tax_exempt_and_government_entities_division - vu62z5 department of the treasury internal_revenue_service washington d c mar uniform issue list t'epl ral uk legend taxpayer a tsa b amount d financial advisor c account t credit_union t dea ' the following facts and representations have been submitted under penalty of perjury in support of the ruling requested this is in response to your letter dated date in which you request a waiver of the 60-day rollover requirement contained in sec_402 of the internal_revenue_code the code as applicable to an annuity described in code sec_403 pursuant to code sec_403 taxpayer a age represents that a distribution from tsa b a tax_shelter annuity retirement account totaling amount d was directly rolled over into account t established at credit_union t taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_402 was due to error on the part of credit_union t on date taxpayer a opened account t with the help of financial advisor c at credit_union t taxpayer a stated that she intended to open a rollover individual_retirement_account ira taxpayer a and financial advisor c completed ira rollover application forms which indicated she was completing a rollover of amount d it was not until date that taxpayer a learned from credit_union t that account t was set up as a regular savings account and not an ira as taxpayer a intended a - manager at credit_union t then informed taxpayer a to write to the internal_revenue_service to correct the error of credit_union t based on the facts and representations you request that the service waive the 60-day rollover requirement with respect to the distribution of amount d because the failure to waive such requirement would be a hardship and against equity or good conscience with respect to your request to waive the day rollover requirement sec_403 of the code provides in relevant part that any amount distributed out of an annuity_contract described in sec_403 shall be taxable to the distributee in the taxable_year of the distributee in which distributed in the manner provided under sec_72 of the code relating to annuities code sec_403 provides that if any portion of the balance_to_the_credit of an employee in a b annuity_contract is paid to him in an eligible_rollover_distribution within the meaning of sec_402 and the employee transfers any portion of the ‘distribution to an eligible_retirement_plan described in sec_402 then the distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which it was distributed sec_402 defines an eligible_retirement_plan for purposes of subsection c as including an ira described under sec_408 sec_403 provides that rules similar to the rules of paragraphs through and of sec_402 shall apply for purposes of sec_403 sec_403 provides in relevant part that any amount transferred in a direct trustee-to-trustee transfer in accordance with sec_401 shall not be includible in gross_income for the taxable_year of the transfer sec_402 of the code provides rules governing rollovers of amounts from exempt trusts to eligible retirement plans including iras sec_401 of the code provides that a_trust shall not constitute a qualified_trust under this section unless the plan of which such trust is a part provides that if the distributee of any eligible rollover distribution- i elects to have such distribution paid directly to an eligible_retirement_plan and ii specifies the eligible_retirement_plan to which such distribution is to be paid in such form and at such time as the plan_administrator may prescribe such distribution shall be made in the form of a direct trustee-to-trustee transfer to the eligible_retirement_plan so specified sec_401 of the code provides that for purposes of code sec_401 a the term eligible_retirement_plan has the meaning given such term by sec_402 with an exception not pertinent to this ruling_request thus a direct transfer defined in code sec_401 may be made into an ira sec_1_401_a_31_-1 of the income_tax regulations question and answer-5 provides in relevant part that an eligible_rollover_distribution that is paid to an eligible_retirement_plan in a direct_rollover is not currently includible in the distributee’s gross_income under sec_402 and is exempt fron the 20-percent withholding imposed under sec_3405 of the code sec_1_401_a_31_-1 of the income_tax regulations question and answer-15 provides in relevant part that a direct_rollover described in code sec_401 is a distribution and rollover of the eligible_rollover_distribution and not a transfer of assets and liabilities thus for example the consent and requirements of code sec_401 a a and apply to transactions described in code sec_401 a code sec_402 provides that except as provided in subparagraph b paragraph shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed sec_402 of the code provides that the secretary may waive the 60-day requirement under sec_402 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_402 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 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 her assertion that her failure to accomplish a timely rollover was caused by the error of credit_union t in creating a regular savings account when it should have created a rollover ira account thus based on the above pursuant to code sec_402 the service hereby waives the 60-day rollover period found in code sec_402 as a result taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount d into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount d will be considered a rollover_contribution within the meaning of 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 if you wish to inquire about this ruling please contact i d ll please address all correspondence to se t ep ra t3 _at sincerely yours flo - frances v sloan manager employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose


t c memo united_states tax_court independent staffing solutions petitioner v commissioner of internal revenue respondent docket no 9734-08l filed date jack duran for petitioner james a whitten for respondent memorandum opinion marvel judge pursuant to sec_6330 petitioner seeks review of respondent’s determination to sustain a notice_of_federal_tax_lien nftl with respect to petitioner’s unpaid 1unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure employment_tax ie unpaid withholding and fica tax_liabilities reported on form_941 employer’s quarterly federal tax_return for the quarters ending september and date and date and unpaid futa_tax liabilities reported on form_940 employer’s annual federal unemployment futa_tax return for for the reasons that follow we shall sustain respondent’s determination background the parties submitted this case fully stipulated pursuant to rule the stipulation of facts is incorporated herein by this reference petitioner’s mailing address was in california when the petition was filed petitioner is a wholly owned tribally chartered enterprise of the fort independence indian_tribe a federally recognized 2we use the term employment_tax to refer to taxes under the federal_insurance_contributions_act fica secs the federal_unemployment_tax_act futa secs and federal_income_tax withholding secs and 3petitioner’s principal_place_of_business is unclear the record suggests that petitioner’s principal_place_of_business in was on the sovereign indian lands of the fort independence indian_reservation however there is no evidence in the record with respect to petitioner’s principal_place_of_business on the date the petition was filed indian_tribe petitioner was established in petitioner is in the business of providing temporary staffing services in date petitioner entered into an agreement with mrg california l l c mrg the terms of the agreement called for mrg to provide management services to petitioner including administration of petitioner’s payroll on date respondent filed an nftl against petitioner in the inyo county recorder’s office with respect to the following employment_tax liabilities form_940 quarter tax_year amount due dollar_figure dollar_figure dollar_figure also on date respondent mailed to petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 cdp_notice regarding the same liabilities on date petitioner timely filed a form request for a collection_due_process or equivalent_hearing with respect to the cdp_notice in the form petitioner stated 4as a threshold matter we note that tribally chartered enterprises generally are required to withhold employment_taxes in the same manner as other employers see revrul_59_354 1959_2_cb_24 revrul_56_110 1956_1_cb_488 cf allen v commissioner tcmemo_2005_118 rejecting taxpayer’s claim that income received as a member of a tribal council was exempt from employment_tax for both wage withholding and self-employment_tax purposes and holding that taxpayer’s income was to be treated as self-employment_income subject_to federal self-employment_tax under sec_1401 doxtator v commissioner tcmemo_2005_113 same as follows with respect to the employment_tax liabilities tax_payments have been made the tax is not due and owing the taxes have not been properly calculated taxpayer is not responsible for the tax_payments on march and petitioner’s counsel5 sent several documents to respondent’s settlement officer ruth beck ms beck relating primarily to the business relationship between petitioner and mrg on date petitioner’s counsel and ms beck held a collection_due_process_hearing by telephone during the hearing petitioner’s counsel contended that petitioner was not liable for the employment_tax liabilities because of the unlawful acts of mrg and its successor independent management resources l l c imr specifically petitioner’s counsel argued the lien should be discharged because mrg and imr misappropriated the funds petitioner had earmarked for payment of its employment_tax liabilities petitioner did not make any other arguments with respect to the existence of the employment_tax liabilities and did not suggest any collection alternatives 5petitioner’s then counsel john m peebles has since withdrawn 6the record does not corroborate any illegal or improper acts on the part of mrg or imr and we express no opinion with respect to petitioner’s assertion that mrg or imr misappropriated petitioner’s funds 7petitioner’s counsel asserted that petitioner’s tax_liability was calculated incorrectly however he presented no continued on date respondent issued a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination in the notice_of_determination respondent sustained the filing of the nftl with respect to petitioner’s employment_tax liabilities in an attachment to the notice_of_determination respondent addressed petitioner’s argument as follows form was annotated lien discharge your representative intimated that it appears another entity may be liable for the tax_liability other than a copy of an agreement between the taxpayer and another entity of which the service had no part in this agreement sic there was no more information provided to the settlement officer regarding this possible issue review of irm discharge of property and irm when to issue a certificate of discharge has affirmed the settlement officers sic determination that a lien discharge is inappropriate in this case no other issues were raised petitioner timely filed a petition in this court challenging respondent’s notice_of_determination continued evidence or explanation with respect to this argument discussion i sec_6320 and sec_6330 sec_6320 provides that the secretary must notify a taxpayer in writing of the filing of an nftl and of the taxpayer’s right to request an administrative hearing with respect to the lien sec_6320 provides that the taxpayer is entitled to a fair hearing before an impartial officer of the internal_revenue_service office of appeals appeals_office sec_6320 provides that the hearing shall be conducted according to the provisions of sec_6330 d and e other than sec_6330 a taxpayer may raise any relevant issue at the hearing including appropriate spousal defenses challenges to the appropriateness of collection action and offers of collection alternatives sec_6330 a taxpayer may also challenge the existence or amount of the underlying liability but only if the taxpayer did not receive a statutory_notice_of_deficiency or did not otherwise have a previous opportunity to dispute the underlying liability sec_6330 following the hearing the appeals_office must issue a notice_of_determination with respect to the proposed collection activity in making the determination the appeals_office must take into consideration verification from the secretary that the requirements of any applicable law or administrative procedure have been followed any relevant issues raised by the taxpayer and whether the proposed collection action appropriately balances the need for appropriate collection_of_taxes with the taxpayer’s legitimate concerns regarding the intrusiveness of the proposed collection action sec_6330 if the taxpayer disagrees with the appeals office’s determination the taxpayer may seek review of the determination by filing a timely petition in this court sec_6330 if a taxpayer’s underlying liability is properly at issue we review any determination with respect to the underlying liability de novo 114_tc_604 114_tc_176 we review any other administrative determination for abuse_of_discretion 119_tc_252 citing sego v commissioner supra pincite respondent concedes that petitioner did not receive a notice_of_deficiency and did not otherwise have an opportunity to challenge the employment_tax liabilities accordingly petitioner may challenge the underlying liabilities in this 8no particular form of verification is required and it is well settled that a taxpayer’s account transcripts presumptively will satisfy the verification requirement of sec_6330 124_tc_189 citing 118_tc_365 ndollar_figure affd 329_f3d_1224 11th cir 118_tc_162 and 117_tc_183 proceeding and to the extent the underlying liabilities are at issue we will review respondent’s determination de novo ii respondent’s notice_of_determination a applicable law and administrative procedure the record establishes that ms beck reviewed petitioner’s account transcripts for the tax periods at issue and determined that all applicable laws and administrative procedures had been satisfied with respect to the nftl petitioner does not argue that respondent failed to fulfill the requirements of any applicable law or administrative procedure and our review of the record does not reveal any legal or procedural errors with respect to respondent’s proposed collection action accordingly we conclude that respondent’s determination that the requirements of all applicable laws and administrative procedures were satisfied was not an abuse_of_discretion b petitioner’s arguments petitioner advanced only one argument during the collection_due_process_hearing ie that a third party’s misappropriation of funds set_aside for payment of petitioner’s employment_tax liabilities relieves petitioner of liability for the unpaid employment_taxes as petitioner’s argument is a challenge to 9petitioner stated on the form that the employment_tax liabilities were not due and owing and petitioner’s counsel asserted during the hearing that petitioner’s employment_tax was not properly calculated however as discussed above petitioner continued the existence of the underlying liability we review petitioner’s argument de novo see sego v commissioner supra pincite goza v commissioner supra pincite on the basis of the record before us however we conclude that petitioner’s argument is not supported by the facts or applicable law despite petitioner’s assertions there is no credible_evidence in the record that mrg imr or any other third party misappropriated petitioner’s fundsdollar_figure accordingly petitioner’s assertion that a third party misappropriated the funds set_aside to pay petitioner’s employment_tax liabilities is without factual support and in any event is not a recognized defense to respondent’s proposed collection action c balancing efficient collection with taxpayer’s legitimate concerns finally on the basis of her review of petitioner’s account transcripts ms beck determined that respondent’s collection action ie the filing of an nftl was no more intrusive than necessary petitioner does not specifically address this continued failed to explain or submit any evidence to the hearing officer with respect to this argument petitioner does not argue in its petition that the employment_tax was improperly calculated consequently we deem this issue conceded see rule b 10mrg’s and imr’s bankruptcy petitions which were among the documents mailed to ms beck before the hearing and are part of the record in this case list petitioner as an unsecured creditor however such evidence standing alone does not establish that mrg or imr misappropriated petitioner’s funds conclusion on the basis of the record before us we can see no reason to conclude that the determination on this point was erroneous iii conclusion we conclude that respondent did not err in determining that all applicable laws and administrative procedures had been followed with respect to petitioner’s unpaid employment_tax and that the filing of the nftl appropriately balanced the need for efficient collection of tax with the taxpayer’s legitimate concerns we further conclude that the sole issue raised by petitioner ie whether a third party’s alleged misappropriation of petitioner’s funds relieves petitioner of liability for unpaid employment_tax is factually unsupported by the record and legally without merit consequently respondent’s determination is sustained we have considered the remaining arguments of both parties and to the extent not discussed above we conclude those arguments are irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------------ --------------------------------------------------------- --------------------- ------------------------------------ ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp b04 plr-115875-09 date date legend taxpayer series x preferred_stock series y preferred_stock regulations conversion provision date date --------------------- ------------------------------- ----------------------- ------------------------------------------------------- ----- ------------------------------------------------------- ----- ------------------------------------------------------------- ----------------------------------------------- ---- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- -------------- ---- ---------------- ---- ------------------ plr-115875-09 date date a b c d e ---- ----------------------- ---- ----------------------- ---- ------------------------------------------------------------- --------------------------------- ---- ------ ---- --------- ---- ------- ---- --------- ---- dear ------------------- this letter responds to your authorized representative’s letter dated date requesting rulings under sec_382 and sec_1504 of the internal_revenue_code the information submitted in that letter and later correspondence is summarized below the rulings contained in this letter are based on facts 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 the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts taxpayer is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return it is a publicly-traded domestic_corporation with a single class of common_stock and multiple classes of preferred_stock outstanding including the series x preferred_stock and the series y preferred_stock the series x preferred_stock was issued on date pays noncumulative dividends at a rate per annum equal to a and is perpetual subject_to taxpayer’s right to redeem the series x preferred_stock after date for an amount equal to its liquidation preference the series x preferred_stock does not have any voting rights except in the case of certain dividend nonpayment events and with respect to the authorization of any class of stock senior to the series x preferred_stock any material and adverse changes in the terms of the series x preferred_stock and certain mergers consolidations or similar transactions involving taxpayer plr-115875-09 the series x preferred_stock is subject_to a conversion provision the conversion provision allows for the taxpayer to convert the series x preferred_stock if there is a modification to the regulations if triggered the conversion provision allows the taxpayer to convert the series x preferred_stock into a new class of preferred_stock having terms substantially identical to those of the series x preferred_stock except that the new preferred_stock may be modified to the extent necessary to satisfy requirements of the regulations the conversion provision prevents the taxpayer from converting the series x preferred_stock into stock with terms and conditions that are materially less favorable to the holders of the series x preferred_stock the series x preferred_stock is not otherwise convertible the series y preferred_stock was issued on date and pays noncumulative dividends at a rate per annum equal to b the series y preferred_stock does not have any voting rights except in the case of certain dividend nonpayment events and with respect to the authorization of any class of stock senior to the series y preferred_stock any material and adverse changes in the terms of the series y preferred_stock and certain mergers consolidations or similar transactions involving taxpayer the series y preferred_stock is perpetual however taxpayer has the right to redeem the series y preferred_stock after date at a fixed price of c per share representing a premium of d over the series y preferred_stock liquidation preference of e per share the redemption_premium representations taxpayer makes the following representations with respect to the series x preferred_stock and the series y preferred_stock taxpayer does not currently have the right under the conversion provision to convert the series x preferred_stock into a new series of preferred_stock with any additional or modified terms taxpayer may not convert the series x preferred_stock under the conversion provision unless there is a change in the applicable regulations which is not within taxpayer’s control c taxpayer believes and believed at the time the series x preferred_stock was issued that the applicable regulations will not be changed in manner that would trigger the conversion provision the redemption_premium on the series y preferred shares is payable only on the redemption of such stock the holders of the series y preferred_stock have no right to force the redemption of their shares a b d e plr-115875-09 rulings based solely on the information submitted and the representations made we rule as follows under the facts presented the existence of the conversion provision will not prevent the series x preferred_stock from being described in sec_1504 and will not prevent the series x preferred_stock from being treated as other than stock for purposes of sec_382 taxpayer’s right to redeem the series y preferred_stock will not prevent the series y preferred_stock from meeting the requirements of sec_1504 and will not prevent the series y preferred_stock from being treated as other than stock for purposes of sec_382 caveats except as expressly provided in the rulings above no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter procedural statements this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively a taxpayer filing its return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter_ruling in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely ___________________________ marie c milnes-vasquez senior technician reviewer branch associate chief_counsel corporate


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp 5-plr-105302-99 date date re distributing controlled controlled shareholder shareholder state n business a year a plr-105302-99 b type c insurance_company dear this is in reply to your letter dated date requesting rulings as to the federal_income_tax consequences of a proposed transaction additional information was provided by a letter dated date the information submitted is summarized below distributing is a state n corporation that is an accrual basis taxpayer and a subchapter_c_corporation distributing is a holding_company with no business operations of its own that has continuously engaged in business a since its incorporation in year through its two wholly-owned subsidiaries controlled and controlled distributing has outstanding a shares of class a voting common_stock the class a stock that are entirely owned by shareholder and b shares of class b voting common_stock the class b stock that are entirely owned by shareholder financial information has been received which indicates that each business of controlled and controlled has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the last five years to allow each of the shareholders to go their separate ways and enhance the efficiency and profitability of each of the two businesses the taxpayer proposes that i ii distributing will distribute all of the stock of controlled to shareholder in exchange for all of its stock the class b stock in distributing and distributing with shareholder as its sole continuing shareholder of class a stock will continue to operate as a holding_company for all of the stock of controlled the class a stock will constitute percent of the issued and outstanding_stock of distributing distributing controlled and controlled and their shareholders have entered into a separation agreement to govern this proposed transaction under this agreement in relevant part a final settlement of the value of distributing’s equity account in its type c insurance_policy issued by insurance_company owed by distributing to controlled shall be reflected in a promissory note to be made by distributing in favor of controlled such promissory note shall provide for payments plr-105302-99 by distributing to controlled as distributing receives payments ie return of the equity account if any from insurance_company any amount owed by controlled to distributing with respect to this account is payable by controlled to distributing within days of the determination of such amount the following representations have been made in connection with the proposed transaction a b c d e f g the fair_market_value of the controlled stock to be received by shareholder of distributing will be approximately equal to the fair_market_value of distributing’s stock surrendered by shareholder in the exchange no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation the five years of financial information submitted on behalf of distributing and the controlled corporations is representative of each corporation’s present operations and with regard to such corporations there have been no substantial operational changes since the date of the last financial statement submitted immediately after the distribution at least percent of the fair_market_value of the gross assets of distributing will consist of stock and securities of controlled corporations that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 following the transaction distributing through controlled and controlled will continue the active_conduct of its business independently and with its separate employees the distribution of the stock of controlled is carried out for the following corporate business purposes the desire of the shareholders of distributing to go their separate ways in order to enhance the efficiency and profitability of the controlled corporations the distribution of the stock of controlled is motivated in whole or substantial part by one or more of these corporate business purposes distributing is not an s_corporation within the meaning of sec_1361 and there is no plan or intention by distributing or controlled corporations to make an s_corporation_election pursuant to sec_1362 h there is no plan or intention by the shareholders of distributing to sell plr-105302-99 exchange transfer by gift or otherwise dispose_of any of their stock in either distributing controlled or controlled after the transaction there is no plan or intention by the shareholders of distributing controlled or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through a stock purchase meeting the requirements of sec_4 b of revproc_96_30 there is no plan or intention to liquidate either distributing or the controlled corporations to merge the corporation s with any other corporation or to sell or otherwise dispose_of the assets of any corporation after the transaction except in the ordinary course of business distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction 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_21_irb_6 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account with respect to the controlled stock will be included in income immediately before the distribution see sec_1_1502-19 no intercorporate debt will exist between distributing and the controlled corporations at the time of or subsequent to the distribution of the controlled stock except as provided in the separation agreement as described above there will not be any continuing planned or intended transactions between distributing and controlled following the distribution in the event there should be any such transactions payments made in connection with all continuing transactions between distributing and the controlled corporations will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arms length no two parties to the transaction are investment companies as defined in sec_368 and iv there is no plan or intention pursuant to which one or more persons shall acquire directly or indirectly stock representing a percent or greater interest in distributing or controlled following the proposed transaction i j k l m n o p plr-105302-99 sec_355 based solely on the information submitted and on the representations set forth above we hold as follows no gain_or_loss will be recognized to and no amount will be included in the income of shareholder on the receipt of the stock of controlled in exchange for all of its shares of distributing class b stock sec_355 shareholder 2's basis in the controlled stock received in the transaction will be the same as its basis in the distributing stock exchanged therefor immediately before the transaction sec_358 the holding_period of the controlled stock received in the transaction will be the same as shareholder 2's holding_period in the distributing stock exchanged therefor provided that such distributing stock is held as a capital_asset on the date of the transaction sec_1223 no gain_or_loss will be recognized by distributing upon the distribution of all of its stock in controlled to shareholder in exchange for all of shareholder 2's distributing stock sec_355 proper allocation of earnings_and_profits between distributing and controlled will be made in accordance with sec_1_312-10 of the income_tax regulations sec_312 payments made by distributing to controlled or by controlled to distributing pursuant to the separation agreement including payments relating to the equity account in insurance_company as described above that i have arisen or will arise for a taxable_period ending before the proposed distribution or for a taxable_period beginning on or before and ending after the proposed distribution and ii will not become fixed and ascertainable until after the proposed distribution will be treated as occurring immediately before the proposed distribution no opinion is expressed about the tax treatment of the described transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the described transaction that are not specifically covered by the above ruling this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent each affected taxpayer must attach a copy of this letter to the federal_income_tax plr-105302-99 return for the taxable_year in which the transaction covered by this letter is consummated in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely assistant chief_counsel corporate by filiz a serbes assistant to the chief branch


internal_revenue_service department of the treasury index numbers washington dc number release date person to contact telephone number refer reply to cc dom corp plr-105017-99 date date business b business c b f dear this letter responds to your date request as amended in later correspondence for a supplement to i the ruling letter we issued to distributing on date the ruling letter and ii certain other ruling letters described in the ruling letter collectively the prior rulings capitalized terms retain the meanings assigned in the prior rulings the ruling letter addresses certain federal_income_tax consequences of proposed distributions by distributing to its shareholders of controlled holding business c and controlled indirectly holding business b and related transactions certain events have occurred since the ruling letter was issued that make it impracticable to separate business c from business b at this time consequently business c will be transferred to controlled in contribution as originally planned but controlled will remain a wholly owned subsidiary of distributing rather than being distributed to distributing in addition distributing now intends that certain key executives of business b and business c who own distributing common_stock exchange their shares for class b controlled shares in distribution as to each exchanging executive together the exchanging executives the fair_market_value of plr-105017-99 the controlled stock received will approximately equal the fair_market_value of the distributing common_stock surrendered finally to minimize the risk of a substantial country f tax_liability distributing will continue to own one common share less than dollar_figure percent of distributing following distribution controlled will hold all other shares of distributing as a result of these changes to the originally proposed transaction the ruling letter is modified as follows the symbols b and f in the legend have new definitions as indicated and g is deleted the following description of the proposed transaction replaces paragraphs i through viii on page sec_3 and of the ruling letter i distributing will transfer the business c assets to a newly formed subsidiary controlled in exchange for controlled stock and the assumption by controlled of liabilities related to the transferred assets contribution ii distributing will borrow funds from a third party lender and use those funds to repay all of its debt to sub and part of its debt to distributing iii distributing will transfer the distributing stock the remaining intercompany debt and the asset to a newly formed corporation controlled in exchange for controlled stock contribution iv controlled will issue new shares of its stock pro_rata to the distributing shareholders with respect to their distributing common_stock and the controlled shares held by distributing will be cancelled distribution as part of distribution the exchanging executives will surrender all of their distributing shares to distributing and will receive in exchange solely shares of controlled v distributing will redeem any distributing common_stock held by business b or business c employees except individual vi controlled will issue the first tranche of incentive stock to certain senior executives of business b and business c vii within a months of the distribution the b most senior executives of business b and business c will have been issued stock in plr-105017-99 controlled representing in the aggregate a greater than c percent interest within d months this interest will rise to greater than e percent the total cost to the business b and business c executives for their controlled stock will be approximately f dollars while the revised transaction will not achieve the same degree of business- specific incentive compensation as the original transaction distributing represents that it will nonetheless constitute a substantial_improvement over the current corporate structure and will be acceptable to the executives involved all representations and rulings relating to contribution distribution and distribution are deleted from the ruling letter the following additional ruling is issued no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the exchanging executives on the surrender of their shares in distributing in exchange solely for shares in controlled sec_355 based on the information and representations submitted with the original and supplemental ruling requests and later correspondence we reaffirm the rulings set forth in the prior rulings with the modifications stated herein we express no opinion on the tax effects of the transaction under other provisions of the code and regulations or the tax effects of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the prior rulings and this supplemental ruling in particular no opinion is expressed on whether contribution described in step i will qualify under sec_351 this supplemental ruling is directed only to the taxpayers 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 supplemental letter to the taxpayer’s federal_income_tax return for the taxable_year in which the transaction is consummated under a power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer plr-105017-99 sincerely assistant chief_counsel corporate by wayne t murray senior technician reviewer branch


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 as h i n g t o n d c date o f f ic e o f c h ief c o u n sel number release date cc ita tl-n-2504-01_wli2 uilc internal_revenue_service national_office field_service_advice memorandum for associate area_counsel from associate chief_counsel cc ita subject treble damage payments under the antitrust laws this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 of the internal_revenue_code this chief_counsel_advice should not be used or cited as precedent disclosure statement this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views legend a b c d a b c issue whether sec_162 of the limits the deductibility of settlement payments made by a to certain customers in anticipation of lawsuits arising from violations under sec_4 of the clayton act conclusion tl-n-2504-01 sec_162 does not limit the deductibility of settlement payments made by a to certain customers in anticipation of lawsuits arising from violations under sec_4 of the clayton act facts a is engaged in manufacturing and marketing b and c on a the united_states filed a criminal information in d charging a with illegally price fixing and conspiracy to suppress and eliminate competition by price fixing b in violation of sec_1 of the sherman antitrust act the sherman antitrust action in b a pled guilty to such charges as a result of the sherman antitrust action most of a’s customers group filed civil lawsuits under sec_4 of the clayton act which provides for the payment of treble_damages when a violation of the sherman act has occurred however some of a’s customers settled their antitrust claims before filing a lawsuit group ultimately a settled all claims related to the antitrust violations with respect to b and c tax years a deducted one-third of its settlement payments made under the clayton act to group and deducted all such payments to group it should be noted this field_service_advice is limited to settlement payments made by a under sec_4 of the clayton act to group the payments law sec_162 of the internal_revenue_code provides in general that there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business sec_162 provides that if in a criminal proceeding a taxpayer is convicted of a violation of the antitrust laws or pleads guilty or nolo contendere to an indictment or information charging such a violation is entered or accepted in such a proceeding no deduction shall be allowed under subsection a for two-thirds of any amount_paid or incurred- on any judgment for damages entered against the taxpayer under sec_4 of the clayton act or in settlement of any_action brought under sec_4 on account of such violation or related violation sec_1_162-22 of the income_tax regulations provides that an amount may be considered as paid in settlement of an action brought under sec_4 of the clayton act even though the action is dismissed or otherwise_disposed_of prior to such settlement or tl-n-2504-01 the complaint is amended to eliminate the claim with respect to the violation or related violation analysis in order for the two-thirds disallowance provided in sec_162 to apply to the instant case the statute and regulations require there must be a prior criminal proceeding in which the taxpayer was convicted of violating the federal antitrust laws or in which he entered his plea of guilty or nolo contendere to an indictment charging violation of the federal antitrust laws and if the damages are paid in settlement of any_action brought under sec_4 on account of such violation or related violation court proceedings must have been instituted by the plaintiff’s filing a complaint for treble_damages as stated above a pled guilty to violating federal antitrust charges therefore the first requirement has been satisfied the remainder of this field_service_advice will address the second requirement under sec_162 a settlement cannot relate to an anticipated action it must be an action brought the payments made by a to its customers were made to settle civil antitrust litigation between the parties stemming from the criminal antitrust investigation and the information to which a pled guilty however the payments did not settle an action brought under sec_4 of the clayton act in s rept no 1969_3_cb_597 the committee discusses the criminal underpinning for the partial denial of the deduction the senate report states i t is provided that if a taxpayer is convicted in a criminal proceeding for the violation of the federal antitrust laws or pleads guilty or nolo contendere then no deduction is to be allowed for two-thirds of any amount_paid on any judgment for damages against the taxpayer or for settlement of any_action brought under sec_4 of the clayton antitrust act there is nothing in sec_162’s legislative_history that indicates any legislative intent to forego the requirement for a civil_action to be brought under the clayton act rather sec_1_162-22 extends the scope of the statute but only to settlements of actions brought which are no longer active at the time the settlement is made that is the regulation applies the two-thirds limitation to settlements of an action that has been dismissed or otherwise_disposed_of prior to the settlement and to settlements where the claim has been amended to eliminate the requisite claim prior to the settlement it is our opinion that sec_162 does not apply to civil settlements where no civil_action has been brought as discussed above the statute is unambiguous on this tl-n-2504-01 point further the government lost this exact issue in 84_tc_1319 aff’d another issue 806_f2d_263 9th cir unpublished decision acq and nonacq on other issues 1990_2_cb_1 in fisher companies the court held that sec_162 does not apply to amounts paid prior to the commencement of an action under sec_4 of the clayton act the court read the plain language of sec_162 as requiring an action brought under sec_4 of the clayton act in order to trigger the two-thirds disallowance because the claimant in fisher companies settled with the taxpayer before filing a complaint under the clayton act the court held sec_162 did not apply to the payments made to the claimant similarly in the present case a’s customers did not file a civil_action under sec_4 of the clayton act against a and therefore the two-thirds limitation under sec_162 does not apply to the payments case development hazards and other considerations if you have any further questions please contact cc ita at heather c maloy associate chief_counsel robert m casey branch chief cc ita by


internal_revenue_service department of the treasury index numbers 1015-dollar_figure 2601-dollar_figure washington dc number release date person to contact telephone number refer reply to cc dom p si 4-plr-103977-00 date date re legend a b child a child b child c child c1 child c2 child c3 trust c trust c-c2 trust c-c3 trust c-c1 c2 trust c-c1 c3 dear this is in response to your letter dated date and prior correspondence submitted on behalf of the trustees and trust beneficiaries requesting income_tax and generation-skipping_transfer_tax rulings concerning the merger of identical trusts a and b both deceased had three children child a child b and child c in child c created and funded an irrevocable_trust trust c for the lifetime benefit of her three children child c1 child c2 and child c3 under the terms of trust c three identical trusts were created trust c-c1 for child c1 trust c-c2 for child c2 and trust c-c3 for child c3 upon the death of either child c1 c2 or c3 the trust for the deceased child is to be divided into separate trusts for the child’s issue per stirpes or if none the trust is to be divided and held for the benefit of the survivor s of child plr-103977-00 c1 c2 or c3 child c1 died in and was not survived by issue according to the terms of trust c-c1 the trust was divided into two trusts trust c-c1 c2 to be held under terms identical to trust c-c2 for the benefit of child c2 and trust c-c1 c3 to be held under terms identical to trust c-c3 for the benefit of child c3 since child c1’s death the provisions governing trust c-c1 c3 have been identical to the provisions governing trust c-c3 including present and future beneficiaries distribution standards trustee provisions trustee powers and termination provisions the trustees propose to merge trust c-c1 c3 into trust c-c3 the trustees intend to petition the appropriate state court to determine that each trust proposed to be merged is identical and ii order the consolidation of the trusts upon receipt of a favorable private_letter_ruling it is represented that there have been no additions to the subject trusts constructive or otherwise after date the following rulings have been requested the trusts were irrevocable on date and are not subject_to the generation-skipping_transfer_tax by reason of b a of the tax_reform_act_of_1986 the merger will not constitute an addition to the surviving trust nor cause a change in the substance of the surviving trust that will cause the surviving trust to lose its exempt status under sec_26_2601-1 of the generation-skipping_transfer_tax regulations the merger does not constitute a gift by the trust beneficiaries for purposes of sec_2511 of the internal_revenue_code neither the merger nor the distribution of assets to the surviving trust will result in recognition of gain_or_loss to any trust or the beneficiary of any trust assets of the merged trusts will have the same basis and holding periods under sec_1015 and sec_1223 in the surviving trust afer the merger as they did prior to the merger ruling requests sec_2501 imposes a gift_tax on the transfer of property by gift sec_2511 provides that the gift_tax shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2601 imposes a tax on every generation-skipping_transfer section b a of the act and sec_26_2601-1 provide that the plr-103977-00 generation-skipping_transfer_tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that if an addition is made after date to an irrevocable_trust that is otherwise exempted from the application of chapter by b a of the act a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter in general any modification of an irrevocable_trust that results in a change in the quality value or timing of any interest in the trust will cause the trust to lose exempt status in the present situation after the merger there will be no change in the dispositive provisions with respect to the property previously held in each particular trust the trustees will hold the same property after the merger and the interests of all beneficiaries will be unchanged the surviving trust will terminate at the same time as provided with respect to each separate trust prior to the merger thus the proposed merger of the trusts as described will not effect the quality value or timing of any beneficial_interest under the original trusts accordingly we conclude that based on the representations made all the trusts were irrevocable on date and are not subject_to the generation-skipping_transfer_tax by reason of b a of the act further we conclude that the mergers as described will not constitute an addition to any surviving trust and will not otherwise cause any surviving trust to lose exempt status under sec_26_2601-1 lastly we conclude that the mergers do not constitute gifts by the trust beneficiaries for purposes of sec_2511 ruling_request sec_4 and sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis over the amount_realized sec_1001 provides that except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that generally the gain_or_loss realized from a conversion of property into cash or from an exchange of property for other_property differing materially either in_kind or extent is treated as income or as loss sustained an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties exchanged are materially different 499_us_554 there is a material difference when the exchanged properties embody legal entitlements different in_kind or extent or if they confer different rights and powers cottage savings u s pincite in this case the merger of trust c-c1 c3 into trust c-c3 surviving trust will not constitute a sale_or_other_disposition for purposes of sec_1001 the interests of the beneficiaries before and after the mergers remain the same because each trust has the same beneficiaries and identical terms the exchanged properties are not materially different because they do not embody legal entitlements that are different in_kind or confer different rights and powers we conclude that neither the merger nor the distribution of assets to the surviving trust will result in recognition of gain_or_loss to any trust or the beneficiary of any trust sec_1015 provides that if property is acquired after date by a transfer in trust other than by a transfer in trust by gift bequest or devise the basis is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer is made sec_1_1015-2 provides that in the case of property acquired after date by transfer in trust other than by transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made if the taxpayer acquired the property by transfer in trust this basis applies whether the property be in the hands of the trustee or the beneficiary and whether acquired prior to termination of the trust and distribution of the property or thereafter sec_1223 of the code provides that in determining the period for which the taxpayer has held property however acquired there shall be included in the period for which the property was held by any other person if under chapter such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person we conclude that the basis of the assets in the surviving trust will be same as the basis of those assets in the original trusts before the merger accordingly we conclude that the assets in the surviving trust after the proposed merger in this case will have the same holding periods as they had prior to the merger except as we have ruled under the cited provisions of the code we express no opinion about the tax consequences of the proposed transaction under those provisions plr-103977-00 or under any other provisions of the code the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel passthroughs and special industries by robert honigman acting assistant to the branch chief enclosure copy for purposes


internal_revenue_service number release date -------------------- --------------------------------------------------- -------------------------------------------- --------------------------------- ---------------------- - department of the treasury washington dc third party communication date of communication month dd yyyy person to contact -------------------------------------------- telephone number --------------------- refer reply to cc tege eb qp2 plr-113804-06 date date ----------------------------------- legend entity e -------------------------------------------- ------------------------------------- related entities re -------------------------------- -------------------------------- ------------------------------------------------------- -------------------------------- -------------------------------------------------------------- -------------------------------- dear --------------- ------------------------ this responds to your authorized representative’s letter of date and subsequent correspondence on behalf of entity e and its related entities re requesting a ruling concerning the deferred_compensation plan the plan which e intends to be an eligible_deferred_compensation_plan under sec_457 of the internal_revenue_code_of_1986 the code as amended under the economic_growth_and_tax_relief_reconciliation_act_of_2001 egtrra in addition your representative also requested rulings regarding the trust associated with the plan under sec_83 sec_451 sec_671 and sec_677 of the code entities e and re are represented to be plr-113804-06 tax-exempt organizations which are eligible employers described in sec_457 of the code re are represented to be in the same controlled_group as their parent e under the plan an eligible_participant a member of a select group of highly compensated employees determined as provided thereunder may elect to defer compensation that would have been received for services rendered to his employer in any taxable_year until death or severance_from_employment with the employer the re have also adopted the plan as their deferred_compensation plan under the plan the participant s election to defer compensation not yet paid or made available must be filed prior to the beginning of the month in which his or her salary reduction agreement becomes effective for such amounts the plan provides for a maximum amount that may be deferred by a participant in any taxable_year and also provides for a catch-up computation for amounts deferred for one or more of the participant's last three taxable years ending before he attains normal_retirement_age under the plan pursuant to the plan the employer may make matching or other discretionary employer contributions to a participant’s account up to a maximum amount determined thereunder however such employer contributions are included in determining whether a participant has reached the maximum annual deferral limitation under sec_457 or of the code the amounts that may be deferred under the annual maximum limitation and the catch-up provisions are within the limitations of sec_457 the plan provides that the deferred amounts will be distributed to the participant or to the beneficiary after the participant’s death in a lump sum within a short_period after the participant’s severance_from_employment thus meeting the distribution_requirements of sec_401 and sec_457 of the code the plan provides that all amounts deferred under the plan and all income attributable to such amounts will remain until made available to the participants or beneficiaries solely the property and rights of the participant’s employer subject only to the claims of the employer's general creditors the plan also provides that a participant or beneficiary has only an unsecured right to benefits thereunder and no right or claim against the assets of his her employer the rights of any participant or beneficiary to payments pursuant to the plan are generally non-assignable and not subject_to pledge alienation or encumbrance e has adopted a related trust to help it and the res meet their obligations under the plan the trust conforms to the model language contained in sec_5 of revproc_92_64 1992_2_cb_11 that serves as a plr-113804-06 safe_harbor against the constructive receipt of income and the realization of economic benefit the trust contains no language that is inconsistent or conflicts with the model trust language under the trust all trust assets of e or an re remain subject_to the claims of its general creditors in the event of that employer’s insolvency e represents that the trust is valid under the appropriate state law and that all material terms and provisions of the trust including the creditors' rights clause are enforceable under the appropriate state law e further represents that the trustee of the trust is an independent third party that may be granted corporate trustee powers under the appropriate state law sec_457 of the code provides rules for the deferral of compensation by an individual participating in an eligible_deferred_compensation_plan described in sec_457 sec_457 of the code provides that in the case of a participant in an eligible_deferred_compensation_plan of a tax-exempt employer any amount of compensation deferred under the plan and any income attributable to the amounts so deferred shall be includible in gross_income only for the taxable_year in which such compensation or other income is paid or otherwise made available to the participant or beneficiary sec_457 prescribes that an eligible_deferred_compensation_plan must meet the distribution_requirements of sec_457 sec_457 requires an eligible_plan of a tax-exempt employer to provide that i all amounts of compensation deferred under the plan ii all property and rights purchased with such amounts and iii all income attributable to such amounts property or rights must remain until made available to the participant or other beneficiary solely the property and rights of the employer without being restricted to the provision of benefits under the plan subject only to the claims of the employer's general creditors sec_457 provides that for a sec_457 plan to be an eligible_plan the plan must have distribution_requirements providing that under the plan amounts will not be made available to participants or beneficiaries earlier than i the calendar_year in which the participant attains age ii when the participant has a severance_from_employment with the employer or iii when the participant is faced with an unforeseeable_emergency as determined under treasury regulations sec_83 of the internal_revenue_code provides that the excess if any of the fair_market_value of property transferred in_connection_with_the_performance_of_services over the amount_paid if any for the property is includible in the gross_income of the person who performed the services for the first taxable sec_1_83-3 of the income_tax regulations provides that for plr-113804-06 year in which the property becomes transferable or is not subject_to a substantial_risk_of_forfeiture purposes of sec_83 the term property includes real and personal_property other than money or an unfunded and unsecured promise to pay money or property in the future property also includes a beneficial_interest in assets including money transferred or set_aside from claims of the transferor's creditors for example in a_trust or escrow account employer to an employee's trust that is not exempt from tax under sec_501 are included in the employee's gross_income in accordance with sec_83 except that the value of the employee's interest in the trust will be substituted for the fair_market_value of the property in applying sec_83 under sec_1_402_b_-1 of the regulations an employer's contributions to a nonexempt employees' trust are included as compensation in an employee's gross_income for the taxable_year in which the contribution is made but only to the extent that the employee's interest in such contribution is substantially_vested as defined in the regulations under sec_83 sec_402 of the code provides that contributions made by an under the economic_benefit_doctrine an employee has currently includible income from an economic or financial benefit received as compensation though not in cash form economic benefit applies when assets are unconditionally and irrevocably paid into a fund or trust to be used for the employee's sole benefit 16_tc_244 aff'd per curiam 195_f2d_541 6th cir revrul_60_31 situation in revrul_72_25 1972_1_cb_127 and revrul_68_99 1968_1_cb_193 an employee does not receive income as a result of the employer's purchase of an insurance_contract to provide a source of funds for deferred_compensation because the insurance_contract is the employer's asset subject_to claims of the employer's creditors provides that generally an arrangement will be treated as a_trust if it can be shown that the purposes of the arrangement is to vest in trustees the responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of a business for profit sec_671 of the code provides that where a grantor shall be treated as the owner of any portion of a_trust under subpart e part i subchapter_j chapter of the code there shall then be included in computing the taxable_income and credits of the grantor 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 sec_301_7701-4 of the procedure and administration regulations sec_1_677_a_-1 of the regulations provides that under sec_677 of plr-113804-06 such items would be taken into account under chapter in computing taxable_income or credits against tax of an individual sec_677 of the code provides that the grantor shall be treated as the owner of any portion of a_trust whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be held or accumulated for future distribution to the grantor the code a grantor is in general treated as the owner of a portion of a_trust whose income is or in the discretion of the grantor or a nonadverse_party or both may be applied in discharge of a legal_obligation of the grantor benefits to plan participants and their beneficiaries however in the event that e or an re becomes insolvent the trustee will have the obligation to hold the trust assets and income for the benefit of that employer's general creditors the trust agreement further provides that a participant receives no beneficial_ownership in or preferred claim on any trust assets therefore contributed assets will be held in trust and in the event of the insolvency of e or an re the employer’s assets will be fully within reach of its creditors other than unfunded for purposes of title i of the employee_retirement_income_security_act_of_1974 and ii that the provisions of the trust requiring use of the employer’s trust assets to satisfy the claims of its general creditors in the event of its insolvency is enforceable by its creditors under federal and state law and based on the information submitted and representations made we conclude that provided i that the creation of the trust does not cause the plan to be under the terms of the trust assets may be placed in trust to provide based upon the provisions of the plan summarized above the documents presented and representations made we conclude as follows the plan adopted by entity e and its related entities re is an eligible_deferred_compensation_plan as defined in sec_457 of the internal_revenue_code_of_1986 as amended under the egtrra amounts of compensation deferred in accordance with the plan including any income attributable to the deferred_compensation will be includible under sec_457 in the recipient s gross_income for the taxable_year or years in which such amounts are paid or made available to a participant or beneficiary in accordance with the terms of the plan under the economic benefit and constructive receipt doctrines of sec_61 and sec_451 of the code neither the creation of the plan or the plr-113804-06 trust nor the contribution of assets to the trust will create taxable_income for participants or their beneficiaries under the cash_receipts_and_disbursements_method of accounting the trust will be classified as a_trust within the meaning of the procedure and administration regulations because the principal and income of the trust may be applied in discharge of legal obligations of r and each re contributing to the trust each such employer shall be treated as the owner of the trust to the extent of its proportionate contributions to the trust under sec_677 of the code to the extent that amounts in the trust are attributable to services provided for e or that re accordingly there shall be included in computing the taxable_income and credits of each such employer the appropriate portion of items of income deductions and credits against tax of the trust under sec_671 subject_to the provisions of the code applicable to sec_501 organizations neither the creation of the trust nor the contribution of assets by e or an re to the trust will result in a transfer of property for purposes of sec_83 of the internal_revenue_code or sec_1_83-3 of the regulations no opinion is expressed concerning the timing of the inclusion in income of amounts deferred under any deferred_compensation plan other than the plan described above in addition this ruling applies only to amounts deferred including the earnings thereon after the date this ruling is issued the service expresses no opinion as to the consequences of the arrangement under title i of the employee_retirement_income_security_act_of_1974 if the plan is significantly modified this ruling will not necessarily remain applicable this ruling is directed only to entity e and its related tax-exempt affiliates the res that have adopted the plan also this ruling applies only to the plan submitted on date and to the revised trust document submitted on date sec_6110 of the internal_revenue_code provides that this ruling may not be used or cited as precedent sincerely robert d patchell branch chief qualified_plans branch employee_benefits office of division counsel associate counsel enclosure


internal_revenue_service number release date index number ---------------------------- ---------------------- ------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id no ----------- telephone number -------------------- refer reply to cc fip b02 plr-127320-14 date october legend taxpayer reit accountant year dear ------------------ ------------------------------------------------ --------------------------------------------------------------------------------- ---------------------- ------ this is in reply to a letter dated date requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations for taxpayer to elect to use the safe_harbor of revproc_91_50 1991_2_cb_778 in applying sec_1286 of the internal_revenue_code to certain mortgage servicing contracts facts reit is a mortgage real_estate_investment_trust that invests primarily in residential mortgage loans and mortgage-related assets taxpayer is an indirect wholly-owned subsidiary of reit that has jointly made a taxable_reit_subsidiary trs election with reit taxpayer acquires newly originated government-insured or conventional residential mortgage loans taxpayer sells its mortgage loans to third party investors while retaining the mortgage servicing rights msrs to the loans taxpayer engaged accountant to prepare its year federal_income_tax return including all election statements taxpayer intended to make the safe_harbor election provided by revproc_91_50 and applied the rates contained therein to determine the extent to which the amounts received under an msr represent reasonable_compensation for purposes of applying sec_1286 to the msrs taxpayer plr-127320-14 represents that the safe_harbor rates have been used on every subsequent federal_income_tax return filed by taxpayer under the belief that the election had been made however accountant inadvertently omitted the election statement required by revproc_91_50 when it prepared and delivered the year return for filing taxpayer did not discover the omission upon their review and signing of the year return prior to filing the following representations are made in connection with the request for an extension of time the request for relief was filed before the failure to make the regulatory election was