internal_revenue_service number release date index numbers -------------------- --------------------------- ----------------------------- ---------------------------------------------- ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ----------------- telephone number --------------------- refer reply to cc psi b01 plr-117456-10 date october legend x date country dear ------------ ----------------------------- -------------------------- ------------------------------------- this responds to a letter dated date and subsequent information provided on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be treated as a disregarded_entity facts the information submitted states that x was formed as an entity under the laws of country x represents that as a foreign eligible_entity x was eligible to elect to be treated as a disregarded_entity effective date however x inadvertently failed to timely file form_8832 entity classification election electing to treat x as a disregarded_entity effective date law and analysis sec_301_7701-3 of the income_tax regulations provides in relevant part that a business_entity that is not classified as a corporation under sec_301_7701-2 plr-117456-10 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at 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 in part that unless a foreign eligible_entity elects otherwise it will be classified as a corporation for u s income_tax purposes if it offers its members limited_liability sec_301_7701-3 provides in part that an entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 entity classification election with the irs service_center designated on the form sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with two or more members having limited_liability may elect to be treated as a partnership pursuant to the rules of sec_301 c sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i 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 that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be plr-117456-10 treated as a disregarded_entity for federal tax purposes effective date x shall make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely curt g wilson associate chief_counsel passthroughs special industries by david haglund david haglund branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


number release date internal_revenue_service index numbers - ---------------------------------------- ------------------------ ------------------------- ------------------------- --------------------- department of the treasury washington dc person to contact ----------------------------------------------------- -------- telephone number -------------------- refer reply to cc psi - plr-100401-06 date date legend x ------------------------ --------- ---------------- ------------------ ----------- d1 country dear -------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be treated as a disregarded_entity under the laws of country was acquired by a single owner with limited_liability on d1 x intended to be treated as a disregarded_entity for federal tax purposes effective d1 however x did not timely file a form_8832 entity classification election according to the information submitted all of the interest in x an entity formed sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301 b unless it elects otherwise a foreign eligible_entity is classified as an association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a sec_301_7701-3 provides that an election under sec_301_7701-3 member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to based on the facts submitted and representations made we conclude that the determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 and elect to be treated as a disregarded_entity for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 the federal tax consequences of the transaction described above under any other provision of the code except as specifically set forth above no opinion is expressed or implied as to sec_6110 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer on whose behalf it was requested in accordance with the power_of_attorney on file with this office a copy of this sincerely letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries


internal_revenue_service department of the treasury number release date index number 468a 468a washington dc person to contact telephone number refer reply to cc psi plr-103049-01 date date re request for a revised schedule of ruling amounts taxpayer parent plant location commission a commission b commission c municipalities director fund dear this letter responds to the request of taxpayer dated date for a revised schedule of ruling amounts in accordance with sec_1_468a-3 of the income_tax regulations taxpayer was previously granted a revised schedule of ruling amounts on date information for the schedule of ruling amounts was submitted on behalf of the taxpayer pursuant to sec_1_468a-3 taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer is under the audit jurisdiction of the director taxpayer is a principal subsidiary of parent taxpayer has a direct ownership_interest of percent as a tenant-in-common with other electric utility companies in plant which is situated at location plant’s operating license expires in plr-103049-01 taxpayer is planning to separate its generation assets from its transmission and distribution assets by establishing a new company to which the generation assets will be transferred taxpayer will retain its transmission and distribution assets and operations and will distribute the stock of the new company to parent therefore taxpayer’s request for a revised schedule of ruling amounts extends through the year by which taxpayer expects to have transferred its generating assets taxpayer is subject_to the jurisdiction of commission a which covers percent of the taxpayer's total electric sales commission b which covers percent commission c which covers percent and municipalities which covers percent for a total of percent these percentages may vary slightly from year to year the estimated base cost for decommissioning the plant is based on an independent study and is premised on the prompt removal and dismantlement method commission b in docket no effective authorized nuclear decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes for the plant in the amount of and estimated an after-tax rate of return on assets of percent commission also determined the total estimated cost of decommissioning the plant to be this base cost escalated using an estimated inflation rate of percent results in an estimated future decommissioning cost of the tax and investment changes made to sec_468a of the internal_revenue_code by section of the energy policy act of were not taken into consideration when estimating these costs commission c in docket no effective authorized nuclear decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes for the plant in the amount of and estimated an after-tax rate of return on assets of percent commission c also determined the total estimated cost of decommissioning the plant to be this base cost escalated using an estimated inflation rate of percent results in an estimated future decommissioning cost of the tax and investment changes made to sec_468a of the internal_revenue_code by section of the energy policy act of were not taken into consideration when estimating these costs municipalities in an agreement effective authorized nuclear decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes for the plant in the amount of and estimated an after-tax rate of return on assets of percent commission also determined the total estimated cost of decommissioning the plant to be this base cost escalated using an estimated inflation rate of percent results in an estimated future decommissioning cost of the tax and investment changes made to sec_468a of the internal_revenue_code by section of the plr-103049-01 energy policy act of were not taken into account when estimating these costs amounts for commission a are not specifically reviewed herein there are no proceedings pending before either commission a commission b or commission c that may result in an increase or decrease in the amount of decommissioning costs for the plant to be included in taxpayer’s cost of service for ratemaking purposes there are however proceedings pending before municipalities that may result in an increase or decrease in the amount of decommissioning costs for the plant to be included in taxpayer’s cost of service for ratemaking purposes the funding_period for the plant extends from and the level_funding limitation period for the plant extends from the estimated period for which the fund will be in effect is the estimated_useful_life of the plant is for commission b and commission c and for municipalities thus the taxpayer has calculated its qualifying percentage to be percent for commission b and