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 corp b06 plr-110052-13 date date legend distributing -------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ distributing ------------------------------------------------------------------------------- ----------------------------------------------- distributing -------------------------------------------------------------------- ------------------------------------------------------------------------------- --------------------------------------------------- controlled -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------- -------------------------------------------------------------- parent ------------------------------------------------------------------------------ ------------------------------------------------------ sub ------------------------------------------------------------------------------ -------------------------------- sub ------------------------------------------------------------------------------ ----------------------------------------------- sub ------------------------- ------------------------------------------------------------------------------- plr-110052-13 sub ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------- -------------------------------------------------------------- sub -------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- llc ------------------------------------------------------------------------------- ------------------------------------------ llc ------------------------------------------------------------------------------- --------------------------------------------- llc ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------------------------- -------------------------------------------------------------- llc ------------------------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------- llc ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------- business a business b segment segment ---------------------------------- --------------------------------------- -------------------------------------------------- ---------------------------------------- segment -------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- state a state b ----------------- -------------- plr-110052-13 state c investor --------------- ------------------------------------ short-term loan ------------------------------------------------------------------------------------------------ --------------------------------------------- year year year ------- ------- ------- a -------------- b ------------------------ c d date dear ------------------- ------------------------ ---------------------- -------------------------------------------- this letter responds to your date letter requesting rulings on certain u s federal_income_tax consequences of the restructuring defined below the material information provided in that letter and in subsequent correspondence is summarized below the rulings contained in this letter are based upon facts 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 materials submitted in support of the request for rulings it is subject_to verification on examination moreover this office has not reviewed any information pertaining to and has made no determination regarding whether any distribution occurring as part of the restructuring and for which qualification under sec_355 of the internal_revenue_code the code is sought will i satisfy the business_purpose requirement of sec_1_355-2 ii be used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 and sec_1_355-2 or iii be part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock plr-110052-13 representing a percent or greater interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 summary of facts parent a holding_company is the common parent of an affiliated_group_of_corporations that files a u s consolidated federal_income_tax return the parent consolidated_group prior to the restructuring parent directly owned all of the stock of each of sub a corporation organized under the laws of state a and sub a holding_company organized under the laws of state b sub directly owned all of the stock of sub a holding_company organized under the laws of state b sub directly owned all of the stock of distributing a corporation organized under the laws of state a distributing directly owned all of i the membership interests of llc a limited_liability_company organized under the laws of state b that is treated as a disregarded_entity for u s federal tax purposes ii the stock of sub a corporation organized under the laws of state c and iii the stock of distributing a corporation organized under the laws of state a distributing directly owned all of the stock of distributing a corporation organized under the laws of state a distributing directly owned all of i the membership interests of llc a holding_company and limited_liability_company organized under the laws of state b that is treated as a disregarded_entity for u s federal tax purposes and ii the stock of controlled a corporation organized under the laws of state b llc directly owned all of i the stock of sub a corporation organized under the laws of state a ii the membership interests of llc a limited_liability_company organized under the laws of state b that is treated as a disregarded_entity for u s federal tax purposes and iii the membership interests of llc a limited_liability_company organized under the laws of state a that is treated as a disregarded_entity for u s federal tax purposes llc directly owned all of the membership interests of llc a limited_liability_company organized under the laws of state b that is treated as a disregarded_entity for u s federal tax purposes parent and its subsidiaries the company collectively engage in business a business b and other businesses that are not relevant to the restructuring each of distributing distributing and distributing is engaged in business a which is composed of segment segment and segment more specifically for each of the past five years distributing and distributing have each been directly and actively engaged in segment and distributing has been directly and actively engaged in segment for each of the past five years llc3 llc5 and sub have each been directly and actively been engaged in business b and following the restructuring each of these entities will belong to the controlled separate_affiliated_group sag as defined in sec_355 the controlled sag plr-110052-13 the company experienced significant losses in its investments in year in order to increase capital to compensate for such losses and enable it to meet its business needs company raised capital by issuing long-term debt as well as common and preferred_stock to investor in addition company entered into short-term loan from year to year capital contributions of approximately dollar_figurea the parent group cash contributions were made through the company organizational structure so that members of the parent consolidated_group could meet the reasonable needs of their respective businesses sub made capital contributions to distributing which distributing utilized to make further cash capital contributions through the chain to distributing and distributing and the remaining contributions by sub to distributing of approximately dollar_figureb were used by distributing of the approximately dollar_figurec parent group cash contributions that distributing made to distributing distributing utilized approximately dollar_figured to make further cash capital contributions through the chain to distributing financial information has been submitted indicating that business a consisting of segment segment and previously segment and business b have had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business management has determined that it is necessary to separate business b from business a to enhance the growth of business b and reduce the regulatory burdens on business b the restructuring the following series of transactions which occurred on or around date constituted the restructuring llc distributed all of the membership interest of llc to llc disregarded distribution llc distributed all of the membership interest of each of llc and llc to distributing disregarded distribution distributing contributed all of the membership interest of each of llc and llc to controlled contribution distributing distributed all of the stock of controlled to distributing distribution distributing distributed all of the stock of controlled to distributing distribution distributing contributed all of the stock of sub to controlled contribution plr-110052-13 distributing distributed all of the stock of controlled to sub distribution representations the taxpayer makes the following representations with respect to the restructuring a contribution and distribution any indebtedness owed by controlled to distributing after distribution did not constitute stock_or_securities each of distributing and controlled paid its own expenses if any incurred in connection with distribution no part of the consideration distributed by distributing in distribution was received by distributing as a creditor employee or in any capacity other than that of a distributing shareholder the five years of financial information submitted on behalf of segment conducted by distributing were representative of the present business operations of segment as of the date of distribution and with regard to such business any operational changes as of the date the last financial statements were submitted reflected the ongoing segment business of distributing the five years of financial information submitted on behalf of the portion of business b conducted by controlled through llc were representative of the present business operations of business b at the time of distribution and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted immediately after distribution distributing continued and will continue its portion of the active_conduct of segment with employees of its affiliate sub immediately after distribution controlled through llc continued and will continue the active_conduct of business b with employees of its affiliate sub neither segment nor control of an entity conducting this business was acquired during the five-year period ending on the date of distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part neither business b nor control of an entity conducting this business was acquired during the five-year period ending on the date of distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part plr-110052-13 distribution was carried out to enhance the growth of the business b and reduce the regulatory burdens on business b the distribution of the stock of controlled in distribution was motivated in whole or substantial part by these corporate business purposes distribution was not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both the total adjusted bases and the fair_market_value of the assets transferred to controlled in contribution equaled or exceeded the sum of the liabilities assumed by controlled as determined under sec_357 any liabilities assumed as determined under sec_357 by controlled in contribution were incurred in the ordinary course of business and were associated with the transferred assets the total fair_market_value of the assets transferred to controlled in contribution exceeded the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with contribution and ii the amount of any liabilities owed to controlled by distributing that were discharged or extinguished in connection with contribution the fair_market_value of the assets of controlled exceeded the amount of its liabilities immediately after contribution the aggregate fair_market_value of the assets transferred to controlled in the contribution in distribution equaled or exceeded the aggregate adjusted_basis of these assets no property transferred by distributing to controlled for which an investment_credit allowed under sec_46 has been or will be claimed no indebtedness between distributing and controlled has been or will be settled or cancelled in connection with distribution no intercorporate debt existed between distributing and controlled at the time of or after distribution other than obligations arising in the ordinary course of business payments made in connection with all continuing transactions between distributing and controlled following distribution have been and will continue to be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length neither distributing nor controlled is an investment_company as defined in sec_368 and iv plr-110052-13 for purposes of sec_355 immediately after distribution no person determined after applying sec_355 held stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution for purposes of sec_355 immediately after distribution no person determined after applying sec_355 held stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution distribution was not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons acquired directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation immediately after distribution i neither distributing nor controlled were a disqualified_investment_corporation within the meaning of sec_355 and ii no person held a percent or greater interest within the meaning of sec_355 in any disqualified_investment_corporation immediately after the transaction who did not so hold directly or indirectly such interest immediately before the transaction throughout the five-year period ending on the date of distribution distributing was the principal_owner of the goodwill and significant assets of its portion of segment and will continue to be the principal_owner of its portion of segment following distribution throughout the five-year period ending on the date of distribution controlled was the principal_owner of the goodwill and significant assets of the portion of business b it conducts through llc and will continue to be the principal_owner of its portion of business b following distribution except as was otherwise described in the restructuring with respect to distributing and controlled neither parent nor any of its relevant affiliates had any current plan or intention to i make a check-the-box election to change plr-110052-13 such entity’s classification for u s federal tax purposes ii cause such entity to liquidate merge or otherwise terminate its corporate existence or iii cause the owner s of such entity to sell transfer convey or otherwise dispose_of the equity_interest in such entity immediately before distribution items of income gain loss deduction and credit were taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d at the time of distribution distributing did not have an excess_loss_account in controlled’s stock or in the stock of any subsidiary of controlled all material steps that comprised the restructuring including contribution and distribution were undertaken pursuant to a prearranged overall plan_of_reorganization which was adopted and approved by the board_of directors of parent and its appropriate affiliates b distribution any indebtedness owed by controlled to distributing after distribution did not constitute stock_or_securities each of distributing and controlled paid its own expenses if any incurred in connection with distribution no part of the consideration distributed by distributing in distribution was received by distributing as a creditor employee or in any capacity other than that of a distributing shareholder the five years of financial information submitted on behalf of segment conducted by distributing were representative of the present business operations of the segment as of the date of distribution and with regard to such business any operational changes as of the date the last financial statements were submitted reflected the ongoing segment business of distributing the five years of financial information submitted on behalf of business b to be conducted by controlled through llc were representative of the present business operations of business b at the time of distribution and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted plr-110052-13 immediately after distribution distributing continued and will continue the active_conduct of its portion of segment with employees of its affiliate sub immediately after distribution controlled through llc continued and will continue the active_conduct of business b with employees of its affiliate sub neither segment nor control of an entity conducting this business was acquired during the five-year period ending on the date of distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part neither business b nor control of an entity conducting this business was acquired during the five-year period ending on the date of distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part distribution was carried out to enhance the growth of business b and reduce the regulatory burdens on business b the distribution of the stock of controlled in distribution was motivated in whole or substantial part by these corporate business purposes distribution was not be used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both no property transferred by distributing to controlled for which an investment_credit allowed under sec_46 has been or will be claimed no indebtedness between distributing and controlled has been or will be settled or cancelled in connection with distribution no intercorporate debt existed between distributing and controlled at the time of or after distribution other than obligations arising in the ordinary course of business payments made in connection with all continuing transactions between distributing and controlled following distribution have been and will continue to be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length neither distributing nor controlled were an investment_company as defined in sec_368 and iv for purposes of sec_355 immediately after distribution no person determined after applying sec_355 held stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of plr-110052-13 distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution for purposes of sec_355 immediately after distribution no person determined after applying sec_355 held stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution distribution was not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons acquired directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation immediately after the distribution i neither distributing nor controlled were a disqualified_investment_corporation within the meaning of sec_355 and ii no person held a percent or greater interest in any disqualified_investment_corporation within the meaning of sec_355 immediately after the transaction who did not so hold directly or indirectly such interest immediately before the transaction throughout the five-year period ending on the date of distribution distributing was the principal_owner of the goodwill and significant assets of its portion of segment it conducts and will continue to be the principal_owner of its portion of segment following distribution throughout the five-year period ending on the date of distribution controlled was the principal_owner of the goodwill and significant assets of the portion of business b it conducts through llc and will continue to be the principal_owner of its portion of business b following distribution except as was otherwise described in the restructuring with respect to distributing and controlled neither parent nor any of its relevant affiliates had any current plan or intention to i make a check-the-box election to change such entity’s classification for u s federal tax purposes ii cause such entity to liquidate merge or otherwise terminate its corporate existence or iii cause the owner s of such entity to sell transfer convey or otherwise dispose_of the equity_interest in such entity plr-110052-13 immediately before distribution items of income gain loss deduction and credit were taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d at the time of distribution distributing did not have an excess_loss_account in controlled’s stock or in the stock of any subsidiary of controlled all material steps that comprised the restructuring including distribution were undertaken pursuant to a prearranged overall plan_of_reorganization which was adopted and approved by the board_of directors of parent and its appropriate affiliates c contribution and distribution any indebtedness owed by controlled to distributing after distribution did not constitute stock_or_securities each of distributing and controlled paid its own expenses if any incurred in connection with distribution no part of the consideration distributed by distributing in distribution was received by sub as a creditor employee or in any capacity other than that of a distributing shareholder controlled treated all members of its sag as one corporation in determining whether it met the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business the five years of financial information submitted on behalf of the portion of the segment business conducted by distributing were representative of the present business operations of the segment business as of the date of distribution and with regard to such business there were no substantial operational changes as of the date the last financial statements were submitted the five years of financial information submitted on behalf of business b to be conducted by controlled through llc and sub were representative of the present business operations of business b at the time of distribution and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted immediately after distribution distributing continued and will continue the active_conduct of segment with employees of its affiliate sub plr-110052-13 immediately after distribution controlled through llc and sub continued and will continue the active_conduct of business b with employees of its affiliate sub neither segment nor control of an entity conducting this business was acquired during the five-year period ending on the date of distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part neither business b nor control of an entity conducting this business was acquired during the five-year period ending on the date of distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part distribution was carried out to enhance the growth of the business b and reduce the regulatory burdens on business b the distribution of the stock of controlled in distribution was motivated in whole or substantial part by these corporate business purposes distribution was not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both the total adjusted bases and the fair_market_value of the assets transferred to controlled in contribution equaled or exceeded the sum of the liabilities assumed by controlled as determined under sec_357 any liabilities assumed as determined under sec_357 by controlled in contribution were incurred in the ordinary course of business and was associated with the transferred assets the total fair_market_value of the assets transferred to controlled in contribution exceeded the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with contribution and ii the amount of any liabilities owed to controlled by distributing that were discharged or extinguished in connection with contribution the fair_market_value of the assets of controlled exceeded the amount of its liabilities immediately after contribution the aggregate fair_market_value of the assets transferred to controlled in the contribution in distribution equaled or exceeded the aggregate adjusted_basis of these assets no property was transferred by distributing to controlled for which an investment_credit allowed under sec_46 has been or will be claimed plr-110052-13 no indebtedness between distributing and controlled was settled or cancelled in connection with distribution no intercorporate debt existed between distributing and controlled at the time of or will exist after distribution other than obligations arising in the ordinary course of business payments made in connection with all continuing transactions between distributing and controlled following distribution have been and will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length neither distributing nor controlled is an investment_company as defined in sec_368 and iv for purposes of sec_355 immediately after distribution no person determined after applying sec_355 held stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution for purposes of sec_355 immediately after distribution no person determined after applying sec_355 held stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution distribution was not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons acquired directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation immediately after distribution i neither distributing nor controlled were a disqualified_investment_corporation within the meaning of sec_355 and ii no person held a percent or greater interest within the meaning of sec_355 in any disqualified_investment_corporation immediately after the plr-110052-13 transaction who did not so hold directly or indirectly such interest immediately before the transaction throughout the five-year period ending on the date of distribution distributing was the principal_owner of the goodwill and significant assets of segment and will continue to be the principal_owner of the segment following distribution throughout the five-year period ending on the date of distribution controlled was the principal_owner of the goodwill and significant assets of the portion of business b it conducts through llc and sub and will continue to be the principal_owner of business b following distribution except as was otherwise described in the restructuring with respect to distributing and controlled neither parent nor any of its relevant affiliates had any current plan or intention to i make a check-the-box election to change such entity’s classification for u s federal tax purposes ii cause such entity to liquidate merge or otherwise terminate its corporate existence or iii cause the owner s of such entity to sell transfer convey or otherwise dispose_of the equity_interest in such entity immediately before distribution items of income gain loss deduction and credit were taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d at the time of distribution distributing did not have an excess_loss_account in controlled’s stock or in the stock of any subsidiary of controlled all material steps that comprised the restructuring including distribution were undertaken pursuant to a prearranged overall plan_of_reorganization which was adopted and approved by the board_of directors of parent and its appropriate affiliates rulings based solely upon the information submitted and the representations made we rule as follows on the restructuring a contribution and distribution contribution and distribution together qualified as a reorganization within the meaning of sec_368 each of distributing and controlled was a_party_to_a_reorganization within the meaning of sec_368 plr-110052-13 distributing did not recognize gain_or_loss in contribution sec_361 and sec_357 controlled did not recognize gain_or_loss in contribution sec_1032 controlled's basis in each asset received from distributing in contribution was the same as it was in the hands of distributing sec_362 controlled's holding_period for each asset received from distributing includes the period during which distributing held that asset sec_1223 no gain_or_loss was recognized by and no amount will be included in the income of distributing upon its receipt of controlled stock in distribution sec_355 no gain_or_loss was recognized by distributing on its distribution of the controlled stock in distribution sec_361 immediately after distribution the sum of the basis of all the distributing stock plus the basis of all the controlled stock was the same as the basis of the distributing stock with respect to which the distribution was made immediately before distribution allocated in the manner described in sec_1_358-2 sec_358 and b and sec_1_358-1 the holding_period of the controlled stock received by distributing in distribution includes the holding_period of the distributing stock with respect to which distribution was made provided the distributing stock was held as a capital_asset on the date of distribution sec_1223 earnings_and_profits were allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 b distribution no gain_or_loss was recognized by and no amount will be included in the income of distributing upon its receipt of controlled in distribution sec_355 no gain_or_loss was recognized by distributing on its distribution of the controlled common_stock in distribution sec_355 immediately after distribution the sum of the basis of all the distributing stock plus the basis of all the controlled stock was the same as the basis of the distributing stock with respect to which the distribution was made immediately before distribution allocated in the manner described in sec_1_358-2 sec_358 and b and sec_1_358-1 plr-110052-13 distributing has a holding_period in its stock of controlled that includes its holding_period for the stock of distributing with respect to which the stock of controlled was received provided that its stock of distributing was held as a capital_asset on the date of distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits among distributing and controlled will be made under sec_1_312-10 c contribution and distribution contribution and distribution together qualified as a reorganization within the meaning of sec_368 each of distributing and controlled was a_party_to_a_reorganization within the meaning of sec_368 distributing did not recognize gain_or_loss in contribution sec_361 and sec_357 controlled did not recognize gain_or_loss in contribution sec_1032 controlled's basis in the stock received from distributing in contribution was the same as it was in the hands of distributing sec_362 controlled's holding_period for the stock received from distributing includes the period during which distributing held that stock sec_1223 no gain_or_loss was recognized by and no amount will be included in the income of sub upon its receipt of controlled stock in distribution sec_355 no gain_or_loss was recognized by distributing on its distribution of controlled stock in distribution sec_361 immediately after distribution the sum of the basis of all the distributing stock plus the basis of all the controlled stock was the same as the basis of the distributing stock with respect to which the distribution was made immediately before distribution allocated in the manner described in sec_1_358-2 sec_358 and b and sec_1_358-1 the holding_period of the controlled stock received by sub in distribution includes the holding_period of the distributing stock with respect to which distribution was made provided the distributing stock was held as a capital_asset on the date of distribution sec_1223 earnings_and_profits were allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 plr-110052-13 caveats 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 in particular this office has not reviewed any information pertaining to and has made no determination regarding the following whether distribution distribution or distribution satisfies the business_purpose requirement of sec_1_355-2 whether distribution distribution or distribution is being used principally as a device for the distribution of the earnings_and_profits of applicable distributing_corporation or controlled_corporation or both see sec_355 and sec_1_355-2 whether distribution distribution or distribution is part of a plan or series of related transactions under sec_355 and sec_1_355-7 and the federal_income_tax treatment of step sec_1 and of the restructuring procedural statement this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this letter_ruling in accordance with the power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representatives sincerely _richard m heinecke__________________ richard m heinecke assistant to the branch chief branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c oe release dexte dollar_figure uil moe tax_exempt_and_government_entities_division date feb - contact person identification_number telephone number employer_identification_number dear this is in reply to a letter from your authorized representatives dated date who requested a ruling on your behalf concerning your status as an electric cooperative described in sec_501 of the internal_revenue_code you have been exempt from federal_income_tax under sec_501 of the code hereafter code since date _you have consistently computed your compliance with the percent member income test under sec_501 on the basis of gross_income you are a calendar_year organization using the accrual_method of accounting you operate as a power supply cooperative supplying wholesale electric power to your members you currently have thirteen members each of which is purchasing electricity from you on a wholesale basis you are looking for ways to lower your interest costs pursuant to an interest_rate_swap you have been advised that long-term fixed rates can be achieved in the swap markets that are substantially lower than the long-term fixed rates in the bond market as a result you intend to issue up to dollar_figure million of floating rate debt to accomplish this you will enter into interest_rate_swap agreements with one or more financial institutions none of these financial institutions are members of your organization under the swaps you will make periodic_payments equal to a fixed-rate on a notional_principal_amount and receive periodic_payments equal to a floating-rate on the same notional_principal_amount the periodic_payments will be netted on each payment_date and you will make or receive a net payment equal to the difference between the fixed and floating-rate multiplied by the notional_principal_amount the swaps will be identified as hedges in your books_and_records in order to manage price risk associated with fuel you intend to use certain financial instruments in order to reduce or eliminate price risk on fuel to hedge your fuel price risk you will enter into natural_gas futures contracts with entities that are not members of your organization you will execute stipulate the following in connection with the contracts will be used for purposes of hedging your purchase of gas and for hedging your purchase of power where the cost of the power is related to the daily price of gas you intend on cash settling all futures contracts at a predetermined price you futures contracts the contracts on a net_basis the contracts will qualify as hedges as set forth in sec_1_1221-2 of the income_tax regulations and the nymex contracts will be identified in your books_and_records as hedges in accordance with sec_1_1221-2 of the regulations sec_501 of the code provides for the exemption from federal_income_tax of benevolent_life_insurance_associations of a purely local character mutual_ditch_or_irrigation_companies mutual_or_cooperative_telephone_companies or like organizations but only if percent or more of the income consists of amounts collected from members for the sole purpose of meeting losses_and_expenses sec_1_446-4 of the regulations generally provides that a hedging_transaction as defined in sec_1_1221-2 must be accounted for under the rules of sec_1_446-4 sec_1_446-4 of the regulations provides that the method_of_accounting used by a taxpayer for a hedging_transaction must clearly reflect income by reasonably matching the timing of income deduction gain_or_loss from the hedging_transaction with the timing of income deduction gain_or_loss from the item or items being hedged sectioraa446-4 e of the regulations provides that the rules of sec_1_446-3 govern the timing of income and deductions with respect to a notional_principal_contract npc unless because the npc is part of a hedging_transaction the application of those rules would not result in the matching that is needed to satisfy the clear reflection requirement of sec_1_446-4 for example the regulations provide that if an npc hedges a debt_instrument the method_of_accounting for periodic_payments described in sec_1_446-3 generally clearly reflects the taxpayer's income sec_1_446-3 of the regulations defines a npc as a financial_instrument that provides for the payment of amounts by one party to another at specified intervals calculated by reference to a specified_index upon a notional_principal_amount in exchange for specified consideration or a promise to pay similar amounts sec_1_446-3 of the regulations states that all taxpayers regardless of their method_of_accounting must recognize the ratable daily_portion of a periodic_payment for the taxable_year to which that portion relates sec_1_446-3 of the regulations provides the net_income or net deduction from an npc for a taxable_year is included in or deducted from gross_income for that taxable_year the net_income or net deduction from an npc for a taxable_year equals the total of all of the periodic_payments that are recognized from that contract for the taxable_year sec_1221 of the code defines a hedging_transaction to include any transaction entered into in the normal course of business primarily to manage risk of price changes with respect to ordinary_property that is held or to be held by the taxpayer see also sec_1 b the swaps between your organization and the financial institutions are npc’s notional_principal_contracts pursuant to sec_1_446-3 of the regulations thus sec_1_446-3 of the regulations governs the timing of income and deductions with respect to periodic_payments pursuant to sec_1_446-3 of the regulations you will recognize the ratable daily_portion of each periodic_payment for the taxable_year to which that portion relates sec_1_446-3 of the regulations your organization shall recognize only the net periodic under payment from the swaps thus for purposes of the percent of the member income test your organization may calculate nonmember income by reference to the net_income derived from the swaps your organization's inventory of natural_gas and electricity is ordinary_income_property under sec_1221 of the code therefore assuming that the contracts manage risk of price changes with respect to the natural_gas and electricity inventories the contracts are hedging_transactions within the meaning of sec_1221 and sec_1_1221-2 of the regulations as explained above sec_1_446-4 of the regulations governs the timing of hedging_transactions as defined in sec_1_1221-2 and generally requires that the method_of_accounting used by a taxpayer for a hedging_transaction must clearly reflect income by reasonably matching the timing of income deduction gain_or_loss from the hedging_transaction with the timing of income deduction gain_or_loss from the item or items being hedged contracts that hedge electricity purchases until you sell the for hedges of the natural_gas inventory the cost of natural_gas becomes a cost of the for hedges of purchased electricity sec_1_446-4 of the regulations provides that if a hedging_transaction hedges purchases of inventory gain_or_loss on the hedging_transaction may be taken into account in the same period that it would be taken into account if the gain_or_loss were treated as an element of the cost of inventory under sec_1_471-1 of the regulations you must include the cost of the purchased electricity inventory in your ending inventory until you sell the electricity to members consequently you may not recognize your net gain_or_loss on the related electricity inventory electricity inventory produced when the natural_gas is consumed in the ordinary course of production sec_1_263a-1 of the regulations provides that producers must capitalize direct_material_costs which include the cost of those materials that become an integral part of specific property produced and those materials that are consumed in the ordinary course of production and that can be identified or associated with particular units or groups of units of property produced thus you must include the cost of the natural_gas inventory in your ending inventory until you sell the electricity to members accordingly you may not recognize your net gain_or_loss on the contracts that hedge the natural_gas inventory until you sell the related electricity the code you may calculate nonmember income by reference to the net_income derived from the interest rate swaps and for purposes of the percent member income requirement under sec_501 of accordingly we conclude as follows for purposes of the percent member income test under sec_501 of the code your nonmember income from the gain that you recognize from the contract if any at the time the contract is settled contract transactions will be the amount of this ruling is conditioned on the understanding that there will be no material_change in the facts upon which it is based also we express no opinion as to the tax consequences of the transactions under other provisions of the code this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter you should keep a copy for your permanent records sincerely enclosure notice technical group robert c harper jr manager exempt_organizations


f sax exewer avo government entities division department of the treasury internal_revenue_service washington d c act 1g uniform issue list ce ter ra ts legend taxpayer a date date taxpayer b date date date trust h executor g ira x ‘custodian c daughter j grandson t date date page ira z date state c date month dear this is in response to your letter dated date as supplemented by correspondence dated date date date and date submitted on your behalf by your authorized representative in which you request rulings under sec_401 of the internal_revenue_code the code taxpayer a was born on date and died on date taxpayer b the wife of taxpayer a was born on date and died on date eleven days after the death of taxpayer a executor g is the executor of both the estate of taxpayer a and the estate of taxpayer b on date taxpayer a and taxpayer b established trust h as settlors executor g is the executor of trust h it is represented that trust h a -4 q a-5 of the income_tax regulations regulations and that is a valid see-through trust under section rage beneficiaries of trust h with respect to the trust's interest in an employee's benefit may be treated as designated beneficiaries because the following is valid under the laws of state c trust h requirements are met trust h became irrevocable upon the death of the employee the beneficiaries of the trust who are beneficiaries with respect to trust h’s interest in the employee's benefit are identifiable within the meaning of sec_1_401_a_9_-4 q a-5 a of the regulations from the trust instrument and the documentation described in sec_1_401_a_9_-4 q a-6 of the regulations has been timely provided to the custodian taxpayer a was a participant in an individual_retirement_account ira x the custodian of which was custodian c executor g represents that ira x was at the date of death of taxpayer a and continues to be qualified within the meaning of sec_408 of the code taxpayer a reached age before his death and he had begun receiving required minimum distributions from ira x to comply with sec_401 of the code taxpayer a named trust h to be the beneficiary of ira x upon his death no distribution of ira x benefits occurred between date the date of taxpayer a’s death and date the date of taxpayer b’s death in accordance with section c of trust h executor g became a trustee of trust h upon the death of taxpayer a and executor g became the sole trustee of trust h upon the death of taxpayer b relevant provisions of trust h provide the following - e e e e trust h was established as a revocable_trust upon the death of taxpayer a_trust h became irrevocable as to taxpayer a’s interest in trust h upon taxpayer b’s death the entire trust h became irrevocable upon the death of the first settlor to die the surviving settlor became the sole income_beneficiary of trust h the interest of each respective beneficiary of trust h is treated as a separate share upon the respective deaths of taxpayer a and taxpayer b daughter j and grandson t became beneficiaries of trust h as to assets for which a beneficiary designation named trust h as the beneficiary which assets included ira x daughter j is the daughter of taxpayer a and taxpayer b daughter j’s date of birth is date grandson t is the son of daughter page j and the grandson of taxpayer a and taxpayer b grandson t was born on date e e e the proportion of daughter j’s and grandson t’s respective interests in trust h applicable to ira x is daughter j at dollar_figure percent divided by and grandson t at dollar_figure percent divided by on date trust h was amended to establish daughter j subtrust and grandson t subtrust to hold the share of trust h allocable to daughter j and grandson t respectively each year executor g is required to withdraw from individual_retirement_accounts amounts equal to the minimum_required_distribution determined in accordance with the provisions of federal tax law and to distribute that amount at least annually to the applicable trust_beneficiary e trust h is governed by the laws of state c it is represented that the individuals who are beneficiaries with respect to trust h and each one’s respective interests in ira x are identifiable from the trust h instrument and the documentation specified in q a-6 of sec_1_401_a_9_-4 of the regulations has been timely provided to custodian c it is represented that on date within nine months after taxpayer b's date of death executor g as executor of taxpayer b’s estate disclaimed any interest taxpayer b had in taxpayer a’s share of trust h including any interest taxpayer b had in ira x it is represented that the disclaimer is a valid disclaimer under the laws of state c the jurisdiction of the estate of taxpayer b it is also represented that the disclaimer is a qualified_disclaimer under sec_2518 of the code as an irrevocable and unqualified refusal by a person to accept an interest in property because the disclaimer was in writing the disclaimer was received by the transferor of the interest his legal_representative or the holder of legal_title to the property not later than the date which is months after the later of the date on which the transfer creating the interest is made or the date on which the person refusing the interest attains age the person disclaiming the interest did not accept the interest or any of its benefits and as a result of the disclaimer the interest passed without any direction by the person making the disclaimer and passed to a person other than the person making the disclaimer during month trustee h divided ira x into two inherited individual_retirement_accounts ira y for the daughter j subtrust’s interest in ira x and ira z for the grandson t subtrust’s interest in ira x nese it is represented that debts and expenses of the estates of taxpayer a and taxpayer b and of trust h have been paid only from assets other than the assets of ira x and will continue to be so paid based on the above facts and representations the following letter rulings have been requested that for the purpose of this ruling_request trust h the daughter j subtrust and the grandson t subtrust constitute valid see-through trusts within the meaning of sec_1 a of the of the regulations that daughter j considered for purposes of determining who is the designated_beneficiary of ira x under sec_401 of the code is the sole individual whose life expectancy must be with respect to your ruling requests code sec_401 provides in general that a_trust will not be considered qualified unless the plan provides that the entire_interest of each employee -- i will be distributed to such employee not later than the required_beginning_date or ii will be distributed beginning not later than the required_beginning_date over the life of such employee or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary code sec_401 provides in general that if a plan participant ira holder dies before his entire_interest has been distributed where distributions have begun in accordance with subparagraph a ii and the employee dies before his entire_interest had been distributed to him the remaining portion of such interest will be distributed at least as rapidly as under the method of distribution being used under subparagraph a ii as of the date of his death sec_401 of the code provides in relevant part that for purposes of this paragraph the term required_beginning_date means april of the calendar_year following the calendar_year in which the ira holder attains age code sec_401 defines designated_beneficiary as any individual designated as a beneficiary by the employee ira holder page code sec_408 provides the rules governing iras code sec_408 provides that except as otherwise provided in this subsection any amount_paid or distributed out of an individual_retirement_plan shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 code sec_408 provides that under regulations prescribed by the secretary rules similar to the rules of sec_401 and the incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit an ira trust is maintained with further respect to your ruling_request final income_tax regulations under code sec_401 and sec_408 were published in the federal_register pincite federal_register date and in the internal_revenue_bulletin pincite r b date the preamble to the final regulations in relevant part provide that the regulations apply for determining required minimum distributions for calendar years beginning after date in addition the final regulations have been modified in part see 2004_26_irb_1082 date the modification to the final regulations may also be relied upon with respect to required distributions for the and subsequent calendar years sec_1_401_a_9_-4 of the regulations q a-1 provides in relevant part that a designated_beneficiary is an individual who ‘is designated as a beneficiary under a plan either by the terms of the plan or by an affirmative election by the employee a beneficiary designated under the plan is an individual who is entitied to a portion of an employee's benefit contingent on the employee's death or another specified event a designated_beneficiary need not be specified by name in the plan or by the employee to the plan in order to bea designated_beneficiary so long as the individual who is to be the beneficiary is identifiable under the plan q a-1 further provides that a person who takes under a will or otherwise under applicable state law will not be a designated_beneficiary unless that individual also is designated as a beneficiary under the plan sec_1_401_a_9_-4 of the regulations q a-3 provides that only individuals may be designated beneficiaries for purposes of sec_401 avx a person who is not an individual such as the employee's estate may not be a designated_beneficiary however q a-5 of sec_1_401_a_9_-4 provides that beneficiaries of a_trust with respect to the trust's interest in an employee's benefit may be treated as designated beneficiaries if the following requirements page are met the trust is valid under state law or would be but for the fact there is no corpus the trust is irrevocable or will by its terms become irrevocable upon the death of the employee the beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit are identifiable within the meaning of a-1 of this section from the trust instrument relevant documentation has been timely provided to the plan_administrator sec_1_401_a_9_-4 of the regulations q a-4 provides in relevant part that in order to be a designated_beneficiary an individual must be a beneficiary as of the date of the employee's or ira holder's death generally an employee's designated_beneficiary will be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of september of the calendar_year following the calendar_year of death consequently any person who was a beneficiary as of the date of the employee's death but is not a beneficiary as of that september eg because the person receives the entire benefit to which the person is entitled before that september is not taken into account in determining the employee's designated_beneficiary for purposes of determining the distribution period for required minimum distributions after the employee's death accordingly if a person disclaims entitlement to the employee's benefit pursuant to a disclaimer that satisfies sec_2518 by that september thereby allowing other beneficiaries to receive the benefits in lieu of that person the disclaiming person is not taken into account in determining the employee's designated_beneficiary sec_1_401_a_9_-4 of the regulations q a-5 c provides in relevant part that the separate_account rules of a-2 of sec_1_401_a_9_-8 are not available to trust beneficiaries with respect to the trust's interest in the employee's ira holder's benefit sec_1_401_a_9_-4 of the regulations q a-6 b provides in relevant summary that at a minimum documentation sufficient to enable an ira custodian to identify beneficiaries of an ira must be provided by a trustee to the custodian by october of the calendar_year immediately following the calendar_year in which the ira owner died sec_1_401_a_9_-5 of the regulations q a-5 a provides in ace general that if an employee dies after distribution has begun as defined under a- of sec_1_401_a_9_-2 in order to satisfy the requirements of code sec_401 the applicable distribution period for distribution calendar years after the distribution calendar_year containing the employee's date of death is either if the employee has a designated_beneficiary as of the date determined under a-4 of sec_1_401_a_9_-4 the longer of -- i the remaining life expectancy of the employee's designated_beneficiary determined in accordance with paragraph c or of this a-5 and ii the remaining life expectancy of the employee determined in accordance with paragraph c of this a-5 or if the employee does not have a designated_beneficiary as of the date determined under a-4 of sec_1_401_a_9_-4 the remaining life expectancy of the employee determined in accordance with paragraph c of this a-5 sec_1_401_a_9_-5 of the regulations q a-5 c provides in general that with respect to a non-spouse beneficiary the applicable distribution period measured by the beneficiary's remaining life expectancy is determined using the beneficiary's age as of the beneficiary's birthday in the calendar_year immediately following the calendar_year of the employee's death in subsequent calendar years the applicable distribution period is reduced by one for each calendar_year that has elapsed after the calendar_year immediately following the calendar_year of the employee's death sec_1_401_a_9_-5 of the regulations q a-7 a provides in relevant part that except as otherwise provided in paragraph c of this a-7 not pertinent to this ruling_request if more than one individual is designated as a beneficiary with respect to an employee as of the applicable_date for determining the designated_beneficiary the designated_beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining the applicable distribution period sec_1_401_a_9_-8 of the regulations q a-2 a provides that if an employee's ira holder's benefit in a defined_contribution_plan is divided into separate_accounts in accordance with the conditions contained therein distributions from the separate_account may be based on the life expectancy of the beneficiary of the separate_account without regard to the life expectancies of the beneficiaries of other separate_accounts page with respect to your ruling requests it is represented that trust h is valid under the laws of state c trust h became irrevocable upon the death of taxpayer a the beneficiaries of trust h who are beneficiaries with respect to the trust h's interest in ira x are identifiable within the meaning of sec_1_401_a_9_-4 q a-5 a of the regulations from the trust instrument and the documentation described in sec_1_401_a_9_-4 q a-6 of the regulations has been timely provided to the custodian of ira x accordingly we rule that trust h including its component subtrusts constitutes a valid see through trust with respect to ira x since trust h constitutes a valid see through trust’ it is necessary to determine who if anyone is the designated_beneficiary within the meaning of code sec_401 and sec_408 of taxpayer a’s ira x since the separate_account rules are not available to trust beneficiaries with respect to a trust's interest in an ira in accordance with sec_1_401_a_9_-5 q a-7 a of the regulations the trust_beneficiary with the shortest life expectancy will be the designated_beneficiary with respect to ira x it is represented that ira x was initially payable to trust h prior to being divided among the beneficiaries of the two subtrusts created under the provisions of trust h as noted above daughter j and grandson t are the only beneficiaries of trust h's subtrusts who will receive the amounts distributed from taxpayer a's ira x and they are the only beneficiaries who must be considered for purposes of determining who is the designated_beneficiary within the meaning of code sec_401 and sec_408 of ira x as noted previously daughter j is older than grandson t and therefore has the shorter life expectancy accordingly we conclude that daughter j is the sole individual whose life expectancy must be considered for purposes of determining who if anyone is the code sec_401 designated_beneficiary of taxpayer a's ira x since ira x was subsequently divided into ira y an inherited ira for the benefit of daughter j and ira z an inherited ira for the benefit of grandson t the life expectancy determined above must be applied to distributions from both ira y and ira z this ruling letter is based on the assumption that ira x ira y and ira z meet the requirements of code sec_408 at all times relevant thereto furthermore this ruling letter rests on the assumption that trust h and its related sub-trusts are valid under the laws of state c as represented it also assumes the correctness of all facts and representations contained therein accordance with a power_of_attorney on file in this office a copy of this letter has been sent to your authorized representative in page 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 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 if you wish to inquire about this ruling please contact xxxxxxxxxxxxxxxxxxxxxxxx- xxxxx at xxxxxxxxxxxxxx phone or at xxxxxxxxxxxxxx fax please address all correspondence to se t ep ra t sec_3 sincerely yours laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc xxxxxxxxxxxxxxx xxxxxxxkxkkxxkxxkxxxkxkxxxkx xxxxxxxxxxxxxx


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp - plr-129083-00 date date legend purchaser target seller month e date a date b date c accounting firm purchaser’s company officials authorized representatives this letter responds to a letter dated date requesting on behalf of the taxpayers identified above an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election purchaser and seller are requesting an extension to file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax regulations with respect to purchaser’s acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to regulations under sec_338 are to regulations in effect on date a additional information was received in a letter dated date the material information is summarized below purchaser is a c_corporation that is the common parent of an affiliated_group that plr-129083-00 files a consolidated federal_income_tax return target was an s_corporation within the meaning of sec_1361 at the time of acquisition target was wholly owned by seller an individual purchaser used a fiscal_year taxable_year ending the last day of month e and target used a calendar_year taxable_year purchaser used the accrual_method of accounting and target used the cash_method_of_accounting target had no subsidiaries on date a purchaser acquired all of seller’s stock in target for cash in a fully taxable transaction pursuant to a stock purchase agreement entered into the same day after the purchase new target was included in purchaser’s consolidated_group as a subchapter_c_corporation but target thereafter merged into purchaser which continues target’s business it is represented that purchaser was not related to seller within the meaning of sec_338 and purchaser's acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 purchaser and seller intended to file the election for target the election was due on date b however for various reasons a valid election was not filed on or about date c which is after the due_date for the election one or more tax professionals at accounting firm discovered that the election had not been properly filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for purchaser’s target’s or seller’s taxable_year s in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase sec_338 defines a qualified_stock_purchase as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of corporation is acquired by another corporation by purchase during the 12-month_acquisition_period sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or ii under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 other than paragraph thereof be attributed to the person acquiring such stock sec_338 permits the purchasing and selling corporations to elect jointly plr-129083-00 to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation the sale of stock included in the qualified_stock_purchase generally is ignored a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 gain_or_loss on the deemed sale is included in the consolidated_return of the selling group unless the target_corporation is a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 provides that a sec_338 election may be made for the target_corporation if the purchasing_corporation makes a qualified_stock_purchase of the target_corporation stock sec_1_338_h_10_-1 provides that if a sec_338 election is made for the target_corporation it is irrevocable sec_1_338_h_10_-1 provides that a sec_338 election is jointly made by a purchaser and the selling_consolidated_group or the selling affiliate or the s_corporation shareholders on form_8023 in accordance with the instructions to the form the regulations further provide that the election must be made not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs the instructions to form_8023 provide that a sec_338 election must be made jointly by the purchasing_corporation and the common parent of the selling_consolidated_group or selling affiliate or s_corporation shareholders the instructions provide that the form must be signed by a person authorized to act on behalf of each corporation and if made for an s_corporation it must be signed by each s_corporation shareholder who sells target stock in the qualified_stock_purchase the instructions further provide that the signatures dates and titles if applicable of those persons must be provided in a signature attachment and they provide specific details as to the preparation of the signature attachment and its attachment to form_8023 sec_1_338-2 permits a purchasing_corporation to make an election under sec_338 for the target_corporation even though the target is liquidated on or after the acquisition_date under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections 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 plr-129083-00 in this case the time for filing the election is fixed by the regulations ie sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and seller to file the election provided purchaser and seller show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser’s company officials and authorized representatives explain the circumstances that resulted in the failure to timely file a valid election the information establishes that a competent tax professional who was aware of all relevant facts was responsible and relied on for the election and that purchaser and seller relied on the tax professional to make the election the information also establishes that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that purchaser and seller have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for purchaser and seller to file the election with respect to the acquisition of the stock of target as described above the above extension of time is conditioned on purchaser and seller each treating the acquisition sale of the target stock as a sec_338 transaction on their affected returns ie the taxable_year in which the transaction was consummated plus any applicable carryback and or carryforward taxable years seller and purchaser filing all their returns for all affected taxable years ie original returns or amended returns as applicable not later than days after the issuance of this letter the taxpayers’ seller’s target’s and purchaser’s consolidated group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ liability is lower sec_301_9100-3 purchaser and seller must file the election in accordance with sec_1 h - d that is a new election on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions to the form a copy of this letter should be attached to the election form purchaser and seller must file or amend as applicable their returns for all affected taxable years and attach to the returns a copy of this letter and a copy of the election ie form plr-129083-00 we express no opinion as to whether the acquisition sale of the target stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target stock qualifies for sec_338 treatment or if sec_338 is applicable the amount and character of gain_or_loss if any recognized on target’s deemed asset sales and deemed liquidation see sec_1_338_h_10_-1 in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any will continue to apply purchaser must provide seller with a copy of this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the powers of attorney on file in this office a copy of this letter is being sent to purchaser’s company official sincerely yours associate chief_counsel corporate by ken cohen senior technician reviewer branch


internal_revenue_service number release date index numbers ------------------------------ ------------------------------------------------ -------------------------------------- ------------------------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-106882-10 date date legend x d country ---------------------- ---------------------- --------------------- dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner plr-106882-10 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form as a condition of this ruling x must file amended returns including a properly executed form_8858 information_return of u s persons with respect to foreign disregarded entities with respect to x if not already filed consistent with x having made a timely election to be treated as a disregarded_entity effective d a copy of this letter should be attached to the form plr-106882-10 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 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 x’s authorized representatives sincerely curt g wilson curt g wilson associate chief_counsel passthroughs special industries by faith p colson faith p colson senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes plr-106882-10 list of entities receiving ruling x name and ein d effective date of election plr number 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internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b09-plr-139500-01 date date legend decedent spouse executors c p a date date sons marital trust bypass_trust dollar_figurex dollar_figurey dear this letter responds to your request dated date requesting rulings under sec_301_9100-1 of the procedure and administration regulations as well as rulings under sec_2632 and sec_2652 of the internal_revenue_code the facts and representations submitted are summarized as follows decedent died on date survived by spouse and his five children article ii sec_2 of the will directs that if spouse and either son survives decedent decedent gives to trustee in trust such amount of property as will be equal to the maximum amount needed to increase decedent’s taxable_estate to the largest amount possible without incurring any federal estate_tax on decedent’s estate the bypass_trust plr-139500-01 article vi section a of the will provides that trustee shall distribute to sons from the bypass_trust principal such amounts as shall be necessary when added to the funds reasonably available to decedent’s sons from all other sources known to trustee to provide for their health support maintenance and education taking into consideration the age education and station in life of each such distributee under article vi section b the bypass_trust shall terminate when no son of decedent is living and under the age of twenty-three years or when spouse dies whichever is later upon such termination the then remaining trust property shall be distributed to decedent’s then living descendants per stirpes or to a_trust for the benefit of any descendent under the age of thirty-five article iii sec_3_1 provides that if spouse survives decedent decedent gives all of his residuary_estate to marital trust under article iv sec_4 the trustee shall distribute to spouse the income from the marital trust at least quarterly and such amounts of principal as shall be necessary to provide for her health support and maintenance in order to maintain her to the extent reasonably possible in accordance with the standard of living to which she is accustomed at the time of decedent’s death article iv sec_4 directs that no person shall have the power to appoint any part of the marital trust property to any person other than spouse under article iv sec_4 upon the death of spouse the marital trust principal shall be distributed to decedent’s then living descendants per stirpes or to a_trust for the benefit of any descendent under the age of thirty-five however if no such descendent is then living such trust principal shall be distributed to decedent’s contingent beneficiaries article sec_3 directs that executor shall allocate any remaining exemption from the generation-skipping tax available at the time of decedent’s death under article sec_4 if any trust created under the will is partially subject_to the generation-skipping_transfer_tax trustee shall create two separate trusts so that one trust is not subject_to the generation-skipping_transfer_tax and one trust is fully subject_to the generation-skipping_transfer_tax under article sec_5 with respect to any trust or portion of a_trust held for the benefit of decedent’s spouse which the executor has elected to treat as qualified_terminable_interest_property and which is exempt from the generation-skipping_transfer_tax executor shall also make the special election pursuant to sec_2652 with regard to such trust or such portion of such trust pursuant to an extension the united_states estate and generation-skipping_transfer_tax return form_706 was timely filed on date on schedule m of form_706 an election was made under b to treat marital trust as qualified_terminable_interest_property qtip a schedule r was not attached to form_706 therefore no portion of decedent’s generation-skipping_transfer gst_exemption was plr-139500-01 allocated and no reverse_qtip_election was made executors are not tax professionals the form_706 was prepared by a certified_public_accountant c p a who failed to make or advise executors to make the reverse_qtip_election or to allocate decedent’s remaining gst_exemption it is represented that decedent’s entire dollar_figure gst_exemption was available for allocation at decedent’s death and that the value for estate_tax purposes of bypass_trust was dollar_figurex pursuant to the provisions of decedent’s will marital trust is required to be divided into non-exempt marital trust and exempt marital trust it is represented that the value of exempt marital trust is dollar_figurey you have requested the following rulings an extension of time under sec_301_9100-1 to make a reverse_qtip_election under sec_2652 with respect to the exempt marital trust and a ruling that the automatic allocation rules of sec_2632 operate to cause the unused portion of decedent’s gst_exemption to be allocated to the exempt marital trust and the bypass_trust so that both trusts have an inclusion_ratio of zero sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides the general_rule that no deduction shall be allowed for an interest passing to the surviving_spouse if on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur the interest will terminate or fail sec_2056 provides that in the case of qualified_terminable_interest_property the entire property shall be treated as passing to the surviving_spouse for purposes of sec_2056 and no part of the property shall be treated as passing to any person other than the surviving_spouse sec_2056 defines qualified_terminable_interest_property as property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2601 imposes a tax on every generation-skipping_transfer sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or by his or her executor to any property with respect to which such individual is the transferor sec_2631 provides that once an allocation of gst_exemption is made it is irrevocable plr-139500-01 under sec_2632 the allocation of the gst_exemption may be made at any time on or before the date prescribed for filing the individual’s estate_tax_return including extensions sec_2632 provides that in general any portion of an individual’s gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows- a first to property which is the subject of a direct_skip occurring at the individual’s death and b second to trusts with respect to which the individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after the individual’s death sec_26_2632-1 of the generation-skipping_transfer_tax regulations supplies the method for the automatic allocation of any unused gst_exemption first the exemption is allocated pro_rata to direct skips on the basis of their values for estate_tax purposes the balance is then allocated pro_rata on the basis of estate_tax values to trusts with respect to which a taxable_termination may occur or from which a taxable_distribution may be made no automatic allocation is made to a_trust that will have a new transferor with respect to the entire trust prior to the occurrence of any gst with respect to the trust the automatic allocation is irrevocable sec_2652 provides that in the case of any trust with respect to which a deduction is allowed to the decedent’s estate under sec_2056 the estate of the decedent may elect to treat all of the property in the trust for purposes of the gst tax as if the election to be treated as qtip had not been made this election is referred to as the reverse_qtip_election the consequence of a reverse_qtip_election is that the decedent remains for gst tax purposes the transferor of the qtip_trust for which the election is made as a result the decedent’s gst_exemption may be allocated to the qtip_trust sec_26_2652-2 provides that the reverse_qtip_election is to be made on the return on which the qtip_election is made under sec_301_9100-1 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 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 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-3 provides that in general requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides 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 plr-139500-01 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore an extension of time is granted until days from the date of this letter for making a reverse_qtip_election under sec_2652 with respect to the exempt marital trust the election should be made on a supplemental form_706 filed with the service office where the original form_706 was filed a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for that purpose an extension of time to make the reverse_qtip_election under sec_2652 does not extend the time to make an allocation of any remaining gst_exemption in the instant case no allocation of decedent’s available gst_exemption was made on the form_706 therefore the automatic allocation rules of sec_2632 and sec_26_2632-1 operate to allocate decedent’s available exemption based on the information submitted and the representations made and provided the reverse_qtip_election is made for the exempt marital trust as authorized in this letter we conclude that dollar_figurex of decedent’s gst_exemption automatically is allocated to the bypass_trust and dollar_figurey is automatically allocated to the exempt marital trust because the amount of gst_exemption allocated to each trust equals the estate_tax_value of each trust the exempt marital trust and the bypass_trust will each have an inclusion_ratio of zero under sec_2642 except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter