internal_revenue_service department of the treasury number release date index number washington dc re person to contact telephone number refer reply to cc psi b09-plr-134430-02 date date legend date grantor_trust son dollar_figurex law firm date date year year dear this is in response to your letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an allocation of the generation-skipping_transfer gst_exemption the facts and representations submitted are summarized as follows on date grantor created trust an irrevocable_trust for the benefit of son and his children grantor conveyed to trust real_property valued at dollar_figurex article ii of trust provides that each year in which grantor is living son and each of his children who are then living shall have a limited noncumulative right to withdraw gifts made to the trust article iv paragraphs a b and c provide that the trustee shall distribute all of plr-134430-02 the net_income to son or for his benefit at least quarter-annually during his lifetime the trustee also shall distribute to son or use for his benefit so much or all of the principal of the trust as trustee considers desirable for his support medical_care and education the trustee shall also distribute to son such portions or all of the principal of the trust as son requests in writing pursuant to son’s limited right to withdrawal under this article article iv paragraph d provides that the trustee shall distribute so much or all of the principal of the trust to any one or more of his children as son shall appoint during his lifetime or by his will referring specifically to this power_of_appointment article iv paragraph e provides that upon son’s death and to the extent he does not exercise his power to appoint the trust estate the trustee shall divide the trust into separate equal shares as to provide one share for the benefit of each child of son who is then living and one share for the benefit of the then living descendants of each child of son who is then deceased each share for the benefit of a child of son shall be administered as set forth in article v and each share for the benefit of the then living descendants of the deceased child of son shall be distributed subject_to article vi to such descendants per stirpes article v paragraph a provides that for any trust established for a child of son the trustee shall distribute so much or all of the net_income of the separate trust to or for the benefit of such child at any time and from time to time as the trustee considers desirable to provide for the child’s support medical_care and education until such child has attained the age of twenty-five thereafter the trustee shall distribute all of the net_income to the child at least quarterly article v paragraph b provides that until the trust is completely distributed the trustee shall distribute to or for the benefit of the child so much or all of the principal as the trustee considers desirable to provide for the child’s support medical_care and education article v paragraph c provides that after the child attains the age of thirty the trustee shall distribute to the child such portions but not to exceed one half of the value thereof of the principal as the child at any time and from time to time requests in writing after attaining the age of thirty-five the child may request in writing as much or all of the balance of the principal article v paragraph d provides that if the child dies before receiving his or her entire trust the trustee shall distribute the child’s trust as the child shall appoint by his or her will referring specifically to the power_of_appointment if the child fails to exercise this power_of_appointment the trustee shall distribute the trust to the child’s then living descendants per stripes if any otherwise to the then living descendants of son any assets which pass to a then living descendant of son shall be added to and be administered in accordance with any trust already in existence hereunder for the benefit plr-134430-02 of such child no distributions have been made from trust except for distributions of income to son as required by article iv paragraph a law firm prepared grantor’s united_states gift and generation-skipping_transfer_tax return form_709 for the gifts made on date on schedule c of the return grantor allocated dollar_figurex of her gst_exemption to the gift to trust law firm sent the return and other documents to grantor via federal express on date grantor represents that she signed the form_709 and mailed it to the internal_revenue_service service on or before date in year during a review of grantor’s estate plan questions arose as to the amount of previously reported gifts as well as the amount of gst_exemption that had been previously used at the time law firm was unable to locate its copy of the form_709 for year which reported the date gift so it filed form_4506 requesting a copy of the return from the service the service however had no record that grantor’s form_709 for year was filed law firm subsequently located its copy of the form_709 for year in an adjacent client file you have requested the following rulings an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 to make an allocation of your gst_exemption and that such allocation is to be made based on the value of the transferred property on the date transferred to trust sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 plr-134430-02 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 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 months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers plr-134430-02 may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because of intervening events beyond the taxpayer’s control based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore grantor is granted an extension of time of days from the date of this letter to make an allocation of her available gst_exemption with respect to the date transfer to trust the allocation will be effective as of date the date of the transfer to trust and the gift_tax value of the transfer to trust will be used in determining the amount of gst_exemption to be allocated to trust 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 specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent the allocation should be made on a form_709 united_states gift and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to the form_709 a copy is enclosed for this purpose sincerely heather maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-137996-08 uilc date september to director submission processing cincinnati oh attn entity unit from office of division counsel associate chief_counsel tax exempt government entities subject railroad_retirement_tax_act 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 a covered employer under the railroad retirement act and the railroad unemployment insurance act effective ---------------------- ------------------------------------------------------------------------- ------------------------------- ---------------------------------- ----------------------------------------- we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that ------------------------------------------------------------------ ---------------- ceased to be a covered employer under the railroad_retirement_tax_act effective close of business on ---------------------- the date it ceased operations and transferred its assets and common carrier obligations to another entity please take the appropriate action regarding this business _____________________________ janine cook cc


internal_revenue_service number info release date uil date conex cc tege dear this letter is in response to your inquiry copy enclosed dated date you asked for clarification of the irs position concerning the taxation of retirement incentives following the ruling of the united_states court_of_appeals for the eighth circuit in the north dakota state university case you also want to know if we are consistently applying the federal tax law on this issue the eighth circuit is the first circuit_court to address the issue of whether amounts paid_by a taxpayer to tenured university professors under its early retirement program should be considered wages for the purposes of federal_insurance_contributions_act fica_taxes the court held that payments made to tenured faculty under north dakota state university’s early retirement program were made in exchange for relinquishing the tenured faculty members’ contractual and constitutionally-protected tenure rights rather an as remuneration for services the court held that these payments are not wages subject_to fica taxation the irs argued in part that the determination of whether early retirement payments made to tenured faculty members are wages subject_to fica_taxes depends on whether such payments arise out of the employer-employee relationship and not on whether the payments are made to employees to relinquish a contractual and constitutionally- protected right the irs believes its position is correct relying in part on 327_us_358 in which the supreme court stated that the term wages is to be broadly interpreted to import the breadth of coverage consistent with the purposes of the social_security act when a circuit_court issues an opinion adverse to the irs we will apply many factors to determine whether the opinion is significantly adverse that we should not follow it if we believe we should not follow the opinion we will issue a document called an action on decision to announce that fact actions on decision are issued to enhance the irs’ consistency to future litigation or dispute resolution we issued an action on decision copy enclosed cc-2001-08 in i r b date nonacquiescing in the north dakota state university decision the irs disagrees with the holding of the eighth circuit and will not follow the holding outside the eighth circuit however we recognize the precedential impact of the opinion on cases arising within the jurisdiction of the deciding circuit thus the irs will issue refunds of fica_taxes to taxpayers under the jurisdiction of the eighth circuit in cases that have the exact facts as in north dakota state university case involving payments to college or university professors made in exchange for the relinquishment of their tenure rights i hope this information is helpful please call attorney elliot m rogers irs id or senior technician reviewer michael swim irs id at if you have any questions sincerely michael a swim acting assistant chief_counsel exempt_organizations employment_tax government entities office of the division counsel associate chief_counsel tax exempt and government entities enclosures


internal_revenue_service department of the treasury index numbers washington dc number release date person to contact telephone number refer reply to cc dom p si plr-114515-99 date date legend x y hlp a d1 state a dollar_figureb c correspondence dated date and date submitted on behalf of x and hlp requesting rulings under sec_7701 sec_708 and sec_42 of the internal_revenue_code this responds to the letter dated date and subsequent facts x is a limited_partner in numerous operating limited_partnerships olps that own and operate qualified projects that provide low-income rental housing and receive low-income_housing tax_credits lihtcs under sec_42 sec_42 does not apply to the olps except for three of the olps x has more than a percent interest in the capital and profits of each of the olps x is also a partner in a holding limited_partnership hlp formed in d1 x is the general_partner and a an officer of x is the limited_partner for what has been represented to be valid business reasons including consolidating and improving the administration of the olps x and hlp plan to implement a holding_company structure under this structure x will contribute its cc dom p si plr-114515-99 limited_partnership interests in the olps to hlp x’s general_partnership interest in hlp will be converted into a limited_partnership_interest and a will terminate his interest in hlp further y who has significant expertise in the management of investments in real_estate will contribute property and services to hlp in exchange for a general_partnership interest in hlp the services contributed by y will relate to the day-to-day operations in hlp’s primary business activity x and y will enter into a partnership_agreement under state law under the agreement x will not have the right to terminate or otherwise change or remove y without cause except as described above neither x nor hlp plan or intend to admit new partners to hlp in addition x does not plan or intend to sell transfer or exchange any interest in hlp nor does hlp plan or intend to dispose_of any interests in the olps hlp has received a tin and will file federal partnership returns all necessary filings will be made and all notices required to be published will be published to inform those parties presently dealing with the olps and x that hlp has succeeded to x’s interests in the olps and that y is the general_partner of hlp x and hlp represent that hlp it is not classified as a corporation under sec_301_7701-2 or of the procedure and administration regulations except for temporary allocations required under sec_704 sec_704 or corresponding income_tax regulations the general_partnership interest in each material partnership_item of hlp will not be less than a hlp will have total contributions of approximately dollar_figureb y will contribute substantial services to hlp in its capacity as a partner of hlp apart from services for which guaranteed payments under sec_707 are made the partnership_agreement will provide that if upon liquidation of y’s interest in hlp y has a negative capital_account y will contribute the amount necessary to restore its capital_account to zero x’s interest in hlp will exceed c throughout the compliance_period as defined in sec_42 of each olp and with respect to hlp sec_1_47-1 will not apply to any sec_38 property that is subject_to recapture due to its being held by a partnership terminated under sec_708 because hlp will satisfy the mere_change_in_form_exception under sec_1_47-3 rulings requested cc dom p si plr-114515-99 in connection with the proposed restructuring described above x and hlp request the following rulings hlp shall be treated as having two members for purposes of sec_301_7701-3 and in the absence of an election to the contrary will be a partnership for federal tax purposes the contribution of x’s interests in the olps to hlp will not terminate the olps under sec_708 and the contribution of x’s interests in the olps to hlp will not cause x to recapture lihtcs under sec_42 law and analysis ruling_request the term partnership includes a syndicate group pool joint_venture or other unincorporated organization through or by means of which any business financial operation or venture is carried on and which is not within the meaning of the code a_trust or estate or a corporation sec_7701 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 this section sec_301_7701-3 further provides that 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 sec_301_7701-3 provides default classifications for eligible entities that do not make an election with respect to domestic eligible entities unless the entity elects otherwise the entity is a partnership if it has two or more members or disregarded as an entity separate from its owner if it has a single owner here hlp has two members and in the absence of an election to the contrary will be classified as a partnership for federal tax purposes ruling_request sec_708 provides that a partnership continues to exist for federal_income_tax purposes until it is terminated a partnership is terminated if within a 12-month_period there is a sale_or_exchange of percent or more of the total interest in partnership capital and profits sec_708 cc dom p si plr-114515-99 sec_1_708-1 provides that if a partnership is terminated by a sale_or_exchange of an interest the following is deemed to occur the partnership contributes all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership and immediately thereafter the terminated partnership distributes its interests in the new partnership to the purchasing partner and the other remaining partners in proportion to their respective interests in the terminated partnership in liquidation of the terminated partnership either for continuation of the business by the new partnership or for its dissolution and winding up here the contribution to hlp of x’s interest in an olp will be treated as a sale_or_exchange for purposes of sec_708 accordingly the contribution to hlp of x’s interests in those olps in which x holds an interest equal to or in excess of percent of the olp’s total interests in partnership capital and profits will terminate such olps under sec_708 ruling_request sec_38 provides for a general_business_credit against tax that includes the amount of the current_year_business_credit sec_38 provides that the amount of the current_year_business_credit includes the low-income_housing_credit determined under sec_42 sec_42 provides that for purposes of sec_38 the amount of the low-income_housing_credit determined under sec_42 for any taxable_year in a 10-year credit_period shall be an amount equal to the applicable_percentage of the qualified_basis of each qualified_low-income_building in the case of any qualified_low-income_building placed_in_service by a taxpayer after sec_42 provides in part that the term applicable_percentage means the appropriate percentage prescribed by the secretary for the month applicable under sec_42 or ii sec_42 provides that the percentages prescribed by the secretary for any month shall be percentages that will yield over a 10-year period amounts of credit that have a present_value equal to i percent of the qualified_basis of new buildings that are not federally_subsidized for the taxable_year and ii percent of the qualified_basis of existing buildings and of new buildings that are federally_subsidized for the taxable_year sec_42 provides that the qualified_basis of any qualified_low-income_building for any taxable_year is an amount equal to the applicable_fraction defined in sec_42 of the eligible_basis of such building in general under sec_42 the eligible_basis of a new_building is its adjusted_basis as of the close of the first taxable_year of the credit_period sec_42 provides that if at the close of any taxable_year in the compliance_period the amount of the qualified_basis of any building with respect to the taxpayer is less than the amount of such basis as of the close of the preceding_taxable_year the taxpayer's tax for the taxable_year will be increased by the credit recapture_amount cc dom p si plr-114515-99 the credit recapture_amount is determined under sec_42 and sec_42 the legislative_history to sec_42 provides that generally any change in ownership of a low-income building during the compliance_period is a recapture_event and that all dispositions of ownership interests in buildings are treated as transfers for purposes of recapture see h_r conf_rep no 99th cong 2d sess ii-96 and ii-102 vol c b under sec_42 however no recapture will be imposed on a disposition of a low-income building or an interest therein if the taxpayer furnishes to the secretary a bond and it is reasonably expected that the building will continue to be operated as a qualified_low-income_building through the end of the compliance_period a taxpayer may satisfy the bond posting requirement of sec_42 by completing a portion of form_8693 low-income_housing_credit disposition bond and having it approved by the internal_revenue_service or following the procedures outlined in revproc_99_11 i r b establishing a treasury direct account analogous provisions concerning recapture of investment_tax_credit itc property provide relevant guidance for determining recapture under sec_42 under sec_50 if during any taxable_year itc property is disposed of or otherwise ceases to be itc property with respect to the taxpayer before the close of the recapture_period the tax for such taxable_year shall be increased currently there are no regulations under sec_50 however for property placed_in_service before date former sec_47 and the regulations thereunder contained a similar itc recapture rule the regulations under former sec_47 which are still effective mirror the general recapture rule_of former sec_47 that a disposition or cessation of itc property before the close of the estimated_useful_life of the property that was taken into account in computing the taxpayer's qualified_investment will result in itc recapture one exception to the general_rule concerning the recapture of itc property sec_1_47-3 reflected now in part in sec_50 provides that no itc recapture will occur in the case of a mere change in form of conducting a trade_or_business to qualify for the sec_1_47-3 exception the following requirements must be met the itc property must be retained as itc property in the same trade_or_business the transferor or in the case where the transferor is a partnership the partner of the itc property must retain a substantial interest in the trade_or_business substantially_all the assets whether or not itc property necessary to operate the trade_or_business must be transferred to the transferee to whom the itc property is transferred and the basis of the itc property in the hands of the transferee is determined in whole or in part by reference to the basis of the itc property in the hands of the transferor sec_1_47-3 provides that a transferor is considered as having retained a substantial interest in a trade_or_business only if after the change in form the transferor’s retained_interest in the trade_or_business is substantial in relation to the total interest of all persons or is equal to or greater than the transferor’s interest prior to the change in form another exception to the general_rule concerning the recapture of itc property cc dom p si plr-114515-99 sec_1_47-6 provides a de_minimis_rule whereby a partner may dispose up to 33d percent of its proportionate interests in the general profits of a partnership or in a particular item of sec_38 property before itc recapture applies in determining the partner’s proportionate interest in the general profits of a partnership for purposes of applying this de_minimis_rule sec_1_47-6 provides an ‘identity of interest’ rule whereby the partner is considered to own any interest in the partnership that it owns directly or indirectly through ownership in other entities provided the other entities’ bases in the interest are determined in whole or in part by reference to the basis of the interest in the hands of the partner for example if a whose proportionate interest in the general profits of partnership x is percent transfers all of this interest to corporation y in exchange for all of the stock of y in a sec_351 transaction then a shall be considered to own a percent interest in partnership x revrul_90_60 1990_2_cb_6 adopts a similar de_minimis_rule for purposes of sec_42 whereby no bond is required to avoid or defer recapture for a disposition by a partner of its interest in a low income building held through a partnership other than a partnership described in sec_42 until the partner has disposed of more than 33d percent of its greatest total interest in the building held through the partnership here x intends to transfer its entire_interest in each of the olps to hlp this will result in a transfer of x’s entire_interest in the assets including any sec_42 buildings owned by the olps to hlp all dispositions of ownership interests in sec_42 buildings are treated as transfers or a change in ownership for purposes of recapture and any change in ownership is a recapture_event thus x’s proposed transfer of its olp interests would absent an exception be a disposition and therefore a recapture_event sec_42 does not apply to the olps for these partnerships a sec_42 recapture_event can occur at the partnership level and at the partner level applying the two levels of recapture potential for these partnerships to the proposed transaction the following results occur - a partnership level recapture_event where x’s contribution of its interest in each of the olps to hlp results in a sec_708 technical_termination of the olp then each olp will be deemed to have contributed all their assets including all their sec_42 building s to a new olp in return for an interest in the new olp each old olp’s contribution will be a disposition and a sec_42 recapture_event x will be a partner in hlp and hlp will be a partner in each of the old olps when they terminate accordingly x will be subject_to any recapture liability allocated by hlp to its partners as a result of the old olps’ disposition of their sec_42 buildings to the new olps unless an exception to sec_42 recapture applies x and hlp represent that with respect to hlp sec_1_47-1 will not apply to any sec_38 property that is subject_to recapture due to its being held by a partnership terminated under sec_708 because hlp will satisfy the mere_change_in_form_exception of sec_1_47-3 provided the requirements of sec_1_47-3 are met no recapture liability will result from the disposition of sec_38 property by the old olps and hlp as a cc dom p si plr-114515-99 partner in the old olps and x as a partner in the hlp at the time of the dispositions likewise will not be subject_to itc recapture it is appropriate to analogize the sec_1 f exception for itc recapture to determining recapture under sec_42 therefore based on the analogous application of sec_1_47-3 the deemed contribution of the sec_42 buildings to the new olps under sec_708 will not be treated as a disposition of sec_42 property resulting in the recapture of sec_42 credits by x b partner level recapture_event generally x as a partner in partnerships to which sec_42 does not apply is subject_to recapture for any disposition of its interest in sec_42 property held through these partnerships however x may if applicable avail itself of the 33d percent de_minimis exception of revrul_90_60 by assigning its entire_interest in each of the olps to hlp x will appear to have disposed of more than 33d percent of its greatest total interest in the sec_42 buildings held through the olps however because the 33d percent de_minimis_rule of revrul_90_60 is intended to reflect the 33d percent de_minimis_rule of sec_1_47-6 any rule s clarifying how the 33d percent de_minimis_rule of sec_1_47-6 is determined should also apply for purposes of sec_42 this includes the identity of interest rule_of sec_1_47-6 which provides that in determining a partner’s proportionate interest in the general profits of a partnership the partner shall be considered to own any interest in the partnership that it owns directly or indirectly through ownership in other entities provided the other entities’ bases in the interest are determined in whole or in part by reference to the basis of the interest in the hands of the partner here x’s proportionate interest in the sec_42 buildings will not after applying the rule_of sec_1_47-6 have decreased by more than 33d percent accordingly under the above facts x may rely on the 33d percent de_minimis exception provided in revrul_90_60 to avoid the recapture liability that would otherwise result from the contribution disposition to hlp of it’s interest in the sec_42 buildings held through the olps conclusions based solely on the facts submitted and representations made we conclude as follows hlp has two members for purposes of sec_301_7701-3 and in the absence of an election to the contrary will be a partnership for federal tax purposes the contribution to hlp of x’s interests in those olps in which x holds an interest equal to or in excess of percent of the olp’s total interests in partnership capital and profits will terminate such olps under sec_708 the contribution to hlp of x’s interests in those olps in which x holds an interest that is less than percent of the olp’s total interests in capital and profits will not terminate such olps under sec_708 unless the contribution taken together with all other transfers of interests in the olp during consecutive months results in percent or more of the cc dom p si plr-114515-99 total interest in capital and profits of the olp being transferred within a 12-month_period and the contribution of x’s total interest in each of the olps to hlp results in potential partnership level recapture liability to x because x will be a partner in hlp who in turn will be a partner in the olps when the olps technically terminate however x is not subject_to sec_42 recapture because it is represented that hlp may avail itself of the sec_1_47-3 exception to itc recapture and by analogy sec_42 recapture to the extent that there is not a technical_termination of an olp under sec_708 there will not be a partnership level recapture_event further the contribution of x’s total interest in each of the olps to hlp will result in no partner level recapture because applying the identity of interest rule_of sec_1_47-6 to dispositions of sec_42 property x will not dispose_of more than 33d percent of its greatest total interest in the sec_42 buildings held by the olps therefore x may rely on the de_minimis exception provided in revrul_90_60 to avoid recapture liability 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 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 representatives signed david r haglund sincerely senior technician reviewer branch office of the assistant 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 tax exempt and 'government entities division number release date contact person identification_number telephone number date date taxpayer_identification_number uniform issue list 419a oo-oo legend tax 2ayer com12any x com 2any y plana plan b dear this responds to your application dated date requesting a ruling as to the federal tax consequences of a proposed transaction under sec_501 c and of the internal_revenue_code code facts tax 2ayer is a voluntary employees' beneficiary association veba under sec_501 c tax 2ayer represents that it is a separate welfare_benefit_fund under a collective bargaining agreement within the meaning of sec_419a tax 2ayer provides only life_insurance benefits for retired employees of com 2any x and com12any y who are covered under plan a the proposed transaction is the transfer of assets from a retiree life_insurance_reserve in tax 2ayer to a retiree health reserve in taxpayer with assets in the retiree health reserve to be used to provide medical and dental benefits to retired employees covered under plan b tax 2ayer represents that the retiree health reserve will be a separate welfare_benefit_fund under a collective bargaining agreement within the meaning of sec_419a tax 2ayer represents that benefits under plan a and plan b were negotiated by com12any y and its predecessors and are provided under a series of collective bargaining agreements that were in xxxxxxxx xxxxxxxx xxxxxxxx effect when the covered individuals retired taxpayer further represents that if all of the assets currently held in taxpayer are transferred to the retiree health reserve it will take approximately five months to exhaust the assets by paying retiree medical and dental benefits under plan b rulings requested you requested the following rulings the proposed transaction will not cause taxpayer to fail to be exempt from tax under sec_501 a as an organization described under sec_501 c the income generated by the transferred assets held by taxpayer will not be subject_to unrelated_business_income_tax under sec_511 law sec_419 provides that contributions paid_or_accrued by an employer to a welfare_benefit_fund are not deductible under chapter but if they would otherwise be deductible are subject_to the limitation of sec_419 deductible under sec_419 for the taxable_year in which paid sec_419 limits the employer's deduction under sec_419 to a welfare_benefit fund's qualified_cost for the taxable_year sec_419 defines the qualified_cost of a welfare_benefit_fund for a taxable_year as the sum of the qualified_direct_cost for the taxable_year and subject_to the limitation of sec_419a any addition to a qualified_asset_account for the taxable_year sec_419 c provides that the qualified_cost for any taxable_year is reduced by the welfare_benefit fund's after-tax_income for the taxable_year sec_419 defines the term welfare_benefit_fund to include any fund through which the employer provides welfare benefits to employees or their beneficiaries sec_419 defines the term fund to include an organization described in sec_501 c and also to the extent provided in regulations any account held for an employer by any person sec_419a defines the term qualified_asset_account to include any account consisting of assets set_aside to provide for the payment of medical or life_insurance benefits sec_419a provides that no addition to any qualified_asset_account may be taken into account under sec_419 to the extent such addition results in the amount of such account exceeding the account limit sec_419a provides that no account limits shall apply in the case of a qualified_asset_account under a separate welfare_benefit_fund under a collective bargaining agreement xxxxxxxx xxxxxxxx xxxxxxxx sec_1_419-1t q a-2 a of the treasury regulations provides that sec_419 generally applies to contributions paid_or_accrued with respect to a welfare_benefit_fund after date in taxable years of employers ending after that date sec_1 419-2t q a-1 provides that neither contributions to nor reserves of a collectively bargained welfare_benefit_fund shall be treated as exceeding the otherwise applicable limits of sec_419 sec_419a or sec_512 until the earlier of i the date upon which the last of the collective bargaining agreements relating to the fund in effect on the date_of_issuance of final regulations concerning such limits terminates or ii the date three years after the issuance of final regulations sec_1_419a-2t q a-2 states for purposes of q a-1 a collectively bargained welfare_benefit_fund is a welfare_benefit_fund that is maintained pursuant to an agreement which the secretary of labor determines to be a collective bargaining agreement and which meets the requirements of the secretary_of_the_treasury as set forth in paragraph below notwithstanding a determination by the secretary of labor that an agreement is a collective bargaining agreement a welfare_benefit_fund is considered to be maintained pursuant to a collective bargaining agreement only if the benefits provided through the fund were the subject of arms-length negotiations between the employee_representatives and one or more employers and if such agreement between employee_representatives and one or more employers satisfies code sec_7701 a moreover the circumstances surrounding a collective bargaining agreement must evidence good_faith bargaining between adverse parties over the welfare benefits to be provided through the fund finally a welfare_benefit_fund is not considered to be maintained pursuant to a collective bargaining agreement unless at least percent of the employees eligible to receive benefits under the fund are covered by the collective bargaining agreement in the case of a collectively bargained welfare_benefit_fund only the portion of the fund as determined under allocation rules to be provided by the commissioner attributable to employees covered by a collective bargaining agreement and from which benefits for such employees are provided is considered to be maintained pursuant to a collective bargaining agreement notwithstanding the preceding paragraphs and pending the issuance of regulations setting account limits for collectively bargained welfare funds a welfare_benefit_fund will not be treated as a collectively bargained welfare_benefit_fund for purposes of q a-1 if and when after date the number of employees who are not covered by a collective bargaining agreement and are eligible to receive benefits under the fund increases by reason of an amendment merger or other action of the employer or the fund in addition pending the issuance of such regulations for purposes of applying the percent test of paragraph to a welfare_benefit_fund that is not in existence on date 90-percent shall be substituted for 50-percent xxxxxxxx xxxxxxxx xxxxxxxx sec_501 c provides for the exemption from federal_income_tax of voluntary_employees'_beneficiary_associations providing for the payment of life sick accident or other_benefits to the members of such association or their dependents or designated beneficiaries if no part of the net_earnings of such association inures other than through such payments to the benefit of any private_shareholder_or_individual sec_1 c -1 provides that for an organization to be described in sec_501 c it must be an employees' association membership in the association must be voluntary the organization must provide for the payment of life sick accident or other_benefits to its members and there can be no inurement other than by payment of permitted benefits to the benefit of any private_shareholder_or_individual sec_1 c -3 c defines sick_and_accident_benefits for purposes of sec_501 c as amounts furnished to or on behalf of a member or a member's dependents in the event of illness or injury to a member or a member's dependent such benefits may be provided through reimbursement to a member or a member's dependent for amounts expended because of illness or personal injury or through the payment of premiums to a medical_benefit or health insurance program sec_1 c -4 a provides generally that no part of the net_earnings of an employees' association may inure to the benefit of any private_shareholder_or_individual other than through the payment of benefits permitted by sec_1 c -3 sec_511 imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 c sec_512 provides that in the case of an organization described in sec_501 c the term unrelated_business_taxable_income means the gross_income excluding any exempt_function_income less the deductions allowed by chapter which are directly connected with the production of the gross_income excluding exempt_function_income both computed with modifications sec_512 provides that in the case of an organization described in sec_501 c exempt_function_income includes all income other than an amount equal to the gross_income derived from any unrelated_trade_or_business regularly carried on by such organization computed as if the organization were subject_to sec_512 which is set_aside to provide for the payment of life sick accident or other_benefits including reasonable costs of administration directly connected with its exempt_purpose sec_512 provides that in general in the case of an organization described in sec_501 a set-aside for any purpose specified in sec_512 may be taken into account under subparagraph b only to the extent that it does not result in an amount of assets set_aside for such purpose in excess of the account limit determined under sec_419a without regard to subsection f thereof for the taxable_year not taking into account any reserve described in sec_419a for post-retirement medical benefits xxxxxxxx xxxxxxxx xxxxxxxx analysis and conclusion ruling_request you asked for a ruling that the proposed transaction will not cause taxpayer to fail to be an organization described under sec_501 c sec_501 c provides for the exemption from federal_income_tax of vebas providing for the payment of life sick accident or other_benefits to the members of the association or their dependents or designated beneficiaries if no part of the net_earnings of such association inures other than through such payments to the benefit of any private_shareholder_or_individual see also sec_1 c -1 the transaction is the transfer of assets from a retiree life_insurance_reserve in taxpayer to a retiree health reserve in taxpayer with assets in the retiree health reserve to be used to provide medical and dental benefits to retired employees covered under plan b sec_1 c -3 c defines sick_and_accident_benefits for purposes of sec_501 c as amounts furnished to or on behalf of a member or a member's dependents in the event of illness or injury to a member or a member's dependent such benefits may be provided through reimbursement to a member or a member's dependent for amounts expended because of illness or personal injury or through the payment of premiums to a medical_benefit or health insurance program accordingly the transfer of assets from a retiree life_insurance_reserve to the retiree health reserve in taxpayer and the use of assets to provide medical and dental benefits to retired employees covered under plan will not cause taxpayer to fail to be an organization described in sec_501 c ruling_request you asked for a ruling that the income generated by the assets that were transferred from the retiree life_insurance_reserve in taxpayer to the retiree health reserve in taxpayer will not be subject_to unrelated_business_income_tax under sec_511 as indicated above sec_511 imposes income_tax on the unrelated_business_taxable_income ubti df certain tax-exempt organizations including vebas under sec_512 the ubti of a veba is the veba's gross_income excluding exempt_function_income less certain specified deductions both computed with certain specified modifications under sec_512 in the case of vebas exempt_function_income generally means all income set_aside to provide for the payment of life sick accident or other_benefits including certain specified reasonable costs of administration however sec_512 places limitations on the amount that may treated as exempt_function_income under these limitations a set-aside for any purpose specified in sec_512 may be taken into account as exempt_function_income only to the extent that it does not result in an xxxxxxxx xxxxxxxx xxxxxxxx amount of assets that exceeds the account limit determined under sec_419a without regard to subsection f thereof for the taxable_year not taking into account any reserve described in sec_419a for post-retirement medical benefits however funds maintained pursuant to collective bargaining agreements come within the special rule for collectively bargained plans under sec_419a pending the adoption of final regulations to implement sec_419a sec_1_419a-2t q a provides that amounts held in welfare_benefit funds that are maintained pursuant to a collective bargaining agreement will not be treated as exceeding the otherwise applicable limits of sec_419 sec_419a or sec_512 after the publication of these temporary regulations sec_419a was amended in the tax_reform_act_of_1986 retroactive to the effective date of the tax_reform_act_of_1984 to provide that no account limits apply in the case of a qualified_asset_account under a separate welfare_benefit_fund under a collective bargaining agreement while the service has not issued final regulations to clarify the precise scope of sec_419a as amended in we conclude that pending the adoption of final regulations and based upon your representation that taxpayer is a separate welfare_benefit_fund under a collective bargaining agreement within the meaning of sec_419a the assets held by taxpayer are not subject_to account limits imposed by sec_419a for purposes of determining unrelated_business_income under sec_512 accordingly the income generated by the transferred assets held by taxpayer will not be subject_to unrelated_business_income_tax under sec_511 rulings based on the information submitted representations made and the authorities cited above we conclude that the proposed transaction will not cause taxpayer to fail to be exempt from tax under sec_501 a as an organization described under sec_501 c the income generated by the transferred assets held by taxpayer will not be subject_to unrelated_business_income_tax under sec_511 this ruling only addresses ubti on amounts that but for the application of sec_419a and the regulations thereunder would be subject_to the limits of sec_512 specifically taxpayer would be subject_to ubti on gross_income derived from any unrelated_trade_or_business as defined in sec_513 regularly carried on by taxpayer computed as if taxpayer were subject_to sec_512 xxxxxxxx xxxxxxxx xxxxxxxx this ruling will be made available for public inspection under code sec_6110 after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it code sec_611 o k provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely michael seto manager eo technical enclosure notice


department of the treasury int ernal revenue service washington d c date o f f i c e o f c h i e f c o u n s e l number release date cc pa cbs br2 gl-164271-01 uilc memorandum for associate area_counsel sb_se phoenix from lawrence h schattner chief branch collection bankruptcy and summonses subject refiling a notice_of_federal_tax_lien and the automatic_stay this chief_counsel_advice responds to your request for advice dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent issue whether the internal_revenue_service service violates the automatic_stay by refiling a notice_of_federal_tax_lien after a bankruptcy petitioner has been filed in a jurisdiction different from where the original notice was filed when a taxpayer acquired real_property in the new jurisdiction prior to the bankruptcy petition conclusion although generally refiling a notice_of_federal_tax_lien during bankruptcy does not violate the automatic_stay to the extent the refiling constitutes an original filing against the newly acquired real_property the service does violate the stay facts you have asked us to comment on the following scenario taxpayer has an outstanding tax_liability for the tax_year which the service assessed on date taxpayer resides in county a in the service filed a notice_of_federal_tax_lien nftl in county a perfects the service’s lien against all of taxpayer’s property in that county and all of taxpayer’s personal_property where ever located sec_6323 in date taxpayer takes all of his personal_property and moves to county b in another state taxpayer purchases a new home in county b and properly notifies gl-164271-01 the service of its change in residence the service does not file an nftl in county b in date taxpayer files a chapter bankruptcy petition in the new state the service wants to refile its nftl in both county a and county b in accordance with sec_6323 law and analysis when taxpayer failed to pay his liability after notice_and_demand a federal_tax_lien attached to all of taxpayer’s property and rights to property sec_6321 this includes property acquired after the lien came into existence such as taxpayer’s new home 326_us_265 the service does not need to file an nftl in order for its lien to attach however filing protects the service’s interests against a certain class of creditors sec_6323 once the service properly files an nftl for personal_property it is effective against the personal_property wherever it goes including personal_property acquired after a taxpayer moves to a new jurisdiction sec_6323 267_br_921 for real_property however an nftl must be filed at the property’s physical location sec_6323 thus the nftl filed in county a is not effective against the real_property later acquired in county b you are concerned that refiling the nftl in county b could be construed as perfecting the service’s lien interest in taxpayer’s new home in violation of the automatic_stay the automatic_stay bars creditors from taking any act to create perfect or enforce any lien against property of the estate or against property of the debtor to the extent the lien secures a pre-petition claim b c sec_362 the stay also bars any_action to collect or recover a pre-petition debt against the debtor b c sec_362 normally refiling an nftl by itself is not a violation of the automatic_stay 43_br_437 w d n y refiling does not create perfect or enforce a lien r ather this purely ministerial_act merely continue s a previously created and perfected lien and preserve s the status quo id there is no indication in the statutory language or legislative_history that the automatic_stay prohibits acts to extend continue or renew otherwise valid statutory liens in re 866_f2d_561 2d cir this is consistent with the purpose of the automatic_stay in re 979_f2d_625 cir morton f 2d pincite sayers b r pincite the automatic_stay is designed to maintain the status quo by preserving what remains of the debtor’s solvent estate while providing for equitable distribution among the creditors sayers b r pincite refiling an nftl does not harm the debtor and does not grant the service any preference that it did not already have prior to the bankruptcy id gl-164271-01 the problem in the scenario you have presented is that refiling the nftl will give the service a preference it did not have prior to the bankruptcy by perfecting its lien in taxpayer’s new home in essence the refiling will constitute an original filing of an nftl against the real_property which is a violation of the automatic_stay this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views if you have any further questions please call the attorney assigned to this matter at


internal_revenue_service number release date index number ---------------------------------------- ------------------------------------------- --------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no -------------- telephone number --------------------- refer reply to cc psi plr-108410-07 date date ----------------------------------- legend legend taxpayer --------------------------------------------- ----------------------------------------------- project buildings ----------------------------------------------------------------------------------------------- ------------------------------ ------------------ date --------------------------- dear --------------- this letter responds to a letter dated date submitted on behalf of taxpayer requesting an extension of time to make an election under sec_42 of the internal_revenue_code pursuant to sec_301_9100-1 of the procedure and administration regulations taxpayer did not make the proper election under sec_42 for the taxable_year ending on date with respect to buildings in the project sec_42 defines the term aqualified low-income_housing project as any project for residential_rental_property if the project meets the requirements of sec_42 or b whichever is elected by the taxpayer the project meets the requirements of sec_42 if percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income i sec_50 percent or less of area_median_gross_income the project meets the requirements of plr-108410-07 sec_42 if percent or more of the residential units are both rent-restricted and occupied by individuals whose income is percent or less of area_median_gross_income an election under sec_42 once made is irrevocable sec_301_9100-7t of the temporary procedure and administration regulations provides that for elections under the tax_reform_act_of_1986 the election under sec_42 must be made for the taxable_year in which the project is placed_in_service and shall be made in the certification required to be filed pursuant to sec_42 sec_301_9100-7t provides that the election under sec_42 is irrevocable sec_42 provides that following the close of the first taxable_year in the credit_period with respect to any qualified_low-income_building the taxpayer shall certify to the secretary at such time and in such form and in such manner as the secretary prescribes the election made under sec_42 with respect to the qualified_low-income_housing_project of which such building is a part in the case of a failure to make the certification required by the preceding sentence on the date prescribed therefore unless it is shown that such failure is due to reasonable_cause and not to willful neglect no credit shall be allowable by reason of sec_42 with respect to such building for any taxable_year ending before such certification is made sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 defines the term aregulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin under sec_301_9100-1 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_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government in the instant case based solely 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 met accordingly taxpayer is granted an extension of time to make the election under sec_42 with respect to buildings in the project the election must be made within plr-108410-07 days from the date of this letter for taxpayer's through taxable years on amended forms that include the intended election the amended forms for taxpayer's and taxable years and a copy of this letter are to be filed with the service_center where taxpayer's return is filed the amended forms for taxpayer's taxable_year with taxpayer's original ie not photocopied signature and a copy of this letter are to be sent to internal_revenue_service p o box attn lihc unit dp south philadelphia pa two copies of this letter are enclosed for this purpose for taxpayer's taxable years after taxpayer is not required to file the form_8609 no opinion is expressed or implied regarding the application of any other provisions of the code or regulations specifically we express no opinion on whether taxpayer’s low-income_housing project otherwise qualifies for the low-income_housing tax_credit pursuant to sec_42 this ruling is directed only at the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file a copy of this letter is being sent to taxpayer’s authorized representative sincerely s william p o'shea associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes two copies of this letter


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 fip b04 plr-101323-19 date august taxpayer -------------------------------------------------------------------------------------------- parent ---------------------------------------------------------- dear ------------------ this letter responds to taxpayer’s request for a letter_ruling that the payment of certain investment advisory fees from an annuity_contract will not be treated as an amount received by the owner of that annuity_contract for purposes of sec_72 of the internal_revenue_code facts taxpayer is a life_insurance_company within the meaning of sec_816 taxpayer joins in the filing of a consolidated federal tax income_tax return with parent on a yearly calendar basis using an accrual_method of accounting taxpayer intends to offer three non-qualified deferred_annuity contracts referred to herein as the contract the contract will be issued to and owned by an individual or issued to and owned by a_trust or other entity as an agent for a natural_person within the meaning of sec_72 the owner the contract is an annuity_contract under the law of the jurisdiction where issued the contract qualifies for treatment as an annuity_contract for federal_income_tax purposes including by complying with the requirements of sec_72 one of the contracts is a variable_contract under sec_817 while two of the contracts are not variable plr-101323-19 contracts under sec_817 the contract is not part of any qualified_retirement_plan within the meaning of sec_4974 the contract is comprised of an accumulation_phase and a payout phase during the accumulation_phase the cash_value of the contract is credited with earnings or interest based on options the owner selects from a menu provided by taxpayer the options consistent with applicable nonforfeiture law the contract is designed for owners who will receive ongoing investment advice from an investment adviser the adviser on how to allocate the contract’s cash_value within the meaning of sec_72 among the available options the adviser is expected to take into account factors such as the owner’s personal risk tolerance and investment timeline the interest rate and market environment the menu of options available under the contract and the various other_benefits and features available under the contract the adviser will be an appropriately licensed professional who is in the business of providing investment advice in consideration for its advice the owner will authorize investment advisory fees the fees to be paid periodically to the adviser from the contract’s cash_value the authorization the fees will be determined based on an arms-length transaction between the owner and the adviser the fees will not exceed an amount equal to an annual rate of of the contract’s cash_value within the meaning of sec_72 determined at the time and in the manner provided in the authorization or other written_agreement with the adviser but in all events based on such cash_value during the period to which the fees relate the fees will compensate the adviser only for investment advice that the adviser provides to the owner with respect to the contract and not for any other services the fees will not result in any reduction in fees related to any other asset or for any other service taxpayer will pay the fees directly to the adviser during any period for which the authorization is in effect the contract will be solely liable for paying the fees and the fees will not be paid directly by the owner the owner will not have the right to direct payment of the fees for any other purpose or to any other person the adviser will not receive a commission for the sale of the contract from taxpayers requested ruling taxpayer requests a ruling that the fees taxpayer deducts from the contract’s cash_value and remit to the adviser will not be treated as an amount received by the owner of the contract for purposes of sec_72 law law and analysis plr-101323-19 sec_72 distinguishes between an amount_received_as_an_annuity under an annuity endowment or life_insurance_contract and an amount not received as an annuity under those contracts sec_1_72-1 of the income_tax regulations the regulations provides that amounts received as an annuity are amounts which are payable at regular intervals over a period of more than one full year from the date on which they are deemed to begin provided the total of the amounts so payable or the period for which they are to be paid can be determined as of that date see sec_1_72-1 and of the regulations any other_amounts to which the provisions of sec_72 apply are considered to be amounts_not_received_as_an_annuity sec_1_72-2 of the regulations provides that amounts are considered amounts received as an annuity only in the event that the following tests are met i they must be received on or after the annuity_starting_date as that term is defined in paragraph b of sec_1_72-4 of the regulations the first day of the first period for which an amount is received as an annuity under the contract ii they must be payable in periodic installments at regular intervals whether annually semiannually quarterly monthly weekly or otherwise over a period of more than one full year from the annuity_starting_date and iii except as indicated in subparagraph b of the regulations relating to variable_contracts the total of the amounts payable must be determinable at the annuity_starting_date either directly from the terms of the contract or indirectly by the use of either mortality tables or compound interest computations or both in conjunction with such terms and in accordance with sound actuarial theory sec_1_72-11 of the regulations describes amounts_not_received_as_an_annuity as any amount received under an annuity_contract if the amount i does not meet the requirements set forth in sec_1_72-2 of the regulations for amounts received as an annuity ii meets the requirements of sec_1_72-2 of the regulations for amounts received as an annuity but the annuity payments received differ in either amount duration or both from those originally provided under the contract or iii meets the requirements of sec_1_72-2 of the regulations for amounts received as an annuity but the annuity payments are received by a beneficiary after the death of an annuitant or annuitants in full discharge of the obligation under the contract and solely because of a guarantee sec_72 applies to any amount not received as an annuity under an annuity endowment or life_insurance_contract sec_72 provides that if any amount plr-101323-19 which is not received as an annuity is received on or after the annuity_starting_date it is included in gross_income sec_72 provides that if any amount which is not received as an annuity is received before the annuity_starting_date it is included in gross_income to the extent allocable to income_on_the_contract and is not included in gross_income to the extent allocable to the investment_in_the_contract analysis in this case the fees are integral to the operation of the contract during any period for which the authorization is in effect the owner will receive ongoing investment advice from the adviser with respect to the contract so that the owner may properly utilize the contract the adviser is expected to help the owner select options related to the contract taxpayer has represented that the fees will not serve as consideration for anything other than investment advice provided by the adviser in relation to the contract furthermore taxpayer has represented that the fees will not exceed an annual rate of of the contract’s cash_value based on the period in which the fees related based on taxpayer’s representations the fees will only be used to pay for investment advisory services relating to the contract because the contracts are designed to work with an adviser the contract is solely liable for the fees the fees do not constitute compensation to the advisor for services related to any assets of the owner other than the contract or any services other than investment advice services with respect to the contract therefore the fees are an expense of the contract not a distribution to the owner ruling based solely on the information submitted and the representations made the fees taxpayer deducts from the contract’s cash_value and remit to the adviser will not be treated as an amount received by the owner of the contract for purposes of sec_72 caveats the ruling contained in this letter is based upon information and representations taxpayer submitted accompanied by penalty of perjury statements executed by appropriate parties this office has not verified any of the material submitted in support of the ruling_request and it is subject_to verification on examination the ruling contained in this letter does not apply to any amount_paid by taxpayer that compensate the advisor for services related to assets other than the contract or for any services provided other than investment advice services with respect to the contract any such amount would be an amount received by the owner of the contract for purposes of sec_72 plr-101323-19 no opinion is expressed as to the tax treatment of the transaction under the provisions of any of the other sections of the code and regulations which may also be applicable thereto or to the tax treatment of any conditions existing at the time of or effects resulting from the transaction which are not specifically covered by the above rulings this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax return of taxpayers for the taxable_year in which the transaction covered by this ruling is consummated pursuant to a power_of_attorney on file in this office a copy of this ruling is being furnished to your authorized representatives sincerely john glover senior counsel branch associate chief_counsel financial institutions and products cc


t c memo united_states tax_court leo j polack petitioner v commissioner of internal revenue respondent docket no filed date barry a o’neil and glenn r kessel for petitioner blaine c holiday and david zoss for respondent memorandum findings_of_fact and opinion marvel judge respondent determined a deficiency of dollar_figure in petitioner’s federal gift_tax for the taxable_year after concessions the sole issue for decision is the valuation of petitioner’s gifts of shares of stock in zip sort inc that he made to his children on date - - findings_of_fact some of the facts have been stipulated and are so found the stipulations of fact are incorporated herein by this reference leo j polack petitioner was a resident of minnesota when he filed the petition in this case background zip sort inc 4si was incorporated on date and petitioner purchased zsi in date during zsi employed approximately people and had to regular customers zsi engaged in the trade_or_business of printing and preparing pieces of bulk mail for clients and to that end operated lettershop and presorting divisions the lettershop division processed mailings for zsi’s clients providing services ranging from printing and folding materials to stuffing and addressing envelopes in petitioner purchased stedman enterprises an unprofitable printing company to bolster zsi’s lettershop division and as a backup in the event of an imminent strike the presorting division sorted the pieces of bulk mail according to u s postal service postal service criteria in order to take advantage of postal service refund programs initially zsi employees manually sorted the pieces of bulk mail and the postal service discounted the postage for each piece of mail in each of zsi’s presorted mailings by cents presorting discount 2zsi typically shared the presorting discount with its customers such that zsi would refund or reduce fees paid to zsi by cents despite receiving this presorting discount the presorting division historically maintained a very low profit margin high volume was essential to the success of the presorting division through zsi’s overall performance was stagnant and petitioner attempted to sell zsi’s unprofitable presorting division but was unsuccessful in the postal service instituted an additional refund program wherein the postal service began refunding to participants cent for each piece of presorted bulk mail that met certain postal service criteria the value-added refund or var program one criterion of the var program was that the participant place bar codes on each piece of mail so that the postal service could use optical scanners to economize its operations in date zsi entered into a lease’ for a multiline optical character reader mlocr which automated its presorting division printed bar codes on pieces of mail and sorted the pieces by zip code although zsi began leasing the mlocr in zsi did not yet qualify for participation in the var program in zsi 'zsi leased the multiline optical character reader mlocr either because mlocrs were too expensive to purchase between dollar_figure and dollar_figure or because for security reasons the manufacturer would not sell a mlocr to zsi q4e- had difficulty developing customers to support the continued lease of the mlocr in the latter part of petitioner entered into discussions with a majority shareholder of postal automation one of zsi’s competitors regarding the divestiture of their respective presorting divisions both parties were anxious to sell their respective presorting divisions petitioner eventually agreed to purchase postal automation’s presorting division for approximately dollar_figure to dollar_figure anda share of zsi’s profits for the following years petitioner’s bank financed the purchase and additional operating costs for zsi in exchange for security interests in petitioner’s home or farm and in a printing company petitioner owned in zsi first gualified to participate in the var program zsi continued to receive the cents presorting discount and began receiving the cent value-added refund var income or vari during zsi continued to split the presorting discount with its customers but was able to retain all of the vari it received and the presorting division had its first profitable year by however some of zsi’s customers had learned of the var program and they demanded a share of the vari zsi received zsi complied for fear of losing those customers and shared the vari either by directly paying a as of the valuation_date zsi had at least five primary competitors of relatively equivalent size and there were few continued - portion of the vari to the customer or by reducing that customer’s service fees in zsi transferred to its customers by direct payment or reduction in fees dollar_figure or dollar_figure percent of the dollar_figure in gross vari it received zsi retained the other dollar_figure or dollar_figure percent of the gross vari received although zsi was profitable in and petitioner expected zsi would have to share with its customers substantially more of the vari in future years petitioner feared that the presorting division’s low profit margin and tough competition combined with a further reduction in retained vari would strain zsi’s finances gifts of zsit stock immediately prior to the gifts at issue herein zsi’s stock was held as follows continued barriers to entry into zsi’s industry in zsi purchased a competing company with small profits for dollar_figure to dollar_figure and procured a covenant_not_to_compete from the seller by the end of zsi owned at least three current covenants not to compete voting nonvoting owner of shares shares shares leo j polack big_number big_number dana rhoads big_number lora oberle big_number gregory polack big_number sherry tollefson big_number patricia kostuch big_number total big_number big_number dana rhoads was the president of zsi and lora oberle gregory polack sherry tollefson and patricia kostuch are petitioner’s four children on date petitioner gifted big_number of his nonvoting shares of stock in zsi to each of his four children and immediately thereafter zsi’s stock was held as follows voting nonvoting owner of shares shares shares leo j polack big_number big_number dana rhoads big_number lora oberle big_number gregory polack big_number sherry tollefson big_number patricia kostuch big_number total big_number petitioner retained an appraisal company to appraise the value of the gifted shares of stock in zsi as of the date of the gifts date gerald gray an appraiser with that company prepared an appraisal report and concluded that on the 3on date petitioner recapitalized zsi and thereby created the two classes of stock the only difference between the classes of stock was the presence of voting rights - valuation_date zsi was worth dollar_figure million and the big_number gifted nonvoting common shares of stock in zsi were worth cents each petitioner timely filed his form_709 united_states gift and generation-skipping_transfer_tax return and therein reported cumulative annual gifts of dollar_figure in accordance with the appraisal report following an examination respondent determined that on the valuation_date the big_number gifted nonvoting common shares of stock in zsi were worth dollar_figure each and issued a notice_of_deficiency to that effect just prior to trial however respondent retained an appraisal company to appraise the value of the gifted shares of stock in zsi as of the valuation_date brad cashion an appraiser with that company toured zsi’s facilities and interviewed mr rhoads mr rhoads was primarily responsible for zsi’s daily operations and for coordination of those operations with the postal service mr cashion prepared an appraisal report that concluded that as of the valuation_date zsi was worth dollar_figure--comprising dollar_figure as an operating company and dollar_figure in nonoperating assets--and that the big_number gifted nonvoting common shares of stock in zsi were this nonoperating asset was stock listed on zsi’s balance_sheet at dollar_figure - - worth cents each at trial however respondent conceded that the shares at issue were worth cents each opinion the only issue for decision is the value of the big_number gifted shares of stock in zsi on date in deciding the value of gifted shares of stock we look to the price at which such property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts sec_25_2512-1 gift_tax regs although we consider all the relevant facts and circumstances in valuing gifted property the value of a closely_held_business is best ascertained by relying on actual arm’ s-- length sales or transfers if any of the stock within a reasonable period of the valuation_date 237_f2d_729 8th cir affg tcmemo_1955_269 79_tc_938 the record contains no evidence of a sale or transfer of this concession was mathematical in nature and not in substance different from mr cashion’s reported conclusion that the shares were worth cents each ‘unless otherwise noted all section references are to the internal_revenue_code in effect for the taxable_year at issue and all rule references are to the tax_court rules_of_practice and procedure --- - stock in zsi other than that at issue this highly probative factor therefore is unavailable for our analysis another factor highly probative of a company’s value is the value placed on an arm’s-length sale or transfer of shares of stock in a company similar to the company at issue such sale or transfer taking place within a reasonable period of the valuation_date sec_2031 revrul_59_60 1959_1_cb_237 both parties identified other companies operating in this industry but the parties either distinguished zsi from those companies or did not provide us with data regarding any arm’s-length sale or transfer although petitioner and or zsi purchased certain assets and divisions of competing companies we do not have sufficient data to consider whether those sales or transfers are probative of zsi’s value this factor is unavailable for our analysis in the absence of arm’s-length sales or transfers of stock in the subject company or in comparable companies we have generally considered a number of other factors affecting the fair_market_value of the company and the gifted shares of stock including the nature of the business and the history of the enterprise from its inception the economic outlook in general and the condition and outlook of the specific industry in particular the book_value of the stock and the financial condition of the business the earning capacity of the company - the dividend-paying capacity whether or not the enterprise has goodwill or other intangible value and the size of the block of stock to be valued revrul_59_60 c b pincite both experts considered these and other factors in examining zsi and in constructing their respective appraised value ’ nevertheless petitioner’s analysis of the factors and of zsi’s worth yielded a value nearly half that which respondent’s appraisal yielded the parties identified and the court ‘the internal_revenue_service restructuring reform act of publaw_105_206 sec 112_stat_726 added sec_7491 which is applicable to court proceedings arising in connection with examinations commencing after date under sec_7491 congress requires the burden_of_proof to be placed on the commissioner subject_to certain limitations where a taxpayer introduces credible_evidence with respect to factual issues relevant to ascertaining the taxpayer’s liability for tax in the instant case petitioners have not raised the application of this provision or otherwise argued that respondent bears the burden_of_proof in this case further the record indicates that the commissioner’s examination commenced before date in any event both parties adduced testimony and offered exhibits in support of their respective positions and the evidence so introduced though sparse was not equally compelling accordingly we have based our conclusion upon the preponderance_of_the_evidence and not upon any allocation of the burden_of_proof see estate of harper v commissioner tcmemo_2002_ ‘petitioner contends we should accept his expert’s testimony because his expert is significantly more experienced than respondent’s expert as our discussion indicates our conclusion turns on factual disputes and reflects our finding that petitioner’s conclusions regarding disputed factual issues are not grounded on credible_evidence an expert no matter how skilled can only work with the factual record he is given by his client or obtains through his own efforts in this case petitioner’s expert relied primarily on petitioner’s unsupported opinion regarding the disputed factual matters discovered a number of differences in the parties’ analyses contributing to the difference in value on brief petitioner addressed only the differences in the parties’ treatments of projected vari projected annual capital expenditures and a nonoperating asset i vari of the three items the treatment of which the parties dispute the one likely to have the most impact on zsi’s value is the extent to which zsi will retain the vari it receives respondent projected gross vari to equal percent of gross_sales for each projected year ’ or dollar_figure for respondent’s projection was based on zsi’s historical amounts of gross vari earned petitioner’s projected gross_sales and the parties’ consensus that gross vari varies directly with gross_sales respondent then projected based on mr rhoads’s statements that zsi would retain percent of the gross vari for each projected year on the other hand petitioner projected that zsi would retain only dollar_figure of gross vari for without projecting what gross vari would be and that zsi would retain amounts proportionate to gross_sales thereafter petitioner argues that roughly to percent of all sales qualified for the var program petitioner’s projection equates to dollar_figure percent of respondent’s projected gross vari by contrast respondent projected zsi would retain dollar_figure or percent of respondent’s projected gross vari he was the most knowledgeable person regarding vari and that respondent’s projection based on an interview with mr rhoads is therefore erroneous we disagree for several reasons first respondent’s reliance on mr rhoads’s statements was not improper mr rhoads had daily contact with zsi and was intimately involved with the presorting division’s operations we do not think it improbable that mr rhoads was aware of those factors impacting the presorting division’s profitability not the least of which was the amount of retained vari second respondent’s projection coincides with the most objective and reliable evidence in the record--the presorting discount 42zsi saved cents per piece of mail under the presorting discount program and consistently has been able to retain the benefits from percent of that discount we have seen no evidence to suggest the apportionment of the presorting discount is distinguishable from the apportionment of the vari third and most importantly petitioner’s projection is unreliable and lacks probative value ' petitioner’s bald projection of dollar_figure does not appear to be based on any evidence or knowledge personal to petitioner although petitioner generally dealt with zsi’s creditors and financial mat trial petitioner testified that he had estimated zsi would retain anywhere from percent to percent of vari but offered the court no facts on which to evaluate the reasonableness of his estimates arrangements personally petitioner failed to show how his involvement with zsi’s finances imbued him with the ability to set a dollar value on retained vari without first considering any financial records or evaluating zsi’s customer base if petitioner did consider any information in making his projections or if petitioner’s expert examined that information in petitioner’s stead they have not so asserted nor have they identified the information respondent’s projections of gross and retained vari are reliable and probative of zsi’s value and petitioner has not introduced evidence other than his unsupported guess to show otherwise we therefore accept respondent’s projections regarding vari il capital expenditures the second item we consider is zsi’s projected capital expenditures respondent projected zsi would make capital expenditures of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure for the years through respectively and that those outlays would be sufficient to replace existing equipment and to purchase new equipment as necessary petitioner contends that respondent’s projections fail to account for expenses of the presorting division and that respondent’s projections are inconsistent with zsi’s history of expenses projected level of growth and projected depreciation petitioner instead projected zsi would make capital expenditures of dollar_figure in years through and of dollar_figure for each year thereafter as discussed below petitioner’s arguments and projections do not rest on credible_evidence and we are persuaded that respondent’s projections are more reliable we therefore accept respondent’s projections regarding capital expenditures as near as we can tell petitioner’s argument that respondent failed to account for the expenditures necessary for the multi-line optical readers or any expenses related to the bar-coding function of zip sort’s business ie the presorting division stems from a misunderstanding between respondent’s expert and mr rhoads mr rhoads told mr cashion that dollar_figure would be more than enough for expenses in mr rhoads intended that remark to relate only to the lettershop division but mr cashion interpreted that remark as relating to the lettershop division and the presorting division nevertheless because there is no evidence that the presorting division owned or was likely to purchase for use in its business any capital_asset of substantial value’ or that expenses related in holding that petitioner’s argument fails we note that the mlocr the only asset we know to be used in the presorting division was leased rather than owned and both parties separately accounted for costs associated with equipment leases in their projections without any evidence that the presorting division included other assets we can only assume that respondent’s projections did in fact account for the presorting division -- - to the mlocr or any expenses related to any other portion of the presorting division would be capital in nature this misunderstanding does not persuade us that zsi would incur capital expenditures with regard to the presorting division likewise petitioner’s arguments that respondent’s projections of capital expenditures are inconsistent with zsi’s history of expenses projected level of growth and projected depreciation are not supported by evidence specifically petitioner alleged that respondent’s projections improperly reduce zsi’s assets’ book values during a period of corporate growth improperly depreciate assets not yet acquired and fail to recognize that proper appraisal methodology would project a growing company’s capital expenditures to be relatively equal to its depreciation in order to maintain the asset base as discussed below we disagree with petitioner petitioner has not directed us to any authority that a decline in a corporation’s assets’ book values is irreconcilable with that corporation’s growth zsi’s growth is tied more closely to the service fees the presorting discounts and the value-added refunds it generates than to its assets’ book values ’ we therefore are not persuaded by petitioner’ sec_3for and it appears that respondent projected zsi’s assets’ cumulative book_value to increase as zsi’s capital expenditures are projected to exceed its depreciation allowances -- - argument that respondent improperly reduced zsi’s assets’ book values we also are unpersuaded by petitioner’s assertion that respondent improperly depreciated assets not yet acquired the record does not support petitioner’s assertion at no point do respondent’s projections anticipate zsi’s accumulated depreciation exceeding the cumulative costs of zsi’s capital assets we note that although respondent projected annual depreciation to exceed annual capital expenditures in and zsi’s assets’ book values were sufficient to accommodate that depreciation petitioner has not supplied us with any historical_cost or depreciation information regarding assets that zsi held on the valuation_date or that it could be expected to hold thereafter and because of this dearth of information petitioner’s argument and projections on this point lack any evidentiary foundation finally in arguing that proper appraisal methodology usually calls for zsi’s capital expenditures to be relatively egual to zsi’s depreciation petitioner ignored the reality of zsi’s situation mr rhoads was a frugal manager and president and he ran zsi’s operations so as to keep costs at a minimum most of zsi’s repair work was done in-house and the machines were observed and maintained around the clock to ensure their continued operation mr rhoads cannibalized machines to keep other machines operational for as long as possible and he testified that he would be hard pressed to spend dollar_figure each year on capital expenditures----that dollar_figure would replace all of the lettershop division’s assets respondent’s projections were based on mr rhoads’s statements and the above operational history and we find respondent’s projections reliable and probative of zsi’s value on the other hand the record does not support petitioner’s arguments or projections and petitioner has failed to persuade us that zsi’s future capital expenditures will be tailored to match zsi’s book depreciation we therefore accept respondent’s projections regarding capital expenditures tii nonoperating asset the last item we consider is the nonoperating asset held by zsi and listed on zsti’s balance_sheet at a value of dollar_figure respondent included the nonoperating asset’s value rounded to dollar_figure in his final valuation of zsi we surmise from the single paragraph petitioner devoted to this issue that although petitioner initially omitted the nonoperating asset’s value from his valuation analysis he now concedes that the value should have been included but argues that the value of the nonoperating asset must be offset by a dollar_figure debt owed by zsi to a stockholder petitioner’s argument is rooted in petitioner’s testimony that the dollar_figure debt was payable by zsi to petitioner and that during zsi purchased the nonoperating -- - asset for petitioner in satisfaction of the debt petitioner testified that although both items appeared on zsi’s financial records neither item should have so appeared petitioner’s testimony is not supported by the record petitioner did not introduce any evidence other than his own testimony to show that he was the stockholder to whom zsi’s debt was payable or that zsi purchased the nonoperating asset in satisfaction of the debt we do not accept petitioner’s completely uncorroborated testimony as persuasive proof that respondent improperly included the nonoperating asset in calculating zsi’s value in the face of the evidence that the asset was listed on zsi’s balance_sheet at a value approximating dollar_figure 87_tc_74 conclusion petitioner disputed a number of respondent’s assumptions in valuing zsi for purposes of federal gift_tax but we are persuaded that respondent’s valuation is supported by the evidence we therefore conclude that zsi’s value on the valuation_date wa sec_88 cents per share as respondent’s expert calculated we have considered all of petitioner’s arguments for a different result and to the extent not discussed herein we find them moot irrelevant or without merit to reflect the foregoing decision will be entered under rule