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 bo6 plr-136551-10 date date legend parent sub1 sub2 de1 de2 ------------------------------------------------------ ------------------------------------------------------ ------------------------------- ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ --------------------------- ------------------------------------------------------ ------------------------------------------------------ ------------------------------- ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ --------------------------------------- ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ --------------------------------------- plr-136551-10 de3 date1 date2 date3 date4 year1 year2 year3 year4 a b c d e f g day1 accountant ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ --------------------------------------- --------------------- --------------------- ----------------- --------------------- ------- ------- ------- ------- --------- ---- --------- -------- -------- -------- ----- ------------- ----------------------------------------- plr-136551-10 dear ----------- this replies to your letter dated date as submitted by your authorized representatives on behalf of parent and its subsidiaries requesting a ruling that the commissioner determine pursuant to sec_1_1502-75 of the income_tax regulations that the subsidiaries had joined in the making of parent’s consolidated_return for the period date3 through date4 the information in that letter and supplemental letters is summarized below summary of facts parent was formed on date1 to acquire the stock of sub2 parent formed sub1 on date2 to acquire the stock of sub2 prior to the acquisition by parent and sub1 of the sub2 stock sub2 had a shares of a single class of common_stock outstanding owned by b shareholders and sub2 was a member of a consolidated_group unrelated to parent on date3 parent acquired c shares e of the stock of sub2 and sub1 acquired the remaining d shares f of the stock of sub2 the acquisition did not qualify as a reverse_acquisition under sec_1_1502-75 as a result of the acquisition i parent owned g of the stock of sub1 and together with sub1 owned g of the stock of sub2 ii sub2 owned g of the equity interests in de1 and de2 and iii de1 and de2 together owned g of the equity interests in de3 de1 de2 and de3 are all disregarded as entities separate from sub2 under sec_301_7701-3 parent retained accountant to prepare the federal consolidated_returns for the group accountant prepared and parent timely filed the initial consolidated_return for the taxable_year ending date4 the initial consolidated_return did not contain any forms authorization and consent of subsidiary_corporation to be included in a consolidated_income_tax_return for any subsidiaries in addition sub1 was inadvertently omitted as a subsidiary on the initial consolidated_return although its income and deductions were included and from the form_851 affiliations schedule sub2 was omitted from form_851 and de3 was mistakenly included as a subsidiary_corporation on form_851 because at the time it was believed that form_8832 entity classification election had been filed and the election made to treat de3 as a corporation plr-136551-10 representations parent has made the following representations a each of parent sub1 and sub2 is a domestic entity that is taxable as a corporation b except for the failure_to_file form_1122 parent sub1 and sub2 were eligible to file a consolidated federal_income_tax return for the taxable_year beginning date3 and ending date4 and taxable years ending day1 of year2 year3 and year4 c the income and deductions of parent sub1 and sub2 were included in the timely filed parent consolidated_returns for the years ending day1 of year1 year2 year3 and year4 d a separate_return was not filed by parent sub1 or sub2 for the years ending day1 of year1 year2 year3 or year4 law sec_1501 of the code provides that the making of a consolidated_return shall be upon the condition that all corporations which at any time during the taxable_year have been members of the affiliated_group consent to all the consolidated_return_regulations prescribed under sec_1502 prior to the last day prescribed by law for the filing of such return the making of a consolidated_return shall be considered as such consent sec_1_1502-75 of the income_tax regulations provides that a group 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 during any part of the taxable_year for which the consolidated_return is to be filed consents to the regulations under sec_1502 sec_1_1502-75 provides that the consent of a corporation shall be made by such corporation joining in the making of a consolidated_return for such year a corporation shall be deemed to have joined in the making of such return for such year if it files a form_1122 in the manner specified in sec_1_1502-75 sec_1_1502-75 provides that if under the provisions of sec_1_1502-75 a group wishes to file a consolidated_return for a taxable_year then a form_1122 must be executed by each subsidiary the regulation provides rules for properly executing forms and attaching them to a consolidated_return and also provides that a form_1122 is not required for a taxable_year if a consolidated_return was filed or was required to be filed by the group for its immediately preceding_taxable_year s plr-136551-10 sec_1_1502-75 provides that if a member of the group fails to file form_1122 the commissioner may under the facts and circumstances determine that such member has joined in the making of a consolidated_return by such group the circumstances that the commissioner will take into account in making this determination include the following i whether or not the income and deductions of the member for such taxable_year were included in the consolidated_return ii whether or not a separate_return was filed by the member for that taxable_year and iii whether or not the member was included in the affiliations schedule form_851 for such taxable_year ruling based solely on the information submitted and the representations made by parent we rule that sub1 and sub2 have joined in the making of the parent group’s initial consolidated_return for the period date3 through date4 thus in accordance with the requirements for joining in filing a consolidated_return as set forth in sec_1501 the members are determined to have consented to all of the consolidated_return_regulations prescribed under sec_1502 prior to the last day prescribed by law for filing of such return caveats we express no opinion about the tax treatment of the facts described above under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from these facts that are not specifically covered by the above ruling specifically we are expressing no opinion as to the validity of any entity classification election made or not made with respect to any of the entities the ruling contained in this letter is based upon information and representations submitted on behalf of parent and its subsidiaries and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the taxpayer's ruling_request verification of this material may be required as part of the audit process this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by plr-136551-10 attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely _____________________ richard m heinecke assistant to the branch chief branch associate chief_counsel corporate


internal_revenue_service director exempt_organizations rulings and agreements department of the treasury p o box - room cincinnati ohio number release date date date legend ‘oundation ellowship b c employer_identification_number person to contact - id contact telephone numbers uil dear we have considered your request for advance approval of an additional grant-making program under sec_4945 g of the internal_revenue_code dated date our records indicate that the b was recognized as exempt from federal_income_tax under sec_501 of the code and that it is classified as a private_foundation as defined in sec_509 in addition our records indicate that the b received advance approval of geant-making procedures from the internal_revenue_service on previously approved scholarship programs which would not be taxable_expenditures within the meaning of sec_4945 your letter indicates that the b is requesting approval of an additional program called the c that will farther entrepreneurship the grants will be fellowship awards for entrepreneurship education of promising postdoctoral researchers legally present in the united_states who are conducting scientific specifically translational research who seek to translate their research to the public for society's benefit ‘the foundation anticipates awarding these fellowships annually and for grants to be paid out over one year in the first year the foundation anticipates making such awards and expects to make between and awards in subsequent years the amount of the grant will be based on and consistent with the post-doctoral fellow salary guidelines of recipient’s institutions and as a result award amounts will vary slightly from institution to institution recipients will be able to use the funds to develop their educational program as well as for travel to conferences related to their research each year potential applicants will be notified of the program and deadlines through advertising on the foundation websites and email distribution announcements at conferences information distributed to professional organizations and press releases issued on the academic newswires among other means only postdoctoral candidates will be eligible for the award preference will be given to candidates who have made exemplary research discoveries io entrepreneurship education ‘to be eligible