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 b07 plr-155290-09 date date legend taxpayer ----------------------- --------------------------------------------------------------------- state city ------------ ----------- dear -------------- this replies to a letter_ruling request dated date together with supplemental information dated date submitted on your behalf by your authorized representative requesting rulings under sec_4082 and other provisions of the internal_revenue_code the information submitted states that taxpayer is a state limited_liability_company that is a registered blender and a form_720 filer taxpayer blends biodiesel with diesel_fuel in a facility that is located in city state that is several hundred miles from a pipeline refinery or terminal taxpayer sells fuel to a variety of customers who use the fuel for both taxable and nontaxable uses due to its distance from the bulk_transfer_terminal_system taxpayer maintains high minimum inventories in order to facilitate sales to its customers who are using the fuel for a nontaxable purpose taxpayer proposes to purchase undyed diesel_fuel at a terminal and store it at its city facility on a load-by- load basis taxpayer proposes to blend biodiesel into the undyed diesel_fuel and then dye the mixture by mechanical injection for its customers who use fuel for nontaxable purposes such as off-highway use and farming in some instances taxpayer also proposes to dye by mechanical injection the undyed diesel_fuel that it stores at its city plr-155290-09 facility for customers who use the fuel for nontaxable purposes taxpayer proposes to sell the dyed_fuel to its customers at a tax-exclusive price taxpayer then proposes to make a claim with respect to the tax that was imposed upon removal from the terminal for the diesel_fuel it mechanically dyes such a system would allow taxpayer to purchase and store only undyed diesel_fuel rather than both dyed and undyed diesel_fuel taxpayer has requested the following four rulings whether taxpayer is permitted to mechanically inject dye into biodiesel fuel mixtures that it produces by mixing previously taxed undyed diesel_fuel and biodiesel within its city blending facility prior to sale or removal from that facility in order to sell the completed blended fuel at a tax-exclusive price to customers who will use the blended fuel for a nontaxable_use whether taxpayer is permitted to mechanically inject dye into taxed undyed diesel_fuel that it purchases at the terminal rack in order to subsequently sell that fuel at a tax-exclusive price to customers who will use the fuel for a nontaxable_use whether taxpayer may make a claim for the tax paid on its purchase of undyed diesel_fuel that it uses in its dyed biodiesel mixtures and dyed_diesel_fuel sales described above whether taxpayer as a registered ultimate vendor uv may claim a credit or payment for its sales of taxed fuels to state and local governments law sec_4083 provides that the term taxable_fuel includes diesel_fuel sec_4081 imposes a tax i on the removal of a taxable_fuel from a refinery ii the removal of a taxable_fuel from a terminal iii the entry into the united_states of any taxable_fuel for consumption use or warehousing and iv the sale of taxable_fuel to any person who is not registered under sec_4101 unless there was a prior taxable removal or entry of such fuel under sec_4081 - iii sec_4081 provides that the tax_rate for diesel_fuel is dollar_figure4 per gallon which includes a dollar_figure1 per gallon leaking_underground_storage_tank_trust_fund tax lust_tax sec_4081 imposes a tax on taxable_fuel sold by a blender on the taxable_fuel sold or removed by the blender plr-155290-09 sec_48_4081-3 of the manufacturers and retailers excise_tax regulations imposes a tax on the removal or sale of blended taxable_fuel by the blender thereof tax is computed on the difference between the total number of gallons of blended taxable_fuel removed or sold and the number of gallons of previously taxed taxable_fuel used to produce the blended taxable_fuel sec_48_4081-3 provides that the blender is liable for the tax imposed under sec_48_4081-3 sec_4081 provides that under regulations prescribed by the secretary if any person who paid the tax imposed by sec_4081 with respect to any taxable_fuel establishes to the satisfaction of the secretary that a prior tax was paid and not credited or refunded with respect to such taxable_fuel then an amount equal to the tax paid_by such person shall be allowed as a refund without interest to such person in the same manner as if it were an overpayment_of_tax imposed by sec_4081 sec_4082 provides that the tax imposed by sec_4081 shall not apply to diesel_fuel and kerosene-- which the secretary determines is destined for a nontaxable_use which is indelibly dyed by mechanical injection in accordance with regulations and which meets such marking requirements if any as may be prescribed by the secretary in regulations sec_4082 provides that that term nontaxable_use means any use which is exempt for the tax imposed by sec_4041 other than by reason of a prior imposition of tax sec_4082 provides that except in limited circumstances not relevant here the exemption from the tax imposed under sec_4081 by operation of sec_4082 does not include an exemption from the lust_tax sec_48_4082-1 provides the dye color and concentration requirements for dyeing diesel_fuel and kerosene sec_48_4082-1t provided guidance on mechanical dye injection requirements however application of the temporary regulations was stayed by section of notice_2005_80 2005_2_cb_953 section of notice_2005_80 provides temporary guidance for mechanical dye injection requirements section b i provides that any means of dyeing by mechanical injection will be deemed to meet the mechanical injection requirements of sec_4082 if the dyeing system includes measures to resist tampering that are consistent with customary business security practices section b provides that a mixture containing diesel_fuel or kerosene will be treated as being dyed by mechanical injection if -- i the mixture consists of at least percent diesel_fuel or kerosene and the remaining portion is a liquid such as biodiesel other liquid that is not diesel_fuel or kerosene ii the diesel_fuel or kerosene in the mixture was dyed by mechanical plr-155290-09 injection iii the diesel_fuel or kerosene and the other liquid are combined at a facility that is not a terminal and iv the mixture meets the specifications of sec_48_4082-1 relating to dye type and concentration when it is removed from the facility where the diesel_fuel or kerosene and the other liquid are combined sec_6715 imposes various penalties on the misuse of dyed_fuel sec_6427 provides that except as otherwise provided in sec_6427 and l if any diesel_fuel or kerosene on which tax has been imposed by sec_4041 or sec_4081 is used by any person in a nontaxable_use the secretary shall pay without interest to the ultimate_purchaser of such fuel an amount equal to the aggregate amount of tax imposed on such fuel under sec_4041 or sec_4081 as the case may be reduced by any payment made to the ultimate vendor under sec_6427 sec_6427 provides that sec_6427 shall not apply to diesel_fuel or kerosene used by a state_or_local_government sec_6427 provides that except for sec_6427 credit card issuers the amount that would but for sec_6427 have been paid under sec_6427 with respect to any fuel shall be paid to the ultimate vendor of such fuel if such vendor i is registered under sec_4101 and ii meets the requirements of sec_6416 b or d sec_48_6427-9 provides rules under which certain registered ultimate vendors of taxed diesel_fuel and kerosene may claim the credits or payments allowed by sec_6427 sec_48_6427-9 provides that each claim for credit or payment related to diesel_fuel or kerosene that contains visible evidence of dye must include a statement that explains the circumstances under which tax was imposed on that fuel analysis and conclusions sec_4081 imposes a tax on certain removals entries and sales of diesel_fuel if tax is paid on the diesel_fuel more than once and not otherwise credited or refunded a refund may be allowed under sec_4081 for the second tax paid the removal or sale of blended diesel_fuel by the blender is taxable under sec_4081 the blender is liable for the tax under sec_48_4081-3 the tax including the lust_tax is computed on the difference between the total number of gallons of blended taxable_fuel removed or sold and the number of gallons of previously taxed taxable_fuel used to produce the blended taxable_fuel so that the entire mixture is taxed once if a diesel_fuel mixture is destined for a nontaxable_use the blender typically purchases diesel_fuel that is dyed at the terminal rack no tax other than the lust_tax is imposed upon the removal the blender then blends the dyed_diesel_fuel with a previously untaxed liquid and dyes the resulting mixture to the concentration levels specified in plr-155290-09 sec_48_4082-1 under such circumstances no tax other than the lust_tax is imposed when the dyed mixture is sold or removed provided the requirements of sec_4082 are satisfied upon the sale or removal of the dyed mixture the lust_tax applies to the portion of the mixture that was previously untaxed unless the mixture is destined for a nontaxable_use described in sec_4082 in this case taxpayer has presented two scenarios under the first scenario taxpayer proposes to dye undyed diesel_fuel after it has been removed from the terminal rack and tax has been imposed under sec_4081 taxpayer then plans to sell the dyed_diesel_fuel at a tax-exclusive price under the second scenario taxpayer proposes to blend undyed diesel_fuel after it has been removed from the terminal rack and tax has been imposed under sec_4081 with biodiesel to create a taxable mixture dye the entire mixture and then sell or remove the mixture at a tax-exclusive price in both scenarios tax is imposed under sec_4081 upon removal of the diesel_fuel from the terminal rack further in the second scenario the sale or removal of the diesel_fuel mixture will be exempt from the tax imposed under sec_4081 except for the lust_tax provided the requirements of sec_4082 are met we note that in the second scenario the lust_tax will apply to the portion of the mixture that was previously untaxed except in limited circumstances not relevant here see sec_4082 once tax has been imposed neither the code nor the regulations prohibit taxpayer from adding dye to either diesel_fuel or a biodiesel_mixture accordingly with regard to taxpayer’s first and second ruling requests we conclude that taxpayer may mechanically dye undyed diesel_fuel and diesel biodiesel blends and sell the dyed_diesel_fuel and dyed blended fuel at whatever price it chooses however the dyed_diesel_fuel and the dyed diesel biodiesel mixtures will be subject_to the penalties under sec_6715 if the dyed_fuel is sold for use or used in a taxable use with regard to taxpayer’s third ruling_request we note that the code has no mechanism that allows taxpayer to make a claim for the first tax imposed under sec_4081 on the removal of diesel_fuel from the terminal rack under the scenarios taxpayer has presented except for sales to state and local governments discussed below therefore except as provided below with regard to sales to state and local governments taxpayer may not make a claim for the tax imposed under sec_4081 in addition taxpayer may not make a claim under section sec_4081 because there will be no second tax imposed on either the dyed_diesel_fuel or the dyed diesel biodiesel_mixture with regard to taxpayer’s fourth ruling_request we note that sec_6427 allows registered ultimate vendors to make a claim for a credit or payment for the amount of taxes imposed under sec_4081 for its sales of taxed diesel_fuel to state and local governments if the fuel contains dye sec_48_6427-9 requires that each claim plr-155290-09 include a statement that explains the circumstances under which tax was imposed on that fuel in addition in order to claim a credit or payment the ultimate vendor must obtain a certification of state use from the state_or_local_government in this case taxpayer represents that all of the requirements set forth in sec_6427 will be met provided that taxpayer meets such requirements and provided that to the extent such fuel is dyed taxpayer can establish to the satisfaction of the irs that such fuel has been taxed taxpayer as an ultimate vendor may make an excise_tax claim on form_720 or form_8849 or an income_tax claim on form_4136 for the tax imposed except the lust_tax on the fuel sold to state and local governments 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 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely stephanie n bland senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c date number info release date cc tege eoeg et1 - genin-164199-02 uilc memorandum for director internal_revenue_service center cincinnati oh attn technical unit from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - genin-164199-02 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business ceased to be an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that ceased to be an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business will e mcleod cc


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc tege eoeg et2 genin-129528-13 number release date uil ------------------------------------ ------------------------ -------------- ---------------------------- attention ------------------------ ------------------------- dear ------------- this is in reply to your letter dated date requesting that the internal_revenue_service adopt bike share as a qualifier for the transportation commuting benefits program under the fringe benefit exclusion rules for transit under sec_132 of the internal_revenue_code employers that provide their employees with transportation benefits can exclude those benefits from their employees' gross incomes if the benefits are qualified_transportation fringes which are defined in sec_132 under sec_132 a qualified_transportation_fringe includes any transit_pass under sec_132 a transit_pass is defined as any pass token farecard voucher or similar item including an item exchangeable for fare media that entitles a person to transportation on mass transit facilities emphasis added whether or not publicly owned a bike share program is not a mass transit facility under sec_132 a qualified_transportation_fringe includes any qualified_bicycle_commuting_reimbursement under sec_132 a qualified_bicycle_commuting_reimbursement means with respect to any calendar_year any employer reimbursement during the 15-month period beginning with the first day of such calendar_year for reasonable expenses_incurred by the employee during such calendar_year for the purchase of a bicycle and bicycle improvements repair and storage if such bicycle is regularly used for travel between the employer’s residence and place of employment expenses_incurred in using a bike share program are not expenses for the purchase of a bicycle or bicycle improvements repair or storage genin-129528-13 generally employers can exclude qualified_transportation_fringe_benefits from an employee’s gross_income even if they provide those benefits in place of pay however qualified bicycle commuting reimbursements cannot be excluded if employers provide them in place of pay sec_132 the provision which permits employees to reduce their taxable compensation in order to receive reimbursements for transit expenses on a pre-tax basis does not apply to qualified bicycle commuting reimbursements specifically sec_132 provides that no amount shall be included in the gross_income of an employee solely because the employee may choose between any qualified_transportation_fringe other than a qualified_bicycle_commuting_reimbursement and compensation that would otherwise be includible in the gross_income of such employee emphasis added thus allowing bike share programs to qualify as a pre-tax benefit under sec_132 would require legislative action by congress therefore i have forwarded your suggestion to the office of tax policy at the treasury_department for consideration the office of the assistant secretary_of_the_treasury for tax policy is responsible for formulating the tax policies of the department of treasury i hope this information is helpful to you this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see revproc_2013_1 sec_2 2013_1_irb_1 date if you have any additional questions please contact -----------------of my office at ---------- ------------- sincerely lynne camillo branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities


department of the treasury internal_revenue_service washington d c date cc dom fs corp tl-n-4426-98 number release date uilc from subject internal_revenue_service national_office field_service_advice memorandum for attn deborah a butler assistant chief_counsel field service cc dom fs exchange gain in sec_304 transaction determination of earnings_and_profits this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend parent sub1 fsub1 fsub2 country x region1 state y ty1 ty2 yeara yearb yearc yeard date1 date2 date3 date4 date5 date6 dollar_figureaa dollar_figurebb dollar_figurecc dollar_figuredd dollar_figureee dollar_figureff dollar_figuregg dollar_figurehh dollar_figureii dollar_figurejj dollar_figurekk dollar_figurell dollar_figuremm dollar_figurenn dollar_figureoo dollar_figurepp dollar_figureqq dollar_figurerr dollar_figuress dollar_figurett dollar_figureuu dollar_figurevv dollar_figureww dollar_figurexx dollar_figureyy dollar_figurezz dollar_figureaaa dollar_figurebbb dollar_figureccc dollar_figureddd dollar_figureeee dollar_figurefff dollar_figureggg dollar_figurehhh saaa sbbb sccc sddd seee court a case r s t issues whether for purposes of calculating the gain recognized in a transaction under i r c ' a in ty1 sub1 should increase its basis in the stock of fsub1 by the amount of an exchange gain recognized under i r c ' c with respect to the deemed_distribution of previously_taxed_income apti under i r c ' whether fsub2's distribution to sub1 in ty2 constituted a dividend rather than a return_of_capital conclusions the exchange gain should not increase the basis of the acquiring_corporation s stock for purposes of calculating capital_gain on the sec_304 transaction any portion of the distribution in ty1 from fsub1 to fsub2 that was properly treated as a return_of_capital would not increase the e_p of fsub2 accordingly under the facts presented fsub2's e_p was less than the amount of the distribution in ty2 and the amount of the distribution in excess of fsub2's e_p would be treated as return_of_capital or capital_gain under i r c ' c issue capital_gain on ' transaction facts a sub1's sale of fsub1 to fsub2 parent is a domestic_corporation which was the common parent of an affiliated_group that filed consolidated income_tax returns for ty1 and ty2 during yearb parent formed fsub1 a country x corporation with a contribution of cash on date1 parent transferred the stock it held in certain country x corporations to fsub1 in exchange for voting common_stock and profit participation rights which parent characterizes for u s tax purposes as nonvoting preferred_stock during the yearb tax_year parent restructured its country x operations and as a result of this restructuring recognized a deemed_dividend distribution under i r c ' flowing from fsub1 this recognition resulted in pti under i r c ' of approximately dollar_figureaa on date2 parent incorporated sub1 as a state y corporation at or around the same date parent transferred s of its stock interest in fsub1 to sub1 in exchange for all of sub1's stock parent retained a t direct interest in fsub1 on or about date3 sub1 formed fsub2 a country x holding_company by contributing saaa to fsub2 in exchange for r of fsub2's stock thus as of date3 sub1 owned s of the stock of fsub1 and r of the stock of fsub2 both country x corporations on date3 sub1 sold its s interest in fsub1 to fsub2 receiving cash of dollar_figurebb notes of dollar_figurecc and additional stock of fsub2 of dollar_figuredd for a total purchase_price of dollar_figureee the service does not dispute the purchase_price paid_by fsub2 for the fsub1 stock b taxpayer's treatment of sub1's transfer to fsub2 on schedule d of the consolidated_income_tax_return for ty1 parent identified sub1's transfer of its s stock interest in fsub1 as part of the region1 transactions and treated sec_1248 generally requires a united_states_shareholder selling or exchanging stock in certain foreign_corporations to report a portion of any recognized gain as dividend sec_959 generally excludes from the gross_income of a united_states_shareholder amounts which the united_states_shareholder previously included in income under sec_1248 this exclusion occurs at the time the pti is distributed or deemed distributed it as a sec_304 transaction it further characterized the sec_304 transaction as consisting of two parts first as a deemed capital_contribution by sub1 of the fsub1 stock to the capital of fsub2 and second as a deemed redemption by fsub2 of its stock held by sub1 parent treated the deemed capital_contribution as a sec_351 exchange and included a statement with the consolidated_return entering into a gain_recognition_agreement under sec_367 consistent with temp treas reg ' a -3t g and notice_87_85 as a result it recognized no gain with respect to this part of the transaction because sub1 constructively owned fsub1 both before and after the transaction the taxpayer treated the deemed redemption as a dividend distribution by fsub2 to the extent of its earnings_and_profits ae p and then as a dividend distribution by fsub1 to the extent of its e_p see i r c b a and b b at the time sub1 sold the fsub1 stock to fsub2 on date3 fsub2 had e_p of sbbb dollar_figureff with no pti and fsub1 had e_p of sccc dollar_figuregg of which sddd was pti and seee dollar_figurehh was nonpti sub1 had a dollar basis of dollar_figureaa in the sddd of pti which had dollar value on date3 of dollar_figureii since fsub1's accumulated e_p included the dollar_figureaa of pti from the yearb fiscal_year the taxpayer excluded it from income under sec_959 however as a result of the receipt of the pti the taxpayer recognized and reported an exchange gain of dollar_figureaaa pursuant to sec_986 during the audit examination and the taxpayer agreed that the amount of sub1 s exchange gain was dollar_figurejj which is the difference between the dollar value of the pti dollar_figureii on date3 and sub1 s dollar basis dollar_figureaa in the pti in addition to the exchange gain the taxpayer recognized and reported a capital_gain in the amount of dollar_figurekk in arriving at the capital_gain of dollar_figurekk the taxpayer treated the exchange gain as having been distributed immediately prior to the sale of the fsub1 stock thereby increasing sub1's basis in fsub1's stock in a statement attached to the return the taxpayer acknowledged that if the exchange gain did not increase sub1's basis the capital_gain recognized would be dollar_figurebbb rather than the dollar_figurekk reported the taxpayer treated the dollar_figurejj of exchange gain under the sec_1248 transaction rule sec_2 of notice_88_71 1988_2_cb_374 pincite which treats the distribution of pti a sec_3 normally sec_367 requires a u s taxpayer to recognize gain on certain transfers to a foreign_corporation thus parent and sub1 by entering into the gain_recognition_agreement avoided tax on sub1's deemed capital_contribution of fsub1's stock to fsub2 occurring immediately before the transaction for purposes of computing the exchange gain as a result the taxpayer increased sub1 s basis in fsub1 by the amount of the exchange gain in computing sub1's basis in fsub2 stock for purposes of the sec_301 distribution as follows basis in fsub1 contributed to fsub21 subpart_f_income yearc subpart_f_income yeard dollar_figurell dollar_figurenn dollar_figuremm subtotal exchange gain - sec_986 total basis dollar_figurejj dollar_figureoo dollar_figurepp the taxpayer's calculation of capital_gain in the sec_304 transaction is as follows cash notes proceeds less dollar_figureccc fsub2 dividend fsub1 pti fsub1 dividend exchange gain pti subtotal dollar_figureff dollar_figureaa dollar_figurehh dollar_figurejj dollar_figureqq sec_301 basis recapture sec_301 capital_gain c exam's audit of the transfer on audit exam agreed with the taxpayer that the transfer constituted a sec_304 transaction to which sec_301 applies accordingly it also agreed that in calculating the dollar_figureqq dollar_figurerr taxpayer apparently treats sub1 s original_basis in fsub2 as dollar_figurerr even though sub1 initially contributed saaa to fsub2 at the time of its organization we assume these amounts constitute subpart_f_income which increased the basis in fsub1 stock under sec_961 deemed_dividend the taxpayer properly followed the rules of sec_304 and sec_304 by looking first to the e_p of fsub2 the acquiring_corporation and then to the e_p of fsub1 the issuing_corporation however exam disagreed with the amount of the exchange gain and its impact on sub1's basis in the sec_304 transaction subsequently exam and the taxpayer agreed that the amount of exchange gain should be increased to dollar_figurejj however the parties continued to disagree on the impact of the exchange gain on sub1's basis for purposes of computing the capital_gain on the transaction in a notice_of_deficiency issued on date5 the service disallowed sub1 s increase in its stock of fsub1 by the amount of the currency exchange gain for ty1 determining an adjustment to sub1 s capital_gain as follows cash notes proceeds less fsub2 - dividend fsub1 - pti fsub1 - dividend balance proceeds less sub1's basis in fsub2 capital_gain capital gain-per return adjustment dollar_figureccc dollar_figureaa dollar_figureff dollar_figurehh dollar_figurezz dollar_figureddd dollar_figuress dollar_figurekk dollar_figurett law and analysis under i r c ' a if one or more persons are in control of each of two corporations and one of the corporations acquires stock in the other from a controlling person in return for property then the property paid for the stock is treated as a distribution in redemption of the acquiring corporation's stock the tax treatment of the redemption is subject_to the rules of i r c ' to determine whether it is treated as an exchange or as a distribution_of_property under i r c ' to the extent the redemption is treated as a distribution_of_property subject_to i r c ' the stock so acquired is treated as having been transferred by the person from whom acquired and as having been received by the acquiring_corporation as a contribution to the capital of the acquiring_corporation effective for distributions or acquisitions after date this provision was amended for purposes of i r c ' control means the ownership of stock possessing at least percent of the total combined voting power of all classes of stock entitled to vote or at least percent of the total value of shares of all classes of stock i r c ' c pursuant to i r c ' c the constructive_ownership rules of i r c ' a are applicable with certain modifications not relevant here for purposes of determining control in a transaction subject_to i r c ' a the determination of whether the redemption is treated as an exchange under the rules of i r c ' b is made by reference to the issuing_corporation ie the corporation whose stock is transferred in applying the constructive_ownership rules of i r c ' a with respect to i r c ' b sec_318 involving attribution from a corporation and a c involving attribution to a corporation are applied without regard to the percent limitation contained in those provisions i r c ' b in the case of a sec_304 redemption that is treated as a distribution under i r c ' the amount treated as a dividend is determined as if the property were distributed first by the acquiring_corporation to the extent of its earnings_and_profits and then by the issuing_corporation to the extent of its earnings_and_profits i r c ' b in the instant case sub1 owned s of fsub1 and r of fsub2 at the time of the sale of the fsub1 stock to fsub2 accordingly sub1 held the requisite percent stock ownership to control within the meaning sec_304 both fsub1 and fsub2 for purposes of sec_304 thus sub1's sale of the fsub1 stock to fsub2 in exchange for cash of dollar_figurebb and notes of dollar_figurecc constituted a distribution to sub1 in redemption of fsub2 stock pursuant to sec_304 because sub1 held s of fsub1 both before and after the sale to fsub2 the redemption fails to qualify as an exchange under sec_302 and is treated as a distribution subject_to sec_301 the exchange of fsub1 stock for additional fsub2 stock is not subject_to sec_304 because the fsub2 stock is not aproperty as defined by i r c ' a however because sub1 had control within the meaning of sec_368 of fsub2 immediately_after_the_transfer of the fsub1 stock to fsub2 the transfer of the part of the fsub1 stock to provide that in a distribution subject_to i r c ' the transferor and acquiring corporations are treated as if the transferor had transferred the stock to the acquiring_corporation in a transaction to which i r c ' a applies and then the acquiring_corporation had redeemed the stock it was treated as issuing in such transaction equivalent in value to the fsub2 stock received in the exchange is treated as a sec_351 exchange see revrul_73_2 1973_1_cb_171 revrul_78_422 1978_2_cb_129 as a result sub1 did not recognize any gain_or_loss with respect to the additional fsub2 stock received in the exchange and the amount of the payment subject_to sec_304 and therefore treated as a distribution under sec_301 includes only the amount of the cash and notes worth dollar_figureccc dollar_figurebb dollar_figurecc because the deemed redemption is treated as a distribution subject_to sec_301 the fsub1 stock transferred by sub1 to fsub2 is treated as a contribution to the capital of fsub2 pursuant to sec_304 prior to the amendments noted above under i r c ' c sub1 s contribution of the fsub1 stock to the capital of fsub2 is treated as an exchange of the fsub1 stock for fsub2 stock of equal value because sub1 owned at least percent of the fsub2 voting_stock in light of sub1 s direct ownership of all of the fsub2 stock immediately_after_the_transfer the exchange qualified as a sec_351 exchange even though there was no actual transfer of fsub2 stock to sub1 in the sec_304 transaction see lessinger v commissioner 85_tc_894 issuance of additional stock to sole shareholder would have been meaningless gesture rev'd on other grounds 872_f2d_519 2d cir accordingly taxpayer treated the transfer as a sec_351 exchange and properly entered into a gain_recognition_agreement with respect to the deemed sec_351 exchange under notice_87_85 and temp treas reg ' a -3t g in determining the amount of the sec_301 distribution that is treated as a dividend sec_304 treats the distribution as if the property were distributed first by the acquiring_corporation ie fsub2 to the extent of its e_p and then by the issuing_corporation ie fsub1 to the extent of its e_p as previously noted fsub2 had e_p of dollar_figureff and fsub1 had e_p of dollar_figuregg on the date of the transfer thus of the dollar_figureccc distributed to sub1 in the sec_304 transaction at least dollar_figureeee dollar_figureff dollar_figuregg would be treated as a dividend under sec_301 and sec_304 however dollar_figureaa of fsub1 s e_p was pti which would not be taxed again pursuant to i r c ' a the amount of the distribution in excess of fsub2 s and fsub1 s e_p is treated as a return_of_capital that reduces the basis of the acquiring_corporation ie fsub2 under sec_301 and then as capital_gain under sec_301 in determining sub1 s basis in the stock of fsub2 the taxpayer treated the dollar_figurejj of exchange gain under the sec_1248 transaction rule notice_88_71 sec_2 1988_2_cb_374 pincite that rule treats the distribution of pti as occurring immediately before the transaction for purposes of computing the exchange gain in a sec_1248 transaction the exchange gain is recognized and increases the basis of stock immediately before the transaction under sec_986 foreign_currency_gain is defined as gain with respect to distributions of pti attributable to movements in exchange rates between the time of deemed and actual distribution and is treated as ordinary_income case development hazards and other considerations taxpayer s reliance on notice_88_71 is inappropriate because that provision of the notice applies only to sec_1248 and sec_1291 transactions see sec_2 of notice_88_71 pincite the sec_304 redemption transaction in this case does not constitute a sec_1248 disposition under sec_1248 gain from the sale_or_exchange of stock of a cfc is treated as a dividend to the extent of its e_p in this sec_304 transaction the pti previously taxed e_p is derived from fsub1 but the stock of fsub2 not fsub1 is exchanged pursuant to a stock_redemption under sec_302 pursuant to sec_304 thus there is no exchange of fsub1 stock from which its e_p is derived as required by a sec_1248 transaction additionally the rationale for the basis increase under notice_88_71 does not apply to the sec_304 transaction in this case under sec_1248 e_p constituting pti is excluded from a sec_1248 deemed_dividend distribution thus solely for purposes of sec_986 notice_88_71 treats pti as being distributed before a sec_1248 sale so that the exchange gain_or_loss that accrued during the selling u s shareholder s holding_period is recognized by the u s shareholder otherwise the exchange gain_or_loss would not be recognized in a sec_1248 transaction because the pti would not be treated as distributed under the notice the basis in the cfc stock is adjusted by the exchange gain_or_loss immediately before the sec_1248 sale so that the exchange gain already included into income is not reflected in gain on the sale in the sec_304 transaction pti is not excluded from the sec_301 distribution hence the exchange gain on the distribution of pti is recognized pursuant to the sec_301 distribution under sec_304 thus there is no reason to treat all of the pti as being distributed before the transaction and increasing the basis of stock it should be noted that sec_304 was amended under the taxpayer relief act to exclude pti from sec_301 distributions by applying the sec_1248 exclusions the effective date of this amendment is for distributions and acquisitions after date thus the amendment would not apply to the transaction at issue which occurred in in any event this provision was subsequently repealed effective as if included in the 1997_act by ' d of the internal_revenue_service restructuring and reform act of pub_l_no the pti therefore is treated as distributed and giving rise to exchange gain pursuant to the sec_301 distribution the pti is not taxable under sec_959 which provides that pti will not be taxed again on its distribution the exchange gain however is taxable under sec_986 the pti account e_p of fsub1 should be reduced by the pti distributed and therefore should be included in the sec_301 distribution pursuant to sec_304 the exchange gain however is not reflected in fsub1 s pti account therefore the exchange gain should not reduce fsub2's or fsub1 s e_p and should not be included in the sec_301 distribution the amount of pti treated as distributed in the sec_304 transaction should also reduce the u s shareholder s basis in the fsub2 stock under sec_961 distributions of pti reduce the basis of stock of a cfc this reduction in basis offsets the basis increase under sec_961 when pti ie subpart_f_income is earned and included into income this transaction is unique in that the basis increase occurred with respect to fsub1 stock because fsub1 earned the pti but the basis decrease occurs with respect to fsub2 stock upon the distribution of pti this is the correct result however because fsub1 s basis and hence the basis increase for pti is reflected in the fsub2 stock basis thus since fsub2 s basis is increased by fsub1 s pti it should correspondingly be decreased by the distribution of that pti we also believe the statutory language of sec_961 is broad enough to allow for this treatment see sec_959 which provides that distributions of pti will reduce e_p the issue present in this case is that while the pti of fsub1 is treated as distributed for purposes of sec_304 the pti does not actually leave the corporation under sec_304 a distribution of e_p that is not pti from the issuing_corporation will reduce e_p in order to prevent the same e_p from being taxed again on a subsequent distribution this also prevents the foreign tax_credits attributable to the e_p from being used a second time we believe the treatment of pti should be consistent with the overall treatment of e_p the exchange gain is not included in fsub1 s e_p because the exchange gain is a tax attribute of the shareholder and is not an income item of fsub1 or fsub2 included in its e_p the u s shareholder takes a u s dollar basis in the foreign functional_currency pti equal to the u s dollar amount of subpart_f_income previously included in income these amounts should have been translated into u s dollars at the average exchange rate for the taxable_year the subpart_f_income was included in income see sec_989 exchange gain_or_loss equals the difference in the dollar value of the pti at the time of the inclusion and its dollar value at the time of the distribution sec_961 provides for the reduction in basis of stock with respect to which a u s shareholder receives a distribution of pti in this case sub1 the u s shareholder receives pti with respect to the distribution in redemption of fsub2 stock while the drafters of sec_961 probably contemplated that the receipt of pti with respect to the stock of a corporation would be from the e_p of that corporation the statute is broad enough to allow for the unique circumstance under sec_304 where amounts are distributed with respect to fsub2 stock even though the pti came from the e_p of fsub1 based on the above the basis and capital_gain on the sec_304 transaction are recomputed as follows excluding sub1 s exchange gain from the basis of fsub2 stock basis in fsub1 contributed to fsub2 subpart_f_income yearc subpart_f_income yeard dollar_figurell dollar_figuremm dollar_figurenn subtotal the calculation of capital_gain is as follows cash notes proceeds less fsub2 dividend fsub1 pti fsub1 dividend subtotal reduction in fsub2 stock basis by pti distribution under sec_961 net_basis dollar_figureoo dollar_figureccc dollar_figureff dollar_figureaa dollar_figurehh dollar_figurezz dollar_figureoo dollar_figureaa dollar_figureddd dollar_figuress dollar_figureddd sec_301 basis recapture sec_301 capital_gain we note that the facts discussed below under issue indicate that fsub1 apparently had current e_p in ty1 of dollar_figurefff inasmuch as examination determined that amount to be a dividend to fsub2 with respect to the distribution of dollar_figureggg on date4 after the sec_304 transaction discussed above we note however that treas reg ' b c provide for the allocation of current e_p among all distributions occurring in a taxable_year because the sec_304 sec_301 distribution discussed above also occurred during ty1 a portion of fsub1 s current e_p should have been allocated to that deemed_distribution we cannot determine from the available information whether such an allocation was made and recommend further investigation on this point issue distribution in ty2 from fsub2 to sub1 facts after sub1's transfer to fsub2 on date3 sub1 retained its r stock ownership of fsub2 and fsub2 owned a s interest in fsub1 with parent owning the other t interest on date4 fsub1 made a dollar_figureggg distribution to fsub2 examination has determined that dollar_figurefff of this distribution was a dividend to fsub2 and the remaining dollar_figureww was a return_of_capital during the subsequent ty2 fsub2 made distributions to sub1 totaling dollar_figureuu on the consolidated_return the taxpayer did not include the distributions as dividends in sub1's u s taxable_income contending that the distributions were not dividends under sec_316 because fsub2 had no e_p because the taxpayer asserts that sub1 had a basis of approximately dollar_figurevv in the fsub2 stock at the time of the distribution it takes the position that the dollar_figureuu distribution constituted a return_of_capital under sec_301 and was not taxable to sub1 examination and the taxpayer agree that immediately_after_the_transfer of date3 fsub2 possessed e_p of dollar_figurerr this conclusion apparently reflects the fact that fsub2 distributed its entire dollar_figureff of accumulated e_p as a dividend to sub1 as part of the sec_304 transaction however in examination s view the dollar_figureww treated by the taxpayer as return_of_capital as well as the dollar_figurefff dividend increased the e_p of fsub2 thus the notice_of_deficiency issued to parent on date5 treated fsub2 as having sufficient e_p to support the entire dollar_figureuu distribution to sub1 as a dividend on date6 parent commenced a proceeding in court a case contesting the entire deficiency asserted with respect to ty2 including the adjustment related to this issue law and analysis under i r c ' a the term adividend means any distribution_of_property by a corporation to its shareholders i out if its e_p accumulated after date or ii out of its earnings_and_profits of the taxable_year computed without regard to the amount of e_p at the time of the distribution the e_p of the taxable_year is computed as of the close of such year without diminution by reason of any distributions made during the taxable_year i r c ' a treas reg ' a every distribution by a corporation is deemed to be made out of e_p to the extent thereof and from the most recently accumulated e_p i r c ' a under treas reg ' a a distribution of e_p is made first out of the e_p of the current taxable_year then out of e_p accumulated after date and finally out of e_p accumulated before date as previously noted where the distribution exceeds all of the corporation s e_p sec_301 treats the excess as a return_of_capital to the extent of the shareholder s basis under sec_301 and sec_301 treats any remaining amount as gain from the sale_or_exchange of property in accordance with i r c ' f a and treas reg ' a distribution that is applied against the basis of the stock of the distributing_corporation does not increase the e_p of a corporate shareholder but a gain by the shareholder under sec_301 increases the shareholder s e_p assuming the dollar_figurefff of fsub1 s current e_p in ty1 is allocable to the dollar_figureggg distribution from fsub1 to fsub2 the treatment of the distribution should be as follows the dollar_figurefff portion of the distribution from fsub1 s e_p would be a dividend to fsub2 and foreign_personal_holding_company_income_subpart_f income to sub1 taxable under sec_951 if fsub2 s basis in fsub1 was dollar_figureoo sub1 s carryover_basis in fsub1 stock the remainder of the distribution dollar_figureww would be a return of basis to fsub2 under sec_302 case development 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internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom p si plr-119318-99 date date legend x state d1 this responds to the letter dated date and additional information submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 x’s shareholders intended that x be a subchapter_s_corporation effective d1 however an s_corporation_election under sec_1362 was not timely filed s_corporation sec_1362 provides that a small_business_corporation may elect to be an law and analysis sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed for making such election for such taxable_year and the secretary determines that there was reasonable_cause for the failure cc dom p si plr-119318-99 to timely make the election then the secretary may treat the election as timely made for such taxable_year x’s s_corporation_election was not timely filed for the election to be effective as of d1 nevertheless x has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 we conclude that x will be recognized as an s_corporation effective d1 x should file a completed form_2553 with a copy of this ruling attached reflecting its election of subchapter_s_corporation status as of d1 with the applicable service_center within days of the date of this letter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative sincerely dianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date ---------------------------------- ----------------------------- --------------------------------------------- ---------------------------------- in re --------------------------------------------- ----------------------------- -------------------------- ------------------------ - department of the treasury washington dc person to contact ---------------- id no ------------- cc ita telephone number --------------------- refer reply to plr-120237-05 date date legend a ----------------------------------------------------------------- ------------------------------------------------- dates -------------------------- -------------------------- ----------------------------- groups taxpayers and on attachment taxpayers and on attachment all other taxpayers on attachment dear -------------------- this letter responds to your letter and submissions of date supplementing a previous submission of march in which you requested on behalf of a above and forty other related parties the taxpayers - see attachment certain private letter rulings relating to the late-filing of forms election to have a tax_year other than a required tax_year specifically you requested that the taxpayers’ late-filed forms be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations we are pleased to address your concerns the information submitted indicates that each of the forty-one taxpayers on whose behalf rulings are requested is a partnership employing an overall accrual_method of accounting taxpayers are members of a tiered_structure as defined in sec_1_444-2t of the temporary income_tax regulations under sec_706 of the internal_revenue_code a partnership’s taxable_year must be its required_taxable_year unless among other exceptions not relevant here the partnership elects under sec_444 of the code to use a taxable_year other than its required_taxable_year sec_444 and permit an eligible_partnership to elect or change to a taxable_year only if the deferral_period of the taxable_year elected is not longer than the shorter of three months or the deferral_period of the taxable_year being changed the term deferral_period generally refers to the number of months between the beginning of the entity’s taxable_year and the close of the first required_taxable_year ending within such taxable_year in the instant circumstances taxpayers desired to elect a taxable_year ending november for their initial taxable_year which is a permitted taxable_year under sec_444 sec_444 of the code and sec_1_444-2t of the regulations provide in relevant part that entities that are part of a tiered_structure that consists only of partnerships all of which have the same taxable_year may make or continue an election under sec_444 of the code sec_1_444-3t of the regulations provides among other requirements that form_8716 must be filed by the earlier of i the 15th day of the fifth month following the month that includes the first day of the tax_year for which the election will first be effective or ii the due_date without regard to extensions of the income_tax return resulting from the sec_444 election sec_301_9100-1 of the regulations set forth rules respecting the granting of extensions of time for making certain elections under these rules the commissioner in his discretion may grant a reasonable extension of time to make a regulatory election under subtitle a provided the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government sec_301_9100-2 sets forth rules governing automatic extensions for regulatory elections including elections to use other than the required tax_year under sec_444 if the provisions of section' do not apply to the taxpayer's situation as in the instant case the provisions of sec_301_9100-3 other extensions may apply sec_301_9100-3 sets forth standards that the commissioner will employ in determining whether to grant discretionary relief in situations that do not meet the requirements of sec_301_9100-2 the standards applied are whether the taxpayer acted reasonably and in good_faith in the matter and whether the granting of relief will prejudice the interests of the government generally a taxpayer will be deemed to have acted reasonably and in good_faith where for example the taxpayer reasonably relied on a qualified_tax professional and that professional failed to make or advise the taxpayer to make the election at issue in the instant circumstances group taxpayers’ forms electing to use a taxable_year ending november were due on or before date group taxpayers’ forms electing to use a taxable_year ending november were due on or before date and group taxpayers’ forms electing to use a taxable_year ending november were due on or before date due to an error or misunderstanding none of the forms was timely filed however the error was not due to any lack of due diligence or prompt action on the part of any taxpayer the information submitted and representations furnished by the taxpayers and their tax professionals establish that taxpayers acted reasonably and in good_faith in respect of this matter furthermore we have determined that the granting of relief in this case will not prejudice the interests of the government within the intendment of sec_301_9100-3 accordingly the requirements of sec_301_9100-3 for the granting of relief have been satisfied within days of the date of this ruling each taxpayer should file with the irs cincinnati service_center attn entity control a form_8716 electing to use a tax_year ending november effective for its first taxable_year ending either date date or date as appropriate a copy of this letter_ruling should accompany such submission and each taxpayer should type or print at the top of the form filed under sec_301_9100-3 of the regulations this ruling is further conditioned on taxpayers complying with sec_1 1t a which provides in relevant part that for each taxable_year that a partnership has an election under sec_444 in effect the partnership must i file a return as provided in sec_1_7519-2t and ii make any required_payment as provided in sec_1_7519-2t except for the specific ruling above which is restricted to the filing of forms we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the code or regulations that may be applicable thereto this letter_ruling is based on facts and representations provided by the taxpayers and their authorized representatives and is limited to the matters specifically addressed no opinion is expressed as to the tax treatment of the transactions considered herein under the provisions of any other sections of the code or regulations which may be applicable thereto or the tax treatment of any conditions existing at the time of or effects resulting from such transactions which are not specifically addressed herein because it could help resolve federal tax issues a copy of this letter should be maintained with the taxpayers’ permanent records pursuant to a power_of_attorney currently on file with this office the original of this letter_ruling is being sent to the taxpayers’ authorized representative and copies are being furnished to the taxpayers and their second-designated authorized representatives a copy of this letter is also being sent to the taxpayers’ appropriate irs industry director this ruling is directed only to the taxpayers who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent associate chief_counsel income_tax accounting s william a jackson by _________________________ william a jackson chief branch attachment enclosures copy of this letter copy for sec_6110 purposes attachment plr-119941-05 -------------------------------------------------------------------- -------------------------------------------------------------- plr- -------------------------------- plr-119947-05 ------------------------------------------------------------------------------- plr-119950-05 ------------------------------------------------------------- plr-119955-05 ------------------------------------------ plr- ---------------------------------------- plr-120150-05 ----------------------------------------- plr-120154-05 ------------------------------------------------------ plr-120199-05 ------------------------------------------------------- plr- --------------------------------------------- plr-120212-05 ------------------------------------------------------ plr-120219-05 --------------------------------------------- plr-120220-05 ---------------------------------------- plr-120218-05 ------------------------------------------- plr-120222-05 -------------------------------- plr-120231-05 ---------------------------------------------- plr-120233-05 ------------------------------------------------------- ------------------------------------------------------ plr-120235-05 ---------------------------------------- plr-120236-05 ------------------------------------------------------ plr-120237-05 --------------------------------------------------------------- plr-120239-05 -------------------------------------------------- plr-120248-05 --------------------------------------- plr-120249-05 ------------------------------------------ plr-120252-05 ------------------------------------------------ plr-120254-05 -------------------------------------------------------------- plr-120258-05 --------------------------------------------- plr-120263-05 -------------------------------------------------- plr-120268-05 ------------------------------------------- plr-120270-05 ------------------------------------------------------------------ plr-120507-05 ----------------------------------------------- plr-120514-05 ----------------------------- plr-120512-05 ---------------------------- plr-120517-05 ----------------------------------------------------- plr-120519-05 --------------------------------------------- plr-120526-05 ------------------------------------ plr-120527-05 -------------------------------------------------------------- plr-120566-05 ----------------------------------------------------- plr-120528-05 --------------------------------------------------- plr-120548-05 ----------------------------------------------------- plr-120550-05 ----------------------------------------- -------------------------------------------- plr-120552-05


office_of_chief_counsel internal_revenue_service memorandum number release date cc corp b04 postn-107263-11 third party communication none date of communication not applicable uilc date date to peter c tablan appeals team case leader manhattan appeals atcl operations from marie c milnes-vasquez senior technician reviewer branch corporate subject sec_168 and sec_383 issue whether a taxpayer’s sec_168 election to increase its alternative_minimum_tax_credit under sec_53 is subject_to the application of sec_383 conclusion because no regular_tax_liability of the taxpayer is offset the refundable alternative_minimum_tax_credit resulting from a sec_168 election is not subject_to sec_383 facts on ------------ taxpayer had a sec_382 ownership_change for its ------- taxable_year taxpayer had a net_operating_loss and no regular_tax_liability with regard to its ------- taxable_year taxpayer made an election under sec_168 to increase its alternative_minimum_tax amt credit under sec_53 law and analysis sec_168 as in effect for the ------- taxable_year generally allows a corporation to make an election to forego percent additional first year depreciation postn-107263-11 and instead to increase its business_credit limitation under sec_38 or amt limitation under sec_53 sec_168 generally treats the increased credits as refundable credits sec_383 states that under regulations if an ownership_change occurs with respect to a corporation the amount of any excess_credit for any taxable_year which may be used in any post-change_year shall be limited to an amount determined on the basis of the tax_liability which is attributable to so much of the taxable_income as does not exceed the sec_382 limitation for such post-change_year to the extent available after the application of sec_382 and subsections b and c of this section the regulations under sec_383 provide specific rules implementing the statute sec_1_383-1 states that the amount of the regular_tax_liability of a new_loss_corporation for any post-change_year that may be offset by pre-change credits shall not exceed the amount of the sec_383 credit limitation for the post-change_year see also sec_1_383-1 stating the same rule sec_383 as implemented by regulation applies to limit the use of certain credits available to offset regular_tax_liability in this case sec_383 does not apply because the taxpayer has no regular_tax_liability in the taxable_year at issue and the credits at issue will be refunded per sec_168 without offsetting regular_tax_liability procedural matters this chief_counsel_advice responds to your request for assistance and may not be used or cited as precedent the writing may contain privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions sincerely ______________________________ marie c milnes-vasquez senior technician reviewer branch office of associate chief_counsel corporate


number release date internal_revenue_service index number ------------------------------------------ ------------------------------- ---------------------------------------- --------------------------- -------- - department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-106356-06 date june ------------------- --------------------- ------------------------------- ----------------------------------------------- legend x ------------------------------------------ a -------------------------------------------- b -------------------------------------------- trust ------------------------------------------ state d1 year dear ------------ correspondence submitted on behalf of x requesting that the service grant x an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make an election under sec_754 of the internal_revenue_code this responds to a letter dated date and subsequent -------------- ----------- ------- ------- sec_1_754-1 of the income_tax regulations provides that an election plr-106356-06 the information submitted states that x is a state limited_liability_company taxed as a partnership a was a member of x on d1 of year a died the estate of a has distributed a’s interest in x to trust x inadvertently failed to timely file a sec_754 election sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years a transfer of an interest in a partnership on the death of a partner is eligible for the sec_754 election the value of the partnership_interest reported on the estate_tax_return including discounts is the value used to determine the basis of the partnership_interest and the adjustment to basis of partnership property under sec_743 and sec_754 see generally sec_1_1014-3 under sec_754 to adjust the basis of partnership property under sec_743 with respect to a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied sec_301_9100-1 provides that the commissioner may grant a reasonable based solely on the information submitted and the representations made we sec_301_9100-3 provides the standards the commissioner will use to except as specifically set forth above no opinion is expressed concerning the plr-106356-06 as a result x is granted an extension of time for days from the date of this letter to make an election under sec_754 effective year with the appropriate service_center a copy of this letter should be attached to the sec_754 election a copy is enclosed for that purpose federal tax consequences of the facts described above under any other provision of the code provides that it may not be used or cited as precedent being sent to x’s authorized representatives pursuant to a power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer requesting it sec_6110 sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purpose-s


t c memo united_states tax_court renee b simpson petitioner v commissioner of internal revenue respondent docket no filed date frederich barl liechti for petitioner john m zoscak jr for respondent memorandum opinion dean special_trial_judge this case was heard pursuant to sec_7443a and rule sec_180 sec_181 and sec_182 ‘unless otherwise indicated section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies of dollar_figure and dollar_figure in petitioner's federal income taxes for and respectively the issue for decision is whether petitioner must include payments from her former husband in income under sec_71 some of the facts were stipulated and are so found the stipulation of facts and annexed exhibits are incorporated herein by reference petitioner resided in burgettstown pennsylvania at the time her petition was filed petitioner separated from her former husband barry simpson in january of and was divorced on date during their period of separation the family division of the court of common pleas for washington county pennsylvania family court entered an order requiring mr simpson to make payments to petitioner in the following manner and now this august it is hereby ordered that the payor pay to the family division court of common pleas seven hundred ebighteen dollars dollar_figure a month payable as follows one half thereof on the 28th day of august and the other half thereof on the 13th day of september and like and equal amounts on the 28th and 13th days of each and every month thereafter arrears are set at dollar_figure as of due in full immediately contempt proceedings will not be initiated as long as payor pays dollar_figure per month on arrears one half on each of the above dates for the support of spouse and two children shannon and jeffrey arrears set above are retroactive to base order amount is considered to be dollar_figure minue sic dollar_figure representing debts paymts towards dollar_figure'70 mo delino utilities sec_357 mo direct paymt for marital mort and dollar_figure mo for pro-rated home equity loan for marital debts dollar_figure mo money order amt parties to share equally parochial school tuition for son with both paying tuition directly to school pltf' to maintain med ins on self and children available through her employer at reasonable cost as stated in the order mr simpson was to make a monthly payment of dollar_figure through the family court towards the support of his spouse and two children shannon and jeffrey no specific amount of the payment was allocated to either spousal support or child_support the family court order also stated that mr simpson was to make monthly payments in the amounts of dollar_figure towards delinquent utilities dollar_figure towards the marital mortgage and dollar_figure towards a home equity loan taken out during the marriage to the extent these debts were still outstanding mr simpson made the required_payments directly to the third party creditors throughout and both the delinquent utility liability and the home equity loan were paid off prior to on her and federal_income_tax returns petitioner excluded from income the monthly dollar_figure payments she received from mr simpson as well as the amounts he paid directly toward the delinquent utilities marital mortgage and home equity loan respondent determined however that because the court order did not fix any part of the monthly payments specifically as child_support the entire amount of mr simpson's payment including the amounts paid to third parties for outstanding debts was includable in petitioner's income as alimony or separate_maintenance under sec_71 gross_income includes amounts received as alimony see secs 7l a a alimony is defined by sec_71 as any cash payment meeting the following four criteria sec_71 in general --the term alimony_or_separate_maintenance_payment means any payment in cash if-- a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse these requirements are limited by sec_71 which provides that alimony shall not include any part of a payment which the terms of the divorce instrument fix as a sum payable for the support of the children of the payor spouse thus if the payments made by mr simpson to petitioner meet the requirements of the four enumerated criteria and are not fixed as child_support the payments are alimony and are includable in petitioner's income we shall address each portion of the total monthly payment by mr simpson separately payment through the family court mr simpson paid dollar_figure each month to the family court pursuant to the court order entered into during his and petitioner's marital separation although not made directly to petitioner the payments were made on her behalf pursuant to a court order see sec_71 a the court order states that mr simpson's payments are for the support of his wife and children the award is not allocated in any way between spousal support and child_support petitioner argues that despite the unallocated award the entire dollar_figure should be attributable to child_support because under the pennsylvania support guidelines guidelines mr simpson was required to pay dollar_figure each month for the support of his two children the dollar_figure required by the guidelines petitioner argues exceeds the amount ordered by the family court and therefore the entire dollar_figure payment should be considered child_support under sec_71 for federal_income_tax purposes we begin by examining the origin of the state-required guidelines in congress mandated that each state establish child_support guidelines the federal_law contains a rebuttable_presumption that the amount of child_support awarded from application of the guidelines is correct see u s c sec_667 in pennsylvania the requirement of statewide guidelines was established by pa cons stat sec rule of the pennsylvania rules of civil procedure sets forth the applicability of the guidelines in establishing child_support and provides that if a recommendation for support departs from the guidelines the trial_court is required to provide an explanation for the deviation the guidelines utilize the net incomes of both parents and are based on the assumption that a child's needs increase as the combined net_income of the parents increases see pa r civ proc explanatory comment b although the guidelines contemplate both allocated and unallocated awards rule f of the pennsylvania see child_support enforcement amendments of publaw_98_378 sec a 98_stat_1305 amended by the family support act of publaw_100_485 tit i sec_103 and bo 102_stat_2346 rules of civil procedure states that the grids assume that an order will be unallocated under federal tax law there are tax consequences resulting from an award's being classified as alimony or child_support under sec_215 an individual taxpayer is allowed to deduct amounts paid as alimony alimony payments are includable in the gross_income of the recipient under sec_71 child_support payments on the other hand are nondeductible by the payor and are specifically excluded from the definition of alimony and thus not includable in the gross_income of the payee parent under sec_71l c to determine whether any portion of the payment is child_support we look solely to the language contained in the court order itself see sec_71 the language of sec_71i c is clear that for payments to be child_support the written divorce instrument by its terms must fix a sum which is payable as child_support it is inappropriate in light of this clear statutory language to look beyond the written instrument ‘the amount of child spousal support or alimony pendente lite shall be determined in accordance with the support guidelines either by using the net_income formula or by using charts derived from the formula called grids pa r civ proc b pa r civ proc explanatory comment c pa r civ proc see also ball v minnick a 2d pa to examine what effects if any are made by operation of state law if congress had intended for us to look beyond the written instrument it would have amended sec_71 to so reflect indeed congress has addressed the issue of whether alimony can be determined through operation of law sec_71 d as originally enacted provided that for a payment to be considered alimony the divorce instrument must state that there was no liability to make a payment after the death of the payee spouse ’ this language was deleted in and sec_71 d now provides that if the other requirements are met a payment may be alimony if state law terminates the payor's liability at the death of the payee spouse see cunningham v commissioner tcmemo_1994_474 if congress had intended that child_support payments be fixed by operation of law it certainly could have amended the language of sec_71 to accomplish this goal much like it did with the language of sec_71 d we conclude therefore that because the court order does not specifically fix a portion of the dollar_figure monthly payment as see deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_793 defra also enacted sec_71 which reguired the divorce_or_separation_instrument to fix the amount of child_support this provision was formerly contained in sec_71 child_support the entire amount of such payments received by petitioner in and is alimony and includable in income delinguent utilities the family court order required mr simpson to pay dollar_figure per month toward the delinguent utilities debt these payments were not fixed as child_support by the court order and therefore do not represent child_support see sec_71 petitioner's argument that these payments were not made on her behalf is twofold first she claims that no payments were made at all to the utilities companies because the debt was completely paid off prior to second she claims that even if the dollar_figure payments were made they were made only in and the utilities were listed in mr simpson's name not hers therefore petitioner argues the delinguent payments were made for mr simpson's own benefit not on her behalf but petitioner and her children were the only members of the household at the time the delinquent utilities were accrued so she and the family were the beneficiaries of the payments such payments made on behalf of a former spouse represent alimony if paid pursuant to a divorce decree or separation agreement not specifically fixing a portion of the payments as child_support see 79_tc_415 payments by former husband for utilities on a family home were alimony when divorce decree did not fix certain portion of payments as child_support here mr simpson made payments toward the delinguent utility bill that accrued after he left the marital residence the utility payments were for expenses_incurred for the family home we have held that payments by a former husband for utilities on a family home which he made in support of his former wife and children were alimony see graham v commissioner supra this is true even if the husband was contractually obligated to the utility companies to make the payments see zampini v commissioner tcmemo_1991_395 accordingly to the extent mr simpson actually made the dollar_figure monthly payments for delinquent utilities they are includable in petitioner's income as alimony the record reflects that the total delinquent utility liability was paid off sometime before thus there were no payments made to petitioner or on her behalf for delinquent utilities in as for petitioner could not establish the number of months for which mr simpson paid the dollar_figure to the utilities companies she did however through her own testimony and the testimony of mr simpson provide a reasonable estimate of the number of payments made in based on the information contained in the record we conclude that mr simpson made three monthly payments of dollar_figure in totaling dollar_figure this amount shall be included in petitioner's income for marital mortagage mr simpson paid dollar_figure each month during and to the bank for the mortgage on the family home pursuant to the court order petitioner argues that percent of this amount is excludable from her income petitioner bases this argument on her contention that mr simpson did not inform her upon making these payments what portion was attributable to her liability on the debt and what portion was for his own liability on the debt she argues that mr simpson's payments toward the mortgage were therefore not made on her behalf whether petitioner received notice from mr simpson of what he intended the payments to be bears no relevance to petitioner's tax_liability for and petitioner knew from the court order that mr simpson was to make the monthly dollar_figure mortgage payments petitioner's duty to report these payments on her own return does not depend on how mr simpson treated the payments or what he otherwise believed the nature of these payments to be the payments were subject_to a contingency petitioner's death which is reflected in the terminable upon death provision contained in the court order the court order also specified that mr simpson make the payments for the support of his wife and children the record reflects that petitioner and mr simpson owned their home as tenants_by_the_entirety during the taxable years at issue a tenancy_by_the_entirety vests in each spouse a present_interest in the jointly held property see 56_tc_664 typically where there is joint_ownership of property the husband and wife are each personally liable for the mortgage payments see taylor v commissioner supra a payment by one spouse discharges the legal_obligation of the other spouse to the mortgage_lender and each spouse is entitled to a contribution of one-half for each payment from the other spouse see id zampini v commissioner supra generally where an agreement or court order imposes the obligation for the entire mortgage payment on the husband he no longer has a right of contribution from his wife see taylor v commissioner supra thus when the husband makes a mortgage payment he confers a current benefit upon the wife by discharging her legal_obligation to the mortgage_lender and relieves her of her obligation_to_contribute see id in and mr simpson and petitioner were jointly liable to the lender for the mortgage on the marital home accordingly with respect to the dollar_figure mortgage payments half the payments mr simpson made conferred a benefit on petitioner and thus are alimony includable in petitioner's income the other half reduced mr simpson's own obligation and were not made on petitioner's behalf home equity loan we now turn to the issue of whether the dollar_figure monthly payments toward the home equity loan constitute alimony to petitioner the full home equity loan monthly payment was dollar_figure which mr simpson paid in full each month out of this amount the court order required mr simpson to allocate a portion of the total amount due or dollar_figure to be paid on petitioner's behalf a portion of the loan proceeds was used to finance the purchase of a buick regal by mr simpson in and retained by him after he and petitioner separated the remaining portion of the loan proceeds was attributable to joint credit card debt accrued before he and petitioner separated in it is for this portion of the debt that the family court ordered mr simpson to pay dollar_figure on petitioner's behalf as previously stated payments are alimony to the extent they satisfy an obligation of petitioner see taylor v commissioner supra we find no significant difference between the payments made on petitioner's behalf toward the marital mortgage and the payments made on petitioner's behalf toward the home equity loan in both instances the debt was secured_by the marital home and petitioner and mr simpson are jointly liable to the lender for the payment due each month mr simpson made the entire home equity loan payment of dollar_figure each month and therefore had a right of contribution from petitioner of one- half or dollar_figure see taylor v commissioner supra the family court ordered that mr simpson pay on petitioner's behalf a lesser amount of dollar_figure each month toward this obligation and we find that amount to be alimony to her the record reflects that the home equity loan was paid off before petitioner offered no evidence to show how many payments were made in accordingly we find that the dollar_figure alimony payments were made through the entire taxable_year to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si br 1-plr-117569-98 date date legend trust llc1 llc2 llc3 llc4 state dollar_figurex dollar_figurey this responds to your representative’s letter dated date and prior correspondence requesting a ruling for trust under sec_721 of the internal_revenue_code facts plr-117569-98 trust is a_trust whose grantors and beneficiaries include individuals and trusts trust’s assets include fee ownership of a strip mall the mall llc4 is a limited_liability_company located in state trust and llc4 have agreed to use llc3 a limited_liability_company organized under state law to develop the mall and various contiguous properties into a new shopping center llc4 will contribute dollar_figurex in cash in exchange for a percent interest in llc3 trust will contribute a binding and legally enforceable year ground lease plus tenant options to renew on one-half of its interest in the mall to llc3 in exchange for a percent interest in llc3 trust represents that the year ground lease plus tenant options to renew constitute property under state law trust will lease the other one-half interest in the mall to llc3 for approximately dollar_figurey a year for years plus tenant options to renew trust will conduct these transactions through llc1 and llc2 limited_liability companies organized under state law as follows trust will contribute its fee interest in the mall to llc1 in exchange for a membership interest in llc1 llc1 will enter into a year ground lease for one-half of the mall with llc2 in exchange for a membership interest in llc2 and a nominal amount of cash llc1 will enter into a year ground lease for the other one-half interest in the mall with llc3 with rent approximately dollar_figurey per year llc2 will assign its interest in the one-half ground lease on the mall to llc3 in exchange for a interest in llc3 in addition at the time llc3 obtains construction financing for renovating the mall it will lend llc1 an amount equal to llc1's outstanding mortgage obligation on the mall llc1 will repay the mortgagor with this loan after these transactions trust will liquidate and distribute its interest in llc1 either to its beneficial owners directly in which case llc1 will become a partnership for federal tax purposes or to a partnership owned by trust’s beneficial owners neither llc1 llc2 nor llc3 will elect to be classified as a corporation for federal tax purposes therefore llc1 and llc2 represent that they are disregarded as separate entities for federal tax purposes because they have only one owner while llc3 represents that it is treated as a partnership for federal tax purposes because it has two owners plr-117569-98 a ruling is requested that the contribution by llc2 to llc3 of the one-half leasehold interest is a contribution of property in exchange for a partnership_interest within the meaning of sec_721 and therefore no gain_or_loss will be recognized by either trust llc1 llc2 or llc3 as a result of the transfer law and analysis sec_721 provides that no gain_or_loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership sec_1_721-1 of the income_tax regulations provides in part that sec_721 of the code shall not apply to a transaction between a partnership and a partner not acting in his capacity as a partner because such a transaction is governed by sec_707 for example if the partner retains the ownership of property but allows the partnership to use such separately owned property for partnership purposes sec_721 shall not apply however in all cases the substance of the transaction will govern rather than its form the transfer of the leasehold interest in this case is within the statutory requirement of sec_721 for a contribution of property in exchange for an interest in the partnership accordingly assuming that the long-term leasehold interest is binding and legally enforceable the contribution of the long-term interest to llc3 will be a contribution of property in exchange for a partnership_interest under sec_721 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no rulings were requested and none were given concerning the tax consequences of any subsequent restructuring of llc1 llc2 llc3 or llc4 the liquidation of trust and whether the loan from llc3 to llc1 is debt for federal tax purposes pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to trust’s authorized representative a copy of this letter should be attached to trust’s tax_return for the first taxable_year of llc3 ending within or with trust's taxable_year a copy is enclosed for that purpose 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 plr-117569-98 signed daniel j coburn daniel j coburn assistant to the branch chief branch office of the assistant chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


significant index number on cy wy department of the treasury washington d c zoaza government nen eh divesion war dollar_figure set ep eke az taxpayer dear as of that date this latter constitutes notice that approval has been granted for your request for 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named pian which are described in sec_431 bx2xb and bx4 of the internal_revenue_code code and sec_304 bx2 and bx4 of the employee_retirement_income_security_act_of_1974 cerisa’ this extension is effective with the plan_year beginning date this extension applies to the amortization charge bases as identified in your application submission established as of date wilh a total outstanding balance of dollar_figure ‘the extension of the amortization periods of the unfunded llabilities of the plan was granted in accordance with sec_431 of the code sec_431 d a of the cade requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the raquirad information to meet the criteria in sec_431 including a certification from the plan's actuary that absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan lo improve the plan's funding status i ifi the plan is projected to have sufficient assats to uimely pay expected benefits and anticipatad expenditures over the amortization period as extanded and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the manager to the manager and to your authorized representative pursuant to a power of attomey on file in thie office this ruling is directed only to the taxpayer that requested it sec_6110 k of the internal_revenue_code provides that it may not be used or cited by others as precadent if you require further assistance in this matter please contact sincerely yours ne al david m ziegler manager ep actuarial group