2uu828036 department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division a apr anise fuus uniform issue list hhh kaa hk ei kiki ik eere ere hakkar aker ree eeerere hakkar eka keira eerreeerer attn kaxkkkkkkekeekreeree legend company a raakkkkeakkereeeeeerere company b - kkk he kekrekekekeeke ik plan x rra kkhrerrakararer err plan y haakkkaaekekhakekekkaeke fund s kaakhkekkkerakkererer fund h hakkkkekekeekereeeeak date date rrr raia ier erk krkereer rrr eai e rear eir rrr e date err ere r ria eere hr date me rrr iii r err rarrr erik date er rrr i rrr ree rrr date date rarer ee rrr eheaaerier rr rehrraererier eerie dear hekkkkek this letter responds to your representative's letter dated date as supple- mented by correspondence dated date requesting rulings regarding the tax consequences of the spin-off of a subsidiary by its parent_corporation your authorized rep- resentative has submitted the following facts and representations in support of this request in a corporate_reorganization pursuant to sec_355 of the internal revenue on date code code company a spun off its branded apparel business into a stand-alone com- pany known as company b by issuing a stock_dividend of shares of company b common_stock the spin-off’ in a private_letter_ruling issued on date the office of associate chief_counsel corporate ruled that the spin-off will qualify for nonrecognition_of_gain_or_loss to q2uu82803 kakkkkkekkkekkkkkkkkkeeeek the shareholders of company a under sec_355 of the code in that same letter the office of associate chief_counsel corporate also ruled that the aggregate basis of com- pany a common_stock and company b common_stock including any fractional interest in company b common_stock in the hands of shareholders of company a common_stock im- mediately after the spin-off will be the same as the aggregate basis of the company a common_stock held by such shareholders immediately before the spin-off allocated in pro- portion to the fair_market_value of each in accordance with sec_1_358-2 of the in- come tax regulations regulations following the spin-off company a and company b will no longer be part of the same con- trolled group of corporations within the meaning of sec_414 c m or of the code company a established plan x effective date for the benefit of its employees and the employees of its participating subsidiaries plan x consists of a profit sharing plan with a cash_or_deferred_arrangement intended to satisfy the requirements of code sec_401 and sec_401 and an employee stock ownership component company a esop that is in- tended to satisfy the requirements of certain subsections of code sec_409 and code sec_4975 plan x also provides for employer matching_contributions the company a esop is designed to be invested primarily in company a shares which are employer secu- rities within the meaning of code sec_409 the company a esop consists primarily of the assets held in fund s the company a esop is leveraged under the terms of plan x company a shares that are held in suspense under the company a esop are released from the suspense_account as contributions necessary to enable the company a esop to make principal and interest payments on its outstanding loans are made to the company a esop_loan repayments are made semi-annually in june and de- cember of each year and shares are released annually following the december loan repay- ment the number of company a shares released each year bears the same proportion to the number of company a shares held immediately before the release as the semi-annual loan payments for the year bear to the total remaining loan payments required to be made under the loan under the terms of plan x eligible employees may contribute from zero percent to per- cent of compensation on a pre-tax basis subject_to the limitations of code sec_402 however highly compensated employees may not contribute more than five percent of com- pensation certain employees also may make after-tax contributions to plan x participants who make contributions to plan x also are eligible for employer matching contri- butions quired payments of loan principal and interest on the outstanding esop_loan with a mini- mum allocation to each participant of dollar_figure percent to percent of compensation plan x is an individual_account_plan that is intended to comply with sec_404 of the em- ployee retirement income security act of erisa each plan x participant is permit- ted to direct the investment of assets credited to his or her accounts under plan x in accor- dance with the terms of plan x annual employer contributions are invested initially in fund s plan x participants are permitted to elect to invest all contributions to their accounts and existing account balances in a diversified array of investment choices including fund s on in addition participants receive annual allocations based on the employers’ re- zuu sec_28u3 kakakkkkkkekkekkker aer any business_day subject_to the trading restrictions of the particular investment fund after the spin-off an additional investment fund will hold participants’ interests in company b shares for up to one year however participants will not be permitted to make new invest- ments in the fund participants may elect to receive payment of their accounts in a lump sum a partial distribu- tion or installments over a period of up to five years in the case of a former participant in a predecessor_plan certain forms of payment provided for under the predecessor_plan also may be available on termination of employment participants may elect to receive an in- kind distribution of their interests in fund s effective date company b established plan y as of date the plan x accounts of com- pany b employees were transferred to plan y in a direct trustee-to-trustee transfer of assets that satisfied the requirements of code sec_414 plan y consists of a profit sharing plan with a cash_or_deferred_arrangement intended to sat- isfy the requirements of code sec_401 and sec_401 and an employee stock ownership component company b esop that is intended to satisfy the requirements of certain sub- sections of code sec_409 and code sec_4975 the company b esop is nonleveraged and is designed to be invested primarily in employer_securities within the meaning of code sec_409 before the spin-off the company b esop was comprised of that portion of plan y invested in company a shares after the spin-off it is comprised of the employer stock fund invested in company b shares under the terms of plan y eligible employees may contribute from zero percent to per- cent of compensation on a pre-tax basis subject_to the limitations of code sec_402 however highly compensated employees may not contribute more than five percent of com- pensation with respect to periods after the spin-off each participant's employer may make all such con- matching_contributions and discretionary profit sharing contributions to plan y tributions will be made in cash plan y is an individual_account_plan that is intended to meet the requirements of sec_404 of erisa each plan y participant is permitted to direct the investment of assets cred- ited to his or her accounts under plan y in accordance with the terms of plan y participants in plan y are permitted to elect to invest contributions to their accounts and existing account balances in a diversified array of investment choices including fund h on any business_day subject_to the trading restrictions of the particular investment fund after the spin-off an additional investment fund will hold participants’ interests in company a shares for up to one year however participants will not be permitted to make new investments in the fund plan y participants may elect to receive payment of their accounts in a lump sum a partial_distribution or installments over a period of up to five years in the case of a former partici- pant in a predecessor_plan certain forms of payment provided for under the predecessor_plan also may be available upon termination of employment participants may elect to re- ceive distribution of amounts invested in fund h in company b shares keke kkkrkkekkerekeekeek ere 2uu828u3 as a result of the spin-off plan x and plan y each hold both company a and company b shares the plans each provide a one-year period during which participants may voluntarily elect to dispose_of their interest in non-employer shares in accordance with erisa sec_404 during date plan participants were permitted to affirmatively elect to retain their interests in the non-employer shares subsequent to the spin-off ie plan x participants could elect to retain their interest in company b shares and plan y participants could elect to retain their interest in the company a shares if a participant did not elect to retain his or her inter- est in non-employer shares after the spin-off then that interest was liquidated over the five business days immediately following the spin-off with the proceeds invested immediately thereafter in accordance with the participant's then current investment election if a partici- pant elected to retain his or her interest in non-employer shares after the spin-off the par- ticipant could elect to transfer all or a portion of such interest to another investment fund maintained under the applicable_plan at any time during the one-year period following the spin-off transition_period if the participant retained an interest in the non-employer shares as of the end of the transition_period that interest would be immediately liquidated by the trustee and the proceeds invested in accordance with the participant's current investment election when the proceeds of the non-employer shares are reinvested in accordance with the par- ticipant’s current investment election if a plan x participant's current investment election in- cludes an investment in fund s the proceeds of the participant’s interest in company b shares will be reinvested in fund s similarly if a plan y participant’s current investment election includes an investment in fund h the proceeds of the participant’s interest in com- in addition if a participant elects to transfer his pany a shares will be reinvested in fund h or her interest in the non-employer shares during the transition_period the participant may elect to invest all or a portion of such interest in the investment fund that constitutes em- ployer securities ie a plan x participant may elect to transfer all or a portion of his or her interest in company b shares to fund s in plan x and a plan y participant may elect to transfer all or a portion of his or her interest in company a shares to fund h in plan y company a and company b intend to provide the transition_period to a give participants sufficient time to liquidate their interests in non-employer shares b permit a smooth transi- tion and c avoid adversely affecting the market for company a or company b shares by requiring the sale of a significant number of shares at one time after the spin-off plan x will not acquire additional company b shares and plan y will not acquire additional com- pany a shares under subsection dollar_figure of plan x eligible participants are entitled to a minimum allocation of the company a shares released each calendar_year as the company a esop's loan is re- paid this allocation is provided by the employers through a loan repayment contribution to khakkekkkkkekrekekkek kkk erk plan x and a release of company a shares from the suspense_account in plan x the em- ployer’s contribution under subsection dollar_figure is determined and allocated in april of the year following the year to which the contribution applies based on their eligible compensation it is proposed that company b employees as of the spin-off participate in the allo- for cation of the company a esop release for through the spin-off further in lieu of releasing company a shares with respect to the company b employees it is proposed that company b shares be released from the sus- pense account to eligible employees once the minimum allocation has been completed in date the company b shares released to the company b employees will be transferred to plan y in a subsequent trustee-to-trustee transfer intended to satisfy the requirements of code sec_414 and such shares will be invested as part of fund h allocation has been completed and the appropriate number of company b once the shares has been released from the suspense_account with respect to company b employ- ees in plan x then any remaining company b shares held in the suspense_account will be liquidated and reinvested in company a shares based on the foregoing facts and representations your authorized representatives have re- quested the following rulings the company a shares held by plan y as of the spin-off will be securities_of_the_employer_corporation for purposes of code sec_402 and the net_unrealized_appreciation in such shares may be excluded from gross_income upon distribution by plan y to the extent provided in code sec_402 for purposes of determining net_unrealized_appreciation under code sec_2 e the basis of company a shares and company b shares held by plan y will be determined by allocating the basis of the company a shares immediately before the spin-off between the company a shares and the company b shares held immediately after the spin-off in proportion to their relative fair market values in accordance with code sec_358 with respect to a plan y participant whose interest in company a shares was liqui- dated over the five business days beginning on the spin-off to the extent the proceeds were invested in fund h immediately after the end of the five-day period such disposi- tion and reinvestment shall constitute an exchange of securities of the employer corpo- ration for purposes of code sec_402 so that the determination of net_unrealized_appreciation shall be made without regard to such disposition with respect to any other plan y participant to the extent the participant's interest in company a shares is dis- posed of and the proceeds immediately reinvested in fund h either at the participant's election during the transition_period or pursuant to applicable_plan y provisions at the end of the transition_period such disposition and reinvestment shall constitute an ex- change_of securities_of_the_employer_corporation for purposes of code sec_402 so that the determination of net_unrealized_appreciation shall be made without regard to such disposition 2vuvu8258036 krekkkkkrkekkeekrekkeer kkk ker in the event that plan y disposes of company a shares and reinvests the proceeds in company b shares for purposes of determining net_unrealized_appreciation under code sec_402 the basis of the replacement company b shares purchased with the proceeds of the company a shares sold by plan y will be equal to the basis of the company a shares sold code sec_402 states in pertinent part that for purposes of sec_402 and sec_72 in the case of a distribution other than a lump sum distribution the amount actually dis- tributed to any distributee from a_trust described in sec_402 shall not include any net_unrealized_appreciation in securities_of_the_employer_corporation attributable to amounts con- tributed by the employee code sec_402 states in pertinent part that for purposes of sec_402 and sec_72 in the case of any lump sum distribution which includes securities of the employer corpo- ration there shall be excluded from gross_income the net_unrealized_appreciation attributable to that part of the distribution which consists of securities_of_the_employer_corporation code sec_402 provides in pertinent part that for purposes of sec_402 the term securities_of_the_employer_corporation includes securities of a parent or subsidiary_corporation as defined in subsections e and f of code sec_424 of the employer corpo- ration code sec_402 provides a special rule for certain transactions code sec_402 states that for sec_402 purposes the determination of net_unrealized_appreciation will not apply to any transaction where a plan trustee disposes of securities_of_the_employer_corporation and uses the proceeds of such disposition to acquire securities_of_the_employer_corporation within days sec_1_402_a_-1 of the regulations provides that the amount of net unrealized ap- preciation in securities_of_the_employer_corporation that are distributed by the trust is the ex- cess of the market_value of such securities at the time of distribution over the cost or other basis of such securities to the trust sec_1_402_a_-1 of the regulations sets forth the manner in which the cost or other basis to the trust of a distributed security of the employer_corporation is calculated for the purpose of determining the net_unrealized_appreciation on such security under sec_1_402_a_-1 of the regulations neither employee salary deferrals made pursuant to a cash_or_deferred_arrangement nor matching_contributions are treated as em- ployee contributions for purposes of code sec_402 in revrul_73_29 1973_1_cb_198 securities of an employer_corporation held by its qualified_plan were transferred to the qualified_trust of an unrelated corporation when the first employer sold part of its business and transferred some of its employees to an unrelated corporation it was held that shares of stock of the seller corporation distributed from the buyer's qualified_trust to employees of the buyer corporation who are former employees of the seller corporation are securities_of_the_employer_corporation and will always be securitie sec_2uu825036 kakkkkakkkkkkekkkkk keke keke of the employer_corporation even after those shares and the employees in whose accounts they were held were transferred to an unrelated corporation in revrul_80_138 1980_1_cb_87 the service held that the transfer of employer_securities from an exempt trust maintained by a parent_corporation and its subsidiary to a newly established exempt trust of the subsidiary will not change the basis of the securities for purposes of computing net_unrealized_appreciation in the securities because the transfer is not a taxable_event with respect to ruling_request company b was a wholly-owned subsidiary of company a before the spin-off therefore before the spin-off company b shares constituted securi- ties of the employer_corporation within the meaning of code sec_402 pursuant to and simultaneously with the spin-off company b ceased to be a subsidiary of company a however the company b shares distributed to plan x and plan y pursuant to the spin- off represent part of the pre-spin-off value of the company a shares accordingly we con- clude that the shares of company a acquired by plan y as a result of the spin-off will con- tinue to be treated as securities_of_the_employer_corporation for purposes of code sec_402 in accordance with revrul_73_29 and the net_unrealized_appreciation in such shares may be excluded from gross_income upon distribution to a participant or benefi- ciary to the extent provided in sec_402 with respect to ruling_request company a has received a private_letter_ruling from the of- fice of chief_counsel stating that the spin-off will be tax-free under sec_355 of the code sec_1_358-2 of the regulations provides that if as a result of a transaction under sec_355 a shareholder who owned stock of only one class before the transaction owns stock of two or more classes after the transaction then the basis of all the stock held before the transaction is allocated among the stock of all classes held immediately after the transac- tion in proportion to the fair market values of the stock of each class accordingly with respect to ruling_request we conclude that for purposes of determining net_unrealized_appreciation under code sec_402 to the extent that the spin-off is a tax-free spin-off under code sec_355 the basis of the company a and company b shares held by plan y be determined by allocating the basis in the company a shares held by plan y immediately before the spin-off between the company a shares and the company b shares in propor- tion to their relative fair market values in accordance with code sec_358 with respect to ruling_request code sec_402 provides generally that for purposes of sec_402 in the case of any transaction in which either a the plan trustee ex- changes the plan's securities_of_the_employer_corporation for other such securities or b the plan trustee disposes of securities_of_the_employer_corporation and uses the proceeds of such disposition to acquire securities_of_the_employer_corporation within days or such longer period as the secretary may prescribe the determination of net unrealized apprecia- tion shall be made without regard to such transaction in this case to the extent there is an exchange of company a shares for company b shares or there is a disposition of company a shares followed by the reinvestment of the proceeds in company b shares such ex- change or disposition will constitute an exchange of securities_of_the_employer_corporation for the benefit of plan y participants immediately after the spin-off will kkkekekeeekrererekr kr here for purposes of code sec_402 so that the determination of net unrealized apprecia- tion shall be made without regard to such exchange or disposition in addition code sec_402 by its terms alone does not expressly prohibit participant- directed transactions further the legislative_history see senate report no pincite indicates that sec_402 applies to transactions that are in the exercise of fiduciary duty or are required by erisa and requires a participant-directed trustee to act in accordance with participant investment directions therefore it is appropriate for participant- directed dispositions and acquisitions of employer_securities to be covered by sec_402 provided that the transactions are completed within the required time frame accordingly with respect to ruling_request with respect to a plan y participant whose in- terest in company a shares was liquidated over the five business days beginning on the date of the spin-off to the extent the proceeds were invested in fund h immediately after the end of the five-day period such disposition and reinvestment shall constitute an ex- change_of securities_of_the_employer_corporation for purposes of code sec_402 so that the determination of net_unrealized_appreciation shall be made without regard to such disposition similarly with respect to any other plan y participant to the extent the participant's interest in company b shares is disposed of and the proceeds immediately reinvested in fund h ei- ther at the participant’s election during the transition_period or pursuant to applicable_plan y provisions at the end of the transition_period such disposition and reinvestment shall consti- tute an exchange of securities_of_the_employer_corporation for purposes of code sec_402 so that the determination of net_unrealized_appreciation shall be made without re- gard to such disposition with respect to ruling_request we have concluded with respect to ruling_request that to the extent plan y disposes of company a shares and the trustee of plan y reinvests the proceeds of the disposition in company b shares such disposition and reinvestment will constitute an exchange of securities_of_the_employer_corporation for purposes of code sec_402 so that the determination of net_unrealized_appreciation shall be made without regard to such disposition accordingly with respect to ruling we conclude that to the extent that plan y disposes of company a shares and reinvests the proceeds in company b shares for purposes of de- termining net_unrealized_appreciation under code sec_402 the basis of the re- placement company b shares will be equal to the basis of the company a shares this ruling letter is based on the assumption that plan x and plan y are qualified under code sec_401 that they meet the requirements of code sec_4975 and that their related trusts are tax exempt under code sec_501 at all relevant times no opinion is expressed or implied concerning the tax consequences of the proposed trans- actions under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings kkkkkkekkkkrekrkeekekerer ere 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 if you have any questions concerning this ruling please contact sincerely donzell h littlejohn manager employee_plans technical group enclosures deleted copy notice


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc dom p si plr-101746-00 date date number release date legend x a d1 d2 dear this responds to your letter dated date submitted on behalf of x requesting an extension of time for x to make an election under sec_754 of the internal_revenue_code facts a a partner in x died on d1 x’s tax_return for the taxable_year was filed without a sec_754 election law and analysis sec_754 provides that a partnership may elect to adjust the basis of partnership property in the case of a distribution_of_property or in the case of a transfer of a partnership_interest the election applies with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which such election is filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election plr-101746-00 under sec_754 is made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed no later than the time prescribed for filing the return for the taxable_year including extensions under sec_301_9100-1 of the procedure and administration regulations the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting the relief will not prejudice the interests of the government sec_301_9100-1 defines the term regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion in the present situation the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of sixty days following the date of this letter to make a sec_754 election for its tax_year ending d2 the election should be made in a written_statement filed with the district_director for association with x's tax_return a copy of this letter should be attached to the statement filed with the district_director a copy of this letter is enclosed for that purpose except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transactions described above under any other provision of the code specifically no opinion is expressed concerning whether x is a partnership for federal tax purposes this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent plr-101746-00 under the power_of_attorney on file in this office a copy of this letter is being sent to x and to the second authorized representative listed on the power_of_attorney sincerely yours paul f kugler assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court jim wood land clearing co inc petitioner v commissioner of internal revenue respondent docket no filed date allen l wood an officer for petitioner andrew m tiktin for respondent memorandum findings_of_fact and opinion foley judge by notice dated date respondent determined the following deficiencies addition_to_tax and penalties relating to petitioner's federal income taxes addition_to_tax penalty year deficiency sec_6651 a sec_6662 a dollar_figure -- dollar_figure big_number dollar_figure big_number all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions by the parties the remaining issue for decision is whether for and petitioner may reduce its gross_income by expenses paid to construct two houses findings_of_fact petitioner is a florida corporation whose principal_place_of_business was in lake placid florida at the time the petition was filed petitioner does land clearing and demolition work in dade county florida during the years in issue allen wood was petitioner's president and sole shareholder allen wood owned two unimproved lots in highlands county florida in and petitioner expended dollar_figure and dollar_figure respectively to construct two single-family houses on allen wood's lots in calculating its and gross_income petitioner subtracted these expenditures as cost_of_goods_sold on date allen wood formed wood developers inc wood developers he was president and a 50-percent_shareholder of the corporation in date allen wood transferred to wood developers his interest in the improved lots and wood developers sold both properties on its federal tax_return wood developers reported the income from the sale of the properties opinion respondent determined that for and petitioner was not entitled to reduce its gross_income by construction expenses relating to the two houses at trial the court asked allen wood why these expenditures were characterized as cost_of_goods_sold allen wood stated that he did not know why and acknowledged that such treatment could have been wrong we sustain respondent's determination the construction expenses related to houses that were built on allen wood's property and ultimately sold by wood developers in essence petitioner paid allen wood's construction expenses see 11_tc_1095 stating that a shareholder's personal expenses are not a part of a corporation's cost_of_goods_sold affd 179_f2d_619 lst cir petitioner contends in the alternative that it is entitled to an advertising deduction for these expenses at trial allen wood attempted to establish a nexus between petitioner's business and an advertising deduction by asserting that petitioner's payment of the expenses was part of a plan to meet local contractors we reject petitioner's contention advertising expenses are deductible if such expenses are ordinary and necessary sec_162 see sec_1_162-1 income_tax regs an expense is ordinary if it 1s customary or usual within a particular trade business or industry see 308_us_488 and necessary if it is appropriate or helpful for the business see 290_us_111 it is not customary or usual for land clearing businesses to advertise their services by constructing houses in addition payment of the construction expenses was not appropriate or helpful in promoting petitioner's land clearing business moreover the expenses were incurred for allen wood's personal benefit rather than for business considerations relating to petitioner see 55_tc_94 holding that a business_expense deduction will not be allowed for an expenditure that 1s primarily motivated by personal rather than business considerations contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered under rule


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-109751-18 date date ------------------------------------- x --------------------------------------------------- state d1 d2 trust --------------------- -------------------- ---------------------------- ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ----- --------------- ------------------------------------------------- dear ------ ----------- this responds to a letter dated date submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated under the laws of state and elected to be an s_corporation effective on d1 on d2 shares of x were transferred to trust x represents that trust was eligible to elect qualified_subchapter_s_trust qsst treatment under sec_1361 however the beneficiary of trust inadvertently failed to timely make a qsst election therefore x's s election terminated on d2 x represents that x and each of its shareholders have filed consistently with the treatment of x as an s_corporation since d1 x represents that the termination was not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation plr-109751-18 sec_1361 of the code 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 the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does 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 purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be an s_corporation shareholder sec_1361 provides that in the case of a qsst for which a beneficiary makes an election under sec_1361 the trust is treated as a_trust described in sec_1361 and for purposes of sec_678 the beneficiary of the trust shall be treated as the owner of that portion of the trust that consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst may elect to have sec_1361 apply sec_1_1361-1 provides that the current income_beneficiary of a qsst must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax returns the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides that a in general an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation and b any termination under sec_1362 shall be effective on and after the date of cessation sec_1362 provides in part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to plr-109751-18 such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that x's s_corporation_election terminated on d2 because of the inadvertent failure of the beneficiary of trust to make a qsst election and that this termination of x's s election was an inadvertent termination within the meaning of sec_1362 accordingly pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from d2 and thereafter provided x's s_corporation_election was valid and not otherwise terminated under sec_1362 this ruling is contingent upon the beneficiary of trust filing a qsst election with an effective date of d2 with the appropriate service_center within days of the date of this ruling a copy of this letter should be attached to the qsst election if x or its shareholders fail to treat x as described above this letter_ruling will be null and void except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x is a small_business_corporation under sec_1361 or whether trust is a qsst within the meaning of sec_1361 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 this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely stacy l short senior technician reviewer branch office of the associate chief_counsel passthroughs special industries ----------------------------------- enclosures copy of this letter copy for sec_6110 purposes ----------------------------------- -------------- -----


internal_revenue_service number release date index number -------------------- ------------------------------- -------------------------- -------------------------------- ---------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp b06 plr-136795-12 date date legend parent ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ------------------------------------ llc --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------- llc --------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ---------------------------------- date date date date date date date year ----------------------- -------------------------- -------------------------- --------------------------- -------------------------- ------------------------- ------------------- ------- plr-136795-12 dear ------------------ this is in response to a letter dated date submitted on behalf of parent requesting a ruling that the commissioner determine under sec_1_1502-75 of the income_tax regulations that llc joined in the making of a consolidated_return filed by parent for the taxable_year ending date additional information was received in a letter dated date the material information submitted for consideration is summarized below summary of facts parent was incorporated on date llc was organized on date llc is an entity disregarded as separate from its owner for federal tax purposes llc was organized on date on date llc was an entity disregarded as separate from its owner for federal tax purposes on date llc filed a private_letter_ruling request requesting an extension of time to file an election to be treated as an association_taxable_as_a_corporation effective as of date entity classification election this extension request was granted in a letter_ruling dated date and the entity classification election was filed on date parent owns all the outstanding member interests of llc llc owns all the outstanding member interests of llc llc owns all of the outstanding_stock of numerous corporations which together with llc and parent comprise the parent affiliated_group of which parent is the common parent the parent affiliated_group timely filed the year consolidated_return and a properly executed form_1122 authorization and consent of subsidiary_corporation to be included in a consolidated_income_tax_return was included in this return for each subsidiary member of the parent affiliated_group other than llc at the time this return was filed llc had not filed the entity classification election accordingly consistent with the treatment of llc as an entity disregarded as separate from its owner for federal tax purposes llc did not join in the election to file a consolidated_return or file a separate_return for the taxable_year ending date also llc was not included on the form_851 affiliations schedule attached to the year consolidated_return however the assets liabilities and items of income gain deduction loss and credit of llc were included in the year consolidated_return as those of parent representations plr-136795-12 except for llc 2’s failure to timely file form_1122 the parent affiliated_group was eligible to file a consolidated federal_income_tax return for the initial taxable_year ending date the income and deductions of each member of the parent affiliated_group including llc were included in the timely filed consolidated federal_income_tax return for the initial taxable_year ending date neither parent nor llc filed a separate federal_income_tax return for the taxable_year ending date in addition no other member of the parent affiliated_group filed a separate federal_income_tax return for the taxable_year ending date except for llc all members of the parent affiliated_group were included on parent’s form_851 affiliations schedule for the taxable_year ended date filed with the initial year consolidated_return all members of the parent affiliated_group including llc were included on parent’s form_851 affiliations schedule for the taxable years ended date and date filed with the timely filed forms u s_corporation income_tax return for the parent affiliated_group applicable law sec_1_1502-75 provides in part that an affiliated_group_of_corporations that did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation that has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents to the regulations under sec_1502 in accordance with sec_1_1502-75 if a group wishes to exercise its privilege of filing a consolidated_return such return must be filed not later than the last day prescribed by law including extensions of time for the filing of the common parent’s tax_return with regard to a corporation’s consent for a group’s first consolidated_year sec_1_1502-75 provides as a general_rule that the corporation’s consent shall be made by such corporation joining in the making of the consolidated_return for such year a corporation shall be deemed to have joined in the making of such return if it files a form_1122 in the manner specified in sec_1_1502-75 sec_1_1502-75 provides that if a group wishes to file a consolidated_return for a taxable_year a form_1122 must be executed by each subsidiary for the taxable_year relevant to this ruling_request the group must attach to the consolidated_return for the taxable_year either executed forms or unsigned copies of the completed forms and retain the signed originals in its records in the manner required by sec_1_6001-1 form_1122 is not required for a taxable_year if a consolidated_return plr-136795-12 was filed or was required to be filed by the group for the immediately preceding_taxable_year sec_1_1502-75 provides that if a member of the group fails to file form_1122 the commissioner may under the facts and circumstances determine that such member has joined in the making of a consolidated_return by such group the following circumstances among others will be taken into account in making this determination i whether or not the income and deductions of the member for such taxable_year were included in the consolidated_return ii whether or not a separate_return was filed by the member for that taxable_year and iii whether or not the member was included in the affiliations schedule form for such taxable_year if the commissioner determines that the member has joined in the making of the consolidated_return such member shall be treated as if it had filed a form_1122 for such year for purposes of sec_1_1502-75 based solely on the information submitted and the representations made we rule that for purposes of sec_1_1502-75 llc shall be treated as if it had filed a form_1122 with parent’s consolidated federal_income_tax return for the taxable_year ending on date and thus shall be treated as having joined in the making of the consolidated_return for such year sec_1_1502-75 procedural statements except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of any other aspect of any transaction or item discussed or referenced in this letter or about the tax treatment of any condition existing at the time of or effects resulting from any transaction or item that is not specifically covered by the above ruling the ruling contained in this letter 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 materials submitted in support of the taxpayer’s ruling_request verification of the information representations and other data may be required as part of the audit process this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to each federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching to the return a statement that provides the date and control number of this letter_ruling plr-136795-12 pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely _________________________________ leah m thompson assistant to the branch chief branch office of associate chief_counsel corporate