applicants must have received their doctoral degree by the time the term of the scholarship would commence in addition scholarship applicants must be engaged in research at and enrolled in a u s educational_institution ‘the applicants also must commit to publishing and or revising their research and results as well as and making their research and results widely available consistent with academic standards each applicant must submit a statement describing their research any discoveries or inventions translational efforts to date a plan for translation and detailed description of entrepreneurship education activities planned for the award year and a curriculum vitae applicants’ department chairs and faculty advisor must submit a letter discussing their support of the applicant and specifically their commitment to the translational research goals and entrepreneurship education plan of the applicant the committee will rank applicants based on their assessment of the quality and quantity of the existing research and a review of their published research and ongoing projects the committee will also review and assess the quality of the applicant’s research and education plan for the year including as it relates to the field of entrepreneurship the foundation will select grant recipients based on recommendations from a selection committee comprised of three or more people who otherwise have no employment relationship with the foundation and have an established reputation for excellence in the field of scientific research as well as in other fields they will be highly respected and accomplished professors researchers scholars or business leaders all of whom have scientific backgrounds and expertise the b will take steps to ensure that committee members are not in a position to derive a private benefit either directly or indirectly if certain candidates are selected over others other than the fact that the recipient may come from the same university with which the member is affiliated if a potential fellow comes from the same university as one of the committee members that committee member will not vote on the recommendation each member of the committee will also sign a statement of neutrality and independence upon being named to the committee which states that the member is not in a position to derive a private benefit either directly or indirectly if certain candidates are selected over others employees and disqualified persons of the b and their family members will not be eligible to receive the award likewise committee members and their family members will not be eligible to receive an award finally fellows may not include anyone whose selection would result in a private benefit to any of the aforementioned individuals the foundation will make reasonable efforts to see that the award is spent solely for the purpose for which it is made and to obtain full and complete reports from the grantee on how the progress made in achieving the goals of the fellowship along with a statement of expenditures made in connection with the fellowship in addition to a detailed narrative of progress reports will contain copies of working papers and published research references for new technology disclosures patents filed through the recipient's institution and summaries of research in progress upon the conclusion of the one-year grant the recipient will be required to submit a final narrative and budget report describing his or her accomplishments and accounting for all fiunds received with respect to the grant about their fellowship activities the progress of each recipient will be reviewed periodically by appropriate individuals at the foundation any significant changes to the recipient’s research and teaching plan would require foundation approval if a report or other information including failure to submit a report were to indicate that all or any part of a grant made by the foundation was not being used for the purposes for which the grant was made or that the recipient was not complying with the terms of the grant the foundation would investigate if the problem were to arise as a result of a failure to subroit required reports the foundation would withhold further payment s to the extent possible until all such delinquent reports were submitted ifit were determined that any part of a grant had been used for improper purposes the foundation would take all reasonable and appropriate steps either to recover the grant funds or to ensure the restoration of the diverted funds and the dedication of any remaining grant funds held by the recipient to the purposes of the grant the foundation would withhold any further payments to the recipient until it received his or her assurance that no future diversions would occur and would require the recipient to take extraordinary precautions to prevent further diversions ‘the foundation reserves the right to cancel the grant should the recipient not meet the performance expectation as outlined in the recipient’s plan the foundation agrees that it will maintain indefinitely records that include the information used to evaluate the qualifications of potential grantees specifications of the amount and purpose of each grant the reports from the grantees on their use of funds and any other information obtained in the course of supervising grants and any information obtained in connection with the investigation of jeopardized grants sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170gi the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general publio or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i iii its grant procedure includes an objective and nondiscriminatory selection provess procedure is reasonably calculated to result in performance by grantees of the such activities that the grants are intended to finance and the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request we have not considered whether grants made under your procedures are excludable from the gross_income of recipients under sec_117 of the code any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the intemal revenue service this determination is directed only to the organization that requested it sec_61 of the code provides that it may not be used or cited as a precedent ‘you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exerapt organizations rulings and agreements enclosures sanitized copy of this letter notice


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date cc pa apjp jdewald fsa-n-151492-01 uilc internal_revenue_service national_office field_service_advice memorandum for lmsb area_counsel financial services and healthcare attn roland barral cc lm f from john mcgreevy assistant to the branch chief administrative provisions and judicial practice cc pa apjp subject issuing refund checks to missing persons this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent issue sec_1 if a taxpayer is missing but not legally declared deceased and no estate has been created to whom should the taxpayer’s refund check be issued based on each type of possible filing_status in the year to which the refund relates if a taxpayer is missing but not legally declared deceased and filed a joint_return with a spouse from whom the taxpayer is divorced and the taxpayer is remarried to whom should the refund check be issued conclusion sec_1 the refund check should be issued in the name of the missing taxpayer and the taxpayer’s spouse if the parties filed a joint_return in the year to which the refund relates however if the missing taxpayer’s filing_status for the year to which the refund relates was anything other than married filing joint_return the refund check should be issued in the name of the missing taxpayer if a taxpayer who is missing but not legally declared deceased filed a joint_return with a spouse from whom the taxpayer is divorced and the missing taxpayer now has a new spouse the refund check should be issued in the names of the missing fsa-n-151492-01 taxpayer and the spouse whose name appears on the joint_return ie the former spouse facts the service has completed the examination of tax returns that include distant tax years you request advice regarding how refund checks should be issued for those years when a taxpayer is missing but not legally declared deceased issue law and analysis sec_6402 of the code provides in part that in the case of any overpayment the secretary may credit the amount of such overpayment against any_tax liability of the person who made the overpayment and shall refund the balance to such person this section authorizes the service to credit or refund any overpayment_of_tax only to the person who made the overpayment sec_301_6402-2 of the regulations on procedure and administration provides in part that checks in payment of claims allowed will be drawn in the names of the persons entitled to the money the regulations implement the clear statutory rule that a tax_refund should be issued to the person or persons who overpaid the tax individual taxpayers can file a tax_return under a status of single married filing separate_return head_of_household qualifying widow er with dependent_child and married filing joint_return for each of these different statuses except for the married filing joint_return status a refund check of an overpayment should be issued in the name of the only person filing the return therefore missing taxpayers who filed under any status other than the married filing joint_return status for the tax_year to which the refund relates should be issued the refund check in their name alone this result flows from sec_6402 and the treasury regulations thereunder which allow the refund to be issued only to the person who made the overpayment if the missing taxpayer filed as anything other than married_filing_jointly the missing taxpayer is the only one to whom the overpayment can be attributed if the missing taxpayer filed a joint_return with a spouse under sec_6013 they are considered separate taxpayers for purposes of determining the person who made the overpayment 757_f2d_1157 11th cir 153_fsupp_365 ct_cl st john v bookwalter ustc w d mo disputes over entitlement to a joint refund often require an allocation of the spousal shares fsa-n-151492-01 in revrul_74_611 1974_1_cb_399 the service stated that a joint income_tax return does not create new property interests for the husband or the wife in each other’s income_tax overpayment instead each spouse has a separate interest in the overpayment shown on a joint_return under the facts of the ruling because the entire overpayment was attributable to the wife no portion of the overpayment shown on the joint_return could be credited against the husband’s separate tax_liability the wife was the person who made the overpayment within the meaning of sec_6402 the amount of a joint_return overpayment that is attributable to each spouse is determined by apportioning the overpayment between the spouses to the extent each spouse contributed to the overpaid tax gens v united_states ct_cl 397_fsupp_342 e d pa the service has set out in a series of revenue rulings the separate tax formula for making this apportionment see revrul_80_7 1980_1_cb_296 revrul_85_70 1985_1_cb_361 and revrul_87_52 1987_1_cb_347 under the separate tax formula a spouse’s separate interest in an overpayment is determined by subtracting that spouse’s contribution toward the payment of the joint tax_liability in the case of taxpayers filing a joint_return the service does not typically determine the separate interests of the spouses in an overpayment before crediting or refunding the overpayment see irm as a practical matter the service cannot determine the separate interests of the spouses based solely on the information provided on the return thus when the service refunds an overpayment shown on a joint_return it typically issues the refund in the names of both spouses leaving them to divide the proceeds however in the present situation one spouse is missing and cannot choose how to divide the refund in this situation the spouse of the missing taxpayer may be able to endorse the refund check on behalf of the missing taxpayer payee which could be an acceptable endorsement depending on state law conveying such authority from the other payee an example would be john jones by mary jones checks endorsed for collection or for deposit only to the credit of the within named payee or payees are acceptable without any signature see cfr dollar_figure once the missing taxpayer is legally declared deceased the executor of the decedent could sign john jones by mary jones executor of the estate of john jones see cfr dollar_figure alternatively the surviving_spouse may send the check back requesting that a separate check be issued in the name of the surviving_spouse or the decedent’s estate form_1310 allows a surviving_spouse to receive a reissued check solely in the surviving spouse’s name issuing the check in the surviving spouse’s name does not mean that the service is determining the ownership interests of the deceased spouse and the surviving_spouse in the refund the surviving_spouse acts as a fiduciary to the person or persons entitled to the refund for example the fsa-n-151492-01 deceased spouse’s will or if the spouse died intestate the probate code of the state may identify who is entitled to that portion of the refund issue as already discussed the service typically issues the refund check to the spouses whose names appear on the tax_return for the tax period to which the refund relates by issuing the refund check in the name of the missing taxpayer and the spouse for the year to which the return relates the determination of the amount of the refund to which each spouse is entitled is left to the parties whose names appear on the tax_return this procedure satisfies the sec_6402 requirement that the service issue the refund to the person or persons who made the overpayment and is administratively practical considering the volume of joint returns received by the service and the complexity in determining a spouse’s separate interest in the overpayment if the missing taxpayer is later determined to be deceased the former spouse who is no longer considered to be a surviving_spouse for purposes of form_1310 and the executor of the decedent’s estate are to determine the amount to which each is entitled the current spouse does not determine the amount to which each is entitled in the capacity of decedent’s surviving_spouse because the current spouse is not considered a surviving_spouse for purposes of form_1310 because he or she was not married to the decedent in the year to which the refund relates by requiring the joint payees to endorse the refund check both parties are put on notice that a refund check was issued this notice informs each payee that he or she may be entitled to part or all of the refund amount as discussed above there is no legal impediment to issuing or reissuing separate checks in the name of each payee for the amount to which each is entitled although it is the policy of the service to issue the check jointly the service stated in revrul_67_431 1967_2_cb_411 amplified by revrul_80_7 revrul_85_70 and revrul_87_52 that it has the authority to make credits or refunds to only one spouse if warranted by the circumstances and if the service has no knowledge of circumstances indicating that the applicable taxes were paid_by anyone other than the spouse to which the refund_or_credit will be issued disclosure statement this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views if you have any questions please call our office at


internal_revenue_service number release date index nos cc ita b9 plr-117843-00 in re dear september this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the taxpayers requesting permission to change their accounting_period for federal_income_tax purposes from a taxable_year ending to a taxable_year ending effective the taxpayers have requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayers informed the national_office that they did not timely file a form_1128 to change their tax_year however the taxpayer filed a request for extension under sec_301 to file a form_1128 within days of the due_date this ruling letter is based upon a representation by the taxpayers that they are not using hindsight as defined in b iii in requesting relief sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before the 15th day of the second calendar month following the close of the short_period section of revproc_2000_11 states in part that a form_1128 filed pursuant to this revenue_procedure will be considered timely filed for purposes of sec_1_442-1 b if and only if it is filed on or before the time including extensions for filing the return for the short_period required by such change sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayers have acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and the late filed form_1128 requesting permission to change to a tax_year ending effective is considered timely filed the ruling contained in this letter is based upon facts and representations submitted by the taxpayers 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 part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable thereto or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically no opinion is expressed as to whether the taxpayers are permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 a copy of this letter_ruling and the form_1128 are being forwarded to the service_center where the taxpayers file their consolidated federal_income_tax returns with instructions that the form_1128 be considered timely filed and processed in accordance with established procedures under revproc_2000_11 in accordance with the provisions of a power_of_attorney currently on file we are sending this letter_ruling to the taxpayers’ authorized representative a copy this letter is also being sent to the taxpayer this ruling is directed only to the taxpayers that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely yours associate chief_counsel income_tax and accounting s heather c maloy enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service national_office technical_advice_memorandum date third party communication none date of communication not applicable tam-121120-04 number release date index uil no case-mis no director ------------------------------------- taxpayer's name taxpayer's address taxpayer's identification no year s involved date of conference ---------------------------- ------------------------- ------------- ---------------------- --------------------------- ---------------- --------------- date legend uscorp fcorp countrya products distributors year1 year2 year3 contractx rider ridery documenta ---------------------------- ------------------------------------------------------ ----------- -------------------- --------------------------------------------------------------------------------------- -------------------------------------------- ------- ------- ------- ---------------------------------------------------- -------------------------------------------------------------------------- --------------------------------------------------------------------------------------- -------- ---------------------------------------------------------------------------- --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- --------------------- --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- -- ------------------------------------------------------------------ tam-121120-04 documentb taxpayer’s submission issue where property manufactured outside the united_states is purchased by a domestic_corporation outside the united_states and resold to domestic distributors located within the united_states for ultimate sale to end-users within the united_states and where the_domestic_corporation transfers to the distributors incidents_of_ownership outside the united_states but bears certain commercially insurable risk of in-transit casualty_loss or damage until delivery to the distributors’ places of business in the united_states on the resale whether the income from such resales is sourced within or outside the united_states pursuant to sec_1_861-7 conclusion based solely on the facts described below the income from such resales is sourced outside the united_states pursuant to sec_1_861-7 because the facts reflect terms of sale similar to c i f sale terms that would generate foreign_source_income under the case law facts uscorp contracts with unrelated carriers to ship products from countrya to the uscorp is a domestic_corporation that wholly owns fcorp a foreign_corporation organized under the laws of countrya fcorp manufactures products in countrya fcorp sells products to uscorp in countrya the time and place of the sale by fcorp are not disputed uscorp then resells products to domestic distributors the time and place of the resales by uscorp are disputed because uscorp bears certain risk of in- transit casualty_loss or damage with respect to the resales the distributors then resell products to end-users in the united_states distributors in the united_states uscorp acts as the importer of record for customs purposes with respect to products see u s c a b and customs directives date formerly numbered as and 3530-002a date reviewed date distributors are not directly involved in the importation of products or the dealings with carriers uscorp opts not to purchase insurance against certain risk of in-transit losses or damages that it bears such as certain losses due to force majeure uscorp represents that insurance coverage against the type of in-transit risk of loss or damage that it bears ------------------------------------------------------------------------- sales agreements between uscorp and each distributor such as contractx tam-121120-04 with respect to products was commercially available during the taxable years at issue year1 through year2 and during other taxable years dating back as far as year3 the risks borne by uscorp are discussed in more detail below uscorp treats its product sales to distributors as consummated outside the united_states under sec_1_861-7 and therefore as generating foreign_source_income specify when and where legal_title to products passes to the distributor paragraph ----- ---------of contractx provides ------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- in practice uscorp always makes delivery to the carrier at ------------ ---fcorp’s plant in countrya thus pursuant to the sales agreements such as contractx between uscorp and distributors legal_title to products passes from uscorp to distributors or other designated parties in countrya fixed on delivery of the product to the carrier or the distributor whichever occurs first see eg contractx -----------and ridery -------to meet their payment obligations most distributors establish a relationship with a financing company pursuant to which the financing company acquires a security_interest in the products as reflected in contractx ----------- and uscorp collects payment from the financing company ---------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- pursuant to the sales agreements a distributor obtains a right to receive a particular product specified by -----------------------coincident with passage of legal_title in countrya and the creation of the distributor’s legal_obligation to pay provides --------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- the sales agreements also address risk of loss paragraph ---------of contractx under the sales agreements a distributor’s legal_obligation to pay uscorp is ----------------------------------------------------------------------- tam-121120-04 ------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------- thus a distributor bears no in-transit risk of casualty_loss or damage provided the distributor ------------------------------------------------------------------------------------------------- -----------a distributor bears risk of loss from when the products are delivered at the distributor’s place of business in the united_states pursuant to law and contract a carrier must compensate uscorp for in-transit damage or loss of products other than damage or loss caused by uscorp uscorp’s agents or force majeure events beyond the reasonable control of the carrier see eg documenta -------documentb p and u s c to summarize uscorp bears certain risk of in-transit loss or damage but is compensated by the carriers for certain losses and damage caused by the carriers law and analysis the rules in sec_861 through source income from certain_sales to the a sale of personal_property is consummated at the time when and the place where the rights title and interest of the seller in the property are transferred to the buyer where bare_legal_title is retained by the seller the sale shall be deemed to have occurred at the time and place of passage to the buyer of beneficial_ownership and the risk of loss place of the sale for this purpose the first two sentences of sec_1_861-7 to be referred to together as the title passage rule provide in pertinent part the issue is the interpretation of the title passage rule and its application to the facts set out above taxpayer has suggested that the language in ------------------------of contractx supports a conclusion that the relevant in-transit risk of casualty_loss or damage passed from uscorp to distributors at the fcorp plant ------ and then was immediately re-assumed by uscorp pursuant to an indemnification agreement embodied within that same provision we do not give weight to such hypothetical immediate passage and assumption back of such risk rather the agreement provisions and other facts and circumstances support that uscorp bore such in-transit risk until delivery to the distributor’s place of business the third and fourth sentences of sec_1_861-7 to be referred to as the tax_avoidance rule provide however in any case in which the sales transaction is arranged in a particular manner for the primary purpose of tax_avoidance the foregoing rules will not be applied g_c_m 1947_2_cb_85 preceded sec_1_861-7 of course the place of contract the place of delivery and of payment the terms of the agreement and extraneous circumstances may each have a bearing on the determination of the place of sale but the ultimate goal of the examination of all such considerations is to ascertain when and where the title to the goods passes from the seller to the buyer it is then and there a sale is consummated -- when and where property in the goods passes when and where the incidents_of_ownership vest in the vendee such is the rule long and firmly established tam-121120-04 g_c_m reflects the service’s adoption of the title passage rule from 31_bta_558 and 44_bta_1130 the positions in g_c_m were carried forward into sec_1_861-7 promulgated in in east coast the service applied a place of contract rule to sales of oil the controlling contracts for sale had been written and signed in the united_states prior to ascertaining or appropriating the oil that would be subject_to the contracts as the united_states board_of_tax_appeals framed the issue east coast b t a pincite footnote omitted the court held with respect to oil sales under c i f shipping terms using a common carrier and under f o b shipping terms using the purchaser’s own ships that the sales occurred upon delivery to the ship it is assumed solely for purposes of this memorandum that the tax_avoidance rule does not apply on the facts of this case the full citation for 31_bta_558 nonacq 1935_1_cb_27 aff’d 85_f2d_322 5th cir tex cert_denied 299_us_608 nonacq withdrawn and acq 1947_2_cb_2 the full citation for 44_bta_1130 nonacq 1941_2_cb_22 nonacq withdrawn and acq c b g_c_m also reflects the service’s adoption of the tax_avoidance rule from 35_bta_646 c i f cost insurance and freight means that the seller pays the costs and freight necessary to bring the goods to the port of destination and buys insurance against the buyer’s in-transit risk of loss f o b free on board means that the seller fulfills its delivery obligation when the goods have passed the ship’s rail at the port of shipment thus the buyer bears all in-transit costs and risk of loss in such cases all factors of the transaction such as negotiations the execution of the agreement the location of the property and the place of payment will be considered and the sale will be treated as having been consummated at the place where the substance of the sale occurred as noted the service adopted the title passage rule in g_c_m t his office adopts the general_rule that for the purpose of determining the source_of_income attributable to the sale of personal_property a sale is consummated at the place where the seller surrenders all his right title and interest to the buyer tam-121120-04 outside the united_states because that was where and when title passes to the purchaser thereafter the goods and the risks are his id pincite east coast stands for the proposition that a sale is consummated when and where title to the goods passes to the buyer in the context of the east coast decision title to the goods is synonymous with property in the goods and incidents_of_ownership the