number release date index uil no case-mis no director lmsb rfph internal_revenue_service national_office technical_advice_memorandum date third party communication none date of communication not applicable tam-111149-04 taxpayer's name taxpayer's address taxpayer's identification no year s involved date of conference -------------------------------- ------------------ ----------------------------------- ---------------- -------------------- ------------------------- legend taxpayer -------------------------------- year ------- year ------- b ----- c ----- d ---- e -------- f --------- tam-111149-04 dollar_figurea --- year ------- g ----- h ------- i -- j --- k --- l --- issues whether an accrual basis taxpayer may exclude contractual allowances from total receivables in determining gross_income under sec_451 of the internal_revenue_code if so what amount may be properly taken into account as contractual allowances whether an accrual basis taxpayer may use estimates to determine the amount of contractual allowances which may be taken into account in determining gross_income whether the taxpayer under the facts of this case may use estimates to determine the amount of contractual allowances taken into account in determining gross_income assuming the taxpayer has sufficient information available at the close of the taxable_year to determine the exact amount of contractual allowances conclusions an accrual basis taxpayer generally may exclude contractual allowances from total receivables in determining gross_income if there exists at the time a service is performed or a good is provided a legally enforceable contract that provides that the payor incurs a liability for any particular service good in an amount that is less than the standard billed charge for the same service good where no such contract exists at the time the service is performed or the good provided however no exclusion for a contractual allowance is warranted tam-111149-04 the amount which may be properly taken into account as a contractual allowance consists solely of the difference between the amount that is billed for a service good and the amount which the taxpayer may legally collect from the responsible payor under the terms of a legally enforceable contract in existence at the time the service is performed or good is provided an accrual basis taxpayer may use estimates to determine the amount of contractual allowances to the extent the use of estimates results in gross_income determined with reasonable accuracy under sec_451 of the code in all cases where estimates are properly used and the exact amount is subsequently determined the difference if any shall be taken into account for the taxable_year in which such determination is made the taxpayer may use estimates to determine the amount of contractual allowances to the extent the use of estimates results in gross_income determined with reasonable accuracy under sec_451 of the code whether the taxpayer’s particular methods of estimating the amount of contractual allowances meet the reasonable accuracy standard is a question of fact to be determined by the field the taxpayer must show that its estimates are reasonably accurate facts during year and year the taxpayer through its subsidiaries and its affiliates operated approximately b to c ------------ and other medical facilities the taxpayer’s medical facilities had approximately d million active patient accounts at the end of year and year the taxpayer’s primary source of revenue is remuneration for the provision of medical services to patients at the medical facilities the term services includes the provision of medical devices prescription drugs and other items that are necessary to provide proper medical treatment to each patient the taxpayer receives payment for its medical services from the government third-party payors ie managed care payors and patients as a patient is treated in the taxpayer’s medical facilities the taxpayer records locally determined standard charges eg a standard per_diem charge for the ---------------------- ---------------------------------------------------------------------------------------------------------------- in its books for the medical services provided these standard charges are determined by each medical facility and change over time typically on an annual basis the taxpayer’s medical facilities are not owed or entitled to receive the recorded standard charges except with respect to certain self-pay patient accounts which happens infrequently tam-111149-04 each medical facility has managed care contracts with third-party payors who insure patients these contracts incorporate one or more insurance plans i-plans these contracts are typically negotiated between each medical facility and the third-party payors in some cases the contracts are negotiated on behalf of the taxpayer’s medical facilities on a regional basis rather than by each individual medical facility the taxpayer’s medical facilities in the aggregate have more than e managed care contracts and these contracts incorporate approximately f i-plans managed care contracts are typically renegotiated every g to h years these managed care contracts and i-plans establish the reimbursement terms that govern the amount a particular medical facility is owed and is entitled to receive for covered medical services each managed care contract i-plan contains distinct reimbursement rates and formulas for example certain medical services may be reimbursed on a case rate basis eg a flat rate reimbursement for all cardiac-related services provided during the patient’s stay others on a per_diem basis a diagnostic related group drg basis a cost-plus basis or a combination of these and other reimbursement methodologies in addition other managed care contact i-plan terms such as stop-loss provisions ie provisions that change the method of reimbursement if gross charges for a particular service exceed a threshold_amount may determine the reimbursement for services rendered to particular patients after providing medical services to patients the taxpayer’s medical facilities submit bills to third-party payors and patients typically within i - j days after a patient is discharged from a medical facility that reflect standard charges for third-party payors the taxpayer uses an industry-wide billing format form -------- that summarizes the standard charges associated with the medical services provided to the patient the form ----------does not detail each medical service provided the taxpayer’s patient accounting system maintains this information for each patient and can prepare a more detailed listing of standard charges which can be provided to a patient upon request the difference between the standard charges and the amounts that the taxpayer’s medical facilities are owed and entitled to receive is referred to as a contractual allowance standard charges are reported net of contractual allowances as computed by the taxpayer in the taxpayer’s revenues and accounts_receivable this contractual allowance does not constitute bad_debt because the taxpayer is not entitled to receive the standard charge the taxpayer’s accounting for bad_debt adjustments is included in its computation of uncollectible amounts the taxpayer reported net patient service revenue as gross_receipts on line of its tax returns for year and year consistent with its financial statement reporting except for the following two adjustments i a schedule m-1 adjustment of dollar_figurea million in year that related to a schedule m-1 adjustment posted in year and ii exclusions under sec_448 of the code tam-111149-04 at the time of billing the taxpayer has in its possession the following information a the identity of the patient b any i-plan information whether or not correct provided by the patient c the nature of the medical services provided to the patient d the standard charges then associated with the medical services provided and e the terms of any managed care contract then in effect between the medical facility and the third- party payor and the historical payment experience if any with such third-party payor with respect to a particular i-plan the taxpayer’s medical facilities use computer programs to compute contractual allowances at the time of billing for governmental receivables and approximately k to l percent of managed care revenue the medical facilities use these computer programs in determining the expected payment due from a third-party payor for medical services provided to a particular patient by applying the reimbursement terms of the relevant i- plan this process is referred to as modeling managed care contractual allowances determined through modeling are reported in the patient accounts_receivable at the time of billing the taxpayer’s methodology for computing contractual allowances for accounts that are not modeled non-modeled accounts involves the use of estimates but the facts concerning the taxpayer’s exact methodology in determining and using the estimates is in dispute between the field and the taxpayer according to the field the taxpayer utilizes a general method_of_accounting for determining contractual allowances for non- modeled accounts as well as various specific accounting techniques specific accounting techniques range from unsupported opinion to application of historical collection percentages to monthly averaging and include items other than contractual allowances such as contingencies and collection issues according to the taxpayer however contractual allowances are determined using a ---------------------------------- ----- ----------- ------ process or substantially_similar process at each month end generally under the ------ process large balance patient accounts are analyzed on an account- by-account basis and small balance patient accounts are analyzed by comparing historic and modeled contractual allowance percentages for small patient accounts the modeled percentage is used as the most appropriate determinant but significant variances among the historic and modeled percentages are taken into account an additional facility-level adjustment referred to as a ---------accrual is sometimes necessary at month end under the ------- process to adjust for items such as routine administrative adjustments to patient accounts eg waivers of deductibles the field agrees conceptually with the manner in which the taxpayer accounts for contractual allowances for patient accounts that are modeled nether the propriety of utilizing modeling to determine a contractual allowance nor the manner in which the taxpayer utilized modeling during the relevant period including the amounts reported by the taxpayer on the respective tax_return net of contractual allowances determined thorough the modeling process are the subject of this tam request the field tam-111149-04 disagrees however with the taxpayer’s use of estimates to determine contractual allowances for certain non-modeled accounts law and analysis sec_451 of the code provides rules for determining the taxable_year of inclusion for items of gross_income sec_1_451-1 of the income_tax regulations provides that under an accrual_method of accounting_income is includible in gross_income in the taxable_year in which the all_events_test is met the two-prong all_events_test is met when all the events have occurred that fix the right to receive the income and the amount thereof can be determined with reasonable accuracy under the first prong of the all_events_test a fixed_right to receive income occurs when the required performance occurs payment is due or payment is made whichever happens first see revrul_74_607 1974_2_cb_149 when an amount of income is properly accrued on the basis of a reasonable estimate and the exact amount is subsequently determined the difference if any shall be taken into account for the taxable_year in which such determination is made in this case the field is challenging the taxpayer’s interpretation of the second prong of the all_events_test but not the first prong thus the field and the taxpayer agree that under the first prong the fixed_right to receive income occurs in the taxable_year in which the medical services are performed or goods are provided under the second prong the field and the taxpayer disagree on what standard is appropriate in determining the amount of contractual allowances and thus income with reasonable accuracy while the field and the taxpayer agree conceptually that contractual allowances may be excluded from total receivables in determining gross_income to the extent the rights to such contractual allowances are set forth under the terms of legally enforceable contracts the field and the taxpayer disagree on whether the amount of the contractual allowance can be determined using estimates or must be determined utilizing the actual contractual information available at the end of each taxable_year specifically the field argues that the taxpayer has on hand by the end of each taxable_year all the contractual information necessary to determine the exact amount of a contractual allowance on a contract by contract basis thus the field believes the taxpayer must use this contractual information rather than estimates to determine contractual allowances in order to meet the reasonable accuracy standard in contrast the taxpayer argues that the degree of accuracy necessary to constitute reasonable accuracy does not require taxpayers to measure income with precision thus the taxpayer argues that even when all information is available from which to make a precise determination if there were unlimited time and resources the courts and the service have taken into account the burden cost and complexity of precision in tam-111149-04 evaluating the reasonableness of a taxpayer’s approach and have not always required a precise determination neither the code nor the regulations under sec_451 or sec_461 define the term reasonable accuracy however courts have addressed the degree of accuracy required to meet the reasonable accuracy prong and have acknowledged that absolute precision is not necessary and the use of estimates is sometimes appropriate if the estimate is made on the basis of facts and procedures available to the taxpayer at the end of the taxable_year see 39_tc_846 w hile the word ‘accuracy’ means exactness or precision when used with ‘reasonable’ it implies something less than an exact or completely accurate amount 717_f2d_1304 9th cir in rejecting the argument that the reasonable accuracy prong does not permit the deduction of estimates the court stated the standard is reasonable accuracy rather than fixed definite and determinable by objective facts further where the use of estimates is appropriate reasonable accuracy can be determined on an aggregate basis rather than on a case by case basis see kaiser steel pincite 773_f2d_1224 fed cir court affirmed trial court’s holding that there was no need for actual ascertainment of the amount of liability on an employee by employee basis where a canvass of big_number employees was theoretically possible but would have been prohibitively expensive and overly burdensome rev’d on other grounds 481_us_239 n in one situation however the service held a taxpayer’s use of estimates was not sufficient to meet the reasonable accuracy standard and required the use of actual information available to determine the exact amount of income see revrul_81_176 1981_2_cb_112 where the exact amount of refund or additional payment due the taxpayer may be determined with reasonable accuracy at the end of the taxable_year because the taxpayer then has all the information necessary to readily calculate the exact amount of its compensation under the contract taxpayer is not entitled to make the determination using estimates whether a taxpayer’s method of estimating contractual allowances meets the reasonable accuracy standard is a question of fact see 518_f2d_772 9th cir w hether the amount of liability can be ‘determined with reasonable accuracy’ is a question which must be resolved by the trial_court upon evidence presented there accordingly as a general_rule accrual basis taxpayers may use estimates to determine the amount of contractual allowances to be excluded in determining gross_income to the extent the use of estimates results in gross_income determined with reasonable although this case involves the accrual of income under sec_451 the all-events test for determining the accrual of deductions under sec_461 also requires that the amount of the liability be determined with reasonable accuracy see sec_1_461-1 the service has acknowledged that the last event necessary to establish the fact of liability under the all-events test of sec_1_461-1 is the same event that fixes the right to receive income under the all-events test of sec_1_451-1 revrul_98_39 1998_2_cb_198 accordingly interpretations of the reasonable accuracy prong of the all-events test of sec_1 a i are applicable in analyzing the reasonable accuracy prong of the all-events test of sec_1_451-1 tam-111149-04 accuracy in this case the use of estimates may be appropriate whether the taxpayer’s particular methods of estimating the amount of contractual allowances meets the reasonable accuracy standard is a question of fact to be determined by the field in order to use estimates the taxpayer must show that its methods of estimating are reasonable and properly reflect actual experience if the taxpayer fails to do this the field may deny the taxpayer’s methods of estimating the amount of contractual allowances unless the taxpayer adopts a more reasonable method of estimating that is based on actual experience caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


qwhuqdo 5hyhqxh 6huylfh department of the treasury number release date index no in re attention washington dc person to contact telephone number refer reply to cc ita b06 - plr-112770-02 date date legend a b c d date date date date date date date x y dear this ruling is in reply to the letter and enclosures requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations for a to file a form_970 application to use lifo inventory_method on behalf of its subsidiary b which is to be effective for the tax_year ended date this request is made in accordance with sec_301_9100-3 c was incorporated on date six days later on date c acquired inventory and other assets from d in exchange for all of the stock of c in a transaction represented as described in sec_351 of the internal_revenue_code the inventory received had been consistently accounted for under the last-in_first-out lifo inventory_method by page the transferor since the x’s on date all of the stock of c was acquired by a from d c's name was changed to b a and its affiliated corporations file consolidated_returns accordingly c filed a separate_return for the period date to date thereafter b was included in a’s consolidated_return for the short_period date to date and for the year ended date c used the lifo_method to account for its inventory but failed to attach form_970 to its initial return to make a proper election as a result c reported its income using the lifo_method on its return for the year ended date b also used the lifo_method to account for its inventory for all tax periods beginning with date furthermore the lifo inventory_method was used for financial reporting purposes beginning with the period ending date a represents that the tax manager who was responsible for preparing c's income_tax return for the period ended date was not aware of the necessity to file form_970 where a sec_351 transaction is involved based on his experience in addition a paid tax preparer reviewed the return but signed it without form_970 attached b continued the lifo_method used by c without filing said form in mid y a discovered that form_970 had not been filed with c’s income_tax return for the period ended date on date a notified d that form_970 was not filed with c’s return soon thereafter a submitted this request for relief on behalf of its subsidiary b f k a c sec_472 provides that a taxpayer may use the lifo_method of inventorying goods specified in an application to use such method filed at such time and in such manner as the secretary may prescribed sec_1_472-3 of the income_tax regulations provides that the lifo inventory_method may be adopted and used only if the taxpayer files with its income_tax return for the tax_year as of the close of which the method is first to be used a statement of its election to use such inventory_method revrul_70_564 1970_1_cb_109 holds that a corporation that acquires inventories in a transfer under sec_351 must file a from in order to adopt the lifo inventory_method under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of the time to make a regulatory election under all subtitles of the code except subtitles e g h and i provided that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal revenue page bulletin an election is defined in sec_301_9100-1 to include a request to adopt change or retain an accounting_method or accounting_period sec_301_9100-2 sets forth rules governing automatic extensions for regulatory elections if the provisions of sec_301_9100-2 do not apply to a taxpayer’s situation the provisions of sec_301_9100-3 may apply sec_301_9100-3 sets forth the standards that the commissioner will use in determining whether to grant an extension of time to make a regulatory election it also sets forth information and representations that must be furnished by the taxpayer to enable the internal_revenue_service to determine whether the taxpayer has satisfied these standards the standards to be applied in this case are whether the taxpayer acted reasonably and in good_faith and whether granting relief would prejudice the interests of the government under sec_301_9100-3 a taxpayer that applies for relief for failure to make an election before the failure is discovered by the service ordinarily will be deemed to have acted reasonably and in good_faith however pursuant to sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested or if the taxpayer was informed in all material respects of the required election and related tax consequences but chose not to file the election furthermore a taxpayer ordinarily will not be considered to have acted reasonably and in good_faith if the taxpayer uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all tax years affected by the regulatory election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money likewise if the tax consequences of more than one taxpayer are affected by the election the government’s interests are prejudiced if extending the time for making the election may result in the affected taxpayers in the aggregate having a lower tax_liability than if the election had been timely made further the interests of the government are ordinarily prejudiced if the tax_year in which the regulatory election should have been made or any_tax years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under sec_301_9100-3 the information and representations furnished by a establish that it has acted reasonably and in good_faith in this request furthermore granting an extension will not prejudice the interests of the government accordingly an extension of time is hereby page granted for a to file form_970 on behalf of its subsidiary b for the tax_year ending date this extension shall be for a period of days from the date of this ruling please attach a copy of this ruling to the form_970 when it is filed no opinion is expressed as to the application of any other provisions of the code or the regulations which may be applicable to the transaction specifically no opinion is expressed regarding whether c acquired the inventory at issue in a sec_351 transaction 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 terms of a power_of_attorney on file with this office a copy of this ruling is being sent to a in addition a copy of this ruling is being sent to the second named authorized representative sincerely james atkinson deputy associate chief_counsel income_tax accounting cc


t c memo united_states tax_court kenneth w diercks petitioner v commissioner of internal revenue respondent docket no filed date kenneth w diercks pro_se david w sorensen for respondent memorandum opinion chiechi judge respondent determined the following deficiencies in and additions to petitioner's federal_income_tax additions to tax_year deficiency sec_6651 sec_6654 dollar_figure dollar_figure dollar_figure big_number big_number all section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure big_number big_number big_number big_number big_number big_number big_number big_number the issues for decision are did petitioner have unreported income for each of the years at issue we hold that he did is petitioner liable for self-employment_tax for each of the years at issue we hold that he is is petitioner liable for the addition_to_tax under sec_6651 for each of the years at issue we hold that he is is petitioner liable for the addition_to_tax under sec_6654 for each of the years at issue we hold that he is petitioner resided at sparks nevada at the time the petition was filed petitioner did not file a u s income_tax return for any of the years through during the years through petitioner worked and earned_income however he failed to keep records of the type or amount of work he performed or of the amount of income he received from his work during those years during the years at issue petitioner was married and had three children who lived with him and his wife bonnie diercks ms diercks at their residence residence and who attended school during those years petitioner owned an automobile and he ms diercks and their three children sought medical treat- ment as required during the years at issue rent paid on petitioner's residence equaled at least dollar_figure a month and utili- ties were paid at that residence in an application to rent that petitioner signed on date petitioner indicated that current monthly income was dollar_figure during and ms diercks received annual wages in the amounts of dollar_figure dollar_figure dollar_figure and dollar_figure respectively petitioner bears the burden of proving that respondent's determinations in the notice_of_deficiency notice are errone- ous rule a 290_us_111 sec_6001 requires all taxpayers to maintain sufficient records to enable respondent to determine their correct_tax lia- bilities in the absence of adequate books_or_records the com- putation of taxable_income shall be made under such method as in the opinion of the secretary does clearly reflect income sec_446 the choice of method to be used in reconstructing income lies with respondent 301_f2d_51 9th cir affg tcmemo_1959_117 31_tc_1269 affd in part and revd in part on another issue 283_f2d_871 6th cir in the notice respondent used the bureau of labor statis- tics to reconstruct petitioner's income this court and other courts have approved the use of those statistics as an acceptable and reasonable method of reconstructing income e g 786_f2d_1063 11th cir affg tcmemo_1984_536 54_tc_1530 petitioner admitted at trial that he worked and earned_income during the years at issue but he claimed that he earned no more than dollar_figure during each of those years however peti- tioner acknowledged at trial that during the years at issue he and his family lived at a residence for which the rent paid equaled at least dollar_figure a month he also admitted that utilities were paid at that residence in addition petitioner acknowl- edged at trial that during the years at issue he owned an automo- bile and that other normal living_expenses were paid for him and his family we found petitioner's testimony which was at times vague and evasive to be suspect we question petitioner's testimony that he earned no more than dollar_figure during each of the years at issue indeed petitioner's testimony that he earned no more than dollar_figure during each of the years at issue is inconsistent with other evidence in the record for example the application to rent dated date which he signed indicated current monthly income of dollar_figure even assuming arguendo that the current monthly income of dollar_figure that petitioner listed in the application to rent dated date were the combined current monthly income of ms diercks and himself the internal revenue service's information returns master_file transcript for continued on the record before us we find that petitioner failed to prove error in respondent's determinations that he had income in the amounts determined in the notice for each of the years through we further find on that record that petitioner failed to show that he is not liable for each of the years at issue for the addition_to_tax under sec_6651 the addition_to_tax under sec_6654 and self- employment_tax as determined in the notice accordingly we sustain respondent's determinations in the notice to reflect the foregoing decision will be entered for respondent continued ms diercks shows that ms diercks received wages of only dollar_figure for or approximately dollar_figure a month during that year


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 4-plr-122625-98 date re legend date settlor settlor child grandchild trust trust trust trust consolidated trust foundation state date date date dear this is in response to your letter of date and prior correspondence submitted by your authorized representative in which you request several rulings on the application of the generation-skipping_transfer gst tax provisions of chapter of the internal_revenue_code on date settlor created trust an irrevocable inter_vivos_trust for the benefit of child under the terms of trust the trustees are to pay the net_income of trust to child for life the trustees are also authorized to pay over to child such part or all of the trust principal as the trustees deem advisable at child’s death the trust terminates and the principal is to be distributed to child’s issue per stirpes if there are no issue of child then living the principal is to be distributed to settlor 1's issue per stirpes if there are no living issue of settlor then the proceeds are to be distributed to foundation if any child or grandchild of settlor living on the date of the creation of plr-122625-98 the trust date becomes entitled to any part of the principal upon trust’s termination then the trustee in his sole discretion may add the principal to the trusts settlor created concurrently for such child or grandchild instead of distributing such principal outright child died in and the trust corpus was distributed to trust which was created concurrently with trust for the benefit of grandchild under trust all trust income is to be paid to grandchild for life and the trustee has the discretion to distributed corpus as deemed advisable to grandchild on grandchild’s death the trust corpus is to be distributed to grandchild’s issue per stirpes if there are no issue of grandchild the principal is to be distributed to child’s issue per stirpes if child has no issue then the principal is to be distributed to settlor 1's issue per stirpes if there are no living issue of settlor then the proceeds are to be distributed to foundation settlor died on date trust a testamentary_trust was created under article third paragraph sec_5 a and of settlor’s will a separate share was set_aside for the benefit of child to be held as a separate trust child is to receive the net_income for life upon child’s death the net assets of the trust are to be divided into separate shares for her issue per stirpes under the trust terms if the beneficiary was not living at settlor 1's death that beneficiary’s share is to be paid outright if the beneficiary was living at settlor’s death then the beneficiary is to receive income_for_life and on the beneficiary’s death the corpus is to be divided into equal shares for each surviving issue of the beneficiary if the surviving issue was not living on the death of settlor the share is to be paid to that issue outright however if the issue was living at the death of settlor the share is to be held in further trust for the issue the issue is to receive income_for_life and at death the corpus is to pass to the beneficiary’s surviving issue per stirpes however if any male issue of child has predeceased him leaving a widow then surviving the trustees are directed to hold that share in trust for the benefit of the widow if no issue of child shall survive child but child leaves a widow the trustees are to hold the child’s entire share in trust for child’s widow if child dies leaving no issue or widow surviving but a widow or widows of one or more deceased male issue of child shall be surviving the trustees are to divide child’s share into separate and equal shares for each surviving widow or all for the survivor if the widow of only one deceased male issue shall be surviving a widow receives the income_for_life at her death the net assets pass to settlor 1's issue per stirpes provided that if any such issue is then a life_beneficiary of a_trust created under the will that issue’s share is to be added to the principal of that trust with respect to all trusts created under article third trustee has the absolute discretion to pay or apply to the use of the life_beneficiary any or all of the trust principal if there are no issue surviving then the net assets are to be paid to foundation grandchild was the only issue living at the date of death of child and is the current life_beneficiary under the provisions of trust settlor the wife of settlor established trust an irrevocable inter_vivos_trust for the benefit of child on date child is to receive income_for_life at child’s death trust is to be divided into separate trusts for the surviving issue of child per stirpes the issue for which the trust is established designated the primary beneficiary plr-122625-98 is to receive trust income_for_life on the death of the primary beneficiary the corpus is to be divided into equal shares per stirpes for the benefit of the primary beneficiary’s issue designated the secondary beneficiaries for life on the death of the secondary beneficiary the principal is to be distributed to the issue of the secondary beneficiary per stirpes if there is in existence under any trust agreement executed by settlor a_trust for the benefit of any issue of the secondary beneficiary who becomes entitled to receive trust corpus then the corpus is to be distributed to that trust rather than being paid outright to the beneficiary as noted child died in grandchild is currently the life_beneficiary of trust each trust created under the terms of the trust agreement must terminate in all event sec_21 years after the death of the last survivor of the individual beneficiaries living at the date of the agreement on termination the trust property is to be distributed to the then current life_beneficiary if child or a primary beneficiary or a secondary beneficiary has no surviving issue trust is to be divided into equal trust shares for the surviving issue of settlor if there are no surviving issue of settlor then the net assets are to be distributed to foundation the trustee has the absolute discretion to pay to or apply for_the_use_of the life_beneficiary such amounts of corpus as the trustee deems advisable it is represented that no issue of settlor and settlor were born between date1 and date all three trusts are administered under the laws of state under state law a trustee who is a beneficiary of the trust cannot exercise the trustees’ discretionary power to distribute trust corpus to himself or herself the trustees of trust sec_2 and propose to merge the trusts into consolidated trust consolidated trust will be governed by the laws of state and will contain substantially_similar provisions to trust trust and trust specifically a fraction of the consolidated trust will be set_aside to fund the contingent widow’s interest provided under trust in addition a separate share determined under a specified formula shall be set_aside and distributed outright at the death of grandchild to beneficiaries of trust and trust who were not living on date the trustees also propose to authorize the trustees to designate successor trustees under the proposal no more than three trustees may serve at any one time at least one trustee must not be a descendant of settlor no trustee who is a beneficiary of consolidated trust may participate in any determination by the trustees as to payment of principal to himself as a beneficiary consolidated trust will terminate years after the death of the last survivor of such individual beneficiaries living on date the date trust was established in all other respects the terms of consolidated trust will be identical to the terms of trust sec_2 and it is represented that consolidated trust will be administered under the laws of plr-122625-98 state you represent that the trust sec_2 and were created before date and that there have been no actual or constructive additions to the trusts after that date you have requested the following rulings trust sec_2 and are exempt from the gst tax imposed by sec_2601 because the trusts were irrevocable on or before date the proposed consolidation of trust sec_2 and into consolidated trust will not subject trust or or consolidated trust or any distributions from trust or or from the consolidated trust to the gst tax following the proposed consolidation of trust and into consolidated trust consolidated trust will be exempt from the gst tax the consolidation of trust and into consolidated trust will not constitute an actual or constructive_addition to any of the trusts sec_2601 imposes a tax on every generation-skipping_transfer under b a of the tax_reform_act_of_1986 the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the generation-skipping_transfer_tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that if an addition actual or constructive is made after date to an irrevocable_trust which is excluded from the application of chapter by b a of the act a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter sec_26_2601-1 provides that where any portion of a_trust remains in the trust after the post-date release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse describes constructive additions to trusts in certain situations involving powers of appointment and relief from liability a modification of a generation-skipping_trust that is otherwise exempt from gst tax under b of the act will generally result in a loss of its exempt or plr-122625-98 grandfathered status if the modification changes the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the terms of the trust in this case trust sec_2 and were created and irrevocable before date also it is represented that no additions actual or constructive have been made to the trusts since date consequently trust sec_2 and are currently exempt from gst tax as proposed the substantive and dispositive provisions of consolidated trust will be identical to those of trust sec_2 and in addition you represent that consolidated trust will be administered in accordance with the laws of state accordingly we conclude that the proposed merger of trust and into consolidated trust will not change the quality value or timing of any power beneficial_interest right or expectancy originally provided for under the terms of trust sec_2 and the provision regarding the power to name a successor trustee is administrative in nature and does not effect the quality value or timing of any beneficial_interest originally provided for under the terms of trust sec_2 and we conclude that the proposed transaction will not result in an actual or constructive_addition and will not cause trust sec_2 and or the new consolidated trust to be subject_to the provisions of chapter in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent enclosure copy for purposes sincerely yours assistant chief_counsel passthroughs and special industries by george masnik chief branch


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b01 njlee posts-106598-07 uilc date date to samuel berman senior attorney small_business self-employed from karin g gross senior technician reviewer branch income_tax accounting subject fallen firefighters assistance act issue this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issue are donations to an organization described in sec_2 of the fallen firefighters assistance tax clarification act of firefighters act charitable_contributions within the meaning of sec_170 conclusion yes legislative_history states that donations to an organization described in sec_2 of the firefighters act are intended by congress to be charitable_contributions within the meaning of sec_170 posts-106598-07 facts on date five u s forest service firefighters were killed in the line of duty as a result of a fire in southern california a charitable_organization received donations from the public that were intended for the families of the fallen firefighters law and analysis contributions to sec_501 organizations are generally tax deductible however contributions to a charitable_organization that are earmarked for the benefit of an individual are generally not deductible under sec_170 see eg revrul_62_113 1962_2_cb_10 on date the president signed legislation that clarified the treatment of payments by charitable organizations described in sec_509 or with respect to those firefighters who died as a result of the esperanza incident fire as exempt payments ie payments related to the purpose or function constituting the basis for such organization’s exemption under sec_501 sec_2 of the firefighters act publaw_109_445 although the language of the firefighters act does not address the deductibility of payments made to a charitable_organization pursuant to the act the legislative_history makes clear that congress intended such payments to be treated as charitable_contributions under sec_170 see cong rec h9300 daily ed date statement of rep lewis cong rec s11742 daily ed date statement of sen feinstein case development hazards and other considerations none please call karin g gross if you have any further questions


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br - plr-123146-02 date date legend x state d1 dear this responds to your letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 the shareholder of x intended that x elect to be treated as an s_corporation effective d1 however the election to be treated as an s_corporation was not timely filed law and analysis sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides when an s election becomes effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made if an election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year however sec_1362 provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determines reasonable_cause existed for the failure to plr-123146-02 timely make the election then the secretary can treat such an election as timely made for that taxable_year and effective as of the first day of that taxable_year in the present case x failed to timely elect s_corporation treatment effective d1 however x has established reasonable_cause for not making a timely election and is thus entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center 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 s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number -------------------- ------------------------------- -------------------------- -------------------------- ------------------------ department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc intl plr-146992-05 date date taxpayer legend legend ---------------------------------------------------------------------------------------------- ------------------------ -------------- --------------------- -------------------------- ------------------------------- de tax_year ------- individual a individual b law firm cpa firm -------------------------- country x ----------- dear -------------- this replies to your representative’s letter dated date in which your representative requests on behalf of taxpayer an extension of time under sec_301_9100-3 to file the election and agreement described in sec_1_1503-2t g i with respect to the dual_consolidated_loss incurred by de in tax_year the information submitted is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process taxpayer is the common parent of an affiliated_group_of_corporations filing consolidated u s federal_income_tax returns taxpayer owns percent of the outstanding_stock of de plr-146992-05 under sec_301_7701-3 de is disregarded for u s federal_income_tax purposes as an entity separate from taxpayer but is subject_to the country x corporate_income_tax as a result de is a hybrid_entity_separate_unit as defined in sec_1_1503-2 as a hybrid_entity_separate_unit de is treated as a dual_resident_corporation under sec_1_1503-2 and sec_1503 treats net operating losses generated by dual resident corporations as dual consolidated losses dcl de incurred a dcl in tax_year taxpayer used that dcl to offset its consolidated income for tax_year taxpayer’s tax department and individual a a certified_public_accountant prepared taxpayer’s consolidated u s federal_income_tax return for tax_year individual a did not advise taxpayer that de’s loss was a dcl or advise taxpayer to file the election and agreement required by sec_1_1503-2t g i with respect to that loss individual b is a lawyer with law firm an international law firm who provided advice to taxpayer with respect to certain transactions reported in taxpayer’s consolidated u s federal_income_tax return for tax_year however neither individual b nor law firm advised taxpayer or individual a that the loss of de was a dcl in addition they did not advise taxpayer to file the election and agreement required by sec_1_1503-2t g i with its consolidated u s federal_income_tax return for tax_year after taxpayer filed that return members of taxpayer’s tax department participated in a discussion with cpa firm regarding international tax issues including dcls the discussion alerted them that de’s loss might have been a dcl and that taxpayer had not filed the election and agreement with its consolidated u s federal_income_tax return for tax_year sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-146992-05 in the present situation the election and agreement described in sec_1 2t g i is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file the election and agreement described in sec_1_1503-2t g i with respect to the dcl incurred by de in tax_year the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the election and agreement described in sec_1_1503-2t g i with respect to the dcl incurred by de in tax_year sec_301_9100-1 a copy of this ruling letter should be associated with the election and agreement this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your first and second listed authorized representatives sincerely associate chief_counsel international by s richard l chewning richard l chewning senior counsel office of associate chief_counsel international enclosure copy for purposes