commission c and percent for municipalities sec_468a of the internal_revenue_code provides that a taxpayer may elect to deduct the amount of payments made to a qualified nuclear decommissioning fund however sec_468a limits the amount_paid into the fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to the fund that is included in the taxpayer’s cost of service for ratemaking purposes for the taxable_year or the ruling_amount applicable to that year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any taxable_year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the taxable_year if the payment is made on account of the taxable_year within 2½ months after the close of the taxable_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 is a taxpayer that has a qualifying interest in a nuclear power plant as defined under sec_1_468a-1 a qualifying interest is among other things a direct ownership_interest including an plr-103049-01 interest held as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any taxable_year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such taxable_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the taxable years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission s in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in the taxpayer’s income under sec_88 of the code and the regulations thereunder each schedule of ruling amounts shall be based on the public_utility commission’s reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated cost of decommissioning the nuclear power plant and iii the frequency of contributions to the nuclear decommissioning fund for a taxable_year sec_1_468a-3 of the regulations requires the internal_revenue_service to provide a schedule of ruling amounts that is identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer’s proposed schedule is consistent with the principles and provisions of this section sec_1_468a-3 of the regulations provides that the ruling_amount specified in a schedule of ruling amounts for any taxable_year in the level_funding limitation period shall not be less than the ruling_amount specified in such schedule for any earlier taxable_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the funding_period for a nuclear decommissioning fund is the period that begins on the first day of the first taxable_year for which a deductible payment is made or deemed to be made to such nuclear decommissioning fund and ends the later of i the last day of the taxable_year plr-103049-01 that includes the estimated date on which decommissioning costs of the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer’s cost of service for ratemaking purposes or ii the last day of the taxable_year that includes the estimated date on which the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer’s rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer’s share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning the plant multiplied by the taxpayer’s qualifying interest in the plant sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to the fraction the numerator of which is the number of taxable years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of taxable years in the estimated_useful_life of the applicable nuclear power plant sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer’s rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer’s rate base sec_1_468a-3 of the regulations provides that the estimated useful plr-103049-01 life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer’s rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer’s rate base sec_1_468a-3 of the regulations provides that if two or more public_utility commissions establish or approve rates for electric energy generated by a single nuclear power plant then the schedule of ruling amounts shall be separately determined pursuant to the rules of sec_1_468a-3 through e for each public_utility commission that has determined the amount of decommissioning costs to be included in the cost of service for ratemaking purposes for this plant under sec_1_468a-3 this separate determination shall be based on the reasonable assumptions and determinations used by the relevant public_utility commission and shall take into account only that portion of the total estimated cost of decommissioning that is properly allocable to the ratepayer whose rates are established or approved by the public_utility commission according to sec_1_468a-3 the ruling amounts for any taxable_year is the sum of the ruling amounts for such taxable_year determined under the separate schedules of ruling amounts sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant to which the nuclear decommissioning fund relates has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 of the regulations provides that a taxpayer is required to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by a nuclear power plant to which the nuclear decommissioning fund relates increases the proposed period over which decommissioning costs of the nuclear power plant will be included in cost of service for ratemaking purposes adjusts the estimated date on which the nuclear power plant plr-103049-01 will no longer be included in the taxpayer’s rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for any taxable_year and b the taxpayer’s most recent request for a schedule of ruling amounts did not provide notice to the service of such action by the public_utility commission sec_1_468a-3 of the regulations provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sections a and c of the energy act of eliminated for taxable years beginning after date the investment restrictions contained in sec_468a of the code sections b and c of the energy act revised sec_468a by lowering the tax_rate applicable to a nuclear decommissioning fund for taxable years beginning after date we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in the sec_468a of the code and the regulations thereunder based solely on these representations of the facts we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commissions a b and c and municipalities have determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations taxpayer has determined that pursuant to sec_1_468a-3 of the regulations the qualifying percentage is percent for commission b and commission c and percent for municipalities taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commissions a b and c and municipalities and will result in a projected fund balance at the end of the funding_period equal to or less than the plr-103049-01 amount of decommissioning costs allocable to the fund the maximum amount of cash payments made or deemed made to the fund during any taxable_year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations taxpayer subject_to the jurisdiction of three public_utility commissions for ratemaking purposes has calculated its share of the total decommissioning costs allocable to commissions a b and c and municipalities as required by sec_1_468a-3 of the regulations based on the above determinations we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code approved schedule of ruling amounts taxable years commissions a b and c and municipalities year comm a1 comm b comm c mun total approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time this ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code as amounts for commission a are not specifically reviewed herein and are merely reprinted to arrive at the amount for the total annual ruling_amount for purposes of the review and revision under sec_1_468a-3 of the regulations the date of the schedule of ruling amounts approved by the service on date governs the review period for the commission a ruling amounts plr-103049-01 stated above payments made to the fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to the fund or the ruling amounts applicable to the fund in the taxable_year except as specified above no opinion is made express or implied regarding other federal_income_tax consequences of the facts presented more specifically no opinion is expressed regarding the impact of taxpayer’s plan relating to the separation of its generation assets from its transmission and distribution assets this letter_ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each taxable_year in which the taxpayer claims a deduction for payments made to the fund in accordance with the power_of_attorney a copy of this letter_ruling is being sent to your authorized representatives a copy of this letter_ruling also is being sent to the director sincerely yours peter c friedman senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosure copy


t c no united_states tax_court garber industries holding co inc petitioner v commissioner of internal revenue respondent docket no filed date p a closely_held_corporation is the parent of an affiliated_group that files consolidated federal_income_tax returns in date a sold all of his p shares to his brother b as a result of that sale b’s percentage ownership of p increased by more than percentage points on its consolidated_income_tax_return for p claimed a net_operating_loss nol deduction of dollar_figure for regular_tax purposes and dollar_figure for alternative_minimum_tax amt purposes r determined that the transaction between a and b resulted in an ownership_change with respect to p within the meaning of sec_382 i r c in accordance with sec_382 i r c r reduced p’s nol deduction for both regular_tax and amt purposes to dollar_figure held sec_382 i r c which provides that an individual and all members of his family described in sec_318 i r c ie his spouse children grandchildren and parents are treated as one individual for purposes of applying sec_382 applies solely from the perspective of individuals who are shareholders as determined under applicable attribution_rules of the loss_corporation held further a and b are not treated as one individual under sec_382 sec_3 held further a’s sale of his p shares to b resulted in an ownership_change with respect to p within the meaning of sec_382 i r c george w connelly jr linda s paine and phyllis a guillory for petitioner susan k greene and marilyn s ames for respondent halpern judge by notice_of_deficiency dated date respondent determined deficiencies in petitioner’s federal income taxes for petitioner’s and taxable calendar years in the amounts of dollar_figure and dollar_figure respectively the parties have settled all issues save one leaving for our decision only the question of whether a stock sale between siblings that increased one sibling’s percentage ownership of petitioner by more than percentage points resulted in an ownership_change for purposes of sec_382 triggering that section’s limitation on net_operating_loss nol carryovers the parties have stipulated that if the sec_382 continued that issue turns on the interpretation of sec_382 a matter of first impression for this court unless otherwise indicated all section references are to the internal_revenue_code in effect for and all rule references are to the tax_court rules_of_practice and procedure for the sake of convenience all percentages are rounded to the nearest full percent findings_of_fact the parties submitted this case fully stipulated pursuant to rule the stipulation of facts stipulation of settled issues and accompanying exhibits are incorporated herein by this reference at the time the petition was filed petitioner’s mailing address was in lafayette louisiana at the time of petitioner’s incorporation in date charles m garber sr charles and his brother kenneth r garber sr kenneth collectively sometimes the garber brothers owned percent and percent respectively of petitioner’s common_stock the spouses children and other siblings of the garber brothers owned the remaining shares of continued limitation applies to petitioner’s net_operating_loss nol deduction there is a deficiency in petitioner’s income_tax for that year in the amount of dollar_figure and if the sec_382 limitation does not apply to petitioner’s nol deduction there is a deficiency in petitioner’s income_tax for that year in the amount of dollar_figure such stock the garber brothers’ parents who are deceased never owned any of petitioner’s stock on or about date petitioner underwent a reorganization described in sec_368 the reorganization pursuant to the reorganization petitioner canceled charles’s original stock certificate for dollar_figure shares and issued a new certificate to him for shares as a result charles’s percentage ownership of petitioner decreased from percent to percent and kenneth’s percentage ownership of petitioner increased from percent to percent on date kenneth sold all of his shares in petitioner to charles the transaction as a result of the transaction charles’s percentage ownership of petitioner increased from percent to percent on its consolidated federal_income_tax return petitioner claimed an nol deduction in the amount of dollar_figure for regular_tax purposes and dollar_figure for alternative_minimum_tax amt purposes as one of the adjustments giving rise to the deficiencies here in question respondent adjusted the amount of petitioner’s nol deduction for both regular_tax and amt purposes to dollar_figure pursuant to sec_382 petitioner assigns error to that adjustment the parties provided no information regarding the reorganization other than the fact of its occurrence and the resulting changes in percentage ownership interests opinion i substantive law a overview of sec_382 sec_382 limits the amount of pre-change losses that a corporation referred to as a loss_corporation may use to offset taxable_income in the taxable years or periods following an ownership_change pre-change losses include nol carryovers to the taxable_year in which the ownership_change occurs and any nol incurred during that taxable_year to the extent such nol is allocable to the portion of the year ending on the date of the ownership_change sec_382 an ownership_change is deemed to have occurred if on a required measurement date a testing_date the aggregate percentage ownership_interest of one or more 5-percent shareholders of the loss_corporation is more than percentage points greater than the lowest percentage ownership_interest of such shareholder s during the generally 3-year period immediately preceding such testing_date the testing_period sec_382 and i sec_1 a income_tax regs sec_382 prescribes a formula for calculating the amount of the sec_382 limitation see also sec_382 and f a net_operating_loss as defined in sec_172 is an nol_carryover to the extent it is carried forward to years following the year of the loss under rules set forth in sec_172 b determining stock ownership for purposes of sec_382 sec_382 provides that with certain exceptions the constructive_ownership rules of sec_318 apply in determining stock ownership under the first of those exceptions set forth in sec_382 the family_attribution_rules of sec_318 and b do not apply instead an individual and all members of his family described in sec_318 spouse children grandchildren and parents are treated as one individual c regulations the family aggregation rule_of sec_382 is further addressed in sec_1_382-2t temporary income_tax regs fed reg date paragraph h ii of that section repeats the general_rule that for purposes of sec_382 an individual and all members of his family described in sec_318 are treated as one individual sec_318 provides that an individual is treated as owning the stock owned by his spouse his children his grandchildren and his parents sec_318 provides that stock constructively owned by an individual by operation of the family attribution rule_of sec_318 is not reattributed from such individual to other individuals under that rule for example stock constructively owned by an individual through attribution from his spouse under sec_318 is not reattributed from that individual to his parent under that provision the family aggregation rule does not apply however to any family_member who without regard to aggregation would not be a 5-percent_shareholder sec_1_382-2t temporary continued paragraph h iv provides further that if an individual may be treated as a member of more than one family under paragraph h ii such individual will be treated as a member_of_the_family with the smallest increase in percentage ownership to the exclusion of all other families ii arguments of the parties a petitioner’s argument petitioner argues that although siblings are not family members described in sec_318 charles and kenneth are nonetheless members of the same family when such determination is made by reference to their parents and grandparents that is as sons they are both members of each family consisting of a parent and that parent’s family members described in sec_318 similarly as grandsons they are both members of each family consisting of a grandparent and that grandparent’s family members described in sec_318 accordingly petitioner argues charles and kenneth are treated as one individual under sec_382 with the result that transactions between them are disregarded for purposes of sec_382 continued income_tax regs fed reg date that exception in turn does not apply if the loss_corporation has actual knowledge of such family member’s stock ownership id sec_1_382-2t temporary income_tax regs supra pincite4 b respondent’s argument respondent maintains that the family aggregation rule applies solely with reference to living individuals under that view inasmuch as none of the parents and grandparents of the garber brothers was alive at the commencement of the 3-year testing_period immediately preceding the transaction from that point forward there was no individual within the meaning of sec_382 whose family members as described in sec_318 included both charles and kenneth it follows respondent argues that charles and kenneth are not treated as one individual for purposes of sec_382 and that the transaction resulted in an ownership_change with respect to petitioner under sec_382 iii analysis a general principles of statutory construction as a general matter if the language of a statute is unambiguous on its face we apply the statute in accordance with its terms without resort to extrinsic interpretive aids such as legislative_history e g 121_tc_129 citing 489_us_235 accordingly our initial inquiry is whether the language of sec_382 is so plain as to permit only one reasonable interpretation insofar as the question presented in this case is concerned see eg 519_us_337 that threshold determination must be made with reference to the context in which such language appears id b language of sec_382 sec_382 provides as follows a constructive_ownership -- sec_318 relating to constructive_ownership of stock shall apply in determining ownership of stock except that-- i paragraphs and b of sec_318 shall not apply and an individual and all members of his family described in paragraph of sec_318 shall be treated a sec_1 individual for purposes of applying this section respondent apparently would limit our textual analysis to a single word according to respondent charles and kenneth are not common members of any individual’s family under sec_382 b ecause the commonly used meaning of the term ‘individual’ does not include a deceased parent we believe respondent’s focus is too narrow as stated by the court_of_appeals for the fifth circuit however even apparently plain words divorced from the context in which they arise and in which their creators intended them to function may not accurately convey the meaning the creators intended to impart it is only therefore within a context that a word any word can communicate an idea 860_f2d_1266 5th cir in our view the question is not whether the noun individual standing alone typically denotes a living person--typically it does the question rather is whether the language of sec_382 as a whole definitively establishes one way or the other that the identification of a living individual whose family members are aggregated thereunder must be made as respondent maintains or need not be made as petitioner maintains coincident with the determination of stock ownership under sec_382 ie on a testing_date or at any point during a testing_period stated negatively is the language of sec_382 so plain as to preclude either party’s position as so identified we are satisfied that the language of sec_382 can variably and reasonably be interpreted as being consistent with each party’s position in this case that is there is nothing in the language of the statute that would make either party’s position patently untenable while a rule attributing stock owned by an individual on a measurement date to members of his family presupposes that the individual is alive cf 353_f3d_1181 10th cir decedent’s estate is not an individual eligible for innocent spouse relief under sec_6015 affg 118_tc_106 putting the question somewhat differently at the time stock ownership is to be determined must the individual referenced in sec_382 be available alive for a family portrait or need he or she only occupy a place in the family tree the same need not be said of a rule such as that contained in sec_382 that identifies by reference to an individual the members_of_a_family that on some measurement date are to be treated as a single shareholder by the same token the language of sec_382 certainly does not compel the conclusion that the individual whose family members are so aggregated need not be alive on that measurement date because the answer to our inquiry is not apparent from the face of the statute we may look beyond the language of sec_382 for interpretive guidance c legislative_history of sec_382 congress enacted the family aggregation rule_of sec_382 as part of its overhaul of sec_382 included in the tax_reform_act_of_1986 publaw_99_514 100_stat_2085 hereafter cited simply as act or act sec x the rule first appeared in the conference committee bill the conference committee report that accompanied that bill the conference_report does not address the temporal aspect of family aggregation identified above the family both the house and senate versions of revised sec_382 contained family attribution provisions rather than a family aggregation rule see h_r 99th cong 1st sess sec a provision designated as sec_382 h_r 99th cong 2d sess sec_621 provision designated as sec_382 attribution_rules of sec_318 and sec_318 do not apply but an individual his spouse his parents his children and his grandparents are treated as a single shareholder h conf rept vol ii at ii-182 1986_3_cb_1 dollar_figure d other consideration sec_1 family aggregation under pre-1986 act sec_382 a general structure of the statute prior to the amendment of sec_382 by the act sec_382 contained separate rules for ownership changes resulting from purchases and redemptions see former sec_382 and those resulting from corporate_reorganizations see former sec_382 under the purchase rules of former sec_382 ownership changes were ascertained by reference to the holdings of the largest shareholders at the end of the corporation’s taxable_year as compared to their holdings at the beginning of such taxable_year or the preceding_taxable_year former sec_382 and as noted supra part i b the members of an individual’s family described in sec_318 to which sec_382 refers are his spouse children grandchildren and parents regarding the possible significance of the conferees’ reference to grandparents in lieu of grandchildren see infra part iii e b family attribution and aggregation intrafamily sales were excluded from the operation of former sec_382 by means of stock attribution as opposed to shareholder aggregation rules specifically purchases of stock from persons whose stock ownership would be attributed to the purchaser under the family_attribution_rules of sec_318 were ignored for purposes of determining whether an ownership_change by purchase had occurred see former sec_382 and although family members were potentially subject_to aggregation for purposes of determining the largest shareholders at yearend that rule applied only if loss_corporation stock owned by one was attributed to the other under the family_attribution_rules of section dollar_figure former sec_382 and for that reason the aggregation rule_of former sec_382 unlike the aggregation rule_of sec_382 necessarily applied as of the date on which stock ownership was measured in the case of former sec_382 at yearend accordingly no inference can be drawn from former sec_382 as to whether as respondent maintains the identification of the individuals whose family members are aggregated under sec_11 persons aggregated under former sec_382 were then disaggregated for purposes of measuring changes in stock ownership see former sec_1 a -1 d i income_tax regs as revised in thus the actual number of persons whose stock ownership was subject_to scrutiny at yearend could be greater than l a i occurs as of the date on which stock ownership is measured practical consequences of each party’s interpretation of sec_382 a petitioner’s interpretation under petitioner’s interpretation of sec_382 an individual would be aggregated with and therefore could without any sec_382 consequences sell loss_corporation shares to not only his spouse children grandchildren and parents but also his siblings nephews nieces grandparents in-laws great-grandchildren aunts uncles first cousins and great-grandparentsdollar_figure it is difficult to believe that congress intended to expand the scope of exempted intrafamily sales so significantly as compared to both the then- existing version of sec_382 see supra part iii d b and the house and senate versions of revised sec_382 see supra as a member of each parent’s family ie in his capacity as a child of those parents an individual would be aggregated with his parents’ children his siblings grandchildren his nephews and nieces and parents his grandparents as a member of his spouse’s family ie in his capacity as her spouse an individual would be aggregated with his spouse’s parents his mother- and father-in-law as a member of each child’s family ie in his capacity as a parent of those children an individual would be aggregated with each child’s spouse his sons- and daughters-in-law and grandchildren his great-grandchildren as a member of each grandparent’s family ie in his capacity as a grandchild of those grandparents an individual would be aggregated with his grandparents’ children his aunts and uncles grandchildren his first cousins and parents his great-grandparents see sec_382 sec_318 note with nary a mention of that objective in the pages devoted to sec_382 in the conference_report b respondent’s interpretation respondent’s interpretation of sec_382 is perhaps even more troubling than petitioner’s first it has the potential for being just as expansive as petitioner’s interpretationdollar_figure more importantly respondent’s interpretation leads to arbitrary distinctions as relevant to this case respondent would have us believe that the ability of siblings to sell loss_corporation shares among themselves without any sec_382 consequences is wholly dependent on the continued good health of their parents we see no rational basis for congress’s having drawn a distinction in this context between siblings whose parents happen to be living and those whose parents happen to be deceased the former are no more related than the latter e a third interpretation introduction our own analysis of the legislative evolution of sec_382 leads us to believe that both parties have erroneously interpreted that provision for the reasons discussed below we conclude that congress most likely intended respondent’s interpretation of the statute differs from petitioner’s in that respondent would require that the relevant parent spouse child or grandparent of the individual in question be living when stock ownership is measured see supra note the aggregation rule_of sec_382 to apply solely from the perspective of individuals who are shareholders as determined under the attribution_rules of sec_382 of the loss corporationdollar_figure in practical terms our conclusion dictates that we sustain respondent’s determination in this case even though we disagree with his interpretation of the statute act revisions to sec_382 a relevant fundamental changes to the statute among other things sec_621 of the act replaced the purchase rules of former sec_382 with the concept of the owner shift defined broadly to include any change in the respective ownership of the stock of a corporation sec_382 the occurrence of an owner shift involving a percent shareholder see sec_382 k is one of two occasions for opening the corporation’s stock transfer books to determine whether the aggregate percentage ownership_interest of one or more such shareholders has increased by more than percentage points within the relevant lookback testing perioddollar_figure see sec_382 i while the owner shift in other words composite shareholders are to be constructed only around individuals who directly or indirectly through an entity or by means of an option own shares of the loss_corporation the other such occasion is the occurrence of an equity_structure_shift in general most corporate_reorganizations see sec_382 trigger presupposes some type of transaction in the stock of the loss_corporation see h conf rept vol ii supra at ii-174 c b vol pincite the requisite increase in stock ownership within the resulting testing_period need not be attributable to a purchase redemption or indeed any transaction in which shares actually change hands see sec_382 and b b consequences for family attribution changes in family status under a system in which an increase in one’s percentage ownership of a corporation need not be associated with a transaction in which shares actually change hands a straightforward application of the family_attribution_rules of sec_318 could produce artificial ownership increases ie ownership increases solely attributable to changes in family status for instance under the attribution_rules the ownership percentage of an individual who marries the sole shareholder of a loss_corporation would thereby increase from zero to percent if the wedding occurred during a testing_period which could be triggered for instance by the subsequent issuance of a relatively small number of additional shares to a key_employee then the increase in the nonshareholder spouse’s deemed ownership percentage would result in an ownership changedollar_figure a similar result presumably would occur if the shareholder legally adopted someone during a testing_period see sec_318 c house bill provision regarding changes in family status the house version of revised sec_382 provided that the family attribution rule_of sec_318 would apply by assuming that the family status as of the close of the testing_period was the same as the family status as of the beginning of the testing_period h_r 99th cong 1st sess sec a provision designated as sec_382 although the report of the committee on ways and means accompanying the house bill provides no additional insight see h rept pincite 1986_3_cb_1 the practical effect of that provision would have been to eliminate the possibility that a change in family status during a testing_period could in and of itself contribute to an ownership changedollar_figure the conference committee in addition to substituting note that the foregoing problem did not arise under former sec_382 since the nonshareholder spouse’s ownership increase would not have been attributable to a purchase see former sec_382 returning to our marriage hypothetical under the house bill’s provision the couple’s relationship on the testing_date would have been deemed to be the same as it was at the beginning of the testing_period ie not married with the result that the nonshareholder spouse’s ownership percentage would have been deemed to be zero throughout the testing_period family aggregation for family attribution dropped the provision in the house bill regarding changes in family statusdollar_figure d observations in the context of the parties’ arguments in this case the conference committee’s excision of the house bill provision regarding changes in family status is somewhat puzzling specifically under each party’s interpretation of sec_382 the family aggregation rule adopted by the conferees would produce the same artificial ownership increases that the house bill provision eliminated in the context of attribution in terms of our marriage hypothetical the addition of the shareholder spouse to the nonshareholder spouse’s family unit during the testing_period would increase the ownership percentage of that family unit by percentage points during that period if however the family aggregation rule applies solely from the perspective of shareholders of the loss_corporation there would be no separate family unit headed by the nonshareholder spouse in our hypothetical and consequently no increase in ownership attributable to the marriage and no need for the remedial provision contained in the house bill under that interpretation of the family aggregation rule the the senate version of the bill contained no such provision providing instead for the application of the family_attribution_rules of sec_318 without modification h_r 99th cong 2d sess sec_621 provision designated as sec_382 conference committee’s excision of the house bill’s family status provision makes perfect sensedollar_figure revisiting the language of the statute that our interpretation of sec_382 provides a cogent explanation for the conference committee’s action is of no consequence if a plain reading of the statute does not permit that interpretation see supra part iii a the use of the term individual in sec_382 however does not preclude a contextual interpretation pursuant to which the set of individuals contemplated by congress ie individuals who own shares of the loss_corporation is smaller than the universe of all possible individuals ie all living beings more importantly we are satisfied that our interpretation proceeds from an entirely natural reading of the statute given a stock ownership rule that operates by reference to an individual and other persons who are defined in terms of their relationship to we recognize that even if the family aggregation rule were not limited to shareholders the tiebreaker rule_of sec_1_382-2t temporary income_tax regs fed reg would preclude the artificial ownership increase illustrated above by treating the shareholder spouse as a member of his own family rather than that of the nonshareholder spouse see supra part i c of course that regulation was not in existence when the conference committee acted on h_r accordingly it is not relevant to our analysis of such committee action regarding the remedial effect of the regulation under our interpretation of the family aggregation rule see infra part iii e that individual it is hardly a stretch to surmise that the rule presupposes the shareholder status of the referenced individual revisiting the conference_report having concluded that our interpretation of sec_382 does not do violence to the plain language of the statute we return to the legislative_history to determine whether it is any more supportive of our view than it is of the views of the parties as indicated above see supra part iii c and note the conference_report contradicts the statutory language by including an individual’s grandparents rather than his grandchildren among the family members who are aggregated for purposes of sec_382 if that disconnect were attributable to a simple typographical error one might reasonably expect that the subsequently issued report of the joint_committee on taxation explaining the act the so- called blue_book would point out the error see eg staff of joint comm on taxation general explanation of tax legislation enacted in the 104th congress pincite ndollar_figure j comm print noting that the conference_report accompanying h_r the bill eventually enacted as the small_business job protection act of mistakenly refers to the lessee rather than the lessor in the context of new sec_168 the blue_book for the act however retains the reference in the conference_report to grandparents in the context of sec_382 staff of joint comm on taxation general explanation of the tax_reform_act_of_1986 pincite j comm print as is the case with the conference committee’s excision of the family status provision of the house bill see supra part iii e d the substitution of grandparents for grandchildren in the conference_report makes perfect sense if the family aggregation rule applies solely from the perspective of individuals who are shareholders of the loss_corporation sec_318 to which sec_382 refers is phrased in terms of the family members spouse children grandchildren and parents from whom shares are attributed the converse of that rule is that shares owned by an individual are attributed to that individual’s spouse parents grandparents and children the substitution of grandparents for grandchildren in the conference_report reiterated in the blue_book therefore suggests that congress intended individuals to be aggregated with the same family members to whom their shares would otherwise be attributed under sec_318 which in turn suggests that congress intended the family aggregation rule to apply from the perspective of individuals who are shareholders of the loss corporationdollar_figure revisiting the regulations having concluded that our interpretation of the family aggregation rule does not violate the plain_meaning_rule and arguably finds support in the legislative_history of sec_382 we would nonetheless be hard pressed to adopt that interpretation if it were inconsistent with respondent’s year-old legislative regulations see eg 467_us_837 see also sec_382 directing the secretary to prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section as is the case with the statute see supra part iii e the language of the relevant regulation presents no such obstacle see sec_1 2t h temporary income_tax regs supra pincite6 nor does our interpretation of the statute render superfluous the tiebreaker rule_of paragraph h iv of the above-cited regulation see supra note to the contrary that rule serves the useful purpose of precluding purely vicarious ownership increases that could otherwise occur under we do not mean to suggest that sec_382 should be interpreted as incorporating a modified version of sec_318 ie one that substitutes grandparents for grandchildren such an interpretation presumably would violate the plain_meaning_rule see supra part iii a our interpretation of the statute as well as those of the parties for instance if a husband and wife each own shares of a loss_corporation and the husband purchases additional shares from his mother the ownership percentage of the family unit centered on the wife would increase as a result of the otherwise exempt transactiondollar_figure the tiebreaker rule precludes that result by treating the wife as a member_of_the_family unit centered on her husband rather than a member_of_the_family unit centered on her since such inclusion would result in the smallest increase zero in percentage ownershipdollar_figure see supra part i c supra note iv conclusion we hold that the family aggregation rule_of sec_382 applies solely from the perspective of individuals who are shareholders as determined under the since the purchased shares would be included in the holdings of the family unit centered on the husband both before and after the sale the percentage ownership of the husband- centric family unit would remain unchanged however since the purchased shares would not be included in the holdings of the family unit centered on the wife until after the sale the percentage ownership of the wife-centric family unit would increase as a result of the sale a similar result would occur if the purchaser’s child rather than his wife were a shareholder as is the case with changes in family status see supra note this problem did not arise under former sec_382 since the vicarious ownership increase would not have been attributable to a purchase by the wife see former sec_382 attribution_rules of sec_382 of the loss_corporation inasmuch as an individual shareholder’s family consists solely of his spouse children grandchildren and parents for these purposes sibling shareholders are not aggregated under sec_382 if none of their parents and grandparents is a shareholder of the loss corporationdollar_figure since kenneth and charles were not children or grandchildren of an individual shareholder of petitioner at any relevant time they are not aggregated for purposes of applying sec_382 to the facts of this case it follows that charles’s purchase of shares from kenneth in resulted in an ownership_change with respect to petitioner as contemplated in sec_382 we recognize that our interpretation of the statute suggests a distinction between siblings who are the children or grandchildren of a shareholder and those who are not a distinction that is arguably just as arbitrary as the distinctions resulting from respondent’s interpretation of the statute see supra part iii d b that problem would not arise if the tiebreaker rule_of sec_1_382-2t temporary income_tax regs supra pincite6 were inapplicable in any instance in which such application would have the effect of exempting a transaction such as a sale between siblings that otherwise would have increased the percentage ownership of the purchaser’s family unit cf sec_1_382-4 income_tax regs rules treating an option as exercised do not apply if a principal purpose of the option is to avoid an ownership_change by having it treated as exercised t d 2003_2_cb_510 discussing the need for additional regulations dealing with changes in family composition in the context of sec_382 to reflect the foregoing decision will be entered for respondent and in accordance with the parties’ stipulations as to the correct amount of petitioner’s income_tax deficiencies


department of the treasury internal_revenue_service te_ge eo examinations commerce street ms dal dallas tx date tax_exempt_and_government_entities_division number release date uil legend org organization name xx date address address org address dear taxpayer_identification_number person to contact id number contact numbers telephone fax internal_revenue_code sec_501 last date for filing a petition with the tax_court this is a final adverse determination as to your exempt status under sec_501 of the internal_revenue_code our adverse determination was made for the following reasons failure to provide records of the organization and failure to meet the reporting requirements under sec_6001 and sec_6033 of the internal_revenue_code exemption from income_tax is a matter of legislative grace and taxpayers have the burden of establishing their entitlement to exemptions sec_6033 requires organizations exempt from tax to keep such records and render such statements as are required by such rules and regulations as the secretary may prescribe sec_1_6033-2 h requires organizations exempt from tax to submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into the organization’s exempt status despite numerous requests to you to provide information to conduct an examination of your form_990 for the year ended 20xx no requested information has been provided to us in addition you have not filed forms 990-pf or for the taxable_year ended june 20xx or any subsequent taxable periods based on the above we are revoking your organization's exemption from federal_income_tax under sec_501 of the internal_revenue_code effective july 20xx you are required to file form_1120 u s_corporation income_tax return these returns should be filed with the appropriate service_center for the year ending june 20xx and all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or if you prefer you may contact the local taxpayer_advocate at taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling a petition in the united_states tax_court we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter marsha a ramirez director eo examinations sincerely yours tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service mail stop po box ogden ut taxpayer_identification_number form 990pf tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely lizbeth chatterton revenue agent-exempt organizations enclosures publication publication report of examination letter catalog number 34809f form 886-a rev date explanations of items schedule number or exhibit tax identification_number year period ended name of taxpayer org 20xx06 legend org organization name xx date issue whether org qualifies for exemption under sec_501 of the internal_revenue_code facts exhibit a provides copies of the internal_revenue_service correspondence to exempt_organization eo requesting that exempt_organization file the form 990pf for the tax period ending june 20xx eo advised returns would be filed n summary of exhibit a contact type correspondence sent date sent certified mail yn receipt signed n n n n n n y law letter letter letter unclaimed initial letter oxx follow up letter day follow up letter org failed to respond to the internal_revenue_service correspondence or file the form_990 for the tax period ending june 20xx sec_1_6001-1 in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person sec_6001 provides that every person liable for any_tax imposed by the irc or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended 20xx06 org schedule number or exhibit in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6033-1 provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax organization’s position form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev date schedule number or exhibit explanations of items name of taxpayer tax identification_number year period ended 20xx06 org due to the lack of response the organization’s position is unknown conclusion it is the irs's position that the organization failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 furthermore the organization has failed to establish that it continues to qualify for tax exempt status accordingly the organization's exempt status is revoked effective june 20xx form s u s_corporation income_tax return should be filed for the tax periods ending on or after june 20xx publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page


internal_revenue_service department of the treasury index number washington dc person to contact number release date telephone number refer reply to cc dom p si br 1-plr-115831-99 date date legend prs feeder1 feeder2 manager trust state date1 date2 a b c d e f plr-115831-99 this responds to your representatives’ letter dated date and subsequent correspondence written on behalf of prs requesting rulings under sec_704 of the internal_revenue_code facts manager and its affiliates currently provide investment management services to three separate mutual_fund families manager plans on consolidating the operations of the three fund families using a master-feeder structure under the master-feeder structure each portfolio the feeders invests percent of its assets into a corresponding master structured as a partnership where the assets are managed in accordance with the established investment guidelines which mirror that of the feeders the master partnership then allocates the net_investment_income and realized and unrealized gains to the feeders on a daily basis the key benefit of this structure is that it allows mutual funds with the same investment objectives to pool their assets and be managed as a single portfolio thereby creating economies of scale while allowing each feeder to be marketed individually manager plans on consolidating the three fund families under master partnerships created as series of trust prs is one such master partnership it was formed on date1 as part of a new series of trust and represents that it will be treated as a partnership for federal tax purposes under sec_301_7701-2 and sec_301_7701-3 of the administration and procedure regulations in accordance with the master- feeder arrangement prs represents a segregated portfolio to be managed in accordance with its stated objective by investing in a portfolio of securities for accounting purposes prs maintains separate books records and operating results from other partnerships created as part of trust’s new series moreover prs will not have an interest in any of the other partnerships created as part of trust’s new series because currently all three fund families do not offer identical series of funds each newly created master partnership may not have funds from all three fund families as partners prs will maintain a single book and tax capital_account for each of its partners the initial balance of each partner’s book capital_account will reflect the amount of money and the fair_market_value of the property contributed to prs and the initial balance of each partner’s tax capital_account will reflect the money and adjusted tax basis of the property contributed to prs prs will revalue its investment portfolio to fair_market_value as of the close of each day prs will adjust each partner’s book capital_account to reflect the partner’s share of the net change in the value of its portfolio of securities from the close of the prior day to the close of the current day prs will use the partial netting method of making aggregate reverse sec_704 allocations plr-115831-99 prs also represents that it will be registered as an open-end management company under the act substantially_all of its property will consist of readily tradeable securities allocations of taxable_income gain loss deduction and credit will comply with the regulations promulgated under sec_704 and c it will qualify as a securities_partnership within the meaning of sec_1_704-3 of the income_tax regulations and prs’s revaluations and the corresponding allocations of tax items are not made with a view toward shifting the tax consequences of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the partner’s aggregate tax_liability prs’s partners are feeder1 and feeder2 feeder1 will contribute assets with a fair_market_value on date2 of approximately a and a built-in_gain on date2 of approximately b consisting of a gross built-in_gain of c and a gross built-in_loss of d feeder2 will contribute cash in the amount e prs anticipates that it may add new partners in the future any future partners may contribute securities with built-in_gain or loss to prs but only if the securities are consistent with prs’s stated objective any new partner must satisfy the following criteria the partner is registered under the act and qualifies as a qualified contributor the contribution is made and accepted for valid business purposes and prs will document any subsequent contribution on its tax_return prs requests rulings that its method of making reverse sec_704 allocations is reasonable under sec_1_704-3 and that it may aggregate built-in gains and losses from qualified_financial_assets contributed to it by a partner with built-in gains and losses from revaluations of qualified_financial_assets held by it for purposes of making sec_704 and reverse sec_704 allocations law and analysis sec_704 provides that income gain loss and deduction with respect to property contributed to the partnership by a partner is shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair_market_value at the time of contribution sec_1_704-3 states that the purpose of sec_704 is to prevent the shifting of tax consequences among partners with respect to pre-contribution gain_or_loss under sec_704 a partnership must allocate income gain loss and deduction with respect to property contributed by a partner to the partnership so as to take into account any variation between the adjusted tax basis of the property and its fair_market_value at the time of contribution this allocation must be made using any reasonable method that is consistent with the purpose of sec_704 sec_1_704-3 provides that the principles of sec_1_704-3 apply to allocations with respect to property for which differences between book_value and plr-115831-99 adjusted tax basis are created when a partnership revalues partnership property pursuant to sec_1_704-1 reverse sec_704 allocations a partnership that makes allocations with respect to revalued property must use a reasonable method that is consistent with the purposes of sec_704 and c sec_1_704-3 provides that an allocation method or combination of methods is not reasonable if the contribution of property or event that results in reverse sec_704 allocations and the corresponding allocation of tax items with respect to the property are made with a view to shifting the tax consequence of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the partners’ aggregate tax_liability sec_704 generally applies on a property-by-property basis sec_1_704-3 therefore in determining whether there is a disparity between adjusted tax basis and fair_market_value the built-in gains and built-in losses on items of contributed or revalued property generally cannot be aggregated sec_1_704-3 sets forth a special rule allowing certain securities partnerships to make reverse sec_704 allocations on an aggregate basis specifically sec_1_704-3 provides that for purposes of making reverse sec_704 allocations a securities_partnership may aggregate gains and losses from qualified_financial_assets using any reasonable approach that is consistent with the purpose of sec_704 once a partnership adopts an aggregate approach the partnership must apply the same aggregate approach to all of its qualified_financial_assets for all taxable years in which the partnership qualifies as a securities_partnership sec_1_704-3 defines qualified_financial_assets as any personal_property including stock that is actively_traded as defined in sec_1_1092_d_-1 defining actively_traded personal_property for purposes of the straddle rules sec_1_704-3 defines a securities_partnership as a partnership that is either a management company or an investment_partnership and that makes all of its book allocations in proportion to the partners' relative book capital accounts sec_1_704-3 and v describe two approaches to making aggregate reverse sec_704 allocations that are generally reasonable - the partial netting approach and the full netting approach sec_1_704-3 provides that to use the partial netting approach the partnership must establish appropriate accounts for each partner for the purpose of taking into account each partner’s share of the book gains and losses and determining each partner’s share of the tax gains and losses under the partial netting approach on the date of each capital_account restatement the partnership a nets its book gains and losses from qualified_financial_assets since the last capital_account restatement and plr-115831-99 allocates the net among its partners b separately aggregates all tax gains and all tax losses from qualified_financial_assets since the last capital_account restatement and c separately allocates the aggregate tax gain and aggregate tax loss to the partners in a manner that reduces the disparity between book capital_account balances and the tax capital_account balances book-tax disparities of the individual partners sec_1_704-3 only applies to reverse sec_704 allocations thus a securities_partnership using an aggregate approach must generally account for any built-in_gain or loss from contributed_property separately the preamble to sec_1_704-3 explains that the final regulations do not authorize aggregation of built-in gains and losses from contributed_property with built-in gains and losses from revaluations because this type of aggregation can lead to substantial distortions in the character and timing of income and loss recognized by contributing partners t d 1995_1_cb_120 however the preamble also recognizes that there may be instances in which the likelihood of character and timing distortions is minimal and the burden of making sec_704 allocations separate from reverse sec_704 allocations is great id consequently sec_1_704-3 authorizes the commissioner to permit by published guidance or by letter_ruling aggregation of qualified_financial_assets for purposes of making sec_704 allocations in the same manner as that described in sec_1_704-3 in this case prs’s burden of making sec_704 allocations separate from reverse sec_704 allocations is substantial feeder1 and feeder2 will contribute approximately f different assets to prs unless the commissioner permits prs to aggregate sec_704 gains and losses with reverse sec_704 gains and losses prs will have to track most of the unrealized gains and losses from revaluations on a property-by-property basis tracking most of the unrealized gains and losses from revaluations on a property-by-property basis largely nullifies the benefits of the aggregate approach for making reverse sec_704 allocations the tax characteristics of prs's partners the size of their interests in prs and the characteristics of the assets to be contributed to prs reduce the likelihood of abuse of an aggregate approach accordingly based on the facts presented and the representations made we conclude that prs may aggregate built-in gains and losses from qualified_financial_assets contributed to prs by its partners with built-in gains and losses from revaluations of qualified_financial_assets held by prs for purposes of making sec_704 and reverse sec_704 allocations in addition prs's use of the partial netting method of making sec_704 allocations is reasonable within the meaning of sec_1_704-3 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning prs’s classification as a partnership for federal tax purposes the steps taken in the consolidation of fund plr-115831-99 families into prs or the tax consequences of any partner’s contribution of assets to prs additionally this ruling applies only to the contributions to prs for which the taxpayer supplied specific information concerning the fair_market_value and the built-in_gain and loss in the contributed assets as outlined above and not to any other contributions by any current or future partner this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to prs’s two authorized representatives sincerely signed david r haglund david r haglund senior technician reviewer branch office of the assistant chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------ --------------------------------------- ----------------------------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ---------------------------------------------------- telephone number ------------------- refer reply to cc corp b06 plr-108798-13 date july legend parent ----------------------------------------------------------------------------------- ------------------------------------------------------------------------- sub ------------------------------------------------------------------ -------------------------------------------------------------------------- sub --------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - date -------------------------- company official ------------------------------------------------------------------------- ------------------------------------------------------------- tax professional ---------------------------------------------------- dear ---------------- this letter_ruling responds to a letter from your authorized representatives dated date as supplemented by additional information provided on date date and date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election the extension is being requested for parent and its subsidiaries 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 hereinafter referred to as the election effective for the taxable_year ending on date the material information provided is summarized below plr-108798-13 parent is the common parent of an affiliated_group consisting of parent sub and sub each a calendar_year taxpayer parent and its subsidiaries intended to file a consolidated_return starting with the taxable_year ending date the election was due on the last day prescribed by law including extensions for the filing of parent’s return but for various reasons a valid election was not made subsequently this request was submitted under penalties of perjury for an extension of time to make the election the period of limitations on assessment under sec_6501 has not expired for the parent group’s taxable_year for which they want to make the election or any taxable years that would be affected by the election had it been timely filed parent has represented that it is not seeking 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 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 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 plr-108798-13 election the information establishes 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 based on the facts and information submitted including the affidavits submitted and 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 the parent group qualifies substantively to file a consolidated_return for the applicable_taxable_year an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file the election the parent group having already filed such a return must attach a copy of this ruling letter to such return or if the parent group files the return electronically must attach a statement to the return that provides the date and the control number of this ruling letter the above extension of time is conditioned on the parent group's and each of its members' tax_liabilities if any not being lower in the aggregate for all years to which the election applies than they would have been if the election had been timely made taking into account the time_value_of_money we express no opinion as to the parent group's or any of its members' tax_liabilities a determination thereof will be made by the director's office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether taxpayer qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by taxpayer company official and tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable 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 plr-108798-13 pursuant to the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely ken cohen ken cohen senior technician reviewer branch office of associate chief_counsel corporate