context further indicates that these concepts include risks see also ronrico b t a pincite5 relying on east coast and using materially similar passage of title and risks terminology c b pincite the language all his right title and interest corresponds to the terms title to the goods property in the goods and incidents_of_ownership used by the east coast court see also 236_f2d_298 cert_denied 352_us_968 associating title passage with passage of property in the goods and 28_tc_14 describing the title_passage_test in terms of beneficial_ownership and title to the goods significant difference in ronrico although the c i f sale terms provided for the passage of title to the goods and the risks involved at the point of shipment outside the united_states the bills of lading and insurance policies were made in the name of the seller or to the order of the seller b t a pincite the seller retained bare_legal_title until delivery of the bills of lading within the united_states addressing the apparent inconsistency between the c i f sale terms ie passing title to the goods and the risks outside the united_states on the one hand and the retention of bare_legal_title ie passing bare_legal_title within the united_states on the other hand the board_of_tax_appeals stated ronrico b t a pincite relevant concepts under the title passage rule further as evident from the above it is well recognized that where bare_legal_title is retained only for the purpose of giving some security to the seller it does not prevent the passage of beneficial_ownership and risk in the goods to the buyer at the point of shipment thus the ronrico court considered that beneficial_ownership and risk of loss are the ronrico case involved facts similar to those in east coast with one in balanovski the second circuit_court of appeals determined the source of to summarize the title passage rule_of sec_1_861-7 is based on tam-121120-04 quote the ronrico court considered that retention of bare_legal_title alone is not controlling under the title passage rule decisions such as east coast and ronrico both cases indicate that the determination of title passage includes a consideration of legal and economic rights and risks income from a sale of personal_property relying on the precedent set by cases such as east coast and ronrico as well as the language of g_c_m 236_f2d_298 applying the title passage rule the second circuit determined here by deliberate act of the parties title or at least beneficial_ownership passed to purchaser in the united_states when documents of title such as a bill of lading are given up the presumption is that the seller has given up title together with the documents in f o b and f a s contracts there is a presumption that title passes from the seller just as soon as the goods are delivered to the carrier ‘free on board’ or ‘free alongside’ the ship as the case may be rebuts these presumptions of passage of title in the united_states all risk of loss passed before the ocean voyage purchaser took out the marine insurance seller performed all acts to complete the transaction retained no control of the goods and there was no possibility of withdrawal all the available evidence confirms rather than tam-121120-04 id pincite in balanovski the passage of incidents_of_ownership such as beneficial_ownership and risk of loss supported the presumption raised by documentation and shipping terms that title passed within the united_states the balanovski court like the ronrico court recognized that beneficial_ownership and risk of loss are relevant factors under the title passage rule taxpayer argues that the first and second sentences of sec_1_861-7 taken on their face as well as in light of the legal background articulate two discrete rules namely taxpayer asserts that the first sentence indicates that title passage turns on when and where legal ownership is conveyed in taxpayer’s view the second sentence states an exception in the case where bare_legal_title is retained so that only in such circumstances is reference made to beneficial_ownership and risk of loss thus in taxpayer’s view the second sentence does not provide any gloss on the first sentence in our view the language and context of the two sentences as well as the legal this case involves a division of rights title and interest with respect to background that is discussed above indicate that the two sentences should be read together informing one another thus in construing the rights title and interest of the seller in the property consideration should be given to factors including beneficial_ownership and the risk of loss products some factors favor a determination that the rights title and interest passed to distributors in countrya these foreign source factors include the passage of legal_title the creation of the distributor’s unrestricted right to a particular product and the creation of uscorp’s legal right to payment when the ------ are delivered to the carrier at fcorp’s plant -------in countrya the primary factor favoring a determination that the rights title and interest did not pass to distributors until delivery at their places of business in the united_states is that uscorp bore certain in-transit risk of casualty_loss or damage where various incidents_of_ownership pass from the seller to the buyer at different times and places in the cases the courts’ analyses typically identify several incidents_of_ownership all of which pass at the same time and place in some cases the courts summarily determine that title passed in accordance with the title passage rule at a certain place and time without analyzing individual incidents_of_ownership in reaching a conclusion regarding the significance in this case of uscorp’s bearing certain risk of in-transit casualty_loss we observe that the terms of sale are substantially_similar to the terms of sale in a c i f sale several title passage rule cases that involve c i f sales resulted in holdings that the sale is consummated within the meaning of the title passage rule at the place of shipment see eg east coast b t a pincite f 2d pincite ronrico b t a pincite5 miami purchasing the title passage rule case law does not address situations such as this one we consider the case law to be clear that under c i f terms of sale - ie where tam-121120-04 service corp v commissioner 76_tc_818 and 284_f2d_383 ct_cl all cases showing that a c i f sale is completed at the point of shipment for purposes of the title passage rule unless the express intention of the parties is otherwise all incidents_of_ownership pass to the buyer before shipment but the seller agrees to pay certain costs including insurance against the buyer’s in-transit risk of loss - the sale is consummated at the point of shipment the difference between the risks insured in a c i f sale and the risk borne by uscorp in this case is that insurance in a c i f sale does not cover the risk of certain in-transit losses such as certain losses due to force majeure whereas uscorp in this case did bear the risk of in-transit losses due to force majeure taxpayer has represented that insurance coverage was commercially available against the type of in-transit risk of loss or damage that it bore with respect to products during the taxable years at issue we note that whereas in a c i f sale risk of loss passes to the buyer at the point of shipment in this case certain risk of loss was borne by uscorp during shipment however we also observe that from the point of view of the buyer in both scenarios risk of casualty_loss does not pass to the buyer until delivery at the buyer’s place of business thus the two scenarios may be viewed as economically similar with respect to risk of loss we conclude that taking into account the factual similarities between the present case and a c i f case - particularly the economic similarity from the perspective of the buyer - the title passage determination in the present case is governed by the c i f title passage rule case law therefore on the facts described in this memorandum the sales of products by uscorp to distributors are consummated outside the united_states results in foreign_source_income the regulation also applies to result in foreign_source_income in taxpayer’s case where uscorp rather than at its own cost purchase commercially available insurance against in-transit risks from a third-party insurer instead itself effectively covers such risks 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 to summarize because under sec_1_861-7 a c i f import sale see the detailed discussion of this point in taxpayer’s submission p


internal_revenue_service number release date index number --------------------------------------------------- ------------------------------------------ ------------------------------- ----------------------------------------------- legend legend 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-131100-10 date date distributing ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- -------------------------------------------- controlled ------------------------------ ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ sub ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------------------- sub ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------------------------- a b c d e ---- --- --- ----------------- ---- trust -------------------------------------------------------------- ------------ plr-131100-10 trust ---------------------------------------- trust -------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- busine sec_1 busine sec_2 date dear ------------------ ------------------------ -------------------------- -------------------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of the proposed transactions as defined below the information provided in that request and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the distribution defined below i satisfies the business_purpose requirement of sec_1 b of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 facts distributing is the common parent of an affiliated_group that files a consolidated federal_income_tax return distributing is a holding corporation that wholly owns two subsidiaries sub and sub sub is engaged in busine sec_1 and sub is engaged in busine sec_2 distributing has two classes of stock outstanding cla sec_1 stock and cla sec_2 stock generally the cla sec_1 stock is intended to reflect the performance of sub and busine sec_1 while the cla sec_2 stock is intended to reflect the performance of sub and busine sec_2 plr-131100-10 the cla sec_1 stock and cla sec_2 stock are each divided into two series series a and series b the series a and series b stock have substantially_similar economic and voting rights per share series a represents approximately a percent of the cla sec_1 or cla sec_2 stock as the case may be and series b represents approximately b percent of the cla sec_1 or cla sec_2 stock as the case may be series a represents more than and series b represents less than e percent of the total outstanding_stock of distributing the series a stock is owned by trust and trust each of which owns approximately c percent of the series a stock of each class of shares the series b stock is held by trust as of date amount d is outstanding on a loan from sub to distributing the sub loan financial information submitted indicates each of busine sec_1 and busine sec_2 has had gross_receipts and operating_expenses representative of an active_conduct_of_a_trade_or_business for each of the past five years proposed transactions for various business purposes distributing has proposed the following transactions the proposed transactions i ii distributing will contribute all the outstanding capital stock of sub to a newly formed holding corporation controlled in exchange for all the newly issued and outstanding_stock of controlled the contribution the controlled stock may be divided into two series controlled series a and controlled series b the controlled series a and controlled series b stock will have substantially_similar economic and voting rights distributing will distribute all the stock of controlled to the holders of the cla sec_2 stock on a pro_rata basis in exchange for all distributing’s outstanding cla sec_2 stock the distribution if the controlled stock is divided into two series controlled series a and controlled series b the controlled series a stock will be distributed to holders of the distributing series a cla sec_2 stock and the controlled series b stock will be distributed to holders of the distributing series b cla sec_2 stock representations distributing makes the following representations regarding the distribution the fair market of the controlled_corporation stock and other consideration to be received by each shareholder of the distributing_corporation will be approximately equal to the fair_market_value of the distributing_corporation stock surrendered by the shareholder in the exchange plr-131100-10 no part of the consideration to be distributed by the distributing_corporation will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation the distributing and controlled corporations will each treat all members of their respective separate_affiliated_group sag as defined in sec_355 as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business the years of financial information submitted on behalf of the distributing sag is representative of the distributing sag’s present business operation and with regard to such distributing sag there have been no substantial operational changes since the date of the last financial statements submitted the years of financial information submitted on behalf of the business contributed to the controlled sag is representative of the controlled sag’s present business operation and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted following the transaction the distributing sag and controlled sag will each continue the active_conduct of its business independently and with its separate employees the distribution of the stock or stock and securities of the controlled corporations is carried out for the following corporate business purposes business and regulatory reputation key_employee and fit and focus the distribution of the stock or stock and securities of the controlled corporations is motivated in whole or substantial part by one or more of these corporate business purposes the proposed transactions are not used principally as a device for the distribution of the earnings_and_profits of distributing controlled or both the total adjusted_basis and the fair_market_value of the assets transferred to the controlled_corporation in the contribution will equal or exceed the sum of i the total liabilities assumed within the meaning of sec_357 by the controlled_corporation and ii the total amount of any money and the fair_market_value of any other_property within the meaning of sec_361 received by the distributing_corporation and transferred to its creditors in connection with the reorganization the fair_market_value of the assets of the controlled_corporation will exceed the amount of its liabilities immediately_after_the_exchange plr-131100-10 the aggregate fair_market_value of the assets transferred to the controlled_corporation in the contribution will equal or exceed the aggregate adjusted_basis of these assets the distributing_corporation neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction no incorporate debt will exist between distributing and its subsidiaries and controlled and its subsidiaries at the time of or subsequent to the distribution of controlled except for the outstanding sub loan between distributing and sub incurred in the formation of trust immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further distributing’s excess_loss_account if any with respect to the controlled stock will be included in income immediately before the distribution see sec_1_1502-19 for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of the distributing corporation’s stock entitled to vote or percent or more of the total value of shares of all classes of the distributing corporation’s stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of the controlled corporation’s stock entitled to vote or percent or more of the total value of shares of all classes of the controlled corporation’s stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on the distributing corporation’s stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution payments made in connection with all continuing transactions if any between the distributing and controlled_corporation will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length plr-131100-10 no two parties to the transaction are investment companies as defined in sec_368 and iv the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation immediately after the distribution neither the distributing_corporation nor the controlled_corporation will be a disqualified_investment_corporation within the meaning of sec_355 the cla sec_1 stock and the cla sec_2 stock each constitute stock of distributing for federal_income_tax purposes based solely on the information and representations submitted we rule as follows rulings the transfer by distributing to controlled of the stock of sub solely in exchange for controlled stock followed by the distribution of the controlled stock to trust sec_1 will qualify as a reorganization within the meaning of sec_368 d distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss on its transfer of property to controlled in exchange for controlled stock and the assumption_of_liabilities if any sec_361 and sec_357 controlled will recognize no gain_or_loss on the receipt of property from distributing in exchange for controlled stock sec_1032 controlled’s basis in the property received from distributing in the proposed transactions will be the same as the basis_of_property in the hands of distributing immediately before the transaction sec_362 controlled’s holding_period for the property received from distributing in the proposed transactions will include the period during which distributing held the property sec_1223 distributing will recognize no gain_or_loss on the distribution of the controlled stock to trust sec_1 and sec_361 plr-131100-10 trust sec_1 and will recognize no gain_or_loss and will not include any amount in income upon their receipt of controlled stock from distributing sec_355 the aggregate basis of the stock of controlled in the hands of trust sec_1 and immediately after the distribution will equal the aggregate basis of the distributing stock surrendered in exchange therefor sec_358 and sec_1 a i the holding_period of the controlled stock held by trust sec_1 and will include the holding_period of the distributing stock surrendered in exchange therefor provided that the distributing stock is held as a capital_asset on the date of the distribution sec_1223 proper allocation of earnings_and_profits between distributing and controlled will be made in accordance with sec_1_312-10 and sec_1_1502-33 caveats no opinion is expressed about the tax treatment of the proposed transactions under other provisions of the code and regulations or on the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular this office has not reviewed any information pertaining to and has made no determination regarding i ii whether the distribution satisfies the business_purpose requirement of sec_1_355-2 whether the distribution is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both and iii whether the distribution is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in distributing or controlled see sec_355 and sec_1_355-7 iv in addition except as it relates to the qualification of the contribution as a reorganization within the meaning of sec_368 and the qualification of the distribution under sec_355 no opinion is expressed concerning the sub loan plr-131100-10 procedural statements this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling letter must be attached to any income_tax return to which it is relevant alternatively any taxpayers filing their return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _______________________________ richard heinecke assistant to the branch chief branch associate chief_counsel corporate-


department of the treasury internal_revenue_service washington d c date number info release date cc tege eoeg et1 - genin-123164-02 uilc memorandum for director internal_revenue_service center kansas city mo attn entity control from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - genin-123164-02 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business became an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that became an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business will e mcleod cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b04-plr-112039-02 date august re legend husband wife law firm son daughter-in-law grandchild grandchild date date trust a year year dear this is in response to your letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an allocation of the generation-skipping_transfer gst tax exemption the facts and representations submitted are as follows on date wife in consultation with law firm created trust for the benefit of son and his two children grandchildren and law firm had years of experience in trust probate and estate_planning matters law firm was not ultimately responsible for plr-112039-02 drafting the trust agreement governing trust but was at all times aware of the trust agreement wife appointed son and daughter-in-law as trustees of the trust section a of article fourth of the trust agreement provides that the trust will pay all the income of the trust to son in at least quarterly installments until termination of the trust the trustees have discretion to pay part or all of the principal to son for son’s maintenance in health and reasonable comfort section c of article fourth provides that upon the death of son the trustees will distribute principal and accrued income of the trust to whomever among wife’s descendants son shall appoint by specific reference in his will if son does not appoint by reference then the principal and accrued income shall be distributed among the descendants of son per stripes or in none survive to the descendants of wife per stirpes on date wife transferred dollar_figurea to the trust law firm advised wife to treat the dollar_figurea transferred to the trust as a gift made one-half by wife and one-half by husband and that each spouse should allocate a portion of their respective gst tax exemption to the gift on their year gift_tax_return so that the trust would be exempt from gst tax law firm prepared husband’s and wife’s gift_tax returns for year on the gift_tax returns law firm indicated that wife and husband elected to split the gift but failed to allocate wife’s and husbands’ gst tax exemption to the trust in year law firm discovered its failure to allocate w and h’s gst_exemption to trust on the year gift_tax returns by letter dated date law firm confirmed that it failed to allocate gst_exemption to the trust and accepted responsibility for the error you have requested a ruling for an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 to make allocations of husband’s and wife’s gst_exemption to the trust based on the value of the transferred assets as of date the date of the transfer to the trust sec_2513 provides that a gift made by one spouse to any person other than his spouse shall for purposes of chapter be considered as made one-half by him and one-half by his spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states sec_2513 provides that paragraph shall apply only if both spouses have signified their consent to the application of paragraph in the case of all such gifts made during the calendar_year by either while married to the other sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip plr-112039-02 sec_2602 provides that the amount of tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2642 provides that except for direct_skip transfers the inclusion_ratio is the excess if any of over the applicable_fraction determined for the trust from which such transfer is made sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2652 provides that for purposes of the gst tax the term transferor means in part the donor in the case of any property subject_to the gift_tax sec_2652 provides that if under sec_2513 one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of such individual such gift shall be so treated for purposes of chapter sec_2642 provides valuation rules for allocations of gst_exemption to gift transfers sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute 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 plr-112039-02 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_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin notice_2001_50 2001_34_irb_189 provides that taxpayers may seek an extension of time to make an allocation described in b or b or an election described in b or c under the provisions of accordingly taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore husband and wife are granted an extension of time of days from the date of this letter to make an allocation of husband’s and wife’s unused gst_exemption to the trust the allocation will be effective as of date and the gift_tax value of the transfer to the trust will be used in determining the amount of gst tax exemption to be allocated to the trust in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer 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 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury plr-112039-02 statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent this allocation should be made on a supplemental form_709 united_states gift and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to the supplemental form_709 a copy is enclosed for this purpose sincerely yours _________________________ heather maloy associate chief_counsel passthroughs and special industries enclosures copy of letter for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number ------------------------------------------------------------ ------------ ---------------------- --------------------------- ----------------------------- in re --------------------------------------------------- ------------------------------ department of the treasury washington dc person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-122775-04 date july ----------------------- -------------------------------------------------------------------------------- legend trust --------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- trust -------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- settlor son date date trustees court ----------------------------------------------------------------------------------------------------------------- --------------------------------------------------------- state state statute dear --------------------------------------------- ----------------------------------------------- ------------------------------------------------------- -------------------------- ---------------------- ----------------------------------------------------------- -------------------------------------------------------------------------------- ------------------ ------------------------------------ this is in response to the date letter and subsequent correspondence concerning the generation-skipping_transfer gst tax and income_tax consequences of the proposed merger of two trusts the facts and representations submitted are summarized as follows settlor executed an irrevocable_trust agreement trust dated date which is prior to plr-122775-04 date trust was created for the primary benefit of settlor’s son son the trustees of trust are trustees article one of trust provides in part that the trustees shall hold manage invest and reinvest the trust property shall collect the income therefrom and shall pay the net_income in convenient installments in such proportions and with such exclusions as the trustees shall deem advisable among the following class of persons son a child of settlor the spouse of said child the issue of said child the respective spouses of the issue of said child the brothers and sisters of said child their respective spouses their issue and the respective spouses of such issue or the trustees shall have the right to and are authorized to accumulate any or all of such net_income as they shall deem advisable and add the same to the principal of the trust property further in the event that any payment of income authorized to be made to any individual beneficiary shall be insufficient in the opinion of the trustees to defray the expenses of any illness accident or other emergency or to provide for the proper maintenance support and education of such beneficiary the trustees are authorized to use from time to time so much of the principal of the trust property as the trustees may deem advisable therefor article two of trust provides in part that this trust shall continue in effect unless sooner terminated as herinafter provided until twenty-one years after the death of the last to die of the four children of the settlor living at the date this agreement or until the earlier failure of all living takers in the class of persons above described in article one hereof the trustees however are authorized to terminate this trust in whole or in part before the time aforesaid whenever they deem it to be in the best interest of the beneficiaries of this trust or for any other reasons advisable to do so upon any termination of trust the trustees shall transfer deliver and pay over the then trust property to the said child of the settlor if such child is then living and if not to the then living issue of the said child per stirpes failing such then living issue the then trust property shall be divided equally among and added to the other three trusts of even date with this agreement established by the settlor for his other children and their families for which trusts there are takers then living and failing all such then living takers the then trust property shall be transferred delivered and paid over to such charitable_organization or organizations as the trustees shall select on date a date prior to date settlor executed a second irrevocable_trust agreement trust for the primary benefit of settlor’s son son the trustees of trust are trustees the terms of trust are virtually identical to the terms of trust trust and trust have identical dispositive provisions and identical beneficiaries the only significant variation between trust and trust is contained in the fiduciary powers provision of trust article nine specifically trust permits the trustees of trust to plr-122775-04 delegate to each other their rights power and duties thereunder any of the trustees shall have full power and authority to delegate from time to time to any one or more of the other trustees by an instrument in writing any or all of such trustee’s rights power and duties hereunder since the establishment of trust and trust the trusts have been separately administered under state law it is represented that this separate administration has proved to be costly and cumbersome resulting in frequent duplication in connection with investment oversight court filing_requirements annual accounting statements and tax reporting matters state statute provides that the court for cause shown may authorize the trustees propose to file a petition to state court to seek the court’s permission to combination of separate trusts with substantially_similar provisions upon such terms and conditions and with such notice as the court shall direct notwithstanding that the trusts may have been created by separate instruments and by different persons combine the assets of trust with trust and to seek state court authority to administer the combined assets under the provisions of trust the petition will further provide that the merger of trust and trust is contingent upon the issuance of a ruling by the internal_revenue_service that the merger will not result in a forfeiture of trust 2’s exempt status from gst tax trust and trust were irrevocable on date it is represented you have requested the following rulings the proposed merger of trust into trust with the combined corpus thereof that no actual or constructive additions have been made to trust and trust after that date being administered in accordance with trust will not give rise to a constructive_addition to trust nor otherwise cause trust to lose its grandfathered exempt status under gst tax provisions of sec_2601 to recognize gain_or_loss for purposes of sec_1001 and the basis of the assets of trust and trust as well as the holding_period of those assets will remain the same after the proposed merger issue sec_2601 imposes a tax on each generation-skipping_transfer gst which includes under sec_2611 a taxable_distribution a taxable_termination and a direct_skip the proposed merger of trust into trust will not cause either of trust sec_1 or plr-122775-04 under section a of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under section b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date see sec_26_2601-1 regarding constructive additions sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer a modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example considers a situation where in grantor established an irrevocable_trust for grantor's child and the child's issue in grantor's spouse also established a separate irrevocable_trust for the benefit of the same child and issue the terms of the spouse's trust and grantor's trust are identical in the appropriate local court approved the merger of the two trusts into one trust to save administrative costs and enhance the management of the investments the merger of the two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the merger in addition the merger does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust that resulted from the merger will not be subject_to the provisions of chapter in the present case trust and trust were irrevocable on date it is represented that no additions actual or constructive were made to trust or trust after that date the merger of trust into trust is substantially_similar to the situation described in example of sec_26_2601-1 the merger of trust into trust will not result in a shift of any beneficial_interest in the trust assets to any beneficiary who occupies a generation lower than the persons holding the beneficial plr-122775-04 interests prior to the merger trust will terminate on the same date that trust was required to terminate thus the merger will not extend the time for vesting of any beneficial_interest in the surviving trust beyond the period provided for in trust and trust accordingly we conclude that based on the facts submitted and the sec_1001 provides that the gain from the sale_or_other_disposition of sec_61 provides that gross_income includes gains derived from dealings sec_1_1001-1 of the income_tax regulations provides as a general_rule representations made the proposed merger of trust into trust with the combined corpus thereof being administered in accordance with trust will not give rise to a constructive_addition to trust nor otherwise cause trust to lose its grandfathered exempt status under gst tax provisions of sec_2601 issue in property property is the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 over the amount_realized sec_1001 provides that except as otherwise provided the entire amount of the gain_or_loss on the sale_or_exchange of property is recognized that except as otherwise provided in subtitle a the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially in either kind or in extent is treated as income or as loss sustained exchange gives up a property interest in return for a new or additional property interest such an exchange of property is a disposition under sec_1001 see sec_1_1001-1 property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests in order to extinguish their survivorship interests the properties exchanged are materially different 499_us_554 a material difference exists when the exchanged properties embody legal entitlements different in_kind or extent or if they confer different rights and powers id pincite identical dispositive provisions and identical beneficiaries the proposed merger of an exchange of property results in the realization of gain under sec_1001 if for purposes of sec_1001 in an exchange of property each party to the trust and trust have substantially_similar provisions the trusts have revrul_56_437 1956_2_cb_507 holds that a partition of jointly owned based on the information submitted and the representations made in the ruling sec_1011 provides that the adjusted_basis for determining gain_or_loss from a plr-122775-04 trust into trust will not result in any change in the beneficial interests of any beneficiary request the proposed merger of trust into trust will not result in a material difference in the beneficial interests of any beneficiary the beneficiaries will hold the same interests before and after the merger accordingly the proposed merger will not cause any of the trusts to recognize any gain_or_loss from the sale_or_other_disposition of property under sec_61 or sec_1001 sale_or_other_disposition of property whenever acquired is the basis as determined under sec_1012 or other applicable sections sec_1012 provides that the basis_of_property is the cost of the property except as otherwise provided in subchapter_o in the present case the basis of the assets in trust and trust are determined under sec_1012 and other sections in subchapter_o as the proposed merger of the two separate trusts will not constitute a sale_or_other_disposition of property for purposes of sec_1001 no gain_or_loss will be realized under sec_1_1001-1 accordingly the basis of the assets in the surviving trust after the proposed merger will remain the same as the basis of those assets in the current trusts before the merger held property however acquired there shall be included the period for which such property was held by any other person if under chapter of the code such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person proposed merger will remain the same as the basis of those assets in the current trusts before the merger accordingly the holding periods of the assets in the surviving trust after the proposed merger will include the holding periods of the assets in the current trusts before the merger sec_1223 provides that in determining the period for which a taxpayer has as mentioned above the basis of the assets in the surviving trust after the 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 taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-122775-04 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 lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc