number release date date lease internal_revenue_service national_office technical_advice_memorandum april uil code ode 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 tax years involved date of conference - q o o q z l o l w m a i c i e s s i s i s i i i n i e i m u h t i o r k i d o l o a q i o o - o o u n t i n n i n o a e w w w w w m w n o n o h is s a disqualified_person with respect to q asa substantial_contributor under sec_1 a a of the internal_revenue_code is s a disqualified_person with respect to q as a private_foundation as described in sec_4946 is any part of q’s ownership of w and r an excess business holding under sec_3 facts q is a private_foundation that was created in date as a result of contributions from fe and g q is exempt from federal_income_tax as an organization described in sec_501 of the code q is a private_foundation as described in sec_509 the three current trustees of q are a c' and h d is executive director the majority of q's income is from s a charitable_remainder_trust s was established in year pursuant to the last will and testament of g dated date sis described in sec_4947 of the code under the terms of the trust instrument of s the income was to be distributed to a number of family members for life in various proportions s’s remainder beneficiaries are charities including q and s’s income beneficiaries are largely also charities including q the grantor of s designated lifetime beneficiaries to receive its income as each beneficiary died that family member's share of the income would henceforth be paid to the charitable_remainder beneficiaries pro_rata of his or her share of income to q and to x a public charity upon the death of the last lifetime beneficiary s terminates and the corpus of sdollar_figure will be distributed to q and to x as of were the only lifetime beneficiaries still living a and j several years after s was established g’s spouse f died thereafter there was litigation between f’s estate s and certain beneficiaries of s the estate purchased the life interests of several beneficiaries and distributed those interests to q in settlement of the litigation in a private_letter_ruling on date regarding whether q could sell its shares in m to a disqualified_person without being subject_to the tax on self-dealing under sec_4941 of the code the service indicated that any sale by q during the 15-year time period beginning date to disqualified persons would not represent self-dealing q requested and received a date ruling that s is not a disqualified_person with respect to q as a substantial_contributor in ruling that s is not a substantial_contributor the service reasoned that the amounts distributed by s to q pursuant to q's interests received from the settlement of the litigation were not contributions to q because q received its right to these amounts from the estate which paid adequate_consideration for the interests regardless of whether or not these amounts were eligible for the sec_642 deduction one of the principal assets held by s is a shares of stock in w a business_enterprise itis the largest block of w stock held by a single entity the next largest block is held by q b shares son of a and beneficiary of u3 mother of a and grandmother of and d daughter of a and beneficiary of u4 m is trustee of s and it is also 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 ina private_letter_ruling the four trusts were held to be disqualified persons to q under sec_4946 of the code a is a trustee of q as well as a descendent of a substantial_contributor and is therefore a disqualified_person under both sec_4946 of the code as foundation_manager and sec_4946 for a familial relationship 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 a is currently the chairman of the board_of m a attends the meetings of m trust committee as chairman he votes on matters affecting all trusts administered by m including s a is given a proxy each year to vote all of w stock administered by m as of date over of the corpus of both q and s was from g and h their families and their estates the national_office held in a private_letter_ruling on date with a supplemental request that s was not a disqualified_person to q under sec_4946 of the code as a substantial_contributor or under sec_4946 with respect to stock currently held by q phase under sec_4943 of the code would run for a ten-year period beginning on date in addition with respect to w stock held by s during the period date to the date of distribution by the trust of the stock will be considered to be finally the stock considered held by x and the remainder will be considered to be held by s to be held by s would be treated as held by s from date until the date of distribution the discussion in the date private_letter_ruling centers on whether s is a substantial_contributor to q and concludes that it does not meet the definition the ruling does not discuss whether s could be a disqualified_person to q on some basis other than substantial_contributor status a supplemental private_letter_ruling addressed whether s was a disqualified_person to q under sec_4946 of the code this was based on a representation by q that disqualified persons held a dollar_figure percent life interest in the income from s and no remainder_interest and that on an actuarial basis disqualified persons held only a percent interest neither the original private_letter_ruling nor the supplemental discuss whether s is a disqualified_person to q under sec_4946 of the code the ruling does acknowledge that sdollar_figure is the type of trust described in sec_4947 the ruling held that w stock held by s would not be attributed to q until such time as it is actually distributed to q because it was contributed to s before date under the terms of the trust instrument the stock would not be formally distributed until after the death of both a and j the only two lifetime income beneficiaries of s still living upon their deaths the corpus of dollar_figure will be distributed to q and to x and sdollar_figure will be dissolved at the time the private letter rulings were requested s owned a shares of w or of the c shares outstanding at that time s currently owns a shares of w but the percentage of ownership is now due to redemption of w shares the total shares outstanding have decreased thus increasing s’s percentage of ownership r a business_enterprise was originally a family owned entity as of date it was owned by q and by a split-interest trust as defined by sec_4947 of the code the ownership was unchanged as of date a private_letter_ruling was requested as to whether the entity represented an excess business holding the request states that since disqualified persons own no stock in r it did not represent an excess business holding as of the date of the request the national_office concurred with this line of reasoning owner of shares owned percentage ss q t total d e f q the date private_letter_ruling concluded that q' sec_50 ownership_interest in r did not represent an excess business holding at that time however it did not entitle them to own indefinitely without paying sec_4943 tax rather it allowed q to own only during ‘what is termed the first phase’ and second_phase the ruling holds that by the end of the second_phase q must have reduced its holdings in r to no more than in both voting sec_4943 c provides for a transitional phase in which up to of shares in a company may be owned provided they were owned as of date in this case the first_phase would have been ten years under subsection b followed by a second_phase of years stock and total value provided that disqualified persons do not own more than of the voting_stock on or about date q transferred h shares of r stock to t this reduced the stock held in their name to e shares or slightly under t is a tax-exempt_organization as described in sec_501 of the code and is classified as under sec_509 as a supporting_organization for y substantial amount of its funding directly from and indirectly through y from m y also receives a substantial amount of its public support from q 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 t receives a a ruling_request dated date was obtained that holds that t is classified as a supporting_organization under sec_509 of the code the ruling further holds that a b and d are not disqualified persons to t other than by virtue of being foundation managers because they are not substantial contributors to t within the meaning of sec_507 as such the ruling holds that t is not controlled directly or indirectly by one or more disqualified persons other than foundation managers and y according to q on date q transferred h shares of r to y as part of a grant on _ y transferred its h shares of r to t in turn t sold one share to s on per the minutes of t a proxy to vote r stock was given to a according to the minutes of r a received the proxies in a fiduciary capacity from each of 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 according to the operations policy manual