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 b04 plr-152407-07 date date --------------------------- -------------------------- ------------------------------------------ --------------------------------------------------- ------------------------------------------------ ---------------------------------------- -------------------------------------- -------------------------- ------- ------- donor donor trust trust trust trust trust date year year x accountant ------------------------------ month-year ---------------------- ----------- dear ------------------------------ this is in response to your submission dated date requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and of the procedure and administration regulations to allocate generation-skipping_transfer gst tax exemption on date donor and donor created trusts one for the benefit of each of their five children and their issue in month-year donor and donor each transferred dollar_figurex in cash and marketable_securities to each trust the gifts were reported on timely filed form sec_709 united_states gift and generation-skipping_transfer_tax returns the form sec_709 were prepared by accountant the returns failed to allocate donor 1’s and donor 2’s gst_exemption to their respective transfers to trusts in year as part of the updating of the testamentary instruments of donor and donor accountant discovered the failure it is represented that all relevant parties are alive at plr-152407-07 this time that there have been no generation-skipping transfers from the trusts and that there has been no subsequent use of the gst_exemption of donor or donor sec_2601 imposes a tax on every generation-skipping_transfer a generation- skipping transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines the applicable_rate as the product of the maximum estate_tax rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip sec_2631 as effective in the year at issue provided 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 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 provides in relevant part that if the allocation of the gst_exemption to any transfers of property is made on a timely filed gift_tax_return or is deemed to be made under sec_2632 or c the value of such property for purposes of determining the inclusion_ratio shall be its value as finally determined for gift_tax purposes and such allocation shall be effective on and after the date of such transfer sec_2642 provides generally 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 ' b or and an election under ' b or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph plr-152407-07 sec_2642 provides that in determining whether to grant relief under this paragraph 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 for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under ' g b 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_transfer_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 ' b or b or an election described in ' b or c under the provisions of ' sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with ' g b and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in ' b or b or an election described in ' b or c under the provisions of ' sec_301_9100-3 provides in part that requests for relief subject_to 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 the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides in part except as provided in sec_301_9100-3 through iii 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 sec_301_9100-3 provides in part that the commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the government will not be prejudiced by the granting of relief based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly an extension of time of days from the date of this letter is granted in which to allocate donor 1’s and donor 2’s gst_exemption to their respective month-year transfers to trusts the allocations will be effective as of the date of the transfers to trusts the allocations should be made on supplemental form sec_709 for year and filed with the internal plr-152407-07 revenue service_center cincinnati ohio a copy of this letter should be attached to each supplemental form_709 two copies are enclosed for this purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely william p o'shea associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


department of the treasury s 3s internal_revenue_service washington d c sep tax_exempt_and_government_entities_division set ep’ iza ti uniform issue list legend taxpayer a irab financial_institution c ira d financial_institution e amount dear this letter is in response to a request for a letter_ruling dated date as modified and supplemented by additional correspondence dated june and date from your authorized representative in which you have applied for a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to the sudden death of her spouse during the 60-day period taxpayer a further represents that amount has not been used for any purpose taxpayer a maintained ira b an individual_retirement_account under sec_408 of the code with financial_institution c on december taxpayer a closed her ira with financial_institution c with the intention to complete a direct_rollover to another ira on january 20c taxpayer's a’s husband died suddenly as a result of her husband’s death taxpayer a was unable to complete the rollover within the 60-day period on april taxpayer a deposited amount in ira d with financial_institution e based on the above facts and representations you request that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 of the code any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 of the code does not apply to any amount described in sec_408 of the code received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 of the code from an ira which was not includible in gross_income because of the application of sec_408 of the code sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and the documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover of amount was due to the sudden death of her husband within the 60-day rollover period therefore pursuant to sec_408 of the code the service hereby waives the day rollover requirement with respect to the distribution of amount from ira b provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount contributed to ira d will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter 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_ruling has been sent to your authorized representative pursuant to a power_of_attorney on file in this office contact if you wish to inquire about this ruling please at sincerely yours cable wille carlton a watkins manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b9-plr-148838-02 date date re legend date grantor original trust a b state state statute dear in a letter dated date you requested rulings concerning the income and generation-skipping_transfer gst tax consequences of the proposed division of an irrevocable_trust into two separate and equal successor trusts this letter responds to your request the information submitted and the representations made are summarized as follows on date grantor created the original trust an irrevocable_trust for the benefit of grantor’s children a and b under the provisions of the original trust the trust will terminate at the death of the survivor of a and b paragraph i of the original trust provides that during the trust term the trustee shall pay the net_income of the trust to the children of grantor or the surviving issue equally per stirpes and upon the expiration of the trust term pay the principal of the trust equally per stirpes to the children of grantor or their surviving issue or if none of the foregoing survive to the next of kin of grantor as determined under the laws of state equally per stirpes plr-148838-02 paragraph ii provides that any beneficiary who is a child of grantor or an issue thereof leaving a surviving_spouse may appoint in his or her will that upon his or her death the trustees shall pay to the spouse so much or the whole of the share of income to which the deceased beneficiary was entitled to at his or her death for so much of the spouse’s life that does not exceed the term of the trust and provided the spouse survives the term of the trust then upon the expiration of the trust term shall pay to the spouse so much or the whole of the share principal that the deceased beneficiary would have been entitled to if he or she survived until distribution no appointment shall be valid for more than one-half of the share of income or principal if the deceased beneficiary is survived by issue as well as by a spouse in default of the appointment and so far as the appointment does not extend or if there is no surviving_spouse or upon the subsequent death of the surviving_spouse within the term of the trust the trustees shall pay over the income or principal as though the spouse predeceased the beneficiary under paragraph xv the governing law is that of state section a of the state statute provides that the trustee of an express trust may divide a_trust into two or more separate trusts with the consent of all persons interested in the trust but without prior court approval for any reason which is not directly contrary to the primary purpose of the trust all interested persons have consented to a proposed division of the original trust into two separate successor trusts one for the benefit of a and her issue and another for the benefit of b and her issue the provisions of each of the successor trusts would be identical to those of the original trust and to each other except that each would only have one of grantor’s children and her issue as beneficiaries in their ruling_request the trustees assert that the purpose of the successor trusts is to provide administrative convenience and to enable each successor trust to pursue different investment goals the trustees have represented that each successor trust will be funded with a pro_rata portion of each asset in the original trust the trustees requested the following rulings the proposed division of the original trust into two separate and equal trusts will not cause the resulting two separate trusts to lose their exempt status for gst tax purposes and will not subject the original trust the two successor trusts or distributions from any of these trusts to the gst tax under sec_2601 of the internal_revenue_code the proposed division and the distribution of the original trust assets to the two successor trusts will not cause any beneficiary the original trust or the two successor trusts to recognize any gain_or_loss from a sale_or_other_disposition of the property under sec_61 and sec_1001 plr-148838-02 the proposed division and distribution will not result in a transfer subject_to gift_tax under sec_2501 the basis of each successor trust in each asset received from the original trust will be the same as the original trust's basis in that asset pursuant to sec_1015 the holding_period of each successor trust for each asset received from the original trust will include the original trust's holding_period for that asset according to sec_1223 ruling_request sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 provides that for purposes of the gst tax the term generation skipping-transfer means a taxable_distribution a taxable_termination and a direct_skip sec_26_2601-1 of the generation-skipping_transfer_tax regulations provides in part that the gst tax does not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date the rule_of the preceding sentence does not apply to a pro_rata portion of any generation-skipping_transfer under an irrevocable_trust if additions are made to the trust after date sec_26_2601-1 provides that except as provided in sec_26_2601-1 or c any trust as defined in sec_2652 in existence on date is considered an irrevocable_trust sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of sec_26_2601-1 a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in plr-148838-02 either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example illustrates a situation where a_trust that is otherwise exempt from the gst tax is divided into two trusts under the facts presented the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division and the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust accordingly the two partitioned trusts will not be subject_to the provisions of chapter in this case the proposed division of the original trust into two separate and equal trusts will not result in a shift of any beneficial_interest in the original trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the persons who held the beneficial_interest prior to the division further the proposed division will not extend the time for vesting of any beneficial_interest in the two successor trusts beyond the period provided for in the original trust accordingly based on the information submitted and representations made we conclude that the proposed division of the original trust into two separate and equal trusts will not cause the original trust and the two separate successor trusts to lose their exempt status for generation-skipping_transfer_tax purposes furthermore as long as there are no additions to the original trust or the successor trusts any distributions from these trusts will not be subject_to the gst tax ruling_request sec_61 provides that gross_income means all income from whatever source derived sec_61 provides that gross_income includes gains derived from dealings in property plr-148838-02 sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property sec_1001 provides that except as otherwise provided in subtitle a the entire amount of the gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained revrul_69_486 1969_2_cb_159 involved two beneficiaries of a_trust who by mutual agreement requested that the trustee distribute all of the trust corpus consisting of notes to one of the beneficiaries and all of the trust corpus consisting of common_stock to the other beneficiary the trust instrument as well as local law was silent regarding whether the trustee had the authority to make such a non-pro rata distribution_of_property in_kind because the trustee was not specifically authorized to make an allocation of specific property in_kind the beneficiaries were treated as having an absolute right to a ratable in-kind distribution revrul_69_486 treated the beneficiaries as receiving the notes and common_stock pro_rata followed by an exchange between the beneficiaries giving all of the common_stock to one and all of the notes to the other since in substance an exchange between the beneficiaries was deemed to occur revrul_69_486 held that the beneficiaries recognized gain under sec_1001 and sec_1002 the present case is distinguishable from revrul_69_486 because the assets of the original trust will be distributed pro_rata in_kind and in extent to the successor trusts in addition although the original trust instrument does not address whether the trustee is permitted to make a pro_rata distribution_of_property in_kind a pro_rata in extent distribution_of_property is expressly permissible under applicable state law rather than assessing tax_liability on the basis of annual fluctuations in the value of a taxpayer’s property_tax consequences of a gain_or_loss in property value are deferred until the taxpayer realizes the gain_or_loss 252_us_189 holding a pro_rata stock_dividend merely reflected the increased worth of the taxpayer’s stock and the taxpayer realizes increased worth of property only by receiving something of exchangeable value proceeding from the property plr-148838-02 in 499_us_554 the supreme court addressed whether a sale_or_exchange has taken place that results in a realization of gain_or_loss under sec_1001 the court stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different consequently the court held that an exchange of mortgages constituted a realization event under sec_1001 because the exchanged interests - loans that were made to different obligors and secured_by different homes - were legally distinct entitlements in this case the provisions of each of the successor trusts would be identical to those of the original trust and to each other except that each would only have one child and her issue as beneficiaries the beneficiaries of each successor trust would have the same property interests and legal entitlements as they had under the original trust accordingly it is consistent with cottage savings to find that the beneficiaries’ interests after the proposed distribution of the original trust corpus into two successor trusts will not differ materially from the beneficiaries’ interests under the original trust thus the division of the original trust into two successor trusts will not be a sale exchange or other_disposition of property of the original trust and will not give rise to a realization of income to any beneficiary the original trust or the successor trusts under sec_61 or sec_1001 ruling_request sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that subject_to certain limitations the gift_tax applies whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible in this case upon the division of the original trust into the two separate successor trusts each beneficiary of the successor trusts will have the same beneficial_interest as he or she had under the original trust because the beneficial interests of the beneficiaries are substantially the same both before and after the proposed transaction no transfer of property will be deemed to occur as a result of the division accordingly we conclude that the proposed division of the original trust and the distribution of the assets of the original trust among the two successor trusts will not result in a transfer subject_to gift_tax under sec_2501 by any of the beneficiaries ruling_request and sec_1015 provides that if the property was acquired by a transfer in trust other than by a transfer in trust by a gift bequest or devise the basis shall be the plr-148838-02 same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer sec_1_1015-2 provides that in the case of property acquired by transfer in trust other than by a transfer in trust by a gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor upon such transfer under the law applicable to the year in which the transfer was made in addition the principles in sec_1_1015-1 concerning the uniform basis are applicable in determining the basis_of_property where more than one person acquires an interest in property by transfer in trust sec_1_1015-1 provides that property acquired by gift has a single or uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 because sec_1001 will not apply to the proposed division of the original trust the basis of the assets in the two successor trusts will be the same as the basis of the assets currently held in the original trust sec_1223 provides in part that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under chapter of subtitle a such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayers hands as it would have in the hands of such other person accordingly based on facts submitted and the representations made we conclude that after the division of the original trust into two separate trusts the basis and holding periods of the assets held in the two separate trusts will be the same as the basis and holding periods of the assets held in the original trust except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 pursuant to the power_of_attorney and declaration of representative on file with this office a copy of this letter is being sent to taxpayer’s representative plr-148838-02 this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely james f hogan james f hogan senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosure copy for purposes


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 b03 plr-111738-07 date date legend x --------------------------------------------------------------------------------------------------- ------------------------- y --------------------------------------------------------------------------------------------------- ------------------------- country ------------------------------------ date dear ------------- -------------------------- this letter responds to a letter dated date submitted on behalf of y by y’s authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a disregarded_entity facts y was incorporated under country law on date y is a wholly-owned subsidiary of x y represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x intended that y be classified as a disregarded_entity of x effective date however due to inadvertence form_8832 entity classification election to treat y as a disregarded_entity effective date was not timely filed plr-111738-07 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 as provided in sec_301_7701-3 sec_301_7701-3 provides that unless the entity elects otherwise a sec_301_7701-3 provides that an election made under sec_301_7701-3 provides that an eligible_entity may elect to be sec_301_7701-3 provides that a member of a foreign eligible_entity foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member this determination is based solely on the statute or law pursuant to which the entity is organized classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time 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 six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 plr-111738-07 taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result y is granted an extension of time of sixty days from the date of this letter to elect to be classified as a disregarded_entity for federal tax purposes effective date the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination sincerely s william p o'shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


third party communication none date of communication not applicable office_of_chief_counsel internal_revenue_service memorandum number release date cc psi b07 mhbeker postn-128397-12 uilc date date to holly l mccann chief excise_tax program from frank boland chief branch office of the associate chief_counsel passthroughs special industries subject alaska bush flights this chief_counsel_advice responds to your request for assistance dated date this advice may not be used or cited as precedent issue sec_1 whether amounts paid for the six flight services described in the facts below are subject_to the taxes imposed by sec_4261 of the internal_revenue_code code if amounts paid for a flight service described in the facts below are subject_to the taxes imposed by sec_4261 are amounts paid for the flight segments for that particular service exempt from the tax imposed by sec_4261 domestic_segment tax by reason of sec_4261 rural_airport exemption conclusion sec_1 amounts paid for flightseeing tours bear viewing platform day tours bear viewing boat tours and charter service described in the facts below are not subject_to the taxes imposed by sec_4261 amounts paid for fly-fishing day tours and lodge service are subject_to the taxes imposed by sec_4261 amounts paid for fly-fishing day tours and lodge service are exempt from the domestic_segment tax under the rural_airport exemption postn-128397-12 facts these facts describe events that occurred after date six unrelated air tour and aircraft charter companies operator operator operator operator operator and operator collectively operators offer various air transportation services in alaska all of the aircraft in the operators’ fleets are piston- driven float planes with a maximum certified takeoff weight of big_number pounds or less all of the operators’ tour flights originate from an airport home bases that receives financial assistance from the airport and airways trust fund this airport is not a rural_airport as that term is defined in sec_4261 of the code all of the sites other than their home bases to which the operators fly had fewer than big_number commercial passengers departing by air during the second preceding calendar_year before any of the flights described herein occurred in addition none of the sites other than their home bases to which the operators fly are connected by paved roads to another airport the operators offer the following services flightseeing tour a customer that purchases a flightseeing tour boards an aircraft at operator 1’s home base flies to a remote region of alaska to view mountains glaciers and other natural features from the aircraft and returns to operator 1’s home base the flight lasts from half an hour to three hours depending on the tour selected by the customer the aircraft does not land at any of the natural features during the flightseeing tour the aircraft takes off from and lands at the same point bear viewing platform day tour a customer that purchases a bear viewing platform day tour boards an aircraft at operator 2’s home base and flies to a national park or other scenic location where the aircraft lands on a body of water after landing the customer deplanes and walks a short distance to a platform where the customer views wild bears while on the ground the customer may have a box lunch but does not engage in any other activities such as fishing or kayaking after a few hours the customer re-boards the aircraft which may or may not wait on site and returns to operator 2’s home base the bear viewing platform day tour begins and ends on the same calendar day bear viewing boat tour a customer that purchases a bear viewing boat tour chooses a destination from a list of options provided by operator boards an aircraft at operator 3’s home base and flies to a national park or other scenic location where the aircraft lands on a body of water after landing the aircraft docks and the customer deplanes and boards a boat at the same or nearby dock postn-128397-12 the boat then cruises around the body of water while the passengers and a guide look for wild bears the customer remains on the boat with a guide the entire time the group is bear watching the boat then returns to the dock from which the boat departed and the customer may have lunch lunch is served at a lodge that is walking distance from the dock after lunch the customer re-boards the aircraft which may or may not wait on site and returns to operator 3’s home base the bear viewing boat tour begins and ends on the same calendar day fly-fishing day tour a customer that purchases a fly-fishing day tour chooses a fishing location from a list of options provided by operator boards an aircraft at operator 4’s home base and flies to a remote_area of alaska where the aircraft lands on a body of water at the selected location all of the fly-fishing locations are accessible only by aircraft or boat after landing the customer deplanes and is accompanied by a guide for a day of fly-fishing at the end of the day the customer re-boards the aircraft which may or may not wait on site and returns to operator 4’s home base also included in this category of flight services are tours that involve activities such as kayaking where the customer spends the day kayaking rather than fly-fishing most days during the summer season operator offers daily or near-daily departures for these tours and the aircraft used is determined by operator based on the total number of passengers that signed up for the tour lodge service operator partners with several lodges located in the alaska wilderness that are accessible only by aircraft or boat a customer that purchases lodge service is flown from operator 5’s home base to one of the lodges after several days operator returns to the lodge and flies the customer back to operator 5’s home base most days during the summer season operator offers daily or near-daily departures to the lodges and the aircraft used is determined by operator based on the total number of passengers flying to or from the lodges charter service operator offers private charter service to fly customers to locations it otherwise does not service a customer that purchases charter service arranges with operator the departure time departure location destination and either specifies the type of aircraft for the flight or works with operator to choose the appropriate aircraft to fit the customer’s needs law and analysis sec_4261 of the code imposes a tax on the amount_paid for the taxable_transportation of any person taxable_transportation is defined in sec_4262 to generally include transportation by air that begins and ends in the united_states sec_4261 provides that the tax is paid_by the person making the payment subject_to tax and sec_4291 provides that the tax is collected by the person receiving the payment postn-128397-12 sec_4261 domestic_segment tax imposes a tax on amounts paid for each domestic_segment of taxable_transportation a domestic_segment is defined in sec_4261 as any segment consisting of one takeoff and one landing and which is taxable_transportation sec_4261 exempts from the domestic_segment tax amounts paid for segments beginning or ending at rural airports sec_4261 defines the term rural_airport as any airport if i there were fewer than big_number commercial passengers departing by air in the case of any airport not connected by paved roads to another airport on flight segments of at least miles during the second preceding calendar_year from such airport and ii such airport i is not located within miles of another airport which is not described in sec_4261 ii is receiving essential air service subsidies as of the date of the enactment of sec_4261 or iii is not connected by paved roads to another airport sec_4261 exempts from the taxes imposed by sec_4261 amounts paid for any air transportation by a seaplane with respect to any segment consisting of a takeoff from and a landing on water but only if the places at which such takeoff and landing occur have not received and are not receiving financial assistance from the airport and airways trust fund sec_4281 provides that the taxes imposed by sec_4261 do not apply to transportation by an aircraft having a maximum_certificated_takeoff_weight of big_number pounds or less except when the aircraft is operated on an established line or when such aircraft is a jet_aircraft for purposes of the preceding sentence the term maximum_certificated_takeoff_weight means the maximum such weight contained in the type certificate or airworthiness certificate for purposes of sec_4281 an aircraft is not considered as operated on an established line at any time during which such aircraft is being operated on a flight the sole purpose of which is sightseeing sec_49_4263-5 of the facilities and services excise_taxes regulations regulations defines the term operated on an established line to mean operated with some degree of regularity between definite points it does not necessarily mean that strict regularity of schedule is maintained that the full run is always made that a particular route is followed or that intermediate stops are restricted the term implies that the person rendering the service maintains and exercises control_over the direction the requirement that amounts paid must be for transportation provided on non-jet powered aircraft was added to sec_4281 by section of the faa modernization and reform act of pub l the requirement applies to taxable_transportation provided after date this change to the law does not affect this case because none of the transportation at issue here was provided on jet powered aircraft postn-128397-12 route time number of passengers carried etc the safe accountable flexible efficient transportation equity act a legacy for users safetea-lu publaw_109_59 date added the last sentence to sec_4281 providing that sightseeing flights are not operated on established lines the code does not define the term sightseeing for purposes of sec_4281 and the irs has not issued guidance defining the term however the senate_finance_committee committee report report to safetea-lu s rep explains that sightseeing flights-- include flights of short duration that overlook a glacier volcano the grand canyon or other similar attraction and for which the air tour begins and ends at the same point by short duration the committee intends that the tour occur within a calendar day irrespective of intermittent stops to view the attraction in addition all passengers from the initial point of departure must return with the aircraft at the conclusion of the tour the report also explains the policy behind the provision - that such flights are primarily for entertainment rather than for transportation from one place to another and so should be treated as noncommercial_aviation you asked whether the taxes imposed by sec_4261 apply to amounts paid for the flight services described in the facts above the six flight services described above involve air transportation that begins and ends in the united_states thus the operators are providing taxable_transportation and the taxes imposed by sec_4261 apply to the amounts paid for these flights unless the code otherwise exempts the amounts paid for the flight services from the taxes the taxability of air transportation services is determined on a flight-by-flight basis exemption for seaplanes all of the flight services offered by the operators are provided on float planes and all of the flights originate from or return to the operators’ home bases which receives financial assistance from the airport and airways trust fund because all of the operators’ flights either take off from or land at a seabase that receives financial assistance from the airport and airways trust fund sec_4261 does not exempt from tax amounts paid for these flights exemption for small aircraft on a nonestablished line the sec_4281 exemption applies to air transportation if the aircraft-- has a maximum_certificated_takeoff_weight of big_number pounds or less and a is not operated on an established line or b is on a flight the sole purpose of which is sightseeing postn-128397-12 the operators use piston-driven aircraft with maximum certified takeoff weight of big_number pounds or less therefore the aircraft used for all of the flight services satisfy item item is satisfied if the aircraft is either a not operated on an established line or b solely for the purpose of sightseeing if the flight meets neither of these tests then the flight does not qualify for the sec_4281 exemption flightseeing tours flightseeing tours involve over-flights of scenic areas that depart from and return to operator 1’s home base flightseeing tours are short duration flights that overlook a glacier or other similar attraction and which begin and end at the same point on the same day in addition all passengers from the initial point of departure return with the aircraft at the conclusion of the tour therefore these flights are solely for the purpose of sightseeing and item b is satisfied bear viewing platform day tour bear viewing platform day tours involve flights to wild bear habitats a stop of several hours at the habitat to view bears and a return flight to operator 2’s home base these tours are short in duration occurring within a calendar day and involve flights with an intermittent stop to view wild bears in their natural habitat while on the ground the passengers leave the aircraft and walk a short distance but only for the purpose of viewing the bears the passengers do not participate in any other activities in addition all passengers from the initial point of departure return with the aircraft at the conclusion of the tour therefore these flights are solely for the purpose of sightseeing and item b is satisfied bear viewing boat tour bear viewing boat tours involve flights to wild bear habitats a stop of several hours during which the customer cruises around a body of water to view wild bears from a boat and a return flight to operator 3’s home base these tours are short in duration occurring within a calendar day and involve flights with an intermittent stop to view wild bears in their natural habitat while on the ground the passengers leave the aircraft and board a boat but only for the purpose of viewing the bears the passengers do not participate in any other activities while on the boat such as fishing or waterskiing the sole purpose of the boat is to provide a mobile viewing platform to watch wild bears customers begin and end the trip from a single point and do not dock at any other location during the tour the boat is not used to transport customers in the same sense that a ferryboat transports passengers from one point to a different point across a body of water and all passengers from the initial point of departure return with the aircraft at the conclusion of the tour therefore these flights are solely for the purpose of sightseeing and item b is satisfied postn-128397-12 fly-fishing day tour sightseeing fly-fishing day tours involve flights to remote sections of river a stop of several hours to fly-fish and a return flight to operator 4’s home base the purpose of these flights is not to overlook a glacier volcano or other similar attraction but rather to transport the passenger from one location to another location to engage in an activity that is not sightseeing these flights are essentially no different than purchasing a ticket on a commercial airline to fly from one’s home city to another city to engage in an activity there therefore fly-fishing day tours are not sightseeing flights as that term is used in sec_4281 established line an aircraft is operated on an established line if the aircraft is operated with some degree of regularity between definite points even though strict regularity of schedule is not maintained and the operator of the aircraft maintains and exercises control_over the direction route time and number of passengers carried the crux of regularity is that the public can rely on the transportation a fixed schedule is not required papillon airways inc v u s no 09-297t wl at fed cl date however some form of scheduled air service whether advertised or merely existing in fact is necessary service on demand is not by itself sufficient even where such service is characterized by a substantial number of flights the fly-fishing day tours are operated with some degree of regularity because the tours are offered daily even though some flights may be cancelled because of bad weather or lack of customers because the customer chooses a destination from a list of options offered by operator these flights are operated between definite points even though the exact landing spot on a river or lake may vary with the weather and fishing conditions of each day for example in 409_fedappx_64 9th cir the definite points requirement was satisfied even though the exact landing points on a glacier varied with the conditions of the day also operator maintains the requisite control_over the flights because operator decides what tours to offer which aircraft to fly when to schedule flights the route to take and where to land it also decides the maximum number of passengers allowed and whether to cancel a flight for insufficient sales when purchasing a fly-fishing day tour a customer cannot simply call operator and inform them of their departure time thus the fly-fishing day tours are operated on an established line and are subject_to the tax imposed by sec_4261 lodge service sightseeing lodge service is similar to the fly-fishing tours as the purpose of these flights is to transport the passenger from one location to another location to visit a lodge and engage in activities organized by the lodge like the fly-fishing day tours these flights are essentially no different than purchasing a ticket on a commercial airline to fly postn-128397-12 from one’s home city to another city to engage in an activity there therefore lodge service is not sightseeing flights as that term is used in sec_4281 established line lodge service is similar to fly-fishing tours as the flights are operated with some degree of regularity between operator 5’s home base and the operator 5’s partner lodges operator maintains the requisite control_over the flights because operator maintains control_over time of departure route number of passengers to take and whether to cancel a flight for insufficient sales thus the lodge service is operated on an established line and are subject_to the tax imposed by sec_4261 charter service sightseeing charter service is similar to the fly-fishing tours and lodge service as the purpose of these flights is to transport the passenger from one location to another location to engage in activities at the destination like the fly-fishing day tours and lodge service these flights are essentially no different than purchasing a ticket on a commercial airline to fly from one’s home city to another city to engage in an activity there therefore charter service is not sightseeing flights as that term is used in sec_4281 established line unlike fly-fishing tours and lodge service charter services are not operated with some degree of regularity between operator 6’s home base and the charter flight destinations operator does not maintain control_over time of departure route number of passengers to take and whether to cancel a flight for insufficient sales like it does for its other services thus the charter service is not operated on an established line and is not subject_to the tax imposed by sec_4261 exemption for rural airports you also asked whether those flight services that are not exempted from sec_4261 taxes by operation of sec_4281 fly-fishing day tours and lodge service are nevertheless exempted from the domestic_segment tax by sec_4261 the rural_airport exemption an amount_paid for a flight_segment is exempt from the domestic_segment tax if the segment begins or ends at a rural_airport the facts state that the operators’ home bases are not rural airports however amounts paid for flight segments that begin or if a customer charters an aircraft having a maximum_certificated_takeoff_weight of big_number pounds or more sec_4281 would not exempt amounts paid for the flight from the taxes imposed by sec_4261 in that case the amount_paid for the charter is subject_to the tax imposed by sec_4261 however applying the analysis discussed below amounts paid for the charter flights would be exempt from the domestic_segment tax postn-128397-12 end at the operators’ home bases are exempt from the domestic_segment tax if the destination or origin of the flight is a rural_airport revproc_2005_45 2005_2_cb_141 allows taxpayers to rely on a list of rural airports published by the u s department of transportation office of the secretary of transportation usdot list to determine whether an airport is a rural_airport however any airport not on the usdot list qualifies as a rural_airport if it meets the requirements of sec_4261 none of the destinations to which the operators fly is on the usdot list therefore we must first determine whether the landing site is an airport and if we determine that it is we must then determine whether the airport is rural by applying sec_4261 neither the code irs published guidance nor the legislative_history define the word airport for purposes of the rural_airport exemption although revrul_78_75 1978_1_cb_340 holds that regulations issued by the federal aviation administration faa are not determinative for air transportation excise_tax purposes the service sometimes considers external sources including dictionaries as an aid in construction when those sources do not conflict with the code or irs published guidance or such guidance is silent in this case the faa’s definition of airport in the federal aviation regulations far which is consistent with dictionary definitions of the term is informative far cfr defines airport as an area of land or water that is used or intended to be used for the landing and takeoff of aircraft and includes its buildings and facilities if any the remote bodies of water on which the operators land and takeoff are among the types of areas that congress intended to include when it created the rural_airport exemption a narrow reading of the word airport to only mean a transportation facility with a terminal building and control tower would undermine the purpose of the exemption by excluding from it some rural air facilities the broader reading of the word airport is further supported by the definition of airport in far cfr accordingly these areas of water are airports for purposes of the rural_airport exemption we must next determine whether these airports are rural as defined in sec_4261 applying sec_4261 we first look at the number of commercial passengers that depart by air from the airports fewer than big_number commercial passengers depart from the bodies of water to which the operators fly therefore clause i of sec_4261 is satisfied clause ii of sec_4261 looks at the connectivity of the airport at issue with other airports to satisfy this test the airport must satisfy one of three conditions the airport postn-128397-12 i is not located within miles of another airport that has a minimum of big_number commercial passengers departing by air during the second preceding calendar_year from such airport ii is receiving essential air service subsidies as of date or iii is not connected by paved roads to another airport clause ii of sec_4261 is also satisfied because all of the airports to which the operators fly are accessible only by air or boat none of the airports are connected to other airports by paved roads because sec_4261 and ii are satisfied the sites to which the operators fly are rural airports accordingly we conclude that amounts paid for the fly-fishing day tours and lodge service are exempt from the domestic_segment tax please call michael beker at if you have any further questions because the rural_airport exemption to the domestic_segment tax does not depend on the weight of the aircraft we would reach the same conclusion if the aircraft used for these flights have a maximum_certificated_takeoff_weight of big_number pounds or more


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 ----------------------------------------------------- ----------------- telephone number --------------------- refer reply to cc ita b04 plr-138009-12 date date ty --------------------------- dear ------------- this letter responds to your request dated date for a ruling concerning whether --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------- statement of facts taxpayer is a stockholder-owned corporation organized under title iii of the emergency home finance act of congress chartered taxpayer in taxpayer’s annual_accounting_period is the calendar_year and its overall_method_of_accounting is an accrual_method taxpayer purchases residential mortgages and mortgage-related securities in the secondary market and securitizes them into mortgage-backed_securities mbs that it sells to investors for example taxpayer purchases mortgage loans and issues to unrelated investors certificates representing interests in pools of those mortgage loans taxpayer generally guarantees timely payment of principal and interest on mbs taxpayer earns a guarantee fee from its activities by insuring that investors receive timely principal and interest payments on mbs regardless of the credit performance of the underlying mortgages generally a portion of the interest on each mortgage loan pooled in an mbs is paid as a servicing fee to the servicer and a guarantee fee to --- plr-138009-12 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------1 --------------------------------------------------------------------------------------------------------------------- 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--------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ applicable law and analysis sec_61 of the internal_revenue_code generally provides that gross_income means all income from whatever source derived including but not limited to compensation_for services including fees and similar items gross_income derived from business gains derived from dealings in property and interest ------------------------------------------------------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- plr-138009-12 sec_162 provides a deduction for all ordinary and necessary business_expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business sec_461 provides that the amount of any deduction or credit is taken for the taxable_year that is the proper taxable_year under the method_of_accounting used in computing taxable_income sec_1_461-1 of the income_tax regulations provides that under an accrual_method of accounting a liability is incurred and generally is taken into account for federal_income_tax purposes in the taxable_year in which all events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability see also sec_1_446-1 sec_1_461-4 provides guidance with respect to certain liabilities for which payment is economic_performance ie payment liabilities sec_1_461-4 provides in part that in the case of liabilities described in paragraphs g through g of this section economic_performance occurs when and to the extent that payment is made to the person to which the liability is owed sec_1_461-4 provides that in the case of a taxpayer’s liability for which economic_performance rules are not provided elsewhere economic_performance occurs as the taxpayer makes payments in satisfaction of the liability to the person to which the liability is owed sec_1_461-5 provides that except as otherwise provided in paragraph c of this section a taxpayer using an accrual_method of accounting may adopt the recurring_item_exception described in paragraph b of this section as a method_of_accounting for one or more types of recurring items incurred by the taxpayer see also sec_461 sec_1_461-5 provides that the recurring_item_exception does not apply to any liability of a taxpayer described in among others paragraphs paragraph g other liabilities of sec_1_461-4 in determining what constitutes income the supreme court has stated that sec_61 brings within the definition of income any undeniable accessions to wealth clearly realized and over which the taxpayers have complete dominion 348_us_426 see also burke v 504_us_229 the court has also consistently held that when a taxpayer acquires earnings lawfully or unlawfully without the consensual recognition expressed or implied of an obligation to repay and without restriction as to their disposition ‘he has received income ’ 366_us_213 quoting 286_us_417 plr-138009-12 in a more recent case the court has held that in determining whether a taxpayer enjoys ’complete dominion’ over a given sum the crucial point is not whether his use of the funds is unconstrained during some interim period the key is whether the taxpayer has some guarantee that he will be allowed to keep the money 493_us_203 when a taxpayer receives money or property for someone else’s use or benefit such receipt is not income to the taxpayer in revrul_74_321 1974_2_cb_16 a regulated farm credit production association received credit insurance premiums from member borrowers for payment to an insurer the association also received dividends from the insurer that were used for the benefit of members to reduce future premiums the service held that neither the payments nor the dividends received by the association are includible in the income of the association because the payments were earmarked and retained for the benefit of the member borrowers not the association from the time received until expended see also 14_tc_965 acq in result 1974_2_cb_1 concluding that a manufacturer’s receipt of funds from participating bottlers for a national advertising campaign was includible in gross_income because the funds benefitted the payors not the manufacturer similarly if a taxpayer receives a payment under a binding legal_obligation to remit the payment to another or as an agent receiving amounts on behalf of a principal the taxpayer is deemed to be a mere conduit of those funds and is not required to include the payment in income see revrul_76_479 1976_2_cb_20 revrul_69_274 1969_1_cb_36 revrul_65_282 1965_2_cb_21 and revrul_58_220 1958_1_cb_26 for instances in which the irs has held that a taxpayer does not have gross_income upon receipt of a payment because the taxpayer receives the payment as a conduit for the ultimate recipient in this case taxpayer is not allowed to keep the tcca fees it collects instead taxpayer has a binding legal_obligation to collect and turn over the tcca fees to treasury and collects them as a mere conduit for treasury thus taxpayer’s receipt of the service acquiesced only in the result of seven-up co on the ground that the correct party to be charged with the income and deductions for the advertising was an unincorporated association consisting of the manufacturer and bottlers the action on decision states that the entity has income in the amounts contributed by the bottlers because it has the power to exercise day-to-day business judgments and to control the details respecting the manner in which the funds shall be expended in achieving the overall purpose of the fund aod lexi sec_264 date ---------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------- plr-138009-12 --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------3 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- 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--------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- this is supported by revrul_74_321 which concluded that since a credit association acted as an agent for borrowers to collect and pay insurance premiums and to hold insurance dividends it therefore is not required to include the payments by the borrowers or the insurance dividends in its gross_income and it is not entitled to a deduction for the annual premium payment emphasis added in contrast expenditures are deductible in circumstances where a determination is made that the taxpayer is not an agent or conduit for the ultimate recipient see revrul_66_377 1966_2_cb_21 university faculty members who engage in private practice must report fees as income since they were not acting as agents of university but may deduct fees they were contractually required to turn over to the university under sec_162 plr-138009-12 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------- rulings -------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ ------------------- ------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------- disclaimers except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent you must attach a copy of this letter to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by 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 sincerely michael j montemurro branch chief branch income_tax accounting cc


internal_revenue_service number release date index number --------------------- ---------------------------- ------------------------ --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ----------------- telephone number ---------------------- refer reply to cc ita b04 plr-138083-13 date date legend taxpayer ---------------------------------------------------- affiliate affiliate property eatx eatx parent ---------------------------------------------------------------------------------------------- ------------------ ---------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- -------------------------------- ---------------------- ------------------ dear ------------- this is in reply to taxpayer’s request for a private_letter_ruling dated ------------------------- -------- concerning whether sec_1031 of the internal_revenue_code applies to a transaction in which taxpayer and two related parties enter into separate qualified exchange accommodation arrangements for parking the same property held by an exchange accommodation titleholder facts taxpayer affiliate and affiliate each own one or more commercial office buildings these entities each have targeted property for acquisition through transactions separately structured as like-kind_exchanges taxpayer wants property to serve as replacement_property for at least one relinquished_property that it owns likewise both affiliate and affiliate affiliates want property to serve as replacement_property for plr-138083-13 at least one relinquished_property that each owns taxpayer affiliate and affiliate each own one or more properties that are of like_kind to property for purposes of sec_1031 and sec_1_1031_a_-1 of the income_tax regulations taxpayer affiliate and affiliate each will initiate a reverse_like-kind_exchange under the safe_harbor provisions of revproc_2000_37 2000_2_cb_308 each will enter into a qualified exchange accommodation arrangement qeaa with eatx an exchange accommodation titleholder eatx is a limited_liability_company wholly owned by eatx parent eatx parent is not related to taxpayer or affiliates taxpayer represents that taxpayer affiliate and affiliate will each comply with the requirements of revproc_2000_37 this includes the requirement that taxpayer affiliate and affiliate have a bona_fide intent to acquire property as replacement_property in a like-kind_exchange under sec_1031 at the time eatx acquires qualified indicia of ownership in property in addition taxpayer’s qualified exchange accommodation arrangement qeaa provides that taxpayer acknowledges that eatx has entered into concurrent qeaas for property with affiliate and affiliate which give affiliate and affiliate rights to acquire property in whole or part to complete like-kind_exchanges under taxpayer’s qeaa taxpayer’s right to acquire property is subject_to it giving notice to eatx of its intention to acquire property in whole or part this is subject however to the condition that taxpayer’s rights terminate upon prior delivery of such notice by affiliate or affiliate the agreement also provides that if affiliate or affiliate gives prior notice of its intent to acquire property eatx has no further obligation to transfer property to taxpayer whether in connection with the exchange described in the agreement or otherwise the agreement also provides that if affiliate or affiliate states its intention to acquire only a portion of property eatx’s obligation to transfer the balance of property to taxpayer is unaffected affiliate and affiliate will simultaneously enter into their own respective qeaas with eatx for property listing taxpayer and the other affiliate as the other parties that may acquire property under the respective qeaas under substantially the same terms and conditions taxpayer will assign its right in the contract to purchase property to eatx which will thereafter acquire title to property using funds that the taxpayer affiliate affiliate or any related_entity advances within days thereafter taxpayer affiliate and affiliate will each identify property that each proposes to transfer as relinquished_property according to the terms of its respective qeaa with eatx taxpayer and affiliates will each separately identify potential relinquished properties consistent with the rules of sec_1_1031_k_-1 taxpayer and eatx parent will enter into an exchange_agreement taxpayer will assign to eatx parent its right under the qeaa to acquire the property within days from the time that eatx acquires title to the property eatx will at eatx parent’s discretion transfer title to the property to taxpayer in plr-138083-13 exchange for taxpayer’s relinquished_property consistent with the rules of sec_1 k - g law and analysis 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 relinquished_property if such property is exchanged solely for property of like_kind that is to be held either for productive use in a trade_or_business or for investment replacement_property under sec_1031 and sec_1_1031_k_-1 an exchange does not qualify as a like-kind_exchange unless the taxpayer identifies the replacement_property on or before days after the taxpayer transfers the relinquished_property and receives the replacement_property within the replacement_period the replacement_period ends on the earlier of-- i days after the date on which the taxpayer transfers the property relinquished in the exchange or ii the due_date including extensions of the taxpayer’s tax_return for the taxable_year in which the transfer of the relinquished_property occurs revproc_2000_37 provides a safe_harbor for structuring reverse exchanges through parking arrangements under this revenue_procedure the service treats an exchange accommodation titleholder eat as the beneficial_owner of property for federal_income_tax purposes if the property is held in a qeaa see sec_1 of revproc_2000_37 as modified by section dollar_figure of revproc_2004_51 2004_2_cb_294 revproc_2000_37 provides guidance on how to structure a like-kind_exchanges when the sale of relinquished_property is after the eat’s acquisition of replacement_property through an arrangement with the taxpayer revproc_2000_37 sets forth the following safe-harbor requirements for establishing a qeaa the eat which is not the taxpayer or a disqualified_person and is subject_to federal_income_tax must acquire a qualified indicia of ownership qio in the parked property at the time eat acquires a qio the taxpayer has a bona_fide intent that the parked property be either replacement or relinquished_property in an exchange intended to qualify for deferral of gain_or_loss under sec_1031 the eat and the taxpayer enter into a written qualified_exchange_accommodation_agreement no later than five business days after the eat acquires a qio in the parked property providing that the eat is holding the property for the benefit of the taxpayer in order to facilitate an exchange under sec_1031 and revproc_2000_37 the agreement must specify that the eat will be treated as the beneficial_owner of the parked property for federal_income_tax purposes and that both the eat and the taxpayer must report federal_income_tax plr-138083-13 attributes on their respective income_tax returns in a manner consistent with this agreement no later than days after the transfer of a qio of the replacement_property to the eat the taxpayer must properly identify the relinquished_property in a manner consistent with the principles described in sec_1_1031_k_-1 for this purpose the taxpayer may properly identify alternative or multiple properties as provided in sec_1_1031_k_-1 no later than days after the transfer of a qio of the property to the eat the property is transferred either directly or indirectly through a qualified_intermediary to the taxpayer as replacement_property or as relinquished_property to a third party buyer who is not a disqualified_person the combined time period that the qeaa may hold replacement and relinquished_property may not exceed days taxpayer represents that its exchange will satisfy the requirements for a deferred_exchange in sec_1_1031_k_-1 and the safe_harbor for reverse exchanges in revproc_2000_37 at the time eatx acquires a qio in property it will not be clear whether taxpayer affiliate or affiliate each of which has identified relinquished properties will complete the transfer of one or more such identified properties to complete the exchange within the 180-day period permitted for a qeaa under revproc_2000_37 revproc_2000_37 allows taxpayer to complete a reverse_like-kind_exchange without concern that eatx’s ownership of property will be attributed to taxpayer in addition revproc_2000_37 as modified by revproc_2004_51 does not prohibit an accommodation party from serving as an eat to multiple taxpayers including related parties under multiple and simultaneous qeaas for the same parked property moreover taxpayer’s qeaa is not invalid merely because taxpayer’s right to acquire property terminates upon prior notice by affiliate or affiliate to eatx of its intent to acquire property conclusion based strictly on the information submitted and each representation made including the representation that taxpayer and affiliates each have a bona_fide intent to acquire property pursuant to each of its qeaas we conclude as follows taxpayer’s arrangement to acquire property in whole or in part constitutes a qeaa as defined in revproc_2000_37 separate and distinct from the qeaas entered into by affiliate and affiliate with separate application of the identification rules of sec_1_1031_k_-1 except as provided in the preceding paragraph we do not express or imply an opinion concerning the tax consequences of any aspect of any transaction or item discussed or plr-138083-13 referenced in this letter for example we do not express an opinion whether taxpayer and affiliates each had a bona_fide intent to acquire property pursuant to their qeaas see sec_4 of revproc_2012_3 2012_1_irb_113 further we express no opinion concerning whether taxpayer has otherwise complied with i the requirements for deferral of gain under sec_1031 of the code and its regulations ii rev procs and and iii the provisions of its exchange_agreement with its qualified_intermediary and its qeaa with eatx this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative s a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the ruling contained in this letter is 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 sincerely michael j montemurro chief branch office of associate chief_counsel income_tax accounting cc