internal_revenue_service number release date index number ---------------------------------- ----------------------------- -------------------- ------------- ----------------------------- --------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc tege eoeg et2 plr-130726-02 date date legend state a department j ---------------------------------------- employer m plan x ------ ------ ---------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- ---------------- ------------------------ ----------------------- statutory plans date date date dear ---------------------------- this is in response to your request for a ruling letter on two issues involving plan x your request posed the following two questions whether plan x is a retirement_system within the meaning of internal_revenue_code code sec_3121 whether the services plan x participants perform for employer m will be considered employment for federal_insurance_contributions_act fica purposes plr-130726-02 - facts employer m is a governmental entity created pursuant to the state a revised code and is an instrumentality of state a providing public educational_services within state a employer m maintains plan x plan x was established on date and is designed to offer eligible employees an alternative to participating in state a’s statutory plans an eligible_employee who does not elect to participate in plan x participates in the applicable state a statutory plan employer m represents that the statutory plans are retirement systems within the meaning of code sec_3121 plan x is a defined_contribution_plan and a non trusteed fully insured plan within the meaning of code sec_401 in this regard plan benefits are provided through individual annuity_contracts selected by plan participants plan x received its most recent favorable determination_letter on date stating that it satisfied the requirements of sec_401 plan x provides that all eligible employees may elect to participate in the plan effective as of the employee’s employment_commencement date an eligible_employee is either an academic or administrative employee of employer m under the terms of plan x a participant is an eligible_employee who elects to participate plax x provides for employer and employee contributions and specifies that the employer and employee contributions combined will not be less than the contributions required to meet the requirements of code sec_3121 and the applicable regulations on date employer m submitted additional information indicating that allocations to participants have always exceeded percent of participants’ compensation a participant is eligible for employer contributions beginning on the date the participant commences participation under the plan and ending on the date the participant terminates employment with employer m or the date on which the participant ceases to be an eligible_employee whichever is earlier the terms of the plan provide that employer m shall make contributions to the plan on each participant’s behalf in an amount equal to a specified percentage of the participant’s_compensation however the board_of trustees of employer m may set different contribution rates for different classes of employees and may change the rate from plan_year to plan_year employer contributions are credited to each participant’s employer account plan x also requires each participant to make mandatory_contributions called nonelective contributions equal to at least three percent of the participant’s_compensation the terms of plan x specify that the amount of each participant’s nonelective contributions will equal the percentage of the participant’s_compensation that would have been contributed by the participant to the state a statutory plan had plr-130726-02 the employee not elected to participate in plan x nonelective contributions are credited to each participant’s participant account plan x generally defines compensation as all salary wages and other earnings paid to a participant the plan’s definition of compensation is virtually identical to the definition of compensation used by state a for its statutory plans participants choose to invest the amounts allocated to their accounts in annuity_contracts offered by various companies that have entered into a provider agreement with department j a provider agreement permits a company to provide annuity_contracts for plan x participants to invest in the provider is the company selected by a participant to provide the participant’s annuity_contract participants’ investment selections are subject_to the terms and conditions contained in the respective annuity_contracts samples of all the contracts used to provide benefits under plan x were submitted with this request for a ruling applicable law for purposes of the federal insurance contribution acts fica sec_3101 and sec_3111 of the code impose a tax on the wages paid_by employers to employees with respect to employment the fica tax comprises two separate taxes sec_3101 and sec_3111 of the code impose old-age survivor’s and disability insurance oasdi taxes and sec_3101 and sec_3111 impose hospital insurance hi taxes on employees and employers respectively sec_3121 of the code provides that for purposes of the fica tax employment does not include service performed in the employ of a state or any political_subdivision thereof or any instrumentality of any one or more of the foregoing which is wholly-owned thereby sec_3121 and sec_31 b -2 c of the employment_tax regulations regulations provide that this exception does not apply to services performed after date if the employee is not a member of a retirement_system of such state political_subdivision or instrumentality sec_31_3121_b_7_-2 of the regulations provides that for purposes of code sec_3121 a retirement_system includes any pension annuity retirement or similar fund or system within the meaning of sec_218 of the social_security act that is maintained by a state political_subdivision or instrumentality thereof to provide retirement benefits to its employees who are participants whether a plan is maintained to provide retirement benefits with respect to an employee is determined under the facts and circumstances of each case the legal form of the plr-130726-02 system is generally not relevant thus for example a retirement_system may include a plan described in sec_401 an annuity plan or contract under sec_403 or a plan described in sec_457 b or f of the code sec_31_3121_b_7_-2 of the regulations provides that generally a pension annuity retirement or similar fund or system is not a retirement_system with respect to an employee unless it provides a retirement benefit to the employee that is comparable to the benefit provided under the old-age portion of the oasdi program of social_security sec_31_3121_b_7_-2 of the regulations provides that in the case of a defined contribution system this requirement is met if and only if allocations to the employee’s account not including earnings for a period are at least percent of the employee’s compensation_for service for the state political_subdivision or instrumentality during the period employer contributions may be taken into account for this purpose sec_31_3121_b_7_-2 of the regulations provides that the definition of compensation used in determining whether a defined contribution retirement_system meets the minimum retirement benefit requirement must generally be no less inclusive that the definition of the employee’s base pay as designated by the employer or the retirement_system provided that such designation is reasonable under all the facts and circumstances sec_31_3121_b_7_-2 of the regulations provides that a defined contribution retirement_system does not satisfy the requirements of this paragraph e with respect to an employee unless the employee’s account is credited with earnings at a rate that is reasonable under all the facts and circumstances or employees’ accounts are held in a separate trust that is subject_to general fiduciary standards and are credited with actual earnings on the trust fund whether an interest rate is reasonable is determined after reducing the rate to adjust for the payment of any administrative expenses sec_31_3121_b_7_-2 of the regulations provides that an employee is not a member of a retirement_system at the time service is performed unless at that time he or she is a qualified_participant as defined in paragraph d of the regulations in a retirement_system that meets the requirements of paragraph e of the regulations with respect to that employee sec_31_3121_b_7_-2 of the regulations defines qualified_participant for purposes of defined contribution retirement systems the regulation provides that whether an employee is a qualified_participant is determined as services are performed an employee is a qualified_participant with respect to services performed on a given day if on that day he or she has satisfied all conditions other than vesting for receiving an allocation to his or her account exclusive of earnings that meets the minimum retirement benefit requirement of paragraph e of the regulation with plr-130726-02 respect to compensation during any period ending on that day and beginning on or after the beginning of the plan_year of the retirement_system discussion plan x satisfies the requirement that each participant in the plan receive an annual allocation of at least of compensation the plan provides that in each year an amount must be contributed that will satisfy the requirements of sec_3121 of the code the taxpayer has represented that in each year amounts in excess of of employees’ compensation have been allocated to participants’ accounts thus plan x satisfies the requirement of sec_31_3121_b_7_-2 of the regulations that each participant in a plan receive an annual allocation of at least of compensation plan x’s definition of compensation is no less inclusive than the definition of base pay and is in fact more inclusive as it includes amounts greater than base pay thus plan x satisfies the requirement of sec_31_3121_b_7_-2 of the regulations that the definition of compensation used in computing allocations as designated by the employer or the retirement_system must be no less inclusive than the definition of the employee’s base pay as designated by the employer or retirement_system to determine whether the plan met the reasonable interest rate requirement of sec_31_3121_b_7_-2 of the regulations this office reviewed every contract in which the participants may choose to invest their allocations this analysis considered in detail whether each contract credited the employee’s accounts with earnings at a rate that is reasonable under all the facts and circumstances our analysis of each contract resulted in the conclusion that plan x satisfies the requirement that participant’s accounts be credited annually with a reasonable rate of interest under the facts and circumstances see regulation sec_31 b - e iii c in lieu of a_trust plan benefits are provided solely by annuities an examination of the annuity_contracts used to fund participant benefits indicates that the reserve value of each contract is known at all times and any increase in such value is automatically allocated for the benefit of the participant all contracts used by the plan provide for the annual allocation of interest to participant accounts each of the contracts available to a participant under the plan credits employees’ accounts with interest at a reasonable rate net of expenses in particular it is noted that each of the contracts offers the participant the opportunity to invest in a fixed account providing a guaranteed return of no less that percent moreover the interest crediting strategy of each of the insurance_companies underwriting each of the annuity contacts takes into account directly or indirectly currently available interest rates it is also noted that all of the contracts waive surrender charges upon annuitization and all offer reasonable purchase rates we conclude that plan x satisfies the requirements of regulation sec_31 b - e iii for a defined contribution retirement_system plr-130726-02 plax x provides that eligible employees participate as of their employment_commencement date which is the date an employee is first credited with an hour_of_service for the performance of duties the plan provides that such participation does not end until the earlier of the date an individual ceases to be an eligible_employee or terminates employment we conclude that the services participant’s in plan x perform for employer m are not considered employment for fica purposes see regulation sec_31_3121_b_7_-2 conclusion we conclude that plan x is a retirement_system within the meaning of code sec_3121 and the regulations thereunder we conclude that the services plan x participants perform for employer m will not be considered employment for fica purposes the rulings contained in this letter are based upon information and representations submitted by the taxpayer 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 sincerely marie cashman special counsel to the assistant chief_counsel office of division counsel associate chief_counsel exempt_organizations employment_tax government entities tax exempt government entities


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl br1-plr-122381-00 date date legend a date b country c date d ty dear this is in response to a letter dated date and supplemental letters dated date and date submitted by a’s authorized representative requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of u s citizenship did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination a was born on date b in country c at birth a became a citizen_of_the_united_states and country c a plans to relinquish her u s citizenship on or about date d on the date a submitted her ruling_request her net_worth exceeded the applicable_threshold set forth in sec_877 of the code plr-122381-00 sec_877 generally provides that a citizen who loses u s citizenship or a u s long- term resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed on u s source income as modified by sec_877 for such taxable_year unless such loss did not have for one if its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen or former long-term_resident whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen or former long-term_resident is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 an eligible former citizen or long-term_resident will not be presumed to have a principal purpose of tax_avoidance if that former citizen or long-term_resident submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling under sec_877 because she became at birth a citizen of country c and continues to be a citizen of country c in addition a’s father and spouse were also born in country c a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission accordingly based solely on the information submitted and the representations made it is concluded that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 and therefore a will not be presumed to have expatriated with a principal purpose of tax_avoidance plr-122381-00 it is further concluded that a will not be treated under sec_877 as having as one of her principal purposes of expatriating the avoidance of u s taxes because the information submitted clearly established the lack of a principal purpose to avoid taxes under subtitle a or b of the code 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 a copy of this letter must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer cc sincerely w e williams senior technical reviewer branch associate chief_counsel international


t c summary opinion united_states tax_court john t kutney and regina r kutney petitioners v commissioner of internal revenue respondent docket no 16979-10s filed date john t kutney and regina r kutney pro sese robert d kaiser and richard j hassebrock for respondent summary opinion thornton chief_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code code in effect when the petition was filed all other section references are to the code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure dollar amounts have been rounded to the nearest dollar pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined deficiencies in petitioners’ federal_income_tax and also determined sec_6662 accuracy-related_penalties as follows year deficiency dollar_figure big_number big_number penalty sec_6662 dollar_figure big_number big_number after concessions by petitioners the issues remaining for decision are whether petitioner husband john kutney engaged in various consulting activities with the intent to make a profit within the meaning of sec_183 whether petitioners are entitled to various deductions claimed on schedules c profit or loss from business sole_proprietorship whether petitioners are entitled to various deductions claimed on schedules e supplemental income and loss from rental real_estate royalties partnerships s_corporations estates trusts remics etc related to their rental properties and whether petitioners are liable for the sec_6662 accuracy-related_penalty for each year at issue background the parties have stipulated some facts which we incorporate herein by this reference when they filed their petition petitioners resided in ohio i consulting activities from to about mr kutney worked as an aeronautical engineer for general electric co ge following his retirement from ge he sought independent engineering work in he incorporated kcs-cos inc kcs- cos as a c_corporation for the purpose of providing aerodynamic engineering services to the aviation and automotive industries and to government agencies and universities mr kutney is the sole owner of kcs-cos mr kutney’s independent engineering work consisted of several different consulting activities he contracted with various companies to design aeronautical components including hush kits for reducing airplane engine noise and specialized airplane windows that reduce drag mr kutney’s work was limited to 1in the national aeronautics and space administration selected one of mr kutney’s airplane window projects for a phase i contract under its small_business innovation research program that year mr kutney received dollar_figure under his phase i contract and created a design but was not awarded a dollar_figure phase ii contract to complete the project mr kutney attempted to get commercial airline companies to finance the completion of his project but was unsuccessful mr kutney spent no significant time on this project after designing the components and to date he has not produced or sold any products resulting from his designs in mr kutney also designed bookends but he never produced or sold any he also gave unpaid lectures to university students through his company mr kutney also attempted unsuccessfully to secure a book writing contract with the american institute of aeronautics and astronautics mr kutney had no written business plan and kept no separate business bank account for managing his consulting activities he used his personal bank account to pay expenses ii rental activities during the years at issue petitioners owned several rental properties in cincinnati ohio they rented out two of these properties--an apartment complex on springfield pike and another one on worthington avenue mr kutney managed these properties and contracted with eduardo langdon and others to do maintenance and repair work mr kutney paid for all materials and oversaw the work that mr langdon and his crew performed mr kutney kept no separate bank account for these rental activities and used his personal account to pay expenses mr kutney kept no contemporaneous log or other documentation to record the number of hours he spent working on his rental properties iii petitioners’ tax returns on schedules c attached to their joint federal_income_tax returns for the years at issue petitioners reported all expenses related to mr kutney’s various consulting activities including those of kcs-cos under the heading aero consulting kcs-cos filed no tax returns for tax years through petitioners’ schedules c reported zero gross_income and reported net losses of dollar_figure dollar_figure and dollar_figure for tax years and respectively on schedules e attached to their returns petitioners claimed loss deductions from their rental_real_estate_activities of dollar_figure dollar_figure and dollar_figure for 2in these expenses included dollar_figure of car and truck expenses dollar_figure of travel_expenses dollar_figure of telephone expenses dollar_figure for postage dollar_figure for computer supplies dollar_figure for printing dollar_figure of isp and media expenses dollar_figure for seminars and dollar_figure for educational materials in these expenses included dollar_figure of car and truck expenses dollar_figure of office expenses and dollar_figure of travel_expenses in these expenses included dollar_figure of car and truck expenses dollar_figure of legal and professional expenses dollar_figure of office expenses dollar_figure of telephone expenses dollar_figure for postage dollar_figure for computer supplies dollar_figure of isp and media expenses dollar_figure of meeting expenses and dollar_figure for educational materials and respectively petitioners made no election to treat all of their rental properties as a group petitioners also did not complete line on any of their schedules e to indicate that they considered mr kutney to be a real_estate_professional during the years at issue petitioners reported outside income from dividends ira_distributions and social_security_benefits more particularly petitioners reported dividend income of dollar_figure dollar_figure and dollar_figure for and respectively they reported income from ira_distributions of dollar_figure dollar_figure and dollar_figure for and respectively in addition they reported social_security_benefit income of dollar_figure dollar_figure and dollar_figure for and respectively 3for petitioners reported a net_loss of dollar_figure from their rental_real_estate_activities but claimed only dollar_figure of this loss on part i of their schedule e they also reported a dollar_figure loss from an s_corporation greenwood draperies corp on part ii of their schedule e which they combined with the dollar_figure part i loss to arrive at their dollar_figure total claimed loss deduction petitioners concede that they are not entitled to the dollar_figure loss deduction from greenwood draperies corp for petitioners reported a net_loss of dollar_figure from their rental_real_estate_activities but claimed only dollar_figure of this loss on part i of their schedule e they also reported a dollar_figure loss from greenwood draperies corp on part ii of their schedule e which they combined with the dollar_figure part i loss to arrive at their dollar_figure total claimed loss deduction they concede that they are not entitled to the dollar_figure loss from greenwood draperies corp iv notice_of_deficiency in his notice_of_deficiency for tax years and respondent disallowed all expense deductions petitioners claimed on schedules c and certain expense deductions claimed on schedules e respondent also limited the amounts of petitioners’ claimed schedule e loss deductions having determined that they should be subject_to the sec_469 limitations on passive_activity_losses i burden_of_proof discussion the commissioner’s determinations in a notice_of_deficiency are generally presumed correct and the taxpayer bears the burden of proving that those 4respondent disallowed dollar_figure dollar_figure and dollar_figure of petitioners’ claimed deductions for their reported schedule e expenses for and respectively 5after making other adjustments to petitioners’ income respondent determined that petitioners were subject_to the phaseout rules of sec_469 and disallowed dollar_figure dollar_figure and dollar_figure of the total loss deductions petitioners claimed on schedules e for taxable years and respectively determinations are incorrect rule a 290_us_111 tax deductions are a matter of legislative grace and petitioners bear the burden of proving entitlement to deductions claimed see rule a 503_us_79 292_us_435 petitioners also bear the burden of substantiating the amounts and purpose of any items claimed as deductions see sec_6001 65_tc_87 aff’d per curiam 540_f2d_821 5th cir ii consulting activities sec_183 generally disallows any deduction attributable to an activity_not_engaged_in_for_profit as an exception to this general_rule sec_183 provides that if an individual engages in an activity not for profit deductions relating to that activity are allowable to the extent gross_income derived from the activity exceeds deductions that would be allowable under chapter of the code without regard to whether the activity constitutes a for-profit activity see allen v 6petitioners do not contend and the record does not establish that the burden_of_proof as to any relevant factual issue should shift to respondent pursuant to sec_7491 commissioner 72_tc_28 the parties disagree as to whether mr kutney engaged in his consulting activities with the objective of making a profit to carry the burden of establishing that their activities were engaged in for profit taxpayers must show that they entertained an actual and honest even if unreasonable or unrealistic profit objective in engaging in the activity 868_f2d_833 6th cir aff’g in part rev’g in part tcmemo_1986_569 see also 889_f2d_1548 6th cir aff’g tcmemo_1988_310 whether a taxpayer has the requisite profit_motive is a question of fact to be resolved on the basis of all relevant circumstances with greater weight being given to objective factors than to mere statements of intent see tamms v commissioner tcmemo_2001_201 the regulations under sec_183 provide a nonexclusive list of factors to be considered in determining whether an activity is engaged in for profit see campbell v commissioner f 2d pincite n no one factor is controlling id the factors include the manner in which the taxpayer carried on the activity the expertise of the taxpayer or his or her advisers the time and effort the taxpayer expended in carrying on the activity the expectation that assets used in the activity may appreciate in value the taxpayer’s success in carrying on other activities the taxpayer’s history of income or loss with respect to the activity the amount of occasional profits if any which are earned the taxpayer’s financial status and the extent to which elements of personal pleasure or recreation are involved sec_1_183-2 income_tax regs see also 72_tc_411 aff’d without published opinion 647_f2d_170 9th cir for the reasons discussed below we conclude that for the years at issue mr kutney has failed to establish that he had an actual and honest profit objective in conducting his consulting activities mr kutney kept almost no records to track income and expenses he had no written business plan and he had no separate bank account for any of his consulting activities these failures weigh heavily against finding a profit_motive under sec_183 see zidar v commissioner tcmemo_2001_200 mr kutney testified and the evidence he submitted indicates that most of his time spent working on his consulting activities was in years other than those at issue during the years at issue mr kutney’s consulting activities generated no gross_receipts during each year at issue petitioners also reported substantial income from dividends ira_distributions and social_security_benefits substantial income from sources other than the activity may indicate the lack of a profit_motive particularly if losses from the activity generate substantial tax benefits and personal or recreational elements are involved zidar v commissioner tcmemo_2001_ citing sec_1_183-2 income_tax regs mr kutney’s testimony indicated that he was not concerned with making a profit and that he took on many projects out of enjoyment we believe that the totality of factors described above strongly suggests the absence of a profit_motive more fundamentally mr kutney failed to establish that he actually incurred any of his claimed business_expenses or that they qualified as ordinary and necessary expenses to be entitled to deduct business_expenses a taxpayer is required to substantiate the amount and purpose of any claimed deduction see sec_162 sec_274 ellington v commissioner tcmemo_1989_374 aff’d without published opinion 936_f2d_572 6th cir mr kutney acknowledged in his testimony that he failed to keep adequate_records to substantiate his claimed expenses that he was estimating his expenses and that he had no way to determine which expenses related to a particular activity although he placed into evidence numerous credit card statements and canceled checks he also testified that he used his credit card and checking accounts interchangeably for business and personal uses we are unable on this record to conclude that petitioners are entitled to any of their claimed business_expense deductions finally mr kutney testified that although kcs-cos was incorporated as a c_corporation he reported expenses on its behalf on schedules c attached to petitioners’ joint returns petitioners are not entitled to deduct the expenses of kcs-cos see 308_us_488 47_tc_483 for these reasons we sustain respondent’s determination to disallow petitioners’ claimed schedule c deductions iii rental activities sec_469 limits the deductibility of losses from certain passive activities of individual taxpayers and certain entities disallowed passive losses may be carried over to the next year sec_469 generally a passive_activity is a trade_or_business in which the taxpayer does not materially participate sec_469 material_participation is defined as regular continuous and substantial involvement in business operations sec_469 generally rental activities are per se passive activities whether or not the taxpayer materially participates sec_469 as an exception to this rule the rental activities of taxpayers in real_property trades_or_businesses real_estate professionals are not treated as per se passive activities but rather as trade_or_business activities subject_to the material_participation requirements of sec_469 sec_469 see also sec_1_469-9 income_tax regs under sec_469 a taxpayer is a real_estate_professional if i more than one-half of the personal services performed in trades_or_businesses by the taxpayer during such taxable_year are performed in real_property trades_or_businesses in which the taxpayer materially participates and ii such taxpayer performs more than hours of services during the taxable_year in real_property trades_or_businesses in which the taxpayer materially participates in the case of a joint_return these requirements are met if and only if either spouse separately satisfies them id a taxpayer’s material_participation is determined separately with respect to each rental property unless the taxpayer makes an election to treat all interests in rental real_estate as a single rental real_estate activity sec_469 sec_1_469-9 income_tax regs all of a taxpayer’s real_estate activities are taken into account to determine whether the hour requirement is satisfied see harnett v commissioner tcmemo_2011_191 aff’d __ fed appx __ u s app lexis 11th cir date fowler v commissioner tcmemo_2002_223 sec_1_469-5t temporary income_tax regs fed reg date provides the extent of an individual’s participation in an activity may be established by any reasonable means contemporaneous daily time reports logs or similar documents are not required if the extent of such participation may be established by other reasonable means reasonable means for purposes of this paragraph may include but are not limited to the identification of services performed over a period of time and the approximate number of hours spent performing such services during such period based on appointment books calendars or narrative summaries the regulations do not allow a postevent ballpark guesstimate 135_tc_365 and cases cited thereat mr kutney’s testimony regarding the time he spent on his consulting activities and his rental_real_estate_activities was vague and indefinite he testified that he divided his time half and half between his consulting activities and his real_estate activities but in his posttrial brief he stated that he spent hours during the year working on his consulting activities and between big_number and big_number hours during the year working on his rental_real_estate_activities particularly in the light of these inconsistencies we are not persuaded that mr kutney performed more than one-half of his personal services in real_property trades_or_businesses as required under sec_469 as for the 750-hour service requirement of sec_469 mr kutney contends that he spent well over big_number hours working on his real_estate activities but he maintained no contemporaneous log of the time he spent working on these activities and provided no other documentation to establish the number of hours that he spent on these activities he acknowledged in his testimony that the number of hours he claims to have worked on the rental properties is an estimate this estimate varied throughout the trial at different points mr kutney claimed to have spent hours per week hours per week and hours per week working on his rental properties as mentioned above in his posttrial brief this estimate changed to big_number to big_number hours during each year mr kutney also testified that mr langdon performed most of the work on the rental properties during the years at issue mr kutney’s statements regarding the time he spent working on the properties are no more than a postevent ballpark guesstimate petitioners have failed to show on this record that mr kutney met the 750-hour service requirement of sec_469 for the years at issue consequently he does not 7petitioners also contend that mr kutney’s ownership and management of the rental properties was a truly full_day activity that required him to be available all day every day and that these on-call hours should count towards the 750-hour requirement we disagree with this contention sec_469 applies where the taxpayer performs more than hours of services rather than where the taxpayer is merely on call to perform services sec_469 see also 135_tc_365 sec_1_469-9 income_tax regs 8because petitioners did not elect to aggregate their rental real_estate continued qualify as a real_estate_professional for purposes of sec_469 and petitioners’ real_estate activities must be treated as a passive_activity under sec_469 as respondent determined iv accuracy-related_penalty sec_6662 and b and imposes a accuracy-related_penalty on any portion of a tax underpayment that is attributable to among other things negligence or a substantial_understatement_of_income_tax negligence includes any failure to make a reasonable attempt to comply with the provisions of the code and also includes any failure to keep adequate books_and_records or to substantiate items properly sec_6662 sec_1_6662-3 income_tax regs a substantial_understatement_of_income_tax is defined as an understatement that exceeds the greater of of the tax required to be shown on the return or dollar_figure sec_6662 under sec_7491 the commissioner bears the burden of production with respect to the sec_6662 penalty generally this means he must come forward with sufficient evidence indicating that it is appropriate to impose the relevant continued activities pursuant to sec_469 they must treat each interest separately see sec_469 as discussed above petitioners failed to show that mr kutney worked for more than hours each year even in the aggregate much less that he materially participated with respect to each of the rental properties penalty see 116_tc_438 respondent has met his burden of production for the sec_6662 penalty as he has provided evidence of both a substantial_understatement_of_income_tax and petitioners’ negligence in failing to comply with recordkeeping requirements the accuracy-related_penalty does not apply with respect to any portion of the underpayment if it is shown that the taxpayer had reasonable_cause and acted in good_faith sec_6664 the burden_of_proof is on petitioners to establish reasonable_cause see rule a higbee v commissioner t c pincite 58_tc_757 petitioners have not shown or even expressly claimed that they had reasonable_cause with respect to their understatements for and we therefore sustain respondent’s imposition of the accuracy-related_penalties for the years at issue 9the tax required to be shown on petitioners’ and returns was dollar_figure dollar_figure and dollar_figure respectively the tax shown on the returns was dollar_figure zero and dollar_figure for and respectively resulting in deficiencies of dollar_figure dollar_figure and dollar_figure respectively as the understatements exceed both of the tax required to be shown on the returns dollar_figure dollar_figure and dollar_figure and dollar_figure respondent has shown a substantial_understatement_of_income_tax sec_6662 to reflect the foregoing decision will be entered for respondent


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 tege eoeg teb presp-149299-06 date date dear ---------------- pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the project described in appendix a attached hereto is qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------------------------- ------------------------------------------------------------------------------------------------------------------- the issuer a qualified issuer under sec_54 to issue up to dollar_figure------------- of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the project described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met if you have any questions with respect to this allocation please contact --------------------- ------------------------------------------------------------------------------------------------------------------- - ---------or -----------------------------of the office of division counsel associate chief_counsel tax-exempt and government entities on --------------------- not a toll-free call 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 presp-149299-06 for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in appendix a is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 this determination is directed only to the applicant named above sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation 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 application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-149299-06 borrower name appendix a project type project location ------------------------------ ---------- landfill_gas facility -------------------------------- ---------------------- ---------------------------------- amount allocated dollar_figure------------- ------------------------------------------------ ------------------------------------------------- -------------------------- -------------------------------------------- ---------------------------


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-128826-12 date date legend taxpayer ---------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------- parent state a x dear ------------------ ------------------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------- -------------- -------------- this letter responds to your request for rulings dated date on certain federal_income_tax consequences of a proposed transaction the information provided in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process facts taxpayer is a state a property and casualty insurance_company whose sole class of stock is wholly owned by parent a state a limited_liability_company and risk purchasing group that has elected to be treated as a corporation for federal_income_tax purposes plr-128826-12 taxpayer and parent are calendar-year accrual-method taxpayers that file separate federal_income_tax returns aside from approximately dollar_figurex in cash parent’s only asset is taxpayer stock each of parent’s members the members is required to purchase certain types of insurance from taxpayer which issues insurance policies exclusively to members for purposes of state a law each member is an industrial insured and collectively the members constitute an industrial insured group as an industrial insured group_captive insurer taxpayer essentially functions as an interinsurer underwriter proposed transaction for what are represented to be valid business reasons taxpayer intends to convert from a stock insurance_company to a reciprocal insurer as permitted by state a law pursuant to the following steps the proposed transaction i ii iii parent will distribute approximately dollar_figurex in cash to the members the cash distribution which funds will be used to form the reciprocal insurer’s attorney- in-fact parent will merge into taxpayer with taxpayer surviving in accordance with state a law the merger in connection with the merger membership interests in parent will be converted into equity interests in taxpayer on a proportionate basis immediately following the merger taxpayer will undertake a transaction the conversion whereby it will convert into a state a industrial group_captive risk retention group formed as a reciprocal insurer new taxpayer as a result of the conversion taxpayer shares that were issued to members in connection with the merger will be converted into class a subscriber interests in new taxpayer on a proportionate basis each new taxpayer subscriber a subscriber interests in new taxpayer will not actually be distributed to subscribers rather subscribers will be deemed to receive new taxpayer interests in the conversion the intent is that class a subscribers will continue to have the same rights that members currently possess except to the extent modifications are necessary to fit within the reciprocal structure after the conversion new taxpayer will be an unincorporated association for state a law purposes new taxpayer will have four types of accounts-contributed capital accounts surplus capital accounts special surplus accounts and subscriber savings accounts the latter are required in order for new taxpayer to take the tax deduction allowable under sec_832 of the internal_revenue_code the code plr-128826-12 immediately following the conversion new taxpayer will have two classes of subscriber interests outstanding-class a subscriber interests and class c subscriber interests the class a subscribers which initially will consist exclusively of parent’s members will have voting rights and the four types of accounts mentioned above in contrast the class c subscribers which will consist exclusively of certain subsidiaries or affiliates of class a subscribers will have neither voting rights nor any of the four types of accounts mentioned above the class c subscription interests are nominal interests that are being created by new taxpayer solely to satisfy certain state a requirements concerning reciprocal insurers new taxpayer will issue at least one additional class of subscriber interests in the future but such interests will not be issued or outstanding immediately after the date the conversion is completed representations the following representations have been made with respect to the conversion a b c d e f taxpayer’s shareholders will receive or will be deemed to receive solely new taxpayer interests in the conversion the fair_market_value of the new taxpayer interests deemed received by each taxpayer shareholder in the conversion will be approximately equal to the fair_market_value of such shareholder’s taxpayer stock converted in the transaction immediately after the conversion class a subscribers will own all of the outstanding interests in new taxpayer aside from the nominal interests held by class c subscribers and will own such interests solely by reason of their ownership of taxpayer stock immediately prior to the conversion immediately after the conversion new taxpayer will hold the same assets and liabilities that taxpayer held immediately before the conversion except for assets used to pay expenses_incurred in connection with the conversion no assets will be distributed in the conversion and there will be no dissenting shareholders the fair_market_value of the assets deemed transferred from taxpayer to new taxpayer in the conversion will equal or exceed the sum of the liabilities as determined under sec_357 assumed by new taxpayer the liabilities of taxpayer to be assumed within the meaning of sec_357 by new taxpayer plus the liabilities if any to which the transferred assets are subject were incurred by taxpayer in the ordinary course of its business and are associated with the assets deemed transferred to new taxpayer plr-128826-12 g h i j immediately after the conversion new taxpayer will be eligible to elect to be treated as an association under sec_301_7701-3 that is taxable as a corporation for federal_income_tax purposes and it will make such an election effective the date of the conversion at the time of the conversion taxpayer will not be under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and it will not be subject_to any state insolvency proceeding applicable to insurers immediately after the conversion the proportionate interest held by each class a subscriber will be the same as the proportionate share of taxpayer stock held by each such person immediately before the conversion each party will pay its own expenses if any incurred in connection with the conversion the following representations have been made with respect to the application of sec_832 k l immediately following the conversion new taxpayer will be recognized as an industrial insured captive reciprocal insurer under state a law new taxpayer will follow the procedures necessary to qualify for deductions and income_recognition under sec_832 increases and decreases respectively in savings credited to its subscriber savings accounts for rulings based solely on the information and representations set forth herein we rule as follows with respect to the conversion the conversion will qualify as a reorganization within the meaning of sec_368 taxpayer and new taxpayer each will be a_party_to_a_reorganization within the meaning of sec_368 the cash distribution and the merger will not preclude the conversion from qualifying as a reorganization within the meaning of sec_368 rev_rul c b no gain_or_loss will be recognized by taxpayer upon the deemed transfer of all of its assets to new taxpayer in exchange for new taxpayer interests and the assumption_of_liabilities sec_361 and sec_357 plr-128826-12 no gain_or_loss will be recognized by new taxpayer upon its deemed receipt of taxpayer assets in exchange for new taxpayer interests sec_1032 new taxpayer’s basis in the assets deemed acquired from taxpayer will be the same as taxpayer’s basis in such assets immediately before the conversion sec_362 new taxpayer’s holding_period for the assets deemed acquired from taxpayer will include the period during which such assets were held by taxpayer sec_1223 no gain_or_loss will be recognized by taxpayer upon the deemed_distribution to its shareholders of the new taxpayer interests sec_361 no gain_or_loss will be recognized by taxpayer’s shareholders upon the deemed receipt of new taxpayer interests in exchange for taxpayer stock sec_354 the basis of the new taxpayer interests in the hands of each class a subscriber will equal the basis of the taxpayer stock treated as surrendered by such subscriber in exchange therefor sec_358 the holding_period for the new taxpayer interests in the hands of each class a subscriber will include the period during which such subscriber held the taxpayer stock deemed exchanged therefor provided that the subscriber held the taxpayer stock as a capital_asset on the date of the exchange sec_1223 subject_to the conditions and limitations of sec_381 sec_382 sec_383 and sec_384 and the treasury regulations promulgated thereunder new taxpayer will succeed to and take into account the tax_attributes of taxpayer described in sec_381 sec_381 and sec_1_381_a_-1 based solely on the information and representations set forth herein we rule as follows with respect to the application of sec_832 new taxpayer will be allowed a deduction for the increase for the taxable_year in savings credited to its subscriber savings accounts sec_832 new taxpayer will include as an item_of_gross_income the decrease for the taxable_year in savings credited to its subscriber savings accounts sec_832 caveats plr-128826-12 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 in particular no opinion is expressed regarding the application of sec_301 sec_368 or any other code or regulatory provision to the cash distribution or the merger procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office 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 isaac w zimbalist senior technician reviewer branch office of associate chief_counsel corporate cc


cca_2016060810244832 id uilc number release date from sent wednesday june am to cc bcc subject fw form poa ---------- - with respect to the first question below a poa with authority to represent the taxpayer for tax_year ------- -can request and receive return_information of the taxpayer associated with the exam for that year if the exam file for ------- contains documents from other years that were requested for and used in the ------- exam they could be given to the poa at one point the referral refers to documents provided for ------- ----- which is a little ambiguous since if the documents were provided by the taxpayer in connection with a ------- return or ------- exam then they would not be available to the poa unless they were actually used to support a ------- adjustment disclosure need not be making any independent judgments as to whether particular documents were used in an exam for a particular year the revenue_agent assigned to the exam should be consulted if there is any ambiguity as to whether any specific documents are properly within an exam file for a particular year but certainly a poa cannot request documents from another year just on the poa’s representation that they are somehow relevant to an exam for which the poa has authorization similarly with respect to the second question a poa acting under the authority of form_2848 does not have the authority to request third party documents outside the context of an exam of the tax_year of his her authority such as those available to the taxpayer pursuant to sec_6103 eg partnership or corporate returns if third party documents are properly within an exam file for a year within the poa’s authority the poa can request and have access to those documents but the poa cannot request corporate or partnership returns on behalf of the taxpayer pursuant to sec_6103 based simply on the theory that those documents are relevant to the exam sec_6103 does allow persons specifically authorized as attorney-in-fact to make requests under sec_6103 an attorney-in-fact has general authority to act for another person as opposed to the limited authority conveyed by a form_2848 to represent someone before the service any request under e from a person purporting to have attorney-in-fact authority should be verified with signed documentation from the taxpayer whether specified on a form_2848 itself or in some other document let me know if you have any further questions on this ------


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 b04 plr-149854-07 date date legend legend trust decedent year niece niece nephew nephew nephew a b c d e f state statute --------------------------------- state statute ------------------------------------- ------------------------------------------- -------------------------------- ------- ------------------------- ------------------------------------- ---------------------- ------------------ ------------------ --------- ------------------------------------ ------------------------------------ -------------- --------- -------------- dear ------------------ this responds to your representative’s letter dated date requesting rulings on the income and generation-skipping_transfer gst tax consequences of the proposed modification of trust facts the facts and representations submitted are summarized as follows trust was established under the will of decedent in year a date prior to date under the terms of trust niece niece nephew nephew and nephew decedent’s nieces and nephews are each to receive an annuity of dollar_figurea out of the net plr-149854-07 income of the trust the remaining income of the trust each year is to be divided into six shares to be paid to six identified charitable organizations the charitable remaindermen upon the death of niece nephew nephew or nephew the respective annuity of dollar_figurea allocable to that niece or nephew is payable to the lawful issue of that niece or nephew by right of representation upon the death of niece or upon the death of any named niece or nephew without any surviving lawful issue his or her share of the net_income will augment the amounts provided to be paid to the charitable remaindermen upon the death of the last survivor of the lawful issue of niece nephew nephew and nephew living at the time of decedent’s death the corpus of the trust and any undistributed_income is to be distributed to the charitable remaindermen in equal shares trust was funded with approximately dollar_figureb of assets the assets of the trust are currently valued at dollar_figurec more than four and one half times the original asset value because of the death of niece and the death of nephew without surviving issue only three of the five annuities are currently being paid_by the trust to the annuitant beneficiaries pursuant to the terms of trust the remaining net_income after payment of the annuities is being distributed in equal shares to the charitable remaindermen based on the life expectancy of the youngest measuring life the trust is estimated to terminate years from now it is represented that only dollar_figured which is less than percent of the value of the trust corpus is necessary to fund the annuities for the expected duration of the trust based on the foregoing the charitable remaindermen obtained legal representation to pursue the acceleration of the charitable_remainder interests the charitable remaindermen noted that the total yearly annuity currently payable to the annuitant beneficiaries is only percent of the value of the corpus of the trust and that the trustee’s fees each year are three times the amount of the annuities distributed under these circumstances the charitable remaindermen have argued that no material purpose is served by continuing the trust until the estimated termination_date in and therefore trust should be fully or partially terminated after lengthy negotiations between counsel for the charitable remaindermen and counsel for the annuitant beneficiaries the parties came to an agreement the agreement as follows a b except to the extent of dollar_figured which is the amount required to fund the annuity payments for the remainder of trust’s duration trust should terminate and the corpus should be distributed to the charitable remaindermen trust will continue to pay the annuities of dollar_figurea out of the trust’s income each year to the annuitant beneficiaries and will continue to distribute any excess income each year to the charitable remaindermen as provided for under the original terms of trust plr-149854-07 c d upon the final termination of trust in accordance with the original terms of trust all of the then-remaining balance will be distributed outright to the charitable remaindermen in equal shares as provided for under the original terms of trust the charitable remaindermen will purchase separate and apart from the trust commercial annuities for the benefit of each of the three annuitant families under the annuity_contracts an annuity amount of approximately dollar_figuree will be paid to each annuitant family for a term identical to the term of trust at a total cost to the charitable remaindermen of dollar_figuref the charitable remaindermen have represented that each annuity policy to be purchased will remain the asset of the purchasing charity and the annuitants will have no rights to the annuity payments superior to those of the purchasing charity’s other creditors pursuant to the agreement counsel for the charitable remaindermen filed a petition for modification of trust with the consent of all beneficiaries under the authority of state statute state statute provides in pertinent part a b except as provided in b if all beneficiaries of an irrevocable_trust consent they may compel the modification or termination of the trust upon petition to the court if the continuance of the trust is necessary to carry out a material purpose of the trust the trust cannot be modified or terminated unless the court in its discretion determines that the reason for doing so under the circumstances outweighs the interest in accomplishing a material purpose of the trust the petition attests that the non-petitioning beneficiaries as well as the petitioning beneficiaries have consented to the proposed modification you have requested the following rulings the implementation of the agreement and court order will not cause trust to lose its exempt status under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the partial_termination of trust and the early distribution to the charitable remaindermen will not result in the immediate realization of capital_gain capital_loss or taxable_income by the annuitant beneficiaries the trust or the charitable remaindermen the purchase of the commercial annuities by the charitable remaindermen for the benefit of the annuitant beneficiaries will not result in the immediate plr-149854-07 realization of capital_gain capital_loss or taxable_income by the annuitant beneficiaries law and analysis ruling sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer gst 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 b i 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 modification of the governing instrument by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides in part that a modification of an exempt trust will result in a shift in a beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst or the creation of a new gst to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest plr-149854-07 in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in the present case trust was irrevocable on date it is represented that no additions actual or constructive have been made to trust after that date accordingly trust is exempt from the gst tax under sec_26_2601-1 in measuring the effect of implementing the agreement we have determined that the interest of the annuitant beneficiaries in trust will not change as a result of the implementation of the agreement the annuitant beneficiaries will receive the same amount under the terms of trust as before implementation of the agreement accordingly provided the agreement is valid under applicable state law we conclude that implementing the agreement will not result in a shift of any beneficial_interest in trust to any beneficiary who occupies a lower generation than the beneficiaries holding the beneficial interests prior to the modification in addition implementing the agreement will not extend the time for vesting of any beneficial interests in the trust beyond the period provided for in the trust therefore the agreement will not affect the status of trust as exempt from the gst tax under sec_2601 ruling sec_2 sec_61 of the internal_revenue_code provides that gross_income includes gains derived from dealings in property and under ' a from an interest in a_trust sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in ' for determining gain and the loss shall be the excess of the adjusted_basis provided in ' for determining loss over the amount_realized sec_1001 states 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 ' c except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under ' 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 in 499_us_554 the supreme court considered whether a sale_or_exchange had taken place that resulted in realization of gain_or_loss under sec_1001 when a financial_institution exchanged its interests in one plr-149854-07 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 court concluded that sec_1_1001-1 reasonably interprets sec_1001 id pincite the court also 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 id 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 id pincite it is consistent with the supreme court's opinion in cottage savings to find that the interests of the annuitants and the six charities in trust will not differ materially as a result of the proposed partial_termination of trust and the early distribution to the charitable remaindermen the legal entitlements of the beneficiaries will not be changed each annuitant beneficiary’s payment from trust will remain unchanged only the timing of the receipt of a large portion of trust corpus by the charitable remaindermen will be modified except for the changes described above all other provisions of trust will remain unchanged accordingly the modification of trust to provide for the partial_termination of trust and the early distribution to the charitable remaindermen will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries and no gain_or_loss will be recognized on the modification of trust under sec_1001 as for the purchase of the annuities for the benefit of the annuitant beneficiaries it is represented that each annuity policy to be purchased by the charitable remaindermen will remain the asset of the purchasing charity and the annuitant beneficiaries will have no rights to the annuity payments superior to those of the purchasing charities’ other creditors accordingly the purchase of the annuities by the charitable remaindermen for the benefit of the annuitant beneficiaries will not result in the immediate realization of capital_gain capital_loss or taxable_income by the annuitant beneficiaries this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-149854-07 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely james f hogan senior technician reviewer branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index numbers ---------------------------------------------------- -------------------------- --------------------------------------- ------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-156454-06 date date ---------------------------------------------------- ------------------------------------- --------------------------------------- ----------------------- x ----------------------------------------- y ----------------------------------------- a --------------------------------------------------- b country country year d1 d2 d3 dear ------------ ------------------- ------------------- ------------- ------------- -------- ------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_301_9100-3 of plr-156454-06 the procedure and administration regulations that x be granted an extension of time to file an election to be classified as a partnership under sec_301_7701-3 facts x was formed in year as a limited_liability_company under the laws of country as of d1 x was owned by b a limited_liability_company wholly owned by a and an entity formed in country and was classified as an association_taxable_as_a_corporation for federal tax purposes on d2 b assigned its interest in x to y a country corporation fully owned by a x intended that x be classified as a partnership for federal tax purposes effective d3 x relied upon a qualified_tax professional to make the election to classify x as a partnership however due to inadvertence x failed to file timely form_8832 entity classification election law sec_301_7701-1 provides in general that the classification of organizations that are recognized as separate entities is determined under sec_301_7701-2 sec_301_7701-3 and sec_301_7701-4 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 generally provides that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that the election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include plr-156454-06 an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and elect to be classified as a partnership for federal tax purposes effective d3 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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-156454-06 letter is being sent to x’s authorized representative in accordance with the power_of_attorney on file with this office a copy of this s sincerely william p o'shea associate chief_counsel passthroughs 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 psi b01 plr-140406-06 date date ------------- ------------- -------------------------- this letter responds to a letter dated date submitted on behalf of x legend x ----------------------------------------- state d1 dear --------------- requesting rulings regarding a proposed transaction including rulings under sec_368 and sec_1361 of the internal_revenue_code facts on d1 x made an s election effective d1 for business reasons x intends to reorganize as a limited_liability_company llc under the laws of state the newly formed llc will elect under sec_301_7701-3 of the procedure and administration regulations to be treated as an association_taxable_as_a_corporation for federal tax purposes effective from the date of formation concurrently with or shortly after the formation and entity classification election of the llc x will merge into the llc under state law with the llc surviving the llc members and their percentage membership interests in the llc will be identical to x shareholders and their percentage shareholder interests in x the information submitted states that x was incorporated under the laws of state plr-140406-06 the llc will be manager managed the llc managers are in this case the equivalent of corporate officers managers can be elected and removed by majority vote of the members with respect to the llc its members will have identical rights other than the ability to bind the llc in contract as to third parties which right will be limited to the elected managers with respect to the llc all items of income and loss will be allocated among the members pro_rata in accordance with their percentage membership interests in the llc and all distributions both liquidating and non- liquidating will be made to the members pro_rata in accordance with their percentage membership interests the fair_market_value of the llc membership interests that the shareholders of x will receive in the merger will be equal to the fair_market_value of x shares surrendered in the exchange the shareholders will receive no consideration other than llc membership interests for their x shares there is no plan or intention by any of the shareholders to sell exchange or otherwise dispose_of any llc membership interest that he or she will receive in the merger the llc has no plan or intention to issue llc membership interests following the merger immediately following the consummation of the merger the shareholders will own all of the membership interests of the llc and will own such interests solely by reason of their ownership of x stock immediately prior to the merger immediately following the merger the llc will possess all of the assets and liabilities as those possessed by x immediately prior to the transaction no assets will be distributed and there will be no dissenting shareholders at the time of the merger x will not have outstanding any warrants options convertible securities or any other type of right by which any person could acquire stock in x the llc has no plan or intention to reacquire or redeem any of its membership interests issued in the merger the llc has no plan or intention to sell or otherwise dispose_of any of the assets of x acquired in the proposed transaction except for dispositions made in the ordinary course of business the liabilities of x to be assumed by the llc plus the liabilities if any to which the assets to be transferred are subject were incurred by x in the ordinary course of business and are associated with the assets transferred following the merger the llc will conduct the same business that was conducted by x prior to the merger the shareholders will pay their expenses if any incurred in connection with the transaction x is not currently under the jurisdiction of any court in a title_11_case or similar case within the meaning of sec_368 of the internal_revenue_code immediately after the merger the llc will not be under the jurisdiction of any court in a title_11_case or similar case within the meaning of sec_368 of the internal_revenue_code law and analysis change in identity form or place of organization of one corporation however effected sec_368 provides that the term reorganization means a mere sec_1361 defines an s_corporation as a small_business_corporation for plr-140406-06 which an election under sec_1362 is in effect for such year domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that the term small_business_corporation means a sec_1_1361-1 provides that a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds sec_1_1361-1 provides that the determination of whether all outstanding shares of stock confer identical right to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreement relating to distribution and liquidation proceeds collectively the governing provisions a commercial contractual agreement such as a lease employment agreement or loan agreement is not a binding agreement relating to distribution and liquidation proceeds and thus is not a governing provision unless a principal purpose of the arrangement is to circumvent the one class of stock requirement of sec_1361 and sec_1_1361-1 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner revrul_64_250 1964_2_cb_333 concludes that when an s_corporation merges into a newly formed corporation in a transaction qualifying as a reorganization under sec_368 and the newly formed surviving corporation also meets the requirements of an s_corporation the reorganization does not terminate the s election thus the s election remains in effect for the new corporation revrul_73_526 1973_2_cb_404 concludes that the identifying number previously assigned to the transferor_corporation should be used by the surviving corporation in a statutory merger qualifying as a reorganization under sec_368 conclusions based solely on the information submitted and the representations as set forth plr-140406-06 above we conclude that the merger of x into the llc pursuant to state law and the llc’s election to be treated as an association_taxable_as_a_corporation for federal tax purposes which will be in effect on the date of the proposed transaction qualifies as a reorganization under sec_368 x will not recognize any gain_or_loss on the exchange sec_361 and sec_357 the basis of x assets in the hands of the llc will be the same as the basis of such assets in the hands of x immediately prior to the proposed transaction sec_362 the holding_period of x assets held by the llc will include the period during which such assets were held by x sec_1223 the basis of the llc interests received by the shareholders will be the same as the basis of x shares surrendered in the exchange sec_358 the holding_period of the llc interests to be received by the shareholders will include the period during which x shares surrendered therefore were held provided that the shares are held as capital assets on the date of the exchange sec_1223 the llc’s agreement once executed in a substantially identical form will be considered a governing provision for purposes of sec_1_1361-1 since it will be a binding agreement that defines the members’ rights to distribution and liquidating proceeds further the llc agreement once executed will not by its terms cause x to have a second class of stock within the meaning of sec_1361 the llc will retain x’s previously assigned identifying number ein see revrul_73_526 1973_2_cb_404 concerning the tax consequences of any aspect of any transaction or item discussed in this letter specifically this ruling expresses no opinion regarding the existence of any other document or arrangement that could be considered a governing provision under sec_1_1361-1 in addition any arrangement that allows the owners to share in current distributions and liquidating proceeds in a manner that differs from their stated ownership percentage interests could potentially be considered to create a second class of stock except as specifically set forth herein no opinion is expressed or implied 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-140406-06 in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely audrey w ellis senior counsel branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


ax exeunt ano govemnment bntities department of the treasury internal_revenue_service washington apr u uniform issue list attn re control number legend ‘taxpayer plan x shareholder a shareholder b shareholder c amount amount loan loan loan loan loan ‘ - wm me plan x is an employee_stock_ownership_plan esop dear ‘this is in response to correspondence dated date as supplemented and modified by additional correspondence dated march and date from yo authorized representative in which you request a letter_ruling regarding the applicabi of the delayed effective date under sec_904 of the pension_protection_act of p-l ppa '06 to the vesting schedule of plan x the following facts and representations have been submitted under penalty of perjury in support of the rulings requested ‘taxpayer a subchapter dollar_figure corporation established plan x effective date for the benefit of its employees intended to comply with sec_4975 of the internal_revenue_code code plan x provided fora five-year cliff_vesting schedule in ‘amount from taxpayer of employer_securities from shareholders a b and c payments commencing date with final payment to be msde on date another exempt loan transaction executed on date an additional total of shares of employer_securities were sold by shareholders a b and c to plan x in return all the for three promissory notes paysdle to them loan sec_2 and respectively shares purchased as part of these two loan transactions are employer_securities within the megning of sec_409 on date plan x borrowed amount from taxpayer loan and used such amounts o pay off the remaining balance owing on loan sec_2 and in a refinancing ransaction loan remained in effect and was not modified in connection with the date transaction an exempt loan transaction executed on date loan plan x borrowed shares loan provided for scheduled in this amount was used to purchase a total of it has not yet been fully repaid based on the above facts and representations you request that the intemal revenue service service rule on the following issue ‘the accelerated vesting_schedules under sec_41 i a b a8 amended by ppa will not apply to plan x for any plan_year beginning the earlier of date or the date upon which loan sec_4975 of the code provides that the term employee_stock_ownership_plan means a defined contzibution plan a which is a stock_bonus_plan which is qualified or a stock bonus and a money purchase plan both of which are qualified under sec_401 of the code and which are designed to invest primarily in qualifying employer_securities and sec_4975 of the b which is otherwise defined in regulations by the seoretary is fully repaid i code provides that the tenn qualifying_employer_security means any employer_security within the meaning of sec_409 of the code sec_41 a of the code provides that trust shall not constitute qualified_trust under sec_401 of the code unless the plan of which such trust is part provides that an employee's right to his normal_retirement_benefit is nonforfeitable upon the attainment of normal_retirement_age as defined in paragraph and in addition satisfies the requirements of subsection and i t of this subsection and the requirements of subsection b and also satisfies in the case of a defined_benefit_plan the requirements of subsection b and in the case of a defined_contribution_plan the requirements of subsection b prior to the effective date of ppa a defined contribution pian satisfied the minimum vesting requirements of sec_41 a of the code with respect to employer nonelective contributions if it maintained a 5-year ciiff vesting schedule or vesting schedule require faster vesting of employer nonelective contributions to a defined_contribution_plan sec_411 by of the code as amended by ppa ’06 generally provides that a defined_contribution_plan satisfies the requirements of this section if it satisfies the requirements of clause ii a plan satisfies the requirements of clause ii if an employee who has completed at jeast years_of_service has a nonforteitable right to percent of the employee's accrued_benefit derived from employer contributions a plan satisfies the requirements of clause iii if an employee has a nonforfeitable right to a percentage of the employee's accrued benefit'derived from employer contributions determined under the following table sec_904 of ppa amended the minimum vesting requirements to to year graded or ii ‘years of service nonforfeitable percentage f sec_41 a b of the code as amended by sec_904 of ppa '06 generally applies to contributions for plan years beginning after date notwithstanding this effective date sec_904 of ppa provides that for any esop which had outstanding on date a loan incurred for the purpose of sequiring qualifying employer_securities as defined in sec_4975 of the code ‘4 the vesting rile amendments do not apply to any plan_year beginning before the earlier of the date on which the loan a is fully repaid or b was as of date scheduled to be fully repaid sec_904 with respect to your ruling_request loan was incurred for the puxpose of acquiring ‘the loan was qualifying employer_securities as defined in code sec_4975 outstanding on date with the final payment scheduled to be made on june accordingly we conclude that the accelerated vesting_schedules under sec_411 a b as amended by ppa will not apply to plan x for any plan_year beginning earlier of date or the date upon which loan is fully repaid no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto ‘this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent a copy of this letter_ruling has been sent to your authorized representative pursuant to a power_of_attorney on if you wish to inquire about this ruling please contact file in this office ald at sincerely yours clbon weller manager employee_plans tec ‘ical group enclosures deleted copy of this letter notice of intention to disclose notice ce