department of the treasury internal_revenue_service washington d c date date uilc number release date internal_revenue_service national_office field_service_advice case id spro-121611-98 memorandum for from cc dom corp subject sec_382 of the code as requested set forth below is the substance of a memorandum prepared with respect to a private_letter_ruling request submitted by taxpayer the memorandum sets forth certain conclusions regarding sec_382 reached by this office in considering the ruling_request this document is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend lc date y date spro-121611-98 a b date c d e date f date date g h m n o t q r u v w z spro-121611-98 issue s whether sec_382 of the code applies to the taxpayer’s proposed transaction for purposes of determining the loss corporation’s lc net_unrealized_built-in_loss nubil facts on date m issued a n against lc a y the n requires lc to o by date a failure to satisfy the n could subject lc to regulatory sanctions including the possibility of q at the time the n was issued lc and its subsidiaries were members of the p consolidated_group p a publicly-traded corporation owned all of the common_stock and w stock of lc p had convertible subordinated debentures outstanding in the amount of a lc had subordinated debt outstanding in the amount of b on date as a preliminary step to o as mandated by the m lc engaged in the following transaction i ii p exchanges its lc w stock for additional shares of lc common_stock on a share for share basis lc issued new z stock1 and warrants to its creditors hereinafter old creditors in exchange for c percent of the dollar_figureb of subordinated debt lc now proposes to fully satisfy the t mandated by m by engaging in the following transaction i p will merge into a subsidiary s of lc in a transaction intended to qualify under sec_368 of the code the merger pursuant to the merger a p shareholders will exchange their p stock for lc common_stock and rights to acquire lc common_stock according to the taxpayer the z stock qualify as sec_382 stock pursuant to sec_382 and sec_1504 of the code because spro-121611-98 b p debenture holders will exchange d to e percent of their debentures for lc common_stock and rights to acquire lc common_stock the debenture exchange ii iii the old creditors will exchange all of their z stock for lc convertible preferred stock2 and rights to acquire lc common_stock the stock exchange standby investors will be issued rights to acquire lc common_stock lc convertible preferred_stock 3lc pure preferred_stock and warrants exercisable not sooner than u after the sale of stock pursuant to the rights iv lc common_stock will be issued to the taxpayer’s financial advisors the proxy solicitation for the merger and the stock exchange will commence on date and these transactions will be consummated on or about date the rights to acquire lc stock and warrants will be issued to the p shareholders debenture holders old creditors and standby investors as described above immediately after the merger and stock exchange are consummated the issuance of these rights are hereinafter referred to as the right offering the right to acquire lc stock and warrants will be exercisable for f days discussion according to the taxpayer application of sec_382 of the code to the proposed transaction will cause lc to have a significant nubil consequently lc will be required to make an accounting adjustment by reducing its r according to 2the taxpayer suggests that the lc convertible preferred_stock is stock for sec_382 purposes see sec_1_382-4 of the proposed_regulations 3according to the taxpayer the lc pure preferred_stock is not stock for sec_382 purposes see sec_382 and sec_1504 a c 4according to the taxpayer these perpetual warrants are out-of-the money 5if the rights are exercised and warrants are acquired within the f day period the warrants are then exercisable no sooner than year after the purchase of lc stock pursuant to the rights offer spro-121611-98 the taxpayer this accounting adjustment will impact lc’s ability to satisfy the t mandated by the m i sec_382 sec_382 of the code provides that if percent or more in value of the stock of a corporation is acquired in transaction or in a series of related transactions during any 12-month_period for purposes of determining the net_unrealized_built-in_loss the fair_market_value of the assets of such corporation shall not exceed the grossed up amount_paid for such stock properly adjusted for indebtedness of the corporation and other relevant items ii stock acquired for sec_382 purposes the conferees discussed whether all of the stock acquired in the date transaction and the proposed transaction should be treated as acquired for purposes of sec_382 of the code a stock for stock it was suggested that generally stock should only be treated as acquired for sec_382 purposes if a percent shareholder acquires loss_corporation stock that the percent shareholder did not already own either directly or by sec_382 attribution_rules the conferees agreed that stock should not be treated as acquired to the extent loss_corporation stock is exchanged for loss_corporation stock of the same value applying sec_382 to a stock for stock exchange is inappropriate because in many cases eg a pro_rata spin-off a stock split or the formation of a holding_company the underlying value of the loss corporation’s assets is irrelevant to the acquiror moreover it is difficult to say that stock is acquired when one equity_interest in a corporation is exchanged for another equity_interest of equal value even if the underlying value of the corporation’s assets is taken into account in striking the bargain eg in and exchange of common_stock for preferred_stock consequently the conferees agreed that stock acquired in the following transactions should not be treated as acquired for sec_382 purposes i p’s date acquisition of lc common_stock in exchange for p’s w stock on a share for share basis provided the w stock is stock for sec_382 purposes 6on date the taxpayer advised that the w stock is probably not stock for sec_382 purposes the conferees did spro-121611-98 ii iii the acquisition by p shareholders of lc common_stock in exchange for their p stock in connection with the proposed merger assuming this exchange of stock is value for value the old creditors’ acquisition of lc convertible preferred_stock pursuant to the stock exchange assuming this exchange of stock is value for value but see discussion iii below with respect to the old creditors’ date exchange of debt for stock b stock for debt the taxpayer suggests that a stock for debt exchange should not be treated as an acquisition for sec_382 purposes a conferee suggested that an exchange of debt for loss_corporation stock is an appropriate time to apply sec_382 of the code because the amount of stock received by the creditors depends on a bargained-for exchange based on the underlying value of loss corporation’s assets the conferees agreed that stock acquired in the following transactions should be treated as acquired for sec_382 purposes i ii the old creditors’ date acquisition of lc preferred_stock in exchange for their debt the debenture holders’ acquisition of lc common_stock pursuant to the debenture exchange c stock acquired in a sec_1032 transaction the taxpayer suggests that loss_corporation stock acquired in sec_1032 transaction should not be treated as acquired for sec_382 purposes arguably not decide whether this will cause p to be treated as acquiring stock under sec_382 7for purposes of sec_382 convertible debt is treated as an option under both 382-2t h v of the temporary regulations and sec_1_382-4 of the proposed_regulations thus an exchange of convertible debentures for lc stock is not treated as a stock for stock exchange in addition the conferees agreed that the conversion feature of the convertible debt is not treated as equity particularly when the conversion feature is out-of-the-money spro-121611-98 the amount of consideration paid to a loss_corporation for its stock has no relevance to the value of the corporation’s assets prior to the transaction it was acknowledged that the payment for stock is not part of the value of the corporation prior to the transaction however a conferee suggested that the amount_paid for stock in a sec_1032 transaction is relevant to determine and establish the value of the stock outstanding and the loss corporation’s assets before the payment in applying sec_382 of the code the grossed-up value of all the stock will be adjusted by backing-out the cost of the newly issued stock as an other relevant item the following example illustrates why the acquisition of stock in a sec_1032 transaction should be treated as acquired for sec_382 purposes a owns all shares of x corporation which holds blackacre as its only asset b purchase sec_80 newly issued shares of x stock for dollar_figure the value of blackacre is relevant to b because the value of the x stock acquired by b will equal b’s investment of dollar_figure only if blackacre was worth dollar_figure prior to the purchase ie after the exchange b will have an percent interest in both blackacre and the dollar_figure paid_by b worth dollar_figure and dollar_figure respectively the shares acquired by b should count toward the percent test because the dollar_figure paid for the x stock establishes the value of x stock and blackacre prior to the purchase the x stock is grossed- up to dollar_figure and adjusted by backing-out the dollar_figure payment leaving dollar_figure dollar_figure-80 as the asset value the result under sec_382 should be the same had b acquired percent of x stock for a prior to both a and b contributing dollar_figure to x dollar_figure by a and dollar_figure by b the conferees agreed that the acquisition of stock in a sec_1032 transaction should be treated as acquired for sec_382 purposes d stock acquired pursuant to the rights offering in addition to acquiring lc stock in the proposed transaction p shareholders will acquire rights to purchase additional shares of lc common_stock pursuant to the rights offering although p shareholders will not be treated as acquiring stock when they exchange stock for stock see discussion ii a above the question remains whether the stock acquired pursuant to the rights offering should be treated as acquired for sec_382 purposes according to the taxpayer a portion of the stock acquired pursuant to the rights offering should be treated as merely returning the acquiror to its prior equity position the conferees discussed this issue using the following example spro-121611-98 x corporation has shares of stock outstanding and its assets are worth dollar_figure a owns shares of x stock worth dollar_figure and b own sec_80 shares of x stock worth dollar_figure x makes a dollar_figure stock offering pursuant to the stock offering i a exchanges its stock with x for shares of x stock worth dollar_figure and rights to acquire additional shares for dollar_figure the rights are worth dollar_figure and ii c pays dollar_figure for shares of x stock after the stock offering and exercise of the rights a b and c will own percent percent and percent of x stock respectively the conferees discussed three approaches to determine what percentage of x stock will be acquired by a pursuant to the rights i the approach favored by the taxpayer would treat the acquisition of stock by a pursuant to the rights as acquired for sec_382 purposes only to the extent a’s percentage interest in x stock is increased over the percentage interest previously owned under this approach only percent shares worth dollar_figure of the stock acquired by a is treated as acquired a’s interest increased from to percent ii treat all of the stock acquired by a pursuant to the rights as acquired for sec_382 purposes under this approach percent shares worth dollar_figure of x stock is treated as acquired iii treat the stock acquired by a pursuant to the rights as acquired for sec_382 purposes only to the extent that a exchanged cash for stock under this approach the value of the rights is treated as a return of a’s previous equity_interest ie stock acquired equal to the value of the rights is not treated as acquired under this approach percent shares worth dollar_figure of the x stock acquired by a pursuant to the rights is treated as acquired the other percent shares worth dollar_figure of x stock acquired pursuant to the rights is treated as a return of a’s prior equity_interest since the rights were worth dollar_figure the conferees agreed that approach iii was the appropriate test to apply since it allows a to return to its previous equity position shares worth dollar_figure without treating such stock as acquired for sec_382 purposes in the case under consideration the fact that the rights to purchase lc stock are outstanding for only f days was a factor in choosing this approach 8thus in determining the percentage of lc stock acquired by a in the example this approach would place the cash paid_by a for each share of stock pursuant to the rights into the numerator dollar_figure and the fair_market_value of the lc stock outstanding after the exchange into the denominator dollar_figure spro-121611-98 e perpetual warrants issued to standby investors pursuant to the proposed transaction lc will issue perpetual warrants to standby investors exercisable no sooner than u after the sale of stock pursuant to the rights offering according to the taxpayer the standby investors will not acquire lc stock when the warrants are issued because i the warrants themselves are not stock and ii the standby investors will not actually receive lc stock until the warrants are exercised v after the rights offering generally a warrant to purchase stock from a loss_corporation is treated as an interest that is similar to an option and not as stock sec_1_382-2t of the regulations however there are at least two exceptions to this general_rule first options have been treated as stock under substance over form principles see revrul_82_150 1982_2_cb_110 treating very deep in-the-money options as stock second warrants whether in-the-money or not are treated as stock when determining the value of a loss_corporation for sec_382 limitation purposes under sec_382 see tam-9332004 which reached this result by taking into account the authority in sec_382 to prescribe regulations treating options as stock and the legislative_history indicating that such treatment is for purposes of determining the value of the loss_corporation the conferees agreed that the perpetual warrants at issue should not be treated as stock the first exception to the general_rule does not apply because the perpetual warrants which are out-of the-money are not in substance ownership of the underlying stock the second exception also does not apply because the term stock has different meanings under sec_382 and sec_382 of the code sec_382 provides that except as provided in regulations and sec_382 the term stock for sec_382 purposes including sec_382 means stock other than stock described in sec_1504 cf sec_382 loss_corporation stock includes stock described in sec_1504 although sec_382 provides regulatory authority to treat warrants as stock no regulations have been issued under sec_382 moreover as indicated above the legislative_history for sec_382 indicates that such treatment is for purposes of determining the value of the loss_corporation the term used in sec_382 not sec_382 the conferees also agreed that lc stock will not be acquired within the meaning of sec_382 of the code until the warrants are actually exercised treating the stock subject_to the warrants as acquired under a deemed exercise of the warrants approach on the day they are issued is not appropriate for sec_382 purposes because sec_382 looks to amounts paid not to appraised values of stock where there is no value for value exchange no amount will be actually paid for the stock until the warrants are exercised consequently any lc stock acquired pursuant to the warrants will not count in determining whether prior acquisitions of lc stock such stock will not be acquired during the month period provided by sec_382 spro-121611-98 iii whether the proposed transaction is related to the date transaction for sec_382 purposes it was explained that the taxpayer’s arguments against application of sec_382 of the code to the proposed transaction assume that such transaction is not related to the date transaction within the meaning of sec_382 according to the taxpayer if the date transaction between lc and the old creditors is considered related to the proposed transaction then percent of lc stock will be acquired within the meaning of sec_382 there is nothing in the legislative_history and no regulations which indicate what related means under sec_382 of the code however the taxpayer suggests that the date and proposed transactions are not related within the meaning of this term in other provisions of the code and regulations for example under sec_168 of the code property subject_to a lease to tax exempt entities is subject_to the alternative deprecation system which generally provides for less accelerated_depreciation deductions such property may not be depreciated over any period shorter than percent of the term of the lease to a tax exempt entity to prevent avoidance sec_168 provides that in determining a lease_term two or more successive leases which are part of the same transaction or a series of related transactions shall be treated as one lease in interpreting the meaning of series of related transactions sec_1_168_j_-1t q a of the temporary regulations provides that multiple leases will be considered part of the same transaction if entered into at substantially the same time or as part of one arrangement according to the taxpayer the date and proposed transactions are unrelated because the transactions were not entered into at the same time or as part of the same arrangement among the acquirors of lc stock spro-121611-98 the conferees believe that the related transaction standard of sec_1_168_j_-1t q a is inconsistent with sec_382 of the code for two reasons first sec_382 does not require related transactions to occur at the same time since the refers to a series of related transactions during any 12-month_period second sec_382 does not merely focus on the acquirors of loss_corporation stock while sec_1_168_j_-1t q a generally focuses on a two party agreement ie between the lessor and lessee in sec_382 can involve multiple party transactions involving not only the acquirors of loss_corporation stock but also the loss_corporation the conferees also discussed whether the notion of related transactions within the meaning of sec_1_382-3 of the regulations the entity regulations can be applied to sec_382 of the code the entity regulations define the term entity for purposes of defining a 5-percent_shareholder under sec_382 an entity includes a group of persons who have a formal or informal understanding among themselves to make a coordinated acquisition of stock according to the taxpayer the entity regulations are particularly compatible to sec_382 because both focus on acquirors rather than the corporation the taxpayer suggests that there could have been no formal or informal agreement between the acquirors in the date transaction and the acquirors in the proposed transaction because the identity of the acquirors in the proposed transaction was unknown in date the date acquirors contemplated a subsequent sale of control transaction rather than the proposed transaction the conferees agreed that the entity regulations should not be applied as narrowly as the taxpayer suggests the entity regulations do not completely ignore the activities of the loss_corporation for example under sec_1_382-3 example a group of investors are defined as an entity after the loss_corporation facilitated an informal agreement among the investors in separate meetings under the entity regulations it is important that multiple acquirors of loss_corporation stock know of each other’s existence if they are to be grouped together and treated as one entity however there is no reason that sec_382 should be applied only if acquirors can be grouped together and viewed as acting in concert the price paid for loss_corporation stock will measure the value of the loss corporation’s assets whether there is only one acquiror or multiple acquirors who do not know of each other’s existence the conferees also discussed whether several transactions should be treated as related under sec_382 of the code if such transactions are collapsible pursuant to the step_transaction_doctrine a question arose whether it is appropriate to apply the step_transaction_doctrine since sec_382 does not require transactions to be collapsed into one transaction spro-121611-98 the conferees agreed that transactions do not have to be collapsed into one transaction in order to be related within the meaning of sec_382 of the code however the date and proposed transactions are arguably related within the meaning of the step_transaction_doctrine under the mutual interdependent test and the end result test the mutual interdependent test is applied when a series of transactions are so interdependent that the legal relations created by one transaction would be fruitless without a completion of the series the end result test is applied when separate steps are really component parts of a single transaction intended from the outset to be taken for the purpose of reaching the ultimate result see tax management portfolio corporate acquisitions-d reorganizations 417-2nd t m a-15 the date and proposed transactions are arguably related under a broad application of the mutual_interdependence_test because the old creditors’ exchange of debt for lc stock in date makes no economic sense unless the proposed transaction is consummated in date the old creditors were in a superior position as creditors than equity holders had lc gone into receivership and liquidated presumably the old creditors would not have given up this superior position without the expectation of a subsequent transaction that would the date and proposed transaction are also arguably related under a broad application of the end result test the conferees agreed that the date transaction is related to the proposed transaction for sec_382 purposes furthermore it was decided that we cannot rule on the proposed transaction and caveat the related transaction issue the conferees agreed that the date and proposed transactions would not be related pursuant to the binding_commitment_test because there is no legally binding obligation to effect the proposed transaction spro-121611-98 ii effect of n on the fmv of lc stock a does sec_382 apply when a loss_corporation is subject_to a n the taxpayer suggests that sec_382 of the code is inapplicable to the date transaction and the proposed transaction because the n distorted the fair_market_value of lc stock according to the taxpayer congress only intended sec_382 to apply when the price paid to acquire loss_corporation stock is a reasonable presumption of the value of the corporation’s assets the current provisions of sec_382 of the code were originally proposed as sec_382 in the tax reform bill of the statutory language of both sec_382 and sec_382 provides for mandatory application whenever percent or more in value of loss_corporation stock is acquired however the legislative_history of sec_382 states the committee’s bill also provides a simplifying presumption in the case of certain stock acquisitions where it is reasonable to equate the value of the consideration used to acquire the stock with the value of the corporation’s assets see house ways_and_means_committee report h_r rep no th cong 1st sess date pincite emphasis added the conferees agreed that application of sec_382 of the code should not be limited in the way suggested by the taxpayer since application of the statute is mandatory if there is a presumption at all it is an irrefutable presumption that the amount_paid for percent of a loss corporation’s stock is always a reasonable measure of the corporation’s assets furthermore the conferees agreed that a ruling based on a factual determination that the n distorted the value of lc stock would be precluded by rev_proc g and rev_proc h b is the n an other relevant item the conferees discussed whether any distortion to the value of lc stock as a result of the n should be treated as an other relevant item for purposes of determining the amount_paid for lc stock under sec_382 of the code according to the taxpayer the appropriate adjustment under sec_382 would be to deem the fair_market_value of the corporation’s assets as the amount_paid for the stock 10the legislative_history for the tax_reform_act_of_1986 offers no guidance for the application of sec_382 of the code spro-121611-98 the conferees agreed that it would be inappropriate to treat the n as an other relevant item without regulations cf sec_1 b -1t f of the temporary regulations authorizing the district_director to make an adjustment so that adjusted_grossed-up_basis and the basis of target’s assets properly reflect the cost of the interest in target’s assets in addition the service is precluded from issuing a ruling on such a factual issue ie the existence and extent of a distortion to stock value see rev_proc g and h it was also suggested that the n is not necessarily a corporate item eg liabilities within the meaning of sec_382 v intervening ownership_change the taxpayer suggests that only acquisitions of stock in the same testing_period should be treated as acquired within the meaning of sec_382 of the code for example the merger debenture exchange and stock exchange are expected to cause an ownership_change on or about date but according to the taxpayer these transactions will not result in an acquisition of percent of lc stockdollar_figure under the intervening ownership_change approach any stock acquired during the testing_period ending with the date ownership_change will not count in determining if the sec_382 percent test is satisfied upon any subsequent acquisition of lc stock consequently the acquisition of stock pursuant to the rights offering subsequent to the date ownership_change will not result in the acquisition of percent of lc stock the conferees agreed that it would be inappropriate to limit sec_382 of the code to acquisitions of stock in the same testing_period since testing periods only apply for ownership_change purposes in addition congress would have included such a limitation in the statute if it intended such a result the conferees also rejected the taxpayer’s argument that testing periods should only be straddled in abuse situations vi should convertible pure preferred_stock be treated as an option for sec_382 purposes the taxpayer’s representative telephoned to suggest an alternate plan for the proposed transaction according to the alternate plan lc will issue i common_stock to p shareholders and debenture holders pursuant to the merger ii voting convertible preferred_stock to old creditors pursuant to the 11if the date exchange of debt for stock which contributes to the date ownership_change is related to the date transaction then there may be an percent acquisition in the testing_period ending with the date ownership_change spro-121611-98 stock exchange and iii convertible pure preferred exercisable u after steps i and ii pursuant to the rights offering pursuant to this alternate plan the taxpayer requested a ruling that the convertible pure preferred_stock will be treated as an option and not as stock pursuant to notice_88_67 1998_1_cb_555 in notice_88_67 the service determined that pursuant to sec_382 of the code convertible pure preferred_stock ie stock described in sec_1504 but for the conversion feature will be treated solely as an interest that is similar to an option in addition notice_88_67 provides that the notice may be relied upon to the same extent as a revenue_ruling or revenue_procedure however sec_1_382-2 of the proposed_regulations treats convertible pure preferred_stock as stock for purposes of sec_382 of the code the proposed_regulations are intended to replace notice_88_67 for convertible stock issued after date the conferees agreed that a ruling treating the lc convertible pure preferred_stock as an option rather than stock pursuant to notice_88_67 would have to include a caveat that the ruling is subject_to retroactive revocation if the provisions of sec_1_382-2 of the proposed_regulations are finalized and apply to the issuance spro-121611-98 conclusions it was concluded stock is not acquired for sec_382 purposes to the extent loss_corporation stock is exchanged for loss_corporation stock of the same value generally stock is acquired for sec_382 purposes when a percent shareholder acquires loss_corporation stock that the percent shareholder did not already own either directly or by sec_382 attribution_rules consequently stock is treated as acquired in the following transactions a b c an exchange of debt for loss_corporation stock an exchange of convertible debentures for loss_corporation stock the conversion feature is generally not treated as equity an exchange of money or other_property for loss_corporation stock pursuant to a sec_1032 transaction the value of the rights issued pursuant to the rights offering is treated as a return of the acquirer’s previous equity_interest consequently the cash paid for each share of loss_corporation stock upon the exercise of the rights is placed in the numerator along with the fmv of other acquired stock and the fmv of such stock is placed in the denominator along with the fmv of the remaining outstanding loss_corporation stock the perpetual warrants at issue exercisable in u are not treated as stock acquired in a related transaction for sec_382 purposes if such warrants are out-of-the -money when issued 12in reaching the conclusions and other decisions described above the conferees were focusing on a fact-specific case these conclusions and decisions were reached by applying principles and analysis to specific facts and while appropriate for most cases are not an attempt to answer all questions for all time or to in effect draft regulations language for sec_382 of the code in some cases different facts may require different analysis and conclusions see eg note spro-121611-98 we will not rule that the date transaction is unrelated to the proposed transaction for sec_382 purposes in addition we will not rule on the proposed transaction and caveat the related transaction issue we will not rule that sec_382 does not apply when a n distorts the value of the loss corporation’s stock we will not rule that a n is an other relevant item within the meaning of sec_382 thereby warranting an adjustment to the price paid for the loss_corporation stock related transactions can occur in different testing periods for purposes of sec_382 a ruling treating convertible pure preferred_stock as an option pursuant to notice_88_67 would have to include a caveat that the ruling is subject_to retroactive revocation if the provisions of sec_1_382-2 of the proposed_regulations are finalized and apply to the issuance


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to plr-112985-97 date date number release date tax_year a date b date c date d year e year f year g year h country i dear this is in response to a letter dated date submitted by your authorized representative requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that your loss of long-term residence status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code additional information was submitted in letters dated october and november and the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 plr-112985-97 a a former long-term_resident of the united_states within the meaning of sec_877 relinquished his u s lawful permanent resident status expatriated on date b by returning his green card to the u s consulate in country i on the same day he registered as a permanent resident of country i on the date of a’s expatriation his net_worth exceeded dollar_figure and his average annual tax_liability for the five-year period prior to expatriation exceeded dollar_figure a’s parents were born in country i a was born on date c and attended elementary_school middle school high school and college in country i a served for twelve years in the country i army a was hired by an american company in year e a time when the united_states was experiencing a shortage of scientists with ph d degrees and was actively recruiting abroad a obtained a green card rather than u s citizenship a retired in year g and on date b he repatriated to country i the country where family members of his generation and his closest friends are a’s wife is and has been since birth a citizen of country i during the five years preceding expatriation a maintained a home in the united_states where he lived for most of the year a’s wife who expatriated on date d approximately six and one half months before a has for many years had business and other interests in country i that necessitated her spending increasing amounts of time in that country a and his wife eventually expect to dispose_of their home in the united_states but for the time being are maintaining it as a vacation residence during the five years preceding expatriation a and his wife also maintained a residence in country i where they lived for several months each year from year f through year h a and his wife maintained an apartment there since year h they have resided in the house in which a’s wife was born and which she inherited from her parents a does not hold an interest in any partnership a is not considered to own any trust under sec_671 through of the code nor does a have any beneficial_interest in any trust on the date that he expatriated a’s assets consisted of cash marketable_securities with minimal appreciation individual_retirement_accounts u s pension u s real_estate and unappreciated personal_property located in the united_states a’s gross assets have a fair_market_value of less than dollar_figure a’s current_assets are representative of the assets he owned for the period that began five years prior to the date on which he expatriated and ending on the date that this ruling_request was submitted a does not expect any significant changes to his balance_sheet during the 10-year period following his expatriation a’s average annual net u s income_tax for the five taxable years prior to his expatriation was less than dollar_figure country i taxation of income and gains will not be significantly different than if a had continued to be a u s resident although the inheritance_tax eventually payable upon his death in country i may be less than the u s tax that would have applied if a had plr-112985-97 retained his u s residency depending on the ultimate identity of his heirs and the size of his estate any death_tax savings depends on a number of variables and are highly speculative a has no country i real_estate and country i imposes a wealth tax on securities and other assets in addition a’s u_s_assets will continue to be subject_to u s income and estate_tax under the normal rules applicable to nonresident_aliens sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed on u s source income as modified by sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual's average income_tax_liability or the individual's net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that person is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship or long-term residency for the secretary's determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 the rule also applies to an individual subject_to new sec_877 who expatriated after date but on or before date and who submitted a ruling_request by date pursuant to notice_97_19 1997_1_cb_394 see also sec_877 under notice_97_19 as modified by notice_98_34 1998_27_irb_30 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_97_19 as modified by notice_98_34 requires that certain information be submitted with a request for a ruling that an individual's expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_97_19 because he is plr-112985-97 described in two categories of individuals eligible to submit ruling requests prior to the issuance of notice_98_34 first on the date of a’s expatriation a was and continues to be a citizen and resident fully liable to income_tax in country i the country where a was born second a is also eligible to submit a request because his parents were born in country i a submitted substantially_all the information required by notice_97_19 as modified by notice_98_34 including any additional information requested by the service after review of the submission accordingly based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance with sec_877 and notice_97_19 as modified by notice_98_34 and therefore a will not be presumed to have expatriated with a principal purpose of tax_avoidance it is further held that a will not be treated under sec_877 as having as one of his principal purposes for expatriating the avoidance of u s taxes because the information submitted clearly establishes the lack of such a principal purpose to avoid tax under subtitle a or b of the code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to his loss of permanent resident status or for taxable periods after his loss of permanent resident status under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a's u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent iin accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives plr-112985-97 sincerely yours counsel international office of the associate chief allen goldstein reviewer


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uniform issue list tep late legend taxpayer a sep b sep c bank d sepe custodian f amount amount dear the following facts and representations have been submitted under penalty of perjury in support of the ruling requested this is in response to your request dated date as supplemented by correspondence dated date from your authorized representative in which you requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code’ taxpayer a represents that he received a distribution of amount from sep b and amount from sep c taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to the unauthorized distributions of amount and amount by bank d taxpayer a further represents that amount sec_1 and have not been used for any other purpose in august bank b without taxpayer maintained sep b and sep c with bank d the knowledge of taxpayer a closed sep b and sep c and issued distribution checks in amount and amount respectively bank b indicated the seps were closed because they were resigning as custodian during this time taxpayer a had just married was preparing to move and was awaiting the birth of his daughter since taxpayer a was not expecting a distribution from bank d the distribution checks were set_aside unopened and were packed for his move with taxpayer a's other financial documents the distribution checks were not discovered until taxpayer a was gathering information for his accountant to prepare his federal_income_tax return in be voided on april taxpayer a contacted bank d and requested that the checks and form 1009-r issued taxpayer a opened sep e with custodian f and in20 completed forms to effectuate a trustee-to-trustee transfer of amount from sep b and amount from sep c to sep e bank b reissued checks in amount sec_1 and payable to custodian f fbo taxpayer a and the trustee-to-trustee transfer took place on april based on the facts and representations you request a ruling that the service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount and amount sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if -- i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was due to bank d’s unauthorized distribution of amount from sep b and amount from sep c therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from sep b and amount from sep c provided all other requirements of sec_408 of the code except the 60-day requirement were met with respect the transfer of amount and amount to sep e on april such transfers will be considered a valid rollover_contribution within the meaning ot sec_408 2v152901 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or-cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t1 sincerely cltn a wt carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


of f i c e of c h i ef c ou n sel department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date number info release date uil the honorable aaron schock member u s house of representatives south 6th street springfield il attention --------------- dear congressman schock cc ita b4 ------------ conex-148435-09 i am responding to your inquiry dated date on behalf of your constituent -- ---------------------------- he asked why he cannot take the first-time_homebuyer credit for a home that he purchased from his parents congress added sec_36 to the internal_revenue_code the code to provide a credit to first-time homebuyers for purchases made in and the purchase of a residence from certain relatives including parents does not qualify for the credit sec_36 of the code because ---------------purchased a home from his parents he cannot take the first-time_homebuyer credit the statute does not contain any exceptions or grant the internal_revenue_service the authority to make exceptions to this rule any changes to this rule would require legislative action by congress i hope this information is helpful if you have any questions please contact --------------------or me at --------------------- sincerely michael j montemurro chief branch office of associate chief_counsel income_tax and accounting


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b02 - plr-169103-01 date date x a b d1 year d2 dear this responds to a letter dated date and subsequent correspondence written on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a and b x’s shareholders represent that they intended for x to be treated as an s_corporation for federal tax purposes as of year on or about d2 a and b signed and delivered a form_2553 election by a small_business_corporation to x’s tax advisor x’s tax advisor maintains that he filed the form_2553 with the internal_revenue_service however there is no evidence that a form_2553 was filed for x for year a and b represent that x a and b filed their federal_income_tax returns consistent with x being treated as an s_corporation for all applicable taxable years beginning with year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year plr-169103-01 based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative senior technician reviewer matthew lay sincerely yours branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number cc corp - plr-130646-02 date date parent distributing controlled sub business a business b business c industry ab government agency rules agreement e date date date plr-130646-02 x dear this letter responds to your date request for rulings on certain federal_income_tax consequences of a proposed transaction the information submitted in that request and in later correspondence is summarized below summary of facts parent is the publicly held parent of a consolidated_group distributing is a wholly owned subsidiary of parent that conducts business a business b and business c all of which are located within industry ab parent also owns all of the outstanding sub stock we have received financial information indicating that each of business a and business c as operated by distributing has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years distributing is subject_to regulation by government agency government agency has promulgated new rules relating to industry ab by enacting the rules under the rules business a will remain regulated but business b and business c will be open to competition the rules require that all competitive businesses operated by distributing be separated from its noncompetitive businesses the rules do not permit such a separation to be made by a transfer to a distributing subsidiary distributing and government agency have executed agreement e which provides that distributing will separate its regulated businesses from its unregulated businesses agreement e specifically requires distributing to transfer its business b and business c assets to respective direct subsidiaries of parent by date distributing proposes to divest itself of both business b and business c the distribution of business b was the subject of a private_letter_ruling issued by this office on date as modified by a supplemental ruling issued on date proposed transaction to effect the separation of business c distributing has proposed the following series of steps collectively the proposed transaction i distributing will transfer its business c assets to newly formed controlled in exchange for al of controlled’s stock and the assumption by controlled of the liabilities plr-130646-02 associated with the business c assets the contribution ii distributing will distribute all of the stock of controlled to parent the distribution iii controlled will merge with and into sub the merger distributing intends as part of the proposed transaction to enter into a purchase agreement with parent whereby distributing will purchase x from parent agreement in addition parent and sub will enter into a purchase agreement whereby parent will purchase x from sub for the purpose of fulfilling a part of the agreement obligation agreement representations the taxpayer has submitted the following representations in connection with the proposed transaction a no part of the consideration to be distributed by distributing will be received by parent as a creditor employee or in any other capacity other than that of a distributing shareholder b the five years of financial information submitted on behalf of distributing represents the corporation’s present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted c the five years of financial information submitted on behalf of controlled represents the corporation’s present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted d following the transaction distributing and controlled or its successor will each continue the active_conduct of its business independently and with its separate employees except that during a period of transition distributing and controlled may share the services of certain employees to the extent some business c assets are relocated to sub before all assets are so relocated once all business c assets have been transferred to sub it is contemplated there will be no shared employees e the distribution is motivated in whole or substantial part by the corporate business_purpose of separating its regulated and unregulated businesses as required by the rules f except for the merger there is no plan or intention by parent to sell plr-130646-02 exchange transfer by gift or otherwise dispose_of any stock in either distributing or controlled or its successor after the transaction g there is no plan or intention by either distributing or controlled or its successor directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 h except for the merger there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business i the total fair_market_value of the assets transferred to controlled by distributing will equal or exceed the amount of the liabilities assumed as determined under sec_357 of the internal_revenue_code by controlled j the liabilities assumed as determined under sec_357 in the transaction were incurred in the ordinary course of business and are associated with the assets being transferred k no intercorporate debt will exist between distributing and controlled at the time of or after the distribution l immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d m payments made in connection with all continuing transactions between distributing and controlled or its successor will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length n no two parties to the transaction are investment companies as defined in sec_368 and iv o the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of either distributing stock or controlled stock entitled to vote or percent or more of the total value of shares of all classes of either distributing or controlled stock p the merger will qualify for nonrecognition treatment pursuant to plr-130646-02 sec_368 rulings based solely on the information submitted and the representations set forth above we rule as follows the contribution followed by the distribution will be a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing on the contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the contribution sec_1032 the basis of the assets received by controlled in the contribution will equal the basis of the assets in the hands of distributing sec_362 the holding_period of each asset received by controlled will include the holding_period of that asset in the hands of distributing sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of parent on its receipt of controlled stock in the distribution sec_355 the aggregate basis of the distributing and controlled stock in the hands of parent after the distribution will equal parent’s basis in the distributing stock held immediately before the distribution sec_358 allocated between the distributing stock and controlled stock in proportion to fair_market_value of each immediately after the distribution in accordance with sec_1_358-2 of the income_tax regulations sec_358 and c the holding_period of the controlled stock received by parent will include the holding_period of the distributing stock on which the distribution is made provided the distributing stock is held as a capital_asset on the date of the distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 sec_1_312-10 and sec_1_1502-33 plr-130646-02 caveats we express no opinion on the federal_income_tax treatment of the proposed transaction under other provisions of the code or regulations including the consolidated_return_regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is given on whether the merger qualifies as a reorganization under sec_368 or a d the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of these materials submitted in support of this request for rulings verification of this information may be required as part of the audit process procedural statements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the transaction should attach a copy of this letter to the taxpayer's federal_income_tax return for the taxable_year in which the transaction is completed in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely richard k passales senior counsel branch office of associate chief_counsel corporate


number release date id office uilc cca_2009081316372464 -------------- 6662a from ------------------ sent thursday date pm to ----------------- cc ---------------------- subject re 6662a sec_6662a is effective for tax years ending after so it will not apply to the ------- year note however that the 6662a penalty applies to understatements - an underpayment is not necessary so the fact that the loss was not used in ------- does not necessarily mean that sec_6662a does not apply to -------


third party communication date of communication month dd yyyy cca_2014013114583364 id uilc number release date from sent friday date pm to cc bcc subject re the third party doesn’t need to know anything about what the taxpayer has and hasn’t provided and so nothing should be disclosed along those lines to the third party or his rep if he wants to he can challenge the summons in court at which point those facts if relevant can be disclosed


internal_revenue_service number release date index numbers ----------------------------- ------------------------------------------------------------ ---------- ------------------------ ------------------------------------------------------------ ------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-112144-09 date date legend x --------------------------------------------------- ----------------------------------------------------------------- d1 d2 country ------------------- ------------------- ---------------------- dear --------------- this is in response to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d2 however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes effective d2 plr-112144-09 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 and iii provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed sec_301_7701-3 provides that an election under sec_301_7701-3 must be signed by - a each member of the electing entity who is an owner at the time the election is filed or b any officer manager or member of the electing entity who is authorized under local law or the entity’s organizational documents to make the election and who represents to having such authorization under penalties of perjury sec_301_7701-3 provides that if a purchasing_corporation makes an election under sec_338 regarding an acquired subsidiary an election under sec_301 c i for the acquired subsidiary can be effective no earlier than the day after the acquisition_date within the meaning of sec_338 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-112144-09 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 conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a properly executed form_8832 effective d2 with the appropriate service_center to elect to be classified as a disregarded_entity a copy of this letter should be attached to the form_8832 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curt g wilson curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number 468a -------------------- -------------------------------------------------- ---------------------------------------------------- -------------------------- --------------------------------- - taxpayer 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 b06 plr-117415-06 date date ------------------------------------------------- --------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------- ------------------------ ---------------------------------------------------- ------------------------------- ----------- ---------- --------------------------------------------------------------------------------- parent plant location state a state b commission a -------------------------------------------------------------------------------------------------------- commission b ----------------------------------------------------------------------------------------------------------- commission c order a order b ---------------------------------------------------------------------------------------------------------- order c method date one date two date three date four date five ------------------------------------------------------- ------------------------------------------------ ----------------- -------------------- ----------------------- -------------------- ---------------------- --- --------- -------- --------------- -------------------------------------- ----------------------------------------------------- ------------------------------------------------------------------- --------------------------------------------------------------------------------- a b c d e plr-117415-06 dear ------------------ f g h i j k l ---- ------- -------------------------------------- ------------------------------------------------------------------ --------------------------------------- ----------------- ----------------- this letter responds to your request on behalf of taxpayer dated date for a revised schedule of ruling amounts pursuant to sec_1_468a-3 of the income_tax regulations a schedule of ruling amounts was previously issued with regard to the plant on date one information was submitted pursuant to sec_1_468a-3 taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows plant is situated in location taxpayer is an investor-owned public_utility incorporated in state a and is principally engaged in the operation of an integrated electric public_utility system involving the generation transmission distribution and sale of electric energy in state a and state b taxpayer is a subsidiary of parent and files its federal_income_tax return on a calendar_year basis using the accrual_method of accounting taxpayer owns a a percent undivided_interest in plant taxpayer is subject_to the regulatory jurisdiction of commission a commission b and commission c for purposes of determining the amount of decommissioning costs to be included in cost of service for ratemaking purposes commission a has allocated b percent of the cost of decommissioning plant to state a and commission b has allocated c percent of the cost of decommissioning plant to state b the taxpayer is requesting review of the prior schedule of ruling amounts because commission a has extended the estimated date on which plant will no longer be included in taxpayer's rate base for ratemaking purposes commission b has not adjusted any of its assumptions concerning decommissioning costs for plant since the prior schedule was issued therefore the request relates only to the state a jurisdictional amounts and incorporates the previously-approved state b jurisdictional amounts by reference to the prior schedule in order a commission a changed the estimated life of plant for depreciation purposes by approving a regulatory plan plan that requires taxpayer to begin recording depreciation expense for plant based on a 60-year life effective date two based upon an anticipated license extension of years for plant plr-117415-06 on date three commission a issued order b approving the continuation of the collection of decommissioning costs for plant in cost of service at the current level of d per year commission a required taxpayer to file its next rate case in date four to be effective on date five the level of decommissioning costs for plant will be reviewed at that time the following discussion of decommissioning assumptions relates only to the b percent allocation of decommissioning costs allocated to state a by commission a and is based upon order c an estimated cost of e was used as the base cost for decommissioning the portion of plant allocated to state a this base cost was escalated at_f percent annually to the year that decommissioning is expected to completed g resulting in an estimated future decommissioning cost of h the base cost of decommissioning the plant is based on the use of the method of decommissioning the funding_period and the level_funding limitation period for the plant extend i the estimated period for which the fund will be in effect and the estimated_useful_life of the plant are each j thus the taxpayer has calculated its qualifying percentage to be percent the fair_market_value of the assets of the qualified nuclear decommissioning fund sec_468a provides that a taxpayer may elect to deduct the amount of allocable to the state a jurisdictional amount as of the first day of the first taxable_year to which the schedule of ruling amounts will apply is k the assumed after tax_rate of return is l payments made to a qualified decommissioning fund however former sec_468a limited the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of plr-117415-06 these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within months after the close of the tax_year sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or the ruling_amount applicable to the nuclear decommissioning fund for such tax_year sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes plr-117415-06 sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under sec_1_468a-3 the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable plr-117415-06 public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions the taxpayer has a qualifying interest in the plant and will be treated as an eligible_taxpayer under sec_1_468a-1 of the regulations commission a has permitted the amount of decommissioning costs to be included in taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations for the period covered by this letter_ruling taxpayer has determined that pursuant to sec_1_468a-3 of the regulations the qualifying percentage is percent taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commission a and will result in a projected plr-117415-06 fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code approved schedule of ruling amounts for taxable years ------------------1 year commission a commission b total --------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in sec_1_468a-3 occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied effective date amendments were made to sec_468a by the energy tax concerning the federal_income_tax consequences of the transaction described above incentives act of publaw_109_58 119_stat_594 regulations based on these amendments are being developed but have not yet been proposed because the period to which the schedule of ruling amounts above relates began prior to the effective date of these amendments the discussion above is based on the law in effect prior to date however this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_2006_1 2006_1_irb_1 however when the criteria in section dollar_figure of revproc_2006_1 2006_1_irb_49 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances the ruling amounts for commission b were approved in a prior schedule of ruling amounts for purposes of the mandatory review required under sec_1_468a-3 of the regulations the date of that prior ruling shall govern the review period for the jurisdiction of commission b plr-117415-06 the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc pursuant to sec_1_468a-7 a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries


department of the treasury internal_revenue_service washington d c jun number release date cc tege eoeg et1 - cor-114311-01 uilc memorandum for from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - cor-114311-01 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business became an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that became an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business cc will e mcleod


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date cc psi br9 uilc internal_revenue_service national_office field_service_advice memorandum for associate area_counsel cc lm nr dal from associate chief_counsel cc psi subject passive_loss_rules this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice legend decedent trust s_corporation district_court date date date issue sec_1 whether decedent’s interest in a passive_activity was transferred by reason of his death pursuant to sec_469 whether certain s_corporation stock is includible in decedent’s estate conclusion sec_1 based upon the information provided decedent’s interest in the passive_activity transferred by reason of his death under sec_469 based upon the information provided the s_corporation stock is not includible in decedent’s estate facts the facts submitted are as follows decedent was the sole current income_beneficiary of trust trust was established by decedent’s parents on date trust held stock in s_corporation decedent filed an election under sec_1361 to treat trust as a qualified_subchapter_s_trust hereinafter qsst trust’s terms as modified on date by a judgment of district_court provide that if decedent lives to age forty trust is to terminate and its corpus distributed to decedent however if decedent dies before attaining age forty trust is to terminate and is to be distributed to decedent’s living lineal_descendants if decedent has no living lineal_descendants trust is to be distributed to the living lineal_descendants of decedent’s parents decedent died on date before attaining age forty trust was distributed to the living lineal_descendants of decedent’s parents during his life decedent was unable to deduct certain losses accrued by s_corporation because of the passive_activity_loss limitations under sec_469 carryover passive_activity_losses of approximately dollar_figure million were claimed on decedent’s final federal_income_tax return form_1040 net operating losses were carried back on the income_tax returns for three prior years and refunds were made to decedent these refunds were included in decedent’s form_706 law and analysis issue under sec_1361 a_trust treated as a wholly owned grantor_trust may be a shareholder of an s_corporation if a beneficiary of qsst makes an election under sec_1361 the qsst is treated as if it were a grantor_trust that is described in sec_1361 and the income_beneficiary of the qsst is treated as the owner of that portion of the trust that consists of the stock of the s_corporation for which the qsst election was made sec_1361 when an individual is treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the individual treated as the owner those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account in computing taxable_income or credits against the tax of an individual sec_671 you have informed us that the qsst election in this case was proper and that at all times trust met the requirements provided in sec_1361 as a result of the valid qsst election decedent was treated as the owner of the s_corporation stock held by the qsst the passive_activity_loss rules enacted by congress as part of the tax_reform_act_of_1986 publaw_99_514 100_stat_2085 generally prohibit certain taxpayers from using losses from passive activities to offset income from nonpassive activities disallowed losses are suspended and carried forward to reduce passive_activity income generated in future years sec_469 because of the passive_activity_loss limitations under sec_469 decedent was unable to deduct the passive losses generated by s_corporation during his life sec_469 provides special rules for interests in passive activities that are transferred by reason of the death of a taxpayer when a taxpayer transfers his interest in a passive_activity by reason of his death the suspended passive_activity_losses allocated to his interest in the activity are deductible on his last income_tax return to the extent such losses are greater than the excess if any of the basis of such property in the hands of the transferee over the adjusted_basis of such property immediately before the taxpayer’s death the suspended losses are treated as losses not from a passive_activity and therefore may offset nonpassive_income sec_469 the amount of the passive_activity_loss that equals the step-up_in_basis by reason of decedent’s death is not allowed as a deduction to anyone in any taxable_year sec_469 see also 110_tc_46 when decedent died his interest in the activity transferred accordingly under sec_469 the carryover passive losses allocated to decedent’s interest are deductible on decedent’s last income_tax return to the extent such losses are greater than the excess if any of the basis of such property in the hands of the transferee over the adjusted_basis of such property immediately before decedent’s death issue decedent was the sole current income_beneficiary of trust established by his parents when decedent died trust was distributed to the living lineal_descendants of decedent’s parents given these facts the s_corporation stock held by the qsst is not includible in decedent’s estate under any estate_tax provisions of the internal_revenue_code please call if you have any further questions associate chief_counsel passthroughs and special industries by melissa c liquerman acting branch chief branch office of associate chief_counsel passthroughs and special industries