internal_revenue_service department of the treasury index numbers number release date washington dc person to contact telephone number refer reply to plr-121939-98 cc ebeo b2 date date legend trust plan qualified_plan fund dear this is in response to your letter dated date as amended by your letters of date and date requesting rulings on the application of employment_taxes to benefits under the trust and plan facts the qualified_plan is a multiemployer defined_benefit_plan under sec_401 of the internal_revenue_code the code established pursuant to the collective bargaining agreements cbas between various local unions and employers benefits under the qualified_plan are limited in accordance with sec_415 the trust has also been established pursuant to the cbas to provide make-up benefits to employees and their survivors retirees whose benefits under the qualified_plan are reduced as a result of sec_415 in accordance with the terms of the trust the trustees have adopted the plan a nonqualified_plan that describes the terms and conditions for receiving make-up benefits from the trust the individual trustees of the trust are also the trustees of the qualified_plan but this is not a legal requirement the fund is a holding account for contributions made by the employers under the cbas to pay for benefits under the qualified_plan and under the plan each employer makes monthly contributions to the fund based upon the hours_of_service performed during the preceding month by its employees who are covered by the cbas the contributions are not made for the benefit of the particular employees and are made without regard to whether any particular employee is or will be entitled to benefits under the plan an employee who is entitled to receive a benefit under the plan will receive the benefit regardless of whether any of the employers for whom the employee worked has made contributions to the fund thus it is very likely that an employer will make contributions that will be used to pay benefits to an employee who never performed services for the employer benefits under the plan are based in part on the amount by which a retiree’s qualified_plan benefits for the previous year were reduced as a result of sec_415 however the trustees have the authority to determine the amount of benefits actually paid taking into account the funding needs of the qualified_plan and the amount of funds available for the plan the trustees may decide not to authorize payment of the full amount of make-up benefits because there are insufficient funds available the trustees may authorize payment of make-up benefits for the current_year and prior years if benefits for prior years have not been paid the trustees may also authorize payments for amounts expected to be made up in future years and to cover the retiree’s share of any fica_taxes due on the benefits the trustee may also condition benefits on the retiree’s employment status in the industry covered by the cbas in no event will the amount of make-up benefits be greater than the total contributions made by the employers whose cbas authorize contributions to plan employers play no part in determining the amount of make-up benefits or which employees will be entitled to benefits under the plan once the amount of benefits is determined the trustees will direct the transfer of funds from the fund to the trust in the amount of the benefits to be allocated to accounts for particular retirees and to be paid out to the retirees as soon as possible thereafter no amounts will be accumulated within the trust under the terms of the trust employers cannot recover payments made to the trust nor do the employers have the power to control the use of the funds in the trust in addition the employers do not have administrative_powers with respect to the use of the funds in the trust law and analysis income_tax treatment because employers cannot recover payments made to the trust do not have the power to control the use of trust funds and do not have administrative_powers with respect to the use of the funds in the trust the trust is a nonexempt trust under sec_402 of the code and not a grantor_trust sec_402 of the code provides that the value of an employee’s interest in a nonexempt employees’ trust is included in the gross_income of the employee in accordance with sec_83 that is when the interest becomes substantially_vested sec_83 of the code provides rules for the taxation of property transferred in_connection_with_the_performance_of_services sec_83 provides that the excess of the fair_market_value of the property at the time the property becomes substantially_vested over the amount_paid for the property will be included as compensation in the gross_income of the person who performed the services in the taxable_year in which the property becomes substantially_vested property is substantially_vested when it is either transferable or not subject_to a substantial_risk_of_forfeiture sec_1_83-3 of the income_tax regulations provides that for purposes of sec_83 and the regulations thereunder the term property includes real and personal_property other than either money or an unfunded and unsecured promise to pay money or property in the future property also includes a beneficial_interest in assets including money that are transferred or set_aside from the claims of creditors of the transferor for example in a_trust or escrow account sec_1_83-3 of the regulations provides that property transferred to an employee in recognition of the performance of services is considered transferred in_connection_with_the_performance_of_services within the meaning of sec_83 thus a transfer of property is subject_to sec_83 whether such transfer is in respect of past present or future services payments from the fund to the trust that are allocated to retirees’ accounts are included in the gross incomes of the respective retirees because the retirees’ rights in their respective accounts are substantially_vested at the time of transfer within the meaning of sec_83 of the code employment_tax treatment tax under the federal_insurance_contributions_act fica consists of an employee share under sec_3101 and an employer share under sec_3111 in general the employer is required to withhold the employee share from wages when paid and to pay the employer share with respect to wages when paid fica_taxes include two components old-age survivors and disability insurance oasdi under sec_3101 and sec_3111 and hospital insurance medicare under sec_3101 and sec_3111 sec_3121 defines wages for fica purposes sec_3121 excludes from wages for oasdi purposes remuneration from the employer that exceeds the wage_base under section of the social_security act sec_3121 excludes from wages any payment to the survivor or estate of a former employee after the calendar_year in which the employee died sec_3121 provides special rules for applying fica to a nonqualified_deferred_compensation_plan under sec_3121 any amount deferred under such a plan is taken into account for fica purposes as of the later of when the services are performed or when there is no substantial_risk_of_forfeiture of the rights to the amount under sec_3121 any amount taken into account as wages and the income attributable thereto shall not thereafter be treated as fica wages sec_3121 defines nonqualified_deferred_compensation_plan as any plan or other arrangement for deferral of compensation other than a plan described in sec_3121 the plan is not any of the types of plans described sec_3121 regulations under sec_31_3121_v_2_-1 deal with the application of sec_3121 sec_31_3121_v_2_-1 provides that the regulations are generally effective date for periods before date an employer may rely on a reasonable good_faith interpretation of sec_3121 and an employer that has complied with sec_31_3121_v_2_-1 through f will be deemed to have determined fica tax_liability and satisfied fica withholding requirements in accordance with a reasonable good_faith interpretation of sec_3121 sec_31_3121_v_2_-1 describes the general timing rule that wages are taken into account for fica purposes when actually or constructively paid sec_31_3121_v_2_-1 describes the special fica timing rule for wages under a nonqualified_deferred_compensation_plan sec_31_3121_v_2_-1 provides that if remuneration under a nonqualified_deferred_compensation_plan does not constitute wages under sec_3121 the remuneration is not taken into account for fica purposes under either the general or special timing rule sec_31_3121_v_2_-1 provides rules for account balance plans and nonaccount balance plans under sec_31_3121_v_2_-1 an amount deferred under a nonaccount balance plan is not required to be taken into account as wages until the first date on which all of the amount deferred is reasonably ascertainable the resolution date and the amount to be taken into account as of the resolution date is determined in accordance with sec_31_3121_v_2_-1 an amount deferred is considered to be reasonably ascertainable on the first date on which the amount form and commencement_date of the benefit payments attributable to the deferred amounts are known and the only actuarial or other assumptions regarding future events or circumstances needed to determine the amount deferred are interest and mortality under sec_31_3121_v_2_-1 the amount deferred under a nonaccount balance plan is the present_value of the future payment or payments determined as of the date the amount deferred is required to be taken into account as wages under sec_31_3121_v_2_-1 thus if an amount deferred is taken into account as of the resolution date present_value is determined as of the resolution date under sec_31_3121_v_2_-1 present_value is the value as of the specified date of an amount or series of amounts due thereafter where each amount is multiplied by the probability that the condition or conditions on which payment is contingent will be satisfied and is discounted according to an assumed rate of interest to reflect the time_value_of_money that section includes further detail for determining present_value sec_31_3121_v_2_-1 provides a rule_of administrative convenience under which an employer may treat an amount deferred as required to be taken into account on any date that is later than but within the same calendar_year as the actual date on which the amount deferred is otherwise required to be taken into account under sec_31_3121_v_2_-1 sec_31_3121_v_2_-1 provides several alternative methods for withholding and depositing fica tax on wages subject_to sec_3121 sec_31 v - f describes the lag method under which an amount deferred plus interest may be treated as wages paid_by the employer and received by the employee for purposes of withholding and depositing fica tax on any date that is no later than three months after the date the amount is required to be taken into account in accordance with sec_31_3121_v_2_-1 sec_3402 of the code requires every employer making a payment of wages to withhold income_tax therefrom sec_3401 of the code defines wages for income_tax_withholding purposes as all remuneration for services performed by an employee for his employer including the cash_value of all remuneration including benefits paid in any medium other than cash with certain specified exceptions revrul_79_305 1979_2_cb_350 holds that the value of property transferred to an employee under sec_83 of the code constitutes wages for purposes of sec_3401 at the time the substantial_risk_of_forfeiture on the property lapses thus an amount transferred to a nonexempt employees’ trust that constitutes a property transfer under sec_83 is wages under sec_3401 sec_3401 provides that if the person for whom an individual performs or performed services as an employee does not have control of the payment of wages for those services the term employer except for purposes of the definition of wages means the person having control of the payment of wages in 419_us_43 1975_1_cb_329 the court considered the withholding responsibilities of a trustee in bankruptcy who had paid wages to the former employees of the bankrupt employer the court held that the trustee in bankruptcy was an employer under sec_3401 of the code because of his control_over the payment of wages and was thus responsible to withhold income taxes the court held also that the trustee was the employer for purposes of withholding fica from the wages under sec_3102 while noting that the fica withholding provisions do not define employer the court stated that the term is not to be given a narrower construction for fica withholding than for income_tax_withholding in in re armadillo corporation 561_f2d_1382 10th cir aff'g 410_fsupp_407 d colo the court considered the liability of a trustee in bankruptcy for the employer's portion of the fica tax under sec_3111 with respect to wage payments in addition to fica and income_tax_withholding the trustees argued that they were not liable for the employer's taxes because no employment relationships existed between the trustees and the recipients of the wages the court rejected that argument and applied the holding of otte to support the trustees' liability for the employer's taxes see also in re the laub baking company v united_states 642_f2d_196 6th cir based upon the information submitted and the applicable law we rule as follows the trust is the employer under sec_3401 for purposes of fica and income_tax_withholding with respect to benefits under the plan and trust however in applying sec_3121 a separate wage_base applies to each portion of the benefit that is attributable to services for a separate employer the amount of a retiree’s benefit under the plan becomes reasonably ascertainable for fica purposes when the amount is determined by the trustees of the trust and the present_value of that amount is generally to be taken into account under sec_3121 at that time subject however to the trust’s use of alternatives under the regulations such as the rule_of administrative convenience under sec_31_3121_v_2_-1 or the lag method under sec_31_3121_v_2_-1 benefits payable to an employee’s surviving_spouse or other beneficiary that become reasonably ascertainable after the close of the calendar_year in which the employee dies are excluded from fica wages under sec_3121 amounts transferred to the trust and allocated to individual accounts are wages under sec_3401 except as specifically ruled on above no opinion is expressed as to the federal tax consequences of the transaction described above under any other code provision 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 in accordance with the powers of attorney on file with this office a copy of this letter is being sent to each of your authorized representatives sincerely yours jerry e holmes chief branch office of the associate enclosure cc copy for purposes chief_counsel employee_benefits and exempt_organizations


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01-plr-129091-01 date date legend fund on date the internal_revenue_service issued ltr plr- to fund the purpose of this letter is to inform you that ltr is hereby revoked in accordance with section dollar_figure of revproc_2001_1 2001_1_irb_1 date ltr granted fund a partnership rulings that i fund’s method of making reverse sec_704 allocations is a reasonable method within the meaning of sec_1_704-3 of the income_tax regulations and ii fund may combine built-in gains and losses from qualified_financial_assets contributed to it with gains and losses from revaluations for purposes of performing aggregate allocations however ltr did not sufficiently identify the partners of fund or the assets contributed to fund accordingly ltr is revoked sec_7805 of the code provides that the secretary_of_the_treasury or_his_delegate may prescribe the extent if any to which any ruling including any judicial decision or any administrative determination other than by regulation relating to the internal revenue laws shall be applied without retroactive effect section dollar_figure of revproc_2001_1 provides that a letter_ruling found to be in error or not in accord with the current views of the internal_revenue_service may be revoked or modified unless it was part of a closing_agreement if a letter_ruling is revoked the revocation applies to all years open under the statute_of_limitations unless the service uses its discretionary authority under sec_7805 to limit the retroactive effect of the revocation section dollar_figure provides that except in rare or unusual circumstances the revocation or modification of a letter_ruling will not be applied retroactively to the taxpayer to whom the letter_ruling was issued provided that inter alia the taxpayer relied in good_faith on the letter_ruling and revoking or modifying the letter_ruling would be to the taxpayer’s detriment section dollar_figure prescribes the procedures for requesting relief under sec_7805 plr-129091-01 sec_6110 of the code provides that this ruling 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 the taxpayer s william p o’shea sincerely yours deputy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index nos 280g cc tege eb ec plr-164557-01 date legend taxpayer company a company b lender dollar_figurex date date date date date year this is in reply to a letter dated date which you submitted on behalf of taxpayer in which a ruling is requested that the vesting of certain shares upon a change_of control was not a payment in the nature of compensation_for purposes of sec_280g and sec_4999 of the internal_revenue_code the facts submitted are that on date taxpayer and others founders formed company a in a transaction described in sec_351 of the code and received substantially-vested company a shares sales of the shares were subject_to company a’s right_of_first_refusal at fair_market_value in a letter dated date lender agreed to lend founders dollar_figurex in consideration for among other things an option to purchase securities of company a to be issued in company a's next equity financing on date the next equity financing occurred and as required by lender certain restrictions previously not contemplated were placed on some of each founder's shares the result was that taxpayer's rights in those shares became substantially nonvested as that term is defined in sec_1_83-3 of the income_tax regulations as of date taxpayer owned shares of which were substantially_vested an additional of which were to become substantially_vested on date and the remaining shares of which were to become substantially_vested in thus as of date all of taxpayer's rights in his shares were to be substantially_vested a significant feature of the arrangement was that upon a change in control percent of each founder's substantially-nonvested shares would resultantly vest in january of year company a was sold to company b and founders exchanged their company a shares for substantially-vested and substantially- nonvested company b shares in the same proportion that they had held their company a shares the sale to company b was considered a change in control that triggered the vesting of percent of the founders' substantially-nonvested shares under sec_83 of the code if in_connection_with_the_performance_of_services property is transferred to any person other than the service_recipient the excess of the fair_market_value of the property determined without regard to any lapse_restriction on the first day that the transferee's rights in the property are not subject_to a substantial_risk_of_forfeiture over the amount_paid for the property is included in the service provider's gross_income for the taxable_year which includes that day stated differently property is not taxable under sec_83 until it is transferred to and substantially_vested in the service provider or beneficiary thereof until the property becomes substantially_vested the transferor of the property is considered to be the owner of the property and any income from the property received by the service provider or beneficiary thereof constitutes additional compensation to the service provider for the taxable_year in which it is received see sec_1_83-1 of the regulations a transfer of property occurs when a person acquires a beneficial_ownership interest in the property disregarding any lapse_restriction as defined in sec_1 i of the regulations see sec_1_83-3 the grant of an option to purchase property does not constitute a transfer of such property see sec_1_83-3 similarly no transfer may occur where property is transferred under conditions that require its return upon the happening of an event that is certain to occur such as the termination of employment for purposes of sec_83 of the code property is substantially nonvested when it is both subject_to a substantial_risk_of_forfeiture and is nontransferable within the meaning of sec_1_83-3 and d of the regulations respectively property is substantially_vested when it is either transferable or is not subject_to a substantial_risk_of_forfeiture see sec_1_83-3 once a service provider’s rights in property are substantially_vested and are thereby taxed under the rules of sec_83 any subsequent income or gain with respect to that property is not compensation income here it is represented that at the time that lender required the imposition of forfeiture provisions on the founders’ company a shares each founder’s rights in those shares were already transferred to and substantially-vested in them accordingly we conclude that the subsequent imposition of the forfeiture provisions on the founders’ company a shares must necessarily have been accomplished in the absence of a sec_83 transfer ie the shares were already owned for sec_83 purposes and that therefore those provisions had no effect for sec_83 purposes sec_280g of the code provides that no deduction will be allowed for any excess_parachute_payment sec_280g of the code defines the term excess_parachute_payment as an amount equal to the excess of any parachute_payment over the portion of the base_amount allocated to such payment sec_280g of the code defines the term parachute_payment as any payment in the nature of compensation to or for the benefit of a disqualified_individual if i such payment is contingent on a change i in the ownership or effective_control of the corporation or ii in the ownership of a substantial portion of the assets of the corporation and ii the aggregate present_value of the payments in the nature of compensation to or for the benefit of such individual which are contingent on such change equals or exceeds an amount equal to three times the base_amount sec_4999 of the code imposes on any person who receives an excess_parachute_payment a tax equal to percent of the amount of the payment applying the above law to the information submitted and based strictly on the facts as outlined above we conclude that the substantial vesting of taxpayer’s shares resulting from the change_of control was not a payment in the nature of compensation_for purposes of sec_280g and sec_4999 of the code because as of date taxpayer already owned those shares under the rules of sec_83 except as ruled above no opinion is expressed regarding the federal tax consequences of the transaction described above under any provision of the internal_revenue_code 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 a copy of this letter should be attached to taxpayers’ federal_income_tax return for the year in which the above rulings are granted a copy is enclosed for that purpose sincerely yours robert b misner acting chief executive compensation branch office of the division counsel associate chief_counsel tax exempt and government entities enclosures copy of this letter copy for purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp 2-plr-104659-00 date date legend parent purchaser target sellers date a date b date c company official outside tax professional business a state x country y country z dear this letter responds to your letter dated date requesting an extension of time on behalf of above referenced corporation under sec_301_9100-1 through of the procedure and administration regulations to file an election parent as the united_states_shareholder of the foreign purchasing_corporation is plr-104659-00 requesting the extension of time to file a sec_338 election under sec_338 of the internal_revenue_code and sec_1_338-1 and sec_1_338-1 of the income_tax regulations with respect to purchaser’s acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to the regulations under sec_338 are to the regulations as in effect on date a additional information was submitted in facsimiles dated june and date the material information submitted for consideration is summarized below parent is a state x corporation that has a tax_year ending on june 30th and uses the accrual_method of accounting purchaser a wholly owned subsidiary of parent is a country y corporation that has a tax_year ending on june 30th and uses the accrual_method of accounting target is a country z corporation that was wholly owned by sellers sellers are individuals who are citizens and residents of country z and it is represented that each of the sellers is not a united_states_shareholder as defined in sec_951 target does not have any subsidiaries parent purchaser and target are all engaged in business a prior to the below described acquisition sellers and target did not file u s income_tax returns and were not subject_to u s income_taxation further target was not a controlled_foreign_corporation within the meaning of sec_957 a passive_foreign_investment_company for which an election under sec_1295 was in effect a foreign_investment_company or a foreign_corporation the stock ownership of which is described in sec_552 or required under sec_1_6012-2 to file a u s income_tax return on date a purchaser acquired all of sellers’ stock of target pursuant to a stock purchase agreement for cash and a small amount of parent stock in a fully taxable transaction it is represented that purchaser was not related to sellers within the meaning of sec_338 and purchaser's acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 the election was due on date b however for various reasons the election was not filed on date c which is after the due_date for the election outside tax professional discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessments under sec_6501 has not expired for parent’s purchaser’s and target’s taxable_year s in which the acquisition occurred the taxable years in which the election should have been filed or any taxable_year s that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset purchases if the purchasing_corporation makes or is treated as having made a sec_338 election under sec_338 and the acquisition is a qualified_stock_purchase sec_338 defines a qualified_stock_purchase as any transaction or series of plr-104659-00 transactions in which stock meeting the requirements of sec_1504 of one corporation is acquired by another corporation by purchase during the month acquisition period sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 be attributed to the person acquiring such stock sec_1_338-1 provides that a purchasing_corporation makes a sec_338 election for target by filing a statement of sec_338 election on form_8023 in accordance with the instructions on the form the sec_338 election must be filed not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs a sec_338 election is irrevocable sec_1_338-1 provides that the united_states_shareholders as defined in sec_951 of a foreign purchasing_corporation that is a controlled_foreign_corporation as defined in sec_957 taking into account sec_953 may file a statement of sec_338 election on behalf of the purchasing_corporation if the purchasing_corporation is not required under sec_1_6012-2 to file a united_states income_tax return for its taxable_year that includes the acquisition_date under sec_301_9100-1 the commissioner has discretion to 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a plr-104659-00 in this case the time for filing the election is fixed by the regulations ie sec_1_338-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided parent shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by company official and outside tax professional explain the circumstances that resulted in the failure_to_file a valid election the information establishes that a tax professional was responsible for the election that parent relied on the tax professional to timely make the election and that the government will not be prejudiced if relief is granted see sec_301 b v based on the facts and information submitted including the representations made we conclude that parent has established that it acted reasonably and in good_faith in failing to timely file the election the requirements of 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_9100-1 until days from the date_of_issuance of this letter for parent to file the election with respect to purchaser’s acquisition of the stock of target as described above the above extension of time is conditioned on the filing within days of the issuance of this letter all applicable returns and amended returns necessary to report the transaction consistent with the election and the taxpayers' parent’s purchaser’s and sellers’ tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the district director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' tax_liability is lower sec_301_9100-3 parent should file the election in accordance with sec_1_338-1 and sec_1_338-1 that is a new election on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions on the election form a copy of this letter should be attached to the election form parent and target must file or amend if and as applicable its applicable returns to report the acquisition as a sec_338 transaction and to attach a copy of form_8023 and a copy of this letter see sec_1_338-1 and sec_1_338-1 no opinion is expressed as to whether purchaser's acquisition of the target stock qualifies as a qualified_stock_purchase whether the acquisition of the target plr-104659-00 stock qualifies for sec_338 treatment and if the acquisition of the target stock qualifies for sec_338 treatment as to the amount of gain_or_loss recognized if any by target on its deemed asset sale in addition 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_9100-1 we relied on certain statements and representations made by the taxpayer its employees and representatives however the district_director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours associate chief_counsel corporate by ken cohen acting chief branch


internal_revenue_service national_office technical_advice_memorandum date number release date third party communication none date of communication not applicable index uil no case-mis no 45o tam-136056-14 ------------------------------- taxpayer’s name taxpayer’s address taxpayer’s identification no year s involved date of conference ------------------------------ ------------------------------------------------------------------ ---------------- -------------- ------------------------ legend taxpayer sub x a agency a agency b association industry b c d issue s ------------------------------ ---------------------------------- --------------------- --- -------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------ ------------ ------ ------ --- is sub an eligible_agricultural_business in the trade_or_business of distributing specified agricultural chemicals under sec_45o of the internal_revenue_code tam-136056-14 may sub treat certain expenditures it incurs as qualified chemical security expenditures on the basis that a x is a facility that is used by its lessees to transport specified agricultural chemicals for purposes of sec_45o do certain product manufacturing expenditures incurred by sub in compliance with department of transportation dot and association rules regulations and specifications constitute qualified chemical security expenditures under sec_45o may sub treat certain expenditures incurred with respect to its xs that are not used to transport specified agricultural chemicals as qualified chemical security expenditures under sec_45o must the basis of assets be reduced by the amount allowable under sec_45o before a depreciation deduction is determined for the taxable_year for which the sec_45o credit is claimed conclusion s the determination of whether sub is an eligible_agricultural_business in the trade_or_business of distributing specified agricultural chemicals under sec_45o is inherently factual accordingly we decline to rule on this issue sub may not treat certain incurred expenditures as qualified chemical security expenditures on the basis that a x is a facility that is used by its lessees to transport specified agricultural chemicals for purposes of sec_45o product manufacturing expenditures incurred by sub in compliance with dot and association rules regulations and specifications do not constitute qualified chemical security expenditures under sec_45o sub may not treat expenditures incurred with respect to its xs that are not used to transport specified agricultural chemicals as qualified chemical security expenditures under sec_45o the basis of assets must be reduced by the amount allowable under sec_45o before a depreciation deduction is determined for each taxable_year for which the sec_45o credit is claimed facts sub a subsidiary of taxpayer is a x manufacturer that leases maintains services and repairs the xs that it owns chemical manufacturers make up approximately a of sub’s x leasing customer base tam-136056-14 sub manufactures leases maintains services and repairs xs in accordance with the applicable rules and requirements of dot agency a agency b and the association additionally sub collaborates with dot and agency a on several projects undertaken to enhance the safe and secure transportation of highly hazardous chemicals sub also coordinates with its lessees and others involved with the industry to ensure the safe transportation of chemicals and other hazardous materials under the terms of its full-service leases sub maintains services repairs and fulfills all testing requirements for its xs through its headquarters and network of repair shops if a x needs any of these services the lessee notifies sub and sub arranges to have the x delivered to one of sub’s repair shops sub’s xs are leased in accordance with the terms and conditions detailed in the lease the lease describes the general terms and agreements between sub and the lessee in general under the terms of the lease sub is responsible for maintaining and repairing its xs in accordance with all applicable rules and regulations sub also is responsible for ensuring that any maintenance or repair work is completed and inspected before the x can be used to transport chemicals again the lease requires the lessee to visually examine the x before shipping and provides that the lessee has sole responsibility for determining that each x is in the proper condition for loading and shipment it also provides that the lessee and the lessee’s shipper are responsible for securing any chemicals transported in the x the lease states that sub shall not be liable for any loss or damage to any commodity loaded or shipped in any x regardless of how such loss or damage may be caused it also makes the lessee liable for all damage to the x caused by the negligence or misconduct of lessee its agents or customers regardless of the cause finally the lease requires the lessee to indemnify sub against and hold sub harmless from all claims liabilities losses damages expenditures and expenses arising out of or resulting from the loss of or damage to such commodity or the loading unloading spillage leakage emission or discharge of the commodity in or from the x including without limitation any liability for injury death property damage or environmental pollution sub never has title to the goods shipped in its xs including specified agricultural chemicals in fact federal_law prohibits sub from accessing a x’s travel logs that specify the goods carried by that x on a daily basis therefore sub is unaware of within dot agency a promulgates safety standards for equipment used by the industry within dot agency b issues rules and regulations for xs association is a trade group that works on safety standards maintenance operations leasing servicing and repair rules for the industry tam-136056-14 what goods are being carried by a x and it cannot monitor or participate in the distribution of the goods being carried by a x taxpayer amended its b and c tax returns to claim credits under sec_45o for expenditures incurred during those taxable years for repair shops and certain x manufacturing expenditures on the basis that sub is in the trade_or_business of distributing specified agricultural chemicals and that it incurred expenditures to protect the perimeter of chemicals commodities hazardous substances and agricultural chemicals and for cameras and other security equipment law sec_38 provides a nonrefundable credit against income_tax after all other nonrefundable_credits are claimed for purposes of sec_38 sec_45o provides a percent credit for qualified chemical security expenditures paid_or_incurred after date and before date sec_45o provides that the amount of the sec_45o credit determined with respect to any facility for any taxable_year shall not exceed dollar_figure reduced by the aggregate amount of credits determined under sec_45o with respect to such facility for the five prior taxable years sec_45o limits the amount of the credit to dollar_figure million for any taxable_year sec_45o provides that the term qualified_chemical_security_expenditure means with respect to any eligible_agricultural_business for any taxable_year any amount_paid or incurred by such business during such taxable_year for-- employee security training and background checks limitation and prevention of access to controls of specified agricultural chemicals stored at the facility tagging locking tank valves and chemical additives to prevent the theft of specified agricultural chemicals or to render such chemicals unfit for illegal use protection of the perimeter of specified agricultural chemicals installation of security lighting cameras recording equipment and intrusion detection sensors implementation of measures to increase computer or computer network security conducting a security vulnerability assessment tam-136056-14 implementing a site security plan and such other measures for the protection of specified agricultural chemicals as the secretary may identify in regulation amounts described in the preceding sentence shall be taken into account only to the extent that such amounts are paid_or_incurred for the purpose of protecting specified agricultural chemicals sec_45o provides that the term eligible_agricultural_business means any person in the trade_or_business of selling agricultural products including specified agricultural chemicals at retail predominantly to farmers and ranchers or manufacturing formulating distributing or aerially applying specified agricultural chemicals the term specified_agricultural_chemical is defined under sec_45o to mean-- any fertilizer commonly used in agricultural operations which is listed under-- a sec_302 of the emergency planning and community right-to-know act of b sec_101 of part of title code_of_federal_regulations or c part or of title code_of_federal_regulations and any pesticide as defined in sec_2 of the federal insecticide fungicide and rodenticide act including all active and inert ingredients thereof which is customarily used on crops grown for food feed or fiber sec_280c provides that no deduction shall be allowed for that portion of the expenses otherwise allowable as a deduction taken into account in determining the credit under sec_45o for the taxable_year which is equal to the amount of the credit determined for such taxable_year under sec_45o analysis issue is sub an eligible_agricultural_business in the trade_or_business of distributing specified agricultural chemicals under sec_45o the issue of whether sub is an eligible_agricultural_business in the trade_or_business of distributing specified agricultural chemicals under sec_45o is inherently factual accordingly we decline to rule on this issue tam-136056-14 issue may sub treat certain expenditures it incurs as qualified chemical security expenditures on the basis that a x is a facility that is used by its lessees to transport specified agricultural chemicals for purposes of sec_45o sec_45o provides a limit on the amount of credit that may be claimed with respect to any facility for any taxable_year thus the sec_45o credit is accrued on a per facility basis although the service has not issued guidance concerning what constitutes a facility for purposes of sec_45o specifically the service has issued guidance regarding what constitutes a facility for purposes of other credits under sec_38 that we believe may be applied to sec_45o in revrul_94_31 the service interpreted the term facility in the context of a wind farm for purposes of the sec_45 credit the revenue_ruling concludes that a wind turbine together with its tower and supporting pad comprise the property on a wind farm necessary for the production of electricity from wind_energy the revenue_ruling states that each wind turbine on the wind farm could be separately operated and metered and could begin producing electricity when it is mounted atop a tower thus the revenue_ruling concludes that for purposes of a wind farm the term facility means the wind turbine together with the tower on which the wind turbine is mounted and the pad on which the tower is situated under this revenue_ruling for purposes of the sec_38 credit a facility is a unit of integrated property that can function independently in notice_2008_60 the service provided guidelines for what constitutes an open-loop_biomass facility for purposes of sec_45 the notice states that for purposes of sec_45 an open-loop_biomass facility is a power plant consisting of all components necessary for the production of electricity from open-loop_biomass and if applicable other energy sources the notice concludes that each power plant that is operated as a separate integrated unit is treated as a facility for purposes of sec_45 similarly to revrul_94_31 notice_2008_60 treats each integrated unit that is capable of operating independently in a specific capacity as a facility most recently in notice_2013_29 the service interpreted the term facility for purposes of sec_45 and sec_48 the notice provides that a facility within the meaning of sec_45 generally includes all components of property that are functionally interdependent it also states that e ach such facility can be separately operated and metered and can revrul_94_31 1994_1_cb_16 notice_2008_60 2008_2_cb_178 id at sec_3 id notice_2013_29 2013_1_cb_1085 as clarified by notice_2013_60 2013_2_cb_431 as clarified and modified by notice_2014_46 2014_36_irb_520 as updated by notice_2015_25 2015_13_irb_814 id at sec_4 tam-136056-14 begin producing electricity separately therefore this notice confirms that a facility is an integrated unit that may be operating independently in a specific capacity similar to sec_45o the sec_45 and sec_48 credits are part of the general_business_credit under sec_38 therefore rules regarding what constitutes a facility for purposes of sec_45 and sec_48 should inform what constitutes a facility for purposes of sec_45o in this case sub leases xs to its customers for the customers to transport goods a x cannot transport goods on its own while it may be used to hold goods it cannot locomote by itself and therefore cannot accomplish the transportation of goods independently therefore a x is not an integrated unit capable of operating independently within the meaning of the term facility for purposes of the sec_38 credit including for purposes of sec_45o therefore it is not a facility for purposes of the sec_45o credit finally tax_credits are a matter of legislative grace they are allowed only as clearly provided by statute and the applicable statute is narrow in this regarddollar_figure since a narrow interpretation of the statute is required we believe that categorizing a x as a facility is too far reaching under a strict interpretation of this statute and the commonly used meaning of the term facility therefore it is not reasonable to consider each x as a separate facility under sec_45o since to do so would expand the commonly used definition of a facility and consequently expand the scope of the statute therefore we conclude that sub may not treat certain expenditures incurred as qualified chemical security expenditures under sec_45o because a x is not a facility for purposes of sec_45o issue do certain product manufacturing expenditures incurred by sub in compliance with dot and association rules regulations and specifications constitute qualified chemical security expenditures under sec_45o sec_45o provides that qualified security expenditures shall be taken into account only to the extent that such amounts are paid_or_incurred for the purpose of protecting specified agricultural chemicals emphasis added the bluebook provides the following explanation for the enactment of sec_45o the congress believes that a security tax_credit would help the agricultural industry to properly safeguard agricultural pesticides and fertilizers from the threat of terrorists drug dealers and other criminals these safeguards are necessary to help alleviate a heightened concern as to the vulnerability of chemical storage facilities this credit will help ease the substantial increase in production_costs faced by agriculture related to installing improved security measures that will better protect the american public from the potential threat of terrorism or other illegal activitiesdollar_figure id citing revrul_94_31 1994_1_cb_16 311_us_46 see also 292_us_435 u s v mcferrin stinson 570_f3d_672 5th cir staff of the joint_committee on taxation general explanation of tax legislation enacted in the 110th tam-136056-14 sub manufactures its inventory of xs in compliance with dot and the association’s applicable rules regulations and specifications sub did not incur a substantial increase in production_costs to produce its xs because sub was already required to manufacture the x’s to certain standards in order to lease its xs for operation in the united_states therefore the expenditures that sub incurred to manufacture its xs were not incurred for the specific purpose of protecting specified agricultural chemicals based on the explicit statutory language of sec_45o and the relevant bluebook language we believe that only substantially increased expenditures_for installing improved security measures incurred to protect specified agricultural chemicals and not for other purposes are qualified chemical security expenditures_for purposes of the sec_45o credit issue may sub treat certain expenditures incurred with respect to its xs that are not used to transport specified agricultural chemicals as qualified chemical security expenditures under sec_45o sec_45o specifically identifies the chemicals that a taxpayer must incur costs to protect to be eligible for the credit in no case would sub be entitled to treat certain expenditures incurred with respect to its entire inventory of xs as qualified chemical security expenditures under sec_45o because d of sub’s xs are not used to transport chemicals including specified agricultural chemicals as noted above only a of sub’s customers are chemical manufacturers accordingly only the xs leased by a of sub’s customers are used to transport chemicals including in some cases specified agricultural chemicals based on the explicit statutory language of sec_45o and the relevant bluebook language we interpret the statute to mean that only substantially increased expenditures incurred for protecting agricultural chemicals and not for other purposes are qualified chemical security expenditures_for purposes of the sec_45o credit sub’s xs are not used exclusively to transport specified agricultural chemicals in fact d of sub’s customers are not chemical manufacturers and are not in the trade_or_business of distributing specified agricultural chemicals accordingly the expenditures incurred by sub are not specifically incurred for protecting specified agricultural chemicals and are not qualified chemical security expenditures eligible under sec_45o therefore we conclude that sub cannot claim the sec_45o credit for certain expenditures incurred with respect to xs that are not used to transport specified agricultural chemicals congress p date emphasis added tam-136056-14 issue must the basis of assets be reduced by the amount allowable under sec_45o before a depreciation deduction is determined for the taxable_year for which the sec_45o credit is claimed sec_280c addresses the tax treatment of certain expenses for which credits are allowable the food conservation and energy act of amended this section by inserting new language at sec_280c regarding the sec_45o creditdollar_figure sec_280c credit for security of agricultural chemicals provides that n o deduction shall be allowed for that portion of the expenses otherwise allowable as a deduction taken into account in determining the credit under sec_45o for the taxable_year which is equal to the amount of the credit determined for such taxable_year under sec_45o the bluebook also includes a statement that for purposes of sec_45o t he taxpayer’s deductible expense is reduced by the amount of the credit claimed language found in other portions of sec_280c unlike that found in sec_280c provides a separate rule for taxpayers who capitalize rather than deduct expenses in those cases if the amount of the credit allowable for the taxable_year exceeds the amount allowable as a deduction for the taxable_year for the qualified expenses the amount chargeable to capital_account for the taxable_year for such expenses shall be reduced by the amount of such excess while the language relating to capitalization is absent from sec_280c the express language of sec_45o prevents a taxpayer from taking a deduction for expenses that are taken into account in determining the sec_45o credit therefore we conclude that the basis of assets must be reduced by the amount allowable under sec_45o before a depreciation deduction is determined for each taxable_year for which the sec_45o credit is claimed caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 provides that it may not be used or cited as precedent publaw_110_246 122_stat_1664 hr date act this amendment was made by section c of the act entitled denial of double benefit 14staff of the joint_committee on taxation general explanation of tax legislation enacted in the 110th congress p date sec_280c credit for qualified_clinical_testing_expenses for certain drugs sec_280c qualifying_therapeutic_discovery_project_credit


internal_revenue_service number release date index numbers ------------------------------------------------------ ------------------------------------------------- ---------------------- ---------------------------------------------------------- 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 b01 plr-140092-12 date february legend x ----------------------------------------------------- ------------------------------------------------------ d country --------------------------- ----------------------- dear ------------- this is in response 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 election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes law and analysis 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 an eligible_entity with at least two members can elect to be classified as either an association or a partnership plr-140092-12 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 if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with two or more members having limited_liability may elect to be treated as a partnership pursuant to the rules of sec_301 c sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts 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 make an election to be treated as a disregarded_entity for federal tax purposes effective d x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form 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 plr-140092-12 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely curt g wilson associate chief_counsel passthroughs special industries by _____________________________ david r haglund branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court estate of beatrice kelly deceased betty k wyatt william t kelly claudia k cantrell executors petitioner v commissioner of internal revenue respondent docket no filed date d transferred assets to four limited_partnerships and retained over dollar_figure in her own name d gave limited_partnership interests in three of the four partnerships to her children and their heirs a corporate general_partner managed and paid the expenses of the limited_partnerships for which the general_partner received a management fee r determined that pursuant to sec_2036 d retained an interest in the transferred assets the transfers were not bona_fide sales for adequate_consideration and the value of the transferred assets is includable in d’s gross_estate held d’s transfer of assets to the limited_partnerships was a bona_fide sale for full and adequate_consideration and thus the value of the transferred assets is not includable in d’s gross_estate pursuant to sec_2036 held further the management fee paid to the general_partner was not a retention of income by d and thus the value of the gifted partnership interests is not includable in d’s gross_estate vivian d hoard for petitioner john t arthur for respondent memorandum findings_of_fact and opinion foley judge the issue for decision is whether the value of assets is includable in decedent’s gross_estate pursuant to sec_2036 findings_of_fact in beatrice kelly decedent and her husband opened a quarry in rabun gap georgia decedent and her husband had four children william bill kelly betty wyatt claudia cantrell and roy kelly bill betty and claudia collectively the children each worked in the family business throughout their life 1unless otherwise indicated all section references are to the internal_revenue_code in effect on the date of decedent’s death and all rule references are to the tax_court rules_of_practice and procedure roy had down syndrome could not care for himself and lived with decedent decedent’s husband ran the family business and decedent had little if any business and investment experience on date decedent’s husband died and decedent inherited his estate which consisted of two quarries real_property promissory notes and stock ie big_number shares of vulcan materials co shares of liberty bancorp of georgia inc and shares of northeast georgia development corp on date decedent executed her last will and testament decedent’s will which included specific bequests of real_estate stocks and bonds and personal items the residuary clause provided that the remainder of her estate be distributed equally among her children after her husband’s death the children helped decedent manage the family business betty managed the books until claudia could move closer to decedent and take over the day-to-day operations of the business bill inspected and maintained the quarries and rental properties the children also helped decedent manage her financial investments and acquire significantly more stock decedent’s health began to decline and she became increasingly neglectful often forgetting whether she had performed routine matters and taken care of roy’s basic needs in a doctor diagnosed her with alzheimer’s disease and as her illness and forgetfulness progressed she became abusive leading bill pursuant to an agreement by the children to apply for appointment as and become roy’s guardian on date without knowing the contents of decedent’s will the children signed a settlement agreement pursuant to which decedent’s estate would be distributed equally among themselves on date the children filed a petition for the appointment of guardian for decedent with the rabun county probate_court probate_court a doctor evaluated decedent and reported the findings to the probate_court on date the probate_court found decedent to be an incapacitated adult by reason of mental_disability on date the probate_court issued a final order appointing the children as decedent’s coguardians by date decedent was admitted to an alzheimer’s unit in a nursing home and in july of that year roy died in the summer of the children received decedent’s will and discovered that primarily because of uneven asset appreciation and acquisition decedent’s will did not divide her estate equally among the children for example decedent’s will bequeathed all stock to bill and claudia equally with none going to betty between the signing of decedent’s will in and decedent converted nonstock assets into over dollar_figure in stock to address this matter on date the children signed a second settlement agreement in which they agreed to honor all specific bequests to nonsignatories of the agreement and to distribute the remainder among the children in equal shares after moving decedent to the nursing home the children agreed that betty would purchase decedent’s house in order to sell decedent’s house the children as coguardians were required to petition the probate_court and obtain the approval of decedent’s guardian ad litem furthermore the children were required to obtain the probate court’s approval with respect to all matters relating to the routine maintenance and upkeep of decedent’s property including stock transactions real_property improvements and the purchase and sale of assets in decedent’s property consisted of bank accounts common_stock bonds and real_estate the stocks consisted of big_number publicly traded shares of vulcan materials co big_number publicly traded shares of regions financial corp big_number privately held shares of the gordon bank and big_number privately held shares of liberty bancorp of georgia inc the real_estate consisted of parcels which included two rock quarries a subdivision with rental homes therein a post office and a rural property with a large waterfall and picnic facilities waterfall property decedent’s concerns about her potential liability were heightened when a dump truck going to decedent’s quarry was involved in a collision resulting in significant injuries the dump truck driver’s insurance_company unsuccessfully attempted to hold decedent liable because of the public traffic through the post office subdivision and waterfall properties decedent also had potential liability exposure with respect to those properties the discovery of bullets in a campfire at the waterfall property reinforced decedent’s concerns the children wanted to ensure the settlement agreements were legally enforceable and took the settlement agreements to albert english an attorney who had assisted them with the guardianship proceedings mr english informed the children that they could effectuate the settlement agreements after decedent’s death by executing disclaimers but recommended that they discuss the matter with woodrow stewart an estate_planning attorney mr stewart pointed out that if one of the children predeceased decedent the child’s heirs’ refusal to sign disclaimers could result in an unpredictable distribution of the estate’s assets because the children believed that their heirs would not disclaim they hired mr stewart to assist them in equalizing decedent’s estate mr stewart discussed with the children the nature of decedent’s assets the difficulties of managing decedent’s assets as guardians and the desire that each of the children share equally in decedent’s estate the children further informed mr stewart about dangerous incidents and special circumstances on decedent’s property ie public access dynamite blasting rock throwing and bullets discovered at a campsite at the time she hired mr stewart decedent and the children had not considered tax consequences mr stewart prepared a plan that called for the creation of four limited_partnerships and a corporation which would serve as general_partner of the limited_partnerships collectively the plan decedent would create three limited_partnerships ie one for the benefit of each of the children transfer equally valued assets to each of these partnerships transfer the quarries to a fourth partnership and retain in her own name over dollar_figure in liquid_assets including certificates of deposit and investment accounts the real_property listed as specific bequests to the children in decedent’s will would be contributed to the partnerships by contributing property that would otherwise be the subject of unequal specific bequests to the partnerships the specific bequests would be converted to equal devises of partnership interests passing pursuant to the residuary clause in decedent’s will the children as coguardians on date petitioned the superior court of rabun county state of georgia superior court for approval of the plan superior court petition see ga code ann sec the superior court petition provided in part the will of mrs kelly does not divide the estate equally among the children the children of mrs kelly have entered into a written_agreement whereby the children have agreed to divide the estate equally among themselves after the death of mrs kelly under the estate plan proposed herein equalizing the allocation of inherited assets can be achieved in a simple way without the necessity of a complex series of disclaimers and would reduce the risk of potential conflict and disagreement among the heirs pursuant to an executed partnership_agreement of each of the limited_partnerships the general_partner is entitled to a special_allocation of the net_income of the limited_partnerships each year in order to pay the operating_expenses of the limited_partnerships and a reasonable management charge for the general partner’s management duties and responsibilities because the ward will own all the outstanding_stock in the corporation that will serve as the general_partner the special_allocation of net_income for the reasonable management charge will insure that the ward will be provided with adequate income to cover the ward’s probable expenses for support care and maintenance for the remainder of the ward’s lifetime in the standard of living to which the ward has become accustomed specifically the corporation that will serve as the general_partner will receive from each limited_partnership a percentage of the net asset value of each limited_partnership as determined on december of each year the superior court petition included a statement that the proposed plan would result in estate_tax savings of dollar_figure on date the superior court held a hearing and entered an order approving the plan a guardian ad litem represented decedent at the hearing the superior court found decedent was incompetent decedent’s incompetency was expected to continue for her lifetime implementation of the plan allowed for continued support of decedent during her lifetime a competent reasonable person in decedent’s circumstances would likely implement the plan to avoid undesirable tax consequences and there was no evidence that decedent if able would not make the transfers set forth in the plan on date as the first step in implementing the plan decedent2 incorporated kwc management inc kwc the children were elected officers and directors of kwc and decedent owned all kwc shares on date decedent executed partnership agreements relating to betty k lp created for the benefit of betty and her family wtk lp created for the benefit of bill and his family and claudia j lp created for the benefit of claudia and her family collectively family limited_partnerships following negotiations as to which partnership would receive each piece of real_property decedent on date contributed real_property to the family limited_partnerships in exchange for a limited_partner interest in each of the family limited_partnerships on date decedent executed a partnership_agreement for kel-tex lp and on date contributed both quarries to kel-tex lp in exchange for a limited_partnership_interest 2hereinafter decedent acted by and through her children as coguardians kwc became the general_partner and owner of all four partnerships each of the partnership agreements provided for an allocation of net_income management fee to be paid to kwc the general_partner in return kwc was responsible to pay all operating_expenses of the partnership except interest_expense including but not limited to organizational_expenses legal fees investment fees management charges accounting fees and other operating costs manage all of the affairs and business of the partnership and make all investment decisions of the partnership the agreements further provided that the management fee be reviewed yearly and adjusted in a reasonable amount to take into account variations in operating_expenses and time necessary to complete the general partner’s duties on date decedent contributed various stocks in equal shares to the family limited_partnerships on date date and date decedent gave partnership interests to the children and their descendants decedent reported the gifts of partnership interests on form sec_709 united_states gift and generation-skipping_transfer_tax return relating to and after creation of kwc and the family limited_partnerships all of decedent’s personal expenses were paid_by funds from her guardianship account the children sought to determine a reasonable management fee they delineated a job description providing that the primary duty and responsibility of kwc’s management was to o versee and undertake all responsibility for the proper management of the limited_partnerships the duties included communicating with directors recommending ways to maximize efficiency and productivity inspecting properties overseeing property maintenance managing rental properties maintaining records ensuring taxes are filed and paid and performing other related duties to determine an appropriate management fee the children consulted banks’ trust departments ie providing them with the aforementioned job description and spoke with business leaders in the community the children found that management fees ranged from to of the partnerships’ net asset value rabun county bank quoted a fee of considering the quoted fees job description and anticipated income and expenses of the family limited_partnerships the children decided on a fee for and a fee for kwc used the management fee to pay its expenses including taxes insurance salaries maintenance professional fees and other administrative costs each of the children provided services to kwc bill performed maintenance responsibilities eg lawn care road and roof repair and painting and hired professionals when necessary claudia prepared financial reports and compiled information for the certified_public_accountant betty took care of day-to- day duties such as collecting the mail depositing and writing checks interacting with lawyers banks and insurance agents and responding to correspondence the children also organized family work days to perform maintenance such as floor repair of a rental home and thorough cleaning of the waterfall property collectively they worked to hours per week to manage and maintain the properties met regularly as officers and directors of kwc and kept minutes of those meetings at the meetings the children discussed inspections of properties determined needed repairs approved budgets examined maintenance estimates and reported the financial status of all entities for their work kwc paid each of the children an annual salary of dollar_figure on date decedent a resident of georgia died decedent’s will was probated in georgia and the children were appointed coexecutors of decedent’s estate at her death decedent owned none of betty k lp of claudia j lp of wtk lp of kel-tex lp and all big_number shares of kwc on date the children and their spouses signed a third settlement agreement which further equalized the children’s shares of decedent’s estate on date the children as coexecutors timely filed decedent’s form_706 united_states estate and generation-skipping_transfer_tax return on that return the estate reported decedent’s ownership interests in claudia j lp wtk lp kel-tex lp and kwc in a notice_of_deficiency issued to the estate dated date respondent determined a dollar_figure deficiency the deficiency was based on respondent’s determination that the value of the assets contributed to the partnerships is includable in decedent’s gross_estate opinion decedent transferred property to the limited_partnerships and thereafter transferred partnership interests to her heirs we analyze each transfer in turn i transfer of assets to partnerships a gross_estate does not include the value of property transferred for full_and_adequate_consideration_in_money_or_money's_worth sec_2036 decedent’s transfer sec_3 of assets to limited_partnerships meet this bona_fide sale exception because decedent had legitimate and significant nontax reasons for creating the limited_partnerships and received partnership interests proportionate to the value of 3each of decedent’s contributions to the partnerships is a transfer for purposes of sec_2036 see 87_tc_653 the property transferred 124_tc_95 as evidenced by the three settlement agreements two of which were signed long before the superior court petition was drafted decedent’s primary concern was to ensure the equal distribution of decedent’s estate thereby avoiding litigation in addition decedent was legitimately concerned about the effective management and potential liability relating to decedent’s assets probate_court approval was required for basic day-to-day management decisions by contributing the quarries and other properties to partnerships decedent limited her liability and reduced her management responsibilities through kwc the children were able to manage the properties as individuals rather than as coguardians decedent’s ownership of two quarries the waterfall property the post office and multiple rental homes required active_management and would lead any prudent person to manage these assets in the form of an entity 4pursuant to sec_7491 the estate has the burden_of_proof unless it introduces credible_evidence relating to the issue that would shift the burden to respondent see rule a our conclusions however are based on a preponderance_of_the_evidence and thus the allocation of the burden_of_proof is immaterial see 110_tc_189 ndollar_figure the superior court petition references estate_tax savings upon implementation of the plan but there is no evidence that tax savings motivated decedent prior to hiring mr stewart the children had not considered tax ramifications decedent’s primary motives were to ensure effective property management and equal distributions among the children--not minimization of tax_liability decedent had valid nontax reasons to contribute property to the limited_partnerships furthermore decedent received partnership interests equal in value to the assets she contributed to the limited_partnerships estate of bongard v commissioner t c pincite as stipulated by respondent decedent’s contributions were properly credited to her capital_account accordingly the value of the property transferred to the limited_partnerships is not pursuant to sec_2036 includable in decedent’s gross_estate ii transfer of family limited_partnership interests to heirs sec_2036 provides that a decedent’s gross_estate includes the value of all property interests transferred other than for full and adequate_consideration in money or money’s worth by a decedent during her life where she has retained for life the possession or enjoyment of the property or the right to the income from the property retained enjoyment may exist where there is an express or implied understanding at the time of the transfer that the transferor will retain the economic benefits of the property 73_tc_82 the existence of an implied agreement is a question of fact that can be inferred from the circumstances surrounding a transfer of property and the subsequent use of the transferred property estate of bongard v commissioner t c pincite the retention of a property’s income stream after the property has been transferred is very clear evidence that the decedent did indeed retain ‘possession or enjoyment ’ 62_tc_861 citing 52_tc_305 decedent’s transfers of partnership assets to her heirs do not qualify for the bona_fide sale exception because the transfers were gifts respondent contends that the parties had an implied agreement that decedent would continue to enjoy the income from the family limited_partnerships we disagree decedent respected the partnerships and kwc as separate and distinct legal entities observed partnership formalities and retained sufficient assets for personal needs cf 114_tc_144 holding that implied agreement existed where decedent used partnership’s checking account as his own lived rent free in a home owned by the partnership and maintained the same relationship with assets before and their transfer 86_tc_785 holding that implied agreement existed where decedent transferred substantially_all assets to trusts estate of hendry v commissioner t c pincite holding that implied agreement existed where decedent received distributions when and if requested decedent paid personal expenses with funds from her guardianship account and the management fee was not used to pay these expenses respondent also contends that the management fee the family limited_partnerships paid is an express retention of income by decedent in the partnership interests and that the value of those interests are therefore includable in decedent’s gross_estate pursuant to sec_2036 respondent fails to cite and we are unable to find any authority for respondent’s contention respondent relies on the following language in the superior court petition because the ward will own all the outstanding_stock in the corporation that will serve as the general_partner the special_allocation of net_income for the reasonable management charge will insure that the ward will be provided with adequate income to cover the ward’s probable expenses for support care and maintenance for the remainder of the ward’s lifetime in the standard of living to which the ward has become accustomed if kwc’s management fee exceeded expenses and a distribution was made decedent as owner of kwc could have indeed used the distribution for her support and maintenance the aforementioned language is merely an expression of financial benefits decedent could receive it is not however a legally binding directive to provide her support and maintenance to do so would be inconsistent with the partnership agreements and violate the fiduciary duties imposed upon the general_partner general partners owe fiduciary duties to the limited partners which the limited partners are entitled to assert hendry v wells s e 2d ga ct app this fiduciary duty and the contractual terms of the partnership agreements restricted decedent from requiring that the partnerships pay anything more than a reasonable fee to the general_partner see 68_tc_919 aff’d 588_f2d_368 2d cir the management fee the family limited_partnerships paid kwc was reasonable indeed after evaluating both the income and expenses of the entities and fees charged by trust departments the children selected fees that were lower than the industry standard the creation of kwc changed decedent’s rights to and relationships with the contributed assets decedent retained ownership of kwc which pursuant to the partnership agreements received a management fee for serving as general_partner of the family limited_partnerships in return kwc provided management and paid expenses including taxes insurance salaries professional fees repairs and maintenance the general_partner provided a service ie management to the partnerships for which the partnerships paid a reasonable management fee the children in their role as officers and directors performed an analysis to determine the appropriate fee and held regular officer director meetings to address the significant active_management the partnerships required cf 471_f3d_848 8th cir stating that the lack of a management_contract the failure to document management hours the manner in which payments were made and the failure of decedent to retain adequate assets in her own name supported rejection of petitioner’s contention that payments to decedent’s living_trust were a management fee aff’g tcmemo_2005_102 and tcmemo_2005_103 furthermore not only did decedent have a bona_fide purpose for creating the partnerships decedent had a bona_fide purpose for creating kwc to manage the partnerships decedent’s health prevented her from managing the partnership property and thus an entity to act as general_partner was a natural choice the children served as officers and directors of kwc successfully managed the family business and avoided potentially divisive intrafamily litigation upon decedent’s passing decedent owned of kwc the value of which was appropriately included in her gross_estate the payment of the management fee by each of the family limited_partnerships to kwc however is not pursuant to sec_2036 a retention of income which would cause inclusion in decedent’s gross_estate of the value of the family limited_partnership interests decedent did not retain an income stream from the partnership interests to the contrary decedent’s implementation of the plan changed decedent’s rights to and relationship with the transferred property in the resulting entity decedent indeed had an income_interest but this interest does not trigger the applicability of sec_2036 the partnership agreements which were respected by the parties called for a payment of income to kwc not to decedent in essence respondent is requesting that the court disregard kwc’s existence the general partner’s fiduciary duty and the partnership agreements we will not do so decedent did not retain an interest in the transferred family limited_partnership interests accordingly the value of these family limited_partnership interests will not be included in decedent’s gross_estate contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered for petitioner