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 ita b04 plr-111549-12 date date legend taxpayer trust company bank year year date date date date dollar_figurea dollar_figureb dollar_figurec dollar_figured s t u m n p ----------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------- -------------- ------- ------- --------------------- --------------------- ------------------------- -------------------- --------------- ----------------- --------------- --------------- ------- ---------- ---- ---------- ------------ ------------ dear -------------------------- this is in reply to a letter submitted by your authorized representative requesting a private_letter_ruling under sec_453 of the internal_revenue_code specifically taxpayer requests a ruling that the modification of an installment_sales obligation by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of the installment_obligation within the meaning of sec_453b plr-111549-12 facts taxpayer an individual files its return on a calendar_year basis uses the cash_method_of_accounting and as a former shareholder was engaged in the business of providing business solutions to federal state and commercial customers including professional consulting and technical support services the transaction described below was entered into by taxpayer’s revocable grantor_trust trust taxpayer is the trustee of trust and taxpayer reports all trust income in year company completed a transaction the original transaction in which i company adopted an employee_stock_ownership_plan which included an employee_stock_ownership_trust together referred to as the esop ii company facilitated the esop’s purchase of all the outstanding_stock of company from the former shareholders including taxpayer and iii the parties to the original transaction entered into certain financial arrangements including a company borrowing dollar_figurea in senior financing from bank the bank loan b company lending dollar_figurea to the esop to purchase a portion of the shares from the former shareholders the company loan and c the esop borrowing an aggregate of dollar_figureb from the former shareholders in the form of notes to pay the balance of the purchase_price the esop_loan as part of the original transaction taxpayer received a promissory note from the esop in the principal_amount of dollar_figurec the note which represents taxpayer’s portion of the esop_loan the note provides for annual interest at the rate of s and monthly payments of interest only for the first two years and monthly payments of principal and interest for a period of m years the entire unpaid principal balance together with all accrued unpaid interest is due on date n years after the esop issued the note as security for payment of the note company absolutely unconditionally and irrevocably guaranteed the esop’s obligations on the note and the esop pledged the stock it purchased from taxpayer to taxpayer taxpayer did not elect out of installment_sale treatment and is reporting gain realized from the sale of the shares of company stock on the installment_method under sec_453 of the code as of date there is dollar_figured in principal and accrued interest outstanding on the note in year company and bank entered into certain amendments to the bank loan to address company’s deteriorated financial condition and to provide for revised payment schedules on the bank loan the company loan and the esop_loan including the note as well as to establish amended financial covenants for company company esop and the shareholders have agreed to make changes to the company loan and the esop_loan to satisfy required bank amendments and to permit company to repay all of its debts on a reasonable schedule that will permit company to operate using available cash_flow and also within applicable legal requirements relating to the esop plr-111549-12 company proposes to complete a transaction the proposed transaction based on the required bank amendments in which i the shareholders will deliver to company and company will assume the notes and pledge agreements that the shareholders are holding from the esop as part of the esop_loan including taxpayer delivering the note to company ii company will modify the payment terms of the notes it assumes including the note and will set forth the modified terms in a new note to be delivered by company to taxpayer the new note and iii in consideration of company assuming the note and issuing the new note the esop will deliver to company a note with a principal_amount equal to the amount currently outstanding on the esop_loan the note restructuring will provide company greater cash_flow flexibility without significantly changing the benefit stream to the esop participants as a result of the proposed transaction and in accordance with the terms of the new note the maturity_date of the note will be deferred the obligor will be substituted and the interest rate will be altered instead of the entire unpaid principal balance together with all accrued unpaid interest being due on date the note will be restructured to provide for monthly payments of interest at the annual rate of t until date and amortized monthly payments of principal and interest at the annual rate of u amortized over a period of p years with the entire unpaid balance together with all accrued unpaid interest being due on date in addition as a result of the proposed transaction instead of the esop being the obligor on the note company currently the guarantor on the note will be substituted as the direct obligor in all other respects the terms of the note will remain unchanged taxpayer requests a ruling that the modification of the terms of the note by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of an installment_obligation within the meaning of sec_453b of the code law analysis sec_453 of the code provides that income from an installment_sale shall be taken into account under the installment_method under the installment_method a portion of the total gross_profit from an installment_sale is included in income in each year in which the seller receives payment sec_453b of the code provides that if an installment_obligation is satisfied at other than its face value or distributed transmitted sold or otherwise_disposed_of gain_or_loss shall result to the extent of the difference between the basis of the obligation and the amount_realized in the case of satisfaction at other than face value or a sale_or_exchange or the fair_market_value of the obligation at the time of distribution transmission or disposition in the case of the distribution transmission or disposition otherwise than by sale_or_exchange in short if an installment_obligation is satisfied at plr-111549-12 its face value or if it is distributed transmitted sold or otherwise_disposed_of the seller must recognize gain_or_loss at that time the internal_revenue_service has held that certain modifications of the terms of an installment_obligation are not a disposition or satisfaction of the obligation in revrul_68_419 1968_2_cb_196 the parties agreed to modify the terms of a note so that each installment of principal due by the original terms of the note would be deferred for a period of five years in addition the rate of interest was increased from six percent to seven percent per annum revrul_68_419 holds that the modification of the terms of a purchaser's note by deferring the dates of payment of principal and increasing the rate of interest is not a disposition or satisfaction of an installment_obligation within the meaning of sec_453 the predecessor of current sec_453b see also revrul_55_429 1955_2_cb_252 reaching similar results in revrul_75_457 1975_2_cb_196 a taxpayer sold real_estate to an individual for cash a deed_of_trust and a promissory note providing for monthly payments over a year term the terms of the deed and note allowed the individual to resell the property provided that the subsequent buyer executed a new note under the same terms and conditions as the original deed_of_trust the original obligor subsequently sold the property to a successor individual who assumed the obligation by executing a new deed_of_trust and note in favor of the taxpayer under the same terms and conditions as the original deed_of_trust and note the original obligor was released from liability on the original note revrul_75_457 holds that the substitution of obligors deeds of trust and promissory notes without any other changes is not a satisfaction or disposition of an installment_obligation under sec_453 of the code likewise revrul_82_122 1982_1_cb_80 holds that the substitution of a new obligor and a change in the rate of interest is not a satisfaction or disposition of an installment_obligation for purposes of sec_453b to summarizing the revenue rulings modification of an installment_obligation by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of an installment_obligation for purposes of the installment_sales provisions under sec_453b moreover where the original installment note is replaced the substitution of a new promissory note without any other changes is not a disposition of the original installment note under sec_453b conclusion based upon the facts and representations presented and the above analysis we conclude that the described modification of the terms of the note by deferring the maturity_date substituting a new obligor and altering the interest rate is not a disposition or satisfaction of an installment_obligation within the meaning of sec_453b of the code plr-111549-12 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 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 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 attaching a statement to their return that provides the date and control number of the letter_ruling this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely donna j welsh senior technician reviewer branch income_tax accounting cc


internal_revenue_service number release date index number --------------------- ---------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------ telephone number -------------------- refer reply to cc psi plr-104436-15 date august legend date husband wife trust state state ---------------------------- ----------------------------------------------------------------------------- ------------------------------------------------------------------------ ----------------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------- ------------------ ------------ investment_trust ----------------------------------------------------------------------------- ----------------------------------------------------- child child child ----------------------------------------------------------------------------- -------------------------------------------------------- ----------------------------------------------------------------------------- ------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- plr-104436-15 ----------- child ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ------- trustee ------------------------------------ power_of_appointment committee ----------------------------------------------------------------------------- ------------------------------------------------------------------------ individual individual -------------------- ---------------------- state statute -------------------------------------- dear ------------- this responds to a letter dated date and subsequent correspondence requesting rulings under the internal_revenue_code facts the information and representations submitted are as follows on date husband and wife grantors created trust an irrevocable_trust trust is sited in state and pursuant to the trust agreement is governed by the laws of state a corporate trustee trustee is the sole trustee of trust grantors reside in state a community_property_state grantors will transfer property to trust the trust agreement defines beneficiaries as the class consisting of the grantors’ issue and investment_trust the grantors’ issue is defined as the grantors’ children and the issue of the grantors’ children the grantors’ children are defined as child child child and child investment_trust is an irrevocable_trust created by husband and individual as grantors and governed under the laws of state the beneficiaries of investment_trust are the issue of husband and individual part i article second a of trust provides that until the death of the first to die of grantors the predeceased spouse at any time or times the trustee shall distribute to the beneficiaries the spouses of the grantors’ issue and or to either or both of the grantors such amounts of the net_income or principal including the whole thereof as the power_of_appointment committee committee appoints the current members of plr-104436-15 the committee are child child child child and investment_trust by its trustee individual from and after the death of the predeceased spouse and until the death of the surviving_spouse at any time or times the trustee shall distribute to the beneficiaries the spouses of the grantors’ issue and to the surviving_spouse such amounts of the net_income or principal including the whole thereof as the committee appoints while the committee is in existence the trustee shall make no distributions except as the committee appoints if and only if the committee ceases to exist then until the distribution date the disinterested trustee may pursuant to a written instrument at any time or times distribute to the beneficiaries such amounts of the net_income or principal including the whole thereof as the disinterested trustee determines in its sole and unfettered discretion the distribution date is the date of the survivor’s death if and only if the committee ceases to exist then until the death of the predeceased spouse at any time or times the disinterested trustee may distribute to either or both of the grantors such amounts of the net_income or principal including the whole thereof as the disinterested trustee determines in its sole and unfettered discretion if and only if the committee ceases to exist then from and after the death of the predeceased spouse and until the death of the surviving_spouse at any time or times the disinterested trustee may distribute to the surviving_spouse such amounts of the net_income or principal including the whole thereof as the disinterested trustee determines in its sole and unfettered discretion part i article second b provides that each of the grantors have the power in a non- fiduciary capacity at any time and from time to time to appoint to any one or more of the grantors’ issue such amounts of the principal including the whole thereof as such grantor deems advisable to provide for the health maintenance support and education of the grantors’ issue grantor’s sole power under part ii article eleventh any appointment direction determination or action by the committee must be made given or taken in a writing either executed by either of the grantors or the survivor of them and by a majority of the other members of the committee grantor’s consent power or executed by all then serving members of the committee other than the grantors unanimous member power the members of the committee serve and act in a non-fiduciary capacity at any time the committee consists of two or more members other than grantors then all the members of the committee including the grantors may by unanimous vote add one or more members to the committee provided that such members are beneficiaries if at any time the committee is reduced to one member other than the grantors the committee shall immediately cease to exist in all events the committee shall cease to exist upon the surviving spouse’s death any net_income not distributed by trustee will be accumulated and added to principal plr-104436-15 part i article second e provides that upon the death of the predeceased spouse the predeceased spouse’s entire_interest in the property in trust shall be distributed to such person or persons or entity or entities other than the predeceased spouse the predeceased spouse’s estate the creditors of the predeceased spouse or the creditors of the estate of the predeceased spouse as the predeceased spouse may appoint by will predeceased grantor’s testamentary power part i article second f provides that upon the death of the predeceased spouse the balance of the predeceased spouse’s remaining interest in the property in trust which the predeceased spouse has not effectively appointed by will predeceased spouse balance shall be distributed as follows ten percent to investment_trust and the balance in further trust to grantors’ then living issue per stirpes the portion of the property remaining after the distribution of the predeceased spouse balance shall continue to be held and administered pursuant to the provisions of trust part i article second h provides that upon the death of the surviving_spouse the then remaining balance of trust shall be distributed to such person or persons or entity or entities other than the surviving_spouse the surviving spouse’s estate the creditors of the surviving_spouse or the creditors of the estate of the surviving_spouse as the surviving_spouse may appoint by will surviving grantor’s testamentary power upon the death of the surviving_spouse the balance of the surviving spouse’s remaining interest in the property in trust which the surviving_spouse has not effectively appointed by will shall be distributed as follows ten percent to investment_trust and the balance in further trust to grantors’ then living issue per stirpes part ii article seventh a provides that the grantors are married to one another the transferred property described in schedule a of trust is community_property and the grantors may hereafter either singly or jointly transfer to the trustee other_property which either is community_property or is being transmuted into community_property each of the grantors affirmatively and expressly intends that any and all property transferred to the trustee prior to the death of the predeceased spouse is and shall retain its character as community_property part ii article seventh c provides that any distribution pursuant to the terms of trust to either of them prior to the death of the predeceased spouse is and shall be a distribution of community_property part ii article seventh d provides that all distributions of the net_income or principal prior to the death of the predeceased spouse whether made by the committee the disinterested trustee or a grantor’s exercise of the powers retained by such grantor to a beneficiary is and shall be a distribution out of community_property part ii article seventh e provides that with respect to the power_of_appointment retained by the grantors prior to the death of the predeceased spouse any such appointment by a grantor of the principal shall be funded equally from each grantor’s plr-104436-15 share of community_property held in trust each grantor consents to all such distributions by the other grantor part ii article seventh f provides that each of the grantors affirmatively agrees and confirms that upon any distribution other than to one of the grantors such property shall be funded equally from each grantor’s share of community_property held in trust and such property shall automatically and irrevocably be transmuted and shall cease to be community_property furthermore each of the grantors assigns transfers waives and releases irrevocably any community_property interest to which he or she may hereafter become entitled to with respect to such distribution and consents to all such distributions by the committee pursuant to part ii article eleventh part ii article fifth a provides that it is the grantors’ intention that no transfer by either of the grantors to any trust created hereunder shall be a completed_gift and it is also the grantors’ intention that during any period of time in which the committee is in existence but only during any such period neither of the grantors shall be treated as the owner of any portion of any trust created hereunder under sec_671 through of the internal_revenue_code code state statute provides that all property real or personal wherever situated acquired by a married_person during the marriage while domiciled in state is community_property you requested the following rulings as long as the power_of_appointment committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing under sec_671 the taxable_income deductions and credits of husband wife or any members of the committee the contribution of property to trust by husband and wife will not be a completed_gift subject_to federal gift_tax any distribution_of_property by the committee from trust to husband or wife will not be a completed_gift subject_to federal gift_tax by any member of the committee any distribution_of_property by the committee other than husband and wife from trust to any beneficiary of trust other than husband or wife will not be a completed_gift subject_to federal gift_tax by any member of the committee no member of the committee other than husband and wife upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust and plr-104436-15 the basis of all community_property in trust on the date of death of the predeceased spouse will receive an adjustment in basis to the fair_market_value of such property at the date of death of the predeceased spouse assuming that the committee is in existence at the time of the death of the predeceased spouse such that trust is not a grantor_trust as to either grantor ruling law and analysis sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the powers described in sec_674 regardless of whom held sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the plr-104436-15 income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor's spouse held or accumulated for future distribution to the grantor or the grantor's spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof based solely on the facts and representations submitted we conclude an examination of trust reveals none of the circumstances that would cause husband or wife to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 or sec_677 as long as the committee remains in existence because none of the members of committee has a power exercisable by himself to vest trust income or corpus in himself none shall be treated as the owner of trust under sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of husband or wife under sec_675 thus the circumstances attendant on the operation of trust will determine whether husband or wife will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which plr-104436-15 must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition whether for the donor’s own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 also provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor’s descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard sec_25_2511-2 provides that a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply plr-104436-15 sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25 b provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a coholder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer’s gift was complete in when he relinquished his right to change the beneficiaries of the trust a grantor’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case husband and wife each retained the grantor’s consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom pursuant to article second paragraph f upon the predeceased spouse’s death the predeceased spouse’s remaining interest in trust ie one-half that the predeceased spouse did not effectively appoint pursuant to his or her limited testamentary_power_of_appointment predeceased spouse balance shall be distributed out of and shall no longer be subject_to the terms of trust consequently upon the death of the predeceased spouse the committee will no longer possess any powers over the property transferred to trust by the predeceased spouse under sec_25 b a coholder of a power is only considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate accordingly upon the predeceased spouse’s death the committee members would not be takers in plr-104436-15 default and do not have interests adverse to the predeceased spouse under sec_25 b and for purposes of sec_25_2511-2 they are merely coholders of the power at the time of the predeceased spouse’s death therefore the predeceased spouse is considered as himself or herself possessing the power to distribute income and principal to any beneficiary because he or she retained the grantor’s consent power the retention of the power with respect to the predeceased spouse causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes likewise after the predeceased spouse’s death the surviving_spouse continues to retain the grantor’s consent power over the balance of the trust the committee members are not takers in default for purposes of sec_25_2514-3 they are merely coholders of the power the committee ceases to exist upon the death of the surviving_spouse accordingly upon the surviving spouse’s death the committee members do not have interests adverse to the predeceased spouse under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore the predeceased spouse is considered as himself or herself possessing the power to distribute income and principal to any beneficiary because he or she retained the grantor’s consent power the retention of the power with respect to the surviving_spouse causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes husband and wife also each retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries in this case the grantor’s sole power gives each of husband and wife the power to change the interests of the beneficiaries accordingly the retention of the grantor’s sole power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further each of husband and wife retained the predeceased grantor’s testamentary power or surviving grantor’s testamentary power depending on the order of their deaths to appoint the property in trust to any person or persons or entity or entities other than each respective grantor’s estate grantor’s creditors or the creditors of grantor’s estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal gift_tax purposes finally the committee possesses the unanimous member power over income and principal this power is not a condition_precedent to husband’s or wife’s powers husband’s and wife’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent husband and wife retain dominion and control_over the income and principal of trust until the committee members exercise their unanimous member power accordingly this power does not cause the transfer of plr-104436-15 property to be complete for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by husband and wife is not a completed_gift subject_to federal gift_tax part ii article seventh c provides that any distribution pursuant to the terms of trust to either of husband or wife prior to the death of the predeceased spouse is and shall be a distribution of community_property accordingly any distribution from trust to either grantor is merely a return of each grantor’s property therefore we conclude that any distribution_of_property by the committee from trust to husband or wife will not be a completed_gift subject_to federal gift_tax by any member of the committee further upon the predeceased spouse’s death the fair_market_value of the predeceased spouse’s interest in trust is includible in the predeceased spouse’s gross_estate for federal estate_tax purposes moreover upon the surviving spouse’s death the fair_market_value of the balance in trust is includible in the surviving spouse’s gross_estate for federal estate_tax purposes ruling sec_4 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor’s estate the possessor’s creditors or the creditors of the individual’s estate sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor’s estate or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest plr-104436-15 shall be deemed adverse to such exercise of the possessor’s power sec_25_2514-3 provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditor or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer or property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides however that in the case of a power_of_appointment created after date which is exercisable by the decedent only in conjunction with another person if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent - such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent’s power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for plr-104436-15 example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the powers held by the committee members under the grantor’s consent power are powers that are exercisable only in conjunction with the creators husband or wife accordingly under sec_2514 and sec_2041 the committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the committee members under the unanimous member powers are not general powers of appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and sec_20_2041-3 the committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than grantors pursuant to the exercise of these powers the grantor’s consent power and the unanimous member powers are not gifts by the committee members instead such distributions are gifts by the grantors based upon the facts submitted and representations made we conclude that any distribution_of_property by the committee from trust to any beneficiary of trust other than the grantors will not be a completed_gift subject_to federal gift_tax by any member of the committee further we conclude that any distribution_of_property from trust to a beneficiary other than grantors will be a completed_gift by the grantors part ii article seventh d provides that all distributions of the net_income or principal prior to the death of the predeceased spouse whether made by the committee the disinterested trustee or a grantor’s exercise of the powers retained by such grantor to a beneficiary is and shall be a distribution out of community_property accordingly distributions to beneficiaries other than grantors will be gifts made one-half by each grantor finally we conclude that the powers held by the committee members are not general powers of appointment for purposes of sec_2041 and accordingly the possession of these powers by the committee members will not cause trust property to be includible in any committee member’s gross_estate under sec_2041 ruling sec_1014 provides in part that except as otherwise provided in this section the basis_of_property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent will if not sold exchanged or otherwise_disposed_of before the decedent’s death by such person be the fair_market_value of the property at the date of the decedent’s death sec_1014 provides that in the case of decedents dying after date property which represents the surviving spouse’s one-half share of community_property held by the decedent and the surviving_spouse under the community_property plr-104436-15 laws of any state is considered for purposes of sec_1014 to have been acquired from or to have passed_from_the_decedent if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedent’s gross_estate sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2038 provides that the value of the decedent’s gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the three-year period on the date of the decedent’s death grantors were married and reside in state a community_property_state part ii article seventh a provides that all transferred property to trust is community_property or is being transmuted into community_property moreover any and all property transferred to trust prior to the death of the predeceased spouse is and shall retain its character as community_property pursuant to part ii article seventh c any distribution to either of husband or wife prior to the death of the predeceased spouse is and shall be a distribution of community_property husband and wife each retained the grantor’s sole power and the predeceased spouse retains the predeceased grantor’s testamentary power as concluded above upon the death of each grantor his or her respective interest in trust as either the predeceased spouse or the survivor spouse will be includible in their respective gross estates for federal estate_tax purposes accordingly based upon the facts submitted and representations made we conclude that the basis of all community_property in trust on the date of death of the predeceased spouse will receive an adjustment in basis to the fair_market_value of such property at the date of death of the predeceased spouse assuming that the committee is in existence at the time of the death of the predeceased spouse such that trust is not a grantor_trust as to either grantor plr-104436-15 except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on trust provisions permitting the trustee to distribute income or principal to trustees of qualified trusts this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to the taxpayer's authorized representative sincerely faith p colson faith p colson senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury index number 468a 468a washington dc person to contact telephone number refer reply to cc dom p si date feb plr-119077-98 re reauest for a revised schedule of ruling amounts taxpayer t i parent plant location commission a commission b district fund dear this fetter responds to the request of taxpayer dated date and supplemental information submitted by taxpayer for a revised schedule of ruling amounts in accordance with sec_1_468a-3 of the income_tax regulations taxpayer was previously granted a revised schedule of ruling amounts on date information for the schedule of ruling amounts was submitted on behaif of the taxpayer pursuant to sec_1_468a-3 taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer is percent owned by parent and files a consolidated federal_income_tax return with parent taxpayer has a direct ownership_interest of in plant which is situated in location taxpayer is under the audit jurisdiction of the district_director of district percent lyvue ey e r plr-119077-98 plant's operating license expires in - taxpayer is subject_to the jurisdiction percent of the taxpayer's total electric sales and of commission a which covers percent for a total of percent these percentages commission b which covers may vary slightly from year to year the estimated base cost for decommissioning the plant is based on an independent study and is premised on the prompt removal immediate dismantling method _ effective date authorized commission a in docket no nuclear decommissioning costs to be included in the taxpayer's cost of service for this ratemaking purposes for the plant in the amount of percent base cost escalated using an estimated after-tax rate of return on assets of results in an estimated future decommissioning cost of these rates were estimated after taking into consideration the tax and investment changes made to sec_468a of the internal_revenue_code made by of the energy policy act of amounts for commission b are not specifically reviewed herein there are no proceedings pending before either commission a or commission b that may result in an increase or decrease in the amount of decommissioning costs for the plant to be included in taxpayer's cost of service for ratemaking purposes the funding_period and level_funding limitation period for the plant extends from the estimated period for which the fund will be in effect is the estimated_useful_life of the plant is thus the taxpayer has calculated its qualifying percentage to be percent sec_468a of the internal_revenue_code provides that a taxpayer may elect to deduct the amount of payments made to a qualified nuclear decommissioning fund however sec_468a limits the amount_paid into the fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to the fund that is included in the taxpayer's cost of service for ratemaking purposes for the taxable_year or the ruling_amount applicable to that year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any taxable_year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear plr-119077-98 decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the taxable_year if the payment is made on account of the taxable_year within months after the close of the taxable_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 is a taxpayer that has a qualifying interest in a nuclear power plant as defined under sec_1_468a-1 a qualifying interest is among other things a direct ownership_interest including an interest held as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any taxable_year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such taxable_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the taxable years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission s in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in the taxpayer's income under sec_88 of the code and the regulations thereunder each schedule of ruling amounts shall be based on the public_utility commission's reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated cost of decommissioning the nuclear power plant and iii the frequency of contributions to the nuclear decommissioning fund for a taxable_year u plr-119077-98 sec_1_468a-3 of the regulations requires the internal_revenue_service to provide a schedule of ruling amounts that is identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of this section sec_1_468a-3 of the regulations provides that the ruling_amount specified in a schedule of ruling amounts for any taxable_year in the level_funding limitation period shall not be less than the ruling_amount specified in such schedule for any earlier taxable_year under sec_1_468a-3 the leve funding limitation period begins on the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the fast day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the funding_period for a nuclear decommissioning fund is the period that begins on the first day of the first taxable_year for which a deductible payment is made or deemed to be made to such nuclear decommissioning fund and ends the later of i the last day of the taxable_year that includes the estimated date on which decommissioning costs of the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer's cost of service for ratemaking purposes or ii the last day of the taxable_year that includes the estimated date on which the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning the plant multiplied by the taxpayer's qualifying interest in the plant plr-119077-98 sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to the fraction the numerator of which is the number of taxable years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of taxable years in the estimated_useful_life of the applicable nuclear power plant sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the tater of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power piant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that if two or more public_utility commissions establish or approve rates for electric energy generated by a single nuclear power plant then the schedule of ruling amounts shall be separately determined pursuant to the rules of sec_1_468a-3 through e for each public_utility commission that has determined the amount of decommissioning costs to be included in the cost of service for ratemaking purposes for this plant under sec_1_468a-3 ch oe ar xe uh ee be i plr-119077-98 this separate determination shall be based on the reasonable assumptions and determinations used by the relevant public_utility commission and shall take into account only that portion of the total estimated cost of decommissioning that is properly allocable to the ratepayer whose rates are established or approved by the public_utility commission according to sec_1_468a-3 the ruling amounts for any taxable_year is the sum of the ruling amounts for such taxable_year determined under the separate schedules of ruling amounts sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant to which the nuclear decommissioning fund relates has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 iii of the regulations provides that a taxpayer is required to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by a nuclear power plant to which the nuclear decommissioning fund relates increases the proposed period over which decommissioning costs of the nuclear power plant will be included in cost of service for ratemaking purposes adjusts the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for any taxable_year and b the taxpayer's most recent request for a schedule of ruling amounts did not provide notice to the service of such action by the public_utility commission sec_1_468a-3 of the regulations provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year plr-119077-98 we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in the sec_468a of the code and the regulations thereunder the following conclusions based solely on these representations of the facts we reach taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commissions a and b have determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations taxpayer has determined that pursuant to sec_1_468a-3 of the regulations the qualifying percentage is percent taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commissions a and b and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund the maximum amount of cash payments made or deemed made to the fund during any taxable_year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations taxpayer subject_to the jurisdiction of two public_utility commissions for ratemaking purposes has calculated its share of the total decommissioning costs allocable to commissions a and b as required by sec_1_468a-3 of the regulations based on the above determinations we conclude that the taxpayer's proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code plr-119077-98 approved schedule of ruling amounts taxable years through commissions a and b year comm a comm b’ total approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time this ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadiine of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code as stated above payments made to the fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to the fund or the ruling amounts applicable to the fund in the taxable_year this letter_ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent ‘ amounts for commission b are not specifically reviewed herein and are merely reprinted to arrive at the amount for the total annual ruling_amount for purposes of the mandatory review required under sec_1_468a-3 of the regulations the date of the schedule of ruling amounts approved by the service on date governs the review period for the commission ruling amounts plr-119077-98 pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each taxable_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours chota b resale charles b ramsey chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jun q 6et ep ator re this letter is in response to your request with respect to the above-referenced defined benefit pension_plan pursuant to revproc_90_49 for the plan_year commencing date revproc_90_49 sets forth the procedure whereby under certain circumstances a disallowance of the deduction of employer contributions to a qualified defined benefit pension_plan may be obtained thereby fulfilling a condition under which such contributions could revert to the employer based upon the information submitted we have determined that contributions amounting todollar_figure -_-_ which were made for the plan_year commencing may be considered as disallowed to the extent that they are not deductible solely for the purpose of applying revrul_91_4 1991_1_cb_57 therefore the return of contributions not exceeding dollar_figure affect the qualified status of the plan provided this reversion occurs no later than one year from the date of this letter however if it is not returned by your tax filing_date including extensions filed for and granted the tax under sec_4972 would apply in granting this approval we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request would not adversely this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year commencing date a copy of this letter must be attached to the schedule b actuarial information hence a copy of this letter should be provided to the enrolled_actuary servicing the plan we have sent a copy of this letter to the manager ep classification in require further assistance in this matter please contact if you at sincerely yours j in aa donna m prestia acting manager employee_plans actuarial group


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc dom p si plr-120667-98 date dec legend state d1 this responds to your representative's letter dated date written on behalf of x requesting a ruling that x's s_corporation status will be effective as of d1 facts x was incorporated under state law on d1 x’s shareholders intended that x be an s_corporation for federal tax purposes as of d1 however no election to be treated as an s_corporation was timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation's taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation cc dom p si plr-120667-98 until the taxable_year after the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of its tax_year x’s s_corporation_election was not filed timely for the election to be effective as of its tax_year beginning on d1 nevertheless x has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 we conclude that x will be recognized as an sdollar_figure corporation effective d1 please file a completed form_2553 with a copy of this ruling attached reflecting x's election of subchapter_s_corporation status as of d1 with the applicable service_center within days of the date of this letter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative in addition returned herewith is the original form_2553 sj ne daniel j def a- assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes form_2553


internal_revenue_service number release date index number 468a ------------------------ --------------------------- --------------------------------------------------- -------------------------------------- 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 ita b01 plr-119801-15 date december legend taxpayer parent commission a b plant year year year year court dear ---------------- ----------------------------------------------------- --------------------------------------------------- -------- ------ --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------- ------- ------- ------- ---------------------------------------------------------------------- this letter responds to your request for a letter_ruling that was submitted on behalf of taxpayer by your authorized representative taxpayer has requested the following two rulings taxpayer is entitled to a loss deduction in year pursuant to sec_165 of the internal_revenue_code for costs related to the construction and abandonment of an independent spent fuel storage installation isfsi which loss has not been compensated for by insurance or otherwise and the isfsi costs are otherwise deductible nuclear decommissioning costs within the meaning of sec_1 468a- b of the income_tax regulations facts plr-119801-15 taxpayer represents the facts and information related to its request for rulings as follows taxpayer a corporation is a wholly-owned subsidiary of parent parent and its affiliated_group_of_corporations including taxpayer electronically file a consolidated federal_income_tax return on a calendar_year basis using the accrual_method of accounting taxpayer is a public_utility regulated by the commission it owns a a percent interest in and is responsible for b percent of the decommissioning liability for plant plant is a nuclear generating facility that permanently ceased operations in year as a result and pursuant to nuclear regulatory commission nrc regulations the operating licenses for plant no longer authorize its operation or the emplacement or retention of fuel in plant’s reactors’ vessels taxpayer established a qualified nuclear decommissioning fund fund for plant and has made annual deductible contributions to the fund for taxable years year through the first quarter of year pursuant to a series of schedules of ruling amounts approved by the service the ruling amounts approved by the service are based on estimated nuclear decommissioning costs approved by the commission in determining rates for taxpayer’s customers ratepayers the estimated costs are based on studies that looked at the cost to construct operate and decommission an on-site isfsi for plant the nuclear waste policy act of states that the united_states government is responsible for the permanent disposal of high-level radioactive waste and spent nuclear fuel taxpayer as a condition of its nrc license entered into contracts with the united_states department of energy doe to provide for the disposal of its nuclear waste spent nuclear fuel is a highly radioactive byproduct of nuclear power generation that must cool in a spent fuel pool for three to five years before it is moved to either temporary or permanent dry storage after the cooling period taxpayer moves the nuclear waste to dry storage in an isfsi taxpayer is responsible for the storage and related costs of nuclear waste until it is accepted by the doe by the end of july year all fuel was removed from plant and placed in interim wet storage taxpayer began incurring costs for construction of an isfsi at plant in year the isfsi is primarily underground and consists of vertical modules embedded in concrete on a concrete pad when spent fuel is removed from the wet storage pool it is placed permanently in canisters that are lowered into the vertical modules and covered by a steel and concrete lid taxpayer currently incurs and will incur additional costs to expand the isfsi so that all nuclear waste can be safely and securely held in dry storage pending transfer to the doe plr-119801-15 the doe has not yet constructed a permanent repository for nuclear waste and for this reason will not accept taxpayer’s nuclear waste for disposal taxpayer has filed complaints against the doe for breach of contract in the court for costs incurred by taxpayer from year to year taxpayer has been awarded damages for costs incurred during several years at issue litigation remains pending for other years and additional litigation is planned for current and future years taxpayer recovers isfsi costs and other decommissioning costs from ratepayers through ratemaking mechanisms approved by the commission any decommissioning costs paid for by ratepayers that are not incurred by the taxpayer or are not deemed prudent and reasonable by the commission are refunded to ratepayers through regulatory rulings the commission has required taxpayer to refund all current and future proceeds from the doe litigation to ratepayers the doe litigation proceeds go to a specified commission approved interest-bearing account and are refunded to ratepayers with interest through ratemaking mechanisms taxpayer has acknowledged that it is not entitled to doe litigation proceeds except reimbursement of reasonable_litigation_costs and will refund recovered amounts as prescribed by the commission law sec_468a of the code allows taxpayers with a qualifying interest in a nuclear power plant to currently deduct the future costs of decommissioning the nuclear power plant by making contributions to a fund prior to when economic_performance occurs sec_468a of the code generally requires the taxpayer to include in gross_income amounts that are distributed from a fund in addition to any deduction under sec_468a for contributions to a fund sec_468a recognizes that such taxpayer may deduct otherwise deductible nuclear decommissioning costs sec_1_468a-1 of the regulations states that nuclear decommissioning costs means all otherwise deductible expenses to be incurred in connection with the entombment decontamination dismantlement removal and disposal of the structures systems and components of a nuclear power plant whether that nuclear power plant will continue to produce electric energy or has permanently ceased to produce electric energy such term includes all otherwise deductible expenses to be incurred in connection with the preparation for decommissioning such as engineering and other planning expenses and all otherwise deductible expenses to be incurred with respect to the plant after the actual decommissioning occurs such as physical security and radiation monitoring expenses such term also includes costs incurred in connection with the construction operation and ultimate decommissioning of a facility used solely to store pending acceptance by the government for permanent storage or disposal spent nuclear fuel generated by the nuclear power plant or plants located on the same site as the storage_facility such term does not include otherwise deductible expenses plr-119801-15 to be incurred in connection with the disposal of spent nuclear fuel under the nuclear waste policy act of pub l an expense is otherwise deductible for purposes of this paragraph b if it would be deductible under chapter of the internal_revenue_code without regard to sec_280b sec_165 of the code provides that there shall be allowed as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise sec_1_165-1 of the regulations provides that to be allowable as a deduction under sec_165 a loss must be evidenced by closed and completed transactions fixed by identifiable events and actually sustained during the taxable_year for a loss to qualify as a deductible abandonment_loss the taxpayer must show an intention to abandon the asset and an affirmative act of abandonment in the case of physical abandonment the intent of the taxpayer must be irrevocably to discard the asset so that it will neither be used again nor retrieved for sale exchange or other_disposition a taxpayer need not relinquish title in all cases to establish abandonment see sec_1_165-2 sec_1_167_a_-8 revrul_2004_58 2004_1_cb_1043 sec_1_165-1 of the regulations provides that if an event occurs which may result in a loss and in the year of the event there exists a claim for reimbursement with respect to which there is a reasonable_prospect_of_recovery no portion of the loss with respect to which reimbursement may be received is sustained until it can be ascertained with reasonable certainty whether or not such reimbursement will be received analysis the abandonment of real_property interests where ownership has not been transferred has been addressed in a variety of circumstances an abandonment was found where the taxpayer filled and sealed a water well excavation in revrul_56_599 1956_2_cb_122 dismantled an asphalt plant moved it to another location and did not reassemble it 19_tc_259 acq 1953_1_cb_6 stopped working on a mine reduced the work force and budget to maintain it sold the mine equipment for salvage decided to abandon the mine by vote of board_of directors and wrote the mine off the company books a j industries inc v united st503_f2d_660 9th cir and locked and boarded hotel placed barricades around it cut off utilities terminated insurance discontinued maintenance and made no efforts to sell or lease it hanover v commissioner tcmemo_1979_332 a nuclear generating facility is a heavily regulated asset and one which taxpayer cannot simply walk away from board up or dismantle taxpayer has taken affirmative overt actions necessary to abandon the plant when an isfsi is constructed after a nuclear facility has ceased operation it is an integral component of the facility itself and construction of the isfsi is a necessary step in the process of decommissioning the plr-119801-15 abandoned facility the isfsi may be considered abandoned only as it is irrevocably committed to the process of decommissioning the abandoned facility costs related to an asset that can be sold or used for another purpose cannot qualify even though the taxpayer intends to use it in the decommissioning process the concrete pad and other structural_components of the isfsi are irrevocably committed to the decommissioning process as costs are incurred to build the isfsi the canisters are irrevocably committed to the decommissioning process as they are filled with spent fuel and placed in the isfsi based on the above it is held that taxpayer sustained an abandonment_loss within the meaning of sec_165 of the internal_revenue_code at issue however is whether taxpayer is precluded from claiming the deduction because it has a claim for reimbursement with respect to which there is a reasonable_prospect_of_recovery taxpayer is engaged in litigation with the doe for breach of contract related to doe’s refusal to accept taxpayer’s nuclear waste for permanent disposal and has prevailed with respect to claims for certain years taxpayer represents however that taxpayer has no legal right to the doe litigation proceeds is not in actual or constructive receipt of the proceeds and is legally obligated to refund all such proceeds to its ratepayers with interest as prescribed by the commission regulatory documents provided support this representation in year therefore taxpayer has no claim for reimbursement with respect to which there is a reasonable_prospect_of_recovery and is entitled to a deduction in year pursuant to sec_165 for the costs associated with the construction and decommissioning of the isfsi under sec_468a and the regulations thereunder to be included within the ambit of nuclear decommissioning costs all costs must be otherwise deductible sec_468a does not provide an independent basis for the deduction of any amounts except for those amounts contributed to a qualified_fund as provided in sec_468a those costs incurred in connection with the construction operation and ultimate decommissioning of a facility used solely to store pending acceptance by the government for permanent storage or disposal spent nuclear fuel generated by the nuclear power plant or plants located on the same site as the storage_facility must also be otherwise deductible as discussed above the costs associated with the construction and decommissioning of the isfsi are otherwise deductible under sec_165 accordingly we rule that these costs constitute decommissioning costs within the meaning of sec_1_468a-1 of the regulations and to the extent they are used for the purposes specified in sec_1_468a-1 may be paid out of the funds this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-119801-15 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 attaching a statement to their return that provides the date and control number of the letter_ruling 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 sincerely andrew m irving senior counsel branch income_tax accounting cc