internal_revenue_service number release date index number ------------------- ---------------- --------------------------- ---------------------------------------------------------- ---------------------- ----------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc ita b05 plr-110686-07 date date legend taxpayer --------------------------- individual ------------------- amount ----------------- amount --------------- date date year dear ------------- ---------------------- ------------- ------- this is in reply to your request pursuant to sec_453 of the internal_revenue_code the code and sec_15a_453-1 of the temporary income_tax regulations for consent to revoke an election out of the installment_method facts plr-110686-07 taxpayer is an s_corporation wholly owned by individual in date taxpayer sold the majority of its operating_assets for amount and buyer’s assumption of certain operating liabilities in accordance with the purchase and sale agreement amount of the total purchase_price was placed in an escrow account for two years taxpayer represents that these escrow funds were subject_to a substantial restriction and thus the gain from the sale of the operating_assets was eligible for installment_sale treatment under sec_453 of the code for purposes of computing individual’s estimated_tax payments a return preparer prepared tax projections which reflected use of the installment_method to report the sale of taxpayer’s operating_assets in date however the return preparer did not prepare taxpayer’s year tax_return in a manner consistent with the tax projections the entire gain from the sale of taxpayer’s operating_assets was reported on taxpayer’s year return taxpayer filed its year tax_return assuming that the return had been prepared in accordance with the tax projections which reported the asset sale on the installment_method taxpayer’s year tax_return was timely filed in date after filing its tax_return for year taxpayer realized that the full amount of the gain had been included in year once it discovered its error taxpayer requested approval to revoke the election out of the installment_method taxpayer represents that revocation of the election will not result in it paying less federal_income_tax law and analysis sec_453 of the code provides that generally a taxpayer shall report income from an installment_sale under the installment_method sec_453 defines an installment_sale as a disposition of property for which at least one payment is to be received after the close of the taxable_year of the disposition sec_453 of the code provides that for the purposes of this section the term installment_method means a method under which the income recognized for any taxable_year from a disposition is that proportion of the payment received in that year which the gross_profit realized or to be realized when the payment is completed bears to the total_contract_price installment_method except as otherwise provided in the regulations sec_453 of the code requires a taxpayer who desires to elect out of the installment_method to do so on or before the due_date including extensions of the taxpayer’s federal_income_tax return for the taxable_year of the sale sec_453 of the code provides that an election made pursuant to sec_453 may be revoked only with the consent of the secretary sec_453 of the code provides that a taxpayer may elect out of the plr-110686-07 sec_15a_453-1 of the temporary regulations provides that a taxpayer who reports an amount_realized equal to the selling_price including the full face_amount of an installment_obligation on a timely filed tax_return for the taxable_year in which the installment_sale occurs is considered to have elected out of the installment_method sec_15a_453-1 of the temporary regulations provides that an election in the instant case taxpayer’s return preparer did not prepare taxpayer’s year under sec_453 of the code generally is irrevocable an election may be revoked only with the consent of the internal_revenue_service sec_15a_453-1 provides that revocation of an election out of the installment_method is retroactive and will not be permitted when one of its purposes is the avoidance of federal income taxes or when the taxable_year in which any payment was received has closed tax_return in accordance with taxpayer’s intention to report sale of its operating_assets under the installment_method the return preparer inadvertently prepared the year return reporting all the gain from the asset sale in that year as soon as taxpayer became aware of this oversight taxpayer filed a request for consent to revoke the election out of the installment_method the information submitted indicates that taxpayer’s desire to revoke the election is due to its return preparer’s inadvertence rather than hindsight by taxpayer or a purpose of avoiding federal income taxes conclusion based on careful consideration of all of the information submitted and the representations made we conclude that taxpayer will be allowed to revoke its election out of the installment_sale_method with respect to the year sale of its operating_assets permission to revoke the election out of the installment_method of reporting for the year sale of taxpayer’s operating_assets is granted for the period that end sec_75 days after the date of this letter in order to revoke its election out of the installment_method taxpayer must file an amended federal_income_tax return for year and any other previously filed returns on which a portion of the gain from the sale is reportable under the installment_method a copy of this letter_ruling must be attached to each amended_return 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 including the computation of gain to be reported under the installment_method this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-110686-07 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this ruling is conditioned upon the accuracy of that information and those representations 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 sincerely amy j pfalzgraf senior counsel branch office of associate chief_counsel income_tax accounting cc


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 b02 plr-112895-07 date date --------------------------------------------------------------------------------- ------------------------------ legend legend parent -------------------------------------------------------------------------- ----------------------------------------------------------- controlled ------------------------------------------ distributing ------------------------------------------------------------------------------------------ ----------------------------------------------------------- distributing ----------------------------------- ----------------------------------------------- ------------------------------------------------- -------------------------------------- ----------------------- ------------------------------------------- -------------------------------------------------- sub ------------------------------------------------------------------------------------------------------ ----------------------------------------------------------- sub -------------------------------------------------------------------------- ----------------------------------------------------------- target tempco through tempco new legal entity ------------------------------------------------------------- ------------------------------------------------------- plr-112895-07 classification contributed assets x busine sec_1 busine sec_2 date dear ---- -------------- ------------------------------------------------ ----------------------------------------------------------- ---------------------------------------------------------- ----------- ----------------------------------------------- -------------------------------------------------------------- ---------------------- this responds to a letter dated date submitted on behalf of parent requesting a ruling under sec_355 of the internal_revenue_code and related rulings additional information was received in letters dated date date date and date in particular this office has not reviewed any information pertaining to and has 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 materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process made no determination regarding whether either of the distributions described below i satisfy the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a or greater interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 summary of facts the material information is summarized below parent is the common parent of an affiliated_group_of_corporations that join in the filing of a consolidated federal_income_tax return distributing is a wholly-owned direct plr-112895-07 subsidiary of parent distributing was formed by parent in contemplation of the date merger described below sub is a wholly-owned direct subsidiary of parent engaged in busine sec_2 sub is a wholly-owned subsidiary of sub engaged in busine sec_1 distributing is a wholly-owned subsidiary of distributing on date target merged into distributing with distributing surviving the date merger parent has represented that the date merger qualified as a reorganization under sec_368 by reason of sec_368 of the internal_revenue_code the former shareholders of target received parent stock and cash in the date merger distributing is engaged in busine sec_1 and busine sec_2 financial information has been submitted indicating that busine sec_1 and busine sec_2 have each had gross_receipts and operating_expenses representing the operation of a trade_or_business for each of the past five years for what has been represented to be a valid business_purpose parent proposes the following series of transactions distributing will form ten subsidiaries tempco through tempco and controlled in exchange for all the common_stock of each of tempco through tempco and controlled distributing will contribute the contributed assets to each tempco and controlled the contribution the contributed assets consist of distributing 1’s busine sec_2 assets and additional assets x will be segregated based on geography and x will be contributed to the entity in the applicable jurisdiction each of tempco through tempco and controlled will convert to their new legal entity classification following the conversions described in above each tempco will merge with and into controlled with controlled as the surviving entity distributing will distribute all the outstanding controlled common_stock to distributing the first distribution distributing will distribute all of the outstanding controlled common_stock to parent the second distribution the first distribution and the second distribution may collectively be referred to as the distributions controlled will merge with and into sub with sub surviving the post- distribution merger the post-distribution merger is intended to qualify as a reorganization under sec_368 of the code plr-112895-07 additionally and for business reasons unrelated to those motivating the first distribution and the second distribution sub may distribute sub to parent which may then contribute sub to distributing the potential contribution representations step sec_1 - parent has made the following representations with respect to the step sec_1 through described above a the formation of each of tempco through tempco the conversion of each of tempco though tempco into its new legal entity classification and the subsequent merger of each of tempco through tempco with and into controlled will occur solely for the purpose of facilitating the distributions b each of tempco through tempco will be formed and merged with and into controlled without engaging in any business activities other than those necessary to effectuate the mergers and the distributions described above c controlled will acquire all of the assets and will assume all of the liabilities of each of tempco through tempco and the separate corporate existence of each of tempco through tempco will cease upon the completion of step described above the first distribution parent has made the following representations with respect to the first distribution d no intercorporate debt other than debt incurred in the ordinary course of business and potential indebtedness included in the contributed assets will exist between distributing and controlled at the time of or subsequent to the first distribution any indebtedness owed by controlled to distributing after the first distribution will not constitute stock_or_securities e no part of the consideration to be distributed by distributing in the first distribution will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing f the financial information submitted on behalf of busine sec_1 and busine sec_2 including the five years of financial information for each of such businesses represents the present operations of each business and regarding each business there have been no substantial operational changes since the submission of the financial information plr-112895-07 g following the first distribution distributing will continue the active_conduct of busine sec_1 and controlled and following the post-distribution merger sub will directly continue the active_conduct of busine sec_2 independently and with their respective separate employees none of distributing controlled or sub has any plan or intention to reduce business activity for any of their respective businesses after the distributions h the first distribution will not be used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both i each of the total adjusted bases and the fair_market_value of the assets transferred or treated as transferred see ruling below to controlled by distributing equals or exceeds the sum of the liabilities assumed by controlled plus any liabilities to which the transferred assets are subject and the liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred j for purposes of sec_355 immediately after the first distribution no person determined after applying sec_355 will hold stock possessing or more of the total combined voting power of all classes of distributing stock entitled to vote or or more of the total value 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 the first distribution k for purposes of sec_355 immediately after the first distribution no person determined after applying sec_355 will hold stock possessing or more of the total combined voting power of all classes of controlled stock entitled to vote or or more of the total value of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the first distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the first distribution l payments made in all continuing transactions between distributing and controlled or between distributing and sub will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length m the first distribution is not part of a plan or series of transactions within the meaning of sec_1_355-7 other than the series of transactions which includes the date merger pursuant to which one or more persons will acquire directly or indirectly stock representing at least a or greater interest within the meaning of sec_355 in plr-112895-07 distributing distributing or controlled including any predecessor or successor of any such corporation n the first distribution is being carried out for the following corporate business_purpose to facilitate the second distribution o if any property is transferred by distributing to controlled with respect to which an investment_credit determined under sec_46 has been or will be claimed distributing represents that the income_tax_liability for the taxable_year in which investment_credit_property including any building to which sec_47 applies is transferred will be adjusted pursuant to sec_50 or a or sec_47 as in effect before amendment by public law title 104_stat_1388 if applicable to reflect an early disposition of the property p immediately before the first 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 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d the excess_loss_account of distributing with respect to controlled common_stock if any will be included in income immediately before the first distribution parent has made the following representations with respect to the second the second distribution distribution q no intercorporate debt other than debt incurred in the ordinary course of business and potential indebtedness included in the contributed assets will exist between distributing and controlled at the time of or subsequent to the second distribution any indebtedness owed by controlled to distributing after the second distribution will not constitute stock_or_securities r neither parent nor any security holder of distributing will transfer or surrender to distributing any property in the second distribution s the financial information submitted on behalf of busine sec_1 and busine sec_2 including the five years of financial information for each of such businesses represents the present operations of each business and regarding each business there have been no substantial operational changes since the submission of the financial information t following the second distribution the distributing separate_affiliated_group will continue the active_conduct of busine sec_1 and controlled and following the post- distribution merger sub will directly continue the active_conduct of busine sec_2 plr-112895-07 independently and with their respective separate employees none of distributing controlled or sub has any plan or intention to reduce business activity for any of their respective businesses after the distributions u the second distribution will not be used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both v for purposes of sec_355 immediately after the second distribution no person determined after applying sec_355 will hold stock possessing or more of the total combined voting power of all classes of distributing stock entitled to vote or or more of the total value 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 the second distribution w for purposes of sec_355 immediately after the second distribution no person determined after applying sec_355 will hold stock possessing or more of the total combined voting power of all classes of controlled stock entitled to vote or or more of the total value of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the second distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the second distribution x payments made in all continuing transactions between distributing and controlled or between distributing and sub will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length y the second distribution is not part of a plan or series of transactions within the meaning of sec_1_355-7 other than the series of transactions which includes the date merger pursuant to which one or more persons will acquire directly or indirectly stock representing at least a or greater interest within the meaning of sec_355 in distributing distributing or controlled including any predecessor or successor of any such corporation z the second distribution is being carried out for the following corporate business_purpose to facilitate the post-distribution merger which in turn will i meaningfully reduce parent’s burden in complying with regulatory requirements and other applicable laws ii create operating efficiencies by making it easier to create and enforce unified technology marketing and employment policies throughout the company iii facilitate the use of assets and information across all operating regions and iv improve customer transparency and convenience the second distribution is motivated in whole or substantial part by this corporate business_purpose plr-112895-07 aa immediately before the second 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 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d the excess_loss_account of distributing with respect to controlled common_stock if any will be included in income immediately before the second distribution additional representations parent has made the following representations in connection with the proposed series of transactions including the post-distribution merger bb taking into account target’s ownership prior to the date merger distributing has owned all the equity interests in distributing for the five-year period preceding the date of the first distribution cc treating the assets of distributing distributing and controlled that are otherwise defined as investment_assets but that are held in order to ensure positive net equity on each entity’s balance_sheet as excluded from the definition of investment_assets by virtue of sec_355 immediately after the transaction as defined in sec_355 none of distributing distributing or controlled will be a disqualified_investment_corporation within the meaning of sec_355 dd neither distributing nor distributing will accumulate its receivables nor make extraordinary payment of its payables in anticipation of the first distribution or the second distribution ee no two parties to the transaction are investment companies as defined in sec_368 and iv ff the fair_market_value of the sub stock and other consideration received by parent will be approximately equal to the fair_market_value of the controlled stock surrendered in the exchange gg sub has no plan or intention to reacquire any of its stock issued in the transaction hh sub has no plan or intention to sell or otherwise dispose_of any of the assets of controlled acquired in the transaction except for dispositions made in the ordinary course of business or transfers described in sec_368 plr-112895-07 ii the liabilities of controlled assumed by sub and the liabilities to which the transferred assets of controlled are subject were incurred by controlled or its predecessor distributing in the ordinary course of its business jj following the transaction sub will continue the historic_business of controlled and its predecessor distributing or use a significant portion of controlled’s and distributing 1’s historic_business_assets in a business kk sub and parent will pay their respective expenses if any incurred in connection with the transaction as controlled was newly-formed in connection with the transactions parent will provide the necessary funds to effectuate the post-distribution merger ll there is no intercorporate indebtedness existing between controlled and sub that was issued acquired or will be settled at a discount mm controlled is not under the jurisdiction of court in a title_11_or_similar_case within the meaning of sec_368 nn the fair_market_value of the assets of controlled transferred to sub will equal or exceed the sum of the liabilities assumed by sub plus the amount of liabilities if any to which the transferred assets are subject rulings the contribution based solely on the information submitted and the representations made we rule the formation of each of tempco through tempco the conversion of each as follows with respect to the contribution tempco into its new legal entity classification and the subsequent merger of each tempco with and into controlled will be disregarded for federal tax purposes and will be integrated and treated as if distributing had contributed the contributed assets to controlled as part of a transaction qualifying as a reorganization under sec_368 and sec_357 exchange for the contributed assets will be equal to the basis of distributing in the contributed assets immediately before the contribution reduced by the liabilities assumed by controlled from distributing sec_358 and d distributing will not recognize any gain_or_loss on the contribution sec_361 the aggregate basis of distributing in the controlled stock received in controlled will not recognize any gain_or_loss on its receipt of the contributed plr-112895-07 assets from distributing sec_1032 distributing in the contributed assets immediately before the contribution sec_362 controlled’s basis in the contributed assets will be equal to the basis of the holding_period of controlled in the contributed assets received from distributing will include the period during which distributing held those assets sec_1223 the first distribution distributing will recognize no gain_or_loss on its distribution of controlled the contribution and the first distribution taken together will qualify as a distributing will recognize no gain_or_loss upon its receipt of the controlled the basis of distributing in the distributing common_stock and controlled based solely on the information submitted and the representations made we rule as follows with respect to the first distribution reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 common_stock to distributing in the first distribution sec_355 common_stock from distributing in the first distribution sec_355 common_stock after the first distribution will equal the basis of the distributing common_stock that distributing held immediately before the first distribution allocated between the distributing common_stock and the controlled common_stock in proportion to their relative fair market values at the time of the first distribution in accordance with sec_1_358-2 sec_358 and sec_1_1502-19 first distribution will include the holding_period of the distributing common_stock with respect to which the first distribution is made sec_1223 accordance with sec_312 sec_1_312-10 and sec_1_1502-33 the assets of distributing distributing and controlled that are otherwise defined as investment_assets but that are held for use in the active and regular conduct of busine sec_1 in the case of distributing and distributing and busine sec_2 in the case of controlled will be excluded from the definition of investment_assets by virtue of sec_355 distributing 2’s holding_period in the controlled common_stock received in the distributing and controlled will allocate their earnings_and_profits in plr-112895-07 the second distribution based solely on the information submitted and the representations made we rule parent will recognize no gain_or_loss upon its receipt of the controlled the basis of parent in the distributing common_stock and controlled distributing will recognize no gain_or_loss on its distribution of controlled as follows with respect to the second distribution common_stock to parent in the second distribution sec_355 common_stock from distributing in the second distribution sec_355 common_stock after the second distribution will equal the basis of the distributing common_stock that parent held immediately before the second distribution allocated between the distributing common_stock and the controlled common_stock in proportion to their relative fair market values at the time of the second distribution in accordance with sec_1_358-2 sec_358 and sec_1 second distribution will include the holding_period of the distributing common_stock with respect to which the second distribution is made sec_1223 accordance with sec_312 sec_1_312-10 and sec_1_1502-33 parent’s holding_period in the controlled common_stock received in the distributing and controlled will allocate their earnings_and_profits in the post-distribution merger parent will not recognize gain_or_loss upon the merger of controlled with and based solely on the information submitted and the representations made we rule as follows with respect to the post-distribution merger into sub sec_368 and sec_354 into sub sec_1032 same as the parent’s basis in the controlled stock surrendered in the exchange sec_358 sub will not recognize gain_or_loss upon the merger of controlled with and parent’s basis in the stock of sub received in the exchange will be the sub 1’s basis in the assets of controlled will be the basis of the assets in controlled’s hands immediately before the post-distribution merger sec_362 and sec_1_362-1 the post-distribution merger will not preclude the application of sec_355 plr-112895-07 based solely on the information submitted and the representations made we the potential contribution further rule as follows the potential contribution will not affect the tax treatment of the first distribution or the second distribution caveats 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 we express no opinion about the tax treatment of the proposed transactions under other provisions of the code and the regulations or the tax treatment of any conditions at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular we express no opinion regarding business_purpose requirement of sec_1_355-2 ii whether either the first distribution or the second distribution is being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both or of distributing as applicable see sec_355 and sec_1_355-2 or acquisition or acquisitions are part of a plan or series of related transactions under sec_355 i whether either the first distribution or the second distribution satisfies the iii whether either the first distribution or the second distribution and an procedural statements 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 representatives plr-112895-07 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _____________________________ gerald b fleming senior technician reviewer branch corporate


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 tl-n-73-00 cc tege eb hw uilc 45a internal_revenue_service national_office field_service_advice memorandum for district_counsel north-south carolina district greensboro from assistant chief_counsel employee_benefits subject indian_employment_credit this field_service_advice responds to your memorandum dated date you ask for our assistance in determining the proper methodology for computing the indian_employment_credit under sec_45a of the internal_revenue_code field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice legend tl-n-73-00 taxpayer issues in calculating the indian_employment_credit under sec_45a of the code for an employer’s taxable_year how is the dollar_figure limitation on qualified_wages and qualified_employee_health_insurance_costs applied how are individuals who were qualified employees in the base_year but not in the taxable_year treated conclusions the dollar_figure limitation is applied separately to each qualified employee’s qualified_wages plus qualified_employee_health_insurance_costs in the base_year in the taxable_year for which the credit is being determined the limitation is again applied separately to each qualified employee’s qualified_wages plus qualified_employee_health_insurance_costs if an individual was a qualified_employee in the base_year that individual’s qualified_wages plus qualified_employee_health_insurance_costs for limited to dollar_figure are included in the total of qualified_wages plus qualified_employee_health_insurance_costs paid_or_incurred by the employer for once the total is established it does not decrease on account of individuals who are not qualified employees in subsequent years facts during the years at issue taxpayer claimed the indian_employment_credit under sec_45a of the internal_revenue_code with respect to certain of its indian employees taxpayer computed the credit as percent of the amount determined as follows step for each qualified_employee determine the actual wages plus health insurance costs paid_or_incurred during the taxable_year not limited to dollar_figure step for each qualified_employee determine the actual wages plus health insurance costs paid_or_incurred during the base_year not limited to dollar_figure tl-n-73-00 step for each qualified_employee a determine the excess if any of the step amount over the step amount b if the result exceeds dollar_figure reduce it to dollar_figure step total the step amounts for all qualified employees law and analysis sec_45a of the code provides that the amount of the indian_employment_credit with respect to any employer for any taxable_year is an amount equal to percent of the excess if any of the sum of a the qualified_wages paid_or_incurred during that taxable_year and b qualified_employee_health_insurance_costs paid_or_incurred during that taxable_year over the sum of the qualified_wages and qualified_employee_health_insurance_costs determined as if sec_45a were in effect that were paid_or_incurred by the employer or any predecessor during calendar_year the term qualified_wages generally means any wages paid_or_incurred by an employer for services performed by an employee while the employee is a qualified_employee sec_45a of the code the term qualified_employee_health_insurance_costs generally means any amount_paid or incurred by an employer for health insurance to the extent the amount is attributable to coverage provided to any employee while the employee is a qualified_employee sec_45a sec_45a of the code provides that the aggregate amount of qualified_wages and qualified_employee_health_insurance_costs taken into account with respect to any employee for any taxable_year and for the base_period under sec_45a ie calendar_year shall not exceed dollar_figure sec_45a of the code provides in part that the term qualified_employee generally means any employee of an employer if the employee is an enrolled member of an indian_tribe or the spouse of such an enrolled member additional requirements in sec_45a pertain to where the employee’s services are performed and the location of the employee’s abode sec_45a of the code provides that an employee shall not be treated as a qualified_employee for any taxable_year of the employer if the total amount of the wages paid_or_incurred by the employer to the employee during that taxable_year whether or not for services within an indian_reservation exceeds the amount determined at an annual rate of dollar_figure sec_45a provides for annual inflation adjustments of the dollar_figure amount for years beginning after tl-n-73-00 taxpayer’s method of computing the credit as described above does not correctly apply the dollar_figure limitation for example assume that taxpayer had a single qualified_employee throughout and with qualified_wages of dollar_figure in qualified_wages of dollar_figure in and no qualified_employee_health_insurance_costs in either year under taxpayer’s method because dollar_figure minus dollar_figure is dollar_figure which is less than dollar_figure the limitation is not triggered and the credit is computed as percent of dollar_figure or dollar_figure in describing the dollar_figure limitation however sec_45a of the code refers to any taxable_year and refers separately to the base_period it is clear from the plain language of the code that the limitation is applied separately to the taxable_year for which the credit is being computed and to the base_year thus in this example the dollar_figure for is limited to dollar_figure the dollar_figure for is subtracted leaving dollar_figure and the correct credit is percent of that or dollar_figure taxpayer’s computation method also does not correctly account for individuals who were qualified employees in but were not qualified employees in the taxable_year for which the credit is being determined for example assume that in taxpayer had three qualified employees each with qualified_wages of dollar_figure one of them terminated employment at the end of and in the remaining two each had qualified_wages of dollar_figure assume further that there were no other qualified employees and no qualified_employee_health_insurance_costs in either year under taxpayer’s method the terminated employee is disregarded the dollar_figure wage increases of each remaining employee are added and the credit is computed as percent of dollar_figure or dollar_figure in describing the credit however sec_45a of the code refers to percent of the excess of the sum of qualified_wages and qualified_employee_health_insurance_costs for the taxable_year over the corresponding sum for there is no basis in the statutory language for determining the excess of the first sum over the second sum separately with respect to each individual who is a qualified_employee for the taxable_year the sum for each year is an aggregate with respect to all qualified employees for that year thus in this example the sum for is dollar_figure dollar_figure dollar_figure while the sum for is dollar_figure dollar_figure dollar_figure dollar_figure because dollar_figure does not exceed dollar_figure the credit for is zero in summary the credit for a taxable_year is correctly computed as percent of the amount determined as follows step for each qualified_employee in determine the qualified_wages plus qualified_health_insurance costs paid_or_incurred during that year if the sum exceeds dollar_figure reduce it to dollar_figure step total the amounts from step for all qualified employees in tl-n-73-00 step for each qualified_employee in the taxable_year for which the credit is being determined determine the qualified_wages plus qualified_employee_health_insurance_costs paid_or_incurred during that taxable_year if the sum exceeds dollar_figure reduce it to dollar_figure step total the amounts from step for all qualified employees in the taxable_year step compute the excess if any of the taxable_year total step over the total step we hope you find this helpful if you have any further questions please call alan tawshunsky assistant chief_counsel employee_benefits by ________________________ mark schwimmer senior technician reviewer cc tege eb


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 psi b02 - plr-162447-03 date date ------- ------------- ------------------------- ------------------------------ this letter responds to a letter dated date and subsequent x ------------------------------------------- a ---------------------------------------------- d1 year dear ------------------- correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 in year a the president of x represents that x was intended to be an s_corporation beginning year its first taxable_year however no form_2553 election by a small_business_corporation was filed timely with the internal_revenue_service any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year has established reasonable_cause for failing to make a timely election to be an s based solely on the facts and the representations submitted we conclude that x sec_1362 provides that if -- a an election under sec_1362 is made for except as specifically set forth above no opinion is expressed concerning the plr-162447-03 corporation for x's year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a copy of this letter should be attached to the form_2553 federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 provides that it may not be used or cited as precedent letter is being sent to x’s authorized representative in accordance with the power_of_attorney on file with this office a copy of this this ruling is directed only to the taxpayer requesting it sec_6110 sincerely carolyn hinchman gray senior counsel branch office of associate chief_counsel passthroughs special industries enclosure copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------- ------------------------------------ --------------------------- ------------------------------------------------- -------------------- ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b1 plr-151410-08 date date legend x ------------------------------------------ ------------------------------- country ------------------------------------ date ----------------------- dear ------------- this letter responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an entity classification election under sec_301_7701-3 the information submitted states that x was formed on date under the laws of country x represents that x is a foreign_entity eligible to elect to be treated as a disregarded_entity x intended to be treated as a disregarded_entity effective date due to inadvertence x failed to file a timely form_8832 entity classification election electing to treat x as a disregarded_entity effective date sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes 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 except as provided in sec_301 plr-151410-08 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability or b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form 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 months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement 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 the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 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 granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code plr-151410-08 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representatives sincerely curt g wilson curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------ ------ --------------------------------- -------------------------------------- ----------------------------------------- --- re -------------------------------------- ------------------------ ---------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc corp b05 plr-145739-10 date march legend taxpayer sub1 date1 date2 unrelated buyer company official ------------------------------------------------------------------------------------------ --------------------- ------------------------------------------------------------------------------------------ ---------------------- -------------------- -------------------------- --------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ----------------------------------- tax professional ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ --------------- dear ----------------- this letter responds to a letter dated date requesting on behalf of taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file a statement under sec_1_337_d_-2 of the income_tax regulations hereinafter referred to as the election that was required to be filed with taxpayer’s consolidated federal_income_tax return for the taxable_year ending plr-145739-10 date2 additional information was received in subsequent correspondence dated march the material information is summarized below taxpayer is the common parent of a consolidated_group that included among other subsidiaries sub1 on date1 taxpayer sold stock of sub1 to unrelated buyer recognizing a loss on the sale an election under sec_1_337_d_-2 to deduct the loss recognized on the disposition of sub1 stock was required to be filed with or as part of the taxpayer consolidated group's consolidated federal_income_tax return for the year of the disposition however for various reasons the election was not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election taxpayer represents that the period of limitations on assessment under sec_6501 has not expired for the taxpayer group’s consolidated_income_tax_return for the taxable_year ending date2 or any subsequent tax_year sec_1_337_d_-2 provides a general_rule that no deduction is allowed for any loss recognized by a member of a consolidated_group with respect to the disposition of stock of a subsidiary sec_1_337_d_-2 provides that a disposition means any event in which gain_or_loss is recognized in whole or in part sec_1_337_d_-2 provides that sec_1_337_d_-2 applies with respect to stock of a subsidiary only if a separate statement entitled sec_1_337_d_-2 statement is included with the return in accordance with sec_1_337_d_-2 sec_1_337_d_-2 provides that loss is not disallowed under sec_1_337_d_-2 to the extent the taxpayer establishes that the loss is not attributable to the recognition of built-in_gain net of directly related expenses on the disposition of an asset including stock and securities sec_1_337_d_-2 provides that the statement required under sec_1_337_d_-2 must be included with or as part of the taxpayer's return for the year of the disposition or deconsolidation generally sec_1_337_d_-2 applies with respect to dispositions and deconsolidations on or after date and before date sec_301_9100-1 cites sec_301_9100-1 through as providing the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory plr-145739-10 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_9100-2 provides automatic extensions of time for making certain elections while sec_301_9100-3 provides for extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides requests 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 granting relief will not prejudice the interests of the government in this case the time for filing the election is fixed by the regulations ie sec_1 d - c therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for taxpayer to file the election provided taxpayer establishes that it acted reasonably and in good_faith that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and that granting relief will not prejudice the interests of the government information affidavits and representations submitted by taxpayer company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service and taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election see sec_301_9100-3 and v based on the facts and information submitted including the representations that have been made we conclude that taxpayer has established it acted reasonably and in good_faith in failing to timely file the election for sub1 the requirements sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-3 until days from the date on this letter for taxpayer to file the election with respect to the disposition of sub1 the 60-day extension of time is conditioned on taxpayer's consolidated group's tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been made timely taking into account the time_value_of_money we express no opinion with respect to whether taxpayer qualifies substantively to make the election no opinion is expressed as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayer and its representatives plr-145739-10 however all of the essential facts must be verified in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply no opinion is expressed as to taxpayer's consolidated group's tax_liability for the years involved a determination thereof will be made upon audit of the federal_income_tax returns involved 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely _ken cohen_____________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-149221-02 date date legend x a date dear this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on date a the sole shareholder of x intended for x to be an s_corporation effective date however a form_2553 election by a small_business_corporation was not timely filed for x’s taxable_year beginning date sec_1362 provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s taxable_year beginning date accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center within days following the date of this letter then such election will be treated as timely made for x’s taxable_year beginning date a copy of this letter should be attached to the form_2553 plr-149221-02 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to x sincerely yours carolyn hinchman gray carolyn hinchman gray senior counsel branch 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 third party communication none date of communication not applicable_person to contact ------------------------ id no ---------------- telephone number -------------------- refer reply to cc fip b04 plr-141972-14 date date taxpayer contract contract individual a date company m company n date date individual b date date year x dear ------------- ------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ------------------------------------------------------------------------------- --------------------- --------------------------- ---------------------------------------------------- ----------------------------------------------------------------- ------------------------ -------------------------- ------------------ ------------------------ -------------------------- ------ this responds to your request for a ruling received date and subsequent information submitted on your behalf by your authorized representative taxpayer requests a ruling concerning the application of sec_72 of the internal_revenue_code_of_1986 as amended the code to payments she is receiving under annuity_contracts facts taxpayer an individual was named a partial non-spouse beneficiary under two separate annuity_contracts contract and contract owned by individual a contract was issued by company m and contract was issued by company n individual a died on date after individual a’s death company m and company n collectively the companies sent taxpayer forms to be completed setting forth distribution options plr-141972-14 taxpayer elected the ten-year payout option under her beneficiary share of contract and contract and represents she timely provided the election forms to company m on date and company n on date individual b had a competing claim to proceeds from contract and contract and therefore retained counsel to represent her interests in the annuity_contracts on date before the companies had made any distributions to taxpayer individual b’s counsel wrote letters to company m and company n requesting they defer disbursement under contract and contract pending the conclusion of the legal dispute regarding the beneficiaries as a result of the letters from individual b’s counsel company m and company n froze the distributions from contract and contract approximately a year after first writing the companies individual b’s counsel wrote letters to company m and company n notifying them that individual b released any claim to the proceeds of contract and contract the legal dispute regarding the beneficiaries was finally resolved on date more than a year after the death of individual a on date company m and company n notified taxpayer that the ten-year payout option elected by taxpayer was no longer available to her as an option the companies determined that based on sec_72 of the code since more than one year had passed since the death of individual a the entire proceeds payable to taxpayer as a beneficiary must be paid out within five years from the death of individual a in year x company m made distributions from contract to taxpayer also in year x company n made distributions from contract to taxpayer law and analysis sec_72 of the code provides that a contract shall not be treated as an annuity_contract for federal_income_tax purposes unless it provides that- a if any holder of such contract dies on or after the annuity_starting_date and before the entire_interest in such contract has been distributed the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used as of the date of his death and b if any holder of such contract dies before the annuity_starting_date the entire_interest in such contract will be distributed within five years after the death of such holder however sec_72 provides an exception if- a any portion of the holder’s interest is payable to or for the benefit of a designated_beneficiary b such portion will be distributed in accordance with regulations over the life of such designated_beneficiary over a period not extending beyond the life expectancy of such beneficiary and plr-141972-14 c such distributions begin no later than one year after the date of the holder’s death or such later date as the secretary of treasury may be regulations prescribe then for purposes of paragraph the portion referred to in subparagraph a shall be treated as distributed on the day on which such distributions begin sec_72 defines the term designated_beneficiary to mean any individual designated a beneficiary by the holder of the contract the time by which distributions to a designated_beneficiary making the election under sec_72 must begin is fixed by the code and has not been extended by the income_tax regulations taxpayer timely elected ten-year payout options for contract and contract however company m and company n did not begin distributions until more than a year after the death of individual a on date therefore under sec_72 of the code the entire proceeds payable to taxpayer as a designated_beneficiary must be paid out within five years of the death of individual a on date the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination 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 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 sarah e lashley assistant to branch chief branch financial institutions products cc


internal_revenue_service s i n s i n s i n s i n dollar_figure xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxk xxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxkkxkkkxxkk xxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx department of the treasury washington dc contact personjg third party contact xxxxxxxxxxxxxxxxx telephone number xxxxxxxxxxx xxxxxxxxxxxxx in reference to dathec t eo ra t employer_identification_number xxxxxxxxxx legend y xxxxxxxxxxxxxxxxxxxxxxxkkkk x xxxxxxxxxxxxxxxx z xxxxxxxxxxxxxxxxx t xxxxxxxxxxxxxxxxxxxxxxxxxxxxkxxakx pl xxxxxxxxxxxxxxxx p2 xxxxxxxxxxxxxxxxxxxxxxxxxxkxx p3 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkk p4 xxxxxxxxxxxxxxxxkkk p5 xxxxxxxxxxxxxxxkxx p6 xxxxxxxxxxxxxxxxxxxxxxxkx p7 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkaxaxxxk p8 xxxxxxxxxxxxxxxxxkx p9 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxaxk x kxkx y xxxx z xxxx dear applicant this is in reply to your letter of date as subsequently revised amended and supplemented by correspondence dated date april i9 certain rulings under sec_501 of the internal_revenue_code more specifically you request us to rule that and july in which you request and date date the receipt and continued ownership by you of the partnership interests owned by x at his death and distributed by y to you will not jeopardize your a tax-exempt private_foundation exempt status as under sec_501 of the code pursuant to the exception in sec_514 c b of the code which are owned by some of the partnerships will not constitute acquisition_indebtedness as defined in sec_514 the mortgages encumbering the properties of the code for the ten-year period -2- xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkkxx commencing on the date of the transfer of the partnership interests to you the receipt and continued ownership by you of the partnership interests owned by x at his death and distributed by y to you will not constitute acts of self-dealing between you and a disqualified_person under sec_4941 of the code pursuant to sec_4943 of the code receipt and continued ownership by you of the partnership interests in business enterprises owned by x at his death and distributed by to you will not constitute excess_business_holdings as defined in sec_4943 of the code for the five-year periods commencing on the dates of the transfer of the partnership interests to you the facts you were formed by x in and were recognized as exempt from federal_income_tax under sec_501 determination_letter dated november classified as sec_509 of the code a private_foundation within the meaning of you were of the code by x died in leaving no issue x’s only living relatives were two sisters to whom he left specific monetary bequests x's estate is still under administration the rest and residue of the estate of x hereafter known as y you such rest and residue consists primarily of x’s interests in partnerships pl two mortgages was left to and p9 p3 p8 p6é p2 p4 ps p7 and on his death x had a interest in pl p8 and a interest in p9 and p3 also x had a interest in p4 and a interest in p6 also as termination of an ownership_interest in pl z above partnerships and a interest in p5 further z designated as the managing partner in several partnership agreements in addition z owns and operates t which manages the partnerships’ properties for a management fee a testamentary_trust x’s two sisters acquired an unrelated party to x owns a interest in a result of the p8 in of the p7 p5 p6 p7 p2 p2 p4 is you state that neither z nor t nor x's two sisters have ever made any contributions to you thus none of these individuals are substantial contributors to you within the xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkk meaning of sec_4946 a neither z nor x's two sisters are foundation managers and d of the code also pl p2 p7 properties further p3 p6 p4 p6 and p each own real_estate p5 and p9 each own undeveloped land and p9 also carry on active business enterprises in addition to receiving partnership interests in the partnerships y received x’s interest in two mortgages i ii shown below and as shown below and the liability of p6é in mortgage iii a mortgage in the approximate amount of dollar_figurex i secured_by property owned by pé6 a mortgage between p6 and x by which x loaned ii dollar_figurex to p6é in november of y iii dollar_figurex to p6 in november of y a mortgage between p6 and z by which z loaned in respect to i at the time the loan evidenced by the p6é had outstanding a promissory note was originally made x mortgage loan obligation of approximately dollar_figurex the balance of the mortgage loan has been reduced to approximately dollar_figurex with p6’s amortization of the mortgage loan balance and resulting substantial increase in p6’s equity in its real_estate project the risk that the loan evidenced by the promissory note was reduced substantially furthermore you will own a partnership_interest in p6 once y by extending the due_date of the promissory note y has reduced the likelihood that p6 would have a substantial cash crunch which could have adversely affected your interest in pé is wound up the payment on loans ii and iii has been extended to z amendment five to pé6‘s partnership_agreement december makes clear that no distributions will be made to the partners until these loans and any other loans from partners have been repaid law sec_501 of the internal_revenue_code provides for the exemption from federal_income_tax of in part organizations organized and operated exclusively for charitable purposes of the internal_revenue_code imposes a tax on the unrelated_business_taxable_income of organizations sec_511 xxxxxxxxxxxxxxxxxxkxxxxxxkkxxaxkkxxxxkkkkx described in sec_501 a sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it incurred in carrying on the trade_or_business less allowable deductions for expenses sec_512 of the code excludes from the definition of gross_income all rents_from_real_property and all rents from personal_property if the rent attributable to such personal_property is an incidental amount of the total rents received or accrued under the lease sec_512 of the code includes in gross_income the rental income and the gain_or_loss from the sale of property if the property is debt-financed_property sec_514 of the code defines debt-financed_property as any property which is held to produce income and with respect to which there is an acquisition_indebtedness at any time during the taxable_year or disposed of during the taxable_year with respect to which there was an acquisition_indebtedness at any time during the 12-month_period ending with the date of such disposition if the property was sec_514 of the code defines acquisition the indebtedness incurred in indebtedness with respect to any debt-financed_property as the outstanding amount of acquiring or improving the property incurred before the acquisition or improvement of such property if such indebtedness would not have been incurred but for such acquisition or improvement and acquisition or improvement of such property if such indebtedness would not have been incurred but for such acquisition or improvement and the incurrence of such indebtedness was reasonably foreseeable at the time of such acquisition or improvement the indebtedness after the the indebtedness sec_514 a of the code provides that where the amount of indebtedness secured_by such lien or property is acquired subject_to a mortgage or other similar lien mortgage shall be considered as an indebtedness of the property acquired even if the organization did not assume or agree to pay the indebtedness sec_514 c b of the code excepts from the rule as set out subject_to bequest or devise in such case in sec_514 a a mortgage that is acquired by an organization by the indebtedness secured_by of the code property xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkkxxk the mortgage is not treated as acquisition_indebtedness during the ten years following the date of the acquisition this exception does not apply if the organization in order to acquire the equity in the property by bequest or devise assumes and agrees to pay the indebtedness incurred by the mortgage or if the organization makes any payment for the equity in the property owned by the decedent or the donor sec_1_514_c_-1 of the income_tax regulations the date of states that for purposes of sec_514 b acquisition is the date an organization receives the property sec_4941 of the code imposes a tax upon any act of self-dealing between a private_foundation and any of its disqualified persons as defined in sec_4946 sec_4941 of the code provides in pertinent part that the term self-dealing means any direct or indirect--- sale_or_exchange or leasing of property between a a private_foundation and a disqualified_person b lending of money or other extensions of credit between a private_foundation and a disqualified_person sec_4941 a of the code provides in pertinent part that the transfer of real or personal_property by disqualified_person to a private_foundation shall be treated as a sale_or_exchange mortgage or similar lien which the disqualified_person placed on the property within a 10-year period the property is subject_to if a a sec_53_4941_d_-1 of the foundation and similar excise_tax regulations defines the term self-dealing to mean any direct or indirect transaction described in sec_53_4941_d_-2 of the regulations it or a detriment to the private_foundation is immaterial whether the transaction results in a benefit for purposes of this section sec_4943 of the code imposes on the excess_business_holdings of any private_foundation in a business_enterprise a tax equal to five percent of such holdings sec_4943 of the code states that the term excess_business_holdings means with respect to the holdings of any private_foundation in any business_enterprise the amount of stock or other interest in the enterprise which the a person other than a foundation would have to dispose_of disqualified_person in order for the remaining holdings of the to xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkxxkkkk foundation in such enterprise to be permitted holdings sec_4943 a of the code provides in part that the permitted holdings of any private_foundation in an incorporated business_enterprise are percent of the voting_stock reduced by the percentage of-the voting_stock owned by all disqualified persons sec_4943 of the code provides that if there is a change in the holdings in a business_enterprise other than by purchase by the private_foundation which causes the foundation to have excess_business_holdings in such enterprise the interest of the foundation in such enterprise immediately after such change shall while held by the foundation be treated as held by a disqualified_person rather than by the foundation during the five-year period beginning on the date of such change in holdings sec_53_4943-3 of the regulations provides that the permitted holdings of enterprise which is not incorporated shall subject_to the provisions of subparagraphs paragraph be determined under the principles of paragraph b of this section a private_foundation in any business of this and sec_53_4943-3 of the regulations provides that of this section a partnership including a limited_partnership in the case of or joint_venture the terms profits interest and capital interest shall be substituted for voting_stock and nonvoting_stock respectively wherever those terms appear in paragraph b the interest in profits of such foundation or such disqualified_person shall be determined in the same manner as its distributive_share of partnership taxable_income determination of the distributive_share by the income or loss ratio and the regulations thereunder provision in the partnership_agreement the capital interest of such foundation or such disqualified_person in a partnership shall be determined on the basis of its interest in the assets of the partnership which would be distributable to such foundation or such disqualified_person upon its withdrawal from the partnership or upon liquidation of the partnership whichever is the greater see sec_704 in the absente of relating to the a example i of sec_53_4943-3 of the regulations assumes that if under sec_704 of the code distributive_share of percent and assuming that a and b are determined to have a 4-percent distributive_share each of a 20-percent profits interest in p taxable_income is determined to be and a and b hold an p taxable_income f holds f’s p xxxxxxxxxxxxxxxxxxxxxxxxxxxxxaxxxxxaxkxkk assuming that the provisions percent-8 percent percent do not apply the permitted holdings f in p are percent of the profits interest in p 8-percent profits interest in p of sec_4943 b of determined by subtracting the percentage of the profits percent from interest held by a and b percent holds a percentage of the profits interest in p the percentage permitted by sec_53_4943-3 the excess_business_holdings of interest in percent of the profits interest in p determined by subtracting the permitted holdings of percentage of the profit interest held by f percent-12 percent percent percent p equivalent to such excess percentage or in p are a percentage of the profit sec_12 percent from the f therefore in excess of f in p ie ie ie in p in p f sec_53_4943-10 of the regulations defines the term business_enterprise to include the active_conduct_of_a_trade_or_business including any activity which is regularly carried on for the production_of_income from the sale_of_goods or the performance of services and which constitutes an unrelated_trade_or_business under sec_513 sec_53_4943-10 of the regulations provides that for purposes of sec_4943 the term business_enterprise does not include a trade_or_business at least percent of the gross_income of which is derived from passive in the taxable_year in question less sources except that if a trade_or_business is from than percent of the income of passive sources the foundation may percent test substitute for the passive source gross_income in such taxable_year the average gross_income from passive sources for the taxable years immediately preceding the taxable_year in question or for such shorter period as the entity has been in existence to be considered a holding in a business_enterprise even if company is controlled by the foundation foundation is treated as owning its proportionate share of any interests in a business_enterprise held by such company under sec_4943 d thus stock in a passive holding_company is not the in applying this instead the sec_4946 of the code states in pertinent part that the term disqualified_person means with respect to private_foundation a person who is - a a a substantial_contributor to the foundation b a foundation_manager an owner of more than percent of- c total combined voting power of the a corporation or i xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkkxxkxk of the profits interest of unincorporated enterprise which is substantial_contributor to the foundation a partnership or a d certain members of the family of any individual described in sub-paragraph a b or c a corporation in which persons described in e own more than subparagraph a b c or percent of the total combined voting power d a partnership in which persons described in f own more than subparagraph a b c or percent of the total combined voting power d sec_4946 of the code provides in relevant part that for purposes of sec_4946 of an individual shall include his her spouse ancestors children grandchildren great-grandchildren and the spouses of children grandchildren great-grandchildren of the code the family rev c b rul holds that an act of self-dealing will not result from the exchange of securities between a private_foundation and a corporation in which a disqualified_person previously owned more than percent of its total combined voting power manager owned more than percent of the total combined voting power of the corporation years prior to the exchange and did not participate in planning the exchange_offer while in his capacity as foundation_manager the foundation_manager resigned the foundation’s foundation rationale was a substantial_contributor and disqualified_person he left his interests in pl pb pé6 pi p4 p2 p3 and p9 to you at the time of his death xk had a x to you p8 interest in partnerships pl in p3 and p9 p2 p5 p7 and p8 a interest and a interest in pé6 therefore sinc e and pg p9 p7 pé x owned in excess of of pi p2 p3 we conclude that during x’s lifetime p8 and p9 were disqualified persons to pé p2 p7 p3 p8 p5 ps pl you pursuant to sec_4946 of the code siblings are not included as members of sisters are not substantial contributors to you managers they are not disqualified persons the family further since x‘s two nor foundation xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkkakkx zz has made no contributions to you and it appears that z will not make any contributions to you in the future z has at least a partnership_interest in pl pi p8 meaning of sec_4946 of the code manager or a substantial_contributor to you is not a disqualified_person to you pe is not a member x's family within the and is not a foundation we conclude that and p9 since z p2 p3 p4 p5 sec_501 does not preclude you from receiving partnership interests from x that were owned by x during his lifetime pé p5 p2 p3 pt p4 the next issue is whether pl the partnership returns for pl p8 and p9 are business enterprises within the meaning of section of the code you furnished a copy of the form d partnership returns for pl pb and and p9 pg reflect that these partnerships only receive passive rental income however the partnership returns for p6é and p9 reflect that these partnerships receive income from trade and business activities p6é receives both passive rental income and income from trade and business activities the passive_income derived constitutes less than of p6's gross_income p9 only receives income from trade and business activities p3 pé p4 p5 p2 p3 ps p8 p2 p4 p7 consequently pl p2 p3 p4 ps p7 and p are not business enterprises within the meaning of sec_4943 of the code and you are not precluded from holding these interests however p6 and p9 are business enterprises within the meaning of sec_4943 of the code you have a interest in p6 and a interest in p9 since you will acquire your interests in pé and p9 by of the these interests will be treated as held by a disqualified bequest we conclude that pursuant to sec_4943 code person for 5-year periods from the dates you receive the interests in these two partnerships secondly the next question concerns whether you will have p2 p6é and p7 have debt financed debt financed income_property sec_514 b a mortgage is acquired by effect that if property subject_to either bequest or devise such indebtedness is not treated as acquisition_indebtedness during the 10-year period following the date_of_acquisition thus you will not be treated as having debt financed income for this 10-year period of the code provides in finally the last question concerns whether upon the you will engage in acts distribution of x's estate to you by y of self-dealing with disqualified persons xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxax in addition to receiving partnership interests in the partnerships y received x's creditor interest in mortgages i and iii as shown below and the liability of p6é in mortgage as shown below ii a mortgage in the amount of approximately is i dollar_figurex secured_by property owned by pé represented that there is mortgage of approximately dollar_figurex a current balance on this it a mortgage between p6 and x by which xk loaned ii dollar_figurex to pé in november of y iii dollar_figurex to p6 in november of y a mortgage between p6é and z by which z loaned if x was a disqualified_person to you during his lifetime pé was a disqualified_person since x had over a interest in x loaned money to p6 on which there are current balances p6 x had transferred his creditor interests in these loans due to you during his lifetime these loans would have constituted a disqualified_person and extensions of credit by you to pé would have been acts of self-dealing within the meaning of sec_4941 b of the regulations no longer held by x by y conclude that creditor interests in the two loans between x and p6 are a disqualified_person distributed by to you to you and any extensions of credit to p6 would not be acts of self-dealing within the meaning of sec_4941 b code however the partnership_interest in pé is is deceased and is presently held since x and will be held be you in the future therefore we at the time the partnership_interest in pé and qd -2 c of the code and sec_53 p6 will not be of the because z is not a disqualified_person to you p6's payments of the november y loan would not result in acts of self-dealing within the meaning of sec_4941 code qd b of the accordingly based upon the information submitted and the representations made we rule that the receipt and continued ownership by you of the partnership interests owned by x distributed by y to you will not jeopardize your a tax-exempt private_foundation exempt status as under sec_501 at his death and of the code pursuant to the exception in sec_514 c b of the code the mortgages encumbering the properties xxxxxxxxxxxxxxxxxxxkxxxkxxxkxxxxxxxxxxxrxk which are owned by some of the partnerships will not constitute acquisition_indebtedness as defined in sec_514 commencing on the date of the transfer of the partnership interests to you of the code for the ten-year period the receipt and continued ownership by you of the partnership interests owned by x at his death and distributed by y to you will not constitute acts of self-dealing between you and a disqualified_person under sec_4941 of the code of the code pursuant to sec_4943 receipt and continued ownership by you of the partnership interests in business enterprises owned by x at his death and distributed by to you will not constitute excess_business_holdings as defined in sec_4943 of the code for the five-year periods commencing on the dates of the transfer of the partnership interests to you the this ruling does not purport to rule under other provisions of chapter the internal_revenue_code of the code or any other section of this ruling letter is directed only to the organization that requested it may not be used or cited as precedent we are sending a copy of this ruling letter to your key district_director and to your attorney sec_6110 of the code provides that it sincerely yours signed he alg planet vee robert c harper manager exempt_organizations technical group