_other_disposition for purposes of sec_1001 the interests of the beneficiaries before and after the mergers remain the same because each trust has the same beneficiaries and identical terms the exchanged properties are not materially different because they do not embody legal entitlements that are different in_kind or confer different rights and powers we conclude that neither the merger nor the distribution of assets to the surviving trust will result in recognition of gain_or_loss to any trust or the beneficiary of any trust sec_1015 provides that if property is acquired after date by a transfer in trust other than by a transfer in trust by gift bequest or devise the basis is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer is made sec_1_1015-2 provides that in the case of property acquired after date by transfer in trust other than by transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made if the taxpayer acquired the property by transfer in trust this basis applies whether the property be in the hands of the trustee or the beneficiary and whether acquired prior to termination of the trust and distribution of the property or thereafter sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included in the period for which the property was held by any other person if under chapter such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person we conclude that the basis of the assets in the surviving trust will be same as the basis of those assets in the original trusts before the merger accordingly we conclude that the assets in the surviving trust after the proposed merger in this case will have the same holding periods as they had prior to the merger except as we have ruled under the cited provisions of the code we express no opinion about the tax consequences of the proposed transaction under those provisions or under any other provisions of the code plr-113557-99 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel passthroughs and special industries by robert honigman acting assistant to the branch chief enclosure copy for purposes


internal_revenue_service number info release date cc psi 1-genin-155244-01 dec uilc we are responding to your correspondence requesting relief in order to re- establish s_corporation status the information submitted explains that the taxpayer corporation was involved in a stock transfer involving an ineligible shareholder resulting in a termination of s_corporation status a corporation that believes its election was terminated inadvertently may request a determination of inadvertent termination from the commissioner the request is made in the form of a private_letter_ruling request submitted to the national_office the procedures for requesting a ruling are set out in revproc_2001_1 copy enclosed in addition a proper user_fee must be submitted along with your request the fee for a ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million for the last 12-month taxable_period qualify for a reduced user_fee in the amount of dollar_figure if your business qualifies for the reduced fee your request must include a statement certifying gross_income otherwise you will be billed the higher fee please format your ruling_request as shown in appendix b of revproc_2001_1 if you decide to submit a ruling_request please provide documents supporting your position including a detailed explanation of the event causing termination when and how the event was discovered and the steps taken to return the corporation to small_business_corporation status please include the proper user_fee and refer your package to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi b1 room please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful s dianna k miosi sincerely yours dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures revproc_2001_1


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br 1-plr-133640-01 date date legend x state d1 this letter responds to your date request for a private_letter_ruling submitted on behalf of x requesting a time extension under sec_301_9100-3 of the procedure and administration regulations facts according to the information submitted x was validly formed under state law on d1 and began operations on d1 further x and x’s shareholders intended from inception to elect to classify x as a corporation for federal tax purposes however form_8832 entity classification election was not timely filed law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in such section an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 provides in part that unless a domestic eligible_entity elects otherwise it is a partnership if it has two or more members sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 entity classification election with the service_center designated on the form sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which plr-133640-01 the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting the relief will not prejudice the interests of the government sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusions based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center to have its election effective d1 a copy of this letter should be attached to the election a copy is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes