internal_revenue_service number release date index number ------------------------------------- -------------------------------------- ---------------------------------- ---------------------------------------- in re ------------------------------ ------- ------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b04 plr-135592-18 date date legend date settlor spouse trust child child child child child child trust trust trust trust trust trust state grandfather grandmother x y year --------------------------- ------------------------------------------------------ ----------------------------------------------------- ----------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------- 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------- ------------------------- ----------------------- ------------------- ------------------------------------------------------------ ----------------------------------------- ----------------------------------------- dear ------------------ this letter responds to the letter dated date and subsequent correspondence submitted by your authorized representative requesting rulings on the gift estate and generation-skipping_transfer gst tax consequences of the proposed reformation of an irrevocable_trust facts the facts submitted and the representations made are as follows on date a date after date settlor executed an irrevocable_trust trust with spouse as trustee for the benefit of their six children child child child child child and child and their descendants pursuant to the terms of trust six separate trusts trust trust trust trust trust and trust were established one to benefit each child collectively the children’s trusts individually a child’s trust the children’s trusts are governed by the laws of state under paragraphs dollar_figure and of trust each child is the primary beneficiary of his or her child’s trust property transferred to trustee shall be allocated among the children’s trusts equally between all of such trusts paragraph provides that during each primary beneficiary’s life the trustee shall distribute all of the income of such beneficiary’s child trust to the primary beneficiary and may distribute such portion or all of the principal of such child’s trust to or for the support maintenance medical_expenses health and education of the primary beneficiary as the trustee in her sole and absolute judgment and discretion determines under paragraph at the time of death of the primary beneficiary such child’s trust shall continue in separate trust shares per stirpes for his or her lineal_descendants and upon the death of each of such respective lineal_descendants then plr-135592-18 for such respective deceased lineal descendant’s lineal_descendants in separate trust shares per stirpes for their respective lives and so forth until such trusts terminate under paragraph paragraph dollar_figure provides that any trust created under trust if not otherwise fully terminated shall terminate fully and all principal and undistributed_income shall be distributed to the respective income_beneficiary at the end of twenty-one years after the death of the last to die of settlor and all primary beneficiaries of the trusts created under trust paragraph dollar_figure provides generally that the trustee may receive property from the settlor or any other person or persons by lifetime_gift under a will or trust or from any other source with respect to additions during any calendar_year from any donor each beneficiary may demand for a period of thirty days immediately after each such initial contribution and any additions during any calendar_year from each donor up to the maximum amount allowable with respect to such donor as an annual exclusion for gift_tax purposes within sec_2503 and sec_2513 payable in cash or in_kind immediately upon receipt by the trustee of the demand in writing such payment shall be made from the gift of that donor for that year or from property purchased with such gift if any such beneficiary is a minor at the time of such gift of any donor for that year or if any such beneficiary fails in legal capacity for any reason at such time then such beneficiary’s guardian may make such demand on behalf of said beneficiary and the property received pursuant to such demand shall be held by the guardian for the benefit of said beneficiary the trustee shall give written notice of the receipt of any property by the trustee to be held in trust hereunder to all beneficiaries of the trust or to the guardian of any minor beneficiary or any other beneficiary who fails in legal capacity within thirty days of the receipt of such property settlor transferred dollar_figurex to each child’s trust in year year year and year settlor timely filed form sec_709 united_states gift and generation-skipping_transfer_tax returns for year year year and year on each form_709 settlor and spouse signified consent to treat all gifts made by settlor in year year year and year as having been made one-half by each spouse under sec_2513 on each form_709 for year year and year the transfers of dollar_figurex to each child’s trust were incorrectly reported on form sec_709 schedule a part 1-gifts subject only to gift_tax instead of schedule a part 3-indirect skips no affirmative allocation of gst_exemption was made to the transfers to each child’s trust furthermore the automatic allocation of the gst_exemption was not reported on schedule c computation of generation-skipping_transfer_tax grandfather transferred dollar_figurey to each child’s trust in year and year grandfather and grandmother timely filed form sec_709 for year and year on each form_709 grandfather and grandmother signified consent to treat all gifts made by grandfather in year and year as having been made one-half by each spouse under sec_2513 on plr-135592-18 each form_709 for year and year the transfers of dollar_figurey to each child’s trust were incorrectly reported as an outright gift to each of child through child on schedule a part 1-gifts subject only to gift_tax instead of a gift to each child’s trust on schedule a part 2-direct skips no affirmative allocation of gst_exemption was made to the transfers to each child’s trust furthermore accountant left blank schedule c of form sec_709 for both grandfather and grandmother for year and year attorney drafted trust settlor created and funded trust relying on the advice of attorney based on affidavits of settlor and attorney settlor created trust to provide for his descendants of all generations and to reduce the overall transfer_taxes payable on trust assets by ensuring that the assets held in trust would not be includible in a primary beneficiary’s gross_estate upon his or her death and to minimize the amount subject_to gst tax by utilizing settlor’s and spouse’s gst_exemption settlor also intended to ensure that the primary beneficiary would avoid incurring federal gift and estate_tax in connection with a transfer to trust the withdrawal provision in paragraph dollar_figure contains a drafting error each primary beneficiary’s withdrawal right over the assets contributed to a child’s trust in any given year is not limited to the greater of dollar_figure or percent of the value of the trust assets accordingly any lapse of a primary beneficiary’s withdrawal right would be treated as a taxable transfer by that primary beneficiary under sec_2514 to the extent that the property that could have been withdrawn exceeds in value the greater of dollar_figure or percent of the aggregate value of the assets subject_to withdrawal moreover each primary beneficiary would become a transferor to his or her child’s trust for gst tax purposes with respect to the portion of the child’s trust constituting a gift by the child thereby preventing i an effective deemed_allocation of gst_exemption under sec_2632 by settlor and spouse with respect to settlor’s transfers to that child’s trust for each of year year year and year and ii an effective deemed_allocation of gst_exemption under sec_2632 by grandfather and grandmother with respect to grandfather’s transfer to that child’s trust for each of year and year in addition the portion of each child’s trust relating to the lapsed withdrawal right in excess of dollar_figure or percent of the value of the trust assets would be included in the primary beneficiary’s gross_estate for estate_tax purposes the error was discovered when settlor engaged new estate_planning counsel who reviewed settlor’s current estate plan including trust settlor was informed of the drafting error that defeated the intent of the settlor in establishing trust on date trustee filed a petition in state court requesting judicial reformation of the erroneous provision of paragraph effective as of the date trust was originally created on date state court issued an order reforming trust to eliminate the scrivener’s error retroactive to the date of trust’s creation the order is contingent upon the issuance of a favorable private_letter_ruling by the internal_revenue_service plr-135592-18 as reformed trust limits the annual lapse of each primary beneficiary’s withdrawal right to the greater of dollar_figure or percent of the value of the trust assets you have requested the following rulings as a result of the reformation no child will be deemed to have released a general_power_of_appointment within the meaning of sec_2514 and sec_2041 by reason of the lapse of any right of withdrawal held by the child with respect to any transfers to his or her child’s trust accordingly no child will be deemed to have made a taxable gift under sec_2514 to his or her child’s trust and no part of his or her child’s trust will be included in his or her gross_estate under sec_2041 as a result of the reformation the only transferors to each child’s trust for gst tax purposes are settlor spouse grandfather and grandmother as a result of the reformation each of settlor’s and spouse’s gst_exemption is automatically allocated to one-half of the transfers by settlor to each child’s trust and each of grandfather’s and grandmother’s gst_exemption is automatically allocated to one-half of the transfers by grandfather to each child’s trust law and analysis ruling sec_2001 provides that a tax is imposed on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides generally that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2041 provides that the value of the gross_estate includes the value of all property to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive for purposes of sec_2041 the power_of_appointment shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject_to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised plr-135592-18 sec_2041 provides that for purposes of sec_2041 the term general_power_of_appointment means a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides that the lapse of a power_of_appointment created after date during the life of the individual possessing the power shall be considered a release of such power the preceding sentence shall apply with respect to the lapse of powers during any calendar_year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeded in value at the time of such lapse the greater of the following amounts a dollar_figure or b percent of the aggregate value at the time of such lapse of the assets out of which or the proceeds of which the exercise of the lapsed powers could have been satisfied sec_2501 provides generally that a tax is imposed for each calendar_year on the transfer of property by gift by any individual resident or nonresident sec_2511 provides that the gift_tax shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that for purposes of sec_2514 the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power his estate his creditors or the creditors of his estate sec_2514 provides that the lapse of a power_of_appointment created after date during the life of the individual possessing the power shall be considered a release of such power the rule_of the preceding sentence shall apply with respect to the lapse of powers during any calendar_year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeds in value the greater of the following amounts dollar_figure or percent of the aggregate value of the assets out of which or the proceeds of which the exercise of the lapsed powers could be satisfied in 387_us_456 the court considered whether a state trial court’s characterization of property rights conclusively binds a federal court or agency in a federal estate_tax controversy the court concluded that the decision of a state trial_court as to an underlying issue of state law should not be controlling when applied to a federal statute rather the highest court of the state is the best authority on the underlying substantive rule_of state law to be applied in the federal matter if there is no decision by that court then the federal authority must apply what it plr-135592-18 finds to be state law after giving proper regard to the state trial court’s determination and to relevant rulings of other courts of the state in this respect the federal_agency may be said in effect to be sitting as a state court state statute provides in part that a proceeding to approve or disapprove a proposed modification or termination of a_trust may be commenced by a trustee or a beneficiary state statute provides in part that the court may reform the terms of a_trust even if unambiguous to conform the terms to the settlor’s intention if it is proved by clear_and_convincing evidence that the settlor’s intent or the terms of the trust were affected by a mistake of fact or law in this case an examination of the relevant trust instruments affidavits and representations of the parties indicate that the original terms of paragraph resulting from a scrivener’s error were contrary to the intent of settlor the purpose of the reformation is to correct the scrivener’s error not to alter or modify the trust instrument accordingly based on the facts presented and the representations made we conclude that as a result of the reformation of trust each of settlor’s children child through child does not possess general powers of appointment over the assets of his or her respective child’s trust except to the extent of each child’s withdrawal right under the reformed trust instrument as a result of the reformation no child will be deemed to have released a general_power_of_appointment within the meaning of sec_2514 and sec_2041 by reason of the lapse of any right of withdrawal held by the child with respect to any transfers to his or her child’s trust accordingly no child will be deemed to have made a taxable gift under sec_2514 to his or her child’s trust and no part of his or her child’s trust will be included in his or her gross_estate under sec_2041 ruling sec_2 and sec_2513 provides generally that a gift made by one spouse to any person other than the donor’s spouse is considered for purposes of the gift_tax as made one-half by the donor and one-half by the donor’s spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states sec_25_2513-1 of the gift_tax regulations provides that the consent is effective only if both spouses signify their consent to treat all gifts made to third parties during that calendar_period by both spouses while married to each other as having been made one-half by each spouse such consent if signified with respect to any calendar_period is effective with respect to all gifts made to third parties during such calendar_period except in part if one spouse transferred property in part to his or her spouse and in part to third parties the consent is effective with respect to the interest transferred to third parties only insofar as such interest is ascertainable at the time of the gift and severable from the interest transferred to his spouse plr-135592-18 sec_25_2513-1 provides that the consent applies alike to gifts made by one spouse alone and to gifts made partly by each spouse provided such gifts were to third parties and do not fall within any of the exceptions set forth in sec_25_2513-1 through b the consent may not be applied only to a portion of the property interest constituting such gifts if the consent is effectively signified on either the husband’s return or the wife’s return all gifts made by the spouses to third parties except as described in subparagraphs through of this paragraph during the calendar_period will be treated as having been made one-half by each spouse sec_2601 imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any gst the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a gst is the excess if any of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip reduced by the sum of any federal estate_tax or state death_tax actually recovered from the trust attributable to such property and any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which 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_2652 provides in part that the term transferor means in the case of any property subject_to the tax imposed by chapter the donor sec_26_2652-1 of the generation-skipping_transfer_tax regulations provides that the individual with respect to whom property was most recently subject_to federal estate or gift_tax is the transferor of that property for purposes of chapter under sec_26_2652-1 example t transfers dollar_figure to a new trust providing that the trust income is to be paid to t’s child c for c’s life and on the death of c the trust principal is to be paid to t’s grandchild gc the trustee has discretion to distribute plr-135592-18 principal for gc’s benefit during c’s lifetime c has a right to withdraw dollar_figure from the trust for a 60-day period following the transfer thereafter the power lapses c does not exercise the withdrawal right the transfer by t is subject_to federal gift_tax because a gift_tax is imposed under sec_2501 without regard to exemptions exclusions deductions and credits and thus t is treated as having transferred the entire dollar_figure to the trust on the lapse of the withdrawal right c becomes a transferor to the extent c is treated as having made a completed_transfer for purposes of chapter therefore except to the extent that the amount with respect to which the power_of_withdrawal lapses exceeds the greater of dollar_figure or percent of the value of the trust property t remains the transferor of the trust property for purposes of chapter sec_2652 provides that if under sec_2513 one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of such individual such gift shall be so treated for purposes of this chapter sec_26_2652-1 provides that in the case of a transfer with respect to which the donor’s spouse makes an election under sec_2513 to treat the gift as made one-half by the spouse the electing spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor regardless of the interest the electing spouse is actually deemed to have transferred under sec_2513 the donor is treated as the transferor of one-half of the value of the entire property 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 under sec_2632 if an individual makes a direct_skip transfer during his or her lifetime any unused portion of such individual’s gst_exemption is automatically allocated to the property transferred to the extent necessary to make the inclusion_ratio zero under sec_2612 the term direct_skip means a transfer subject_to tax imposed by chapter or of an interest in property to a skip_person sec_26_2632-1 provides in part that an automatic allocation of gst_exemption is effective as of the date of the transfer to which it relates a form_709 need not be filed to report an automatic allocation sec_2632 provides that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero sec_2632 provides that for purposes of sec_2632 the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by plr-135592-18 chapter made to a gst_trust sec_2632 provides in part that the term gst_trust means a_trust that could have a generation-skipping_transfer with respect to the transferor unless the exceptions enumerated in i through vi apply sec_2642 provides in part 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 in this case each child’s trust is a gst_trust for purposes of sec_2632 settlor and spouse timely filed form sec_709 for year year year and year signifying their consent to treat the gifts made in each of year year year and year to each child’s trust as having been made one-half by each spouse under sec_2513 accordingly under sec_2652 settlor and spouse will be treated as the transferor of one-half of the value of the entire property transferred to each child’s trust in year year year and year based on the facts presented and the representations made we rule that the automatic allocation rules under sec_2632 apply to allocate settlor’s and spouse’s gst_exemption to one-half of the transfers of property made to each child’s trust in each of year year year and year grandfather and grandmother timely filed form sec_709 for year and year signifying their consent to treat the gifts made in each of year and year to each child’s trust as having been made one-half by each spouse under sec_2513 accordingly under sec_2652 grandfather and grandmother will be treated as the transferor of one-half of the value of the entire property transferred to each child’s trust in year and year based on the facts presented and the representations made we rule that the automatic allocation rules under sec_2632 apply to allocate grandfather’s and grandmother’s gst_exemption to one-half of the transfers of property made to each child’s trust in each of year and year in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-135592-18 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely lorraine e gardner lorraine e gardner senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc


internal_revenue_service p o box cincinnati oh number release date date department of the treasury employer_identification_number contact person - id number contact telephone number legend uil x program name y b c dollars dollar amount location quantity dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures will not be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 description of your request your letter indicates you will operate a scholarship program called x your purpose is to advance religion and education the purpose of x them become christian role models and to support the outreach of bettering the community with a foundation of christian ideals is to assist individuals in pursuing an advanced education that will help letter catalog number 58263t you intend to annually award b scholarships for c dollars you may change this amount over time depending on your available funds and other factors funds may be used for tuition books and supplies and other qualified expenses as specified by irs guidelines scholarships will generally be limited to y but applications from other locations throughout the united_states might be considered if the applicants present a compelling basis for you to do so such as exemplary education goals extraordinary capacities extreme need and other unusual circumstances the scholarships will be publicized through universities community colleges high schools internet scholarship sites and other venues as necessary to find the best applicant pool applications may be requested by emailing you and then the details of the application requirements and the application will be sent eligible applicants are high school graduates including current or former under graduate or graduate students or high school graduating seniors pursuing a post secondary degree in an accredited school applying high school seniors must provide verification of their graduation before receiving any scholarship funds a focus on religious study is not a requirement you will not discriminate on the basis of gender race ethnicity or any other basis provided by applicable law applicants must complete a detailed application form including information on volunteer extra curricular activities and work experience applicants must also complete two essays and provide information concerning their financial need applications must be submitted to you by either postal mail or e-mail no later than the beginning of may for awards given in june the scholarship selection committee will consist of your three board members any changes to the selection committee will require approval from your directors members of the selection committee and their relatives will not be able to apply for the scholarships recipients will be selected based on their comparative worthiness their financial need and their demonstrated historic and intended christian pursuits and aspirations specific selection criteria consist of the following m a p a academic history including prior degrees and grade point average gpa church relationships and history work experience volunteer and extracurricular activities financial need written essay that covers - applicant's history of faith and meaning to the applicant - applicant’s future plans including christian goals and aspirations - applicant's assessment of his her perceived call to future activities letter catalog number 58263t applications will be ranked on a scale of with being the highest you will reduce the number of applications being considered to two times the number of awards to be given by comparing the combined scores for the above categories except financial need you will review these applications in a final meeting to select the award recipients you will then consider financial need when two or more applications are very similar to insure an unbiased selection process initial reviews of the applications will not include names of applicants in addition the identity of the applicants will not be disclosed until after the scholarship recipients are selected scholarship recipients will be required to reapply each year for the scholarship scholarship awards are given directly to the recipient you will inform recipients in ample time for the recipients to plan for their ensuring term ordinarily not later than the end of june in preparation for a fall semester enrollment recipients must sign a scholarship agreement before any funds are disbursed the agreement states the recipients warrant e e e e they are currently enrolled or have been accepted and intend to enroll by a certain date as full time students at an educational_institution they will be taking a minimum of credit hours they agree to forfeit and return to you the full amount of scholarship funds within days of failure to enroll or upon withdrawal or dismissal from the educational_institution they will submit a report of their academic progress at the end of the term during which the funds were disbursed the recipients will provide copies of all receipts and other documents to substantiate legitimate expenses expenditures recipients will also be asked to sign complete and return a receipt within days stating that they have received the award and how the award has been or will be spent if you learn or suspect that the scholarship funds have been misused you will contact the student verbally and in writing to review the provisions of the scholarship agreement attention will be called to paragraph of the agreement in which the recipient agrees to use the funds to defray educational expenses such as tuition fees books and supplies to the extent funds are used for living_expenses or otherwise the recipient understands these amounts will be returned to you and that any unreturned amounts are taxable to the recipient you will also inform the recipient you reserve the right to inform the school of the recipient’s refusal to abide by the scholarship agreement any funds used by the student for non-legitimate expenses will be returned to you you will obtain legal counsel to review options for recovering misused funds you will maintain case histories of the recipients including names addresses phone numbers the date and amount of the scholarship and the use of funds distributed letter catalog number 58263t finally the selection committee will review the recipients’ reports for improving the selection process to help ensure the most deserving applicants receive your funds basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 a ii e other conditions that apply to this determination e e e e e e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the of exempt_organizations at internal_revenue_service exempt_organizations determinations you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary letter catalog number 58263t we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely kenneth corbin acting director exempt_organizations letter catalog number 58263t


internal_revenue_service department of the treasury index numbers number release date washington dc person to contact telephone number refer reply to cc dom p si -- plr-100603-00 date apr legend partnership agency project x y dear this letter responds to your authorized representative’s letter dated date submitted on behalf of partnership and agency 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 partnership did not make a proper election for project under sec_42 for its taxable_year ending on y sec_42 provides that the term qualified_low-income_housing_project means 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 plr-100603-00 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 sec_42 if percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income is percent or less of area_median_gross_income any election under sec_42 once made shall be irrevocable sec_301_9100-7t of the temporary income_tax 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 1st 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 therefor 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 under sec_1_42-1t a taxpayer is required to complete the form_8609 on which a housing_credit_agency made the applicable housing_credit allocation and submit a copy of such form_8609 with its federal_income_tax return for each year in the compliance_period 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 regulatory 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 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 plr-100603-00 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 this case good cause has been shown and the requirements of sec_301_9100-1 and sec_301_9100-3 have been met accordingly based on the above law and the representations submitted partnership is granted an extension of time to make the election under sec_42 for project partnership filed an amended partnership return on x consequently partnership must mail a copy of this letter within days from the date of this letter to the service_center where it filed its return to associate this letter with its amended_return in addition a copy of this letter along with a copy of the election on form_8609 low-income_housing_credit allocation certification should be sent to the district_director a copy of this letter is enclosed for this purpose 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 partnership’s low-income_housing project otherwise qualifies for the low-income_housing tax_credit under sec_42 this ruling is directed only to 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 partnership's authorized legal_representative sincerely yours s paul f kugler paul f kugler assistant chief_counsel passthroughs and special industries enclosure copy


internal_revenue_service number release date index number --------------------------- ----------------------------- ------------------------------ -------------- -------------- ------------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc ita b04 plr-143840-05 date date legend taxpayer ------------------------------------------- b ------------------------------------ dear ------------------- this letter concerns ltr plr-129030-04 issued to taxpayer on date in ltr the internal_revenue_service service concluded that taxpayer’s payment to b under an agreement is included in b’s gross_income as ordinary_income under sec_61 and sec_64 of the internal_revenue_code in addition the service concluded that the payment from taxpayer to b under the agreement is an ordinary and necessary business_expense deductible under sec_162 in a telephone conversation with your authorized representative we informed you of our intention to revoke the letter_ruling the purpose of this letter therefore is to revoke ltr because it is not in accord with the views of the service if a letter_ruling is revoked or modified the revocation or modification applies to all taxable years open under the statute_of_limitations unless the service uses its discretionary authority under sec_7805 to limit the retroactive effect of the revocation or modification under sec_7805 the secretary_of_the_treasury or_his_delegate may prescribe the extent if any to which any ruling relating to the internal revenue laws shall be applied without retroactive effect for the reasons discussed below ltr is revoked with retroactive effect if however you wish to request that retroactivity be limited under sec_7805 you may submit your request in accordance with section dollar_figure of revproc_2005_1 2005_1_irb_48 to our office we will give such request careful consideration and you will be given the opportunity for a conference of right plr-143840-05 section dollar_figure of revproc_2005_1 provides that except in rare or unusual circumstances the revocation of a private_letter_ruling will generally not be applied retroactively to the taxpayer for whom the letter_ruling was issued or to a taxpayer whose liability was directly involved in the letter_ruling provided there has been no change in the applicable law the letter_ruling was originally issued for a proposed transaction and the taxpayer directly involved in the letter_ruling acted in good_faith in relying on the letter_ruling and revoking or modifying the letter_ruling retroactively would be to the taxpayer’s detriment in the present case it is our view that ltr was not issued in connection with a proposed transaction as provided in section dollar_figure of rev_proc a taxpayer is not protected against the retroactive revocation of a letter_ruling involving a transaction completed before the issuance of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative if you have any questions please contact -------------------------of our office at -------------------- sincerely michael j montemurro branch chief branch income_tax accounting


id office uilc cca-628162-10 ------------------------- number release date from ---------------------- sent monday date pm to --------------------- cc ----------------------------- subject re fts are a subsidy do we allow a deduction ---------- hi ----------- sec_901 provides that a tax used to provide a subsidy is not treated as a tax for purposes of title_26 if the payments are not a tax they are not deductible under sec_164 and deduction is not disallowed under sec_275 rather the taxpayer would have to make an independent justification for deducting the tax_payments under another code provision please feel free to give me a call if you’d like to discuss thanks -----


t c memo united_states tax_court robert r and barbara a teuscher petitioners v commissioner of internal revenue respondent docket no filed date larry d harvey for petitioners randall l preheim for respondent memorandum opinion vasquez judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the year in issue after a concession the sole issue for decision is whether petitioners can exclude from income wages earned during from working in antarctica background at the time they filed the petition petitioners resided in silver city new mexico during petitioners performed services at mcmurdo station in ross island antarctica on their federal_income_tax return petitioners excluded wage income earned and received during for services performed in antarctica i summary_judgment discussion rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact and that the legal issues presented by the motion may be decided as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law respondent concedes that no penalty pursuant to sec_6662 is due from petitioners for ii in general sec_61 provides that gross_income means all income from whatever source derived accordingly citizens of the united_states generally are taxed on income earned outside the geographical boundaries of the united_states unless the income is specifically excluded from gross_income 117_tc_95 affd sub nom 68_fedappx_44 9th cir affd sub nom 357_f3d_1108 10th cir exclusions from income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion id iii sec_911 in 126_tc_89 473_f3d_790 7th cir arnett ii we addressed the arguments made by the parties herein regarding sec_911 the u s court_of_appeals for the seventh circuit agreed with our analysis of sec_911 and affirmed our conclusion that antarctica is not a foreign_country pursuant to sec_911 and the regulations thereunder arnett v commissioner f 3d pincite we shall not repeat our analysis from arnett i herein we follow our analysis and holding in arnett i and the analysis and holding of the court_of_appeals in arnett ii in 126_tc_89 affd 473_f3d_790 7th cir we concluded our opinion with a continued iv conclusion accordingly for the reasons stated in arnett i arnett ii and herein we conclude that petitioners cannot exclude from gross_income wages earned during from working in antarctica to reflect the foregoing an appropriate order and decision will be entered continued citation of sec_863 suggesting that sec_863 provided an additional reason to rule against the taxpayer id pincite see also sec_863 providing that income earned in antarctica by a u_s_person is sourced in the united_states in arnett v commissioner f 3d pincite the u s court_of_appeals for the seventh circuit addressed sec_863 in greater detail stating at the outset we think that it is important to note that considering antarctica not to be a foreign_country is compatible with the general statutory scheme notably sec_911 is found under subtitle a chapter subchapter_n of the irc which is designated tax based on income from sources within or without the united_states part i of this subchapter entitled source_rules and other general rules relating to foreign_income deems any activity in antarctica to be space_or_ocean_activity in turn the united_states is designated the source country of income from such activity when earned by a citizen_of_the_united_states sec_863 although this provision does not provide a definitive answer as to whether antarctica is a foreign_country it supports the conclusion that sec_911 is not intended to apply to income earned for services provided in antarctica we take this opportunity to state our agreement with the court of appeals’ conclusion set forth above see also 450_us_1


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 b02 plr-149699-11 date march legend legend x --------------------------------------------------- ---------------------- y ------------------------------------------------------------------- date ------------------ country --------- dear ----- ---------- this is in response to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting that the service grant x an extension of time under sec_301_9100-1 of the procedure and administration regulations to elect to treat y as a disregarded_entity for federal tax purposes according to the information submitted x is a domestic_corporation on date x formed y under the laws of country x represents that it always intended to elect to treat y as a disregarded_entity effective date however x failed to timely file form_8832 entity classification election to elect to treat y as a disregarded_entity for federal tax purposes effective date sec_301_7701-3 provides in part 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 an eligible_entity with a single owner plr-149699-11 can elect to be classified as an association or disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes unless the entity elects otherwise a foreign eligible_entity is treated as an association if all members have limited_liability a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules under c sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the election filing_date or more than months after the election filing_date sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards by which the commissioner will determine whether to grant an extension of time to make an election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 describes the conditions under which the commissioner will grant requests for relief 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 granting relief will not prejudice the interests of the government based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly y is granted an extension of days from the date of this letter to elect to be classified as a disregarded_entity for federal tax purposes effective date the elections should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to each election this ruling is contingent on x filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief in this letter to the extent appropriate these returns must include but are not limited to form_8858 information_return of u s persons with respect to disregarded entities such that the forms and returns reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or plr-149699-11 referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to x's authorized representative sincerely charlotte chyr senior technician reviewer branch office of the associate chief_counsel passthroughs special industries cc


internal_revenue_service number release date index number ------------------------------- -------------------------------------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ----------------- telephone number ---------- refer reply to cc psi plr-128555-09 date date --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------- legend trustors original trust trust trust d trust e trust f trust g trustee successor trustee a b c d e f g h i j k l m court court settlement --------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- --------------------------- -------- --------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ --------------------------------------------------------------------------------- ---------------------------- -------------- ----------------------------- ---------------------------- ------------------------------ --------------------------- ---------------------- -------------------------- ------------------------ ----------------------------- ----------------------------- --------------------- ---------------------- ------------------------------ ------------------------- ----------------------------------------------------------- ------------------------------------------------------ -------------------------------------------------------------- plr-128555-09 agreement state date date year year state statute state statute dear ----------------- ------------ --------------------------- ---------------- ------- ------- ----------------------------------------- ---------------------------------------------- this letter responds to your submission dated date requesting rulings on the income gift and generation-skipping_transfer_tax consequences of the proposed division of a_trust the facts submitted and the representations made are as follows on date in year which is prior to date trustors created an irrevocable_trust original trust for the benefit of the issue of a b and c ie their grandchildren and grandchildren’s issue a b and c are trustors’ children and are each referred to as the primary descendant on date pursuant to a settlement agreement court ordered original trust severed into three separate and equal trusts a_trust for the benefit of the issue of a a_trust for the benefit of the issue of b and a_trust for the benefit of the issue of c the trust created for the benefit of the issue of a_trust is the subject of this ruling date is prior to date trustee is the corporate trustee and currently the sole trustee of trust trust’s terms are identical to the terms of original trust except that where original trust refers to the issue of primary descendant each reference means solely the issue of a and the lineal_descendants of such issue the trustee of original trust received a ruling from the internal_revenue_service service concluding that the date division would not cause original trust or trust to lose its status as exempt from the generation-skipping_transfer_tax and that distributions from either trust would not be subject_to the generation-skipping_transfer_tax a has four children d e f and g and six grandchildren h i j k l and m trustors are deceased a is alive the pertinent terms of original trust and trust are as follows section ii requires the trustee to distribute trust income at least annually to the issue of the primary descendant provided however the trustee may accumulate trust income if plr-128555-09 it determines it is in the best interests of the beneficiaries after giving full consideration to the capital_gain throwback_rules contained in sec_669 of the internal_revenue_code as then in effect after the death of the primary descendant and all of his or her lineal_descendants the trustee must distribute income to trustors’ lineal_descendants in such proportions as determined by trustee in its sole discretion the trustee also has discretion to distribute principal to the primary decedent’s issue and upon the death of the primary descendant’s issue to the lineal_descendants of trustors pursuant to section iii trust unless terminated sooner will terminate immediately prior to the expiration of twenty-one years from and after the death of the last survivor of trustors and the issue of trustors’ parents living on date upon termination the trustee shall distribute the principal in equal proportions outright and free of trust to the persons then entitled to receive the net_income thereof or if no such persons exist then to trustor’s heirs section vi subsection b provides that trust is irrevocable and prohibits any portion of the trust principal or income to revert to trustors or trustors’ estates section vii subsection i provides that the corporate trustee may be removed by a majority vote of the individual trustees and the corporate trustee may resign by serving notice to a majority of the individual trustees if the corporate trustee ceases to be a trustee a successor corporate trustee must be named section vii subsection g states that trust is a contract under state law the assets of trust consist of cash marketable_securities a limited_partnership_interest and real_property when trust was created upon the division of original trust d e f and g requested trustee create four separate sub-accounts for each of the siblings and their respective descendants so that the assets other than the real_property could be separately managed accordingly since year except for the management of the real_property interests held by trust trustee has kept separate sub-accounts for each family line since trust’s inception in year a dispute arose among d e f and g regarding the administration of trust trustee petitioned court for instructions on whether state law authorizes trustee to divide trust to create a separate share for e and her lineal_descendants d f and g filed a complaint with court seeking to remove trustee as trustee of trust to end the litigation the parties entered into settlement agreement under the terms of settlement agreement trust will be divided into four separate trusts trust d a_trust for the benefit of d and her lineal_descendants trust e a_trust for the benefit of e and her lineal_descendants trust f a_trust for the benefit of f and her lineal_descendants and trust g a_trust for the benefit of g and his lineal_descendants collectively the separate trusts each separate trust has identical terms as trust except that plr-128555-09 where trust refers to the issue of the primary descendant and such issue’s lineal_descendants as beneficiaries such reference shall mean solely the particular family line for whom the separate trust is established each trust will receive a non-pro rata equal share of trust assets consisting of the assets held in that family member’s sub-account and one-fourth of all other assets except real_property not held in a sub-account trustee will partition the real_property pursuant to the parties’ agreement trust e will receive a fee simple interest that has an estimated value equal to one-fourth of the value of all of the real_property owned by trust and trusts d f and g will hold three-fourths of the value of all of the real_property owned by trust as tenants-in-common any outstanding line of credit from trustee’s institution will be satisfied by trust prior to the division any other debts of trust will be apportioned amongst separate trusts equally settlement agreement will be approved upon receipt of a favorable ruling from the service and the filing of an amended petition in court trustee will continue as trustee of trust e and successor trustee will serve as the corporate trustee and sole trustee of trusts d f and g state statute authorizes a trustee of a state trust to combine or divide a_trust provided that the trustee gives notice to the qualified beneficiaries and if the result does not impair rights of any beneficiary or adversely affect achievement of the purposes of the trust under state statute when distributing trust property or terminating or dividing a_trust a trustee has a power to make distributions in divided or undivided interests allocate particular assets in proportionate or disproportionate shares value the trust property for those purposes and adjust for resulting differences in valuation trustee represents that no additions have been made to the corpus of original trust or trust after date trustee successor trustee and the beneficiaries of trust d e f g h i j k l and m request the following rulings the proposed modification and division of trust into separate trusts constituting four separate and equal shares of trust the non-pro rata transfer of assets from trust to each such separate trust and the change_of trustees with respect to any such separate trust will not constitute an addition to or a modification of trust or any of the four separate trusts that would cause trust or any separate trust to lose wholly or partially its exempt status under sec_2601 and will not subject distributions from trust or any of the separate trusts to the generation-skipping_transfer_tax furthermore each separate trust will constitute a separate trust for purposes of determining the application of any generation-skipping_transfer_tax subsequent to the division of trust plr-128555-09 the proposed non-pro rata distribution of the assets of trust to the four separate trusts on an equal basis will not result in the realization of gain_or_loss to trust or to any separate trust or any beneficiary thereof under sec_61 or sec_1001 the proposed division of trust and non-pro rata distributions of assets to such separate trusts will not result in a transfer subject_to gift_tax under sec_2501 by trust or any of trust’s beneficiaries the basis of each asset received by each separate trust from trust will be the same as the basis which that asset maintained when held by the trust pursuant to sec_1015 the holding_period for each asset received by each separate trust from trust will include the same holding_period for that asset as held by trust according to sec_1223 each of the four separate trusts will constitute a separate trust for purposes of sec_643 ruling sec_2601 of the internal_revenue_code code 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 under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax provisions do not apply to any gst_trust as defined in sec_2652 that was irrevocable on date but only to the extent that the transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 b or b will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes they do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 under sec_26_2601-1 a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b i a b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust plr-128555-09 to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst or the creation of a new gst a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust see sec_26 b i e example in this case original trust was irrevocable on date the service ruled that the division of original trust did not cause original trust or trust or distributions from either to be subject_to gst tax it has been represented that there have been no additions made to either original trust or trust after date in the instant case trustee has authority under state law to divide trust into separate trusts trustee has discretion to make non-pro rata distributions to the beneficiaries and trust provides for the resignation of trustees and appointment of successor trustees to end litigation the parties executed settlement agreement in which trust will be divided into separate trusts trusts d e f and g and assets will be allocated equally in a non-pro rata fashion to each separate trust further successor trustee will serve as trustee of trusts d f and g the division of trust into separate trusts will not shift a beneficial_interest in the separate trusts to any beneficiary who occupies a lower generation as defined in sec_2651 than the person who held the beneficial_interest prior to the division it will also not postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of the trust extending beyond the life of any issue of trustors in being at the date of creation of original trust plus a period of years accordingly based on the facts submitted and representations made we rule that the proposed modification and division of trust into separate trusts and the non-pro rata transfer of assets from trust to each such separate trust will not constitute an addition to or a modification of trust or any of the four separate trusts that would cause trust or any separate trust to lose wholly or partially its exempt status under sec_2601 and will not subject distributions from trust or any of the separate trusts to the gst tax the change_of corporate trustee for trusts d f and g is administrative in nature and is not considered to shift a beneficial_interest in trust accordingly based upon the facts submitted and the representations made we rule that the change_of corporate trustee will not constitute an addition to or a modification of trust or any of the separate trusts that would cause trust or any separate trust to lose wholly or partially its exempt status under sec_2601 and will not subject distributions from trust or any of the separate trusts to the gst tax furthermore based on the facts provided and the representations made we rule that plr-128555-09 the four separate trusts will constitute a separate trust for the purposes of determining the application of any gst tax subsequent to the division of trust ruling sec_61 defines gross_income as all income from whatever source derived under sec_61 gross_income includes g ains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the entire amount of gain_or_loss must be recognized except as otherwise provided sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained under sec_1_1001-1 the severance of a_trust occurring on or after date is not an exchange of property for other_property differing materially either in_kind or in extent if i an applicable_state_statute or the governing instrument authorizes or directs the trustee to sever the trust and ii any non-pro rata funding of the separate trusts resulting from the severance whether mandatory or in the discretion of the trustee is authorized by an applicable_state_statute or the governing instrument in the present case trust will be severed into four separate trusts on a non-pro rata basis the operating provisions of the separate trusts are the same as those of trust the proposed severance of trust is authorized under state law original trust and trust contain no provision contrary to the state law therefore the proposed severance is consistent with the criterion set forth in sec_1_1001-1 for an exchange of property for property not materially different in_kind or in extent under state law in terminating or dividing a_trust a trustee may make non-pro rata distributions in addition under the terms of original trust and trust the trustees are authorized to distribute trust principal or income on a non-pro rata basis the proposed non-pro rata severance of trust is authorized both under state law and under the terms of the trust accordingly the non-pro rata funding of separate trusts is consistent with the criterion set forth in sec_1_1001-1 for an exchange of property for property not materially different in_kind or in extent the severance of a_trust occurring on or after date is not an exchange of property for other_property differing materially in_kind or in extent if the severance plr-128555-09 satisfies the criteria set forth in sec_1_1001-1 the proposed severance of trust satisfies those criteria accordingly based on the facts provided and the representations made we rule that the severance does not constitute an exchange of property for other_property differing materially in_kind or in extent under sec_61 and sec_1001 ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by an individual resident or nonresident sec_2511 provides that subject_to certain limitations the gift_tax applies whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift will be considered the amount_of_the_gift sec_2512 states that where property is transferred for less than adequate_and_full_consideration in money or money’s worth the amount by which the value of the property exceeds the value of the consideration received shall be deemed a gift based on the facts submitted and the representations made the beneficial interests of the trust beneficiaries will not change as a result of the division of trust as described above accordingly based upon the facts provided and the representations made we rule that the division of trust into separate trusts will not cause trust or any beneficiary of trust to have made a taxable gift_for federal gift_tax purposes under sec_2501 ruling sec_1015 states that the basis in property acquired by a transfer in trust is the same as it would be in the hands of the grantor with adjustments for gain and loss recognized sec_1_1015-2 provides that in the case of property acquired after date by a transfer in trust other than a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased by the amount of gain or decreased in the amount of loss recognized to the grantor under the law applicable to the year in which the transfer was made sec_1_1015-2 applies the uniform basis principles in sec_1_1015-1 for determining basis_of_property where more than one person acquires an interest in property by transfer in trust under sec_1_1015-1 property acquired by gift has a single uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 plr-128555-09 in this case neither sec_1001 nor sec_61 applies to the proposed transaction thus based upon the facts provided and the representations made we rule that the basis of each asset received by each separate trust will be the same as the basis of the assets in trust ruling under sec_1223 the taxpayer's holding_period for property however it is acquired includes the period for which the property was held by any other person if for the purpose of determining gain_or_loss from a sale_or_exchange the property has the same basis in whole or in part in his hands as it would have in the hands of the other person under sec_1015 the basis in each asset is the same in the hands of each separate trust as it is in the hands of trust accordingly based upon the facts provided and the representations made we rule that under sec_1223 the holding_period for each asset received by each separate trust from trust will include the period that the asset was held by trust ruling sec_643 provides that under regulations prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and the principal purpose of such trusts is the avoidance of the tax_imposed_by_chapter_1 of the code section b of the tax_reform_act_of_1986 provides that in the case of a_trust which was irrevocable on date sec_643 shall apply only to that portion of the trust which is attributable to a contribution to corpus after date sec_643 provides that in the case of any distribution_of_property other than cash to which an election under sec_643 applies i sec_643 does not apply ii gain_or_loss is recognized by the trust in the same manner as if such property has been sold to the distributee at its fair_market_value and iii the amount taken into account under sec_661 and sec_662 shall be the fair_market_value of such property sec_643 provides that an election under sec_643 applies to all distributions made by the trust during a taxable_year and is made on the return of the trust for such taxable_year sec_661 provides that in any taxable_year a deduction is allowed in computing the taxable_income of a_trust other than a_trust to which subpart b applies for the sum of plr-128555-09 the amount of income for such taxable_year required to be distributed currently and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year but such deduction shall not exceed the distributable_net_income dni of the estate_or_trust sec_1_661_a_-2 of the income_tax regulations provides that gain_or_loss is realized by the trust or estate or the other beneficiaries by reason of a distribution_of_property in_kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount of specific property other than that distributed or of income as defined under sec_643 and the applicable regulations if income is required to be distributed currently based on the facts and representations submitted we conclude that as long as the four resulting trusts created by the division of trust are each separately managed and administered they will be treated as separate trusts for federal_income_tax purposes based solely on the facts submitted and the representations made we conclude that the division will not be viewed as a distribution or termination under sec_661 nor as a distribution for purposes of sec_1_661_a_-2 and therefore will not result in the realization by trust or separate trusts or by any beneficiary of trust or separate trusts of any income gain_or_loss furthermore we conclude that trust’s distribution of assets to four separate trusts occurring as part of the proposed division will not cause trust or its beneficiaries to realize gain_or_loss provided that trust does not make an election under sec_643 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely plr-128555-09 lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no -------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc psi b04 plr-105324-11 date july internal_revenue_service number release date index number ----------------- ------------------------ ------------------------ re --------------------------------- ---------------- legend ------------------------------------------------------- residuary_trust ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- decedent spouse son attorney law firm accountant accountant year date date date date date date date state court ----------------------------------------------- state statute -------------------------- --------------------------------------------- --------------------------------- --------------------- -------------------------------------------- -------------------- --------------------- ------- --------------------- ----------------------- --------------------------- --------------------------- --------------------------- ------------------------- --------------------------- -------- ----------------------------------------------------------- --------------------------------------------- dear --------------------- plr-105324-11 this letter responds to your authorized representative’s letter of date requesting rulings on federal gift and estate_tax consequences of a judicial modification of a_trust the facts submitted are as follows decedent died on date survived by spouse under the terms of decedent’s will residuary_trust was established for the benefit of spouse during her life son is the sole trustee of trust residuary_trust is governed by the laws of state article of trust provides that if spouse survives decedent then the residuary_estate is to be divided into two separate trusts marital trust and residuary_trust article 5b contains provisions for the payment and distribution of residuary_trust specifically article 5b paragraph payment of income and principal to wife provides as follows the trustee shall pay to or apply for the benefit of my wife during her lifetime all of the net_income of the residuary_trust in monthly or in other convenient installments but not less often than annually if at any time my wife should become insane or incompetent and my wife should be in need of additional funds for her proper care maintenance and support the trustee in addition to the income payments provided in paragraph shall in his discretion pay to or apply for the benefit of my wife any amounts from the principal of the residuary_trust up to the entire amount of the residuary_trust as the trustee deems advisable paragraph dollar_figure continues hereinafter the withdrawal right paragraph my wife shall have the right from time to time to direct the trustee to pay to her or apply for her benefit such amounts from or portions of the principal of the residuary_trust up to the entire amount of the residuary_trust as she may designate in an instrument or instruments in writing delivered to the trustee in my wife’s lifetime the trustee shall comply with any such written directions and shall have no responsibility whatsoever to inquire into or determine for what purpose any such appropriations are made paragraph dollar_figure provides generally that upon the death of spouse trust will continue to be administered as one trust but the trustee will divide trust into equal shares one share for each child of decedent’s then living and one share for any deceased child to be subdivided into subshares for the deceased child’s descendants in the fall of year prior to decedent’s death decedent and spouse met with attorney to prepare their estate plan decedent and spouse expressed their desire that plr-105324-11 their estate plan be drafted to avoid the maximum amount of federal_estate_taxes when the property passed to their children on date attorney mailed a draft of the will draft will to accountant requesting a letter from him confirming that the draft will would allow decedent’s and spouse’s estates to avoid the maximum amount of federal_estate_taxes when their property passed to their children in the draft will article 5b paragraph dollar_figure provided as follows the trustee shall pay to or apply for the benefit of my wife during her lifetime all of the net_income of the residuary_trust in monthly or in other convenient installments but not less often than annually if at any time in the discretion of the trustee my wife should be in need of additional funds for her proper maintenance and support then the trustee in addition to the income payments shall in his discretion pay to or apply for the benefit of my wife such amounts from the principal of the residuary_trust up to the entire amount of the residuary_trust as the trustee from time to time deems advisable the withdrawal right paragraph was not a part of the draft will as a result when accountant responded to attorney on date he confirmed that the draft will would allow decedent and spouse to avoid the maximum amount of federal_estate_taxes when their property passed to their children subsequent to attorney’s receipt of the letter from accountant but before decedent executed his will attorney added the withdrawal right paragraph to the draft will on date attorney met with decedent and spouse to review the changes to the will after the meeting spouse delivered an unsigned copy of the will to accountant for his review while spouse waited accountant reviewed the will and prepared a letter dated date that stated that the family_trust would pass through without tax later that day spouse returned with the letter from accountant and decedent executed the will as of date on or about date spouse was advised by her new attorneys at law firm that the withdrawal right paragraph of article 5b paragraph as added by attorney would cause the assets of residuary_trust to be included in spouse’s gross_estate for estate_tax purposes in affidavits spouse attorney and accountant represent that it was decedent's and spouse's intent to minimize estate_taxes when their property passed to their children accordingly residuary_trust should have been drafted to ensure that the assets in residuary_trust would not be included in the gross_estate of spouse and spouse would not have any property or other rights to the trust property that would cause the assets to be included in spouse's gross_estate upon spouse’s death plr-105324-11 in order to correct the error in residuary_trust and to accurately reflect the intent of decedent on date spouse filed a petition with court seeking to modify residuary_trust on date court issued its judgment and order to reform trust order order reformed residuary_trust by deleting article 5b paragraph dollar_figure of decedent’s will and replacing it with a new paragraph dollar_figure which reads as follows the trustee shall pay to or apply for the benefit of my wife during her lifetime all of the net_income of the residuary_trust in monthly or in other convenient installments but not less often than annually if at any time my wife should be in need of additional funds for her proper care maintenance and support the trustee in addition to the income payments provided in paragraph shall in his discretion pay to or apply for the benefit of my wife any amounts from the principal of the residuary_trust up to the entire amount of the residuary_trust as the trustee deems advisable for such purposes the order reformed residuary_trust retroactive to decedent’s date of death you have requested the following rulings as a result of the judicial reformation of residuary_trust spouse does not possess a general_power_of_appointment under sec_2041 over the assets of residuary_trust and thus the assets of residuary_trust will not be included in spouse’s gross_estate for federal estate_tax purposes upon her death under sec_2041 the judicial reformation of residuary_trust will not be treated as the exercise or release of a general_power_of_appointment of spouse under sec_2514 that constitutes a gift_for federal gift_tax purposes and spouse will not be treated as making a gift under sec_2501 ruling sec_2001 provides that a tax is imposed on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2031 provides generally that the value of the gross_estate of the decedent shall be determined by including to the extent provided for in sec_2031 through the value at the time of his death of all property real or personal tangible or intangible wherever situated sec_2041 provides that the value of the gross_estate includes the value of all property to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power plr-105324-11 of appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive for purposes of sec_2041 the power_of_appointment shall be considered to exist on the date of the decedent's death even though the exercise of the power is subject_to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise whether or not on or before the date of the decedent's death notice has been given or the power has been exercised sec_2041 provides that for purposes of sec_2041 the term general_power_of_appointment means a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides that the lapse of a power_of_appointment created after date during the life of the individual possessing the power shall be considered a release of such power sec_20_2041-1 of the estate_tax regulations provides in part that a power_of_appointment exercisable to meet the estate_tax or any other taxes debts or charges which are enforceable against the estate is included within the meaning of a power_of_appointment exercisable in favor of the decedent's_estate his creditors or the creditors of his estate state statute provides in part that upon petition of a trustee or beneficiary a court may order that the terms of the trust be modified if the order is necessary or appropriate to achieve the settlor’s tax objectives and is not contrary to the settlor’s intentions state statute further provides that the court will exercise discretion to order a modification or termination in a manner that conforms as nearly as possible to the probable intention of the settler in 387_us_456 the court considered whether a state trial court's characterization of property rights conclusively binds a federal court or agency in a federal estate_tax controversy the court concluded that the decision of a state trial_court as to an underlying issue of state law should not be controlling when applied to a federal statute rather the highest court of the state is the best authority on the underlying substantive rule_of state law to be applied in the federal matter if there is no decision by that court then the federal authority must apply what it finds to be state law after giving proper regard to the state trial court's determination and to relevant rulings of other courts of the state in this respect the federal_agency may be said in effect to be sitting as a state court in this case the documentation submitted by spouse strongly indicates that decedent and spouse did not intend for spouse to have any control_over the assets held in residuary_trust and that the provision in article 5b paragraph dollar_figure of plr-105324-11 residuary_trust that permitted spouse withdrawal rights of principal from the residuary_trust was the result of a scrivener's error in reforming residuary_trust court found that that there was clear_and_convincing evidence of scrivener’s error and that the reformation of residuary_trust was necessary and appropriate to achieve decedent’s tax objectives and that the reformation was not contrary to decedent’s intentions consequently we conclude that the court's order on date modifying the trust instrument based on a scrivener's error is consistent with applicable state law that would be applied by the highest court of that state article 5b paragraph dollar_figure of residuary_trust as modified pursuant to the court's order does not provide spouse with a general_power_of_appointment under sec_2041 over the assets of residuary_trust therefore based on the facts submitted and the representations made we conclude that the value of the assets in residuary_trust will not be included in spouse's gross_estate under sec_2041 upon his death ruling sec_2501 imposes a gift_tax for each calendar_year on the transfer of property by gift during the year by an individual sec_2511 provides that the gift_tax shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that where property is transferred for less than an adequate_and_full_consideration in money_or_money's_worth the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift_for gift_tax purposes sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power for gift_tax purposes sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power his estate his creditors or the creditors of his estate sec_2514 provides that the lapse of a power_of_appointment created after date during the life of the person possessing the power is considered a release of the power sec_25_2514-1 of the gift_tax regulations provides in part that a power_of_appointment exercisable to meet the estate_tax or any other taxes debts or charges which are enforceable against the possessor or his estate is included within the meaning of a power_of_appointment exercisable in favor of the possessor his estate his creditors or the creditors of his estate plr-105324-11 as discussed in the first ruling residuary_trust as modified does not provide spouse with a testamentary general_power_of_appointment accordingly based on the facts submitted and the representations made we conclude that the modification of article 5b section dollar_figure of residuary_trust will not constitute the exercise or release of a general_power_of_appointment by spouse within the meaning of sec_2514 further we conclude that the modification of article 5b paragraph dollar_figure of residuary_trust pursuant to the court’s order will not be treated as a deemed transfer of an interest in residuary_trust by spouse for gift_tax purposes under sec_2501 a copy of this letter should be attached to any gift estate or generation-skipping_transfer_tax returns that you may file relating to these matters 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 taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely ______________________________ leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes