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 b03 plr-117312-06 date date ------------------------------------------------ ----------------------------------------------------------------------- legend legend x -------------------------------------------------------------------- ------------------------------------------------------------------------ trusta agreement ------------------------------------------------------------------------------------------------------------------- trusta1 ----------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- trusta2 ------------------------------------------------------------------------ trusta3 ------------------------------------------------------------------------ trusta4 ---------------------------------------------------------------- trusta5 ----------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- trustb agreement ------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ --------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- plr-117312-06 trustb1 -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- -------------------------------------------------------------------- trustb2 ------------------------------------------------------------------------ -------------------------------------------------------------------- trustb3 ------------------------------------------------------------------------ -------------------------------------------------------------------- trustb4 ------------------------------------------------------------------------- -------------------------------------------------------------------- trustb5 ------ ---------------------------------------------------------------------- -------------------------------------------------------------------- trustb6 ------------------------------------------------------------------------------ --------------------------------------------------------------------- a ---------------------------------------------------------------------- b ---------------------------------------------------------------------- state1 state2 date1 date2 date3 date4 ----------------------------- -------------------------- -------------------------- -------------------------- -------------------------- ------------------------ ------------------ ------------------ ----------------------------------------------------------------------- plr-117312-06 date5 dear -------------------- -------------------------- this letter responds to your letter dated date and subsequent correspondence requesting a ruling on behalf of x that pursuant to sec_1362 of the internal_revenue_code certain trusts qualify as shareholders of an s_corporation the information submitted states that x was incorporated in state1 on date2 x facts made a timely s_corporation_election effective date2 on date1 a and b united_states citizens and husband and wife executed trusta agreement under state2 law the trusta agreement created sub-trusts trusta1 trusta2 trusta3 trusta4 and trusta5 under the terms of section iii of the trusta agreement shares of the trust assets were apportioned as separate and distinct trusts but physical separation of the assets was not required a and b the grantors of the trust authorized the trustee to mingle and commingle investments but wishes it understood that grantor is creating independent trusts for all purposes on date2 trusta1 trusta2 trusta3 trusta4 and trusta5 acquired x corporation stock section xiv of the trusta agreement provides that the trust is irrevocable section iv of the trusta agreement provides that a and b retain the right and power to acquire or reacquire any trust property and substitute other_property of equivalent value without incurring liability to a_trust beneficiary or other party the trusta agreement states that the substitution power granted to the power holder is exercisable in a non- fiduciary capacity section vii of the trusta agreement provides each beneficiary of the respective sub-trusts the right to appoint to himself a proportionate share of additions made to the sub-trust each year the amount appointed cannot exceed the amount excludable for gift_tax purposes in any calendar_year on date3 a and b united_states citizens and husband and wife executed trustb agreement under state2 law the trustb agreement created sub-trusts trustb1 trustb2 trustb3 trustb4 trustb5 and trustb6 under the terms of section iii of the trustb agreement shares of the trust assets were apportioned as separate and distinct trusts but physical separation of the assets was not required a and b the grantors of the trust authorized the trustee to mingle and commingle investments but wishes it understood that grantor is creating independent trusts for all purposes on date3 the sub-trusts created under trusta agreement merged under state2 law into plr-117312-06 the sub-trusts created under trustb agreement the x corporation stock held by the trusta agreement sub-trusts was transferred to the trustb agreement sub-trusts on date3 section xiv of the trustb agreement provides that the trust is irrevocable section iv of the trustb agreement provides that a and b retain the right and power to acquire or reacquire any trust property and substitute other_property of equivalent value without incurring liability to a_trust beneficiary or other party the trustb agreement states that the substitution power granted to the power holder is exercisable in a non- fiduciary capacity section vii of the trustb agreement provides each beneficiary of the respective sub-trusts the right to appoint to himself a proportionate share of additions made to the sub-trust each year the amount appointed cannot exceed the amount excludable for gift_tax purposes in any calendar_year a and b were treated on their joint federal_income_tax returns as owners of the x corporation stock transferred to the sub-trusts created under the trusta agreement and merged into the sub-trusts created under the trustb agreement from the time of the stock transfers through date4 effective one day later on date5 a and b irrevocably relinquished their power to substitute trust assets with respect to trustb agreement sub-trusts elections were made to treat each of the trustb agreement sub-trusts as electing small_business trusts under sec_1361 effective date5 the beneficiaries of the sub-trusts created under trusta agreement and trustb agreement received timely notification of their withdrawal rights and no beneficiary has exercised those rights law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that a small_business_corporation may not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purpose of sec_1361 a husband and wife shall be treated as one shareholder plr-117312-06 sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter i as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder in an s_corporation the deemed owner of the trust shall be treated as the shareholder under sec_1361 sec_1_1361-1 of the income_tax regulations provides that for purposes of sec_1_1361-1 stock owned by a husband and wife is treated as if owned by one shareholder regardless of the form in which they own the stock for example if husband and wife are owners of a subpart e trust they will be treated as one individual both husband and wife must be u s citizens or residents sec_675 provides that the grantor shall be treated as the owner of any portion of a_trust in respect of which a power_of_administration is exercisable in a nonfiduciary capacity by any person without the approval or consent of any person in a fiduciary capacity sec_675 provides that power_of_administration means among other things a power to reacquire the trust corpus by substituting other_property of an equivalent value sec_1_675-1 iii flush language provides in part that if a power is not exercisable by a person as trustee the determination of whether the power is exercisable in a fiduciary or nonfiduciary capacity depends on all of the terms of the trust and the circumstances surrounding its creation and administration sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or the person has previously partially released or otherwise modified such a power and after the release or modifications retains such control as would cause a grantor to be treated as the owner of such portion of the trust within the principles of sec_671 to inclusive sec_678 provides that sec_678 shall not apply with respect to a power over income as originally granted or thereafter modified if the grantor of the trust is otherwise treated as the owner under the provisions of subpart e other than sec_678 conclusion based solely on the facts and representations submitted we conclude that the circumstances surrounding the administration of the sub-trusts created under the trusta agreement and the trustb agreement will determine whether the power_of_administration is exercisable in a fiduciary or nonfiduciary capacity this is a question of plr-117312-06 fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the internal_revenue_service office where the returns are filed therefore we cannot determine at this time whether a and b will be treated as the owners of the sub-trusts created under the trusta agreement and the trustb agreement under sec_675 provided that the circumstances indicate that the power_of_administration is exercisable in a nonfiduciary capacity a and b will be treated as the owners of the sub-trusts created under the trusta agreement and the trustb agreement under sec_675 and sec_678 accordingly the sub-trusts created under the trusta agreement were permitted shareholders in x an s_corporation under sec_1361 if otherwise eligible from date2 until date3 the sub-trusts created under the trustb agreement were permitted shareholders in x an s_corporation under sec_1361 if otherwise eligible from date3 through date4 except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes is being sent to x’s authorized representative in accordance with a power_of_attorney on file with this office a copy of this letter this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely s james a quinn senior technician reviewer acting branch office of associate chief_counsel passthroughs and special industries enclosures a copy of this letter a copy for sec_6110 purposes


of f i c e of c h i ef c ou n sel department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date conex-152024-09 number info release date uil ------------------ -------------------- ------------------------- dear ------------ i am responding to your letter to president barack obama about the first-time_homebuyer credit in your letter you state that you purchased your current residence from your mother generally sec_36 of the internal_revenue_code the code provides a refundable_credit for a first-time_homebuyer of a principal_residence to qualify for the credit the taxpayer cannot acquire the residence from a related_person a taxpayer’s mother is a related_person for purposes of the first-time_homebuyer credit sec_36 of the code you would not qualify for the first-time_homebuyer credit for purchasing a home from your mother a related_person for purposes of sec_36 the internal_revenue_service lacks the administrative authority to modify the statutory related_person requirement i am sorry my response is not more favorable if you have any further questions please contact -----------------at -------------------- sincerely william a jackson chief branch office of associate chief_counsel income_tax accounting


internal_revenue_service number release date index number ------------------------------- ------------------------------------------------------------ --------- ----------------------------------------- ---------------------------------- ------------------------------ - department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------------------- id no ------------- telephone number --------------------- refer reply to cc ita b05 plr-137528-04 date date ty ------- ty ------- ----------------------------------------------------------------------------- legend trust ------------------------------------------------------------------------------------------------------------ decedent dollar_figurex year a x beneficiaries date a date b date c date d date e date f date g state a state b x percent y percent z percent llc relinquished_property ---------------------- ------------ ------- --------------------- ----------------------- ------------------------- --------------------- -------------------- ------------------ -------------------------- ----------------------- --------- ------------- ----------------- ----------------- ------------------ ------------------------------------------------- ----------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------- ----------------- --------- --------------------------------------------------------------- dollar_figurey buyer qi plr-137528-04 dear ------------ this is in response to your request for a private_letter_ruling dated date submitted by your authorized representatives as to the application of sec_1031 of the internal_revenue_code to the proposed transaction specifically you have requested a ruling that a testamentary_trust may hold replacement_property received in this like-kind_exchange of real_property for productive use in a trade_or_business or for investment within the meaning of sec_1031 notwithstanding that the trust must terminate by its own terms and thus distribute all of its properties when the like-kind_exchange is independent of the impending termination the following facts are pertinent to your ruling_request the taxpayer is a private testamentary_trust trust established by decedent upon his death in year a to administer his assets decedent’s will provided for the establishment of the trust in order to provide an ongoing source of safe and certain income to its beneficiaries which included decedent’s wife and daughters under the terms of decedent’s will the trust will terminate at midnight on date a which is twenty years after the death of decedent’s last surviving child because the trust is due to terminate the trustees of the trust trustees formulated a detailed plan of termination which outlines a plan and mechanism for the distribution of the trust’s assets to its remainder beneficiaries upon its termination trust presently has x beneficiaries trust is required to distribute all of its income currently may not make any other distributions to charitable or other beneficiaries and is taxed as a simple_trust under sec_651 originally the assets of the trust consisted mainly of real_estate holdings in state a the submission provides that in order to diversify the trust’s real_estate holdings increase investment returns and generate income the trustees received approval from the state a probate_court many years ago to conduct exchanges of real_estate the trustees have engaged in many such exchanges which have been structured to qualify for nonrecognition treatment under sec_1031 trust intends to continue to enhance its investment operations by strategically exchanging certain assets in its portfolio as a result the assets in the trust now include real_estate holdings in state a and diversified industrial office and retail properties located in other states your submission states that all of the trust’s directly-owned properties are held for investment purposes recently the value of the trust’s assets approximated dollar_figurex under the plan of termination approximately x percent of the trust will be distributed on termination in cash to certain remainder beneficiaries y percent of the trust will be distributed on termination through an in-kind distribution of one or more trust properties to one expected remainder beneficiary the remaining corpus approximately z percent of the trust’s net asset value will be contributed by the trustees prior to termination to llc a to-be-formed state b limited_liability_company with the trust as plr-137528-04 the single member holding all of the shares in the llc all of the shares in llc will then be distributed upon termination by the trust among the remainder beneficiaries to the extent their remainder_interest is not otherwise satisfied with cash or in-kind property llc is intended to continue the trust’s real_estate investment operations in a manner consistent with past practices it is expected that much of the current managerial and operational structure will remain in place after the trust terminates the submission also provides that as a result of the large number of real_estate parcels and the large number of beneficiaries the plan of termination can only be effected by contributing the assets to an entity prior to and in conjunction with the trust’s terminating distributions the trustees submitted the plan of termination to the state a probate_court which approved it on date b the trustees have determined that it would be in the best interests of the trust to dispose_of the relinquished_property in an exchange that would qualify for nonrecognition under sec_1031 the relinquished_property includes the facilities and underlying land together with all rights and appurtenances pertaining to the facilities and land the trust entered into a disposition agreement dated date c with buyer to dispose_of the relinquished_property for dollar_figurey in cash the trust transferred relinquished_property to buyer on date d one day earlier the trust assigned its interest in the disposition agreement to qi a qualified_intermediary for purposes of the safe_harbor provided in sec_1_1031_k_-1 of the income_tax regulations pursuant to an assignment and assumption_agreement the trust also entered into exchange_agreement with qi in order to facilitate the disposition of the relinquished_property and the identification and acquisition of suitable replacement properties in accordance with the safe_harbor deferred_exchange regulations under sec_1031 according to the submission once identified and acquired in completion of the exchange the trustees intend to hold the replacement_property solely to generate additional rental income and have no plans to develop or construct any improvements on the property or to sell the replacement_property or any portion of it at any time pursuant to the plan of termination the trustees will convey the replacement_property to llc sometime on or before date f and will distribute all of the trust’s interests in llc to certain beneficiaries on date g or as soon thereafter as possible in addition the trust makes the following representations the relinquished_property now and at all times during the trust’s ownership thereof has been held by the trust for investment purposes the disposition of the relinquished_property and the acquisition of the replacement_property will be accomplished in a manner that in all respects aside from the future conveyance to llc and the distribution of llc to the beneficiaries of trust upon termination qualifies the transaction as a tax-free_exchange within the meaning of sec_1031 and the regulations thereunder plr-137528-04 the replacement_property will be of like_kind to the relinquished_property for purposes of sec_1031 and will be held by the trust and then llc for investment purposes throughout the trust’s existence and llc will not elect to be taxed as a corporation and will remain a single member llc until at least date a at which time it will be deemed to become a partnership for federal_income_tax purposes as a result of the trust’s terminating distribution of the membership interests of llc to multiple beneficiaries law and analysis as stated above you have requested a ruling that the trust may hold replacement_property received in this like-kind_exchange of real_property for productive use in a trade_or_business or for investment within the meaning of sec_1031 notwithstanding that the trust must terminate by its own terms and distribute all of its properties when the like-kind_exchange is independent of the impending termination sec_1031 provides that no gain_or_loss shall be recognized on the exchange of property held for productive use in a trade_or_business or for investment if the property is exchanged solely for property of a like_kind which is to be held either for productive use in a trade_or_business or for investment under sec_1_1031_a_-1 relating to the meaning of the term like_kind real_property is generally considered to be of like_kind to all other real_property whether or not any of the real_property involved is improved in revrul_75_292 1975_2_cb_333 an individual taxpayer in a prearranged transaction transferred land and buildings used in the taxpayer's trade_or_business to an unrelated corporation in exchange for land and an office building owned by the corporation and used in its trade_or_business immediately thereafter the individual taxpayer transferred the land and office building to the individual's newly created corporation in exchange for the stock of the same corporation in a transaction that qualified for nonrecognition of gain under sec_351 the revenue_ruling concluded that the individual taxpayer did not exchange the real_estate for other real_estate to be held either for productive use in a trade_or_business or for investment by that taxpayer instead the ruling concluded that the replacement_property was acquired by the individual taxpayer for the purpose of transferring it to the new corporation in exchange for stock pursuant to sec_351 as a result the ruling held that as to that individual taxpayer the exchange did not qualify for nonrecognition under sec_1031 in revrul_77_337 1977_2_cb_305 an individual taxpayer owned all of the stock of a corporation in a prearranged plan the individual taxpayer liquidated the corporation and transferred the corporation's sole asset a shopping center to a third party in exchange for like-kind_property revrul_77_337 noted that under revrul_75_292 a newly created corporation’s eventual productive use of property in its trade_or_business is not attributable to its sole shareholder revrul_77_337 thus concluded that the transaction between the individual taxpayer and the third party was a prearranged plan whereby the corporation was liquidated to facilitate the further exchange between the plr-137528-04 individual taxpayer and the third party of their respective properties consequently the individual taxpayer did not hold the shopping center for use in a trade_or_business or for investment because the corporation's previous trade_or_business use could not be attributed to its sole shareholder therefore the exchange did not qualify for nonrecognition_of_gain_or_loss under sec_1031 74_tc_653 pertains in part to an exchange of real_property a ranch for like-kind_property followed by a gift of the newly acquired ranch property to the taxpayer's children the court found that the exchange qualified under sec_1031 the ranch properties in question were held for use in a trade_or_business or for investment by taxpayer both before and after the exchange under sec_301_7701-3 a domestic eligible_entity is generally with exceptions noted disregarded as an entity separate from its owner if it has a single owner sec_301_7701-2 provides that in general a business_entity that has a single owner and is not a corporation as defined in sec_301_7701-2 is disregarded as an entity separate from its owner for federal tax purposes your submission expresses two concerns regarding the above exchange your first concern is that the proposed transfer of the replacement_property to llc would violate the holding requirement of sec_1031 ie that the replacement_property must be held by the taxpayer for productive use in a trade_or_business or for investment as applied in revrul_75_292 and revrul_77_337 your second concern is that as a result of the trust’s terminating distribution of membership interests in llc to multiple beneficiaries which will then result in a de_facto partnership between the beneficiaries for federal_income_tax purposes the holding requirement of sec_1031 as applied in the revenue rulings would be violated with respect to the replacement_property with respect to your first concern you represent that the replacement_property will be held by the trust and llc for investment purposes throughout the trust’s existence you also represent that llc will not elect to be taxed as a corporation and will remain a single member llc until at least date a therefore llc will be disregarded as an entity separate from the trust its sole owner consequently the transfer by the trust of the replacement_property to llc will also be disregarded and the trust will be considered the direct owner of the replacement_property for federal_income_tax purposes because the trust represents that it intends to hold the replacement_property for investment purposes the transfer by the trust of the replacement_property to llc will not violate the holding requirement of sec_1031 with respect to your second concern the trust represents that it will hold the replacement_property for investment purposes until the trust terminates by its own no ruling is requested on the factual question of whether any specific replacement_property is held for a particular purpose plr-137528-04 terms on date a because the trust is a testamentary_trust the termination_date was fixed by decedent and cannot be modified or changed as a result the trust is not acquiring the replacement_property in order to dispose_of the property pursuant to a prearranged plan the plan of termination has been approved by the state a probate_court and will take effect without regard to whether this exchange of properties is consummated consequently the like-kind_exchange in this case is wholly independent from the distribution of the properties under the plan of termination thus the facts in this ruling_request are distinguishable from those in revrul_75_292 and revrul_77_337 therefore based on the facts and representations presented above we rule that the trust's termination and distribution of its assets to the beneficiaries will not preclude the replacement_property received by the trust in this exchange from being considered property held either for productive use in a trade_or_business or investment within the meaning of sec_1031 because this like-kind_exchange is independent of the impending termination no determination is made by this ruling letter as to whether the described transaction otherwise qualifies for deferral of gain realized under sec_1031 we express no opinion except as specifically ruled above as to the federal_income_tax treatment of the transaction under any other provisions of the code and regulations that may be applicable or under any other general principles of federal income_taxation neither is any opinion expressed as to the tax treatment of any conditions existing at the time of or effects resulting from the transaction s that are not specifically covered by the above ruling you should attach a copy of this ruling to your tax_return for the taxable_year in which the transaction covered by this ruling is consummated we are enclosing a copy for that purpose this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayers who requested it 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 yours by roy a hirschhorn assistant branch chief branch office of associate chief_counsel income_tax accounting--


internal_revenue_service number release date index number ----------------------------- -------------------------- --------------------------------------------- ---------------------- ------------------------- - department of the treasury washington dc third party communication date of communication month dd yyyy person to contact -------------- id no ------------- telephone number --------------------- refer reply to cc ita plr-128541-06 date date ------- - legend taxpayer ----------------------------------------------------------------------- year dear ----- ---------- this letter_ruling is in reference to taxpayer’s request that its form_1128 application to adopt change or retain a tax_year be considered timely filed under the authority in sec_301_9100-3 of the regulations on procedure and administration taxpayer filed a late form_1128 to change its accounting_period for federal_income_tax purposes from a taxable_year ending february to a taxable_year ending december effective december year revproc_2002_37 2002_1_cb_1030 provides procedures for certain corporations to obtain automatic approval to change their annual_accounting_period under sec_442 of the internal_revenue_code a corporation complying with all the applicable provisions of this revenue_procedure has obtained the consent of the commissioner of the internal_revenue_service to change its annual_accounting_period section of revproc_2002_37 provides that a form_1128 filed pursuant to the revenue_procedure will be considered timely filed for purposes of sec_1_442-1 of the income_tax regulations only if filed on or before the time including extensions for filing the return for the short_period required to effect the change the information furnished indicates that taxpayer did not file its form_1128 by the due_date of the return for the short_period required to effect the change and did not request an extension to file the return however taxpayer requested an extension of time to file its form_1128 under sec_301_9100-3 shortly after the required time for filing the return sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to plr-128541-06 establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made we conclude that taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly taxpayer has satisfied the requirements of the regulations for the granting of relief and taxpayer's late filed form_1128 requesting to change to december effective december year is considered timely filed because a change in accounting_period under revproc_2002_37 is under the jurisdiction of the director internal_revenue_service center where the taxpayer’s returns are filed we have forwarded the application to the director --------------------------- --------- the taxpayer should direct any further communication regarding this matter to the service_center this ruling is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling however as part of an examination process the service may verify the factual information representations and other data submitted this ruling addresses the granting of sec_301_9100-3 relief only we express no opinion regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically we express no opinion as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the form_1128 or whether the change may be effected under revproc_2002_37 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 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 enclosed is a copy of the letter_ruling showing the deletions proposed to be made when it is disclosed under sec_6110 the taxpayer’s application_for a change in accounting_period will be processed under revproc_2002_37 plr-128541-06 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives sincerely donna welch senior technician reviewer income_tax accounting office_of_chief_counsel


internal_revenue_service number release date index number ---------------------------- -------------- ----------------------------------- ------------------------------ legend 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 b6 plr-129109-12 date april ------------------------------------------------------ ------------------------------------------------------------------------------------------ -------------------------------------------------- ------------------------------- -------------------------------------------------- ------------------------------------------- ---------------------------------------------------- ----------------------------------------------------------- ---------------------------- ----------------------------- -------------------------- -------------- --------------------------- ------------------------------------------------- taxpayer -------------------------------------------------- company a ----------------------------------------------------------------------------------------------------------- company b company c company d company e company f company g company h company i city state technology manager ------ a b ------ ----- c ------ d e -------- testing center --------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- generating station date a --------------------------- --------------------------- plr-129109-12 location a coal tested coal ---------------------------------- -------------- dear ---------------- this is in response to your request for rulings submitted by your authorized representative concerning the federal_income_tax consequences of the transaction described below background taxpayer represents the facts as follows company e operating company is a limited_liability_company organized under the laws of state the operating company owns the refined_coal facility facility located adjacent to generating station owned by company a generating station owner and located near city the operating company is owned as follows i company b a state limited_liability_company as a member holding a of the outstanding membership interests and ii company c a state corporation as a member holding b of the outstanding membership interests operating company has not elected and will not elect to be classified as an association_taxable_as_a_corporation and accordingly operating company is classified as a partnership for federal_income_tax purposes manager acts as the non-member manager of the operating company the only material asset of company b is its interest in the operating company and another similar operating company company b is owned as follows i company j as a member holding c of the outstanding membership interests and taxpayer a state a limited_liability_company as a member holding d of the outstanding membership interests company f owns e of the stock of company c company f is a publicly traded corporation one of the companies that company f investment in was company d technology owner company f became the managing member of technology owner taxpayer is a special purpose entity created for the purpose of entering into the transactions described herein company e is owned by company h a state a limited_liability_company company e is treated as a disregarded_entity for federal_income_tax plr-129109-12 purposes and as a division of company h company h is classified as an association_taxable_as_a_corporation for u s federal tax purposes and has in effect an election under sec_1362 to be an s_corporation company h is the holding_company for a financial services firm better known as company i pursuant to the purchase agreement between company j and taxpayer taxpayer bought a d of the membership interest in company b in exchange for a purchase_price closely approximating taxpayer’s proportionate share of the total cost of constructing and installing the facility the facility the operating company has constructed and installed the facility and has commercially deployed the technology at the generating station the facility was constructed by company g who certified that construction of the facility was mechanically complete on date a the operating company entered into a site lease with generating station owner that allows operating company to construct and locate the facility at the generating station pursuant to the terms of the lease the operating company has rights of ingress and egress as appropriate the operating company entered into a coal supply agreement whereby it will purchase coal feedstock from generating station owner at the generating station under that agreement the operating company will buy all of its feedstock coal from generating station owner except that the operating company may buy feedstock coal from third parties to the extent generating station owner fails to provide the operating company with sufficient feedstock coal to operate the facility in an economical manner the feedstock coal purchased by the operating company from generating station owner will be coal that generating station owner itself purchased from third party vendors consistent with its coal procurement specifications the generating station is designed for location a coal firing with natural_gas or number fuel oil for startup flame stabilization and shutdown location a coal is classified by the american society of testing materials astm as a sub-bituminous coal the generating station owner purchases these location a coals from a number of source mines located in several states the operating company or a subcontractor will buy feedstock coal from generating station owner and apply the technology to the coal feedstock in this regard the operating company has entered into an operation and maintenance agreement with company g operator to operate and maintain the facilities as an agent on behalf of the operating company the operator is not related to generating station owner the operating company company b or any of the members of company b or the operating company plr-129109-12 thereafter the operating company will sell the resulting refined_coal to generating station owner pursuant to this agreement generating station owner will purchase from the operating company all refined_coal produced by the facility except that to the extent that the operating company produces refined_coal which the generating station owner cannot consume the operating company has the right to sell such excess production to third parties technology company c owns certain licensing rights to a proprietary coal-refining process referred to as technology when the technology is applied as part of an electric and steam generating facility by adding chemicals to coal prior to burning the coal in a furnace it has the effect of reducing emissions of certain pollutants from the burning of the resulting refined_coal increasing fuel efficiency and reducing boiler maintenance the by-product of this process is a valuable fly ash which can be used in a diverse array of applications in the steel mining and cement industries the technology is a dual-injection sorbent system in which separate sorbents for mercury and nox control are added to and mixed with input coal technology owner's patent-pending process starts with several chemical additives being added to coal prior to its combustion in a furnace the additives provide the chemical structure to create a ceramic matrix using chemical bonds to capture emissions of regulated pollutants the matrix has a certain structure of chemicals in certain positions at the interior corners of the matrix the structure will pick up and hold pollutants such as mercury arsenic or lead the structure also picks up and includes elements such as oxygen chlorides and fluorides which are freely available in a boiler's gas stream when they have been released from the coal during combustion but become locked up in the ceramic matrix in short the technology converts coal into a refined_coal refined_coal that is used as a clean fuel to be fired in boilers to raise steam the emissions from burning the clean refined_coal produced by this technology are significantly less than the emissions otherwise produced by burning unprocessed coal this is true not only for the emissions of mercury and nox as required by sec_45 but also for emissions of arsenic lead and other metals which are not currently regulated as well as for sulfur testing the technology has been tested numerous times at testing center testing center is located at a major u s university recognized as one of the world’s leading developers of cleaner more efficient energy and environmental technologies to protect and clean air water and soil plr-129109-12 in connection with this testing an emissions monitoring system was used to measure the effect of the technology on nox sox mercury co and o2 emissions in addition the mercury weight content of the fly ash was tested to measure mercury capture by the technology during testing tested coal was burned in one of the boilers at the testing center's boiler house the boiler and the combustion conditions were designed to replicate the combustion and other operating conditions for the generating station the samples of tested coal were collected consistent with applicable astm standards for each test the testing center divided each sample of tested coal into two sub-samples one of which was burned to establish a baseline and the other of which was subjected to the technology before burning to measure the changes resulting from application of the technology going forward the operating company may perform pilot scale testing to satisfy the redetermination requirement of notice_2010_54 or alternatively may undertake laboratory testing of the feedstock coal and the refined_coal to satisfy this requirement to the extent that the operating company is required to do so the operating company will collect samples of feedstock coal and refined_coal consistent with applicable astm standards and pursuant to a protocol for the regular collection of sample feedstock coal and refined_coal any such samples would be utilized for a number of purposes including potentially conducting periodic laboratory tests for mercury and sulfur content and maintaining rolling averages of the results in order to comply with notice_2010_54 rulings requested based on the foregoing you have requested that we rule as follows the refined_coal produced and sold by using the technology constitutes refined_coal within the meaning of sec_45 of the code provided that such refined_coal is produced from feedstock coal that is the same source or rank as the tested coal and provided further that the refined_coal satisfies the qualified_emission_reduction test stated in sec_45 of the code provided that the feedstock coals used to produce refined_coal during any redetermination period are from the same coal source regions and of the same rank as the tested coal all such feedstock coal shall be treated as feedstock coal of the same source and rank for purposes of section dollar_figure of notice_2010_54 regardless of the mine from which such feedstock coal is purchased testing by the testing center for qualified emissions reduction as set forth in its test reports satisfies the requirements of notice_2010_54 with respect to the tested coals and any blend of them the pilot scale testing conducted at testing center and plr-129109-12 subsequent permitted laboratory testing as required for a redetermination described in section a or b of notice to satisfy the qualified_emission_reduction test of sec_45 of the code may be relied upon regardless of subsequent normal fluctuations in operating conditions and emissions at the generating station pursuant to section b of notice_2010_54 the redetermination requirement of section dollar_figure of notice_2010_54 may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal on average do not vary by more than below the bottom nor by more than percent above the top of the range of the sulfur content and range of the mercury content of the feedstock coal and the refined_coal used in the most recent determination of section dollar_figure of notice_2010_54 law and rationale sec_45 of the code generally provides a credit against federal_income_tax for_the_use_of renewable or alternative resources to produce electricity or fuel for the generation of steam sec_45 of the code provides that in the case of a producer of refined_coal the credit available under sec_45 of the code for any taxable_year shall be increased by an amount equal to dollar_figure5 per ton of qualified refined_coal i produced_by_the_taxpayer at a refined_coal_production_facility during the 10-year period beginning on the date that the facility was originally placed_in_service and which is ii sold by the taxpayer to an unrelated_person during such 10-year period and such taxable_year for purposes of sec_45 of the code section dollar_figure of notice_2010_54 provides that the term refined_coal means a fuel which - i is a liquid gaseous or solid fuel including feedstock coal mixed with an additive or additives produced from coal including lignite or high carbon fly ash including such fuel used as a feedstock ii is sold by the taxpayer with the reasonable expectation that it will be used for the purpose of producing steam and iii is certified by the taxpayer as resulting when used in the production of steam in a qualified_emission_reduction section dollar_figure of the notice provides that the term qualified_emission_reduction means in the case of refined_coal produced at a facility placed_in_service after date a reduction of at least twenty percent of the emissions of nitrogen oxide and at least forty percent of the emissions of either sulfur dioxide or mercury released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of date sec_45 of the code generally provides that the term refined_coal_production_facility means a facility which is placed_in_service after date and before date plr-129109-12 section dollar_figure of notice_2010_54 generally provides that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as defined in sec_613 a c or i if performed by the mine owner or operator accordingly in determining whether a qualified_emission_reduction has been achieved the emissions released when burning the refined_coal must be compared to the emissions that would be released when burning the feedstock coal feedstock coal is the product resulting from processes that are treated as mining and are actually applied by a taxpayer in any part of the taxpayer’s process of producing refined_coal from coal sec_613 of the code describes treatment processes that are not considered as mining unless they are provided for in sec_613 or are necessary or incidental to a process provided for in sec_613 any cleaning process such as a process that uses ash separation dewatering scrubbing through a centrifugal pump spiral concentration gravity concentration flotation application of liquid hydrocarbons or alcohol to the surface of the fuel particles or to the feed slurry provided such cleaning does not change the physical or chemical structure of the coal and drying to remove free water provided such drying does not change the physical or chemical identity of the coal will be considered as mining section of the notice provides in part that emissions reduction may be determined using continuous emission monitoring system cems field testing section a provides in part that cems field testing is testing that meets all the following requirements i the boiler used to conduct the test is coal-fired and steam-producing and is of a size and type commonly used in commercial operations ii emissions are measured using a cems iii if epa has promulgated a performance standard that applies at the time of the test to the pollutant emission being measured the cems must conform to that standard iv emissions for both the feedstock coal and the refined_coal are measured at the same operating conditions and over a period of at least hours during which the boiler is operating at a steady state at least percent of full load and v a qualified_individual verifies the test results in a manner that satisfies the requirement of section b section of the notice provides that methods other than cems field testing may be used to determine the emission reduction the permissible methods include a testing using a demonstration pilot-scale combustion furnace if it establishes that the method accurately measures the emission reduction that would be achieved in a boiler described in section a i and a qualified_individual verifies the test results in a manner that satisfies the requirements of section c i ii v and vi of the notice and b a laboratory analysis of the feedstock coal and the refined_coal that complies with a currently applicable epa or astm standard and is permitted under section b i or ii plr-129109-12 section of the notice provides that a taxpayer may establish that a qualified_emission_reduction determined under section dollar_figure applies to production from a facility by a determination or redetermination that is valid at the time the production occurs a determination or redetermination is valid for the period beginning on the date of the determination or redetermination and ending with the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of the feedstock coal that occurs after the date of such determination or redetermination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination section of the notice provides that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure must use a method that meets the requirements of section in any other case the redetermination requirement may be satisfied by laboratory analysis establishing that - a the sulfur s or mercury content of the amount of refined_coal necessary to produce an amount of useful energy has been reduced by at least percent percent in the case of facilities placed_in_service after date in comparison to the s or mercury content of the amount of feedstock coal necessary to produce the same amount of useful energy excluding any dilution caused by materials combined or added during the production process b the s or mercury content of both the feedstock coal and the refined_coal do not vary by more than percent from the s and mercury content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of the notice finally section dollar_figure of the notice provides that the certification requirement of sec_3 c of the notice is satisfied with respect to fuel for which the refined_coal credit is claimed only if the taxpayer attaches to its tax_return on which the credit is claimed a certification that contains the following a statement that the fuel will result in a qualified emissions reduction when used in the production of steam a statement indicating whether cems field testing was used to determine the emissions reduction if cems field testing was not used to determine the emissions reduction a description of the method used a statement that the emissions reduction was determined or redetermined within the six months preceding the production of the fuel and that there have been no changes in the source or rank of the feedstock coal used in the process of producing refined_coal from feedstock coal since the emissions reduction was most recently determined or redetermined and a declaration signed by the taxpayer in the following form under penalties of perjury i declare that i have examined this certification and to the best of my knowledge and belief it is true correct and complete with respect to the first issue the process starts with several chemical additives being added to the feedstock coal prior to its combustion in a furnace the additives plr-129109-12 provide the chemical structure that results in the reduction of emissions of nitrogen oxide and mercury during combustion section dollar_figure of the notice provides generally that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining if performed by the mine owner or operator in the instant case the process is not a mining process further section dollar_figure of the notice clarifies sec_45 of the code and specifically provides that refined_coal includes feedstock coal mixed with additives thus additive processes that mix certain chemicals or other additives with the coal in order to achieve emissions reductions may qualify for the refined_coal production_tax_credit additionally section dollar_figure defines comparable coal as coal that is of the same rank as the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal accordingly we conclude that the refined_coal produced by using the technology constitutes a refined_coal within the meaning of sec_45 of the code provided that the refined_coal i is produced from feedstock coal that is the same source or rank as the tested coal and ii satisfies the qualified_emission_reduction test stated in sec_45 of the code with respect to the second issue the emissions profile of the refined_coal product is compared to the emissions profile of either the feedstock coal or a comparable coal predominantly available in the marketplace as of date section dollar_figure of the notice provides that a comparable coal is defined as coal that is of the same rank as the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal section dollar_figure of provides that a determination or redetermination of a qualified emissions reduction is valid until the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of the feedstock coal that occurs after the date of such determination or redetermination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination accordingly we conclude that provided the feedstock coals used to produce refined_coal during any redetermination period are from the same coal source regions and of the same rank as the tested coal all such feedstock coal shall be treated as feedstock coal of the same source and rank for purposes of section dollar_figure of notice_2010_54 regardless of the mine from which such feedstock coal is purchased with respect to the third issue section of the notice provides that any permissible testing method provided for in the notice can be used in emission testing for any pollutant that is a taxpayer can use different testing methods for each of nitrogen oxide sulfur dioxide or mercury provided the method used for any pollutant is a permissible method section provides that an emission test establishing a qualified_emission_reduction qualifies the refined_coal for a six-month period provided there is no change in the process for producing the refined_coal or in the source or rank of the feedstock coal therefore a taxpayer must redetermine the emission reductions to qualify for the succeeding six-month period using one or more approved plr-129109-12 methods in the instant case taxpayer will arrange for pilot-scale combustion testing and will not rely on any continuous emissions monitoring system or other field testing which is permitted under section dollar_figure of the notice specifically testing center will conduct testing including redetermination testing at its testing facility to determine the emissions reductions associated with burning the refined_coal product compared to the feedstock for purposes of qualifying the refined_coal produced at the facilities the testing center has conducted pilot-scale combustion tests and documented them in conducting such tests the testing center conducted tests on the feedstock and then mixed a separate sample of the feedstock with the additives so that it could conduct tests on the refined_coal product in each of its reports the center reported that the test results indicated that the blend of coal and additives achieved the required emissions reductions based on the foregoing we conclude that testing by the testing center for qualified emissions reduction as set forth in its test reports satisfies the requirements of notice_2010_54 with respect to the tested coals and any blend of them the pilot scale testing conducted at testing center and subsequent permitted laboratory testing as required for a redetermination described in section a or b of notice to satisfy the qualified_emission_reduction test of sec_45 of the code may be relied upon regardless of subsequent normal fluctuations in operating conditions and emissions at the generating station with respect to the fourth issue section of notice_2010_54 provides that where a redetermination is required because of a change in the process of producing refined_coal the redetermination must use one of the general methods for satisfying the emissions reduction requirements listed in section dollar_figure of the notice however in any other case section of the notice provides that the redetermination requirement may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal do not vary by more than from the sulfur and mercury content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of notice_2010_54 in the instant case periodic bench tests will be performed to confirm that the sulfur and mercury content of the coal taken from the pile and input into the facility as well as the sulfur and mercury content of the refined_coal output from the facility regardless of the actual blend of types of coal or the source of the mines will not vary by more than below the bottom range for sulfur and mercury or ten percent above the top of the range of these chemicals in the tested feedstock coals accordingly we conclude that pursuant to section of notice_2010_54 the redetermination requirement of section dollar_figure of notice_2010_54 may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal on average do not vary by more than below nor more than above the top of the range of sulfur content and range of the mercury content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of section dollar_figure of notice_2010_54 plr-129109-12 this ruling expresses no opinion about any issue specifically not addressed in this ruling letter including whether any person has sold refined_coal to an unrelated_person or when the facility was placed_in_service in particular we express or imply no opinion that the taxpayer has sufficient risks and rewards of the production activity to qualify as the producer of the refined_coal the service may challenge an attempt to transfer the credit to a taxpayer who does not qualify as a producer including transfers structured as partnerships sales or leases that do not also transfer sufficient risks and rewards of the production activity in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives a copy of this ruling 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 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent we are sending a copy of this letter_ruling to the industry director sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs special industries cc


internal_revenue_service number release date index number department of the treasury washington dc in re person to contact telephone number refer reply to cc psi 9-plr-144488-02 date date legend trusts trust trust primary beneficiary trust primary beneficiary trust trustor spouse settlors date date company state year dear this is in response to your letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make allocations of trustor’s generation-skipping_transfer gst tax exemption to transfers made to irrevocable trusts plr-144488-02 a summary of the facts and representations submitted is as follows on date trustor and spouse settlors formed two trusts trust and trust one for the benefit of each of their children and their children’s spouses and descendants article i i and of each trust provide that during the life of the settlors’ child for whom the trust was established the primary beneficiary trustee shall pay income and principal to the primary beneficiary and his or her issue to provide for their health education support and maintenance article i sec_1 provides that trustee shall pay as much of the trust’s principal to the primary beneficiary’s spouse issue and the spouses of the issue as requested in writing by the primary beneficiary article i sec_1 provides the primary beneficiary with a testamentary limited_power_of_appointment to appoint the remaining trust estate among the primary beneficiary’s spouse issue and the spouses of the issue article i sec_1 provides the primary beneficiary with a testamentary general_power_of_appointment over any portion of the trust estate that is not exempt from the gst tax article i sec_1 provides that any portion of the trust estate not appointed under the provisions of article i sec_1 and is to be held in a single trust until the later of the death of the primary beneficiary’s spouse or the date the primary beneficiary’s youngest then living child attains age during this period the trustee shall pay income and principal to the primary beneficiary’s spouse issue and the issue’s spouses to provide for their health education support and maintenance article i sec_1 provides that upon the later of the primary beneficiary’s spouse’s death or the date the primary beneficiary’s youngest then living child attaining age the trust estate shall be divided into as many equal shares as there are then living children of the primary beneficiary and deceased children of the primary beneficiary leaving issue article i sec_1 a provides that the trustee of a_trust held for the benefit of the primary beneficiary’s then living child or the then living issue of a deceased child beneficiary shall pay the beneficiary thereof income and principal deemed necessary to provide for his or her health education support and maintenance article i sec_1 b provides that the trustee shall distribute so much of the principal from the beneficiary’s trust to the beneficiary’s spouse issue and spouses of the issue as the beneficiary shall request in writing article i sec_1 c provides the beneficiary with a testamentary limited_power_of_appointment to appoint the trust estate among the beneficiary’s spouse issue and the spouses of the issue article i sec_1 d provides that if the beneficiary dies before his or her trust terminates the balance of the trust shall be divided equally by right of representation and held as separate trusts for the benefit of his or her surviving issue by right of representation if any if none the balance of the trust shall be divided equally by right of representation and distributed to the trusts established for his or her surviving siblings and the issue of plr-144488-02 any deceased siblings if any if none the balance of the trust shall be divided equally by right of representation and distributed to the trusts established for the primary beneficiary’s surviving issue article i sec_1 provides that the trust shall terminate at the earlier of the death of the last survivor of the settlors’ issue or years after the death of the last survivor of the settlors’ descendants who were living on date article i sec_1 provides that if any issue of the primary beneficiary are living when the trust terminates the trust estate shall be distributed outright to the issue by right of representation article i sec_1 provides that upon the termination of the trust if no issue of the primary beneficiary are living the trustee shall distribute the trust estate outright to the then living issue of the primary beneficiary’s siblings by right of representation on date settlors each transferred shares of stock in company to each trust settlors retained an accounting firm to prepare each of their united_states gift and generation-skipping_transfer_tax returns form sec_709 reporting these transfers settlors each elected under sec_2513 to treat their gifts to the trusts as having been made one-half by each of them the accounting firm mistakenly failed to allocate settlors’ gst exemptions to the assets transferred to each trust on the form sec_709 further a notice of allocation was not attached to the form sec_709 during year settlors’ attorney discovered the failure to properly allocate settlors’ gst exemptions to the date transfers it has been represented that trustor has not made any transfers to trusts or skip persons to which trustor’s gst_exemption was or was required to be applied trustor has requested an extension of time under sec_2642 and sec_301_9100-3 to make a late gst_exemption allocation to the date transfers to the trusts and that such allocation will be based on the value of the property transferred to the trusts on date law and analysis sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 as in effect for the year involved provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made plr-144488-02 shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2642 provided that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c - a the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and b such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant sec_2642 further provides that for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2624 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 plr-144488-02 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 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 code except subtitles e g h and i under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the 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 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore trustor is granted an extension of time of sixty days from the date of this letter to allocate trustor’s available gst_exemption to the date transfers to the trusts the allocations once made will be effective as of date the date of the transfers to the trusts the value of the assets transferred to the trusts on date will be used in determining the amount of the trustor’s gst_exemption to be allocated to the transfers the allocation for trustor should be made on a separate supplemental form_709 for the date year and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the supplemental form_709 a copy is enclosed for this purpose 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 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-144488-02 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 the taxpayers sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes one copy of this letter


internal_revenue_service date number info release date uil no the honorable chuck hagel united_states senator federal building centennial mall north lincoln ne attention mr todd wiltgen dear senator hagel this letter is in response to your inquiry dated date to the taxpayer_advocate on behalf of your constituents they were concerned that in order for both spouses to receive social_security credit for the income earned in their farming_business they would have to file a partnership return in addition to their joint income_tax return you asked us to explain the various options a married couple has in filing returns and paying taxes for their unincorporated farming_business that will result in social_security coverage for both spouses in addition to the explanation in this letter i have enclosed two copies each of publication agricultural employer’s tax guide publication farmer’s tax guide and publication partnerships with more details on these topics we are addressing only how a hypothetical couple with various structures for their farming_business might file returns and pay taxes so that both may obtain social_security coverage we are assuming the legal requirements have been met for each of these business forms taxpayers should seek legal advice about their particular circumstances and consider all relevant legal requirements that may apply the internal_revenue_code the code has specific definitions of partnership employment and wages that affect how taxpayers must report tax information and pay federal taxes state and local_taxes may not follow the federal rules and may influence a taxpayer’s choice of operations furthermore other federal_law concerning special agricultural programs may affect how a married couple might arrange the farming operations in the discussion below we assume the couple is filing one form_1040 u s individual_income_tax_return with a filing_status of married filing joint_return and the couple has income from the farming_business social_security_benefits are based on an individual’s net_earnings_from_self-employment and or an employee’s wages we will first address social_security coverage based on net_earnings_from_self-employment arising from a farm run as a sole_proprietorship of one spouse two farming businesses run as separate sole proprietorships of each spouse a partnership with each spouse as a partner then we will address social_security coverage based on wages paid_by one spouse to the other social_security coverage based on net_earnings_from_self-employment the laws concerning the tax on self-employment_income are found in sec_1401 to of the code of in addition to other income taxes a self-employment contributions act seca_tax is imposed for each taxable_year on the net_earnings_from_self-employment that fall between the minimum and maximum amounts specified in the code for that year sec_1401 b as relevant here sole proprietors and general partners generally produce net_earnings_from_self-employment for a farm run as a sole_proprietorship a married individual who runs a business as a sole_proprietor reports as part of the married couple’s form_1040 the farming_business income on schedule f profit or loss from farming and the net_earnings_from_self-employment on schedule se self- employment_tax the enclosed publication farmer’s tax guide describes this process in greater detail the information on the sole proprietor’s net_earnings_from_self-employment and the amount of seca_tax paid is sent to the social_security administration with the social_security_number of the sole_proprietor thus the sole_proprietor receives social_security credit based on those amounts although a joint_return is filed by the couple the information sent to the social_security administration relates only to the sole_proprietor who generated the income not to the spouse for a farm run as two separate sole proprietorships a married couple who runs farming operations as two separate sole proprietorships reports as part of their form_1040 the business income from each business on separate schedules f and each spouse’s net_earnings_from_self-employment on separate schedules se the information on each sole proprietor’s net_earnings_from_self-employment and the amount of seca_tax paid relating to each spouse is sent to the social_security administration using each one’s social_security_number thus each spouse receives social_security credit based on those amounts for a farm run as a partnership a married couple who runs their farming operations as a partnership must file a form_1065 u s partnership return of income for the partnership as well as the form_1040 for their individual income_tax the partnership reports as part of its form_1065 the business income from the farming operations on the partnership’s schedule f and prepares a schedule_k-1 partner’s shares of income credits deductions etc for each partner indicating the distributive_share of partnership items for each partner the enclosed publication partnerships describes this process in detail in the form_1040 the couple reports the items on both of the schedules k-1 and prepares separate schedules se to report the net_earnings_from_self-employment the information regarding each spouse’s net_earnings_from_self-employment and the amount of seca_tax paid relating to each individual is sent to the social_security administration using their respective social_security numbers thus each spouse receives social_security credit based on those amounts social_security coverage based on wages paid_by one spouse to the other social_security credit can also be based on the_amount_of_wages earned by an individual sec_3121 of the code generally defines wages as all remuneration for employment there are many special rules governing whether certain kinds of payments to agricultural workers qualify as wages and whether certain kinds of agricultural_labor qualifies as employment within the meaning of sec_3121 of the code these special rules are described in the enclosed publication agricultural employer’s tax guide for payments that qualify as wages paid to an employee the employer must pay federal_unemployment_tax_act futa taxes withhold federal income taxes withhold the employee’s portion of federal_insurance_contributions_act fica_taxes pay the employer’s portion of fica_taxes the employer must file quarterly and annual employment_tax returns a married individual who runs the farm as a sole_proprietorship may be able to provide for social_security credit for a spouse if the spouse receives wages as an employee of the farming_business the farming_business must file employment_tax returns the information on these returns regarding the employer’s and the employee’s portion of fica is sent to the social_security administration under each employee’s social_security_number thus the employee spouse receives social_security credit based on those amounts and as discussed above the information regarding the sole proprietor’s net_earnings_from_self-employment reported on schedule se and the amount of seca_tax paid reported on form_1040 is sent to the social_security administration using the sole proprietor’s social_security_number so the sole_proprietor receives social_security credit based on those amounts i hope this general information and the enclosed publications will be helpful in responding to your constituents if i can be of further assistance in this matter please contact me at sincerely lynne a camillo acting branch chief id employment_tax branch office of assistant chief_counsel exempt_organizations employment_tax government entities enclosures


t c memo united_states tax_court michael l gomez petitioner v commissioner of internal revenue respondent docket no filed date larry d harvey for petitioner randall l preheim for respondent memorandum opinion vasquez judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the year in issue after a concession the sole issue for decision is whether petitioner can exclude from income wages earned during from working in antarctica background at the time he filed the petition petitioner resided in richardson texas during petitioner performed services at mcmurdo station in ross island antarctica on his federal_income_tax return petitioner excluded wage income earned and received during for services performed in antarctica i summary_judgment discussion rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact and that the legal issues presented by the motion may be decided as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law respondent concedes that no penalty pursuant to sec_6662 is due from petitioner for ii in general sec_61 provides that gross_income means all income from whatever source derived accordingly citizens of the united_states generally are taxed on income earned outside the geographical boundaries of the united_states unless the income is specifically excluded from gross_income 117_tc_95 affd sub nom 68_fedappx_44 9th cir affd sub nom 357_f3d_1108 10th cir exclusions from income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion id iii sec_911 in 126_tc_89 473_f3d_790 7th cir arnett ii we addressed the arguments made by the parties herein regarding sec_911 the u s court_of_appeals for the seventh circuit agreed with our analysis of sec_911 and affirmed our conclusion that antarctica is not a foreign_country pursuant to sec_911 and the regulations thereunder arnett v commissioner f 3d pincite we shall not repeat our analysis from arnett i herein we follow our analysis and holding in arnett i and the analysis and holding of the court_of_appeals in arnett ii in 126_tc_89 affd 473_f3d_790 7th cir we concluded our opinion with a continued iv conclusion accordingly for the reasons stated in arnett i arnett ii and herein we conclude that petitioner cannot exclude from gross_income wages earned during from working in antarctica to reflect the foregoing an appropriate order and decision will be entered continued citation of sec_863 suggesting that sec_863 provided an additional reason to rule against the taxpayer id pincite see also sec_863 providing that income earned in antarctica by a u_s_person is sourced in the united_states in arnett v commissioner f 3d pincite the u s court_of_appeals for the seventh circuit addressed sec_863 in greater detail stating at the outset we think that it is important to note that considering antarctica not to be a foreign_country is compatible with the general statutory scheme notably sec_911 is found under subtitle a chapter subchapter_n of the irc which is designated tax based on income from sources within or without the united_states part i of this subchapter entitled source_rules and other general rules relating to foreign_income deems any activity in antarctica to be space_or_ocean_activity in turn the united_states is designated the source country of income from such activity when earned by a citizen_of_the_united_states sec_863 although this provision does not provide a definitive answer as to whether antarctica is a foreign_country it supports the conclusion that sec_911 is not intended to apply to income earned for services provided in antarctica we take this opportunity to state our agreement with the court of appeals’ conclusion set forth above see also 450_us_1