internal_revenue_service number release date index number --------------------------------------- ---------------------------- ----------------------------- 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-135675-16 date date legend decedent spouse date date ------------------------------------------------------ ----------------------- --------------------------- ------------------ dear ------------------ this letter responds to your personal representative’s letter of date and subsequent correspondence requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date the estate discovered its failure to elect portability after the due_date for making the election decedent’s estate represents that the value of decedent’s gross_estate plus his lifetime adjusted_taxable_gifts is less than the basic exclusion amount in the year of the decedent’s death plr-135675-16 decedent’s estate requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-135675-16 sec_20_2010-2 a of the estate_tax regulations provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2 the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted sec_20_2010-2 further provides that an extension of time to elect portability may be available under the procedures applicable under sec_301_9100-1 and sec_301_9100-3 for estates not required to file an estate_tax_return under sec_6018 sec_20_2010-2 provides that the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2 sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date plr-135675-16 decedent’s estate represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void see sec_20_2010-2 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-135675-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries lorraine e gardner by _______________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures


internal_revenue_service number release date index number -------------------------------------- --------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no -------------- telephone number ---------------------- refer reply to cc psi b01 plr-118083-16 date december trust x year year ----------------------------------------------------------------------------------------------------------- ----------- ------------------ ------- ------- dear ------------------- this letter responds to a letter dated date submitted on behalf of trust by its authorized representative requesting that the service grant trust an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make an election under sec_663 of the internal_revenue_code facts trust files its federal_income_tax return on a calendar_year basis trustee of trust made a distribution in the amount of dollar_figurex the distribution within the first sixty-five days of year and intended to have the distribution considered to be paid or credited on the last day of year as permitted under sec_663 however due to inadvertence the sec_663 election was not timely filed law and analysis sec_663 provides that in general if within the first days of any taxable_year of an estate or a_trust an amount is properly paid or credited such amount shall be considered paid or credited on the last day of the preceding_taxable_year sec_663 provides that sec_663 shall apply with respect to any taxable_year of an plr-118083-16 estate or a_trust only if the executor of such estate or the fiduciary of such trust as the case may be elects in such manner and at such time as the secretary prescribes by regulations to have sec_663 apply for such taxable_year sec_1_663_b_-2 of the income_tax regulations provides that if a_trust return is required to be filed for the taxable_year of the trust for which the election is made the election shall be made in the appropriate place on such return the election under sec_1_663_b_-2 shall be made not later that the time prescribed by law for filing such return including extensions thereof such election shall become irrevocable after the last day prescribed for making it sec_301_9100-1 provides that the commissioner may 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 not 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_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 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 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that trust has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly trust is granted an extension of time of days from the date of this letter to file an election under sec_663 the election should be made by filing with the appropriate service_center income_tax returns for year and year as necessary to include the election and properly report the tax consequences of the distribution in a manner consistent with the election having been made a copy of this letter should be attached to the returns except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code plr-118083-16 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to trust's authorized representative sincerely faith p colson faith colson senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division legend of ik fi aa ite- pm 00-0v taxpayer a company p sum n ira x ira y individual m dear this is response to a letter dated date as supplemented by letters dated date date and date submitted on your behalf by your authorized representative in which you request relief under sec_301_9100-3 of the procedure and administration regulations the regulations’ the following facts and representations have been submitted taxpayer a a single individual maintained ira x a traditional_ira as described in code sec_408 with company p in april taxpayer a converted ira x to ira y a roth_ira as described in code sec_408a also with company p for the conversion based on a modified_adjusted_gross_income of less than dollar_figure taxpayer a reported the deemed income from the conversion in its entirety on his federal_income_tax return taxpayer a has represented that his federal_income_tax return was timely filed at the time of the conversion taxpayer a believed that he qualified in late taxpayer a retained individual m to assist him in preparing amended tax returns for tax years though as a result of individual m’s review and revisions taxpayer a learned that he was not eligible to convert traditional_ira x to ira y on his federal_income_tax return taxpayer a’s request for relief under sec_301 of the regulations was filed with the service prior to the service discovering that taxpayer a was not eligible to convert traditional_ira x to roth_ira y and prior to the service discovering that taxpayer a had not timely elected to recharacterize roth_ira y back to a traditional_ira based on the above facts and circumstances you request the following ruling that pursuant to sec_301_9100-3 of the regulations taxpayer a be granted an extension of time of thirty days from the date of this letter_ruling to recharacterize his roth_ira y back to a traditional_ira with respect to your request for relief under sec_301_9100-3 of the regulations sec_408 of the code and sec_1_408a-5 of the federal_income_tax regulations i t regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira treated as having been made to the transferee ira and not the transferor ira under sec_408 and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filling the taxpayer's federal_income_tax returns for the year of contributions in a recharacterization the ira contribution is sec_1_408a-5 question and answer-6 of the i t regulations describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer's intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer sec_408a of the code provides in relevant part that an individual with adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to make a qualified_rollover_contribution to a roth jra from an individual_retirement_plan other than a roth_ira during that taxable_year sec_1_408a-4 question and answer-2 of the i t regulations provides in summary that an individual with modified_adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to convert an amount to a roth_ira during a taxable_year sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 of the regulations provides that the commissioner of the internal_revenue_service in his discretion may grant a reasonable extension of time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 of the regulations generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control ili if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied upon a qualified_tax professional employed by the taxpayer and the tax professional failed to make or advice the taxpayer to make the election sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section in this case taxpayer a was ineligible to convert his traditional_ira x to roth_ira y since his modified_adjusted_gross_income for exceeded dollar_figure however at the time of the conversion and until he discovered otherwise taxpayer a believed that he was eligible to convert traditional_ira x to roth_ira y taxpayer a timely filed his federal_income_tax return taxpayer a did not learn that he was ineligible to convert traditional_ira x to roth y until therefore it is necessary to determine whether taxpayer a is eligible for relief under the provisions of sec_301_9100-3 of the regulations although taxpayer a was ineligible for the roth_ira_conversion taxpayer a did not learn of such ineligibility until taxpayer a made his request for relief to the service before the service discovered taxpayer a's ineligibility to convert traditional_ira x to roth_ira y the taxable_year is not closed under the statue of limitations with respect to your request for relief we believe that based on the information submitted and the representations contained therein the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been met and that you have acted reasonably and in good_faith with respect to making the election to recharacterize your roth_ira y back to a traditional_ira specifically the service has concluded that you have met the requirements of clause i of sec_301_9100-3 of the regulations therefore pursuant to sec_301_9100-3 of the regulations taxpayer a is granted an extension of days from the date of this letter_ruling to so recharcterize roth_ira y back to a traditional_ira this letter assumes that the above iras qualify under code sec_408 at all relevant times no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representative if you have any questions regarding this ruling please contact at ’ ’ sincerely yours signed joxgs hll joyce e floyd manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


significant index number department of the treasury internal_revenue_service dec 4e tep ralaz a b country c date d1 date d2 date d3 entity e pension_plan and fund f organization o plan r year y1 year y2 dear this is in reply to your request for a ruling concerning the income_tax treatment of annuity benefits receivable by you from pension_plan and fund f we hereby revoke our previous letter to you dated date this ruling letter replaces it completely if b survives you she per year also adjusted for cost of you also elected to have the pension fund transfer to plan r in country your according to the information submitted you became eligible for pension annuity benefits for life commencing on date d1 in the amount of dollar_figure payable monthly and adjusted annually for cost of living will be entitled to annuity payments of dollar_figure living c of the present_value of your contract or dollar_figure annuity benefit was reduced to reflect this distribution from your account you were born date d2 b was born date d3 from year y1 through year y2 you performed services for the entity e an agency of organization o during this time you were a citizen and resident of country c before you retired you contributed dollar_figure _ to the pension fund on date d1 per year pum f these employee contributions were includible in your gross_income over the same period your employer contributed twice that amount to the fund on your account these employer contributions were not includible in your income for the tax purposes of country c neither organization o nor entity e is a u s employer or entity at no time did you perform your services for your employer as a u s resident or within the u s however the pension fund f payments to you arise in the united_states based on the above facts and representations you requested a ruling as to the correct income_tax treatment of the annuity payments as if you were a u s resident international considerations country c may tax its residents on pensions arising in the u s only to under the united_states - country c income_tax treaty the treaty article the extent such payments would be included in u s gross_income if they had been received by a resident of the u s generally pension payments are included in gross_income under sec_72 of the internal_revenue_code_of_1986 the code but sub sec_72 excludes from income that portion of each payment which represents a return of the investment_in_the_contract the employee's own contributions which were includible in his gross_income at the time contributed usually constitute his investment_in_the_contract under sec_862 of the code compensation_for services performed outside of the us is foreign_source_income employer contributions to a pension_plan in respect of personal service performed outside the u s is treated as foreign_source_income u s residents are subject_to u s tax on their worldwide income including foreign_source_income under sec_61 of the code in addition u s residents are taxed on the earnings and accretions component of a distribution from a pension_plan whether the plan's trust is a domestic_trust or a foreign_trust il rules applicable to payments under annuity_contract although your annuity is finally made available to you in country c currency the payments arise within the u s and the amounts payable are first determined in u s currency the following considerations treat the pension as an annuity of u s dollars the amounts excludible for each year with respect to article of the treaty by reason of u s exclusion from income will be the amounts determined under the exclusion rule using u s currency this excludible amount remains fixed in u s currency even though the gross amount received may change because of cost_of_living_adjustments or because of changes in exchange rates each year at the exchange rates in effect at those times it is up to you to convert this u s exclusion amount to country c values sec_72 of the code provides that gross_income does not include that portion of each payment which represents a return of your investment in the uv54 son sy qh a h c contract for any annuity starting at date d1 the general_rule of sec_72 would be applicable for determining the excludible amount however notice_88_118 c b allowed retirees to elect to apply the simplified rule contained therein rather than the general_rule for determining the excludible amount you have elected to use the simplified rule the computation under this rule requires first determining the investment_in_the_contract as of the annuity_starting_date i lump sum payment return of investment sec_72 of the code provides for the treatment of payments received under an annuity_contract but received not as an annuity such as lump sum distributions sec_72 distinguishes different treatments for a lump sum paid before or after the start of an annuity in this case the lump sum was paid on the same day as the annuity_starting_date however the election to receive the lump sum was made before the annuity_starting_date and the annuity rate from the first day of the annuity obligation reflected the reduced account balance resulting from the payment of the lump sum sec_72 provides that if a lump sum is paid from a qualified_plan in connection with the commencement of an annuity it is to be treated as being paid before the annuity_starting_date even if the actual date of its transfer is not before the annuity_starting_date for these purposes your lump sum payment is treated as paid before the start of the annuity under sec_72 if a lump sum payment is paid under a qualified_plan before the start of the annuity that portion of the lump sum payment is excludible from income which bears to the whole payment the same ratio as the investment_in_the_contract bears to the account balance with a defined_benefit_plan an account balance is often not available but we will accept the present_value of your contract as representative of the account balance since your lump sum payment was percent of the present_value of the contract the total present_value of the contract would have been dollar_figure contributions of dollar_figure would be your investment_in_the_contract the ratio of the investment_in_the_contract to the account balance would be percent therefore percent of the lump sum payment or dollar_figure represented a return of your investment after this your remaining investment_in_the_contract would be dollar_figure your employee would have iv annuity payments under the simplified safe_harbor_rule of notice_88_1 the monthly exclusion amount is found by dividing your investment_in_the_contract by a divisor based on your age since your age at the annuity_starting_date was at least age and below age the divisor is considering your situation as if you were a u s resident your contributions to the plan reduced by the tax-free part of the lump sum payment would constitute the remaining investment_in_the_contract therefore your monthly exclusion amount would be dollar_figure dollar_figure this amount would be excludible from gross_income for each annuity_payment received under the contract until the total amount so excluded equaled the remaining investment amount of dollar_figure exempt_amount applicable under paragraph of article this ruling is limited to the issues expressly stated herein we are expressing no opinion as to the taxability or non-taxability of any payments for a nonresident this amount would be the of the treaty or alien you may need to attach a copy of this ruling to the initial tax_return in which you apply the above exclusion rule we are enclosing a copy for your country c tax_return if you have any question concerning this matter please contact d at not a toll-free number or you may contact d at sees also not a toll free number sincerely siyned donne m proetts donna m prestia manager actuarial group rulings agreements technical enclosures copy of this ruling notice deleted copy


t c summary opinion united_states tax_court edralin a pagarigan petitioner v commissioner of internal revenue respondent docket no 15711-09s filed date keith s blair curtis e tatum dominic e markwordt student and gerald loiacano student for petitioner jonathan hauck and tyler n orlowski for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies in petitioner’s federal income taxes of dollar_figure and dollar_figure and sec_6662 accuracy- related penalties of dollar_figure and dollar_figure for and respectively after concessions the issues for decision are whether petitioner’s salary for and from the baltimore county maryland public schools bcps is exempt from federal_income_tax under the convention with respect to taxes on income u s -phil art date u s t article whether petitioner is entitled to deduct dollar_figure for a course she completed in in the philippines to prepare for her teaching at bcps and whether petitioner is liable for the accuracy-related_penalties under sec_6662 for the years at issue background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are 1respondent’s notice_of_deficiency determined that petitioner failed to include a dollar_figure state_income_tax refund and dollar_figure of interest_income in her gross_income petitioner did not address these issues in her petition or at trial therefore the issues are deemed conceded see rule sec_34 sec_149 in addition the parties resolved all matters concerning petitioner’s itemized_deductions for the years at issue except for one expenditure dollar_figure for a course in the philippines incorporated herein by this reference petitioner resided in maryland when she filed her petition petitioner is a citizen of the republic of the philippines in petitioner was married and had three children twins age and a third child age she received a bachelor’s degree in secondary education and a master’s degree in science education from philippine normal university she began her teaching career at st bridget school and then in obtained a teaching position at tarlac college of agriculture tarlac thus petitioner had years of teaching experience when she left the philippines for the united_states in her ending annual salary at tarlac was big_number pesos equivalent to dollar_figure included in this figure are additional benefits that tarlac provided its teachers such as an annual bonus equal to month’s pay a clothing allowance and depending on circumstances a productivity incentive bonus hazard pay and other monetary benefits petitioner entered the united_states on date arriving in baltimore to teach for bcps as part of an international teaching exchange program sponsored by the u s department of state the state department this was the first time she had been to the united_states amity institute amity is a nonprofit organization the state department approved to operate an exchange teacher program the exchange teacher program allows qualified foreign teachers to enter the united_states to teach for up to years amity does not directly recruit teachers from the philippines during and amity worked with badilla corp badilla a business_entity from the philippines and with avenida associates inc avenida a business_entity from the united_states badilla and avenida are affiliated entities who worked together to facilitate the placement of qualified filipino teachers in american schools badilla collected background information such as transcripts and résumés from teachers in the philippines who were interested in the teacher exchange program in the united_states badilla found its prospective filipino teachers principally by word of mouth and seminars conducted by its executives avenida or badilla charged placement fees and additional charges to help teaching candidates with among other tasks finding employers in the united_states in the united_states avenida helped school districts find promising teaching candidates by providing access to a database of overseas jobseekers in late petitioner attended an orientation session for an exchange teacher program badilla sponsored at which time she submitted her application and résumé dr donald a peccia joined bcps in date as the executive director of human resources a position he retained through the date of trial as of the date of trial dr peccia’s department employed people who were responsible for the recruitment retention and rewarding of the school system’s big_number full-time and thousands of part-time and temporary employees extended over schools to meet a shortfall in teachers dr peccia initiated the idea of bcps’ recruiting internationally beginning with a small pilot-type program in the philippines in a letter dated date dr peccia contacted avenida stating that bcps would like to hire or more qualified filipino teachers from a preselected group of filipino teachers bcps administrators chose the candidates that the school system wanted to interview in date herman james and joyce reier personnel officers for bcps traveled to the philippines to interview teaching candidates on date mr james interviewed petitioner mr james and ms reier coordinated with dr peccia and they agreed to hire teachers from the philippines on date mr james provided petitioner with a preliminary bcps contract for the school year petitioner signed the preliminary contract and dated her signature date petitioner understood that bcps would be evaluating her performance throughout the school year if her performance was satisfactory bcps would continue her employment for the following school year generally foreign teachers who want to teach in the united_states may obtain one of two types of visas one is the h-1b visa for working professionals the second is the j-1 visa for individuals coming to the united_states under a cultural exchange program approved by the state department the j-1 visa is more convenient for foreign individuals who are new teachers in the united_states because the visa timing coincides with the academic school year in the united_states badilla referred petitioner to amity who in turn sponsored petitioner’s j-1 visa the state department authorized amity to issue form ds-2019 certificate of eligibility for exchange visitor j-1 status the form identifies the visitor identifies the visa sponsor briefly describes the exchange program including the start and end dates identifies the category of exchange and states the estimated cost of the exchange program at all relevant times gertrude hermann was amity’s executive director badilla invited petitioner and the other teachers who had received employment offers from bcps to meet at badilla’s office in the philippines on date at the meeting badilla provided many completed forms that each teacher needed to sign including an administrative fee agreement amity’s exchange teacher program contract and a form ds-2019 the length of time listed on the form ds-2019 wa sec_3 years the same length as the exchange teacher program badilla reiterated that bcps required satisfactory performance to continue employment beyond the first year petitioner signed the forms and returned them to badilla for processing before leaving the philippines petitioner obtained a leave of absence dated date from her teaching position at tarlac for the duration of the program to teach for bcps petitioner incurred expenses before her departure including training classes in classroom management and special education avienda’s fees and airline tickets petitioner entered the united_states on date on date she signed a standard state-issued provisional contract for conditional or resident teacher certificate holders bcps employment contract effective beginning date the bcps employment contract was for year terminating automatically at the end of the school year during her first month in the united_states petitioner lived in housing in the baltimore area that bcps arranged for the filipino teachers it had recruited bcps assigned petitioner to teach biology and earth science at chesapeake high school after month because of petitioner’s difficulties dealing with high school students bcps reassigned petitioner to teach secondary science at general john stricker middle school stricker the principal of stricker issued an evaluation dated date rating petitioner’s performance as unsatisfactory petitioner received a letter dated date from the area assistant superintendent stating that petitioner needed to show major improvement to continue teaching beyond the school year bcps offered a regular contract to petitioner that she signed and dated date granting her continued employment from year to year so long as she met certain conditions this is another standard state-issued contract under which after years if the teacher met all the requirements of the state including satisfactory performance then the teacher received tenure for the school year bcps assigned petitioner to teach at cockeysville middle school working in the united_states provided petitioner with a salary that was considerably greater than the salary she earned in the philippines which as described supra page was dollar_figure including benefits petitioner’s starting annual salary at bcps was dollar_figure with respect to federal_income_tax withholding petitioner did not provide bcps with form_8233 exemption from withholding on compensation_for independent and certain dependent_personal_services of a nonresident_alien_individual consequently bcps withheld federal_income_tax from petitioner’s salary during and upon the recommendation of her co-filipino teachers petitioner engaged a certain u s enrolled_agent fred r pacheco to prepare her and federal_income_tax returns she filed form 1040nr u s nonresident_alien income_tax return for each of the years on the returns petitioner disclosed her salary from bcps and then reported that the salary was exempt from taxation under article petitioner claimed itemized_deductions of dollar_figure and dollar_figure for and respectively the itemized_deductions consisted solely of state_income_tax withheld the itemized_deductions consisted of dollar_figure in state_income_tax withheld dollar_figure in charitable_contributions dollar_figure in unreimbursed employee business_expenses and dollar_figure in tax preparation fees as a result of the income exclusion income_tax_withholding and itemized_deductions petitioner requested refunds of dollar_figure and dollar_figure for and respectively petitioner returned to the philippines twice once from april to date to visit her family and a second time from september to date to bring her children to reside with her in the united_states petitioner’s husband also relocated to the united_states and petitioner gave birth to the couple’s fourth child under the teacher exchange program petitioner’s family could not join her in the united_states until she received a satisfactory evaluation from bcps therefore the earliest petitioner’s family could join her was at the end of the school year petitioner resigned from bcps effective date writing that the reason was contract completed on the bottom of the resignation form her supervisor wrote that petitioner’s resignation was a big loss to bcps petitioner on her own initiative obtained an h-1b visa to remain in the united_states for more years beginning date and as of the date of trial she taught for the prince george’s county maryland public school system for the school year the internal_revenue_service irs selected petitioner’s and federal_income_tax returns for examination the examining agent sent three questionnaires to petitioner form_8784 questionnaire - temporary_living_expenses form_9210 alien status questionnaire and form_9250 questionnaire - tax_treaty benefits petitioner contacted the irs regarding the questions on the forms then she completed the forms dated her signature date and returned the forms to the irs the court received into evidence copies of the three questionnaires that petitioner had completed on form_8784 petitioner wrote that she planned to return to the philippines in date or date on form_9210 petitioner wrote that july 2petitioner’s otherwise legible handwriting made it difficult to conclude whether she wrote or on the form was her date of initial arrival that at that time she expected to remain in the united_states for years and that this expectation had not changed on form_9250 petitioner stated that she intended to remain in the united_states until in the notice_of_deficiency dated date the irs adjusted petitioner’s income to include the earnings from bcps for and that petitioner had excluded under article the notice did not disallow the itemized_deductions that she claimed for and petitioner filed her petition contesting respondent’s inclusion of her income from bcps respondent answered denying for each of the years at issue that petitioner qualified for the income exemption under article and that petitioner was not liable for the accuracy-related_penalties respondent’s answer did not raise as a new issue the disallowance of petitioner’s itemized_deductions for and respondent moved under rule for partial summary_judgment contending that no material fact existed on the issue of whether petitioner’s income for the years at issue qualified for exemption under article petitioner objected to the granting of the motion respondent’s motion stated that one of the remaining issues for trial was whether petitioner erroneously claimed miscellaneous_itemized_deductions in tax years and both parties fully briefed the issue of income exemption under article the court set the motion for hearing at trial when the case was called for trial the court heard the motion the parties relied on the respective positions they had set forth in their briefs the court has denied respondent’s motion for partial summary_judgment shortly before trial petitioner filed a motion in limine to exclude the testimony of dr peccia on the grounds of hearsay lack of personal knowledge and relevance respondent objected to the motion the court heard arguments on the motion at trial and took the motion under advisement the court has denied petitioner’s motion the case was tried and the court heard testimony from petitioner dr peccia and ms hermann in the parties’ stipulation of facts they agreed in effect that with respect to the itemized_deductions that petitioner claimed for and the notice_of_deficiency incorrectly allowed or mistakenly failed to disallow the dollar_figure deduction for unreimbursed employee business_expenses for the dollar_figure deduction is still at issue and petitioner is entitled to deduct all the other itemized_deductions that she claimed for each year at issue at trial respondent’s counsel mentioned itemized_deductions in his opening statement stating that as for itemized_deductions respondent has conceded those deductions for which receipts and the business_purpose have been provided during direct examination petitioner’s counsel asked petitioner questions concerning union dues as a component of the dollar_figure deduction on cross- examination respondent’s counsel challenged petitioner regarding the timing substantiation and validity of the dollar_figure in expenses in their respective posttrial briefs petitioner and respondent agreed that with respect to the dollar_figure deduction petitioner is entitled to deduct the following expenses for she may deduct dollar_figure in union dues a fee to sevis of dollar_figure and a dollar_figure payment to amity and for she may deduct union dues of dollar_figure and a dollar_figure payment to amity they disagreed solely with respect to the substantiation for a course that petitioner completed and paid for in in the philippines to allow her to work for bcps petitioner testified that the course cost like big_number in pesos in philippine currency which the parties agreed had a currency exchange equivalency of dollar_figure respondent contended that this testimony with nothing more was inadequate substantiation petitioner did not address her entitlement to the remaining dollar_figure of the dollar_figure deduction i income under article discussion petitioner was a nonresident_alien for the years at issue because of her j-1 visa status and her participation in the exchange teacher program see sec_7701 in particular sec_7701 provides that a nonresident_alien is a person who is not a citizen or resident_of_the_united_states within the meaning of sec_7701 generally a nonresident_alien_individual engaged in trade_or_business_within_the_united_states is taxed on the taxable_income effectively connected with that trade_or_business sec_871 the phrase trade_or_business_within_the_united_states generally includes the performance of personal services within the united_states at any time within the taxable_year sec_864 compensation paid to a nonresident_alien in exchange for the performance of services in the united_states constitutes income that is effectively connected with the conduct of trade_or_business in the united_states sec_1_864-4 income_tax regs consequently petitioner’s wages would ordinarily be included in gross_income under the code sec_894 however provides that the provisions of the code will be applied to any taxpayer with due regard to any treaty obligations of the united_states that apply to the taxpayer therefore the treatment of petitioner’s wages might be altered by applicable treaty provisions see id 3as a teacher petitioner is considered an exempt_individual and therefore not treated as present for purposes of the substantial_presence_test see sec_7701 d i a ii the united_states is a party to an income_tax convention with the republic of the philippines the convention provides an exemption from u s income_taxation on income earned by filipino teachers teaching in the united_states if the requirements of the convention are satisfied article states article teachers where a resident of one of the contracting states is invited by the government of the other contracting state a political_subdivision or local authority thereof or by a university or other recognized educational_institution in that other contracting state to come to that other contracting state for a period not expected to exceed years for the purpose of teaching or engaging in research or both at a university or other recognized educational_institution and such resident comes to that other contracting state primarily for such purpose his income from personal services for teaching or research at such university or educational_institution shall be exempt from tax by that other contracting state for a period not exceeding years from the date of his arrival in that other contracting state to qualify for the exemption under article a taxpayer must meet the following requirements the taxpayer was a resident of the philippines before coming to the united_states she was invited by the government or a recognized educational_institution within the united_states she was invited for a period not expected to exceed years the purpose of the invitation was for her to teach or engage in research at the recognized educational_institution and she did in fact come to the united_states primarily to carry out the purpose of the invitation the taxpayer must meet all of the requirements to qualify for the income exemption the only requirement in dispute is whether petitioner’s invitation to teach in the united_states was for a period not expected to exceed years the text of article does not specifically state whose expectation controls the length of the invitation to teach for a period not to exceed years petitioner argues that her expectation as the invitee is the only expectation that matters respondent counters that either the expectation of the invitor bcps should be decisive or that the court should weigh the expectations of all the parties associated with the teacher exchange program in the light of this ambiguity in the text of article we will consider all the relevant facts and circumstances including the expectations of all the parties santos v commissioner t c __ __ slip op pincite we will construe the language of article liberally see n w life assurance co of can v commissioner 107_tc_363 then we will make an objective determination of whether petitioner was invited to the united_states for a period not expected to exceed years see santos v commissioner supra a burden_of_proof generally the commissioner’s determination_of_a_deficiency is presumed correct and the taxpayer bears the burden of proving that the deficiency is incorrect rule a 290_us_111 furthermore any deductions allowed are a matter of legislative grace and the taxpayer bears the burden of proving his entitlement to them rule a 503_us_79 292_us_435 under sec_7491 the burden may shift to the commissioner regarding factual matters affecting a taxpayer’s liability for tax if the taxpayer produces credible_evidence and meets other requirements of the section in her pretrial memorandum petitioner mentioned that she would move for a burden shift under sec_7491 contending that she had produced credible_evidence and met the other requirements of the section at trial petitioner did not make an oral or written motion for a burden shift we need not and we explicitly do not decide which party bears the burden_of_proof because as discussed above applying santos v commissioner supra we will decide this case on an objective consideration of all the relevant facts and circumstances b analysis we begin our analysis with a discussion of the evidence that relates to petitioner’s expectation bcps required all of its first year teachers to sign the standard state-issued 1-year employment contract the fact that the contract did not guarantee employment beyond the first year does not mean that petitioner expected to stay in the united_states for only year petitioner knew that so long as her performance was satisfactory bcps would retain her we believe it likely that petitioner had sufficient confidence in her teaching skills to assume that her performance would be satisfactory and therefore she could expect that bcps would employ her for the second and third years and perhaps beyond supporting our belief is the fact that although petitioner initially received an unsatisfactory evaluation on date she reached the satisfactory level by the end of the first school year as a result in date bcps offered her another contract that provided tenure after more years of satisfactory performance in addition on petitioner’s resignation letter her supervisor wrote that petitioner’s resignation was a big loss to bcps petitioner also testified that in her mind the information in her 3-year j-1 visa application that amity prepared and she signed simply established an upper time limit and did not imply a commitment to stay in the united_states for years petitioner uses the same argument with respect to the 3-year exchange teacher program while it is true that the documents did not obligate her to remain in the united_states for years we find it particularly hard to believe that petitioner did not expect to remain in the united_states for the duration of the exchange teacher program bolstering this conclusion are petitioner’s own actions and words she brought her family to the united_states as soon as the program rules allowed and she wrote on her resignation form dated date that the reason she was resigning was that the contract was completed her employment period coincides with the length of the 3-year teacher exchange program petitioner’s own words in her answers on the three irs questionnaires also weigh against her in response petitioner testified and the record indicates that she called the irs for help in answering the questions pertaining to her expected length of stay in the united_states even assuming the accuracy of petitioner’s testimony that the irs told her to complete the forms as of the date of her telephone call her answers still show clearly that her initial expectation was to remain in the united_states for the entire length of the 3-year teacher exchange program furthermore petitioner introduced no evidence that she expressed to any of the parties involved that she expected to remain in the united_states for years or less similarly petitioner did not testify that she expected to remain in the united_states for years or less we also find it highly significant that despite her initial difficulties with the high school students and her initial unsatisfactory evaluation petitioner greatly improved her performance received a satisfactory rating and continued teaching for bcps for the entire 3-year program thus petitioner’s actions indicate a strong commitment to staying in the united_states for years despite the difficulties the fact that petitioner obtained a leave of absence is simply not a decisive factor petitioner testified that the leave of absence is significant evidence in her favor because tarlac’s rules limited leaves of absence to years without further support however the letter in the record from tarlac which states that petitioner’s leave was for the duration of the program bolsters that evidence against her petitioner’s request for a leave of absence was a good backup strategy in the event she decided to return to the philippines but it does not indicate that she expected to stay in the united_states for years or less in addition we cannot ignore the financial incentive of remaining in the united_states for as long as possible petitioner and her family incurred significant expenses for her to participate in the exchange teacher program these expenditures are not insignificant in comparison to her earnings in the philippines moreover her earnings immediately grew more than sixteenfold from dollar_figure to dollar_figure when she moved from the philippines to the united_states although petitioner testified her cost of living was lower in the philippines the increase in salary is too large to ignore from the perspective of bcps the school system absolutely expected that the filipino teachers would remain for the entire 3-year exchange teacher program dr peccia testified that his department expected the filipino teachers to remain within the school system for exactly the length of the visa years he stated we had no expectations beyond years and no expectations of less than years dr peccia explained that it wouldn’t have been worth the investment including the cost of the airline ticket s the cost of all the time people were away he added that bcps helped the filipino teachers with finding housing and with obtaining social_security cards to ease their physical and psychological transition so that the teachers could focus on teaching dr peccia noted that only or of the filipino teachers did not complete the 3-year term in other words to percent of the teachers remained in the united_states for the full years corroborating this evidence is the testimony of ms hermann who stated that bcps similar to the other school systems that hired foreign teachers through the exchange teacher program expected the teachers to stay for the entire 3-year program she added that it had been amity’s experience that only a small percentage of filipino teachers returned to the philippines before completing the 3-year teacher exchange program and most participants decided to remain in the united_states beyond the years as of the date of trial petitioner remained in the united_states teaching in maryland the testimony of these two witnesses is plausible reliable and persuasive in conclusion after an objective examination of all of the relevant facts and circumstances we find that petitioner and bcps expected petitioner to stay in the united_states for at least years which is greater than the not expected to exceed years requirement of article therefore petitioner’s income for date to date the first years she was in the united_states is not exempt from federal_income_tax under article ii disallowed itemized_deductions after concessions the parties agree that the only deduction remaining at issue is dollar_figure for for a course that petitioner completed and paid for in in the philippines to prepare her for teaching at bcps petitioner incorrectly claimed the deduction in instead of although respondent’s notice_of_deficiency did not disallow this deduction and respondent did not affirmatively raise the issue in his answer we find that petitioner gave her implied consent to try the issue see rule b nicholson v commissioner tcmemo_1993_427 sec_162 allows a deduction for ordinary and necessary business_expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business the performance of services as an employee is considered a trade_or_business for sec_162 purposes 54_tc_374 for an expense to be necessary it must be appropriate and helpful to the taxpayer’s business welch v helvering u s pincite- an expense will be considered ordinary if it is a common or frequent occurrence in the type of business in which the taxpayer is involved 308_us_488 taxpayers must maintain records sufficient to substantiate any deduction they claim sec_6001 sec_1_6001-1 income_tax regs petitioner testified credibly that bcps required her to complete the course or bcps would not have allowed her to begin teaching at its schools this type of expenditure is an ordinary and necessary expenditure for an exchange teacher to incur petitioner also testified convincingly that she spent dollar_figure for the course petitioner however was unable to substantiate her expenditure if a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount the court may estimate the amount bearing heavily against the taxpayer whose inexactitude is of her own making 39_f2d_540 2d cir the cohan_rule the taxpayer must present sufficient evidence for the court to form an estimate because without such a basis any allowance would amount to unguided largesse 245_f2d_559 5th cir 85_tc_731 an expenditure of dollar_figure seems reasonable for completing a course of study nonetheless the lack of substantiation and the inexactitude are of petitioner’s own making therefore to avoid unguided largesse we hold that under the cohan_rule petitioner is entitled to deduct dollar_figure for the course in which is one- half of the amount that she claimed after reading the stipulation of facts we conclude that both parties understood that the entire dollar_figure deduction for was still at issue see rule b nicholson v commissioner supra with regard to the remaining dollar_figure of the dollar_figure in expenses as described supra page which respondent did not concede petitioner did not testify or offer other evidence to support her entitlement to any deduction therefore petitioner has abandoned the issue see rule b iii accuracy-related_penalty taxpayers may be liable for a 20-percent penalty on the portion of an underpayment_of_tax attributable to negligence disregard of rules or regulations or a substantial_understatement_of_income_tax sec_6662 and b and the term negligence in sec_6662 includes any failure to make a reasonable attempt to comply with the code and the term disregard includes any careless reckless or intentional disregard sec_6662 negligence has also been defined as the failure to exercise due care or the failure to do what a reasonable person would do under the circumstances see 92_tc_1 affd 925_f2d_348 9th cir 85_tc_934 negligence includes any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs an understatement of income_tax is substantial if it exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6662 the sec_6662 accuracy-related_penalty does not apply where the taxpayer shows that he or she acted in good_faith and with reasonable_cause sec_6664 the determination of whether a taxpayer acted in good_faith and with reasonable_cause depends on the facts and circumstances of each case and includes the knowledge and experience of the taxpayer and the reliance on the advice of a professional such as an accountant sec_1_6664-4 income_tax regs for a taxpayer to rely reasonably upon advice of a tax adviser the taxpayer must at a minimum prove by a preponderance_of_the_evidence that the adviser was a competent professional with sufficient expertise to justify reliance the taxpayer provided necessary and accurate information to the adviser and the taxpayer actually relied in good_faith on the adviser’s judgment 115_tc_43 affd 299_f3d_221 3d cir most important in this determination is the extent of the taxpayer’s effort to determine the proper tax_liability id the commissioner has the burden of production under sec_7491 with respect to the accuracy-related_penalty under sec_6662 to satisfy that burden the commissioner must produce sufficient evidence showing that it is appropriate to impose the penalty 116_tc_438 respondent has satisfied his burden by producing evidence that petitioner reported no income for and failed to substantiate claimed deductions and had substantial_understatement_of_income_tax for nonetheless petitioner sought the advice of a return preparer for her and form sec_1040nr petitioner stated that her preparer was an enrolled_agent in the united_states respondent did not dispute the competency of the preparer the preparer counseled petitioner that her income was exempt from taxation in the united_states under article petitioner having no formal training in taxation and being new to the u s tax system reasonably relied upon the advice of a competent tax_return_preparer and acted in good_faith therefore we do not sustain respondent’s determination that the sec_6662 accuracy-related_penalty applies for or iv conclusion the court has considered all arguments made in reaching our decision and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number -------------------------------- ------------------------------ -------------------------------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------ telephone number -------------------- refer reply to cc psi b01 plr-129840-15 date date x y p1 p2 state a state b date date date date date date -------------------------------------------------------------------------------------- ------------------------------------------------------------ --------------------------- ------------------------------------------ ----------------------------------------------- ------------ ------------ ----------------------- --------------------- ------------------- ------------------ ----------------- -------------------------- plr-129840-15 dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts the information submitted states that x was formed under the laws of state on date and elected to be treated as an s_corporation effective date on date x issued shares of its stock to y a state b limited_liability_company taxable as a corporation for federal_income_tax purposes therefore x’s election terminated on date on date x issued shares of its stock to p1 a limited_liability_company taxable as a partnership for federal_income_tax purposes further on date x issued shares of stock to p2 a limited_liability_company taxable as a partnership for federal_income_tax purposes therefore x’s s_corporation_election would have terminated on date and again on date if it had not already terminated on date when x issued shares of its stock to p1 and p2 respectively on date x was acquired by a corporation and restructured x represents that the issuance of x stock to y p1 and p2 ineligible shareholders was not motivated by tax_avoidance or retroactive tax planning additionally x represents that x and its shareholders have filed their federal_income_tax returns consistent with having a valid s_corporation_election in effect for x x and its shareholders have agreed to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 law sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that a small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which a corporation is an s_corporation such corporation ceases to be a small_business_corporation a termination of an s_corporation_election under sec_1362 is effective on and after the date of cessation plr-129840-15 sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the event resulting in the ineffectiveness steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1366 generally provides that in determining the tax of an s_corporation shareholder there shall be taken into account the shareholder’s pro_rata share of the separately and nonseparately stated items of income including tax-exempt_income loss deduction and credit of the s_corporation sec_1366 generally provides that the aggregate amount of losses and deductions taken into account by an s_corporation shareholder under sec_1366 for any taxable_year shall not exceed the sum of the shareholder’s adjusted bases in the stock and indebtedness of the corporation sec_1366 provides that any loss or deduction which is disallowed under sec_1366 carries forward indefinitely to succeeding taxable years in which the corporation is an s_corporation sec_1366 provides a special rule for the carryover of suspended losses if a corporation's s election is terminated under sec_1366 if losses have been disallowed in the last taxable_year for which a corporation is an s_corporation the losses are treated as incurred by the shareholder on the last day of any post- termination transition_period under sec_1366 the aggregate amount of losses and deductions taken into account under sec_1366 is limited to the adjusted_basis of the shareholder's stock in the corporation determined on the last day of the post- termination transition_period any losses and deductions in excess of a shareholder's adjusted stock basis are permanently disallowed sec_1_1366-2 conclusion based solely on the information submitted and the representations made we conclude that x’s s_corporation_election terminated on date when shares of x were transferred to y an ineligible shareholder we further conclude that the termination was inadvertent within the meaning of sec_1362 moreover had x’s s_corporation_election not already terminated it would have terminated on date and again on date when plr-129840-15 shares of x were transferred to p1 and p2 respectively similarly these terminating events would have been inadvertent terminations within the meaning of sec_1362 accordingly under sec_1362 x will be treated as an s_corporation from date until date when x was restructured provided that x’s s election was valid and was not otherwise terminated under sec_1362 during the period of date to date y will be treated as a shareholder of x during the period of date to date p1 will be treated as a shareholder of x and during the period of date to date p2 will be treated as a shareholder of x according y p1 and p2 must include in its income any distributions received from x during the period of ownership and must include in income its pro_rata share of the separately and nonseparately stated items of x as provided in sec_1366 make any adjustments to stock basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 except for the specific ruling above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x was otherwise eligible to be treated as an s_corporation this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c tv mo tax_exempt_and_government_entities_division apr uniform issue list kekkeerekrkkreekrekeekereke rakekkerkeereeeekeee kerkkrekekrkereeekeereker krrerkekekeekeekrerkerere hakekerekekrrerekereeeeeee e ‘ ‘ legend company plan plan dear krekrkkkkkeke hekreerekkeerekekererkeakre hekreeekkekareeeeeereerrerererereerereeeeree hrhekkekekrekrerererreereerererkereke this is in response to your letter dated date as supplemented by information from a conference of right on date and correspondence dated date in which you request a private_letter_ruling that the minimum distribution_requirements of sec_401 of the internal_revenue_code code would not be violated if the company amended plan and plan to offer a lump sum payment option during a limited window period to the plans’ participants and beneficiaries for whom annuity payments have already begun facts the following facts and representations have been submitted under penalty of perjury in support of the ruling requested plans which are intended to be tax-qualified defined benefit plans each having company the taxpayer manufacturers assembles and sells goods both in the united_states and throughout the world it is the sponsor of plan and plan collectively the - page received a favorable determination_letter most recently in significant number of employees and former employees of the company and beneficiaries each plan covers a the automatic form of benefit for a single participant in the plans is a single_life_annuity and the automatic form of benefit for a married participant is a joint_and_survivor_annuity a joint_and_survivor_annuity for disabled participants optional forms of benefit in the plans include a a or joint_and_survivor_annuity the company represents that the pension benefit obligations attributable to the plans and reported on the company’s financial statements are disproportionately large and very sensitive to swings in interest rates over time these obligations have skewed disproportionately towards retirees the company's industry is susceptible to global economic changes swings in interest rates and changes in economic conditions have caused the plans’ pension obligations to be very volatile the company represents that this volatility increases the cost of financing makes cash_flow management including contributions to the plans more difficult and makes the company less competitive in the marketplace to reduce the impact of the volatility of the large pension obligations the company proposes to amend both plans to offer during a limited period of time a lump sum payment option to certain participants and beneficiaries of the plans ’ the window would be offered to a broad group of the plans’ participants and beneficiaries in five categories participants currently receiving benefit payments those who have retired but have not begun receiving benefit payments terminated deferred vested participants beneficiaries who presently are receiving either pre-retirement or post- retirement survivor benefits or are eligible to receive survivor benefits under the plans and alternate payees collectively covered individuals the company represents that this window period to select a lump sum payment will be offered on a one-time basis to covered individuals under the amendment the covered individuals would have a specified limited window period of no less than days and no more than days during which they could elect to receive what the company represents is the actuarial present_value of their remaining benefits under the plans at the time of such election in the form of a single lump sum payment those covered individuals receiving benefit payments would be able to elect to receive in lieu of their current annuity the actuarial present_value of their remaining accrued_benefits either in a qualified_joint_and_survivor_annuity a qualified_optional_survivor_annuity or an immediate lump sum payment elections by covered individuals immediate lump sum payment or an immediate_annuity during the window period that covered individual ‘the company's ability to implement this amendment for plan is subject_to this ruling solely addresses the amendment with respect to covered individuals who have already begun receiving payments under the amendment those who have not begun receiving benefit payments would be able to elect to receive subject_to spousal consent where required_by_law the actuarial present_value of their accrued_benefits either in the form of an immediate lump sum payment or an immediate_annuity if a covered individual who has not yet begun receiving benefits does not elect to receive an ‘page to receive a new distribution option will be subject_to applicable spousal consent each covered individual would be offered optional financial counseling provided by what company represents will be a highly qualified and reputable financial advisor before making his or her election decision the company represents that covered individuals that elect a new distribution option will be considered to have a new annuity_starting_date as of the first day of the month in which their new benefit is payable the company represents that the funding levels of the plans are sufficient so that the window programs will not trigger benefit restrictions described in sec_436 of the code in addition the company represents that the amendment will not change the ability of covered individuals to elect during the window period to receive qualified joint and survivor annuities or qualified optional survivor annuities in accordance with sec_401 and sec_417 of the code based on the facts and representations stated above company requests a ruling that the minimum distribution_requirements of sec_401 of the code would not be violated if the company amended the plans to offer the lump sum window to participants and beneficiaries for whom annuity payments have commenced under the plans applicable law sec_401 of the code and the regulations thereunder regulations provide rules relating to required minimum distributions from qualified_plans sec_401 of the code was enacted to ensure that the amounts contributed to qualified_retirement_plans were used for retirement by requiring that retirement payments begin no iater than a certain date with no less than a certain amount being distributed each year of retirement the legislative_history of the original version of sec_401 of the code in stated that its purpose is in preventing lifetime accumulations which might escape income_taxation altogether cong rec statement of sen smathers in general sec_401 of the code states that a_trust shall not constitute a qualified_trust under this subsection unless the plan provides that the entire_interest of each employee - i will be distributed to such employee not later than the required_beginning_date or would be eligible to elect an annuity form of benefit available under the applicable_plan at benefit commencement spousal consent must include where the law requires both the current spouse and a former spouse if the annuitant has remarried since the annuity_starting_date the company is not requesting a ruling with respect to covered individuals for whom annuity payments have not commenced page ii will be distributed beginning not later than the required_beginning_date in accordance with regulations over the life of such employee or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary sec_401 of the code generally provides that a defined_benefit_plan will not be considered a qualified_plan unless vested benefits with respect to a married participant who dies before the annuity_starting_date are payable in the form of a qualified_preretirement_survivor_annuity and with respect to a married participant who dies after the annuity_starting_date a qualified_joint_and_survivor_annuity sec_415 of the code provides that a_trust which is a part of a pension_plan will not constitute a qualified_trust if the pension_plan provides for the payment of benefits which exceed the limitation of sec_415 sec_415 of the code generally provides that if the benefit under a defined_benefit_plan is payable in any form other than a straight life_annuity the determination as to whether the sec_415 limit has been satisfied shail be made by adjusting the benefit so that it is equivalent to a straight life_annuity sec_417 of the code provides that a plan meets the requirements of sec_401 if among other requirements each participant may elect during the applicable_election_period to waive the qualified_joint_and_survivor_annuity form of benefit or the qualified_preretirement_survivor_annuity form of benefit or both sec_417 of the code defines the applicable_election_period as meaning in part in the case of an election to waive the qualified_joint_and_survivor_annuity form of benefit the 180-day period ending on the annuity_starting_date sec_1_401_a_9_-6 q a-1 a in pertinent part states that in order to satisfy sec_401 of the code distributions of the employee's entire_interest under a defined benefit pension_plan must be paid in the form of periodic annuity payments for the employee's life or the joint lives of the employee and beneficiary or over a period certain that does not exceed the maximum length of the period certain determined in accordance with a-3 of this section once payments have commenced over a period the period may only be changed in accordance with a-13 or a-14 of this section except as otherwise provided in this section such as permitted increases described in a-14 of this section all payments whether paid over an employee's life joint lives or a period certain also must be nonincreasing sec_1_401_a_9_-6 q a-13 a states that an annuity_payment period may be changed in accordance with the provisions set forth in paragraph b of this a-13 or in association with an annuity_payment increase described in a-14 of this section sec_1_401_a_9_-6 q a-14 a states that except as otherwise provided in this section all annuity payments whether paid over an employee's life joint lives or a page period certain must be non-increasing or increase only in accordance with one or more of the following - with an annual percentage increase that does not exceed the percentage increase in an eligible cost-of-living index as defined in paragraph b of this a-14 for a 12-month_period ending in the year during which the increase occurs or the prior year with a percentage increase that occurs at specified times eg at specified ages and does not exceed the cumulative total of annual percentage increases in an eligible cost-of-living index as defined in paragraph b of this a-14 since the annuity_starting_date or if later the date of the most recent percentage increase however in cases providing such a cumulative increase an actuarial increase may not be provided to reflect the fact that increases were not provided in the interim years _ to the extent of the reduction in the amount of the employee's payments to provide for a survivor benefit but only if there is no longer a survivor benefit because the beneficiary whose life was being used to determine the period described in sec_401 over which payments were being made dies or is no longer the employee's beneficiary pursuant to a qualified_domestic_relations_order within the meaning of sec_414 to pay increased benefits that result from a plan amendment to allow a beneficiary to convert the survivor portion of a joint_and_survivor_annuity into a single sum distribution upon the employee's death or to the extent increases are permitted in accordance with paragraph c or d of this a-14 sec_1 b - b iii provides that if a participant will have distributions commencing at more than one annuity_starting_date the limitations of sec_415 of the code must be satisfied as of each of the annuity starting dates taking into account the benefits that have been provided at all of the annuity starting dates analysis sec_401 of the code provides a tax_deferral for retirement benefits accumulated in a qualified_pension plan sec_401 of the code and the regulations ensure that these tax-deferred accumulations are in fact used during retirement and do not escape taxation sec_1_401_a_9_-6 sets forth the rules governing required distributions from defined benefit plans and annuity_contracts sec_1_401_a_9_-6 q a-13 a states that an annuity_payment period may be changed in association with an annuity ' page payment increase described in a-14 of this section sec_1_401_a_9_-6 q a- a provides that annuity payments from a qualified_plan may increase if the payment of increased benefits results from a plan amendment the company’s proposed amendment to the plans adds a lump sum option for covered individuals under which covered individuals will have the opportunity to elect within a window period of no less than days and no more than days to receive in lieu of their current annuity either the automatic annuity form of benefit including a qualified_joint_and_survivor_annuity and a qualified_optional_survivor_annuity or a lump sum payment elections by covered individuals to receive a new distribution option will be subject_to applicable spousal consent the proposed amendment will result in a change in the annuity_payment period the annuity_payment period will be changed in association with the payment of increased benefits as a result of the addition of the lump sum option in addition covered individuals who wish to change their current_distribution option will be considered to have a new annuity_starting_date as of the first date of the month in which their new benefit is payable because the ability to select a lump sum option will only be available during a limited window the increased benefit payments will result from the proposed plan amendment and as such are a permitted_benefit increase under sec_1_401_a_9_-6 q a-1 a ruling therefore in this circumstance the minimum distribution_requirements of sec_401 of the code would not be violated if the company amended plan and plan to offer a lump sum payment option during a limited window period of no less than days and no more than days to the plans’ participants and beneficiaries for whom annuity payments have already begun except as specifically ruled above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code including sec_411 sec_415 sec_417 and sec_436 or of title of erisa in addition no opinion is expressed regarding the qualification of either of the plans this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent spousal consent must include where the law requires both the current-spouse and a former spouse if the annuitant has remarried since the annuity_starting_date page if you wish to inquire about this ruling please contact at -7 please address all correspondence to se t ep ra t2 rkrk sincerely with br ots william b hulteng manager employee_plans technical enclosures deleted copy of ruling letter notice of intention to disclose cc hrkkkekrerekekeererrerkerere hereekkearkrerekkekererrerrereeel harika aee rereeererer rin hrekrekekerekekreeeeerrerereerere


internal_revenue_service number release date index number ----------------------- ---------------------------------- ---------------------------- --------------------------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc corp b05 plr-117656-07 date date ------------------------------------------------------- ---------------------------------- ---------------------------- -------------------------- legend parent ------------------------------------------------------------ sub1 ----------------------------------------------------------- sub2 ------------------------------------------------------------ sub3 ------------------------------------------------------------ sub4 ------------------------------------------------------------ sub5 ------------------------------------------------------------ sub6 ------------------------------------------------------------ sub7 ------------------------------------------------------------ sub8 ------------------------------------------------------------ --------------------- -------------------------- --------------------------- ----------------------------- ------------------------------ ------- --------------------- --------------------------- --------------------- ----------------------- ------------------------------------------------- ----------------------------------------------------- plr-117656-07 sub9 ------------------------------------------------------------ sub10 ------------------------------------------------------------ sub11 year date a date b parent official ----------------------------------------------------------------------------------------------- ---------------------------------------------------------------- tax professional ---------------------------------------------------------------------- -------------------------------------------------------------------- dear ----------------- parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the extension is being requested for parent and its subsidiaries to make an election to file a consolidated federal_income_tax return with parent as the common parent under sec_1_1502-75 of the income_tax regulations effective for the year taxable_year hereinafter referred to as the election additional information was received in a letter dated date the material information is summarized below this letter responds to a letter dated date submitted on behalf of ----------------------- ------------------ parent as of the end of year directly held all the stock in six domestic subsidiaries sub1 and sub1 directly held all the stock in five domestic subsidiaries sub7 and parent also directly and indirectly held various foreign subsidiaries an election under sec_1_1502-75 for the parent affiliated_group to file a consolidated_return for the year taxable_year was due on date a a timely extension request was filed by date a resulting in an extended due_date of date b however for various reasons a valid election was not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period sec_301_9100-1 through provide the standards the under sec_301_9100-1 the commissioner has discretion to grant a reasonable plr-117656-07 of limitations on assessment under sec_6501 of the code has not expired for parent sub1 sub2 sub3 sub4 sub5 sub6 sub7 sub8 sub9 sub10 or sub11’s taxable years for which they wish to make the election or for any taxable_year that that would be affected by the election had it been timely filed sec_1_1502-75 provides that a group which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for filing the common parent’s return 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 commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 sec_1_1502-75 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent and its subsidiaries to file the election provided parent and its subsidiaries acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent parent official and tax professional explain the circumstances that resulted in the failure to timely file the election the information establishes that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service the service and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 made we conclude that parent and its subsidiaries have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and based on the facts and information submitted including the representations in this case the time for filing the election is fixed by the regulations ie the above extension of time is conditioned on the taxpayers' parent's and its plr-117656-07 granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent and its includible subsidiaries to file the election by filing a consolidated_return with parent as the common parent and attaching a form_1122 for each of the subsidiaries for the year taxable_year subsidiaries’ tax_liability if any being not lower in the aggregate for all years to which the election applies and all subsequent years than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 we express no opinion as to whether in fact parent and its subsidiaries qualify substantively to file a consolidated_return in addition we express no opinion as to the tax effects or any other tax consequences of filing the return or the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent parent official and tax professional however the appropriate service office should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply k of the code provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to any income_tax return to which it is relevant alternatively a taxpayer filing its return electronically may satisfy this requirement by attaching to the return a statement that provides the date and control number plr-117656-07 of this ruling letter this ruling letter is directed only to the taxpayer s who requested it section procedural statements pursuant to a power_of_attorney on file in this matter a copy of this letter is being plr-117656-07 sent to your authorized representatives sincerely _ken cohen________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate