t c summary opinion united_states tax_court donald w and mary ellen klopman martinez petitioners v commissioner of internal revenue respondent docket no 6970-02s filed date donald w martinez pro_se michelle m lippert and dennis g driscoll for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue respondent determined a deficiency in petitioners’ federal_income_tax of dollar_figure for the taxable_year the issue for decision is whether petitioners are entitled to three dependency_exemption deductions and a child_tax_credit for the year in issue some of the facts have been stipulated and are so found the stipulations of fact and the attached exhibits are incorporated herein by this reference petitioners resided in brunswick ohio on the date the petition was filed in this case petitioner husband petitioner previously was married to tammy martinez ms martinez petitioner and ms martinez who have three children--melissa martinez jennifer martinez and brian martinez--were divorced in under the terms of the judgement entry in the divorce ms martinez was to be the residential parent during the year in issue ms martinez was the custodial_parent of all three children who resided with her in virginia petitioners resided in ohio on their joint federal_income_tax return for petitioners claimed a dependency_exemption deduction for each of petitioner’s three children there was no written declaration attached to the return releasing ms martinez’s claim to the dependency_exemption deductions petitioners also claimed a child_tax_credit with respect to two of the children in the statutory_notice_of_deficiency respondent disallowed each of the dependency_exemption deductions and the child_tax_credit in full a deduction generally is allowed under sec_151 for each dependent of a taxpayer sec_151 c subject_to exceptions and limitations not applicable here a child of a taxpayer is a dependent of the taxpayer only if the taxpayer provides over half of the child’s support for the taxable_year sec_152 a special rule applies to taxpayer-parents a who are divorced who are separated or who live apart from their spouses for at least the last months of the calendar_year and b whose child is in the custody of one or both parents for more than half of the year sec_152 under this rule the parent with custody of the child for the greater portion of the year the custodial_parent generally is treated as having provided over half of the child’s support regardless of which parent actually provided the support id one exception to this special rule exists which may entitle the noncustodial_parent to the dependency_exemption deduction sec_152 for the exception to apply the custodial_parent must sign a written declaration releasing his or her claim to the deduction and the noncustodial_parent must attach the declaration to his or her tax_return id in addition to the deduction under sec_151 a credit generally is allowed to a taxpayer for each qualifying_child of the taxpayer sec_24 among other requirements a qualifying_child is an individual for whom the taxpayer is allowed a dependency_exemption deduction under sec_151 sec_24 petitioners admit that petitioner was the noncustodial_parent during the year in issue because petitioners did not attach to their return a written declaration signed by ms martinez petitioners are not entitled to the dependency_exemption deductions sec_151 and sec_152 we note that we do not question petitioner’s support of his children whether or not he supported them the declaration must be attached to the return sec_152 likewise even if ms martinez signed a written declaration prior to the year in issue--as petitioners argue--they are not entitled to the deductions in the year in issue when the declaration was not attached to the return id because petitioners are not entitled to the dependency_exemption deductions they also are not entitled to the child_tax_credit sec_24 reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to plr-135615-02 cc psi date date number release date index numbers legend a company partnership state a b c dear this letter responds to a letter dated date and subsequent correspondence requesting a ruling that partnership be given an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes and be granted relief under sec_1362 of the internal_revenue_code facts according to the information submitted company was incorporated in state on a and elected to be an s_corporation effective a company’s sole shareholder was a on b company converted to a limited_partnership partnership under state law plr-135615-02 partnership intended to be classified as an association_taxable_as_a_corporation however due to inadvertence no form_8832 entity classification election was filed for partnership company represents that the conversion was intended to qualify as a reorganization under sec_368 on c partnership converted back to a state corporation company represents that it did not intend to terminate its s election company and its shareholder agree to make any adjustments consistent with the treatment of company as an s_corporation as may be required by the service law analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 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 that except as provided in sec_301 b unless the entity elects otherwise a domestic eligible_entity is disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in general that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the applicable service_center sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election 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 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 published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain plr-135615-02 elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines the term small_business_corporation as a domestic_corporation which 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 a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is 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 sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the termination the corporation shall be treated as an s_corporation during the period specified by the secretary based on revproc_99_51 1999_2_cb_760 section dollar_figure of revproc_2002_3 2002_1_irb_125 provides that the service will not rule on the following issue because it is being studied 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 revproc_2002_3 also provides that 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 conclusions plr-135615-02 based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently partnership is granted an extension of time of days from the date of this letter to make an election under sec_301_7701-3 to be treated as an association_taxable_as_a_corporation effective b partnership must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached a copy is enclosed for that purpose further we conclude that if company's conversion from a state corporation to a state limited_partnership created a second class of stock and thereby terminated company’s s_corporation_election then the termination was inadvertent within the meaning of sec_1362 pursuant to the provisions of sec_1362 company will be treated as continuing to be an s_corporation from b to c and thereafter provided that company’s s election is not otherwise terminated under sec_1362 and that company and its shareholder treat company as an s_corporation during this period except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically we express or imply no opinion concerning whether partnership otherwise was eligible to make the election or whether company otherwise qualifies as an s_corporation pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to company’s authorized representative this ruling is directed only to the taxpayer requesting it under sec_6110 it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number u i l no washington dc person to contact telephone number refer reply to cc psi plr-120699-03 date date legend company state shareholders a dear this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was formed on a under the laws of state company has two shareholders shareholders it is represented that company has intended to be an s_corporation since a however company discovered that its s election had not been timely filed company requests a ruling under sec_1362 that its sec_1362 election will be treated as timely made for its taxable_year that began on a sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation for the year in which the plr-120699-03 election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply based on the facts submitted and representations made we conclude that company has established reasonable_cause for failing to make a timely s election for its taxable_year that began on a and is eligible for relief under sec_1362 accordingly we conclude that company's sec_1362 election will be treated as timely made for its taxable_year that began on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the foregoing facts specifically we express or imply no opinion on whether company otherwise qualifies as an s_corporation pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to company 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 yours christine ellison chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c o f f ic e o f c h ief c o u n sel january number release date uil dear dated date in this letter is in response to your inquiry to senator which you expressed concern that the metrocards provided by your company were in violation of an irs regulation regarding gifts to employees we want to reassure you that we have not issued regulations that prevent employers from giving transit passes to employees the following information is included in the proposed_regulations for qualified_transportation benefits which were issued date the department of treasury recently issued final regulations on qualified_transportation_fringe_benefits federal_register date gross_income does not include any fringe benefit that qualifies as a qualified_transportation_fringe sec_132 of the internal_revenue_code the code employers may only give qualified_transportation fringes to employees an employer may simultaneously give an employee one or more of the following qualified_transportation_fringe_benefits transportation in a commuter_highway_vehicle ie van pools any transit_pass and qualified_parking the value of these benefits can not exceed dollar_figure per month dollar_figure for transportation in a commuter_highway_vehicle and transit passes plus dollar_figure for qualified_parking employers may provide cash reimbursement to the employee employers may provide cash reimbursement if transit passes are not readily available for direct distribution by the employer to the employee sec_132 of the code a transit_pass is considered readily available if an employer can obtain it at the same 1transit pass means any pass token farecard voucher or similar item entitling a person to transportation on mass transit facilities or in a commuter_highway_vehicle price as the employee without incurring significant administrative costs the employee must provide substantiation to the employer as a condition to receiving cash reimbursement the substantiation requirements vary depending upon the payment method used for example if an employee uses metered parking the substantiation requirement may be satisfied if the employee certifies the expense was incurred and the employer believes the employee actually incurred the expense employers can provide transportation benefits using a compensation reduction arrangement employers can provide qualified_transportation benefits using a compensation reduction arrangement under this arrangement the employer reduces an employee’s gross_income by the value of the transportation benefit which gives him or her pretax savings on the cost of commuting to work an employee can elect to receive either a fixed amount of cash compensation at a specified future date or a fixed amount of qualified_transportation benefits such as parking during a specified future period the election must be made before the employee receives the cash or transportation benefit and it may not exceed the statutory monthly limits in the maximum amount an employee could elect to reduce compensation by is dollar_figure per month dollar_figure for transportation in a commuter_highway_vehicle and transit passes plus dollar_figure for qualified_parking on date the amount for transportation in a commuter_highway_vehicle and transit passes will increase to dollar_figure per month partners 2-percent shareholders and independent contractors individuals who are partners 2-percent shareholders or independent contractors are not employees for the purposes of sec_132 however the working condition and de_minimis_fringe exclusions are available for transit passes provided to these individuals for example farecards provided by a partnership to an individual who is a partner can be excluded from the partner’s gross_income however the value of the farecard cannot exceed dollar_figure per month if the value exceeds dollar_figure per month the full value of the benefit not just the amount in excess is included in gross_income sec_1_132-6 of the income_tax regulations under the freedom_of_information_act we will make this letter available to the public after we delete names addresses and other identifying information i hope this information answers your questions please call robyn mathis id no of my staff at sincerely mary oppenheimer assistant chief_counsel exempt_organizations employment_tax government entities


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 4-plr-117074-99 date date beneficiary trustee trust agreement third amendment court city state county statute dear we received a letter dated date and subsequent correspondence from your authorized representative requesting rulings concerning the possible estate_tax consequences resulting from the proposed modifications to twelve trusts according to the facts submitted beneficiary is the current sole income_beneficiary of twelve trusts created prior to date this ruling_request addresses one of these trusts trust trust was fully funded at the time it was established and no additions have been made to trust under article i of trust all trust income is to be paid to beneficiary on the death of beneficiary the trust corpus is to be held in further trust for the benefit of beneficiary’s issue trustee is currently acting as the trustee of all twelve trusts under article v any successor of trust’s original trustee whether through sale or transfer of its business conversion plr-117074-99 consolidation merger resignation as trustee or otherwise shall become the successor trustee and succeeds to the trust estate as though originally named as trustee certain disputes have arisen between beneficiary and trustee regarding the management of trust in order to resolve these disputes trustee and beneficiary entered into the agreement with respect to the twelve trusts paragraph a of the agreement provides that at any time during the term of any trust upon the written request of the current income_beneficiary and the adult remainder beneficiary a new trustee designated by the current income_beneficiary and the adult remainder beneficiary is to be substituted as the trustee of the trust provided that any such new trustee is a corporation that has been or its parent company has been in existence at least ten years is a bank or trust company then doing business in city state and that is authorized under the laws of state to execute trusts has a net_worth including the net_worth of any parent company in excess of two hundred million dollars and is not related or subordinate to any beneficiary within the meaning of sec_672 of the internal_revenue_code upon any resignation by any existing trustee of a_trust or any removal thereof other than pursuant to the immediately preceding sentence a new trustee designated by the current income_beneficiary and the adult remainder beneficiary shall be substituted as the new trustee of such trust provided that such new trustee meets the requirements set forth in items and above paragraph a of the agreement provides that the current income_beneficiary shall have the right from time to time to have one or more investment managers or submanagers manage the investment of a portion of the assets the current income_beneficiary shall also have the right from time to time to transfer investment and management of certain assets from any submanager or investment manager then investing or managing such assets directly to another submanager or investment manager or to return such assets to the trustee for investment or management paragraph b provides that all assets managed invested or administered by the trustee shall be managed invested and administered in accordance with certain investment policies all assets managed invested or administered by an investment manager or submanager shall be managed invested and administered in accordance with certain investment guidelines the current income_beneficiary may from time to time propose modifications to the investment guidelines by written notice to the trustee and any investment manager or submanager each trustee investment manager or submanager shall have the right to approve such modification such approval not to be unreasonably withheld paragraph c provides that a submanager is an agent of the trustee that has been designated and selected by the current income_beneficiary and to which investment functions have been delegated pursuant to state statute the current plr-117074-99 income_beneficiary shall have the right to propose potential submanagers from time to time for approval by the trustee such approval not to be unreasonably withheld paragraph d provides that an investment manager is a third party fiduciary not an agent of the trustee that has been designated and selected by the current income_beneficiary and to which investment administration and fiduciary responsibilities for certain trust assets are transferred with the trustee merely remaining as custodian of such assets with no fiduciary duties except to the extent provided by the provisions of state statute any investment manager must meet the requirements to become a trustee that is an investment manager must be a corporation that has been or its parent company has been in existence at least ten years a bank or trust company then doing business in city state and that is authorized under the laws of state to execute trusts have a net_worth including the net_worth of any parent company in excess of two hundred million dollars and not be related or subordinate to any beneficiary within the meaning of sec_672 of the internal_revenue_code paragraph a of third amendment to agreement provides that notwithstanding any other provision of the agreement the trust instrument or applicable law to the contrary in exercising its rights and powers under paragraph sec_4 c and d of the agreement with respect to the selection removal and replacement of investment managers and submanagers the current income_beneficiary shall be deemed to be acting in the role of a fiduciary as to all beneficiaries of trust with respect to which any such rights or powers are exercised and shall be subject_to the uniform prudent investor act of state and each investment manager and submanager shall at all times be deemed to be a fiduciary of a_trust for which it administers assets shall be subject_to the uniform prudent investor act of state and shall not be a_related_or_subordinate_party to the current income_beneficiary as defined in sec_672 determined as if the current income_beneficiary was a grantor of the trust you represent that no additions of assets actual or constructive have been made to trust subsequent to date in addition no modifications or amendments other than the proposed modifications have been made to any of the trusts in addition all trusts were irrevocable as of the date of creation prior to date the agreement has been approved by court and you propose to have the third amendment approved by court you have requested the following rulings modification of trust in accordance with the agreement and the court order will not affect the exempt status of trust for generation-skipping_transfer_tax purposes the power to remove and replace the trustee and to institute investment guidelines and policies in accordance with the agreement and the court order will not cause inclusion of trust in the gross_estate of beneficiary plr-117074-99 issue sec_2601 provides that a tax is imposed on every generation-skipping_transfer under a of the tax_reform_act_of_1986 the act the tax generally applies to any generation-skipping_transfer made after date the date of enactment of the act however b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the gst tax shall not apply to any gst under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of any addition actual or constructive to the trust after date or out of income attributable to corpus so added a modification of a generation-skipping_trust that is otherwise exempt under the act and the regulations will generally result in a loss of its exempt or grandfathered status if the modification changes the quality value or timing of any powers beneficial_interest rights or expectancies originally provided for under the terms of the trust based on the facts presented and representations made we conclude that the proposed modifications to trust are administrative in nature and will not result in any change in the quality value or timing of any beneficial_interest in trust consequently trust will continue to be exempt from the gst tax therefore provided there are no additions constructive or otherwise to trust neither distributions from nor the termination of trust will be subject_to the gst tax under sec_2601 issue sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent’s creditors or the creditors of the decedent’s estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_20_2041-1 of the estate_tax regulations provides that a power in a decedent to remove or discharge a trustee and appoint himself may be a power_of_appointment for example if under the terms of a_trust instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of plr-117074-99 individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment revrul_95_58 1995_2_cb_191 revoking revrul_79_353 1979_2_cb_325 holds that a decedent-settlor’s reservation of an unqualified power to remove a trustee and appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee’s discretionary powers of distribution over the property transferred by the decedent-settlor to the trust for purposes of sec_2036 and sec_2038 sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor’s spouse if living with the grantor or any one of the following the grantor’s father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in the present case the agreement gives beneficiary of trust the power to remove and replace the trustee to propose investment guidelines and policies and to recommend investment managers and submanagers the powers of the beneficiary the investment managers and the submanagers are exercisable in a fiduciary capacity any trustee investment manager or submanager may not be related or subordinate to any beneficiary of trust within the meaning of sec_672 further the trustee has no discretionary power with respect to distributions of trust income and corpus we conclude that beneficiary will not be treated as holding a general_power_of_appointment solely as a result of retaining the removal and replacement power see revrul_95_58 therefore the possession of the power will not cause trust to be included in beneficiary’s gross_estate except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code this ruling is based on the facts and applicable law in effect on the date of this letter if there is a change in material fact or law local or federal before the transactions considered in the ruling take effect the ruling will have no force or effect if the taxpayer is in doubt whether there has been a change in material fact or law a request for reconsideration of this ruling should be submitted to this office this ruling 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 in accordance with a power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative plr-117074-99 sincerely assistant chief_counsel passthroughs and special industries by george masnik chief branch enclosure 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 b1 plr-129699-15 date november parent sub sub sub sub sub year date date -------------------------- ---------------------- ----------------------- ---------------------- --------------------------- ---------------------- -------------- ---------------------- ----------------------- ---------------------- --------------------------------- --------------------- ------ --------------------- --------------------------- company official ---------------- ----------------------------------- tax professional ---------------------------- -------------------------------------------------- plr-129699-15 dear ------------- this letter_ruling responds to a letter from your authorized representative dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election the extension is being requested for parent and sub - sub the parent group to make an election to file a consolidated federal_income_tax return with parent as the common parent under sec_1_1502-75 of the income_tax regulations the election for the year taxable_year the material information provided in that letter is summarized below on date parent was incorporated for the sole purpose of acquiring the stock of sub - sub all of the stock of the five corporations was contributed to parent on date an election for the parent group to file a consolidated_income_tax_return with parent as the common parent for the year taxable_year was due on the last day prescribed by law including extensions of time for the filing of parent’s return parent intended to file the election but for various reasons a valid election ie the filing of the consolidated_return was not filed by the due_date of parent’s return after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for year or any subsequent taxable_year parent has represented that it does not seek to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 sec_1_1502-75 of the income_tax regulations provides in part that an affiliated_group_of_corporations which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents in accordance with sec_1_1502-75 of the regulations to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for the filing of the common parent’s return 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 plr-129699-15 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 to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 a therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent shows it 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 parent company official and tax professional explain the circumstances that resulted in the failure to timely file the election the information establishes that the parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make a valid election and that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown it 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 provided that parent group qualifies substantively to file a consolidated_return for the applicable tax_year we grant an extension of time under sec_301_9100-3 for sixty days from the date on this letter for parent to file the election by filing a consolidated_return with parent as the common parent and attaching a form_1122 for each of sub - sub for its year taxable_year parent group must attach a copy of this ruling letter to such return or if parent group files the return electronically a statement must be attached to the return that provides the date and the control number of this ruling letter the above extension of time is conditioned on parent 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 parent group’s tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion with respect to whether in fact the parent group qualifies substantively to file a consolidated_return in addition we express no opinion as to the tax effects or consequences of filing the return or the election late under the provisions plr-129699-15 of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling for the purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent company official and tax professional however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _______________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


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 plr-117132-13 date date legend distributing ---------------------------------------------------------------------------------- ------------------------------------------------ ------------------------ state a date date shareholder a shareholder b business a business b business c ----------------- ------------------- ---------------------- --------------------- ---------------------- ------------------------------------------------------ ------------------------------------- ----------------------------------------------- plr-117132-13 dear ---- ----------- we respond to your date request for rulings regarding certain federal_income_tax consequences of a proposed transaction the information submitted in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by the appropriate parties this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii is 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_355-7 summary of facts distributing is a state a s_corporation that was incorporated on date distributing is directly and indirectly engaged in business a and indirectly in business b and business c through several qualified subchapter_s_corporations shareholder a own sec_50 percent of the distributing common_stock and shareholder b owns the remaining distributing shares shareholder a and shareholder b have had differences with respect to the operation of distributing and wish to go their separate way proposed transaction in order to resolve these disputes distributing has proposed the following transaction the proposed transaction i distributing will form controlled and will transfer the stock of several corporations engaged in business a and the stock of the entities engaged in business b and plr-117132-13 business c to controlled in exchange for controlled stock and the assumption by controlled of the liabilities associated with those assets the contribution ii distributing will distribute the controlled stock to shareholder b in exchange for his distributing stock the distribution iii controlled will make an election under sec_1362 to be treated as an s_corporation within the meaning of sec_1361 to be effective on the date of the distribution representations the following representations have been made with respect to the proposed transaction a distributing controlled shareholder a and shareholder b will each pay their own expenses if any incurred in connection with the proposed transaction b any indebtedness owed by controlled to distributing after the distribution will not constitute stock_or_securities c the fair market of the controlled stock to be received by shareholder b will be approximately equal to the fair_market_value of the distributing stock surrendered d no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing e the five years of financial information submitted on behalf of business a business b and business c is representative of its present business operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted f following the proposed transaction distributing will continue the active_conduct of business a and controlled will continue the active_conduct of business a business b and business c independently with their separate employees g the distribution will be carried out to resolve differences of opinion regarding how to operate business a business b and business c the distribution is motivated in whole or substantial part by the corporate business_purpose h the distribution is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both i the total adjusted_basis and the fair_market_value of the assets to be transferred to controlled by distributing each will equal or exceed the sum of the liabilities to be plr-117132-13 assumed within the meaning of sec_357 by controlled plus any liabilities to which the assets to be transferred are subject j the liabilities to be assumed within the meaning of sec_357 by controlled in the transaction if any and the liabilities to which the transferred assets are subject if any were incurred in the ordinary course of business and are associated with the assets being transferred k the fair_market_value of the controlled assets will exceed the amount of the liabilities of controlled immediately_after_the_exchange l payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length m no two parties to the transaction are investment companies as defined in sec_368 and iv n for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing 50-percent or more of the total combined voting power of all classes of distributing stock entitled to vote or 50-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 o for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing 50-percent or more of the total combined voting power of all classes of controlled stock entitled to vote or 50-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 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 p 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 distributing or controlled including any predecessor or successor of any such corporation q immediately after the distribution neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 plr-117132-13 r effective date distributing made an election under sec_1362 to be an s_corporation within the meaning of sec_1361 and distributing continued to be an s_corporation since date s immediately after the distribution controlled will be eligible to elect s_corporation status pursuant to sec_1362 effective immediately after the distribution t controlled will elect to be an s_corporation pursuant to sec_1362 on the first available date after their formation and there is no plan or intent to revoke or otherwise terminate the s_corporation_election of either distributing or controlled rulings based solely on the information submitted and the representations made we rule as follows the contribution together with the distribution will quality as a reorganization within the meaning of sec_368 distributing and controlled each 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 controlled’s basis in each asset received from distributing will equal the basis of such asset in the hands of distributing immediately prior to its transfer sec_362 the holding_period for each asset received by controlled from distributing will include the period during which such asset was held by distributing sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized to and no amount will be included in the income of shareholder b on receipt of controlled stock in the distribution sec_355 the basis of the controlled stock in the hands of shareholder b will be the same as the basis of the distributing stock surrendered by shareholder b sec_358 shareholder b’s holding_period of the controlled stock received in the distribution will include the holding_period of the distributing stock with respect to which the distribution will be made provided that the distributing stock is held as a capital_asset on the day of the distribution sec_1223 plr-117132-13 distributing's earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 the accumulated_adjustments_account of distributing will be allocated between distributing and controlled in a manner similar to the manner in which the earnings_and_profits of distributing will be allocated under sec_312 see sec_1_312-10 and sec_1 d provided that the distribution is undertaken immediately after the contribution distributing's momentary ownership of the stock in controlled as part of the reorganization under sec_368 will not cause controlled to have an ineligible shareholder for any portion of their respective first taxable_year under sec_1361 and will not in itself render controlled ineligible to elect to be an s_corporation for its first taxable_year provided that the distribution is undertaken immediately after the contribution controlled’s ownership of the stock of its subsidiary corporations as part of the reorganization under sec_368 will not cause distributing’s subsidiaries to be ineligible to be qualified subchapter_s subsidiaries for any portion of controlled’s first taxable_year and will not in itself render controlled ineligible to elect to be an s_corporation for its first taxable_year caveats we express no opinion about the tax treatment of the proposed transaction under other provisions of the code and regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings in particular we express no opinion regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled corporations or both see sec_355 and sec_1_355-2 or iii is 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 corporations see sec_355 and sec_1_355-7 procedural statements this ruling letter 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 plr-117132-13 requirement by attaching a statement to their return that provides the date and control number of this ruling letter in accordance with a power_of_attorney on file in this office a copy of this ruling letter is being sent to your authorized representative sincerely ____________________ richard k passales senior counsel branch office of the associate chief_counsel corporate


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 psi b01 plr-150173-04 date date - legend x --------------- ----------------------- ------------------------------------- ---------- ----------------------- --------------------------------- y --------------------------------------------------- d country z --------------------------------------------------- a b dear ------------------- correspondence written on behalf of x requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file a late form_8832 entity classification election this letter responds to the letter dated date and related --------- -------- plr-150173-04 facts the information submitted discloses that x is a domestic parent company of several operating companies throughout the world y is a wholly owned domestic subsidiary of x on d x formed z under the laws of country to comply with local law z has two owners y owns a percent and a local individual owns b percent x intended for z to make an entity classification election effective d but the election was not filed law and analysis sec_301_7701-3 provides that a business_entity not classified as a sec_301_7701-3 provides guidance on the classification of a foreign_corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes eligible_entity for federal tax purposes sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is classified as a partnership if it has two or more members and at least one member does not have limited_liability an association if all members have limited_liability or disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability classified other than as provided under ' b by filing form_8832 entity classification election with the appropriate service_center under ' c iii 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 sec_301_7701-3 provides that an eligible_entity may elect to be 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 code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner plr-150173-04 and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 are satisfied as a result x is granted an extension of time of days from the date of this letter to make an entity classification election by filing a form_8832 effective d with the appropriate service_center a copy of this letter should be attached to the election a copy of this letter is attached for this purpose except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes


department of the treasury internal_revenue_service washington d c uu oo u o y oo ero es uics i nov se t-ep rats legend decedent taxpayer b taxpayer c taxpayer d taxpayer e taxpayer f taxpayer g taxpayer h charity e charity f charity g amount amount sum sum sum trust t zuvovgu sec_2 page date date date date date date date date date date date date date month company m ira x ira y state v state w city x page city y court order qyuyukusu sec_2z this is in response to the request for letter rulings under sec_401 and sec_408 of the internal_revenue_code code as supplemented by correspondence dated representations support your ruling_request the following facts and and decedent died on date a resident of state v decedent’s date of birth was date thus decedent had attained his required_beginning_date as that term is defined in sec_401 of the code at the time of his death the decedent owned an individual_retirement_account ira x with company m of which the named beneficiary trust t was originally created on date modified on date and further modified by the court order dated date the date of decedent’s beneficiary designation was date taxpayer b is the trustee of trust t as of decedent’s date of death ira x had a value of amount decedent was survived by six children taxpayer b whose date of birth was date taxpayer c whose date of birth was date taxpayer d whose date of birth was date taxpayer e whose date of birth was date taxpayer f whose date of birth was date and taxpayer g whose date of birth was date taxpayer b is the eldest of taxpayers b through g taxpayer g is currently married to taxpayer h who is younger than taxpayer b taxpayer g has no children article i b section of trust t provides that upon the death of the decedent the sum of sum shall be distributed in cash or in_kind as follows sum to charity e of city x state w sum to charity f and an additional sum to charity g of city y state v collectively the charities article i b sections and of trust t provide that the residue of the trust property shall be distributed to the decedent’s children outright or in trust as provided therein pursuant to said sections of article i b the shares of each child except taxpayer g are to be distributed outright taxpayer g’s share is to be held in trust taxpayer c is the trustee of taxpayer g’s share page article ii a of trust t provides that the trustee shall possess the discretion and power to make distributions or divisions of principal in cash or in_kind or both at fair market values current at a date of distribution fixed by the trustee without any requirement that each item be distributed or divided ratably relevant provisions of trust t as amended provide as follows the trustee of trust t may not after september of the year following the year of decedent’s death distribute any portion of ira x to or for the benefit of decedent’s estate any charity or any non-individual beneficiary after september of the year following the year of decedent’s death ira x may not be used for payment of decedent’s debts taxes expenses of administration or other claims against decedent’s estate nor for the payment of transfer_taxes due on account of decedent’s death taxpayer g’s share of ira x is to be held in trust provisions of taxpayer g’s trust provide for payments to her of income principal at the trustee’s discretion and indicate that the decedent’s intent in creating the trust was to provide for taxpayer g’s education health maintenance comfort and general welfare during her lifetime upon the death of taxpayer g taxpayer h is to take any remaining portion of taxpayer g’s share if he was married to her at her death and if taxpayer g died with no living descendants if not paid to taxpayer h any remaining portion of her share of ira x may not be paid to any non-individual beneficiary or to any individual born before date it has been represented that trust t is valid under the laws of state v furthermore article vii of trust t as amended in relevant part provides that trust t may only be revoked by decedent thus trust t became irrevocable at the death of decedent finally the documentation required by sec_1_401_a_9_-4 of the final income_tax regulations question and answer-6 was provided to the custodian administrator of ira x by date during month ira x was transferred by means of a trustee to trustee transfer to ira y with company m titled as follows trust t-taxpayer b trustee-ira beneficiary distribution account bda original depositor-decedent - company m custodian in conjunction with said transfer the trustee of trust t instructed company m the custodian of ira x and of ira y as custodian to divide ira x ira y into shares each titled in the name of the decedent for the benefit of a beneficiary under the trust thus each of the charities became the beneficiary of an ira equal in value at the page time of division to the dollar amount to which it was entitled under the provisions of trust t each share of ira y read as follows taxpayer -ira bda- original depositor decedent -company m custodian the value of ira y as of the end of month was amount minimum required distributions with respect to calendar years subsequent to calendar_year have been taken from ira x or ira y on or about date which date predated date trust t completed in_kind distribution s of ira x totaling sum to charities based on the above facts and representations you through your authorized representative request the following letter rulings the transfer of ira x to ira y and eventually to the iras set up to benefit the beneficiaries of trust t did not constitute distributions within the meaning of code sec_408 and did not constitute attempted rollovers within the meaning of code sec_408 trust t as amended is a qualified see-through trust within the meaning of sec_1_401_a_9_-4 of the final regulations q a-5 and required minimum distributions may be made to the beneficiaries of trust t from the iras maintained in the name of the decedent for their benefit with company m based upon the life expectancy of taxpayer b using the single life table found in sec_1_401_a_9_-9 of the final regulations with respect to your ruling requests 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 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 will be distributed beginning not later than the required page 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 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 provides in general that if a plan participant ira holder dies after the distribution of his interest has begun in accordance with subparagraph a ii after his required_beginning_date his plan or ira interest remaining at his death must be distributed at least as rapidly as under the method of distribution being used under subparagraph a i1 as of the date of his death with respect to your ruling requests 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 lr 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 sec_1_401_a_9_-4 of the final 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 final regulations q a-3 provides that only individuals may be designated beneficiaries for purposes of sec_401 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 are met the trust is valid under state law or would be but for the fact there is no corpus page guvo0voi32 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 final 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 final regulations q a-5 a provides in summary that if an employee dies on or after his required_beginning_date 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- 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 sec_1_401_a_9_-5 of the final regulations q a- c provides in general that with respect to an employee who has a non spouse designated_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 years the applicable distribution 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 final regulations q a-7 provides in general that if more than one beneficiary is designated as a beneficiary by an employee as of the applicable_date for determining the designated_beneficiary under a-4 of sec_1_401_a_9_-4 the beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining required distributions sec_1_401_a_9_-9 of the final regulations q a-1 provides the relevant single life expectancy table page 20u0v65u32 sec_1_401_a_9_-8 of the final regulations q a- a provides the separate_account rules with respect to defined contribution plans a separate_account is an account under which the beneficiary or beneficiaries differ from the beneficiary or beneficiaries of the other accounts in general if separate_accounts are set up for years subsequent to the calendar_year containing the date on which the separate_accounts were established or the date of death if later a separate_account under a plan is not aggregated with the other separate_accounts under the plan in order to determine whether the distributions from such separate_account satisfy the requirements of code sec_401 instead the rules in code sec_401 apply separately to each separate_account under the plan sec_1_401_a_9_-8 of the final regulations q a-3 provides that a separate_account is a separate portion of an employee's benefit which reflects the separate interest of an employee's beneficiary under the plan as of the employee's death for which separate_accounting is maintained the separate_accounting must allocate all post-death investment gains and losses contributions and forfeitures for the period prior to the establishment of the separate_accounts on a pro-rata basis in a consistent and reasonable manner among the separate_accounts sec_1_401_a_9_-4 of the final regulations q a- c provides in relevant part that the separate_account rules are not available to beneficiaries of a_trust with respect to the trust's interest in an employee's benefit code sec_408 provides generally that in accordance with the rules of sec_72 amounts paid or distributed from an ira are included in the gross_income by the payee or distributee code sec_408 provides generally that amounts from an inherited ira cannot be rolled over into another ira in general an inherited ira is an ira maintained by an individual who acquired said ira by reason of the death of another if the acquiring individual is not the surviving_spouse of said other individual in this case as noted above taxpayers b through g are taxpayer a's children revrul_78_406 1978_2_cb_157 provides that the direct transfer of funds from one ira trustee to another ira trustee even if at the behest of the ira holder does not constitute a payment or distribution to a participant payee or distributee as those terms are used in code sec_408 furthermore such a transfer does not constitute a rollover_distribution additionally a trustee to trustee transfer as described in revrul_78_406 does not constitute a distribution or payment as those terms are defined for purposes of code sec_408 finally revrul_78_406 is applicable if the trustee to trustee transfer is directed by the beneficiary of an ira after the death of the ira owner as long as the transferee ira is set up and maintained in the name of the deceased ira owner for the benefit of the page qzuuovcu32 beneficiary be the surviving_spouse of a deceased ira holder the beneficiary accomplishing such a post-death trustee to trustee need not neither the code nor the final regulations promulgated under code sec_401 preclude the posthumous division of jra x into more than one ira however the final regulations do preclude separate_account treatment for code sec_401 purposes where amounts pass through a_trust in this case as noted above trust t was the named beneficiary of decedent’s ira x subsequently ira y trust t was established by decedent valid under the laws of state v and became irrevocable at the death of decedent the beneficiaries of trust t identified by perusing its terms including amendments thereto included charities taxpayers b through g and certain named remaindermen of taxpayer g’s share of ira x the final regulations cited above provide that only individuals may qualify as designated beneficiaries for purposes of code sec_401 thus charities were ineligible to qualify as such however as noted above charities received their shares of ira x ira y before date thus in accordance with sec_1_401_a_9_-4 of the final regulations q a-4 each of the charities may be disregarded for purposes of determining which beneficiary of trust t is the eldest and has the shortest life expectancy of the trust t beneficiaries remaining as of date taxpayer b is the eldest and as a result has the shortest life expectancy although the provisions of trust t provide for remaindermen to take at the death of taxpayer g who did not receive her share of ira x ira y outright as did her siblings no potential remainderman can be older than taxpayer b as noted above the separate_account rules of sec_1_401_a_9_-8 of the final regulations q a- a do not apply to amounts passing through a_trust thus the share of each beneficiary of trust t irrespective of the age of said beneficiary must be based on the life expectancy of taxpayer b minimum required distributions is found at sec_1_401_a_9_-9 of the final regulations q a-1 furthermore the applicable distribution period must be computed in accordance with sec_1_401_a_9_-5 of the final regulations q a- c in this case the table to be used to determine thus with respect to your ruling requests we conclude as follows the transfer of ira x to ira y and eventually to the iras set up to benefit the beneficiaries of trust t did not constitute distributions within the meaning of code sec_408 and did not constitute attempted rollovers within the meaning of code sec_408 trust t as amended is a qualified see-through trust within the meaning of sec_1_401_a_9_-4 of the final regulations q a-5 and page quuu0v6v32 required minimum distributions may be made to the beneficiaries of trust t from the iras maintained in the name of the decedent for their benefit with company m based upon the life expectancy of taxpayer b using the single life table found in sec_1_401_a_9_-9 of the final regulations this ruling response does not apply to the charities please note that the letter_ruling does not address issues if any that arise under sec_691 and sec_642 of the code in that regard this letter_ruling does not address the issue of whether trust t realized income when portions of ira x now ira y were transferred to charities this ruling letter is based on the assumption that ira x either has met is meeting or will meet the requirements of code sec_408 at all times relevant thereto furthermore it assumes that ira y will also meet the requirements of code sec_408 at all times relevant thereto it also assumes that trust t is valid under the laws of state v as represented additionally it assumes that the transfer of amounts from ira x to ira y and the sub-iras created in conjunction therewith constituted a trustee-to-trustee transfer or transfers as asserted finally it assumes that each of the charities referenced herein charity e charity f and charity g received its share of ira x ira y no later than date as asserted no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representatives in accordance with a power_of_attorney on file in this office page qyvovsu sec_2 if you wish to inquire about this ruling please contact esquire id at either a phone or fax please address all correspondence to se t ep ra t3 sincerely yours employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


internal_revenue_service number release date index number ---------------------------------- ------------------------ ------------------------- - - department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-148739-04 date date company --------------- -------------------------- -------------------- shareholders ------------------------------------------------------- ------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------------------------------ ----------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------- ------------------------------------------------------------------------------ ----------------------------------------------------- ---------------------------------------------------------------------------- ----------------------------------------------------- ---------------------------------------------------------------------------- ----------------------------------------------------- property ----------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- state a b c d e ------------- ---------------------- ------------------- ------------- ----------- ------- ------- ------------ ----------- ------- ------------ ----------- plr-148739-04 f g h i k m dear ------------------ this letter responds to a letter dated date as well as subsequent correspondence submitted on behalf of company requesting a ruling that the rental income received by company from property is not passive_investment_income within the meaning of ' d c i of the internal_revenue_code facts company a state corporation elected under ' a to be an s_corporation effective a it had subchapter_c_earnings_and_profits until b at which time it made a deemed_distribution of the entire amount company owns operates leases and manages commercial real_estate company performs substantially_all services and is responsible for substantially_all costs necessary to maintain and operate property the services company provides in leasing and managing property include safety and maintenance inspections maintenance and repair of building structural_components and systems including heating and air conditioning facilities and equipment landscaping and grounds maintenance the provision of utilities and as required space renovation and remodeling company received or accrued approximately c in rents and paid_or_incurred approximately d in relevant expenses for e on property the comparable figures for f are g and h respectively and those for i k and m law and analysis plr-148739-04 except as provided in ' g ' a provides that a small_business_corporation may elect in accordance with the provisions of ' to be an s_corporation sec_1362 provides that an election under ' a terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities except as otherwise provided in ' d c ' d c i provides that sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation conclusion based solely on the facts and representations submitted we conclude that the rents company receives from property are not passive_investment_income under ' d c i except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding company's eligibility to be an s_corporation further the passive_investment_income rules of ' are independent of the passive_activity rules of ' unless an exception under ' applies the rental_activity remains passive for purposes of ' under a power_of_attorney on file with this office we are sending the original of this letter to you and a copy to company plr-148739-04 this ruling is directed only to the taxpayer who requested it according to ' k this ruling may not be used or cited as precedent sincerely s mary beth collins senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy for ' purposes cc


department of the treasury internal_revenue_service washington d c date cc intl br tl-n-7524-97 uilc number release date internal_revenue_service national_office field_service_advice memorandum for from chief branch office of associate chief_counsel international cc intl subject this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent legend u sec_1 u sec_2 country a date b corp c country c corp d date e year f issues whether the prepayment made to u sec_2 under the terms of the sale contract constitutes an advance_payment for the purchase of deliveries or constitutes nontaxable loan proceeds and if the payment constitutes an advance_payment in what taxable_year is the payment includable in income does sec_367 apply to the outbound_transfer of the contract pursuant to a reincorporation of u sec_2 from a domestic_corporation to a country c_corporation in a reorganization described in sec_368 conclusion the prepayment to u sec_2 under the contract constitutes an advance_payment and is includable in income in year f after the year of the sec_368 reorganization if the requirements of sec_1_451-5 are satisfied sec_367 applies to the outbound_transfer of the contract in the sec_368 reorganization facts u sec_1 was a publicly traded domestic_corporation u sec_2 was a second-tier domestic subsidiary of u sec_1 u sec_2's primary asset was a in country a u sec_2's country a operations were conducted through a country a branch on date b u sec_2 entered into a sale agreement involving the sale of from the country a with an unrelated third-party corp c incorporated in a tax_haven jurisdiction on date b corp c also entered into a sale agreement with another third-party corp d a domestic banking corporation the sold between u sec_2 and corp c was resold by corp c to corp d the terms and conditions were similar except for the prepayment paid u sec_2 in both agreements corp c apparently functioned strictly as a conduit between u sec_2 and corp d and borrowed money for the prepayment the agreement between u sec_2 and corp c provided a purchase_price amount of consisting of a prepaid amount of and a balance of the balance was placed in interest-bearing reserve accounts the taxpayer u sec_2 treated the prepaid amount as deferred income and the balance as an account receivable u sec_2 was entitled to receive the balance constituting the account receivable and interest when and when certain other conditions were met the prepaid amount of was used immediately by u sec_2 to pay-off an inter-company loan used by u sec_2 to fund its activities with respect to its in country a under the agreement corp c receives the total_payment the barrels at the fixed price is greater than the purchase_price although the difference represents an approximate discounted_present_value the agreement contained provisions in case in such an event the agreement permitted u sec_2 also the agreement permitted the purchaser corp c to purchase with u sec_2 having the obligation to reimburse corp c for the cost of the on date e u sec_2 was reincorporated in country c which taxpayer treated as a sec_368 reorganization at the time of the reincorporation u sec_2 reported on its financial statements deferred income of from the agreement and listed as accounts_receivable u sec_2 did not report the advanced payment as income on its u s tax_return when it was received instead u sec_2 reported the deferred income on its u s tax_return over the term of the agreement while it was a domestic_corporation law and analysi sec_1 the treatment of amounts prepaid under the contract the first issue is whether the prepayment is an advanced payment taxable as income or is a loan which is not taxable in determining whether there is an advanced payment or a deposit the supreme court has stated that t he key is whether the taxpayer has some guarantee that he will be allowed to keep the money 493_us_203 107_led_591 110_sct_589 this goes to whether the taxpayer acquires unfettered dominion over the money at the time of receipt whether these payments constitute income when received depends upon the parties’ rights and obligations at the time the payments are made id pincite the facts indicate that u sec_2 entered into an agreement for the sale_of_goods that will be fulfilled or from other sources within the reach of u sec_2 at the time the agreement was entered into u sec_2 had unfettered control_over the advanced funds u sec_2 had the right to keep the income and controlled the conditions under which the payment would be satisfied either through thus the advanced funds do not qualify as loans under indianapolis power but instead are treated as advanced payments under sec_636 and the regulations thereunder a production_payment a payment for a right to a specified share of the production from mineral in place shall be treated as a mortgage loan on the property however a production_payment shall not be treated as a mortgage loan under sec_636 if in part the payment is not pledged for use in the future exploration or development of the mineral_property which is burdened by the production_payment sec_1_636-1 in other words advance funds will be treated as production payments under sec_636 if the funds are used for the exploration or development of mineral_property and the repayment of the funds in cash or kind comes exclusively from the mineral_property however if the repayment of the advanced funds can be from sources other than a specified mineral source then the payment does not qualify under sec_636 sec_1_451-5 implies that the advanced funds would then be treated as an advanced payment under the sec_451 regulations the next issue is in what taxable_year the prepayment is includable in gross_income under sec_451 the amount of any item_of_gross_income will be included in gross_income for the taxable_year in which received by the taxpayer unless under the method_of_accounting used in computing taxable_income such amount is to be properly accounted for in a different period sec_1 a provides that under an accrual_method of accounting_income is includable in gross_income when all events have occurred which fix the right to receive such income and the amount thereof can be determined with reasonable accuracy the right to receive income becomes fixed at the earliest of required performance the date payment becomes due or the date payment is made revrul_84_31 1984_1_cb_127 sec_1_451-5 provides rules for the inclusion of income in a taxable_year for a taxpayer using the accrual_method of accounting and receiving an advance_payment with respect to the sale in a future taxable_year of goods held by the taxpayer primarily for sale to a customer in the ordinary_course_of_his_trade_or_business sec_1_451-5 in general advance_payments for the sale_of_goods must be reported in the year of receipt or the earlier of a the year when the amounts would otherwise be reported for tax purposes or b the year when the amounts would be reported for financial_accounting purposes sec_1_451-5 thus the taxpayer can report an advance_payment otherwise than upon receipt if it is consistent with its financial reporting of the amount in this case u sec_2 reported the advance_payment for both financial and tax_accounting purposes under this method therefore it is possible for u sec_2 to obtain a deferral of several years under sec_1_451-5 this deferral_period is limited where the advance_payment is substantial and the taxpayer has on hand in the year of payment or has available to it in such year though its normal source of supply goods of a kind and quantity sufficient to satisfy the agreement in these circumstances all advance_payments received with respect to the agreement by the last day of the second taxable_year following the year of receipt and not previously included in income in accordance with the taxpayer’s normal accrual_method of tax_accounting must be included in income in that second taxable_year a taxpayer is considered to have received substantial advance_payments if all advance_payments received through the end of the current taxable_year including advance_payments received in prior taxable years equal or exceed the total cost of expenditures reasonably estimated as includable in inventory with respect to the agreement sec_1_451-5 where the two-year limitation rule applies the taxpayer must take into account in the taxable_year the costs and expenditures or reasonably estimated costs or expenditures included in inventory at the end of that year with respect to those goods if the advance_payment received by u sec_2 on date b is a substantial advance_payment as defined in sec_1_451-5 being those that are equal to or exceed the total costs and expenditures reasonably estimated as includable in inventory then u sec_2 must have included the payment in income by the end of the second taxable_year following the year the payments were received in this case that would have been year f after the sec_368 reincorporation and therefore not likely reportable on u sec_2's u s income_tax return the portion of the prepayment received before the reincorporation would have been reportable on u sec_2's u s tax_return this is the same result under u sec_2's normal_tax and accounting methodology sec_1_451-5 provides that if a taxpayer adopts a method of deferral and then ceases to exist in a transaction other than one to which sec_381 applies or if its liability under the agreement otherwise ends then the amount of the advance_payment which was not includable in gross_income in preceding_taxable_years must be included in income in that year because a sec_368 reorganization involves the carryover of certain tax_attributes under sec_381 this provision does not apply sec_453 defines the term installment_sale as a disposition of property where at least one payment is to be received after the close of the taxable_year in which the disposition occurs sec_453 provides the term installment_sale does not include a dealer_disposition sec_453 provides that the term dealer_disposition means any disposition of personal_property by a person who regularly sells or otherwise disposes of personal_property of the same type on the installment_plan we do not believe that the forward oil agreement qualifies for installment_sale treatment because no disposition of property had taken place at the time of entry into the agreement and even if it had the taxpayer likely would be treated as a dealer and thus not be entitled to use the installment_method pursuant to sec_453 with respect to amounts placed in interest-bearing accounts which were treated as accounts_receivable by u sec_2 we believe that u sec_2 properly excluded them from income in the year the parties entered into the agreement when and when certain other conditions are met u sec_2 will receive the balance in the interest-bearing accounts such conditions were projected to be met in year f as those conditions were to occur in year f at the earliest that is the year that the balance due under the agreement would be includable in income treatment of the contract under sec_367 under sec_367 if a u_s_person transfers property to a foreign_corporation in an exchange described in sec_332 sec_351 sec_354 sec_356 or sec_361 the foreign_corporation is not considered to be a corporation for purposes of the nonrecognition_provision and gain is recognized on the exchange in the sec_368 reorganization u sec_2 transferred the contract on which a prepayment had been received along with the accounts_receivable to us2-foreign in a sec_361 exchange the issue is to what extent the contract and the accounts_receivable are taxable on the outbound_transfer under sec_367 an exception to gain recognition under sec_367 is provided for the transfer of any property used by the foreign_corporation in the active_conduct_of_a_trade_or_business see sec_367 the trade_or_business exception does not apply however to the transfer of certain property which includes installment_obligations accounts_receivable and similar_property sec_367 the legislative_history indicates that these assets were made taxable under sec_367 because even if the assets are trade_or_business assets their nature allows a u s taxpayer to avoid u s tax by transferring the assets to a foreign_corporation which can receive the income and avoid u s income_tax see h_r rep no 98th cong 2d sess because the taxpayer treats the portion of the contract as an accounts_receivable its outbound_transfer in the sec_368 reincorporation is taxable under sec_367 sec_367 the remaining issue is whether the balance of the contract representing the prepayment constitutes similar_property to installment_obligations and accounts_receivable under sec_367 in this case the prepayment on the contract is a liquid and passive_asset representing income whose transfer to a foreign_corporation resulted in income associated with the contract avoiding u s income_taxation congress intended such types of trade_or_business assets to be taxable under sec_367 when their outbound_transfer readily results in the avoidance of u s tax we believe this transfer falls within the similar_property category of sec_367 the above analysis does not necessarily preclude the service from considering other arguments under sec_367 or other sections of the code in regard to the transfer case development hazards and other considerations if you have any further questions please call robert lorence pincite- charles p besecky chief branch office of associate chief_counsel international