department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------- id no ------------- telephone number -------------------- refer reply to cc tege eo2 plr-120253-09 date date internal_revenue_service number release date index number --------------------- ------------------------------ ------------------------ ----------------------------------------- ---------------------- ------------------------------ legend trust -------------------------------------------------------------------- ------------------------------------------------------------------------ district ---------------------------------------------------- ------------------------------------------ ------------- ------------------------------------------ ------------------------------------------ ---------------------------------------------- ------------------------------------------ state plan a plan b bank dear --------------- this is in reply to a letter dated date requesting a ruling that the income of trust is excluded from gross_income under sec_115 of the internal_revenue_code facts district is an electric utility that provides power throughout state it is governed by an eleven member board elected by the public and has been delegated the power of eminent_domain it is a political_subdivision of state for federal_income_tax purposes plr-120253-09 trust was created to fund district’s obligations to provide post-employment medical and death retiree benefits to its employees pursuant to plans a and b district is the sole participating employer in trust trust’s income is derived from district contributions and investment_income it is used exclusively to provide health benefits to its retirees and their spouses and dependents and to pay for the cost of administering trust no private interests participate in or benefit from the operation of trust other than as providers of goods and services trust’s initial trustee is bank the trustee manages and controls trust assets subject_to the investment policy adopted by district the board_of district can remove and replace the trustee at any time district has the right to amend_or_terminate trust upon termination the assets of trust will be used exclusively to pay for retiree benefits and administrative costs assets remaining after plan obligations and trust liabilities are satisfied shall revert to district law analysis sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utilities or the performance of some governmental function that accrued to either a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of public_utilities or the performance of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign to properly conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year plr-120253-09 in revrul_90_74 1990_2_cb_34 the service determined that the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 of the code in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization trust provides health benefits to retired employees of district a political_subdivision of state providing health benefits to current and retired government employees constitutes the performance of an essential government function based upon revrul_90_74 and revrul_77_261 trust performs an essential_governmental_function within the meaning of sec_115 of the code the income of trust accrues to district its sole participating employer no private interests participate in or benefit from the operation of trust any distribution of remaining funds in trust to participating retirees upon the dissolution of trust satisfies an obligation district has assumed with respect to providing health benefits to its employees the benefit to the participating employees is incidental to the public benefit see revrul_90_74 sec_6012 provides in general that every corporation subject_to taxation under subtitle a shall make returns with respect to income taxes under subtitle a in addition sec_1_6012-2 of the income_tax regulations provides in part that every corporation as defined in sec_7701 subject_to taxation under subtitle a of the code shall make a return of income regardless of whether it has taxable_income or regardless of the amount of its gross_income sec_6012 provides in general that every trust having for a taxable_year any taxable_income or having gross_income of dollar_figure or over regardless of the amount of taxable_income shall make returns with respect to income taxes under subtitle a sec_7701 and sec_301_7701-4 of the regulations define trusts for purposes of sec_6012 based on the information and representations submitted by trust we hold as follows the income of trust is derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 accordingly trust’s income is excludable from gross_income under sec_115 of the code if trust is classified as a_trust for federal_income_tax purposes no annual income_tax return must be filed by trust pursuant to sec_6012 because any income realized by trust is excluded from gross_income under sec_115 however if plr-120253-09 trust is a corporation as defined in sec_7701 it will be required to file an income_tax return pursuant to sec_6012 no opinion is expressed concerning the federal tax consequences of the trust under any other provision of the code other than those cited above 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 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 ______________________________ sylvia f hunt assistant chief exempt_organizations branch division counsel associate chief_counsel tax exempt and government entities enclosures copy of this letter copy for sec_6110 purposes ----------------------------------------- ------------------------------------------------------------------------- --------------------------- ------------------------------------------------ -----------------------------------


department of the treasury int ernal revenue service washington d c date o f f i c e o f c h i e f c o u n s e l number release date uil cc pa apjp radesilets tl-n-6700-00 memorandum for associate area_counsel sbse brooklyn ny cc sb brk attn patricia a riegger from pamela w fuller acting branch chief branch administrative provisions and judicial practice subject significant service_center advice this responds to your request for service_center advice in connection with the question concerning the application of sec_6654 of the internal_revenue_code individual estimated_tax and sec_408 tax treatment of distributions from individual_retirement_accounts and 408a conversions from a traditional_ira to a roth_ira of the code issue may the service abate the individual estimated_tax penalty in cases in which the penalty is based upon the additional income reported for the taxable_year pursuant to a roll-over from a traditional_ira to a roth_ira conclusion the service may not abate the individual estimated_tax penalty in cases in which the penalty is based upon the additional income reported for the taxable_year pursuant to a roll-over from a traditional_ira to a roth_ira facts on date a request for advice was received by the associate area_counsel brooklyn new york from the analyst for the adjustments branch at the accounts management center at the brookhaven irs campus according to the request adjustments has received a significant number of requests for abatement from taxpayers who were assessed an estimated_tax underpayment penalty for the tax_year under sec_6654 of the code the service assessed the underpayment penalty tl-n-6700-00 against those taxpayers who failed to include the income recognized from the conversion of traditional iras to roth iras in their estimated_tax payments discussion the regulations expressly provide that any amount that is converted to a roth_ira is includible in gross_income sec_1_408a-4 q a-7 therefore the conversion from a traditional_ira to a roth_ira constitutes a taxable_distribution of income to the taxpayer seeking such conversion sec_408a and sec_408a and iii see also publication individual_retirement_arrangements iras p absent a waiver a taxpayer who converts from a traditional_ira to a roth_ira must include the income realized as a result of the conversion in his or her estimated_tax calculations the circumstances under which the estimated_tax penalty may be waived are found at sec_6654 of the code sec_6654 limits the waiver of the estimated_tax penalty to those situations in which the underpayment is the result of casualty disaster or other unusual circumstances the waiver provisions do not apply to the present situation therefore because the conversion from a traditional_ira to a roth_ira constitutes a taxable_distribution of income which must be included in a taxpayer’s estimated_tax payments the service may not abate the estimated_tax penalty if the underpayment is the result of the conversion from a traditional_ira to a roth_ira if you have any questions please contact rob desilets jr at


internal_revenue_service number release date index number ----------------------- ---------------------------------- ----------------------------- --------------------------------- - in re -------------- --------------------------- ------------------------------ ------------------------------------------- department of the treasury washington dc person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc corp b02 - plr-146748-03 date december ----------------------------- distributing -------------------------------------------------------------------------- -------------------------------------------------------------------- distributing ----------------------------------- ------------------------------- ----------------------- sub sub llc business a business b financial advisor a ---------------------------------- ------------------------------- ----------------------- ----------------------------------- ------------------------------------------------ ----------------------- ----------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ----------------------------------------------------------------------- ------------------------------------------------------------------------ ---------------------------------------------------------------------- ----------------------------------------------- ------------------------------------ plr-146748-03 b c -------------------------------------------------- --------------------------- dear -------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of proposed transactions the information in that request and later submissions is summarized below 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 summary of facts distributing is a publicly traded corporation and the common parent of a consolidated_group that conducts business a and business b distributing wholly owns distributing and sub distributing distributing and sub each is engaged directly in both business a and business b we have received financial information indicating that each of business a and business b as conducted by each of distributing and distributing has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years the management of distributing has determined based on the advice of financial advisor and other information that management systemic and other problems result from the operation of business a and business b within distributing 2's affiliated_group accordingly distributing proposes to separate business a from business b proposed transactions to effect the separation distributing has proposed the following series of transactions the proposed transactions plr-146748-03 i distributing will transfer all of the marketing and sales personnel and other assets primarily related to business a of distributing to a newly formed domestic subsidiary controlled in exchange for all the stock of controlled and the assumption by controlled of the distributing liabilities primarily related to business a contribution ii distributing will distribute all the stock of controlled to distributing distribution iii pursuant to applicable state law sub will convert to a limited_liability_company sub llc that will be disregarded as separate from its owner for federal tax purposes under sec_301_7701-3 of the procedure and administrative regulations the sub conversion sub llc then will distribute to distributing the assets and liabilities primarily related to business a iv distributing will transfer all of the assets primarily related to business a the business a assets to a second newly formed domestic subsidiary controlled in exchange for all the stock of controlled and the assumption by controlled of a a dollars of existing liabilities primarily related to the business a of distributing and b b dollars of newly placed debt altogether contribution distributing will use the proceeds from the newly placed debt to pay down existing debt the business a assets will include the business a assets of sub received from sub llc in step iii above c of sub 1’s total assets the stock of controlled and ownership interests in other domestic and foreign entities engaged in aspects of business a v distributing will distribute all the stock of controlled to its shareholders pro_rata distribution representations contribution and distribution distributing makes the following representations for contribution and distribution described above in steps i and ii a any indebtedness owed by controlled to distributing after distribution will not constitute stock_or_securities b no part of the controlled stock distributed by distributing will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing c the five years of financial information submitted on behalf of distributing 1’s business a and business b represents the present operations of each business and plr-146748-03 regarding each business there have been no substantial operational changes since the date of the last financial statements submitted d following distribution each of distributing and controlled will continue the active_conduct of its business independently and with its separate employees e the gross assets used by controlled in business a immediately following contribution will have a fair_market_value equal to at least five percent of the total fair_market_value of the gross assets of controlled the gross assets used by distributing in business b immediately following distribution will have a fair_market_value equal to at least five percent of the total fair_market_value of the gross assets of distributing f distribution is being undertaken to eliminate management systemic and other problems resulting from the operation of business a and business b within distributing 2's affiliated_group distribution is motivated in whole or substantial part by this corporate business_purpose g distributing has no plan or intention to sell exchange transfer by gift or otherwise dispose_of any stock in or securities of either distributing or controlled after distribution except in contribution h there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after distribution i there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of any of the assets of either corporation after distribution except in the ordinary course of business j the total adjusted_basis and the fair_market_value of the business a assets to be transferred to controlled by distributing in contribution will equal or exceed the sum of the liabilities to be assumed as determined under sec_357 of the internal_revenue_code by controlled k the business a liabilities to be assumed as determined under sec_357 by controlled in contribution will have been incurred in the ordinary course of business and i will be associated with the assets transferred or ii will be assumed to establish the appropriate liquidity and capital structure for distributing and controlled l no indebtedness will exist between distributing and controlled at the time of or after distribution except for indebtedness arising in the ordinary course of business p for purposes of sec_355 immediately after distribution no person m immediately before distribution items of income gain loss deduction n payments made in any continuing transactions between distributing and o neither distributing nor controlled is an investment_company as defined plr-146748-03 and credit will be taken into account as required by the applicable intercompany_transaction regulations see ' and ' of the income_tax regulations as in effect before the publication of t d 1995_2_cb_147 and as currently in effect ' as published by t d controlled will be for fair_market_value and based on arm’s-length terms and conditions in sec_368 and iv determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of stock entitled to vote of controlled or percent or more of the total value of shares of all classes of stock of controlled that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on any stock of distributing that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled r distribution is not part of a plan or series of related transactions within the q for purposes of sec_355 immediately after distribution no person distributing makes the following representations for the sub conversion sub conversion described above in step iii w sub will not have acquired assets in any nontaxable_transaction at any u no shares of sub stock will have been redeemed during the three years t distributing on the date of the adoption of the plan of conversion and at all v when the conversion occurs sub will cease to exist for federal_income_tax plr-146748-03 s no election will be made under ' that would cause sub llc to be classified as other than an entity disregarded as separate from its owner for federal tax purposes times until the conversion occurs will be the owner of at least percent of the single outstanding class of stock of sub preceding the adoption of the plan of conversion purposes time except in i acquisitions occurring more than three years before the date of adoption of the plan of conversion and ii ordinary course of business contributions by distributing of intellectual_property rights acquired from time to time for use in sub 1’s business activities distributing except for i dispositions in the ordinary course of business ii dispositions occurring more than three years before adoption of the plan of conversion and iii transfers to controlled occurring as part of contribution step iv y the sub conversion will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the stock of sub immediately before the sub conversion also hold directly or indirectly more than percent in value of the stock of the recipient for purposes of this representation ownership will be determined immediately after distribution and by applying the constructive_ownership rules of sec_318 as modified by sec_304 z before the adoption of the plan of conversion no assets of sub will have been distributed in_kind transferred or sold to distributing except in i transactions occurring in the ordinary course of business and ii transactions occurring more than three years before adoption of the conversion plan 2a sub will report all earned_income represented by assets that will be distributed to distributing such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc x no assets of sub have been or will be disposed of by either sub or 2b the fair_market_value of the assets of sub will exceed the liabilities of 2c there is no intercorporate debt existing between distributing and sub plr-146748-03 sub both at the date of the adoption of the plan of conversion and immediately before the sub conversion and none has been cancelled forgiven or discounted except for transactions that occurred more than three years before the date of adoption of the sub plan of conversion sec_501 or any other provision conjunction with or in any way related to the sub conversion have been fully disclosed 2d distributing is not an organization exempt from federal_income_tax under 2e all transactions undertaken contemporaneously with in anticipation of in contribution and distribution distributing makes the following representations for contribution and distribution described above in steps iv and v 2f any indebtedness owed by controlled to distributing after distribution will not constitute stock_or_securities 2g no part of the controlled stock distributed by distributing will be received by a shareholder of distributing as a creditor employee or in any capacity other than that of a shareholder of distributing 2h the five years of financial information submitted on behalf of distributing 2’s business a and business b represents the present operations of each business and regarding each business there have been no substantial operational changes since the date of the last financial statements submitted 2i following distribution distributing and controlled each will continue the active_conduct of its business independently and with its separate employees 2j the gross assets used by controlled in business a immediately following contribution will have a fair_market_value equal to at least five percent of the total fair_market_value of the gross assets of controlled the gross assets used by distributing in business b immediately following distribution will have a fair_market_value equal to at least five percent of the total fair_market_value of the gross assets of distributing plr-146748-03 2k distribution is being undertaken to eliminate management systemic and other problems resulting from the operation of business a and business b within distributing 2's affiliated_group distribution is motivated in whole or substantial part by this corporate business_purpose 2l except as may be required by the rules governing the sec_401 plan of distributing there is no plan or intention by any shareholder who owns five percent or more of the stock of distributing and the management of distributing to the best of its knowledge is not aware of any plan or intention on the part of any particular remaining shareholder or security holder of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in or securities of either distributing or controlled after distribution 2m there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after distribution other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 2n there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of any of the assets of either corporation after distribution except in the ordinary course of business 2o the total adjusted_basis and the fair_market_value of the business a assets to be transferred to controlled by distributing in contribution will equal or exceed the sum of the liabilities to be assumed as determined under sec_357 by controlled 2p the business a liabilities to be assumed as determined under sec_357 by controlled in contribution will have been incurred in the ordinary course of business and i will be associated with the assets being transferred or are being assumed to establish the appropriate liquidity and capital structure for distributing and controlled 2q no indebtedness will exist between distributing and controlled at the time of or after distribution except for indebtedness arising in the ordinary course of business 2r immediately before distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d and as currently in effect sec_1_1502-13 as published in t d any excess_loss_account distributing may have in the stock of controlled will plr-146748-03 be included in income immediately before distribution to the extent required by applicable regulations see sec_1_1502-19 2s payments made in any continuing transactions between distributing and controlled will be for fair_market_value based on arm’s-length terms and conditions 2t neither distributing nor controlled is an investment_company as defined in sec_368 and iv 2u for purposes of sec_355 immediately after distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution 2v for purposes of sec_355 immediately after distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of stock entitled to vote of controlled or percent or more of the total value of shares of all classes of stock of controlled that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on any stock of distributing that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution 2w distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled rulings contribution and distribution based solely on the information submitted and the representations set forth above we rule as follows on contribution and distribution described above in steps i and ii contribution followed by distribution will qualify as a reorganization under sec_368 distributing and controlled each will be a_party_to_a_reorganization under sec_368 plr-146748-03 no gain_or_loss will be recognized by distributing on contribution sec_357 and sec_361 no gain_or_loss will be recognized by controlled on contribution sec_1032 the basis of each asset received by controlled in contribution will equal the basis of that asset in the hands of distributing immediately before contribution sec_362 the holding_period of each asset received by controlled in contribution will include the period during which distributing held the asset sec_1223 no gain_or_loss will be recognized by distributing on distribution sec_355 no gain_or_loss will be recognized by distributing on distribution sec_361 the holding_period of the controlled shares received by distributing in distribution will include the holding_period of the distributing shares on which distribution will be made provided the distributing shares are held as capital assets on the date of distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 sec_1_312-10 and sec_1_1502-33 sub conversion based solely on the information submitted and the representations set forth above we rule as follows on the sub conversion described above in step iii the sub conversion will qualify as a complete_liquidation of sub under sec_332 no gain_or_loss will be recognized by distributing on the sub conversion sec_332 no gain_or_loss will be recognized by sub on the sub conversion sec_336 sec_337 and sec_337 the basis of distributing in each asset deemed received from sub in the sub conversion will equal the basis of that asset in the hands of sub immediately before the sub conversion sec_334 plr-146748-03 the holding_period distributing will have in each asset deemed received from sub in the sub conversion will include the period during which that asset was held by sub sec_1223 distributing will succeed to and take into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 and sec_1_381_a_-1 except to the extent the earnings_and_profits of sub are reflected in the earnings_and_profits of distributing distributing will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the sub conversion sec_381 sec_1_381_c_2_-1 and sec_1_1502-33 any deficit in the earnings_and_profits of sub or distributing will be used only to offset earnings_and_profits accumulated after the date of the sub conversion sec_381 contribution and distribution based solely on the information submitted and the representations set forth above we rule as follows on contribution and distribution described above in steps iv and v contribution followed by distribution will qualify as a reorganization under sec_368 distributing and controlled each will be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing on contribution sec_357 and sec_361 revrul_79_258 c b no gain_or_loss will be recognized by controlled on contribution sec_1032 the basis of each asset received by controlled in contribution will equal the basis of that asset in the hands of distributing immediately before contribution sec_362 the holding_period of each asset received by controlled in contribution will include the period during which distributing held the asset sec_1223 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of any shareholder of distributing on distribution sec_355 no gain_or_loss will be recognized by distributing on distribution sec_361 plr-146748-03 the aggregate basis of the distributing shares and the controlled shares in the hands of each shareholder of distributing after distribution will equal the basis of the distributing shares in the hands of the shareholder immediately before distribution sec_358 and sec_1_358-1 this basis will be allocated between the distributing shares and the controlled shares in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 and sec_358 the holding_period of the controlled shares received by each shareholder of distributing in distribution will include the holding_period of the distributing shares on which distribution is made provided the distributing shares are held as capital assets on the date of distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 sec_1_312-10 and sec_1_1502-33 caveats we express no opinion about the tax treatment of the proposed transactions under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effect resulting from the proposed transactions that is not specifically covered by the above rulings in particular no opinion is given regarding the status of sub llc as a disregarded_entity under sec_301_7701-3 procedural matters this ruling is directed only to the taxpayer s who requested it and applies only to the facts of the proposed transactions sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling letter must be attached to the federal_income_tax return of each taxpayer involved in the proposed transactions for the taxable_year in which the proposed transactions are completed being sent to the taxpayer pursuant to the power_of_attorney on file with this office a copy of this letter is sincerely associate chief_counsel corporate by wayne t murray wayne t murray special counsel office of associate chief_counsel corporate


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 b02 plr-112575-08 date date legend x y --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ----------------------- country --------------------- d1 d2 -------------------------- ----------------------- dear ----------- this is in response to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a disregarded_entity for federal tax purposes facts the information submitted states that x was formed under the laws of country as an entity eligible to make a classification election on d1 x was acquired by y on d2 x’s default status was as an association_taxable_as_a_corporation for federal tax purposes x intended to be classified as a disregarded_entity for federal tax purposes effective d2 plr-112575-08 however a form_8832 entity classification election for x to elect to be treated as a disregarded_entity effective d2 was not timely filed law and analysis sec_301_7701-2 generally provides that a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides that so long as a business_entity is not classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing a form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 plr-112575-08 sec_301_9100-3 provides that request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of sixty days from the date of this letter to elect to be classified as a disregarded_entity for federal tax purposes effective d2 the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election 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 internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to x’s authorized representative sincerely william p o’shea associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------- ----------------------------- ---------------------------- department of the treasury washington dc person to contact ---------------------- id no --------------- telephone number --------------------- refer reply to cc intl br1 - plr-112186-05 date ------------ ty ------- ------------------- ------------------- ------------------- tin ----------------- a date b country c date d dear ------------ a’s loss of lawful permanent resident status expatriation did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below 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 a was born on date b in country c a surrendered her green card on date d a will be subject_to country c tax on her worldwide income and estate on the date of a's expatriation her net_worth exceeded the applicable_amount set forth in sec_877 this is in response to a letter dated date requesting a ruling that the rulings contained in this letter are based upon information and a former u s citizen whose net_worth or average tax_liability exceeds these sec_877 generally provides that a citizen who loses u s citizenship or a u s plr-112186-05 long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former u s citizen or former u s long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual's average income_tax_liability or the individual's net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary's determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual's expatriation did not have for one of its principal purposes the avoidance of u s taxes and resident fully subject_to tax in country c the country in which she was born modified by notice_98_34 including additional information requested by the service after review of the submission under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 a a is eligible to request a ruling pursuant to notice_98_34 because she is a citizen a submitted all of the information required to be submitted by notice_97_19 as accordingly based solely on the facts submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 therefore a will not be presumed under sec_877 to have had as one of her principal purposes for expatriating the avoidance of except as expressly provided herein no opinion is expressed or implied plr-112186-05 u s taxes we further conclude that the taxpayer will not be treated under sec_877 as having as one of her principal purposes for expatriating the avoidance of u s taxes because the information submitted clearly establishes the lack of a principal purpose to avoid taxes under subtitle a or b of the code concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a's u s tax_liability for the taxable years prior to or after her expatriation under sections of the code other than sec_877 sec_2107 and sec_2501 which a obtained the ruling whether or not a is otherwise required to file a return the code provides that it may not be used or cited as precedent will be sent to a’s representative in accordance with a power_of_attorney on file in this office a copy of this letter this ruling is directed only to the taxpayer requesting it sec_6110 of a copy of this letter must be attached to a's u s income_tax return for the year in sincerely _______________ m grace fleeman senior counsel cc intl br1


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 fip plr-118356-18 date date ------------------------------------------------------------------------------------ -------------------------------------------- ------------------------------------------------------------------------------------ --------------------------------------------------- --------------------------- ------------------------------------------------------------------------------------ ----- --------------------------- ------------- -------------------------------- --------------------------- ----------------------- taxpayer subsidiary date a cpa subsidiary date b state external business manager date c date d dear ------------- this letter is in response to taxpayer’s request pursuant to sec_301_9100-3 of the procedure and administration regulations on behalf of subsidiary for an extension of time to make the election under sec_831 of the internal_revenue_code effective for the tax_year ending on date a facts taxpayer is the parent_corporation and lead member of a consolidated_return group which reports its federal_income_tax on a calendar_year basis subsidiary is a wholly owned subsidiary of taxpayer and a member of taxpayer’s consolidated_group taxpayer represents that subsidiary qualifies as a non-life insurance_company for federal_income_tax purposes cpa subsidiary provides auditing tax and a number of plr-118356-18 other professional services and is also wholly owned by taxpayer and is a member of taxpayer’s consolidated_return group on date b subsidiary was incorporated and licensed in state to issue various direct insurance coverages taxpayer and subsidiary engaged cpa subsidiary to advise on all aspects of tax compliance taxpayer also engaged external business manager to assist in the formation and management of subsidiary in the course of forming and initiating the operations of subsidiary taxpayer and its officers always intended that subsidiary be a sec_831 captive insurance corporation there was a miscommunication between cpa subsidiary and external business manager resulting in subsidiary’s failure to timely make a sec_831 election for the tax_year ended on date a on date c cpa subsidiary became aware of the failure to include an sec_831 election statement with taxpayer’s tax_return which was timely filed on date d law and analysis sec_831 provides that taxes computed as provided in sec_11 are imposed for each taxable_year on the taxable_income of every insurance_company other than a life_insurance_company however sec_831 allows certain small companies to elect to be subject_to tax on their taxable_investment_income only the election applies to the taxable_year for which the company made it and as long as the company continues to qualify for all subsequent taxable years unless revoked with the consent of the secretary the time and manner to make the sec_831 election is prescribed by sec_301_9100-8 accordingly the election under sec_831 is a regulatory election sec_301_9100-1 pursuant to sec_301_9100-8 the election is to be made by the due_date taking into account any extension of time to file obtained by the taxpayer of the tax_return for the first taxable_year for which the election is effective by attaching a statement to the tax_return containing the information specified in sec_301_9100-8 under sec_301_9100-1 the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a statutory or regulatory election sec_301_9100-3 provides that a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government under sec_301_9100-3 a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer plr-118356-18 i requests relief under this section before the failure to make the regulatory election is discovered by the internal_revenue_service ii failed to make the election because of intervening events beyond the taxpayer’s control iii failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and complexity of the return or issue the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the internal_revenue_service or v reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer is deemed not to have acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief the commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the government will not be prejudiced by the granting of relief sec_301_9100-3 the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 sec_301_9100-1 cautions that granting an extension of time to make an election is not a determination that the taxpayer is otherwise eligible to make the election based solely on taxpayer’s representations and the additional information required under sec_301_9100-3 subsidiary qualifies for an extension of time to make the election under sec_831 subsidiary is deemed to have acted in good plr-118356-18 faith as defined by sec_301_9100-3 and the grant of relief will not prejudice the interests of the government ruling accordingly under sec_301_9100-3 subsidiary is granted an extension of time until days following the date of this letter to make the election provided by sec_831 for the tax_year ending on date a the election should be made in a written_statement filed with the appropriate service_center a copy of this letter should be attached to the sec_831 election caveats the ruling contained in this letter is based upon the information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the ruling_request and it is subject_to verification on examination except as provided above no opinion is expressed or implied concerning the federal_income_tax consequences of any other aspect of this or other transactions or item_of_income of taxpayer specifically no ruling is made as to whether subsidiary qualifies as an insurance_company under sec_831 and the granting of the extension under sec_301_9100-1 should not be construed as a determination that taxpayer is eligible to make the election provided by sec_831 this ruling is directed only to the taxpayer that requested it sec_6110 provides that this ruling may not be used or cited as precedent in accordance with a power_of_attorney on file in this office copies of this letter are being sent to your authorized representatives sincerely rebecca l baxter senior technician reviewer branch financial institutions products