internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 1-plr-131547-01 date date legend x d1 d2 d3 state1 state2 this responds to your representative’s letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x incorporated under the laws of state1 on d1 and elected to be treated as an s_corporation on d2 x converted from a state1 corporation to a state1 limited_partnership electing to be treated as an association_taxable_as_a_corporation this conversion may have created a second class of stock which would have terminated x’s s_corporation_election x and its owners intended that x would continue to be treated as an s_corporation when advised that the conversion may have caused x’s s election to terminate x converted to a state2 corporation on d3 x was unaware that the conversion to a state1 limited_partnership could potentially terminate x’s s_corporation_election x represents that it did not intend to terminate its s_corporation_election and that during the termination period it has timely and consistently filed its tax returns consistent with its treatment as an s_corporation law analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect sec_1361 defines small plr-131547-01 business corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate other than a_trust described in sec_1361 and other than an organization described in c who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 of the code provides that an election to be treated as an s_corporation terminates whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the date the s_corporation ceases to meet the requirements of a small_business_corporation sec_1362 sec_1362 of the code provides that if an election to be treated as an s_corporation was terminated under sec_1362 or the secretary determines that the termination was inadvertent no later than a reasonable period of time after discovery of the event resulting in such termination steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to that period then notwithstanding the terminating event the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary s rep no 97th cong 2d sess 1982_2_cb_718 in discussing sec_1362 of the code provides in part as follows if the internal_revenue_service determines that a corporation’s subchapter_s_election is inadvertently terminated the service can waive the effect of the terminating event for any period if the corporation timely corrects the event and if the corporation and the shareholders agree to be treated as if the election had been in effect for such period the committee intends that the internal_revenue_service be reasonable in granting waivers so that corporations whose subchapter_s eligibility requirements have been inadvertently violated do not suffer the tax consequences of a termination if no tax_avoidance would result from the continued subchapter_s treatment in granting a waiver it is hoped that taxpayers and the government will work out agreements that protect the revenues without undue_hardship to taxpayers it is expected that the waiver may be made retroactive for all years or retroactive for the period in which the corporation again became eligible for subchapter_s treatment depending on the facts based on revproc_99_51 1999_52_irb_760 date section dollar_figure of plr-131547-01 revproc_2000_3 i r b date provides that the service will not rule on the following issue because it is being studied sec_1361 - definition of a small_business_corporation - whether a state law limited_partnership electing under sec_301_7701-3 to be classified as an association_taxable_as_a_corporation has more than one class of stock for purposes of sec_1361 the service will treat any request for a ruling whether a state law limited_partnership is eligible to elect s_corporation status as a request for a ruling on whether the partnership complies with sec_1361 conclusion based upon the information submitted and the representations set forth above we conclude that if x’s conversion from a state1 corporation to a state1 limited_partnership created a second class of stock and thereby terminated x's s_corporation_election that the termination was inadvertent within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from d2 and thereafter provided that x's subchapter_s_election is not otherwise terminated under sec_1362 except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the above-described facts under any other provision of the code in particular no opinion is expressed or implied concerning whether x's s election was valid under sec_1362 this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to the your authorized representative sincerely david r haglund senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------- --------------------------------- ------------------------------------------------- -------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no -------------- telephone number ---------------------- refer reply to cc corp b06 plr-137254-13 date date legend distributing -------------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------- controlled -------------------------------------------------------------------- -------------------------------------------------- -------------------------------------------- sub -------------------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------- sub -------------------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------- sub ---------------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------- llc ------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------- llc ---------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------- plr-137254-13 llc ---------------------------------------------------------- ------------------------------------------------------------ ---------------------------------- corporation -------------------------------------------------------------------- ------------------------------------------------------------ -------------------------- foreign parent ----------------------------------------------------------------------------- ------------------------------------- fcorp ----------------------------------------------------------------------------- ------------------------ fcorp -------------------------------------------------------------------- ----------------------- fcorp -------------------------- ---------------------------------------------------------------- fcorp ---------------------------------------------------------------- ---------------------- fcorp ------------------------------------------------------------- -------------------------------------------------- fsub ---------------------------- ---------------------------------------------------------------- fsub -------------------------------------------------------------------- -------------------------------------------- fsub ---------------------------------------------------------------- ----------------------- fsub ------------------------------------------------------------------ -------------------------------------------------------- fsub -------------------------------------------------------------------- ------------------------------------------ fsub -------------------- plr-137254-13 --------------------------------------------------------------- fsub --------------------------- --------------------------------------------------------------- fsub ------------------------------------------------------------------ -------------------------------- fsub -------------------------------------------------------------------- ----------------------------------------------------- date state a country a country b country c country d country e business a business a1 business b business b1 business c a b c d e ------------------------ -------------- ----------------------- ------------- ------------ ------------ ------------------ --------------------------- ---------------------------------------------- -------------------- --------------------------------------- ---------------------- -------- ------ ------ -- ---------- plr-137254-13 f ---- dear ----------------- this letter responds to your date letter requesting rulings on certain federal_income_tax consequences of a series of proposed transactions the proposed transactions as defined herein the material information provided in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based upon the information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination moreover this office has not reviewed any information pertaining to and has made no determination regarding whether any distribution occurring as part of the proposed transactions 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 representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1 summary of facts except where noted all entities are domestic corporations distributing is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return with its eligible affiliates the distributing group the authorized and outstanding capital stock of distributing consists of one class of common_stock that is wholly owned indirectly by foreign parent a country a corporation and the parent of a multi-national group of corporations that operates business a business b and business c among other businesses the foreign parent group the stock of foreign parent is widely held and publicly traded distributing will form controlled for purposes of the proposed transactions at its formation controlled will have one class of stock outstanding all of which will be owned by distributing foreign parent wholly owns fcorp a country a entity fcorp wholly owns fcorp a country a entity fcorp wholly owns fcorp a country b entity fcorp wholly owns fcorp a country b entity fcorp wholly owns fsub a country b entity that wholly owns fsub a country a entity and fsub a country b entity plr-137254-13 fsub fsub and fsub own a percent b percent and c percent respectively of the distributing stock each fsub and fcorp in this and later paragraphs is classified as a corporation for federal_income_tax purposes under sec_301_7701-3 immediately prior to the proposed transactions distributing wholly owns sub llc and llc llc wholly owns llc and sub which wholly owns sub llc conducts business c and llc conducts business a1 llc also wholly owns fsub a country c entity that conducts business a and business b distributing sub llc sub and sub together conduct business b1 each llc in this and later paragraphs is a limited_liability_company disregarded as separate from its regarded_owner for federal_income_tax purposes under sec_301_7701-3 each a disregarded_entity immediately prior to the proposed transactions fsub wholly owns fsub a country a entity that will directly and indirectly conduct business c in the foreign parent group following the proposed transactions fsub also wholly owns fcorp a country e entity fcorp wholly owns fsub a country d entity which in turn wholly owns fsub a country d entity and several other non-united states entities classified as corporations for federal_income_tax purposes fsub wholly owns corporation fsub and corporation conduct business a in the foreign parent group trade payables arising in the ordinary course of business between and among members of the distributing group and other non-united states entities in the foreign parent group and having minimal balances are settled between the parties on a monthly basis among these is an intercompany payable from fsub to distributing for certain services performed by distributing the fsub payable distributing and members of its separate_affiliated_group as defined in sec_355 the distributing sag conduct business b including business b1 controlled as a result of the proposed transactions will conduct business a including business a1 financial information has been received indicating that each of business a1 and business b1 has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years distributing has decided to separate business a business b and business c from one another the separation for the following corporate business_purpose to optimize the potential of each business by allowing its managers to focus on the business for which they are responsible and consequently pursue a business strategy and establish a capital structure and financial policies aligned solely with that business together the corporate business_purpose proposed transactions to achieve the corporate business_purpose distributing has proposed and plr-137254-13 partially completed the following series of transactions which will occur in the order listed collectively the proposed transactions i on date distributing sold all of the ownership interests in llc to fsub in exchange for dollar_figured llc sale ii effective immediately after the llc sale llc made an entity classification election under sec_301_7701-3 to be treated as an association_taxable_as_a_corporation for federal_income_tax purposes iii all intercompany payables and receivables between and among distributing llc llc and fsub will be settled through contributions and or distributions of the intercompany receivables iv fsub will contribute all of its assets used to conduct business b to newly formed fsub a country c entity that will be classified as a corporation for federal_income_tax purposes in exchange for stock of fsub and the assumption by fsub of related liabilities v fsub will distribute all of the fsub stock to llc vi llc will contribute all of the fsub stock to llc vii llc will distribute all of the llc membership interests to distributing viii distributing will form controlled as a wholly owned subsidiary with e shares of common_stock outstanding ix fsub and fsub each will elect to be treated as a disregarded_entity of fsub with an effective date prior to the distribution as defined below x llc will merge with and into controlled with controlled surviving contribution xi distributing will distribute the controlled stock pro_rata to its shareholders fsub fsub and fsub distribution xii fsub and fsub both disregarded entities of fsub will distribute the controlled stock received in the distribution to fsub xiii fsub will contribute all of the controlled stock to a disregarded_entity of fsub in exchange for membership interests in such disregarded_entity xiv controlled will acquire the stock of corporation from fsub in exchange for a promissory note bearing market terms plr-137254-13 xv corporation will merge into controlled with controlled surviving xvi fsub fsub and fsub will form fsub a country a entity classified as a corporation for federal_income_tax purposes and will contribute the stock of distributing to fsub in exchange for common_stock of fsub following completion of the proposed transactions the separation of businesses a b and c from one another will be complete except for the continuing agreements as defined herein between and among distributing controlled and their respective subsidiaries designed to facilitate the separation of business a from business b these agreements will include a payroll agreement and a shared services agreement under the shared services agreement members of a shared services team will serve the needs of the distributing sag and controlled sag from a central location the members of the shared services team will be employed by the distributing sag and the services provided to the controlled sag will be reimbursed by the controlled sag at fair_market_value in addition certain administrative functions of the distributing sag and the controlled sag will continue to be conducted under the payroll agreement from a central location for a period of not more than f months following the distribution representations distributing has made the following representations for the contribution and the distribution a any indebtedness owed by controlled or any entity controlled directly or indirectly by controlled to distributing or any entity controlled directly or indirectly by distributing after the distribution will not constitute stock_or_securities b no part of the consideration to be distributed by distributing in the distribution will be received by any shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing c distributing will treat all members of its sag as defined in sec_355 as one corporation in determining whether the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business business b1 are satisfied controlled will conduct business a1 directly d the five years of financial information submitted on behalf of business b1 as conducted by the distributing sag is representative of the present business operations of business b1 and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted plr-137254-13 e the five years of financial information submitted on behalf of business a1 as conducted by controlled is representative of the present business operations of business a1 and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted f neither business b1 conducted by the distributing sag nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the distribution the distributing sag will have been the principal_owner of the goodwill and significant assets of business b1 and the distributing sag will continue to be the principal_owner of the goodwill and significant assets of business b1 following the distribution g neither business a1 to be conducted by controlled following the contribution nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the contribution llc will have been the principal_owner of the goodwill and significant assets of business a1 and following the contribution and the distribution controlled will be the principal_owner h apart from transitional and administrative support services that may be provided under the continuing agreements controlled will continue the active_conduct of business a1 independently and with its separate employees following the distribution i j apart from transitional and administrative support services that may be provided under the continuing agreements the distributing sag will continue the active_conduct of business b1 independently and with its separate employees following the distribution the distribution is being carried out to facilitate the corporate business_purpose the distribution is motivated in whole or substantial part by the corporate business_purpose k the distribution will not be used principally as a device for the distribution of the earnings_and_profits of controlled or distributing or both l the total adjusted_basis and the fair_market_value of the assets transferred to controlled in the contribution each will equal or exceed the total plr-137254-13 liabilities if any to be assumed as determined under sec_357 by controlled m any liabilities assumed as determined under sec_357 by controlled in the contribution will have been incurred in the ordinary course of business and will be associated with the assets transferred to controlled in connection with the contribution n the total fair_market_value of the assets transferred to controlled in the contribution will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with the contribution ii the amount of any liabilities if any owed to controlled by distributing that are discharged or extinguished in connection with the contribution and iii the amount of any cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in connection with the contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the contribution o the aggregate fair_market_value of the assets distributing transfers to controlled in the contribution will equal or exceed the aggregate adjusted_basis of those assets p no property will be transferred by distributing to controlled in the contribution for which an investment_credit allowed under sec_46 has or will be claimed q distributing will neither accumulate its receivables nor make extraordinary payment of its payables in anticipation of the contribution and the distribution r no two parties to the distribution are investment companies as defined in sec_368 and iv s immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 -14 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published in t d further any excess_loss_account that distributing has in the controlled stock will be included in income immediately before the distribution to the extent required by regulations see sec_1 at the time of the distribution distributing will not have an excess_loss_account in the stock of controlled plr-137254-13 t apart from intercompany loans or other obligations that have arisen in the ordinary course of business no intercorporate debt will exist between controlled or any entity controlled directly or indirectly by controlled and distributing or any entity controlled directly or indirectly by distributing at the time of or after the distribution u payments made in connection with all continuing transactions if any between controlled or any entity controlled directly or indirectly by controlled and distributing or any entity controlled directly or indirectly by distributing including the shared services agreement and payroll agreement the continuing agreements will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length v for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold 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 the distribution w for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled common_stock entitled to vote or percent or more of the total value of shares of all classes of controlled common_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 the 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 the distribution x the distribution is 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 will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in controlled or distributing including any predecessor or successor of either corporation y immediately after the transaction as defined in sec_355 i neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 or ii no person will hold a percent or greater interest in any disqualified_investment_corporation within plr-137254-13 the meaning of sec_355 immediately after the transaction who did not so hold directly or indirectly such interest immediately before the transaction z the distribution of controlled stock to fsub fsub and fsub in the distribution is with respect to their ownership of distributing stock aa any money property or stock contributed by distributing to controlled in the contribution will be exchanged solely for stock_or_securities in controlled other representations in addition distributing has made the following representations for other aspects of the proposed transactions bb the distribution will not result in the transfer of stock of any corporation that has been the united_states transferor the transferee foreign_corporation or the transferred corporation or successor thereto with respect to any unexpired gain_recognition_agreement within the meaning of sec_1_367_a_-3 sec_1_367_a_-8 and sec_1_367_a_-8t cc neither distributing nor any member of the distributing group including controlled has incurred losses that are subject_to an agreement election or certification filed pursuant to sec_1503 and the regulations thereunder dd distributing will not have been at any time during the five-year period ending on the date of the distribution a united_states_real_property_holding_corporation as defined under sec_897 and sec_1_897-2 further neither distributing nor controlled will be a united_states_real_property_holding_corporation immediately after the distribution ee fsub will establish that its interest in distributing is not a united_states_real_property_interest pursuant to sec_1_897-2 by obtaining a statement from distributing in accordance with the provisions of sec_1_897-2 ff fsub will establish that its interest in controlled following the distribution is not a united_states_real_property_interest by obtaining a statement from controlled in accordance with the above provisions gg distributing and controlled will provide notice to the internal_revenue_service pursuant to sec_1_897-2 and will provide a copy of the statements requested by fsub to the director ogden service_center plr-137254-13 p o box ogden ut on or before the 30th day after the requested statements are mailed to fsub hh distributing and controlled will apply the provisions of sec_1 9t c as applicable for purposes of apportioning any consolidated overall_foreign_loss consolidated separate_limitation_loss or consolidated overall_domestic_loss between distributing and controlled when controlled ceases to be a member of the distributing group as a result of the distribution ii the steps of the proposed transactions for which rulings have not been requested will not affect the federal_income_tax consequences of the steps of the proposed transactions that are being ruled upon rulings based solely on the information submitted and the representations set forth above and provided that i distributing’s distribution of controlled stock to fsub fsub and fsub in the distribution is solely with respect to their ownership of distributing stock ii any money property or stock contributed by distributing to controlled in the contribution is exchanged solely for stock_or_securities in controlled and iii any other transfer of stock money or property between distributing controlled or any distributing shareholder and any person related to distributing controlled or any distributing shareholder is respected as a separate transaction we rule as follows on the contribution and the distribution the contribution together with the distribution will qualify as a reorganization within the meaning of sec_368 each of distributing and controlled will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the contribution sec_1032 the basis controlled has in each asset received from distributing in the contribution will equal the basis of that asset in the hands of distributing immediately before the contribution sec_362 the holding_period controlled has in each asset received from distributing in the contribution will include the period during which distributing held that asset sec_1223 plr-137254-13 no gain_or_loss will be recognized by distributing on its distribution of controlled stock in the distribution sec_361 and sec_1_367_e_-1 no gain_or_loss will be recognized by and no amount will be included in the income of fsub upon receipt of controlled stock in the distribution sec_355 the basis of the distributing common_stock and controlled common_stock in the hands of fsub immediately after the distribution will equal the basis of the distributing stock held by fsub immediately before the distribution as adjusted under sec_1_358-1 allocated between the stock of distributing and controlled in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 b and c the holding_period of the controlled common_stock received by fsub in the distribution will include the holding_period of the distributing stock with respect to which the distribution is made provided the distributing stock is held by fsub as a capital_asset on the date of the distribution sec_1223 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1 a and e 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 we express no opinion about the tax treatment of the proposed transactions under other provisions of the code and regulations including the international provisions or the tax treatment of any condition existing at the time of or effect resulting from the proposed transactions that is not specifically covered by the above rulings in particular we express no opinion regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the distribution is being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 iii whether the distribution is part of a plan or series of related transactions under sec_355 and sec_1_355-7 plr-137254-13 iv the federal_income_tax treatment of the elimination of intercompany debts through repayment distribution assumption or set-off except as otherwise expressly provided v the federal tax classification under sec_301 et seq of any of the entities involved in the proposed transactions or the validity of any entity classification election made with respect to any of the entities vi to the extent not otherwise specifically ruled on above any other consequences under sec_367 with respect to any transaction described in this letter_ruling and vii the federal_income_tax treatment or consequences of steps i through viii step x and steps xii through xvi of the proposed transactions or of any other step not addressed in the rulings portion of this letter procedural matters this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling 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 returns that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _kevin m jacobs_____________ kevin m jacobs senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service number release date index number ------------------------------------------------ ----------------------- ------------------------- ------------------------- -------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ----------------- telephone number ---------------------- refer reply to cc psi plr-138154-14 date date legend x y country date date --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- --------------------- ----------------------------------- ------------- ----------------- ---------------------- dear ---------------- this letter 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 partnership for federal tax purposes facts the information submitted states that x was formed under the laws of country on date y is the sole member of x x represents that as of date it was a foreign_entity eligible to elect to be disregarded as an entity separate from its owner however x failed to timely file a form_8832 entity classification election electing to treat x as a disregarded_entity for federal tax purposes effective date x represents that y consistently filed personal u s tax returns with the intent to treat x as a disregarded_entity x also represents that granting relief will not prejudice the interests of the government and that hindsight is not involved in seeking relief to file a late election x further represents that such relief will not lower x’s aggregate tax_liability for tax years affected by the election finally x represents that it acted reasonably and in good_faith plr-138154-14 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership and 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 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 member 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 eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and no more than months after the date the election is filed sec_301_7701-3 provides that if an eligible_entity classified as an association elects to be disregarded as an entity separate from its owner the following is deemed to occur the association distributes all of its assets and liabilities to its single owner in liquidation of the association sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic_extension of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for the regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when a taxpayer provides evidence to plr-138154-14 establish to the satisfaction of the commissioner that the taxpayer acted reasonable and in good_faith and granting relief will not prejudice the interests of the government conclusions based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of one hundred twenty days from the date of this letter to file form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter is attached for that purpose this ruling is contingent on the owner of x filing within days of this letter all required returns for all open years consistent with the requested relief these returns may include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations and ii forms information_return of u s persons with respect to foreign disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as expressly set forth herein no opinion is expressed or implied concerning the federal tax consequences any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by david r haglund david r haglund branch chief branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


significant index no tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c aug this letter constitutes notice that a conditional waiver of the minimum_funding_standard has been granted for the above-named pension_plan for the plan_year ending date this conditional waiver has been granted in accordance with sec_412 of the internal_revenue_code the code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the amount for which the conditional waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding_standard_account of the plan to zero as of the end of the plan_year for which the waiver has been granted after the payment of the amount required under sec_412 of the code to amortize the waiver granted for the plan_year ending date ‘ company designs and manufactures rubber and vinyl _ products including premium vinyl gloves used in cleanroom environments in the the company has experienced temporary substantial business hardship as evidenced by losses in income in each of the last fiscal years - - the company has hired an outside consulting firm to assist with cost containment _labor overhead and _ _ operational costs have been reduced with little impact on productivity the introduction of three new product lines and the start_up of a joint manufacturing_facility in complement its domestic operations should improve the company's cash_flow and profitability going forward as of january liability was dollar_figure benefit accruals under the plan have been frozen since _ the market_value of assets was dollar_figure resulting in a funded ratio of and the current on a market_value basis this waiver has been granted subject_to the conditions below in a letter dated date you agreed to these conditions by september under sec_412 of the code for the plan_year ending december ending december to amortize the waiver granted for the plan_year the company will contribute the amount required starting in november of minimum_funding requirement the company will contribute dollar_figure month to the plan until the amount of the waived_funding_deficiency is fully amortized for each plan_year for which the plan has a a if the company fails to meet the above conditions this waiver is retroactively null and void your attention is called to sec_412 of the code and sec_304 of erisa which describes the consequences which result in the event the plan is amended to increase benefits to change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived amount remains unamortized this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as others as precedent when filing form_5500 for the plan_year ending december letter should be entered on schedule b actuarial information we have sent a copy of this letter to the ep classification manager in and to the authorized representative listed on the power_of_attorney form on file with this office- _ the date of this if you have any questions concerning this matter please contact __ sincerely james e holland jr manager ale employee_plans technical


department of the treasury internal_revenue_service washington d c of f i c e of c h i e f c ou n s e l number release date cc fip tl-n-4294-00 uilc internal_revenue_service national_office field_service_advice memorandum for from subject lon b smith acting associate chief_counsel financial institutions and products cc fip this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 of the internal_revenue_code this chief_counsel_advice should not be cited as precedent legend taxpayer years country x w y z issues whether the hedging rules if applicable would alter the time for recognition of income by taxpayer on its long-term sales contracts tl-n-4294-00 whether the entire sales_price paid_by the to taxpayer on the long-term sales contracts is gross_income from mining for depletion purposes under sec_613 of the internal_revenue_code whether the entire sales_price paid_by the to taxpayer on the long-term sales contracts is foreign_trading_gross_receipts ftgr for purposes of the foreign_sales_corporation fsc rules conclusions the hedging rules if applicable would not alter the time at which income would be earned by taxpayer on its sales contracts because taxpayer does not sell its mineral after only mining processes it must generally calculate its depletion deduction based on a representative_market_or_field_price where such can be established so long as the full sales_price of the sold under the contracts is considered amounts realized under sec_1001 from the sale of property taxpayer may treat such proceeds as ftgr in determining fsc benefits facts during years under audit taxpayer a u s subsidiary of a country x based producer had long-term_contracts in place that called for taxpayer to sell part of its anticipated production to a number of major banks these contracts provided for delivery of a maximum specified amount of over w or more years the agreed to pay a price for the that was based on the price of at the inception of the applicable agreement plus was an addition to purchase_price that was determined by multiplying the price of on the date of the contract times an interest rate and then subtracting a variable cost determined by multiplying a times the price of at the beginning of each accrual_period as defined by the parties at the end of each accrual_period would offer new interest and that varied based on the alternative accrual periods offered taxpayer could choose to deliver some or all of the covered by the agreement or it could continue to defer the sale and delivery by accepting one of a newly offered rates and accrual periods during the audit years taxpayer continued to defer delivery of a substantial quantity of covered by the contracts the contracts proved quite profitable to tl-n-4294-00 taxpayer prices generally declined during this period while taxpayer benefitted from the higher locked-in and accruals in total the contracts accounted for about y years of taxpayer’s expected production and about z percent of its in-the-ground ore reserves taxpayer identified the contracts as hedging_transactions for federal_income_tax purposes it designated dates on which it expected to make deliveries under the agreements and generally delivered on the designated dates taxpayer exports the and pays its wholly-owned fsc as defined under sec_921 and sec_927 a commission on the sales using the administrative pricing rules of sec_1 a -1t c combined taxable_income method taxpayer and its fsc determined the commission based upon the total amount of receipts received under the long-term_contracts thus taxpayer treated the total amount of receipts as ftgr we assume except for this issue that all other fsc requirements for the receipts to qualify as ftgr have been met law and analysis hedging sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over its adjusted_basis provided in sec_1011 the amount_realized under sec_1001 is the sum of money received plus the fair_market_value of the property other than money received sec_1_1221-2 defines a hedging_transaction in part as a transaction that a taxpayer enters into in the normal course of its trade_or_business primarily to reduce risk of price changes or currency fluctuations with respect to ordinary_property that is held or to be held by the taxpayer sec_1_446-4 provides exclusive rules prescribing the method_of_accounting for hedging_transactions under sec_1_446-4 the method_of_accounting used by a taxpayer for a hedging_transaction must clearly reflect income meaning the method used must reasonably match 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 sec_1_446-4 generally provides that gain_or_loss from hedging sales of inventory may be taken into account as if the gain_or_loss were an element of sales proceeds tl-n-4294-00 the timing of taxpayer’s recognition of income on the contracts is not impacted by whether the contracts are properly treated as hedging_transactions sec_1_446-4 requires a reasonable match of the income deduction gain_or_loss from the hedging_transaction with the timing of income deduction gain_or_loss from the hedged item for the hedged sale of inventory gain_or_loss on the hedge is generally taken into account as an element of sales proceeds in taxpayer’s situation the hedging regulations even if applicable do not require gain on the long-term_contracts to be recognized any earlier than at the time of the sale of the underlying depletion sec_611 provides an allowance for depletion in the case of mines oil_and_gas wells and timber sec_612 provides for_the_use_of cost_depletion while sec_613 provides for_the_use_of percentage_depletion under sec_613 the greater of cost or percentage_depletion must be used percentage_depletion is calculated under sec_613 by multiplying the taxpayer’s gross_income from mining gifm by the appropriate percentage rate in sec_613 if the taxpayer sells its mineral after the application of only mining processes its actual sales_price is its gifm sec_1_613-4 if the taxpayer makes no sales after only mining processes sales by other producers of the same mineral after only mining processes are applied are used to establish a representative_market_or_field_price rmfp which may not exceed the actual sales_price of the taxpayer’s mineral sec_1_613-4 if there are no actual sales at the end of mining or a rmfp the taxpayer calculates its gifm by the proportionate_profits_method in which the ratio of the taxpayer’s mining costs to total costs is multiplied by the income the taxpayer receives for its manufactured product sec_1_613-4 taxpayer does not sell its mineral after only mining processes therefore taxpayer must use a rmfp if one exists our discussions with the examiners indicate a rmfp can be established for taxpayer’s mineral sales assuming a rmfp exists taxpayer’s percentage_depletion deduction is calculated using the rmfp provided that the price does not exceed the actual sales_price of the mineral the deduction is computed at the time that taxpayer properly includes the sales proceeds in income under its method_of_accounting taxpayer has suggested that its contracts were not hedges and that its identifications as such were made with an excess of caution we do not have to and do not determine here whether the contracts were hedges for tax purposes however we are sympathetic to taxpayer’s view that the transactions were not hedges tl-n-4294-00 foreign_trading_gross_receipts a fsc receives certain tax benefits under sec_921 through these benefits are determined with respect to ftgr ftgr include gross_receipts of a fsc from the sale of export_property sec_924 ftgr also include gross_receipts of a principal from the sale of export_property where a fsc acts as a commission agent with respect to such sale sec_1 a -1t b export_property includes property manufactured produced grown or extracted in the united_states by a person other than a fsc and held_for_sale in the ordinary course of trade_or_business by or to a fsc for direct use consumption or disposition outside the united_states and not more than percent of the fair_market_value of which is attributable to articles imported into the united_states sec_927 a fsc commission that is calculated using the combined taxable_income method under sec_925 equal sec_23 of the combined taxable_income of the fsc and the related_person attributable to ftgr derived from the sale of export_property thus a fsc’s tax-favored commission and the related u s exporter’s corresponding commission deduction increases as ftgr increases whether the deferred payments at issue constitute ftgr depends on whether they are gross_receipts gross_receipts include total receipts from the sale of property_held_primarily_for_sale in the ordinary course of business sec_927 b -1t a a similar definition applies for a commission fsc sec_927 in contrast investment_income such as interest gains from the sale_or_exchange of stock_or_securities and gains from certain futures transactions other than gains which arise out of a bona_fide hedging_transaction reasonably necessary to conduct the business of the fsc in the manner in which such business is customarily conducted by others do not constitute ftgr see sec_924 and sec_927 accordingly in the fsc context gross_receipts include the amount_realized by taxpayer on its sale of export_property case development hazards and other considerations because the hedge timing rules will not affect whether or any other time value component accrued prior to sale of the under the contracts no opinion was expressed on whether the long-term_contracts constitute hedging_transactions this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views tl-n-4294-00 we would be pleased to provide ongoing assistance as this case develops please call patrick white pincite-4016 if you have any further questions alvin j kraft chief branch office of associate chief_counsel financial institutions products


department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c o f f i c e o f t h e c h i e f c o u n s e l date number release date cc tege eb qp4 conex-126527-16 ------------------- -------------- uil --------------- -------------------- ------------------------- dear i am responding to a letter you sent to senator ron wyden on date about a check your husband received from hi sec_401 plan senator wyden asked that we respond directly to you on the subject you explained a letter accompanying the check provided information about irs requirements for testing plans annually to ensure all participants benefit on a non- discriminatory basis you also explained your husband’ sec_401 plan returned a portion of his contributions to him in order to pass this year’s test you asked why your husband received this check i am sorry for the confusion and frustration you experienced because of this matter the non-discrimination rule you referred to is in sec_401 of the internal_revenue_code code the section sets a limit on how much more highly compensated employees can defer versus non-highly compensated employees sec_414 of the code describes a highly_compensated_employee as an employee who is a percent owner of the employer maintaining the plan or an employee who earns more than a certain amount in compensation from the employer the amount was dollar_figure for under sec_401 of the code if highly compensated employees exceed the limits in sec_401 for a year the plan must distribute the excess_contributions before the end of the next year in order to keep its tax-qualified status most likely the check your husband received was a distribution of excess_contributions under sec_401 conex-126527-16 at i hope this information is helpful if you have questions please call ---------------------------- ----------------------------- sincerely ---------------------- victoria a judson associate chief_counsel tax exempt and government entities cc the honorable ron wyden


department of the treasury i n t e r n al r e v e n u e s e r v i c e w as h i n g t o n d c date offic e of c h ief c o u n sel cc dom it a frev-105209-99 number release date memorandum for chief examination_division north-south carolina district uilc from lewis j fernandez deputy assistant chief_counsel income_tax accounting subject information reporting requirements personal injury attorneys this responds to your memorandum dated date concerning certain information reporting requirements for personal injury attorneys generally personal injury attorneys receive payments in settlement of personal injury actions they bring on behalf of their clients these attorneys are legally obligated to pay out just and bona_fide claims for certain medical_expenses incurred by clients before disbursing the settlement payment to the client the payments you are concerned about are these payments to cover clients’ general medical bills and not payments to eg expert witnesses hired by the attorney sec_6041 of the internal_revenue_code and the regulations thereunder require information reporting with respect to payments of dollar_figure or more made in the course of the trade_or_business the initial inquiry is whether the attorney is the payor for purposes of sec_6041 or whether the attorney is merely a paying agent revrul_93_70 1993_2_cb_294 indicates that a person who disburses funds on behalf of another person is a payor rather than a paying agent if that person performs management and oversight functions with respect to the payments if the person is the payor then that person will be subject_to the information reporting requirements under sec_6041 see also revrul_77_53 1977_1_cb_368 and revrul_59_328 1959_2_cb_379 on the other hand if the person is merely a paying agent the person for whom the payments are made is considered the payor for purposes of sec_6041 situation of revrul_70_608 1970_2_cb_286 clarifies revrul_69_595 c b which provides rules regarding information reporting requirements with respect to payments for medical_care made by insurance_companies and other organizations providing medical coverage programs frev-105209-99 because of the nature of the issues you are considering it appears that revrul_93_70 revrul_77_53 and revrul_59_328 provide more appropriate guidance for you than revrul_70_608 thus an attorney is subject_to the information reporting requirements of sec_6041 if he or she exercises significant oversight and management functions over payments to cover a client’s medical bills from a settlement award however if the attorney does not exercise significant management and control functions over the payment then the attorney is not subject_to the sec_6041 requirements with respect to that payment whether an attorney exercises significant oversight and management functions with respect to such a payment is based on all the facts and circumstances eg the amount of discretion the attorney has in determining whether a service provider’s claim is just and bona_fide and in determining whether to deny or pay that claim this memorandum is for your general information and is advisory only it is not intended to be conclusive as to the tax consequences for any specific taxpayer if we can be of further assistance please contact cc dom it a at


internal_revenue_service number info release date index number -------------------------------- --------------------------------- --------------------- ---------------------------------------- department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b1 - genin-162892-03 date jan ---------------------------------------------------------------------------------- dear sir or madam this responds to your recent letter in which it was requested that we recognize taxpayer’s election to be an s_corporation effective date a corporation which meets the definition of a small_business_corporation under sec_1362 of the internal_revenue_code may elect to be treated as an s_corporation in order for an s_corporation_election to be effective for the taxable_year in which it is made it must be made within the first two and one-half months of the corporation’s taxable_year sec_1362 if an s election is made after that time then the corporation will not be treated as an s_corporation until the taxable_year following the one in which the s election was filed sec_1362 an election made after the first two and one-half months of the taxable_year in which it is intended to be effective may be treated as effective if the secretary determines that there was reasonable_cause for the corporation’s failure to make a timely election sec_1362 announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2004_1 copy enclosed in addition revproc_2004_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their tax_return for the most recent 12-month taxable_year qualify for a reduced user_fee in the amount of dollar_figure if you qualify for the reduced fee you must include a statement certifying your gross_income for the last 12-month taxable_year otherwise the higher fee will apply if you decide to submit a formal request for a private_letter_ruling please review appendix b of revproc_2004_1 and be certain to include all required procedural statements also include the proper user_fee and any documents that substantiate your intent to be an s_corporation from inception please refer your request to our office by adding the following to the address we hope that this information is helpful to you if you have additional questions please contact rebekah myers at not a toll-free call as requested in the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer s sincerely dianna k miosi chief branch office of office of the associate chief_counsel passthroughs and special industries attn cc pa t p o box ben franklin station washington dc direct to cc psi room enclosures announcement revproc_2004_1


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division sep uniform issue list legend taxpayer ira x amount a amount amount c dear this is in response to your request dated date as supplemented by correspondence dated date date date date and date in which your authorized representative on your behalf requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer represents that on date he received a distribution from ira x of amount a taxpayer asserts that his failure to c tccomplish a rollover within the day period prescribed by sec_408 of th'e code was due to his medical_condition which impaired his ability to make sound financial decisions - - - - - - - - - ---- taxpayer withdrew amount a from ira x for the purpose of purchasing a home on date although taxpayer had a purchase and sale agreement in place for the sale of his then current home the distribution from ira x was made with no expectation that the funds received at closing would be used to repay amount a the net cash to seller at closing was a fraction of amount a further withdrawing ira assets to purchase the home was a departure from taxpayer's past financing of home purchases taxpayer's prior home purchases had always been financed and a subsequent mortgage was obtained on the new home evidencing that taxpayer had the ability to obtain financing as opposed to taking a distribution from ira x taxpayer submitted documentation from his treating physician attesting to taxpayer's impaired cognitive abilities and that due to the progressive nature of his clinical condition he was not fit to make his own financial legal and medical decisions the initial diagnosis was made in date and confirmed by a subsequent diagnosis in date taxpayer was able to roll over amount c before the expiration of the 60-day period based on the facts and representations you request a ruling that the internal_revenue_service the service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount b the difference between the distribution of amount a and amount c that was timely rolled over into ira x sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement revproc_2003_16 i r s date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to'death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer including documentation from taxpayer's treating physician dated prior to the distribution of amount a from ira x stating that taxpayer is not considered fit to make his own financial and legal decisions are consistent with his assertion that his failure to accomplish a timely rollover was due to his medical_condition which impaired his ability to make sound financial decisions therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount b from ira x taxpayer is granted a period of days from the issuance of this ruling letter to contribute amount b into an ira provided all other requirements of sec_408 except the 60-day requirement are met with respect to such contribution the contribution of amount b will be considered a rollover_contribution within the meaning of sec_408 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 a of the code no opinion is expressed as to the tax treatment of the transaction described in this ruling under the provisions of any other section of either the code or regulations which may be applicable this letter is directed only to t e taxpayer who requested it sec_611 o k of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t2 sincerely yours enclosures original deleted ruling letter notice of intention to disclose cc


t c memo united_states tax_court david k and elizabeth simpson petitioners v commissioner of internal revenue respondent docket no filed date kevin g staker for petitioners linette b angelastro for respondent memorandum opinion goeke judge respondent determined a deficiency in petitioners’ federal_income_tax of dollar_figure the sole issue for decision is whether a lump-sum amount received in exchange for the assignment of the right to receive a portion of certain future annual lottery payments is ordinary_income or capital_gain background the parties submitted this case fully stipulated pursuant to rule the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners mr simpson and mrs simpson are husband and wife and resided in santa barbara california at the time they filed their petition on date mr simpson won a california lottery prize of dollar_figure under california law at that time the prize was payable in annual installments of dollar_figure with the first installment payable on date and subsequent installments payable each year on april through the year on date mr simpson assigned his california lottery prize to the simpson trust on date mr simpson in his capacity as trustee of the simpson trust assigned a portion of the lottery prize to singer asset finance company llc singer under the assignment agreement all rights to dollar_figure of annual lottery payment sec_1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure 2the evidence in the record indicates that mr simpson was the sole trustee of the simpson trust and that he took all subsequent actions with respect to the annual lottery payments discussed herein in his capacity as trustee petitioners apparently have taken and continue to take the position which respondent does not dispute that all income of the simpson trust is includable in their income commencing date through and including date were assigned to singer the assignment left the simpson trust with the right to receive future annual lottery payments of dollar_figure through the year the right to receive the and payments was not assigned on date mr simpson as trustee of the simpson trust entered into another assignment agreement with singer pursuant to this agreement the right to receive the remaining dollar_figure of annual lottery payments for the years through was assigned to singer in exchange for a lump-sum payment of dollar_figure at all relevant times the laws of the state of california precluded a lottery winner from assigning the right to receive future annual lottery payments without obtaining california superior court approval on date the simpson trust and singer filed with the california superior court for the county of sacramento sacramento county superior court a joint petition for an order approving voluntary assignment of lottery winnings on date the sacramento county superior court issued an order approving the assignment singer issued to mr simpson a form 1099-b proceeds from broker and barter_exchange transactions for the form 3the evidence in the record does not reflect the consideration paid_by singer under this assignment agreement 1099-b showed proceeds from the sale of stocks bonds etc of dollar_figure on date petitioners jointly filed form_1040 u s individual_income_tax_return for on schedule d capital_gains_and_losses petitioners reported the assignment of the future annual lottery payments of dollar_figure to singer as a sale of a capital_asset held more than year petitioners reported a sales_price of dollar_figure a cost or other basis of dollar_figure and a long-term_capital_gain of dollar_figure on date respondent issued a notice_of_deficiency to petitioners for the year in the notice respondent determined it has been determined that the sale of rights to future annual lottery payments reported as a long term capital_gain on schedule d in tax_year do not meet the definition of a capital_asset accordingly the net_income reported of dollar_figure has been reclassified as ordinary_income petitioners timely filed a petition to this court seeking a redetermination discussion the parties dispute whether the dollar_figure received in exchange for the assignment of future lottery payments is ordinary_income or capital_gain resolution of this issue depends on whether the right to receive future annual lottery 4our resolution of the issue presented does not depend on who has the burden_of_proof in this case payments constitutes a capital_asset within the meaning of sec_1221 sec_1221 provides the following definition of the term capital_asset sec_1221 capital_asset defined for purposes of this subtitle the term capital_asset means property held by the taxpayer whether or not connected with his trade_or_business but does not include-- stock_in_trade of the taxpayer or other_property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable_year or property held by the taxpayer primarily_for_sale_to_customers in the ordinary_course_of_his_trade_or_business property used in his trade_or_business of a character which is subject_to the allowance for depreciation provided in sec_167 or real_property used in his trade_or_business a copyright a literary musical or artistic composition a letter or memorandum or similar_property held by-- a a taxpayer whose personal efforts created such property b in the case of a letter memorandum or similar_property a taxpayer for whom such property was prepared or produced or c a taxpayer in whose hands the basis of such property is determined for purposes of determining gain from a sale_or_exchange in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph a or b accounts or notes receivable acquired in the ordinary course of trade_or_business for services rendered or from the sale of property described in paragraph a publication of the united_states government including the congressional record which is received from the united_states government or any agency thereof other than by purchase at the price at which it is offered for sale to the public and which is held by-- a a taxpayer who so received such publication or b a taxpayer in whose hands the basis of such publication is determined for purposes of determining gain from a sale_or_exchange in whole or in part by reference to the basis of such publication in the hands of a taxpayer described in subparagraph a petitioners argue that the sale of a lottery award is the sale of a capital_asset a lottery ticket falls within the definition of a capital_asset assets similar to lottery tickets are classified as capital assets and recent court decisions regarding the sale of lottery proceeds are incorrect 5although petitioners’ primary argument is that the right to receive future annual lottery payments is a capital_asset it appears that they are also arguing that the winning lottery ticket is a capital_asset and that somehow the lump-sum payment received from singer is therefore capital_gain petitioners did not assign the lottery ticket to singer rather they relinquished the lottery ticket to the state of california in order to claim the lottery prize and secure the right to the annual installments of dollar_figure the right to a portion of some of the annual lottery payments not the actual lottery ticket was subsequently assigned to singer in exchange for the lump-sum payment of dollar_figure it is this right to future lottery payments that is the focus of our inquiry not the actual lottery ticket see johns v commissioner tcmemo_2003_140 this is not an issue of first impression in 119_tc_1 we decided the same issue under almost identical factual circumstances the taxpayers in that case also won a california state lottery prize and subsequently assigned a portion of future annual lottery payments to singer in exchange for a lump-sum payment id pincite we held that the right to receive such payments does not constitute a capital_asset within the meaning of sec_1221 id pincite petitioners are aware of our holding in davis however they contend that case was incorrectly decided in davis we thoroughly analyzed sec_1221 and relevant caselaw interpreting the statute we recently relied on and followed our analysis in davis see johns v commissioner tcmemo_2003_140 boehme v commissioner tcmemo_2003_81 no purpose would be served by repeating the analysis that led us to hold in davis that the right to receive future annual lottery payments does not constitute a capital_asset 6accord united_states v maginnis aftr 2d ustc par big_number d or holding that the amount that the taxpayer received in exchange for the taxpayer’s assignment to a third party of his right to receive certain future annual lottery payments is ordinary_income 7on brief petitioners imply that the right to receive future annual lottery payments is analogous to currency contracts stocks bonds and options unlike the situations cited by petitioners in this instance petitioners received the lump-sum payment as a substitute for the right to receive ordinary_income the doctrine_of stare_decisis generally requires that we follow the holding of a previously decided case absent special justification 111_tc_210 affd 214_f3d_1254 10th cir after reviewing petitioners’ arguments in support of their position that the right to receive future annual lottery payments constitutes a capital_asset we find nothing therein that would cause us to refrain from applying the doctrine_of stare_decisis accordingly we rely on the legal analysis in davis and hold that the right in this case to receive the future lottery payments does not constitute a capital_asset within the meaning of sec_1221 and the lump-sum payment of dollar_figure received from singer in exchange for that right is ordinary_income decision will be entered for respondent


internal_revenue_service number release date index number ----------------------------- ---------------------- ----------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc intl b02 plr-154597-05 date january ---------------------------- ---------------------------- ------------------------------- ------------------------------- -------------------------- --------------------------------------------------------- legend legend taxpayer ------------------------------------------------------------- b ------------------------------------------------------------- c ------------------------------------------------------------- d ------------------------- ------------------------------------------------------------ fc accounting firm accounting firm individual year year year year year year year country x dear ------------------ this is in response to your letter dated date requesting an extension of time to file a qualified_electing_fund qef election with respect to taxpayer’s investment in fc ------- ------- ------- ------- ------- ------- ------- ---------------------- ------------ taxpayer has represented the following facts the rulings contained in this letter are based upon information and for the purpose of investing in real_estate in country x taxpayer b c and d plr-154597-05 representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such material is subject_to verification upon examination facts formed fc under sec_351 of the internal_revenue_code code in year and adopted a taxable_year ending june for fc at the time of its formation b and c owned two shares of redeemable preferred_stock and taxpayer and d each owned one share of common_stock for a total of shares in year taxpayer b c and d contributed additional capital to the corporation in exchange for the issuance of additional shares following the year contribution of capital b and c owned shares of redeemable preferred_stock and taxpayer and d each owned big_number shares of common_stock advisors to assist him in complying with u s tax laws and relied on those tax advisors to provide him with appropriate guidance to comply with the laws in year taxpayer b and c engaged tax advisors from accounting firm who were qualified_tax professionals competent to render tax_advice with respect to the ownership of shares of a foreign_corporation in year fc was a passive_foreign_investment_company pfic within the meaning of sec_1297 of the code taxpayer b and c continued to engage accounting firm until year however at no time did the tax advisors from accounting firm inform them that fc was a pfic and of their need to make a qef election for fc or of the tax ramifications for failing to make such an election_year b and c contacted individual with accounting firm to discuss the tax implications of a proposed sale of one of the real_estate investments held by fc individual determined that fc was a pfic and advised that a qef election under sec_1295 should have been made with respect to taxpayer’s year consistent with that advice taxpayer is seeking relief under the special consent procedures of sec_1 f service has raised upon audit the pfic status of fc for any taxable_year of taxpayer as of the date of this request_for_ruling no representative of the internal revenue in year taxpayer b and c engaged the services of accounting firm in at all times during his ownership of fc taxpayer engaged competent tax sec_1295 provides that any pfic shall be treated as a qef with respect to taxpayer requests the consent of the commissioner of the internal revenue plr-154597-05 ruling requested service to make a retroactive qef election under sec_1_1295-3 with respect to his year taxable_year law and analysis a taxpayer if an election by the taxpayer under sec_1295 applies to such company for the taxable_year and the company complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic commissioner to make a retroactive qef election for a taxable_year however the commissioner will grant relief under sec_1_1295-3 only if four conditions are satisfied the first requirement is that the shareholder reasonably relied on a qualified_tax professional who failed to identify the foreign_corporation as a pfic or failed to advise the shareholder of the consequences of making or failing to make a sec_1295 election sec_1_1295-3 provides that a shareholder will not be considered to have reasonably relied on a qualified_tax professional if the shareholder knew or reasonably should have known that the foreign_corporation was a pfic and knew of the availability of a sec_1295 election in addition a shareholder cannot claim reliance upon a qualified_tax professional if he knew or reasonably should have known that the tax professional relied upon was not competent to render tax_advice with respect to the ownership of shares of a foreign_corporation or did not have access to all relevant facts and circumstances with respect to stock ownership of a foreign_corporation and had access to all the relevant facts and circumstances they failed to advise taxpayer that fc was a pfic failed to make a qef election on taxpayer’s year federal_income_tax return and failed to advise taxpayer of the consequences of failing to make such an election thus taxpayer reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 and further taxpayer did not know and should not reasonably be expected to have known that fc was a pfic tax advisors from accounting firm were competent to render u s tax_advice under sec_1_1295-3 a taxpayer may request the consent of the the second requirement of sec_1_1295-3 is that granting consent will this requirement is met in this case because taxpayer has entered into a closing plr-154597-05 not prejudice the interests of the u s government under sec_1 f i the interests of the u s government are prejudiced if granting relief would result in the shareholder having a lower tax_liability taking into account applicable_interest charges in the aggregate for all years affected by the retroactive election other than by a de_minimis amount than the shareholder would have had if the shareholder had made the sec_1295 election by the election due_date the time_value_of_money is taken into account for purposes of this computation if granting relief would prejudice the interests of the u s government the commissioner may in his sole discretion grant consent to make the election provided the shareholder enters into a closing_agreement with the commissioner that requires the shareholder to pay an amount sufficient to eliminate any prejudice to the u s government as a consequence of the shareholder’s inability to file amended returns for closed taxable years sec_1_1295-3 agreement with the commissioner that requires him to pay an amount sufficient to eliminate any prejudice to the united_states government as a consequence of his inability to file amended returns for closed taxable years in addition taxpayer has agreed to file an amended_return for each of his subsequent taxable years affected by the retroactive qef election the third requirement of sec_1_1295-3 is that the request must be made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder sec_1_1295-3 in this case the pfic status of fc has not been raised upon audit requirements set forth in sec_1_1295-3 must be met these include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted by the shareholder and any qualified_tax professional upon whose advice the shareholder relied sec_1_1295-3 iii these affidavits must describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure and the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional here affidavits meeting the requirements set forth in sec_1_1295-3 and iii as to the failure of accounting firm 1’s tax advisors to inform taxpayer of his need to make a qef election have been submitted and taxpayer has otherwise satisfied the procedural requirements of sec_1_1295-3 the final requirement of sec_1_1295-3 is that the procedural based on the information submitted and representations made consent is granted to taxpayer to make a retroactive election for year under this private_letter_ruling is directed only to taxpayer who requested it section a copy of this ruling must be attached to any_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this plr-154597-05 sec_1_1295-3 provided that he complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election k of the code provides that it may not be used or cited as precedent letter is being sent to taxpayer’s first representative cc ethan a atticks senior technical reviewer cc intl b02 office of associate chief_counsel international sincerely