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-105051-10 date date in re -------------------------------------------- --------------------------------------------------------- --------------------- legend ---------------------------- testator -------------------------------------- child a ----------------------------- child b --------------------------------------- child c -------------------------------- stock ------------------------------------------------------------------------------ stock trust ------------------------------------------------------------------------------ residuary_trust children’s agreement ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- state state a date date date date date date a b c d stock trust a residuary_trust a cite --------------------------------------------------------------------------------------------------- cite ------------------------------------------------------------------------------------------------------------------------ ------------------ ---------- -------------------- ------------------- ------------------------- ------------------------- ------------------------- ----------------------- ------ ------- ------ ------ ------------------------------------------------------------------------ --------------------------------------------------------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------------------------- plr-105051-10 ------------------------------------------------------------------------ ------------------------------------------------------ cite cite ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------- cite ------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ cite ------------------------------------------------------------------------ ------------------------------------------------------ cite cite ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- highest court highest court of state a state court state statute ------------------------------------------------------------------------------------------ state governing statute a --------------------------------------------- -------------------------------------------------- state governing statute b --------------------------------- state a statute ---- q r ---- ---- s ---- t u -------- -------- v --------- x ------ y z ------------ ------------------------------------------- ----------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------------------------- dear ------------ this responds to the date letter from your authorized representative requesting rulings on the income gift estate and generation-skipping_transfer gst tax consequences of a proposed settlement agreement the facts and representations are as follows testator died a resident of state on date he was survived by three children child a child b and child c the children five grandchildren the five grandchildren were then living there were no great-grandchildren at the time under articles third and eighth of testator’s will the will his shares of stock were to be held in trust the stock trust trust income was to be divided equally among the children on a child’s death the child’s income share was to be divided equally plr-105051-10 among the child’s then living children testator’s grandchildren the stock trust was to terminate twenty-one years after the death of testator’s last surviving grandchild when the principal would be divided equally per capita among testator’s then living great-grandchildren and deceased great-grandchildren whose then living descendants would take by representation under article twenty-second of the will the residue of testator’s estate was to be held in another trust the residuary_trust the residuary_trust provisions were identical to those of the stock trust except that the residuary_trust was to terminate when testator’s youngest great-grandchild reached age twenty-one the rule_against_perpetuities under the state rule_against_perpetuities in effect at testator’s death a bequest of a future_interest was void if considered prospectively at the testator’s death there was a possibility that the interest would not vest by the end of twenty-one years after the death of a life or lives in being at the testator’s death the permissible period a bequest to a class was void if there was a possibility that all the members of the class would not be ascertained and take vested interests within the permissible period a void specific_bequest passed to the testator’s residuary_estate if the testator’s disposition of the residuary_estate was void as well the residuary_estate passed as a reversion by intestacy cite in this case at testator’s death it was possible for the children to have additional children so that there could be grandchildren whose lives were not then in being this was the pivotal factor in determining whether his bequests of stock trust and residuary_trust income and remainders to his grandchildren and great-grandchildren violated the rule_against_perpetuities testator’s bequest of lifetime income interests to the grandchildren was to all of his grandchildren as a class a grandchild born after testator’s death would be part of the grandchildren’s class and would receive stock trust income_for_life based on this it was considered possible that not all of the grandchildren’s income interests would vest during lives in being at testator’s death testator’s bequests of remainders to his great-grandchildren were to vest only after all of testator’s grandchildren died the life of a grandchild born after testator’s death would also be a measuring life therefore at testator’s death it was possible that the certain annuities were also created that have since terminated each trust considered herein ie stock trust and residuary_trust in the will and stock trust a and residuary_trust a under the children’s agreement provided for distribution of the remainder at the end of twenty-one years following the death of the last survivor of the persons whose lives measured the duration of that trust because the perpetuities issue in this case centers on the lives measuring a respective trust’s duration and not on the twenty-one year period following the death of the last survivor the twenty-one year period is hereafter assumed to be a part of each trust’s duration even though it is plr-105051-10 time for vesting of the great-grandchildren’s remainders would be based on a life not in being at testator’s death accordingly the validity of these bequests was in doubt the bequests in the stock trust if void passed to the residuary_trust at testator’s death the bequests in the residuary_trust if void passed to testator’s intestate estate as a reversionary_interest the children’s agreement the children were testator’s heirs at law they acquired his property passing by intestacy consequently on date shortly after testator died the children entered into an agreement the children’s agreement revising the time when the great-grandchildren’s remainders were to vest under the children’s agreement the trusts were to terminate and the great-grandchildren’s remainders were to take effect on the death of the survivor of the children and five grandchildren that is lives in being at testator’s death the children’s agreement also changed the will’s pro_rata distribution of the stock trust and residuary_trust remainder to a per stirpes distribution on termination trust principal would be divided into three equal parts and distributed per stirpes under this revision the great-grandchildren descended from child a would share one third of the principal per stirpes those descended from child b would share a second third per stirpes and those descended from child c would share the last third per stirpes in all other respects the terms of the revised stock trust stock trust a and residuary_trust residuary_trust a were the same as those provided in testator’s will on a date before date testator’s shares of stock were transferred to stock trust a residuary_trust a was not funded it is represented that no additions have been made since then the litigation over more than x decades the trust beneficiaries and others have instituted actions for state court determinations regarding testator’s will and the children’s agreement specifically in cite the highest court of state highest court considered testator’s bequests of income interests to the grandchildren the court reasoned that under testator’s will a grandchild’s income_interest would vest when his or her parent child a child b or child c died thus the grandchildren’s class would necessarily close at the death of the last survivor of the children who were in being at testator’s death highest court held that therefore the bequest of lifetime income interests to the grandchildren as a class did not violate the rule_against_perpetuities the court held the stock trust created in the will to be valid through the lives of the grandchildren not specifically stated testator’s bequest to the grandchildren though valid did not provide for distribution of a grandchild’s income share when the grandchild died before the trust ended on the death of the first grandchild to plr-105051-10 highest court then considered testator’s bequest of remainders to his great-grandchildren the court reasoned that the grandchildren’s life estates preceded the remainders and the grandchildren’s class was not limited to lives in being at testator’s death because the remainders would take effect only after all of those including afterborn grandchildren died it was possible that the remainders would not vest within lives in being at testator’s death therefore highest court held the stock trust remainders to be void and illegal as violating the rule_against_perpetuities cite state statute the wait and see rule nearly y decades after highest court rendered its decision in cite the state legislature enacted state statute state statute provides a wait and see rule in determining whether a future_interest satisfies the rule_against_perpetuities or is void under the wait and see rule a future_interest does not violate the rule_against_perpetuities if actual events demonstrate that the interest did in fact vest by the end of the permissible period state statute applies retroactively to all interests heretofore created following the enactment of state statute highest court considered the statute’s retroactivity cite in the case before the court the trust was created many decades before state statute was enacted at the time of creation certain interests were void as violating the rule_against_perpetuities however highest court applied state statute’s wait and see rule to conclude in retrospect that the interests were not void and did not violate the rule_against_perpetuities as a result the courts of state now apply the wait and see rule retroactively to conclude that a future_interest that was void when created many years before state statute was enacted is not void because in hindsight it vested before the permissible period ended accordingly such otherwise void interests are retroactively sustained as not violating the rule_against_perpetuities cite however highest court has not yet addressed due process issues that may be presented die on date the trustees petitioned the state court for instructions the state court held that based on testator’s intent a deceased grandchild’s children succeeded to the income share for the duration of the trust cite by inference highest court also considered testator’s bequest of the residuary_trust remainders highest court in effect confirmed that the stock trust remainder and residuary_trust remainder passed by intestacy to the children however the court did not rule on how the remainder would pass to the great-grandchildren in contrast the legislature of state a enacted state a statute which like state statute retroactively applies a wait and see rule to determine whether a future_interest that was void at the time it was created before the state a statute was enacted did in fact vest during the permissible period highest court of state a refused to apply the wait and see rule retroactively despite the relevant language in plr-105051-10 the actualities in this case no additional grandchildren were born after testator’s death the lives of the children and the five grandchildren were all in being at testator’s death all of the children have died the last survivor of the five grandchildren died on date at the time there were z great-grandchildren of testator the trust will terminate twenty-one years after date which is date of testator’s z great-grandchildren a descended from child a b descended from child b and c descended from child c if the wait and see rule is applied to validate testator’s bequest of remainders to his great-grandchildren the principal would be divided into z equal shares and distributed under the will alternatively if testator’s disposition of the remainders is considered void the principal would be divided into three equal shares and distributed per stirpes under the children’s agreement the portion of a one-third share distributable to a great-grandchild would depend on the framework of the family line ie child a’s child b’s or child c’s to which that great-grandchild belongs great-grandchildren’s litigation there is a substantial difference between what a great-grandchild would receive in a per capita distribution and what he or she would receive in a per stirpes distribution on date the great-grandchildren benefitting from a per capita distribution the per capita parties instituted their action in state court for adjudication on the distribution of the stock trust remainder the great-grandchildren benefitting from a per stirpes distribution the per stirpes parties opposed the suit and also requested adjudication in addition an action was instituted concerning the distribution of income during the twenty-one year period state court combined the proceedings to consider the income and principal issues together cite over a d-year period guardians ad litem were appointed there was extensive discovery counsel filed three voluminous sets of briefs and the court heard two days of oral arguments the per capita parties argued that the wait and see test of state statute now applies under that test testator’s the will’s disposition of the stock trust remainder does not violate the rule_against_perpetuities therefore the stock trust principal is distributable per capita to testator’s living great-grandchildren and deceased great-grandchildren whose living descendants would take by representation the per stirpes parties argued that the highest court’s determinations were final and state a statute instead that court addressed issues of constitutionality and held that state a statute could not be applied retroactively to destroy vested or substantive rights created before state a statute was enacted cite plr-105051-10 those rulings can not now be constitutionally impaired by a later-in-time state statute or judicial_ruling because highest court determined the remainders in the will to be void they passed as reversionary interests by intestacy to the children as such the remainders passed per stirpes under the children’s agreement some parties argued that trust income should be distributed per stirpes through the roots of the children for the duration of the stock trust others argued that the income is distributable per capita the court encouraged the parties to explore ways to resolve their differences through negotiation and compromise rather than through continued litigation among the potential outcomes regarding trust principal was a judicial_ruling that i ii iii principal is distributable per capita on date under the terms of the stock trust in the will or principal is distributable per stirpes on date under the terms of the children’s agreement or principal was distributable as of the last surviving grandchild’s death under the residuary_trust in the will which vested or will vest in the takers under the residuary_trust among the potential outcomes regarding trust income was a judicial_ruling that iv v vi income is distributable per stirpes from the death of the last surviving grandchild to date under either the will or the children’s agreement or income is distributable per capita from the death of the last surviving grandchild to date under the will or the children’s agreement or all rights to receive stock trust income terminated when the last surviving grandchild died at which time the stock trust principal was distributable under the residuary_trust of the will the great-grandchildren’s settlement agreement the parties negotiated extensively at the outset they agreed that the issues could be settled using a fractional difference settlement based on an assessment of the relative strengths of their adverse positions under the general framework of the compromise the great-grandchildren’s settlement agreement the ggc agreement provides for the stock trust principal to be divided into z separate shares based on the number of testator’s then living plr-105051-10 great-grandchildren and deceased great-grandchildren with then living children the share of a deceased great-grandchild will be divided per stirpes among that great-grandchild’s living descendants the stock trust assets will be divided in accordance with certain percentages the formula of the compromise provides for a q per stirpes r per capita fractional difference as to income and an s per stirpes t per capita fractional difference as to principal after the division into separate shares u of each great-grandchild’s share will be distributed outright to the great-grandchild if living or if the great-grandchild is deceased to his or her living descendants per stirpes the remaining v of each share will continue in trust for such great-grandchild or such descendants until the termination_date date each share will be a separate trust the respective great-grandchild or deceased great-grandchild’s descendants will be the sole beneficiary of the share for distributions of income and principal a sophisticated algorithm taken to thirteen decimal places will be used in the pro_rata division and outright distributions the division will take into account both the market_value and respective tax bases of the assets the ggc agreement was presented to state court for consideration the state court approved the settlement and ordered the division and distribution of the stock trust as set forth in the ggc agreement the ggc agreement is subject_to a favorable ruling from the internal_revenue_service you have asked for the following rulings the terms of the ggc agreement will not cause distributions from the stock trust or the continuing separate settlement trusts to become subject_to the generation-skipping_transfer_tax the terms of the ggc agreement will not cause any party to the agreement to make a gift to any other party to the ggc agreement the terms of the ggc agreement will not cause any party to the agreement to be required to include trust assets in his or her gross_estate unless such assets are distributable or have been distributed to such party prior to his or her death the terms of the ggc agreement will not cause any party to the agreement to realize income from the sale_or_exchange of any trust assets or interests ruling generation-skipping_transfer gst tax for purposes of describing the ggc agreement the stock trust and stock trust a are considered to be the same trust plr-105051-10 sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however under 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 under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date 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 under sec_26_2601-1 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to chapter if the settlement is the product of arm's length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties' assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes in this case the stock trust was irrevocable on date further it is represented that there have been no actual or constructive additions to the stock trust after date accordingly the stock trust is exempt from gst tax under sec_26_2601-1 the terms of the ggc agreement including the proposed division of the stock trust into separate shares and partial distributions of principal are the result of a settlement of substantial issues between the per capita parties and the per stirpes parties these issues have been tenaciously litigated over more than x decades highest court rendered opinions regarding these trusts many years ago however state statute has since been enacted with retroactive effect and highest court has affirmed state statute’s retroactive application to a similarly-created trust in light of this that court’s earlier determinations of the issues in this case are now in question plr-105051-10 we conclude that the ggc agreement constitutes a settlement of bona_fide issues concerning the provisions of the stock trust and its administration we also conclude that the terms of the ggc agreement are the product of arm's length negotiations they represent a compromise between the positions of the parties and reflect the parties' assessments of the relative strengths of their positions we further conclude that the ggc agreement is within the range of reasonable outcomes under the governing instruments and the applicable state law addressing the issues resolved in the ggc agreement accordingly based upon the facts submitted and the representations made we rule that the division of the stock trust into the z separate great-grandchildren’s trusts and the distributions to the living great-grandchildren and the descendants by representation of a deceased great-grandchild made in accordance with the ggc agreement will not cause the stock trust the continuing separate stock trusts or the distributions as described above to be subject_to the generation-skipping_transfer_tax ruling gift_tax issue sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year sec_2511 provides that the gift_tax 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_2511-1 of the gift_tax regulations provides that 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 him or her no power to change its disposition whether for his or her own benefit or for the benefit of another the gift is complete sec_25_2511-1 provides that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax whether an agreement settling a dispute is effective for gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party's claim if it is determined that each party has a valid claim the service must determine that the distribution under the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated plr-105051-10 the proposed settlement is a mediated settlement and is based on arm's length negotiations among all the parties all interested parties who hold or may hold an interest in the trusts including any minors and unborn heirs have been represented in the negotiations as discussed above the ggc agreement represents the resolution of a bona_fide controversy between the parties the terms of the ggc agreement are the product of arm's length negotiations and represent i a compromise between the positions of the per capita parties and the per stirpes parties and ii reflect the parties' assessments of the relative strengths of their positions we further conclude that the ggc agreement is within the range of reasonable outcomes under the governing instruments and applicable state law accordingly based on the facts submitted and representations made we conclude that the terms of the ggc agreement as described above will not cause any of the beneficiaries to have made a taxable gift_for purposes of the federal gift_tax under sec_2501 ruling estate_tax issue sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of death sec_2035 provides that if the decedent transferred an interest in property or relinquished a power with respect to any property during the 3-year period ending on the date of death and the value of the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the interest or power had been retained by the decedent on the date of death then the value of the gross_estate includes the value of the property or interest that would have been so included 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 the case of a bona_fide sale for an 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 that does not in fact end before his death 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 from the property plr-105051-10 sec_2037 provides that the value of the gross_estate includes 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 an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate includes 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 fine 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 either by the decedent alone or in conjunction with any person to alter amend or revoke or where the decedent relinquished any such power during the 3-year period ending on the date of the death sec_2041 provides that the value of the gross_estate shall include the value of all property with respect to which the decedent possessed a general_power_of_appointment at the time of death sec_2041 defines the term general_power_of_appointment as a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate in order for sec_2035 through to apply a decedent must have made a transfer of property or an interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth under which the decedent retained an interest in or power over the income or corpus of the transferred property as discussed above the ggc agreement represents the resolution of a bona_fide controversy between the parties it is a settlement of bona_fide issues and is the product of arm's length negotiations it reflects the parties' assessments of the relative strengths of their positions no great-grandchild or deceased great-grandchild’s descendants by representation has made a transfer to the stock trust or to any other great-grandchild by reason of the settlement agreement accordingly based upon the facts submitted and representations made we conclude that the terms of the ggc agreement will not cause any party to the agreement to have made a transfer within the meaning of sec_2035 through however once the ggc agreement becomes effective any trust property actually distributed or receivable by a beneficiary or his or her assignee would generally be included in the beneficiary’s federal transfer_tax base see eg sec_2033 sec_2041 sec_2501 ruling income_tax issue plr-105051-10 sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained 499_us_554 addresses the issue of whether a sale_or_exchange that has taken place results in the realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court in cottage savings u s pincite concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite in the present case state governing statute a allows the court for cause shown to authorize the division of a_trust into two separate trusts on such terms and conditions and with such notice as the court directs in addition state governing statute b gives trustees the power to distribute in cash or in_kind or partly in each and allocate particular assets in proportionate or disproportionate shares plr-105051-10 in this case the court order approving the ggc agreement orders the division and distribution of the stock trust as set forth in the ggc agreement accordingly the court approved the non-pro rata distributions called for in the ggc agreement and further authorized the trustees to make the necessary transfers and assignments of the unconverted investment securities t herein awarded in_kind accordingly the submission concludes that the distribution scheme in this case is authorized by state law we agree the stock trust will be divided into z trusts on a non pro-rata basis under the state statutes cited above the court has the authority to authorize the trustees to make this type of non pro-rata apportionment thus the proposed division and distribution of the stock trust assets among the z trusts will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries within the meaning of cottage savings accordingly based upon the facts submitted and representations made we conclude that the division of the stock trust into the z great-grandchildren’s trusts will not result in the recognition of gain_or_loss under sec_1001 by the stock trust any beneficiary of the stock trust or any separate great-grandchild’s trust the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours leslie h finlow acting senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosure copy for purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b1-plr-104528-03 date april legend x date dear this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on date the shareholder of x desired that x elect s_corporation treatment effective on date but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date 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 sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed plr-104528-03 sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not timely file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 effective date with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number --------------------------- -------------------------- ------------------------------------------------ ---------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ----------------- telephone number --------------------- refer reply to cc corp b02 plr-124036-08 date date legend us parent foreign parent foreign_subsidiary country a exchange business dear ----------------- ------------------------------------------------ ----------------------- ------------------- ------------------------------- ------------------------------- ------------------------------- ------------ ------------------------------------ ---------------------------------------------------------------------------- ------------------------------------------------------------------------ ---------------------------------------------------- this is in response to a letter dated date requesting rulings as to the federal_income_tax consequences of a series of proposed transactions the information submitted in that request and in later correspondence is summarized below us parent a domestic_corporation is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return the us parent group on the basis of a calendar taxable_year using the accrual_method of accounting plr-124036-08 us parent is a wholly owned indirect subsidiary of foreign parent a publicly traded country a corporation that is listed on the exchange foreign parent is the parent of a worldwide group of foreign and domestic operating companies the foreign parent group the foreign parent group engages in business domestic members of the foreign parent group including the us parent group conduct this business within the united_states while other members of the foreign parent group that are foreign_corporations the foreign affiliates conduct this business outside the united_states foreign parent the foreign affiliates and the us parent group constitute a controlled_group within the meaning of sec_267 the foreign affiliates maintain books_and_records that recognize income from business operations in accordance with generally_accepted_accounting_principles none of the foreign affiliates conducts a trade_or_business_within_the_united_states transactions between domestic members and foreign members of the foreign parent group are generally priced in dollars exposing members of the foreign parent group that do not use the dollar as their functional_currency to currency risk such risk may be hedged in contracts with foreign_subsidiary a country a corporation that is a member of the foreign parent group which in turn may consolidate the currency risks of hedging contracts with its affiliates and hedge the net risk with a third party the foreign parent group also uses currency hedging contracts to mitigate the asymmetrical tax consequences of transactions between members of the foreign parent group that use different functional currencies for example when a dollar member of the foreign parent group enters into a dollar contract with a nondollar member the taxable gain_or_loss that is generated for the nondollar member by exchange-rate changes may be mitigated by having the nondollar member enter into a currency hedging contract with a third party or with foreign_subsidiary this asymmetrical impact on the foreign parent group’s effective_tax_rate is ordinarily mitigated by causing the nondollar member to enter into a currency hedging contract with a third party or with foreign_subsidiary if the nondollar member cannot for financial or legal reasons enter into the hedging contract the asymmetrical impact can nevertheless be mitigated by causing a dollar member with the same effective_tax_rate to enter into a currency contract of the same magnitude depending upon exchange rate changes a member of the us parent group that enters into such a contract with foreign_subsidiary may from time to time realize a loss that is treated for us tax purposes as a loss from the sale of property to a related_person a foreign_affiliate of the foreign parent group that enters into a currency contract with another member will recognize gain_or_loss on the transaction in accordance with its method_of_accounting us parent has stated that some or all of such gain_or_loss may be excluded from gross_income because it is from sources without the united_states and is not effectively connected with the conduct_of_a_trade_or_business within the united_states plr-124036-08 us parent has made the following representations with respect to the transactions described above a b c members of the foreign parent group that have a nondollar functional_currency but borrow in dollars ordinarily conduct a significant portion of their business in dollars no member of the us parent group will be entering into the currency contracts covered by the ruling below with the purpose or expectation that it will more likely realize an exchange loss than an exchange gain there is ordinarily a spread between the price at which a currency dealer buys currency from customers and sells currency to customers when a member of the us parent group enters into a currency contract to which the ruling below applies such member will receive or pay the price that would have been received or paid_by a currency dealer realizing this spread will compensate the us parent group for accommodating the needs of the foreign parent group based solely on the information submitted and the representations made we rule as follows a loss realized by a member of the us parent group from a currency contract with a foreign_affiliate that is treated as loss from the sale_or_exchange of property will be deferred under sec_267 only until the foreign_affiliate has taken its corresponding_item of income into account under the foreign affiliate’s method_of_accounting provided that no currency involved in such contract is hyperinflationary within the meaning of sec_1_988-1 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 specifically no opinion has been requested and none is expressed as to the time at which any foreign_affiliate will take its corresponding_item of income with respect to a currency contract into account under the foreign affiliate’s method_of_accounting the ruling contained in this letter is 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 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-124036-08 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 sincerely sean p duffley senior counsel branch office of associate chief_counsel corporate 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 1-plr-133005-01 date date legend x y d1 d2 this responds to a letter dated date submitted on behalf of x requesting that x be given an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be disregarded as an entity separate from its owner for federal tax purposes facts according to the information submitted y is a domestic_corporation y formed x a domestic eligible_entity on d1 x elected to be treated as an association_taxable_as_a_corporation for federal tax purposes effective on d1 on d2 x intended to elect to be disregarded as an entity separate from its owner for federal tax purposes however the form_8832 entity classification election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the code sec_301 a an eligible_entity with a single owner can elect either to be classified as an association and thus a corporation under sec_301 b or to be disregarded as an entity separate from its owner an eligible_entity may elect to change its classification by filing a form_8832 with the plr-133005-01 designated service_center sec_301_7701-3 an election can be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed sec_301_7701-3 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_9100-3 to make a regulatory election sec_301_9100-1 defines a regulatory election to mean an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of sixty days from the date of this letter to elect to be treated as disregarded as an entity separate from its owner for federal tax purposes effective d2 the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


irs department of the treasury internal_revenue_service p o box cincinnati oh number release date date date employer id number contact person id number contact telephone number form you must fi le tax years uil dear this letter is our final_determination that you don 't qualify for tax-exempt status under sec_501 ofthe internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn ' t receive a protest within the required days the proposed determination is now final you must fi le federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we' ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don ' t need to take any further action if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 we sent a copy ofthis letter to your representative as indicated in your power_of_attorney letter rev catalog number 47635z sincerely jeffrey i cooper director exempt_organizations ru lings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 a other than c redacted letter final adverse determination under 1rc sec_501 a other than c -no protest cc letter rev catalog number 47635z irs department of the treasury internal_revenue_service p o box cincinnati oh legend m n p dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 a of the internal_revenue_code the code based on the information provided we determined that you don' t qualify for exemption under sec_501 c of the code this letter explains the basis for our conclusion please keep it for your records issue do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you were incorporated in m on n as a not for profit office condominium association you self-declared yourself as exempt under sec_501 c and were automatically revoked in p because you did not file the required tax forms for three consecutive years you have now applied for reinstatement of exemption under sec_501 c of the code you were formed to operate manage maintain administer and control an office condominium development the members of your ass_ociation are all owners of your condominium units your activities include providing preservation of the appearance value and amenities of the property you hold letter rev catalog number 47628k owning and maintaining repairing and replacing the general and or common areas of the property controlling the specifications architecture design appearance elevation and landscaping of all improvements and structures of any kind in accordance with your protective covenants providing purchasing acquiring owning replacing improving maintaining and or repairing such real_property buildings structures street lights landscaping paving or other improvements accepted by you providing services the responsibility for which has been or may be delegated to and accepted by you operating without profit for the sole and exclusive benefit of your members and performing any and all other functions contemplated of the or otherwise undertaken by your governing body your financial support is received from your membership member dues are determined based on the square footage of each office condominium unit each member has one vote per unit of ownership you have appointed a manager to send monthly dues invoices manage funds and pay common area expenses such as water sewer landscaping maintenance and electric utilities your expenses include water and sewer electrical power and lighting property insurance grounds keeping property management fees termite bond professional fees repairs and maintenance and bank service charges upon dissolution all of your assets remaining after provision for creditors and payment of all costs and expenses of such dissolution shall be distributed in the following manner real_property contributed to the association without the receipt of other than nominal consideration by developer or its predecessor in interest shall be returned to developer unless it refuses to accept the conveyance in whole or in part remaining assets shall be distributed among the members subject_to the limitations set forth below as tenants in common each members' share of the assets to be determined in accordance with its voting rights law sec_501 c of the code provides that organizations organized as business_leagues chambers_of_commerce real-estate boards boards_of_trade or professional_football_leagues whether or not administering a pension fund for football players not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual may be exempt from federal_income_tax sec_1_501_c_6_-1 a business league is an association of persons having some common business_interest the purpose of which is to promote such common interest and not to engage in a regular letter rev catalog number 47628k business of a kind ordinarily carried on for profit thus its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons revrul_68_264 1968_1_cb_264 held a nonprofit organization is not exempt from federal_income_tax under sec_501 c of the code if it operates a traffic bureau for members and nonmembers as its primary activity because activities that constitute the performance of particular services for individual persons may preclude exemption an activity that serves as a convenience or economy to members in the operation of their businesses is a particular service of the type proscribed the operation of a traffic bureau for members and nonmembers is a clear convenience and economy to them in their businesses resulting in savings and simplified operations accordingly this activity constitutes the performance of particular services for individual persons revrul_73_411 c b held a shopping center merchants' association whose membership is restricted to and required of the tenants of a one-owner shopping center and their common lessor and whose activities are directed to promoting the general business interests of its members does not qualify as a business league or chamber of commerce under sec_501 of the code the organization's activities were not directed at improvement of business conditions of one or more lines of business or business conditions of any community as a whole within the meaning of sec_501 c of the code they serve instead the individual business interests of the owner of the shopping center and therefore fall outside the scope of the exemption accorded by sec_501 c the same conclusion applies with respect to those phases of the organization's activities that relate to such matters as the maintenance and policing of the shopping areas walkways and parking areas hours of business and similar functions these activities are characteristic of a tenants' association rather than of a chamber of commerce or trade_association and fall short of supporting any sec_501 c exemption for the organization because they primarily serve special interests of the members related to their status as tenants of a common facility rather than any common business purposes in relation to the status ofthe members as representatives ofthe commercial interests of a community in indiana retail hardware assn inc v united_states ct_cl the court held that when conducting particular services for members is a substantial activity of an organization the organization will be precluded from exemption under sec_501 of the code application of law sec_501 provides exemption from income_tax for organizations organized as business_leagues chambers_of_commerce real-estate boards boards_of_trade or professional_football_leagues as demonstrated in your articles oflncorporation you are not organized for any of the purposes described in sec_501 of the code further sec_501 provides that an organization is precluded from exemption if any part ofthe net_earnings inure to the benefit of any private_shareholder_or_individual because you operate for the sole and exclusive benefit of your membership and your assets will be distributed to your members upon your dissolution your net_earnings inure to individuals thus you do not qualify for exemption under sec_501 ofthe code contrary to sec_1 c -1 you are not an association of persons with common business_interest rather you are an association of condominium_owners whose common interest is providing maintenance for the common areas of their office condominiums other than the fact that all of your members letter rev catalog number 47628k own a condominium on common grounds your members have no common business interests therefore you are not a business league chamber of commerce etc as described in sec_501 of the code revrul_68_274 provides that activities that constitute the performance of particular services for individual persons may preclude exemption from federal_income_tax under sec_501 of the code any activity that serves as a convenience or economy to members is a particular service all of your activities are directed toward providing services to members maintaining the common areas of a condominium complex is a convenience to the owners if not for you the individual owners would have to perform this duty further by pooling resources to provide maintenance for the common areas you provide economy to members like the organizations described in revrul_73_411 and indiana retail hardware assn inc v united_states your activities do not improve the business conditions of one or more lines of business or business conditions of any community as a whole instead you serve the special interests of your individual members your activities are characteristic of a tenants' association rather than of a chamber of commerce or trade_association and fall short of supporting any claim of exemption under sec_501 c applicant's position you claim to be a business league which is comprised of the owners of an office condominium community having the common business_interest of promoting maintaining and improving the overall business conditions within your community you claim that this is a line_of_business you contend that your members represent a line_of_business as defined in sec_501 of the code you argue you are not similar to the organization described in revrul_73_411 because the organization in that ruling furthered the for-profit interests of the owner of a retail shopping center whereas you improve the business conditions ofthe condominium community service's response to applicant's position your members have no common business_interest other than owning a unit in your office condominium community therefore you are not promoting the interests of one or more lines of business your activities focus solely on maintaining the condominium property not furthering business interests these activities constitute services to members that would have to be performed by your individual member businesses if not for you you are essentially a condominium association which maintains a building for your owners not a business league that is formed for the promotion of business interests of one or more lines of business conclusion you are not an association of persons promoting one or more lines of business and your activities constitute specific services to members accordingly you do not qualify for exemption from federal_income_tax under sec_501 c of the code if you don't agree you have a right to file a protest if you don 't agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include letter rev catalog number 47628k your name address employer_identification_number ein and a daytime phone number a copy of this letter highlighting the findings you disagree with an explanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn' t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we' ll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we'll continue to process your case considering the information you provided if you haven't provided a basis for reconsideration we'll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax exempt status where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address letter rev catalog number 47628k u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it ifyou agree if you agree with our proposed adverse determination you don 't need to do anything if we don ' t hear from you within days we'll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements you can find all form s and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter we sent a copy ofthis letter to your representative as indicated in your power_of_attorney sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47628k


cca_2016112115175147 id uilc number release date from sent sun pm to cc bcc subject issue drew in regard to your question about overstated basis and sec_6501 congress amended sec_6501 in the surface transportation and veterans health care choice improvement act of h_r pub law no to provide that an understatement of gross_income by reason of an overstatement of unrecovered cost or other basis is an omission from gross_income this applies even if the overstatement of basis is not in regard to a sold asset please let me know if i may be of any further assistance yours elie


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 4-plr-116132-99 date date re legend grantor spouse daughter son a b_trust trust trust trust date date date date year plr-116132-99 dear we received your letter dated date requesting rulings concerning the application of sec_2041 and sec_2514 of the internal_revenue_code to the trusts referenced above according to the facts submitted on date prior to date grantor created four irrevocable trusts trust trust trust and trust collectively the trusts for the benefit of grantor spouse and their issue no additional transfers were made to the trusts after their creation grantor died on date the current primary beneficiaries of trust and trust are spouse daughter and daughter’s issue the current primary beneficiaries of trust and trust are spouse son and son’s issue other than the designation of the beneficiaries the dispositive terms of the trusts are identical article fourth a provides that the trustees shall pay to or apply for the benefit of spouse annually or more often as determined by the trustees the entire net_income of the trust the trustees other than spouse if then a trustee shall have the power at any time or times during the life of spouse a to pay to or apply for the benefit of spouse such part or parts of all of the principal of the trust as the trustees shall determine in the trustees’ absolute and uncontrolled discretion for any reason whatsoever notwithstanding that such payments may result in the termination of the trust and b to pay to or apply for the benefit of one or more or all of the issue of the grantor such part parts or all of the principal of the trust in such proportions as the trustees shall determine in the trustees’ absolute and uncontrolled discretion for any reason whatsoever notwithstanding that such payments may result in the termination of the trust under article fourth b on spouse’s death the trust corpus is to be distributed pursuant to spouse’s exercise of a testamentary special power to appoint corpus directly to grantor’s family members or trusts for their benefit should spouse fail to exercise her power_of_appointment article fifth provides that the trust corpus is to be held in further trust for the benefit of daughter with respect to trust and trust and son with respect to trust and trust article tenth provides that no person who shall be or become a trustee shall participate in any decision by the trustees to pay or apply principal or income of any trust to himself or herself or to or for the benefit of issue of such person and any such decision shall be made solely by the other acting trustees article nineteenth provides that there may be one or more but no more than three trustees successor or additional trustees may be designated by a committee created pursuant to article twentieth any trustee may resign or cease to act as trustee at any time with or without cause by written notice of such resignation to the committee and the other trustees in the event of a vacancy successor trustees shall plr-116132-99 be designated by the committee the trustees shall act and all questions shall be decided by a majority of their number provided however that trustees who are specifically disqualified from acting under a specific article shall not be counted article twentieth a provides that spouse shall be the original member of the committee and that spouse may designate one or two additional members of the committee any member with or without resigning may by instrument in writing executed and delivered during his or her lifetime or by his or her last will and testament designate the person who is to succeed him or her as a member of the committee which designation may be changed at any time before such member vacates his or her office if any committee member ceases to act as a committee member without having designated a successor his or her successor shall be selected by the remaining members of the committee or if only one remains by that one if at any time there is no member of the committee then a committee shall be selected by the then trustees or if there are no trustees at such time by the person or the majority vote of the persons among whom the income of the trust could then be distributed article twentieth b provides that the committee may remove with or without cause any trustee or trustees from office at any time and may appoint additional trustees or successor trustees to the extent permitted by article nineteenth such additional or successor trustee or trustees may be any person or persons including any member or members of the committee the original co-trustees of all four trusts were spouse daughter and b b was an unrelated individual on date spouse in her capacity as the committee for each trust removed b as the trustee and appointed son as the successor co-trustee of all four trusts on date spouse as the committees for trust and trust removed son as the trustee of trust and trust and appointed an unrelated_person a as successor trustee similarly on date spouse as the committees for trust and trust removed daughter as the trustee of trust and trust and appointed a as successor trustee at the present time spouse daughter and a continue to serve as trustees of trust and trust and spouse son and a continue to serve as trustees of trust and trust spouse served as the sole member of the committees for all four trusts until date when spouse resigned as the sole member for trust and trust and designated son as her successor son continues to serve as the sole member of the committees for trust and trust while spouse remains the sole member of the committees for trust and trust you have requested the following rulings if spouse dies while serving as a member of the committee of any of the trusts she will not be treated as having a general_power_of_appointment at her death plr-116132-99 within the meaning of sec_2041 as a result of her possession of a power as a member of the committee to remove the trustees of such trusts and appoint successor trustees including the power to appoint herself as trustee spouse will not be treated as releasing or having released a general_power_of_appointment within the meaning of sec_2041 or sec_2514 as a result of resigning as a member of the committee of any of trusts law and analysis sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent’s creditors or the creditors of the decedent’s estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_20_2041-1 of the estate_tax regulations provides that a power in a decedent to remove or discharge a trustee and appoint himself may be a power_of_appointment for example if under the terms of a_trust instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment sec_2514 provides that the exercise or release of a general_power_of_appointment created after date is deemed a transfer of property by the individual possessing the power in general rules similar to those applicable under sec_2041 in determining what constitute a general_power_of_appointment also apply for purposes of sec_2514 see eg b further sec_25_2514-3 provides that if a trustee holds a power in the capacity as a trustee that is considered a general power the individual’s resignation or removal as trustee will cause a lapse of the power revrul_79_353 1979_2_cb_325 held that the value of property transferred to a_trust is includible in the decedent-grantor’s gross_estate under sec_2036 and sec_2038 if the grantor retains the power to remove the corporate trustee without plr-116132-99 cause and appoint another corporate trustee and the trustee is endowed with broad discretionary powers in revrul_81_51 1981_1_cb_458 the service announced that revrul_79_353 would be applied prospectively only specifically revrul_81_51 held that if on or before date the date of publication of rev_rul a grantor transferred property to an irrevocable_trust retaining the power to remove at will and replace the corporate trustee with another corporate trustee no estate_tax consequences will result on account of the retained removal and replacement power subsequently the service reconsidered the position on this issue in revrul_95_58 1995_2_cb_191 this ruling revoked revrul_79_353 and revrul_81_51 and holds that a decedent-settlor’s reservation of an unqualified power to remove a trustee and appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee’s discretionary power of distribution over the property transferred by the decedent-settlor to the trust sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor’s spouse if living with the grantor or any one of the following the grantor’s father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in the present case trust sec_1 and authorize the removal and replacement of trustees by the committees for each trust the trustee of any trust may be replaced with a corporate or an individual trustee including individuals who are beneficiaries of the trusts article tenth however provides that no person who shall be or become a trustee shall participate in any decision by the trustees to pay or apply principal or income of any trust to himself or herself or to or for the benefit of issue of such person and any such decision shall be made by the other trustees then acting further trust sec_1 and were created prior to date although revrul_95_58 revoked revrul_81_51 a_trust that was exempt from the application of revrul_79_353 by virtue of revrul_81_51 does not lose this exemption even if the trust otherwise fails to meet the standard set forth in revrul_95_58 based on the above we conclude as follows should spouse die while serving as a member of the committee of any of trust sec_1 or she will not be treated as having a general_power_of_appointment at death within the meaning of sec_2041 solely as a result of possessing a power as a member of the committee to remove the trustees of the trusts and appoint successor trustees including the power to appoint herself as trustee plr-116132-99 spouse will not be treated as releasing or having released a general_power_of_appointment within the meaning of sec_2041 or sec_2514 as a result of resigning as a member of the committee of any of the trusts except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code in particular no opinion is expressed on the consequences of the manner in which spouse has exercised or may exercise the power to remove and replace trustees such a determination is factual in nature and not appropriate for advance_ruling purposes this ruling is based on the facts and applicable law in effect on the date of this letter if there is a change in material fact or law local or federal before the transactions considered in the ruling take effect the ruling will have no force or effect if the taxpayer is in doubt whether there has been a change in material fact or law a request for reconsideration of this ruling should be submitted to this office this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative sincerely assistant chief_counsel passthroughs and special industries by george masnik chief branch enclosure copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jun 5e t-ep td uniform issue list legend taxpayera taxpayerb taxpayerc taxpayerd companyg companyh state kee ee kkk kkk ee ee ee rk kk akkk ee ee ira x dear trust t subtrust u section z amount j this is in response to the date request for a letter_ruling under sec_401 a of the internal_revenue_code code submitted on your behalf by your authorized representative as supplemented by correspondence dated date date and date the request for letter rulings is based on the following facts and representations taxpayer a whose date of birth was died on at age not having attained her required_beginning_date as that term is defined in code sec_401 as of her date of death taxpayer a was the owner of ira x maintained with company g with an approximate value of amount j on taxpayer a signed and adopted trust t article ft of trust t provides for the creation of subtrust u for the benefit of her three children taxpayer b taxpayer c and taxpayer d meee taxpayer c's date of birth was taxpayer c is older than taxpayers b and d company h is the trustee of trust t the provisions of trust t as amended on and provide in relevant part that subtrust u became irrevocable upon the death of taxpayer a and that trust t is intended to be the beneficiary of an individual_retirement_arrangement ira x maintained by taxpayer a taxpayer a executed a beneficiary designation form on naming trust t as the sole beneficiary of her ira x article dtedollar_figure of trust t provides in summary that after the death of taxpayer a trustee shall subject_to the provisions of section dte distribute the rest of the divisible trust estate to the trusts established herein article ftdollar_figure of trust t provides that the trustee shall divide the trust estate into equal shares and distribute his or her share to the beneficiary upon taxpayer a’s death taxpayers b c and d have continuously been the beneficiaries of trust t from the death of taxpayer a through the current date and each was alive as of the date of this ruling_request as supplemented according to section z of state law the funds within an individual_retirement_account are listed as being exempt from creditors of the estate therefore pursuant to state law there are no beneficiaries under trust t that are not identifiable and that are not eligible_individual designated beneficiaries’ as that term is defined in sec_1 a -4 of the final regulations questions and answer sec_3 and on company h the trustee of trust t signed a consent form with respect to the ira x account to permit the ira x account balance to be distributed directly to the three beneficiaries of trust t in equal shares in lieu of distributing ira x to trust t followed by distributing the proceeds to the three beneficiaries in equal shares according to the terms of its associated subtrust u this consent was executed to avoid unnecessary administration and expense your authorized representative has asserted on your behalf that such action is consistent with the laws of state i ' he has also asserted that company g as the ira x administrator was based on the above facts and representations you through your authorized representative request the following ruling your authorized representative has asserted that trust t and its associated subtrust u is valid under the laws of state _ provided with a copy of trust t and of the related beneficiary designations prior to october of the calendar_year following the calendar_year of the death of taxpayer a the trustee of trust t intends to subdivide ira x into three sub-iras by means of a series of trustee-to-trustee transfers each posthumously created sub-ira is to be titled in the name of taxpayer a deceased for the benefit of each distinct beneficiary and minimum required distributions for each sub-ira will be determined on the basis of the age of the oldest beneficiary each sub-ira will then be held individually as beneficiary by a separate one of the three beneficiaries outside of trust t that ira x may be subdivided into three sub-iras such that each sub-ira will be created and held individually by a separate beneficiary in the name of taxpayer a deceased for the benefit of such beneficiary with respect to your ruling_request code sec_408 of the code provides that under regulations prescribed by the secretary rules similar to the rules of sec_401 and the distributions under sec_401 of the code for such sub-ira may be determined on the basis of the age and life expectancy of the oldest beneficiary of trust t taxpayer c that with respect to the sub-ira set up to benefit you taxpayer d minimum required page incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit the ira trust is maintained sec_401 of the code provides in general that a_trust will not be considered qualified unless the plan provides that the entire_interest of each employee - i will be distributed to such employee not later than the required_beginning_date or ii will be distributed beginning not later than the required_beginning_date over the life of such employee or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary sec_401 of the code provides in general that if a plan participant ira holder dies before the distribution of his interest has begun in accordance with subparagraph a ii prior to his required_beginning_date then his entire_interest must be distributed within years of his death sec_401 of the code provides in general that if any portion of the interest of a deceased plan participant ira holder is payable to or for the benefit of a designated_beneficiary such portion will be distributed beginning not later than year after the date of the deceased's death or a later date as prescribed by the secretary under regulations in accordance with regulations over the life of the designated_beneficiary or a period not extending beyond the life expectancy of the beneficiary sec_401 of the code provides in relevant part that the term required_beginning_date means april of the calendar_year following the calendar_year in which the employee ira holder attains age sec_1_401_a_9_-5 of the final regulations q a-5 b provides in general that if an employee dies before his required_beginning_date in order to satisfy the requirements of code sec_401 or iv the applicable distribution period for calendar years after the calendar_year containing the employee's date of death is determined in accordance with paragraph c of this a-5 sec_1_401_a_9_-3 of the final regulations q a-3 a provides in general that with respect to the life expectancy exception to the 5-year rule described in code sec_401 distributions are required to begin to a nonspouse beneficiary on or before the end of the calendar_year immediately following the calendar_year in which the employee died with respect to your ruling_request final income_tax regulations under code sec_401 and sec_408 were published in the federal_register pincite federal_register date and in the internal_revenue_bulletin pincite l r b date the preamble to the final regulations in relevant part provide that the regulations apply for determining required minimum distributions for calendar years beginning on or after date for determining required distributions for calendar_year taxpayers may rely on the proposed_regulations the proposed_regulations or the final regulations sec_1_401_a_9_-5 of the final regulations q a- c provides in general that with respect to a nonspouse beneficiary the applicable distribution period measured by the beneficiary's remaining life expectancy is determined using the beneficiary's age as of the beneficiary's birthday in the calendar_year immediately following the calendar_year of the employee's death in subsequent calendar years the applicable distribution period is reduced by one for each calendar_year that has elapsed after the calendar_year immediately following the calendar_year of the employee's death sec_1_401_a_9_-4 of the final regulations q a-4 provides in relevant part that in order to be a designated_beneficiary an individual must be a beneficiary as of the date of the employee's rege or ira holder's death generally an employee's designated_beneficiary will be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of september of the calendar_year following the calendar_year of death sec_1_401_a_9_-4 of the final regulations q a-3 provides that only individuals may be designated beneficiaries for purposes of sec_401 a person who is not an individual such as the employee's estate may not be a designated_beneficiary however q a-5 of sec_1_401_a_9_-4 provides that beneficiaries of a_trust with respect to the trust's interest in an employee's benefit may be treated as designated beneficiaries if the following requirements are met the trust is valid under state law or would be but for the fact that there is no corpus the trust is irrevocable or the trust contains language to the effect it becomes irrevocable upon the death of the employee the beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit are identifiable within the meaning of this section from the trust instrument the documentation described in a-6 of this section has been provided to the plan_administrator sec_1_401_a_9_-4 of the final regulations q a-6 b provides generally with respect to required minimum distributions after the death of the employee that documentation described therein must be provided by the trustee of the trust_beneficiary to the plan_administrator by october of the calendar_year following the calendar_year in which the employee died sec_1_401_a_9_-8 of the final regulations q a-2 a provides the separate_account rules with respect to defined contribution plans sec_1_401_a_9_-4 of the final regulations q a-5 c provides in relevant part that the separate_account rules under a-2 of sec_1_401_a_9_-8 are not available to beneficiaries of a_trust with respect to the trust's interest in the employee's benefit as noted above if distributions are made to a_trust even if the trust is a see-through trust within the meaning of q a-5 of sec_1_401_a_9_-4 of the final regulations the separate_account rules of a-2 of sec_1_401_a_9_-8 of the final regulations are not available to the beneficiaries of the trust thus in general each beneficiary of a_trust must receive minimum required distributions over the life expectancy of the eldest beneficiary with respect to the issue raised in this ruling_request of which trust t beneficiaries must be considered in determining who is the designated_beneficiary of ira x trust t effectively walls off ira x from being used to pay taxpayer a's creditors through provisions found in state statutes thus only the three children of taxpayer a must be considered for purposes of determining who is the designated_beneficiary of ira x furthermore although neither the code nor the regulations promulgated under code sec_401 preclude the posthumous division of ira x into three sub- iras or the distribution of such iras from a_trust to the trust's beneficiaries the regulations do preclude separate_account treatment for code sec_401 purposes where amounts pass through a_trust the distribution of ira x amounts are subject_to the terms of trust t and its associated subtrust u thus even though ira x will be divided into three sub-iras the life expectancy of the oldest beneficiary of all of the sub-iras taxpayer c is the life expectancy to be used to determine the code sec_401 minimum required distributions from each of the resulting sub-iras thus based on the specific facts and representations surrounding this ruling_request we conclude as follows that trust t and its associated subtrust u is a valid see-through trust as that concept exists under the final regulations promulgated under sec_401 of the code in this case page that ira x may be subdivided into three sub-iras such that each sub-ira will be created and held individually by a separate beneficiary of trust t in the name of taxpayer a deceased for the benefit of such beneficiary that with respect to the sub-ira set up to benefit you taxpayer d minimum required distributions under sec_401 of the code for such sub-ira may be determined on the basis of the age and life expectancy of the oldest beneficiary of trust t taxpayer c this ruling letter is based on the assumption that ira x and all sub-iras have met are meeting or will meet the requirements of code sec_408 at all times relevant thereto it also assumes that trust t and the creation of sub-iras as defined herein are valid under the laws of state as represented pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative this letter is directed only to the taxpayers that requested it and is based solely on the representations made with respect thereto sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact at either or please address all correspondence to se t ep ra t3 sincerely yours enclosures employee_plans technical group deleted copy of this letter notice of intention to disclose notice