of m voting and non-voting of proxies is the responsibility of the trust committee the manual further states that the primary objective is for m in its fiduciary capacity to represent and vote for the best long-term interest of its beneficiaries m acknowledges that it has followed such policies when voting r and w stock owned by s as well as when voting w stock owned by t meeting minutes of the trust committee indicate that it is department policy to give an officer director or trust committee member of m the proxy to vote the r and w stock in person and with complete discretion the trust department has followed this policy for at least years in addition the person receiving the proxy generally follows m's policy of voting which includes voting for the slate of directors approved by the board q directly own sec_23 of w stock six other shareholders who are disqualified persons to q own approximately an additional in addition to the shares directly owned by q and disqualified persons disqualified persons also own stock indirectly through u z and mm z which hold sec_1 is a partnership that is owned by a as general_partner and a votes of w stock by h as limited_partner both are disqualified persons to q held by the partnership mm is a_trust which holds approximately a is one of the seven beneficiaries and holds a proxy to vote w stock u holds approximately in addition to the stock held above additional shares are held by s andt s holds approximately and t hold sec_2 w has a nine member board_of directors during the time periods at issue the board_of directors included a d e and j all of whom are disqualified persons to q pursuant to sec_4946 of the code law sec_507 of the code defines a substantial_contributor as any person who contributed or bequeathed an aggregate amount of more than dollar_figure to a private_foundation if such amount is more than percent of the total contributions and bequests received by the foundation before the close of the taxable_year of the foundation in which the contribution or bequest is received by the foundation from such person in the case of a_trust the term substantial_contributor also means the creator of the trust sec_1_507-6 of the income_tax regulations provides that the term contribution shall for purposes of sec_507 have the same meaning as such term has under sec_170 and also include bequests legacies devises and transfers within the meaning of sec_2055 or sec_2106 thus for purposes of sec_507 any payment of money or transfer of property without adequate_consideration shall be considered a contribution where payment is made or property transferred as consideration for admissions sales of merchandise performance of services or furnishing of facilities to the donor the qualification of all or any part of such payment or transfer as a contribution under sec_170 shall determine whether and to what extent such payment or transfer constitutes a contribution under sec_507 sec_4943 of the code imposes a tax on the excess_business_holdings of a private_foundation in a business_enterprise sec_4943 of the code defines the term excess_business_holdings as the amount of stock or other interest in a business_enterprise that a private_foundation would have to dispose_of to a person other than a disqualified_person for its remaining holdings to be permitted holdings sec_4943 of the code provides that a foundation and its disqualified persons may not hold more than of the voting_stock of a corporation conducting a business that is not substantially related to the exempt_purpose of the foundation sec_4943 of the code and sec_53_4943-3 of the foundation and i similar excise_taxes regulations provide that the limitation may be raised to if the private_foundation and all disqualified persons together do not own actually or constructively more than percent of the voting_stock in the business_enterprise and ii the foundation establishes to the satisfaction of the commissioner that effective_control of the other than the foundation itself who are not business_enterprise is in one or more persons disqualified persons sec_4943 of the code provides an exception that allows private_foundations with holdings in excess of or of the voting_stock on date a period of time to dispose_of the excess holdings before becoming subject_to the excise_tax provided in sec_4943 sec_53_4943-3 of the regulations defines the term effective_control as the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a business_enterprise whether through the ownership of voting_stock the use of voting trusts or contractual arrangements or otherwise it is the reality of control which is decisive and not its form or the means by which it is exercisable thus where a minority interest held by individuals who are not disqualified persons has historically elected the majority of a corporation's directors effective_control is in the hands of those individuals sec_4946 of the code defines the term disqualified_person with respect to a private_foundation as including a substantial_contributor to the foundation sec_4946 of the code provides that for purposes of sec_4946 the term substantial_contributor means a person who is described in sec_507 sec_4946 of the code includes in the definition of disqualified_person for purposes of sec_4943 a private_foundation which is effectively controlled directly or indirectly by the same person or persons who control the private_foundation in question or substantially_all of the contributions to which were made directly or indirectly by the same person or persons described in subparagraph a b or c ’ or members of their families within the meaning of subsection d who made directly or indirectly substantially_all of the contributions to the private_foundation sec_4946 a substantial_contributor to the foundation sec_4946 a foundation_manager within the meaning of subsection b sec_4946an owner of more than percent of -- i the total combined voting power of a corporation ii the profits interest of a partnership or iii the beneficial_interest of a_trust or unincorporated enterprise sec_4946 for purposes of subsection a the family of any individual shall include only his spouse ancestors children grandchildren great grandchildren and the spouses of children grandchildren and great grandchildren sec_4947 of the code provides that a_trust is described in this section if it is not exempt under sec_501 its income and assets are not completely devoted to charitable purposes described in sec_170 and it has amounts in trust for which a charitable deduction was allowed generally sec_4941 relating to taxes on self-dealing sec_4943 relating to taxes on excess_business_holdings except as provided in subsection b sec_4944 relating to investments which jeopardize charitable purpose except as provided in subsection b and sec_4945 relating to taxes on taxable_expenditures apply to such trust as if it were a private_foundation however sec_4947 excludes amounts transferred in trust prior to date from application of the private_foundation provisions sec_53_4947-1 of the regulations provides that for this purpose an amount shall be considered to be transferred in trust only when the transfer is one that meets the requirements for the allowance of a charitable deduction income and capital_gains that are derived at any time from amounts transferred in trust before date shall also be excluded from the application of the chapter rules is sold or exchanged after date any asset received by the trust upon the sale_or_exchange shall be treated as an asset that was transferred in trust before date if an asset that was transferred in trust before date in peters v u s f 2d ct_cl the trust established prior to date argued that it was not subject_to the private_foundation rules however the court disagreed and held that the trust was a_trust under sec_4947 of the code and subject_to the private_foundation rules since all the non-charitable interests had expired in 764_f2d_88 2d cir the second circuit held a_trust to be a split-interest trust described in sec_4947 of the code rather than a non-exempt charitable_trust under sec_4947 under the facts and circumstances and therefore not treated as a private_foundation because it was formed before rationale issue is s a substantial_contributor to q under sec_4946 if s is a disqualified_person with respect to q as a substantial_contributor then s’s business holdings would need to be aggregated with q’s to determine whether q has excess_business_holdings q has received a private_letter_ruling that s is not a substantial_contributor with respect to q we have considered this ruling and determined that it is correct a key question is whether s’s mandatory distributions to q under the terms of the trust instrument should be treated as contributions under sec_1_507-6 of the regulations a_trust beneficiary like a shareholder of a corporation receives distributions of amounts to which it is entitled as the taxpayer argues these amounts arguably are distinguishable from contributions or gifts though they are treated as charitable_contributions for purposes of the charitable deduction allowed to trusts under sec_642 we think the taxpayer’s argument applies with greater force in the case of mandatory distributions from a_trust organized prior to as a pre-1969 split-interest trust s could not have been drafted to evade the restrictions imposed by the tax reform act of upon private_foundations and we rely on this fact in upholding the ruling for this reason pre-tra- split-interest_trusts were generally not made subject_to the chapter restrictions on private_foundations and certain trusts if this pre-1969 trust had made discretionary distributions to q there might be a basis to contend such distributions were contributions for purposes of considering whether s was a substantial_contributor issue is s a disqualified_person with respect to q under sec_4946 sec_4946 of the code and sec_53_4946-1 of the regulations provides that for sec_4943 purposes only the term disqualified_person includes a private_foundation which is controlled by the same person or persons who control the private_foundation in question or substantially_all the contributions were made directly or indirectly by the same person or persons described in subparagraphs a b or c or members of the families within the meaning of subparagraph d does a private_foundation for this purpose include a split-interest trust under sec_4947 especially one whose amounts were transferred in trust before date first we note that sec_4947 of the code is the only provision that treats a split- interest trust as a private_foundation for any purpose if excepted there there is no other basis for treating it as a private_foundation insofar as the trust is a pre-1969 split-interest trust it is not subject_to sec_4943 peters f 2d pincite involved non-exempt charitable trusts described in sec_4947 that were formed before and contested being treated as private_foundations the court held they were properly treated as private_foundations peters is inapplicable because there is no grandfather rule under sec_4947 as there is under sec_4947 of more relevance is hammond f 2d pincite which held a_trust to be a split-interest trust described in sec_4947 rather than a non-exempt charitable_trust under sec_4947 under the facts and circumstances and therefore not treated as a private_foundation because it was formed before second the language of sec_4946 of the code limits the organizations described therein to certain private_foundations the fact that a split-interest trust is subject_to several of the private_foundation_excise_taxes including sec_4943 does not make the trust a private_foundation relative to another private_foundation for purposes of sec_4946 if congress wanted to include controlled sec_4947 trusts as private_foundations under sec_4946 it would have drafted the provision to make this clear therefore s is not a disqualified_person with respect to q under sec_4946 of the code issue sec_4943 is any part of q’s ownership of r and w an excess business holding under because we conclude that dollar_figure is not a disqualified_person with respect to q its holdings are not included with q’s ownership of r or w stock for purposes of sec_4943 of the code and therefore no part of q’s ownership of r or w is an excess business holding under sec_4943 conclusion sis not a disqualified_person with respect to q as a substantial_contributor under sec_4946 sis not a disqualified_person with respect to q as a private_foundation as described in sec_4946 as s is not a disqualified_person with respect to q none of its holdings are included with q’s ownership and therefore no portion of q’s ownership of w and r is an excess business holding under sec_4943 a copy of this memorandum is to be given to the taxpayer sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent -end-


department of the treasury internal_revenue_service p o box irs cincinnati oh release number release date uil code date date employer id number contact person id number contact telephone number form you must file tax years dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 we sent a copy of this letter to your representative as indicated in your power_of_attorney letter rev catalog number sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 other than c redacted letter final adverse determination under sec_501 other than c - no protest letter rev catalog number 47635z department of the treasury internal_revenue_service irs p o box cincinnati oh legend b date of formation c state dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you formed on b in the state of c as a for-profit corporation with stock according to your articles of incorporation you are organized for any and all lawful business purposes your activities consist of the following including the percentage of time spent on each e e e repair of commercial egg graders sale of refurbished egg graders sale of refurbished egg grader parts you provide services to egg producers by fixing or supplying refurbished parts for their egg grading machines the source of your revenue is egg grader repair and sales you have two board members and they are husband and wife your board members are also your shareholders your assets upon dissolution will be distributed if dissolved by divorce and to a surviving_spouse you make monthly distributions of profit to your shareholders law sec_501 of the code provides for the exemption from federal_income_tax of labor agricultural or horticultural_organizations sec_1_501_c_5_-1 provides that the organizations contemplated by sec_501 of the code as entitled to exemption from income_taxation are those which have no net_earnings inuring to the benefit of any member and have as their objects the betterment of the conditions of those engaged in such pursuits the improvement of the grade of their products and the development of a higher degree of efficiency in their respective occupations revrul_66_105 1966_1_cb_145 held that an organization composed of agricultural producers whose principal activity is marketing livestock as an agent for its members does not qualify for exemption the sale of members’ products with the return to them of the sale proceeds is neither an object nor an activity within the ambit of sec_501 of the code therefore the organization does not meet the requirements of sec_1 c -l and is not exempt under sec_501 revrul_74_195 1974_1_cb_135 held that a nonprofit organization formed to manage graze and sell its members’ cattle did not of itself better the conditions of those engaged in agricultural pursuits improve the grade of their products or develop a higher degree of efficiency in their operations within the meaning of sec_501 of the code the principal purpose of the organization was to provide a direct business service for its members’ economic benefit the organization was denied exemption under sec_501 application of law you are formed as a for-profit corporation and you make regular distributions of profits to your shareholders who are also your governing body members because you are a for-profit organization and your earnings inure to the private benefit of your shareholders you do not qualify for exemption under sec_501 of the code you do not meet the requirements of sec_1_501_c_5_-1 because your net_earnings inure to the benefit of your board members and you are not bettering the conditions in agricultural pursuits rather you are providing a service for a fee you are similar to revrul_66_105 because you sell merchandise and provide services for a fee with the net_proceeds being distributed to your governing body members like the organization described in revrul_74_195 you do not better the conditions of those engaged in agricultural pursuits improve their products or develop a higher degree of efficiency in their operations instead you operate like an ordinary business accordingly you do not qualify for exemption under sec_501 of the code conclusion based on the information provided we conclude that you are not operated as an exempt_organization described in sec_501 of the code you are formed as a for-profit business and you provide services for a fee ina manner which inures to the benefit of your governing body accordingly you do not qualify for recognition of exemption under sec_501 if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e your name address employer_identification_number ein and a daytime phone number letter rev catalog number 47628k e e e e acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we’ll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address letter rev catalog number 47628k u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter we sent a copy of this letter to your representative as indicated in your power_of_attorney sincerely enclosure publication stephen a martin director exempt_organizations rulings and agreements letter rev catalog number 47628k


july t eo ra t internal_revenue_service number info release date uil xxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx dear xxxxxx this letter is in response to your request for information concerning the effect of non-substantive changes to xxxxxx’s organizing documents on its tax-exempt status the internal_revenue_service issued a determination_letter to xxxxxxxx xxxxxx xxxxxxxxxx ein xx-xxxxxxx on xxxxxxxxx xx 19xx this letter stated the organization was exempt from federal_income_tax as an organization described in sec_501 of the internal_revenue_code xxxxxx’s exemption was confirmed in a letter from the service dated xxxx x 19xx in xxxxxx amended and restated its corporate charter the amendment stated that the tax-exempt purposes of the organization were those permitted in sec_501 rather than sec_501 of the code the amendment also stated that upon dissolution of the organization all assets of the corporation would be distributed to an organization or organizations described in sec_501 of the internal_revenue_code_of_1986 and which have purposes consistent with and similar to the purposes for which this corporation is organized the actual operation character and purposes of the organization were unaffected by the amendment xxxxxx determined that the amendment was poorly drafted and inappropriate and attempted to cure these defects by revising its corporate charter the revision replaced the words sec_501 with sec_501 restating that the organization is described in sec_501 of the internal_revenue_code_of_1986 this revision neglected to correct the dissolution clause to dedicate all assets remaining on dissolution to c purposes in another amended and restated charter was drafted and adopted by the xxxxxx board that cured the technical errors introduced in xxxxxxxx xxxxxx xxxxxxxxxx requests information to help it determine whether the technical errors caused the 19xx determination of c tax-exempt status to no longer be in effect sec_501 of the internal_revenue_code provides exemption from federal_income_tax for organizations organized and operated exclusively for charitable educational and other purposes specified therein sec_1_501_c_3_-1 of the income_tax regulations states that an organization is not exempt under sec_501 if it fails to meet either the organizational_test or the operational_test the operational_test relates to an organization’s activities the organizational_test requires that certain provisions be present in the organization’s creating document sec_1_501_c_3_-1 of the regulations states that in order to satisfy the organizational_test an exempt organization’s creating document must limit the purposes of the organization to one or more of the exempt purposes specified in sec_501 not expressly empower the organization to engage in activities not in furtherance of those purposes and dedicate the organization’s assets remaining upon dissolution to exempt purposes revproc_84_46 1984_1_cb_541 section dollar_figure states that a ruling or determination_letter recognizing exemption is usually effective as of the date of formation of an organization if its purposes and activities during the period prior to the date of the ruling or determination_letter were consistent with the requirements for exemption if a non-substantive amendment to its enabling instrument is made exemption will ordinarily be recognized as of the date of formation examples of non-substantive amendments include correction of a clerical_error in the enabling instrument or the addition of a dissolution clause where the activities of the organization prior to the ruling or determination are consistent with the requirements for exemption revproc_84_47 1984_1_cb_545 section dollar_figure states that i t is the administrative practice of the service to recognize exemption from the date of formation in situations where non-substantive amendments to an enabling document are subsequently made xxxxxxxx xxxxxx xxxxxxxxxx was originally granted tax-exempt status under sec_501 in 19xx later amendments to the organizing document contained clerical errors and omissions that were corrected in subsequent amendments filed with the state of xxxxxxxxx revproc_84_46 cited above includes the correction of clerical errors or the addition of a dissolution clause as non-substantive amendments when there is no evidence of a material_change inconsistent with exemption in the character the purpose or the method of operation of the organization since the errors and subsequent amendments to the organization’s charter appear to be of a non-substantive nature and there has been no material_change in the organization’s operations the technically erroneous non-substantive changes to its organizing documents that have now been corrected should have no effect on xxxxxx’s tax-exempt status in accordance with section dollar_figure of revproc_2002_4 i r b pincite this information_letter is advisory only and has no binding effect on the internal_revenue_service the information provided herein cannot be relied upon as a ruling on the matters discussed if you have any questions regarding this discussion or we can be of further assistance please feel free to call me at xxx- xxx-xxxx or xxxxxxx xxxxxxxxxx at xxx-xxx-xxxx sincerely xxxxxx xxxxxxxxxx manager exempt_organizations technical group x


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-110780-98 date date re legend taxpayer a taxpayer b a b property foundation trust this responds to your letter dated date and prior correspondence in which you request rulings on behalf of taxpayers that the proposed trusts holding property as described below will be qualified personal_residence trusts qprts satisfying the requirements of sec_25_2702-5 of the gift_tax regulations and that the property placed in the trusts will not be includible in each taxpayer’s gross_estate under sec_2036 of the internal_revenue_code if the taxpayers survive the terms of the trusts you represent the facts to be as follows taxpayer a and taxpayer b together taxpayers are married and reside in state taxpayers currently own property as tenants-by-the-entirety property is residential property and is equivalent in size to the other residential properties in the area taxpayers use property exclusively as a cc dom p si - -2 vacation residence between november and april of each year property has never been rented and no other individuals have the right to use or occupy property taxpayers propose to convert ownership in property from tenants-by-the-entirety to tenants-in-common taxpayer a and taxpayer b propose to establish separate irrevocable trusts and transfer his or her interest in property to the trust the terms of the proposed trusts are identical and are intended to satisfy the requirements for qprts under sec_25_2702-5 article fourth a of each trust provides that the trust will terminate at the earliest to occur of the date years from the date of execution of the trust agreement the date of death of the settlor of the trust agreement and the date that the trust ceases to own a personal_residence as defined in sec_25_2702-5 under article fourth h if the trust terminates at the expiration of the 20-year term the assets will be retained in further trust trust under the terms of article sixth under article fourth h if the trust terminates as a result of the settlor’s death the trust assets will be distributed to his or her estate article fourth c of each proposed trust instrument requires the trustees to distribute all of the net_income of the trust to the settlor on a quarter-annual or more frequent basis article fourth g prohibits distributions of principal during the term of the qprt to any person other than the settlor of the trust article fourth e provides that the trust may hold cash in a separate_account for the payment of expenses of the trust including mortgage already incurred or reasonably expected to be paid within months from the date of contribution of such cash improvements to property to be paid within months from the date of contribution of such cash provided property remains a personal_residence and the purchase of a replacement personal_residence that the trustees have contracted to purchase and that is to be acquired within months after the cash is contributed to the trust any cash in excess of the amount necessary for these purposes must be distributed to the settlor on at least a quarter-annual basis cc dom p si - -3 article fourth i provides that the interest of the settlor shall not be subject_to commutation article fourth d provides that in the event property is sold or disposed of by the trustees the trustees may use the net_proceeds to acquire a property that constitutes a personal_residence as defined in sec_25_2702-5 if the trustees receive any insurance proceeds as a result of any damage or destruction to property that renders property unusable as a residence the trustees may use such insurance proceeds to repair or rebuild property any such acquisition repair or rebuilding must be done within months but not later than the date for termination of the date of sale damage or destruction of property article fourth h and article fifth provide that if the trust terminates as a result of the trust ceasing to own a personal_residence and the trustees do not intend to replace or repair the personal_residence do not replace or repair the personal_residence within months after the trust ceases to own a personal_residence or replace or repair the personal_residence for a cost less than the net_proceeds received for the personal_residence then within days after the trust terminates the balance of the trust assets will be converted into a qualified_annuity_interest as defined under sec_25_2702-3 and d for the benefit of the settlor article fifth b provides that the annuity amount shall begin on the earliest date that any personal_residence owned by the trust is sold damaged or destroyed or ceases to be held as a personal_residence the annuity amount will be the smallest amount required under sec_25_2702-5 article fifth g provides that if trust terminates as a result of reaching the twentieth anniversary of its execution and at that time trust is a qualified annuity_trust the remaining principal shall be paid to the settlor’s living issue per stirpes if there are no issue of settlor living on the twentieth anniversary the remaining principal shall be paid to the settlor’s spouse and if the settlor’s spouse is not living the corpus shall be paid to foundation under article fourth j the trustees shall not sell or transfer property directly or indirectly to the settlor the settlor’s spouse or an entity controlled by the settlor or the settlor’s spouse during the term_interest of the trust or at any time after the original term of this trust that any trust held under this trust agreement is a grantor_trust under sec_671 through of the code for purposes of the preceding sentence a sale or transfer to another grantor_trust of the settlor or the settlor’s spouse is considered a sale or transfer to the settlor or the settlor’s spouse the term control is defined in sec_25_2701-2 and iii cc dom p si - -4 if trust is established under article sixth at the expiration of the 20-year term article sixth b provides that if one or more of the settlor’s issue including grandchildren and more remote descendants are then living the trustees of trust have the sole discretion to distribute income or principal to any one or more of settlor’s issue article sixth d provides that if there are no issue of the settlor then living the trustees have the sole discretion to distribute income or principal to any one or more members of a class consisting of the issue of the settlor’s parent however under article sixth as proposed the settlor will be excluded as a potential beneficiary of any trust created under article sixth in the case of taxpayer a parent is identified as a in the case of taxpayer b parent is identified as b article sixth a provides that trust terminates upon the death of the survivor of taxpayer a and taxpayer b article sixth e provides that upon termination of trust the remaining trust assets are to be distributed to settlor’s then living issue per stirpes if there are no issue of settlor then living_trust assets will be distributed to foundation taxpayers also propose to enter into an agreement granting them the option to lease property under the terms of this agreement if either or both taxpayers survive the 20-year trust term the survivor or survivors will have the right to lease property at fair_market_value as determined every year if either taxpayer fails to pay the fair_market_value rent then the owner of property will have the right to evict taxpayer or taxpayers taxpayers have requested the following rulings the provisions of the trust agreements satisfy the requirements of sec_25_2702-5 and the taxpayers’ transfers qualify under sec_2702 the execution of the option for lease of property held by the qprts which provides for the payment of fair market rent does not cause each trust agreement to fail to satisfy the requirements of sec_25_2702-5 if either or both of taxpayers survive the 20-year term and continue to reside or otherwise use property until the death of the survivor of them pursuant to a lease requiring the payment of fair_market_value rent the interests in property that the taxpayers transfer to their respective trusts will not be includible in their respective gross estates under sec_2036 issue sec_1 and qualified personal_residence trusts sec_2702 provides special valuation rules for determining the value of a transfer for gift_tax purposes where a donor transfers property in trust to or for the benefit of a member of the donor’s family and the donor retains an interest in the trust under sec_2702 the value of any retained_interest that is not a qualified_interest is treated as being zero and the value of any retained_interest that is a qualified_interest is cc dom p si - -5 determined under sec_7520 sec_2702 provides that sec_2702 shall not apply to a transfer if it involves the transfer of an interest in trust all the property of which consists of a residence to be used as a personal_residence by persons holding term interests in the trust under sec_2702 a qualified_interest includes an interest that consists of the right to receive fixed amounts payable not less frequently than annually sec_25_2702-2 defines a qualified_interest as a qualified_annuity_interest sec_25_2702-2 provides that a qualified_annuity_interest is an interest that meets all of the requirements of sec_25_2702-3 and d sec_25_2702-5 provides that a qualified_personal_residence_trust qprt as defined in sec_25_2702-5 is treated as a personal_residence_trust satisfying the requirements of sec_2702 sec_25_2702-5 provides that a qualified_personal_residence_trust must meet all the requirements set forth in sec_25_2702-5 and that those requirements must be satisfied in provisions in the governing instrument and must continue in effect during any term_interest in the trust sec_25_2702-5 provides that a personal_residence of a term holder is either the principle residence of the term holder within the meaning of sec_1034 one other residence of the term holder within the meaning of sec_280a but without regard to sec_280a or an undivided fractional interest in either a personal_residence may include appurtenant_structures used by the term holder for residential purposes and adjacent land not in excess of that which is reasonably appropriate for residential purposes taking into account the residence’s size and location sec_25_2702-5 provides that a residence is the personal_residence of the term holder only if its primary use is as a residence of the term holder when occupied by the term holder based on the above we conclude the terms of each trust agreement satisfy the requirements for a qprt as set forth in sec_25_2702-5 as well as the requirements for a qualified_annuity_interest as set forth in sec_25_2702-3 and d therefore taxpayers’ transfers of their interests in property to the proposed trusts qualify under the exception in sec_2702 cc dom p si - -6 the execution of the option to lease property after the 20-year term for fair market rental will not cause the trust agreements to fail to satisfy the requirements of sec_25_2702-5 issue includibility in gross_estate sec_2033 provides that the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise in which the decedent has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income from the property in 265_f2d_667 3d cir cert den 361_us_829 the court held that enjoyment as used in the death_tax statute is not a term of art but is synonymous with substantial present economic benefit in mcnichol the decedent purportedly conveyed income-producing real_estate to his children years before his death pursuant to an oral understanding with his children the decedent continued to receive the rents from the properties until his death the court held that the properties were includible in his gross_estate under the predecessor to sec_2036 in revrul_70_155 1970_1_cb_189 a parent continued to live rent-free in a residence that he had transferred to his son and daughter-in-law in accordance with an understanding by all parties that the father would retain use of the residence the ruling states that the donor’s continued occupancy of a transferred residence rent free until death is as much an economic benefit as if the donor had rented the property and obtained the income therefrom accordingly the donor’s continued rent-free occupancy until death pursuant to the understanding resulted in inclusion of the property under sec_2036 in 55_tc_666 acq 1972_2_cb_1 the decedent and his spouse transferred a farm to their children and contemporaneously leased the property from the children at fair_market_value rent the decedent and his spouse were legally obligated as tenants to pay this rent and the children were entitled as landlords to terminate the lease and remove the decedent and his spouse from the property if the rent was not paid after two years the family cc dom p si - -7 agreed that because of certain medical problems the decedent need not continue to pay the rent the decedent occupied the property rent-free until his death four years later because the decedent was obligated to pay fair_market_value rent from the date of the transfer and there was no express or implied agreement at the date of the transfer that the decedent could continue to occupy the premises whether or not rent was paid the court held that the property was not includible in the decedent’s gross_estate under sec_2036 in the present case taxpayer a and taxpayer b each propose to transfer their respective interest in property to two separate irrevocable trusts for a 20-year term if either or both taxpayers survive the 20-year term and property passes in further trust to trust taxpayer a and taxpayer b represent that they will pay the fair_market_value rental for the period of time for which they have use or possession of property if taxpayer a and taxpayer b pay fair_market_value rental and assuming there is no express or implied understanding that taxpayer a and taxpayer b may retain use or possession of property whether or not rent is paid taxpayer a’s and taxpayer b’s continued use or possession of property will not result in the inclusion of the interests in property that the taxpayers transfer to their respective trusts in taxpayers’ respective gross estates under sec_2036 however this ruling under sec_2036 regarding the estate_tax consequences if either taxpayer survives the 20-year term of the qprt is conditioned on article sixth of each trust expressly excluding the settlor as a potential beneficiary of any trust created under article sixth except as we have specifically ruled herein we express no opinion under the cited provisions or under any other provision of the code this ruling is based on the facts and applicable law in effect on the date of this letter if there is a change in material fact or law local or federal before the transactions considered in the ruling take effect the ruling will have no force or effect if the taxpayer is in doubt whether there has been a change in material fact or law a request for reconsideration of this ruling should be submitted to this office cc dom p si - -8 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel passthroughs and special industries by_______________________ george l masnik chief branch enclosure copy for sec_6110 purposes


internal_revenue_service national_office technical_advice_memorandum index uil no case mis no -612 tam-103379799 may i taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend a issue s _ is a entitled to currently deduct expenditures_for a conveyor system and related equipment and structures under sec_1_612-2 of the income_tax regulations conclusion were not incurred solely because of the recession of the working face the expenditures_for the conveyor system are not deductible under sec_1_612-2 of the regulations if the district_director makes a final_determination that the expenditures a operates a quarry to produce several different aggregates facts overburden the in place rock is loosened from the mining face by blasting and ripping with bulldozers the rock is temporarily stockpiled on the quarry floor loaders feed the rock to a primary crusher after crushing the rock is transferred via a belt conveyor to the processing plant where the rock is further crushed washed and screened into different sizes production from the plant is then sold to customers after the removal of as quarry operations continued the mining face continued to recede into the hillside as rock was removed the overburden was dumped in the mined out portion of the quarry in the course of mining the space available for dumping overburden was exhausted in order to maintain the established production capacity of the quarry a had to change its overburden bod disposal site and constructed a conveyor to transport the overburden to its adjacent property for disposal law and analysis - sec_1_612-2 of the regulations provides that certain expenditures although capital in nature shall be deducted as ordinary and necessary business_expenses these expenditures_for equipment its installation and housing must be necessary to maintain the normal output of the mine and be necessitated solely because of the recession of the working face of the mine sec_1_612-2 further provides that the expenditures cannot increase the value of the mine decrease the cost of production of minerals nor represent an amount for restoration of the property or making good the exhaustion thereof for which an allowance has been made a and the district_director agree that these three exceptions are not relevant in this case a and the district_director also agree that the expenditures_for the conveyor system are necessary to maintain the normal output of the mine there is also no question that the working face has receded - a situation that occurs in all mines as mineral is removed from the working face however to qualify as a deduction under sec_1_612-2 of the regulations the expenditures must be necessitated solely because of the recession of the working face see 42_f2d_83 cir in which expenditures_for an electric locomotive mine cars and rails needed because of the increased distance to the mine face were found to be deductible also see roundup coal mining co vs commissioner 20t c and united_states gypsum co vs 206_fsupp_744 d ill in which expenditures necessary to continue mining further in a horizontal direction roundup and a vertical direction u s gypsum were deductible expenditures necessary to maintain production of the mine which are not exclusively related to the movement of the working face are not deductible under sec_1_612-2 of the regulations even though the mining face had receded during the course of mining see 200_f2d_415 cir in which the expenditures were not deductible because they were incurred because of geological and manpower problems also see kennecott corp vs united_states 2d ct_cl 55_tc_672 aff’s 453_f2d_1324 cir cert_denied 409_us_842 and 535_f2d_27 ct_cl the above cited cases indicate that sec_1_612-2 of the regulations requires a direct and exclusive causal relationship between the expenditures and the recession of the working face in order for that expenditure to qualify for a current deduction the determination as to whether an expenditure was incurred solely because of the recession of the working face is a factual matter within the purview of the district_director accordingly if the district_director makes a final_determination that the expenditures were not incurred solely because of the recession of the working face the expenditures_for the conveyor system are not deductible under section a of the regulations caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc dom p si 7-plr-117676-99 date date legend a decedent b son son testamentary_trust grandson grandson granddaughter c great-grandson great-granddaughter e f company g plr-117676-99 h court trust a_trust b_trust c i bank j k dear sir or madam in a letter dated you requested a ruling concerning the generation-skipping_transfer gst tax consequences of the partition and the modification and clarification of the administrative provisions of the testamentary_trust a grandfathered trust this letter responds to your request the facts and representations submitted are summarized as follows decedent executed a will on a decedent died testate in b survived by son son and the children of son grandson grandson and granddaughter plr-117676-99 son and son both died in c son was survived by three children grandson grandson and granddaughter grandson died in d survived by great-grandson and great-granddaughter item vi of decedent’s will established the testamentary_trust for the benefit of decedent’s grandchildren and their descendants the terms of the testamentary_trust are summarized as follows distribution of income the trustee is to pay the income from the testamentary_trust semiannually or more often in its discretion as follows the income is to be divided into as many shares as there are grandchildren of decedent living at the time of the respective distribution and deceased grandchildren of decedent who left issue who are living one share is to be paid to each then living grandchild and one share is to be paid per stirpes to the then living issue of each deceased grandchild if decedent has no living grandchild or issue of any deceased grandchild the income is to be paid in equal shares to son and son or the survivor of them the trustees however insofar as retention is not forbidden by law are to retain in the testamentary_trust and accumulate any income that would otherwise be payable to any person under the age of e years and insofar as retention is not forbidden by law may retain and accumulate any income that otherwise would be payable to any person between the ages of e and f years and the income so accumulated is to be added to and treated as part of the principal of the testamentary_trust provided that the trustees in their discretion may pay such part of the income as may be necessary for his proper support and maintenance to any person to whom any income otherwise would be payable were it not for the accumulation provided further that no payment is to be made to any income_beneficiary under the age of f years toward whom any then individual trustee owes any legal duty_of support except to the extent accumulation is forbidden by law and also to the extent that the individual trustee is unable to provide proper support and maintenance for the beneficiary termination of trust the testamentary_trust is to terminate on the death of the survivor of the following persons son son and those among decedent’s grandchildren and issue of decedent’s grandchildren who are living at the time of decedent’s death distribution of principal on the final termination of the testamentary_trust the principal is to be divided into as many shares as there are then living grandchildren of decedent and deceased grandchildren of decedent who left issue who are then living and one share is to be plr-117676-99 paid to each then living grandchild and one share is to be paid per stirpes to the then living issue of each deceased grandchild if there is no such person living the principal is to be distributed as provided in item vii of decedent’s will successor to corporate trustee in the event of the merger consolidation or sale of substantially_all of its assets by company to or with another bank or trust company authorized to carry on a_trust business the merged consolidated or purchasing company is to become the trustee a majority of the adults then entitled to receive income from the testamentary_trust or if only one then that one may at any time or times by instrument in writing delivered to the then corporate trustee name a successor corporate trustee and may change any designation of a successor corporate trustee previously made prior to the time when the successor corporate trustee has become the corporate trustee hereunder provided that the successor corporate trustee is to be a bank or trust company authorized to carry on a_trust business in one or more states of the united_states having a capital surplus and undivided profits of not less than g if any adult renounces his or her right to name a successor corporate trustee a majority of the remaining adults or if only one then that one then entitled to receive income are to have the right provided in this paragraph to name a successor corporate trustee in the event that the then corporate trustee resigns is removed or fails or ceases to serve for any reason the successor corporate trustee named in the manner provided in this paragraph is to succeed to all the powers and duties of the original corporate trustee the right to name or designate a successor to the corporate trustee is not to be construed as including the right to remove the corporate trustee or any successor corporate trustee successor to individual trustee each of decedent’s sons whether he is a trustee or not by instrument in writing delivered to the then corporate trustee may designate an individual to serve in his place as trustee or be his successor as individual trustee and may revoke any designation previously made prior to the time the individual trustee has become trustee if at any time after the death of both of decedent’s sons only one individual trustee is serving no other individual is to be appointed to act as a co-trustee if at any time after the death of both of decedent’s sons there is no individual trustee serving a majority of the adults then entitled to receive income from the testamentary_trust or if only one then that one by instrument in writing delivered to the then corporate trustee may name one individual successor trustee if at any time there is no individual trustee then serving the corporate trustee or successor corporate trustee as the case may be is to serve as the sole trustee until a successor individual trustee is named as provided in decedent’s will any individual named as a successor trustee under this provision may but need not be a beneficiary of the testamentary_trust the right to name or plr-117676-99 designate a successor or substitute trustee is not to be construed as including the right to remove any individual trustee in f the court issued an order approving the final account and distribution of decedent’s estate in the order the court found that three separate trusts were created under decedent’s will trust a for the benefit of grandson trust b for benefit of grandson and trust c for the benefit of granddaughter collectively the separate trusts since the initial funding of the separate trusts they have been administered as three separate trusts each of which has its own taxpayer_identification_number and files its own fiduciary income_tax return since the death of grandson in d his children great-grandson and great-granddaughter have received the income from trust a by representation over the years the relationships among the income beneficiaries have deteriorated until i the trusts were administered by bank the income beneficiaries of the trusts requested the resignation of bank but could not come to a majority agreement regarding the naming of a successor trustee as provided in the testamentary_trust because the testamentary_trust does not authorize the income beneficiaries to name a different successor trustee for each trust bank petitioned the court to give each income_beneficiary the power to name a separate successor trustee for his or her separate trust bank also petitioned the court to divide trust a into sub-trusts for the benefit of grandson and granddaughter on j the court issued an order granting the trustee permission to divide trust a into two sub-trusts one for the benefit of grandson grandson’s trust and one for the benefit of granddaughter granddaughter’s trust collectively the sub-trusts subject_to the income beneficiaries obtaining a ruling from the internal_revenue_service that the testamentary_trust will not lose its exemption from the gst tax the court order further authorizes and directs the trustee to allow the income_beneficiary to appoint a separate successor trustee for his or her respective trust the court order also authorizes and directs each successor trust until the termination of the trust to administer each sub-trust by making current income distributions only to the income_beneficiary or his or her respective living lineal_descendants per stirpes under the court order the issue of the terms by which the successor trustees are to distribute the remaining was set for hearing at a later date it is represented that following the court order it became apparent that the terms for distributions prior to the trust’s termination needed clarification all interested parties entered into consent and stipulation as to terms governing the distribution of trust assets consent and stipulation the court approved the consent and stipulation on k plr-117676-99 paragraph of the consent and stipulation provides that each of the separate trusts and the sub-trusts will terminate at the same time on the death of the survivor between grandson and granddaughter paragraph of the consent and stipulation provides that on the final termination the assets of the separate trusts and the sub-trusts are to remain separated along the family lines of decedent’s grandchildren except as specifically provided in the consent and stipulation paragraph of the consent and stipulation provides that on the final termination the balance of the assets in each separate trust is to be distributed per stirpes to the then-living descendants of the grandchild of decedent for whose benefit the separate trust was created paragraph of the consent and stipulation provides that on the final termination the balance of the assets in each sub-trust is to be distributed to the income_beneficiary of the sub-trust in the event that the income_beneficiary is not then living the balance of the assets is to be distributed to the deceased income beneficiary’s then-living descendants per stirpes or if none the assets are to be distributed per stirpes among the then-living descendants of the deceased income beneficiary’s nearest lineal ancestor who was a descendant of decedent and who has one or more then-living descendants in the event that a sub-trust has more than one income_beneficiary the balance of the assets in the sub-trust are to be distributed per stirpes to the then-living lineal_descendants of the beneficiary for whose benefit the sub-trust was created paragraph of the consent and stipulation provides that on the final termination in the event that a grandchild of decedent has no living lineal_descendants the balance of the assets in that grandchild’s trust or any sub-trust created therefrom as the case may be is to be distributed to the then-living descendants of decedent per stirpes paragraph of the consent and stipulation provides that in the event that no lineal_descendants of decedent are living on the final termination all testamentary_trust assets are to be distributed pursuant to the item vii of the testamentary_trust paragraph of the consent and stipulation provides that prior to the final termination the trustee is to pay the income from a separate trust semiannually or more often in its discretion to the grandchild of decedent for whom the trust was created paragraph of the consent and stipulation provides that after the death of a grandchild of decedent the trustee is to pay the income from the separate trust semiannually or more often in its discretion to the lineal_descendants of the grandchild plr-117676-99 who are living at the time of the respective distributions per stirpes subject_to the distribution of income section of the testamentary_trust directing the accumulation of income notwithstanding the foregoing if a b c one or more of the descendants of a deceased grandchild request the trustee to divide the separate trust into sub-trusts for the descendants the trustee in its discretion considers it advisable to make such a division and the internal_revenue_service issues a favorable private_letter_ruling determining that such a division will not cause the trust to lose its grandfathered exemption for the federal generation-skipping_transfer_tax then the trustee in its discretion may divide the separate trust per stirpes among the then-living descendants of the deceased grandchild each share created for a descendant is to be held and administered as sub-trust for the benefit of that descendant paragraph of the consent and stipulation provides that in the event that prior to final termination any separate trust ceases to have a current income_beneficiary eg a separate trust’s sole beneficiary dies without then-living lineal_descendants the balance of the assets of the separate trust is to be divided per stirpes among the then-living lineal_descendants of decedent and the share of that descendant is to be transferred to the separate trust or sub-trust benefitting the descendant paragraph of the consent and stipulation provides that the trustee is to pay the income from a sub-trust semiannually or more often in its discretion to the descendant of decedent for whom the sub-trust was created paragraph of the consent and stipulation provides that after the death of the descendant the trustee is to pay the income from the sub-trust semiannually or more often in its discretion to the lineal_descendants of the deceased descendant who are living at the time of the respective distributions per stirpes subject_to the distribution of income section of the testamentary_trust directing the accumulation of income notwithstanding the foregoing if a one or more of the descendants of a deceased descendant request the trustee to divide the sub-trust into further sub-trusts for the descendants plr-117676-99 b c the trustee in its discretion considers it advisable to make such a division and the internal_revenue_service issues a favorable private_letter_ruling determining that such a division will not cause the trust to lose its grandfathered exemption for the federal generation-skipping_transfer_tax then the trustee in its discretion may divide the sub-trust per stirpes among the then-living descendants of the deceased descendant each share created for a then-living descendant is to be held and administered as sub-trust for the benefit of the then-living descendant paragraph of the consent and stipulation provides that in the event that prior to final termination any sub-trust ceases to have a current income_beneficiary eg a sub-trust’s sole income_beneficiary dies without then-living lineal_descendants the balance of the assets of the sub-trust is to be divided per stirpes among the then-living descendants of beneficiary’s nearest lineal ancestor who was a descendant of decedent and who has one or more then-living descendants or if none per stirpes among the then-living lineal_descendants of decedent each share created for a then-living descendant is to be transferred to the separate trust or sub-trust benefitting the descendant paragraph of the consent and stipulation provides that each separate trust and each sub-trust need not have the same trustee it is represented that the testamentary_trust was irrevocable on date and there have been no additions actual or constructive to it since that date you have requested the following rulings the proposed partition of trust a will not cause the resulting sub-trusts for the benefit of grandson and granddaughter to be subject_to the gst tax the modification and clarification of the administrative provisions of the testamentary_trust will not cause trust a_trust b or trust c to become subject_to the gst tax sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer made by the transferor to a skip-person sec_26_2601-1 of the generation-skipping_transfer_tax regulations provides that the tax does not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date the rule_of the plr-117676-99 preceding sentence does not apply to a pro_rata portion of any generation-skipping_transfer under an irrevocable_trust if additions are made to the trust after date sec_26_2601-1 provides that except as provided in sec_26_2601-1 or c any trust in existence on date is considered an irrevocable_trust sec_2611 defines the term generation-skipping_transfer to mean a taxable_distribution a taxable_termination and a direct_skip sec_26_2611-1 provides that a generation-skipping_transfer is an event that is either a direct_skip a taxable_distribution or a taxable_termination the determination as to whether an event is a generation-skipping_transfer is made by reference to the most recent transfer subject_to the estate or gift_tax sec_2612 defines the term direct_skip to mean a transfer subject_to a tax imposed by chapter or of an interest in property to a skip_person sec_2613 defines the term skip_person to mean -- a natural_person assigned to a generation that is two or more generations below the generation assignment of the transferor or a_trust -- a if all interests in such trust are held by skip persons or b if -- i there is no person holding an interest in the trust and ii at no time after the transfer may a distribution including distributions on termination be made from the trust to a non-skip_person the testamentary_trust is a generation-skipping_trust because it provides for distributions to more than one generation of beneficiaries below decedent's generation because however the testamentary_trust was irrevocable on date and there have been no additions actual or constructive to it since that date it has been exempt from the gst tax pursuant to sec_26_2601-1 you have requested a ruling that the division of trust a into sub-trusts for the benefit of grandson and granddaughter and the modification and clarification of the administrative provisions of the testamentary_trust will not cause trust a_trust b or trust c to become subject_to the gst tax plr-117676-99 an amendment to a_trust that was irrevocable on date and thus is exempt from the gst tax will cause the trust to lose its exemption if the amendment modifies or otherwise changes the quality value or timing of any of the powers beneficial interests rights or expectancies originally provided under the terms of the trust a trust’s exemption from the gst tax is not affected however by amendments relating to the administration of a_trust based on the information submitted and the representations made the interests of the income beneficiaries under the division of trust a will remain the same and the timing of the termination of the sub-trusts will remain the same consequently the value of the income or corpus interest of each income_beneficiary will not change materially as a result of the division of trust a into two separately administered sub-trusts therefore the division of trust a into two sub-trusts will not change the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the terms of the testamentary_trust accordingly we conclude that the division of trust a into two sub-trusts will not cause distributions from the sub-trusts to be subject_to gst tax imposed by chapter provided that no additions are made to the sub-trusts after date in addition we conclude that the modification and clarification of the separate trust and the sub-trusts relates to the administration of those trusts and will not modify or otherwise change the quality value or timing of any of the powers beneficial interests rights or expectancies originally provided under the terms of the trust accordingly neither distributions from the separate trusts or the sub-trusts to skip persons nor terminations of interests of non-skip persons in the separate trusts or sub-trusts will be subject_to the gst tax except as ruled above we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions or any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely yours joseph h makurath senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries