t c memo united_states tax_court beverly gordon petitioner v commissioner of internal revenue respondent ronald gordon petitioner v commissioner of internal revenue respondent docket nos filed date vincent r barrella for petitioner in docket no ronald gordon pro_se in docket no rajiv madan and anthony j kim for respondent supplemental memorandum opinion chiechi judge this case is before us on the motion filed this opinion supplements our previously filed memorandum findings_of_fact and opinion in gordon v commissioner tcmemo_1997_193 filed date by ronald gordon mr gordon and the motion filed by beverly gordon ms gordon for reconsideration1 of certain findings in our opinion in gordon v commissioner tcmemo_1997_193 opinion we incorporate our opinion herein by this reference the granting of a motion for reconsideration rests within the discretion of the court 928_f2d_751 6th cir affg in part and remanding in part tcmemo_1988_286 385_f2d_398 7th cir affg tcmemo_1965_328 a motion for reconsideration will be denied unless unusual circumstances or substantial error is shown estate of quirk v commissioner supra pincite it is the policy of this court to try all issues raised in a case in one proceeding to avoid piecemeal and pro- tracted litigation haft trust v commissioner 62_tc_145 affd on this issue 510_f2d_43 n 1st cir a motion for reconsideration generally will not be granted to resolve issues that are raised for the first time in such a ms gordon's motion for reconsideration was accompanied by a memorandum in support thereof we shall refer collectively to that motion and that memorandum as either ms gordon's motion for reconsideration or ms gordon's motion we shall refer to mr gordon's motion for reconsideration as either mr gordon's motion for reconsideration or mr gordon's motion respondent filed a separate notice of objection to each of those motions and a memorandum in support of the notice of objection to ms gordon's motion the court permitted ms gordon to file a response to mr gordon's motion and permitted mr gordon to file a response to ms gordon's motion however neither ms gordon nor mr gordon filed such a response motion 67_tc_643 or to hear arguments that could have been made before the filing of an opinion estate of trenchard v commissioner tcmemo_1995_ moreover as we observed in 69_tc_473 this court has an extraordinarily heavy volume of cases and in many of them the court decides an issue against one of the parties because of his failure to carry his burden_of_proof or to perform some other act if the court granted a second chance to every party who lost because of his failure to act in some manner the court clearly could not keep abreast of its work in effect we would be telling the parties that if they were not satisfied with the first decision try again however on previous occasions we have denied a peti- tioner's motion to vacate the decision and reconsider the opinion where the only basis for these motions was the petitioner's unexcused failure to raise certain issues earlier similarly in denying the taxpayers' motion for reconsideration in 71_tc_724 remanded on another issue 660_f2d_416 10th cir we observed a party is entitled to have his day in court both parties are entitled to this but neither party is entitled to have more than one fair reasonable oppor- tunity to establish his claim or defense to allow more would be to protract litigation to the extent which would preclude the administration of justice 11_bta_593 the parties cannot try their cases with hind- sight by way of background we shall restate certain of the findings and conclusions in our opinion that are pertinent to our consideration of the respective motions for reconsideration of mr gordon and ms gordon in our opinion we addressed mr gordon's contention that the court should reject respondent's determination that he and ms gordon petitioners are not entitled to the net_operating_loss_deduction for claimed nol deduction which petitioners claimed in the joint federal_income_tax return return that they filed for that year and which is attributable to an alleged net_operating_loss_carryover from their taxable_year resolution of that issue turned on whether a net trading loss that mr gordon sustained from his activities as an options market maker during net trading loss constituted an ordinary_loss as mr gordon contended or a capital_loss as respondent contended on the record before us we found that mr gordon failed to show that the net trading loss constituted a capital_loss and that petitioners are entitled to the claimed nol deduc- tion in so holding we found on the record presented to us that pursuant to sec_1256 the net trading loss is treated as a loss from the sale_or_exchange of a capital_asset and that mr gordon failed to establish that the hedging_exception in sec_1256 applies to any portion of his net trading loss ms gordon did not contend that she and mr gordon are en- titled to the claimed nol deduction instead she agreed to be bound by the court's holding on that issue all section references are to the internal_revenue_code in effect for the years at issue we next addressed in our opinion mr gordon's contention that respondent is equitably estopped from claiming that peti- tioners are not entitled to the claimed nol deduction equitable_estoppel issue we rejected mr gordon's contention because we found on the record presented to us that mr gordon failed to show that the doctrine_of equitable_estoppel should be applied against respondent the final matter we addressed in our opinion was ms gordon's contention that she qualifies for innocent spouse relief under sec_6013 with respect to the portion of petition- ers' understatement_of_tax for that is attributable to the claimed nol deduction innocent spouse issue in rejecting her contention we stated ms gordon does not even claim that mr gordon did not hold the options in question for the purposes specified in sec_1256 let alone that there was no substantial argument that can be made that he so held any of those options ms gordon could have developed the record in order to attempt to establish that mr gordon did not hold the options that generated his net trading loss for the purposes specified in sec_1256 however she failed to do so gordon v commissioner tcmemo_1997_193 we found on the record presented to us that ms gordon failed to show that there is no basis in fact or in law within the meaning of sec_6013 for the claimed nol deduc- tion and that that item constitutes a grossly erroneous item within the meaning of that section we held that therefore ms gordon is not entitled to innocent spouse relief under sec_6013 mr gordon's motion in his motion for reconsideration mr gordon asks that we reconsider our holding with respect to the equitable_estoppel issue in that motion mr gordon essentially restates the arguments that he made on brief and has not shown any unusual circumstances or substantial error accordingly we shall deny mr gordon's motion ms gordon's motion in her motion for reconsideration ms gordon asks that we reconsider our holding with respect to the innocent spouse issue and for the first time advances arguments relating to the impact of sec_1256 and mr gordon's alleged hedging activi- ties on the resolution of that issue ms gordon argues that we erred in finding that she failed to show that the nol deduction is a grossly erroneous item within the meaning of sec_6013 because respondent has never contended that mr gordon's hedging allegations or the existence of sec_1256 provided a basis for finding that his claimed net trading loss did not constitute a grossly erroneous item ms gordon had the burden of proving that she satisfied the requirements of sec_6013 her burden was not altered as a result of respondent's having advanced in support of respondent's position under sec_6013 reasons other than those relating to the hedging_exception in sec_1256 which other reasons we rejected in our opinion a deficiency may be approved on the basis of reasons other than those relied upon by respondent and even where respondent's reasons are incorrect 39_tc_839 affd 332_f2d_421 2d cir it is ms gordon's position that she does not have the burden of showing that there is no basis in fact or in law under sec_1256 for treating any portion of the net trading loss as an ordinary_loss alternatively it is ms gordon's position that if she did have that burden we erred in finding in our opinion that she failed to satisfy it ms gordon's positions are grounded on her view that the court decided the innocent spouse issue against the backdrop of its erroneous conclusion that mr gordon claimed that he held most of his options for the purposes specified in sec_1256 although we acknowledge here as we did in our opinion that mr gordon's position was not altogether clear we were satisfied when we issued our opinion as was respondent at trial and on brief and we are satisfied now that mr gordon did claim that he held most of the options that generated the net trading loss for the purposes specified in sec_1256 indeed mr gordon stated in his trial memorandum submitted prior to trial and throughout his opening and answering briefs submit- ted after trial that the net trading loss constituted an ordinary and not a capital_loss because of the hedging nature of his transactions ms gordon contends that even if mr gordon had claimed that he held most of the options that generated the net trading loss for the purposes specified in sec_1256 she nonetheless satisfied her burden_of_proof under sec_6013 that is because according to ms gordon the record clearly establishes that mr gordon did not hold any of his options for the purposes specified in sec_1256 and that sec_1256 does not provide a substantial legal argument for mr gordon's claimed ordinary_loss deduction in to support her position ms gordon points inter alia to mr gordon's testimony that he used certain options to hedge the risks that were associated with certain other options he used common_stock to hedge the risks that were associated with certain other options and he held the common_stock that he had in his account as a hedge based on that testimony ms gordon concludes that the hedging activities about which mr gordon testified were the only hedging activities in which he was involved and that mr gordon did not use the options that gener- ated the net trading loss to hedge the risks that were for example mr gordon contended in his answering brief that irc code sec_1_1221-2 states that to qualify for ordinary treatment as a hedging_transaction taxpayer must show that the options served to reduce risk with respect to ordinary_property associated with any other_property that he owned as the finder of fact when we issued our opinion we were and we are now unable to make any such findings based on the record presented to us in these cases we found mr gordon's testimony regarding his alleged hedging activities to be general vague and conclusory and found the entire record before us to be unclear about the nature and extent of any such activities that is precisely why we found that mr gordon failed to establish that he held the options that generated the net trading loss for the purposes specified in sec_1256 rather than finding that the record established that he did not so hold those options however as we stated in our opinion that finding does not necessarily mean that mr gordon did not hold any of the options that generated his net trading loss for the purposes speci- fied in sec_1256 our review of the entire record in these cases left a question in our mind about whether or not mr gordon was engaged in hedging activities during that fit within sec_1256 that question was reinforced by mr gordon's claims in his trial memorandum as well as throughout his opening and answering briefs that the net trading loss respondent also believed that the record relating to the nature and extent of mr gordon's alleged hedging activities was unclear consequently respondent argued on brief that we should resolve the question presented to us under sec_1256 based on mr gordon's failure to satisfy his burden_of_proof on that issue constituted an ordinary and not a capital_loss because of his hedging activities and his apparent belief that he had introduced sufficient evidence to establish that he held the options that generated the net trading loss for the purposes specified in sec_1256 ms gordon further contends that even if mr gordon had claimed that he held most of the options that generated the net trading loss to hedge the risks that were associated with other_property that he owned mr gordon was not a dealer_in_securities thus according to ms gordon as a matter of law under general income_tax rules any loss with respect to any such hedged property would not have been an ordinary_loss in mr gordon's hands and consequently regardless of the nature of his hedging activities mr gordon could not have fit within the hedging_exception in sec_1256 in support of her position ms gordon points to the following testimony elicited by respondent's counsel on respondent's cross-examination of mr gordon q during the tax_year while you were on the floor of the american stock exchange were although ms gordon does not provide an explanation in her motion as to what she means by a dealer_in_securities we assume that she is referring to an individual who holds securi- ties other than the type of options that were held by mr gordon during that are excluded from the definition of a capital_asset under sec_1221 our use herein of the phrase dealer_in_securities shall have the same meaning as we assume ms gordon intended by the use of that phrase you a dealer_in_securities a no ms gordon also points to the following testimony elicited by ms gordon through her counsel on ms gordon's direct examination of mr gordon q for what purpose were you holding the stock that you -- that you had in your account a hedge the only other question relating to mr gordon's hedging alle- gations that ms gordon asked mr gordon was the following q you indicated that you were not a dealer_in_securities what did you mean by that a i would classify a dealer_in_securities as a specialist on the new york stock exchange who makes a market in the underlying stock of the options i traded based on the foregoing testimony we were able to find in our opinion that mr gordon was not a specialist on the new york stock exchange who made a market in the stocks underlying the options that he traded however we were unable to find based on mr gordon's conclusory testimony quoted above that he held certain stock in an unidentified account8 as a hedge and other the only documentation in the record of any account main- tained by mr gordon during consisted of the following statements issued to him by wagner stott clearing corp wagner stott statements wagner stott statements for the periods mar continued testimony that he gave regarding his use as a hedge of the stock that he held in the account that he maintained during at wagner stott clearing corp that he was not a dealer in securi- ties during especially since other evidence in the record established and we found in our opinion that during that year mr gordon was licensed by the national association of security dealers to sell securities to the public and that he was regis- tered with the securities exchange commission as a broker dealer the entire record presented to us left open the distinct possi- bility in our mind that mr gordon could have qualified as a dealer_in_securities during and that he could have fit within the hedging_exception in sec_1256 it is significant that ms gordon did not attempt to clarify the record regarding mr gordon's alleged hedging activities the two questions quoted above are the only questions relating to mr gordon's alleged hedging activities that ms gordon through continued through date and oct through date we found in our opinion that those wagner stott statements for mar through date reflected that mr gordon held the stock of companies at the end of the periods covered by those statements it was not clear to us from the conclusory testimony of mr gordon quoted above whether the account to which mr gordon was referring in that testimony was the wagner stott clearing corp account that he maintained in his name during whether mr gordon held any other stock during that year through wagner stott clearing corp other than that reflected in the wagner stott statements that were part of the record or whether he had any other accounts during with other compa- nies in which he held stock her counsel posed to mr gordon at trial in our view those questions and mr gordon's responses to them did not elucidate his testimony about the nature and extent of his alleged hedging activities during ms gordon's counsel could have asked mr gordon but did not whether he was engaged in any hedging activities in addition to the hedging activities about which he testified if mr gordon's response to that question had been in the affirmative ms gordon's counsel could have further clari- fied the record by asking mr gordon to identify all the property that he claimed he hedged and all the property that he claimed he used as a hedge and to describe his activities relating to the property that he claimed he hedged so that we could have made a determination as to whether that property was property any loss with respect to which would have been an ordinary_loss in mr gordon's hands see sec_1256 it is also significant that although ms gordon contends in her motion that based on the record presented to us we could and should have found in our opinion that mr gordon did not hold the options that generated the net trading loss for the purposes specified in sec_1256 ms gordon did not propose that we find any facts relating to mr gordon's alleged hedging activities or otherwise relating to the requirements of that section nor did she make any arguments on brief address- ing the impact of sec_1256 and mr gordon's alleged hedging activities on the resolution of the issue presented under sec_6013 indeed ms gordon made no mention what- soever on brief of sec_1256dollar_figure it was only after ms gordon reviewed our findings and conclusions with respect to the sec_6013 issue with which she was not satisfied that she decided to advance for the first time in her motion for reconsideration arguments relating to the effect of sec_1256 and mr gordon's alleged hedging activities on the resolution of the issue presented under sec_6013 we find that the arguments that ms gordon is advancing with in fact the only mention by ms gordon on brief of mr gordon's claimed hedging activities is in ms gordon's answering brief where she objects to the following finding of fact proposed by respondent mr gordon alleges that of his trades were hedging_transactions although he never identified any of his trades as a hedging_transaction in objecting to that proposed finding of respondent ms gordon states petitioner objects to this proposed finding to the extent it deals with mr gordon's 'allegations' of hedging mr gordon's hedging activities if any were related to protecting his option positions mr gordon did use options to hedge other positions we found ms gordon's statement in that objection about mr gordon's hedging activities if any to be an acknowledgment by ms gordon that the record as it relates to mr gordon's hedging activities was not clear and required further development nor did ms gordon mention sec_1256 on brief as we indicated in our opinion ms gordon did not even argue on brief that on the record presented that section and not sec_1256 requires that the net trading loss be treated as a loss from the sale_or_exchange of a capital_asset the benefit of hindsight in her motion for reconsideration11 do not establish any unusual circumstances or substantial errordollar_figure accordingly we shall deny her motion to reflect the foregoing an order will be issued denying the respective motion sec_11 we have considered all the arguments advanced by ms gordon in her motion for reconsideration that are not discussed herein and we find them to be without merit we note that although we decided the innocent spouse issue based on ms gordon's failure to satisfy her burden of proving that the claimed nol deduction was a grossly erroneous item within the meaning of sec_6013 we could have found on the record presented to us that the claimed nol deduction had a basis in fact and in law within the meaning of that section and that therefore it is not a grossly erroneous item that is because as stated by the court_of_appeals for the second circuit in 53_f3d_523 2d cir affg in part and revg in part t c memo the innocent spouse defense was designed to prevent the inequity of holding one spouse liable for the oversubtle financial machinations of the other the defense was not intended to permit one spouse to escape liability for an apparently legitimate claim that turns out to be disal- lowed the defense is all the more inappropriate where both taxpayer s were equally in the dark as to the future status of their claim when they signed their return moreover the record in these cases establishes that the question of the treatment of the net trading loss as either an ordinary or a capital_loss is a technical question of law see haymond v commissioner tcmemo_1997_289 and the fact that mr gordon sold option contracts in the normal course of his trade_or_business as an options market maker provided an argu- ably colorable--albeit incorrect--basis for the treatment of the net trading loss as an ordinary_loss see kelly v commis- sioner tcmemo_1996_529 supplemented by tcmemo_1997_99 for reconsideration of mr gordon and ms gordon


internal_revenue_service number release date index number ------------------------------ ------------------------------------------------------ ---------- -------------------------------- --------------------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-145772-09 date november legend trust -------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------- date ------------------------- grantor -------------------------------------------------------------------------------- original trust --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- beneficiary spouse bank date trust -------------------------------------------------------------------- date grantor original trust -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- grantor 1’s father individual individual ----------------------- ------------------------- ------------------------------------------------------ ------------------------- ----------------------------------------------------------------------- -------------------------- --------------------------------- -------------------------------------------------------------------------------- --------------------------- --------------------------- ------------------------------- dear ---------------- this responds to your authorized representative’s letter dated date and subsequent correspondence in which you request rulings concerning the generation- skipping transfer gst tax consequences of proposed distributions from two trusts to four new trusts plr-145772-09 trust on date before date grantor created original trust for the primary benefit of grantor 1’s son beneficiary and beneficiary’s children the provisions of original trust are as follows article third provides that the net_income of the trust in the sole and absolute discretion of the trustee and without any requirement to observe any precept or rule_of equality may be paid to or for the benefit of any one or more or none of the class of persons consisting of grantor 1’s spouse and the children and grandchildren of grantor which includes beneficiary and beneficiary’s children and two other individuals who are deceased any net_income not so paid or applied shall be accumulated and added to the trust estate article fourth provides that at any time during the term of the trust the trustee may in its sole and absolute discretion pay over all or part of the trust estate to or for the benefit of grantor 1’s spouse or beneficiary or the children of beneficiary article fifth provides that the trust shall terminate when the youngest of grantor 1’s children living on date shall have attained years of age or when grantor 1’s spouse shall have died whichever last occurs article sixth provides that upon termination the trustee shall pay and distribute the trust estate and any accumulated income to beneficiary if living if beneficiary is not then living the trustee shall pay and distribute the trust estate and any accumulated income to the child or children of beneficiary in equal shares but if there are none then to grantor 1’s issue then living per stirpes original trust was irrevocable on date it is represented that no additions were made to the trust since its creation on date the trustee of the trust is bank on date pursuant to article fourth of original trust bank as trustee exercised its power to transfer trust principal of original trust to trust it is represented that but for this distribution from original trust to trust no contributions or additions have been made to trust the provisions of trust are as follows article third provides that during the term of the trust the net_income or all of it in the sole and absolute discretion of the trustee and without any requirement to observe any precept or rule_of equality may be paid to or for the benefit of any one or more of the class of persons consisting of beneficiary and his children any net_income not so paid over or applied shall be accumulated and added to the trust estate plr-145772-09 article fourth provides that at any time during the term of the trust the trustee may in the exercise of sole and absolute discretion pay over all or part of the trust estate to or for the benefit of beneficiary or the children of beneficiary article sixth provides that the trust shall terminate when the youngest of grantor 1’s children living on date shall have attained years of age or when grantor 1’s spouse shall have died whichever last occurs article seventh provides that upon termination the trustee shall pay and distribute the trust estate and any accumulated income to beneficiary if living if beneficiary is not then living the trustee shall pay and distribute the trust estate and any accumulated income to the then living children of beneficiary in equal shares or if no child of beneficiary is then living to the then living descendants of grantor per stirpes trust on date before date grantor created original trust for the primary benefit of grantor 2’s grandson beneficiary and beneficiary’s children the provisions of original trust are as follows article second paragraph c provides that following the death of grantor and during the balance of the term of the trust the trustee shall distribute the net_income of the trust or apply the same for the benefit of all or any one or more or none of the class of persons consisting of grantor grantor 1’s spouse grantor 1’s children and grandchildren which includes beneficiary and beneficiary’s children in such proportions whether equal or unequal and even if all the net_income shall be distributed to one person as the trustee shall determine in its absolute discretion any net_income not so paid or applied shall be accumulated and added to the trust estate article third provides that the trust shall terminate upon the death of the survivor of grantor 1’s spouse or when beneficiary reache sec_30 years of age whichever last occurs upon termination the trustee shall distribute the trust estate to beneficiary if then living but if not to beneficiary’s then living lineal_descendants per stirpes if beneficiary has no living lineal_descendants the trustee shall distribute the trust estate to the then living lineal_descendants of grantor per stirpes and if there are none to the then living lineal_descendants of individual per stirpes article fourth provides that at any time after the death of the survivor of grantor and grantor 1’s father during the term of the trust the trustee may in its sole discretion pay over all or any part of the trust estate to or for the benefit of any one or more of the class of persons to whom the income from the trust estate shall or may then be paid plr-145772-09 original trust was irrevocable on date it is represented that no additions were made to the trust since its creation on date the trustee of the trust is bank on date pursuant to article fourth of original trust bank as trustee exercised its power to transfer trust principal of original trust to trust it is represented that but for this distribution from original trust to trust no contributions or additions have been made to trust the provisions of trust are as follows article second provides that the trustee shall distribute the net_income of the trust to or apply the same for the benefit of all or any one or more of the class of persons consisting of beneficiary and his children in such proportions whether equal or unequal and even if all the net_income shall be distributed to one person as the trustee may determine in its sole and absolute discretion any net_income not so paid or applied shall be accumulated and added to the trust estate article third provides that during the term of the trust the trustee shall terminate upon the death of grantor 1’s spouse or when beneficiary reache sec_30 years of age whichever last occurs upon termination the trustee shall distribute the trust estate to beneficiary if he is then living or if he is not then living to beneficiary’s then living lineal_descendants per stirpes if beneficiary has no living lineal_descendants the trustee shall distribute the trust estate to the then living descendants of grantor per stirpes or if there are none to the then living lineal_descendants of individual per stirpes article fourth provides that the trustee may in its sole and absolute discretion pay over all or any part of the trust estate to or for the benefit of any one or more of the class of persons to whom the income from the trust estate shall or may then be paid child trusts grantor and grantor 1’s father are deceased beneficiary is over the age of and grantor 1’s spouse is still living_trust and trust will not terminate until grantor 1’s spouse dies bank as the trustee of trust and trust proposes to distribute trust and trust assets to four separate trusts one for the benefit of each of beneficiary’s four children child trusts the provisions of the proposed child trusts are as follows article third provides that the trustee shall pay over or apply the net_income and principal thereof to such extent if any including the whole thereof in such manner and at such time or times as the trustee in the exercise of absolute discretion may deem advisable to or for the plr-145772-09 benefit of the beneficiary during the beneficiary’s life any net_income not so paid over or applied shall be accumulated and added to the principal of the trust estate at least annually and thereafter shall be held administered and disposed of as a part article fourth provides that upon the death of the beneficiary the principal of the trust estate as it is constituted and any net_income then remaining in the hands of the trustee shall be transferred conveyed and paid over to such person or persons or organization or organizations including the beneficiary’s estate the creditors of the beneficiary or the creditors of the beneficiary’s estate to such an extent in such amounts or proportions and in such lawful interests or estates whether absolute or in trust as the beneficiary may by written instrument executed and acknowledged by the beneficiary during the beneficiary’s life and delivered to the trustee or by the beneficiary’s last will and testament appoint by a specific reference to this power if the power_of_appointment is for any reason not effectively exercised in whole or in part by the beneficiary the principal of the trust as it is then constituted and any net_income then remaining in the hands of the trustee to the extent not effectively appointed shall upon the beneficiary’s death be transferred conveyed and paid over to the then living descendants of the beneficiary per stirpes or if no such descendant is then living to the then living descendants of beneficiary per stirpes or if none to the then living descendants of grantor per stirpes article fifth provides that if not sooner terminated child trust shall terminate upon the twenty-first anniversary of the death of the last to die of the descendants of grantor and the descendants of individual who were in being on date upon termination the principal and any accrued accumulated and undistributed_income shall be transferred conveyed and paid over to the beneficiary currently eligible to receive the income of such trust you are requesting the following rulings the proposed distributions from trust to the child trusts and any future distributions from a child trust of property which originated from trust to the beneficiary of that child trust will not be subject_to gst tax the proposed distributions from trust to the child trusts and any future distributions from a child trust of property which originated from trust to the beneficiary of that child trust will not be subject_to gst tax sec_2601 of the internal_revenue_code imposes a tax on every generation- skipping transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however plr-145772-09 under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 under sec_26_2601-1 the distribution of trust principal from an exempt trust to a new trust will not cause the new trust to be subject_to the provisions of chapter if the terms of the governing instrument of the exempt trust authorizes distributions to the new trust without the consent or approval of any beneficiary or court and the terms of the governing instrument of the new trust do not extend the time for vesting of any beneficial_interest in the trust in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date the original trust became irrevocable extending beyond any life in being at the date the original trust became irrevocable plus a period of years plus if necessary a reasonable period of gestation sec_26_2601-1 example illustrates a situation in which trust that is otherwise exempt from the gst tax authorizes the trustee to distribute income and principal at the trustee's discretion for the benefit of a a's spouse and a's issue at the time trust was established a had two children b and c a corporate fiduciary is trustee and has the discretion to distribute all or part of the income to one or more of a group consisting of a a's spouse or a's issue the trustee is also authorized to distribute all or part of the principal to one or more trusts for the benefit of a a's spouse or a's issue any trust established must terminate years after the death of the last child of a to die who was alive at the time the trust was executed trust will terminate on the death of a at which time the remaining principal will be distributed to a's issue per stirpes the terms of trust authorize the trustee to make the distribution to a new trust without the consent or approval of any beneficiary or court in the trustee distributed part of trust's principal to a new trust for the benefit of b and c and their issue the new trust will terminate years after the death of the survivor of b and c at which time the trust principal will be distributed to the issue of b and c per stirpes the example concludes that under the facts presented the terms of the new trust do not extend the time for vesting of any beneficial_interest in a manner that may postpone plr-145772-09 or suspend the vesting absolute ownership or power of alienation of any interest in property for a period measured from the date of creation of trust extending beyond any life in being at the date of creation of trust plus a period of years plus if necessary a reasonable period of gestation therefore neither trust nor the new trust will be subject_to the provisions of chapter in the present case bank as the trustee for trust and trust is authorized under article fourth of trust and trust to distribute any part or all of the trust estate to or for the benefit of beneficiary or his children trustee proposes to distribute trust and trust assets to four child trusts created for each child of beneficiary moreover each beneficiary of a child trust will have a testamentary general_power_of_appointment over the trust which will cause the trust to be includible in such child’s estate at the child’s death under sec_2041 accordingly each beneficiary will be treated as the transferor of the trust corpus for gst tax purposes under sec_2652 under the circumstances in this case the proposed trust and trust distributions to a child trust will not extend the time for vesting of any beneficial_interest in the trust in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date the original trust became irrevocable extending beyond any life in being at the date the original trust became irrevocable plus a period of years plus if necessary a reasonable period of gestation therefore based on the facts submitted and the representations made we conclude that the proposed distributions from trust to the child trusts and any future distributions from a child trust of property which originated from trust to the beneficiary of that child trust will not be subject_to gst tax we also conclude that the proposed distributions from trust to the child trusts and any future distributions from a child trust of property which originated from trust to the beneficiary of that child trust will not be subject_to gst tax in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 plr-145772-09 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 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 sincerely lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number ----------------------------- -------------------------------- ---------------- ------------------------- ----------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc corp b04 plr-136191-12 date date legend parent ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------- distributing ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------- controlled ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------- sub sub sub ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------- state a -------------- plr-136191-12 state b -------------------- busine sec_1 ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ busine sec_2 ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------- busine sec_3 ---------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ dear ------------------ this ruling responds to your letter dated date requesting rulings on certain federal_income_tax consequences of a proposed transaction the information submitted in that letter and in later correspondence is set forth below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process this letter is issued pursuant to section dollar_figure of revproc_2012_1 2012_1_cb_1 regarding rulings on one or more significant issues solely under the jurisdiction of the associate chief_counsel corporate that involve the tax consequences of a transaction or part of a transaction occurring in the context of a distribution under sec_355 of the internal_revenue_code_of_1986 as amended code this office expresses no opinion as to the overall tax consequences of the transactions described in this letter or about any issue or step not specifically addressed by this letter the rulings contained in this letter only address one or more discrete legal issues involved in the transaction summary of facts parent is a state a nonprofit corporation that is exempt from federal income_taxation under sec_501 parent represents that it is a public charity under sec_509 and under several subsections of sec_170 parent owns the sole membership interest in distributing a taxable state a nonprofit corporation distributing serves as the holding_company for parent’s taxable subsidiaries plr-136191-12 distributing owns all the stock of sub a taxable state a for-profit corporation engaged in busine sec_1 and controlled a taxable state a for-profit corporation controlled owns all the stock of sub a taxable state b for-profit corporation and sub a taxable state a for-profit corporation controlled and sub together engage in busine sec_2 sub engages in busine sec_3 distributing controlled sub sub sub and distributing’s other includible affiliates join in filing a consolidated federal_income_tax return the proposed transaction for what are represented to be valid business purposes parent has proposed the following series of steps the proposed transaction i sub will liquidate into controlled or convert to an entity disregarded as separate from controlled for federal tax purposes under sec_301_7701-3 a disregarded_entity ii controlled will distribute the sub stock to distributing or transfer sub to another distributing subsidiary iii distributing will distribute the stock of controlled to its sole member parent the distribution and iv controlled will liquidate into parent or convert to a disregarded_entity the controlled liquidation representation parent has made the following representation in connection with the proposed transaction to the best knowledge and belief of parent the distribution qualifies under sec_355 of the code rulings based solely on the information submitted and the representation set forth above we rule as follows the distribution will satisfy the requirement of sec_355 that the stock of controlled be distributed with respect to the stock of distributing notwithstanding that parent holds a membership interest rather than a formal stock ownership_interest in distributing plr-136191-12 the distribution will be respected for federal_income_tax purposes notwithstanding the controlled liquidation caveat no opinion is expressed or implied concerning the tax consequences of any other aspect of any transaction or item discussed or referenced in this letter in particular no opinion is given regarding any other issues related to the distribution or the tax consequences or characterization of the distribution procedural matters this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely grid r glyer grid r glyer assistant to the chief branch office of associate chief_counsel corporate