discovered by the service granting the relief requested will not result in taxpayer having a lower tax_liability in the aggregate for all years to which the election applies than taxpayer would have had if the election had been timely made taking into account the time_value_of_money taxpayer does not seek to alter a return position for which an accuracy- related penalty has been or could have been imposed under sec_6662 of the code at the time taxpayer requested relief and the new position requires or permits a regulatory election for which relief is requested taxpayer intended to attach the election statement required by revproc_91_50 to its year return and computed its taxable_income for the year as if the election statement had been attached to the year return law and analysis sec_1286 defines the term bond to include a certificate or other evidence_of_indebtedness sec_1286 defines the term coupon to include any right to receive interest on a bond whether or not evidenced by a coupon sec_1286 defines the term stripped_bond as a bond issued with interest_coupons where there is a separation in ownership between the bond and any coupon that has not yet become payable sec_1286 defines a stripped_coupon as any coupon resulting from a stripped_bond in revrul_91_46 1991_2_cb_358 a taxpayer sold mortgage loans and at the same time entered into a contract to service the mortgages for amounts received from interest payments collected on the mortgages the ruling holds that the mortgages are stripped bonds within the meaning of sec_1286 if the contract entitles the taxpayer to received amounts that exceed reasonable_compensation for the services to be performed under the contract the ruling also holds that the taxpayer’s rights to plr-127320-14 receive amounts under the contract are stripped coupons within the meaning of sec_1286 to the extent that they are rights to receive mortgage interest other than as reasonable_compensation for the services to be performed revproc_91_50 provides a safe_harbor that taxpayers may elect to use in applying sec_1286 and revrul_91_46 to certain mortgage servicing contracts when elected this safe_harbor determines the extent to which amounts that a taxpayer is entitled to receive under a mortgage servicing contract represent reasonable_compensation for the services provided in order to elect or revoke the safe_harbor of revproc_91_50 a taxpayer must attach a statement to its timely filed federal_income_tax return for the first taxable_year for which the safe_harbor is elected or revoked sec_301_9100-1 of the regulations provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose deadline is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i sets forth rules that the service generally will use to determine whether under the facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based upon the facts and representations submitted we conclude that taxpayer has shown good cause for granting a reasonable extension of time to elect the safe_harbor of revproc_91_50 in applying sec_1286 to certain mortgage servicing contracts we further conclude that the time for filing the election under revproc_91_50 is extended to the date that is calendar days from the date of this letter this ruling is limited to the timeliness of the filing of taxpayer’s election under revproc_91_50 this ruling’s application is limited to the facts representations code sections and regulations cited herein plr-127320-14 no opinion is expressed with regard to whether the tax_liability of taxpayer is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect except as specifically provided otherwise no opinion is expressed on the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely jonathan d silver___________________ jonathan d silver assistant branch chief branch office of associate chief_counsel financial institutions products


department of the treasury washington dc person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-133852-08 date date internal_revenue_service number release date index number ----------------------------- ------------------------------- ------------------------------ in re -------------------------------------------------- ------------------------ legend settlor --------------------- son ----------------------------------------------------- son's spouse ---------------------- bank -------------------------------------- trust -------------------------------------------------- ------------------------------------------ date -------------------------- date -------------------------- date ------------------ date ------------------- state -------------- court ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ dear ----------------- this is in response to the date letter and additional correspondence requesting rulings on the gift_tax and generation-skipping_transfer_tax consequences of the proposed modification of trust plr-133852-08 settlor executed trust on date for the benefit of son and son's children trust became irrevocable at settlor's death on date before date it is represented that no person has contributed assets to trust since date and there have been no additions actual or constructive to trust since date the current individual trustee is son's spouse the current corporate trustee is bank under article second paragraph a of trust the income is to be distributed annually or at more frequent intervals to or for the benefit of son during life article third paragraph a provides that son is to have a discretionary power_of_appointment exercisable by him at any time during life to direct a distribution of any portion of trust principal to or for the benefit of any or all of son's children or grandchildren article third paragraph b provides that in any calendar_year son is to have the right to direct the trustee to pay to son or apply for his benefit such amounts of principal as son may designate but not exceeding the value of dollar_figure or percent of the principal whichever is larger this lifetime right is not to be cumulative article third paragraph c provides that if in the trustee's opinion the income from all sources of which the trustee has knowledge is not sufficient to suitably support maintain and provide for the comfort of son or any of the other trust beneficiaries in the manner to which they are accustomed or in the event of an emergency the trustee may use such part of principal as the trustee deems necessary or desirable to make up the deficiency or to meet the emergency and to provide for son's or the beneficiaries' comfortable support and maintenance including medical surgical hospital or other institutional care article third paragraph d provides that on son's death the principal and undistributed_income are to be distributed to son's children and or grandchildren in such amounts or proportions as son may direct in his will under article fourth paragraph a if son does not dispose_of all of the trust estate either as a result of his exercise or failure to exercise his special_power_of_appointment then on son's death the principal and undistributed_income are to be divided into equal shares and held in further trust one of each such shares to be held for the benefit of a respective child of son if a child predeceases son and has children surviving then the share which would have been set_aside for the benefit of that deceased child is to be held in trust for the benefit of that deceased child's surviving children per stirpes under article fourth paragraph b the income from the respective portion of the trust estate set_aside for a respective beneficiary is to be paid out and distributed annually or at more frequent intervals to or for the benefit of the beneficiary under article fourth paragraph c if prior to the full distribution of the portion of the trust estate held for any given beneficiary that beneficiary dies with children plr-133852-08 surviving then the net_income from that portion of the trust estate is to be distributed annually or at more frequent intervals to or for the benefit of the children of the deceased beneficiary in proportion to which those children are entitled to receive eventual distribution of the principal however the interest in income of any such child to whom a share of the principal may be distributed will cease upon the distribution to him or her of his or her share of principal or upon his or her death whichever occurs first article fourth paragraph e provides that when a beneficiary for whose benefit a portion of the trust estate has been set_aside attains age the beneficiary is to receive outright one-third of either the then value of the portion or an undivided one-third interest in the portion on attaining age the beneficiary is to receive one-half of the then value of the portion or an undivided one-half interest in the portion and upon attaining age the beneficiary is to receive the balance of that portion article fourth paragraph f provides that if prior to the full distribution of the portion of the trust estate set_aside for any beneficiary the beneficiary dies and is survived by children the principal and any undistributed_income in that portion is to be distributed to or for the benefit of the then living children of the deceased beneficiary under article fourth paragraph g if prior to the full distribution of the portion of the trust estate set_aside for a beneficiary the beneficiary and all of the beneficiary's children have died the entire principal and undistributed_income of the portion are to be distributed among son's surviving children and grandchildren per stirpes article eleventh provides that trust is to be governed by the laws of state under article fifteenth all trusts are to terminate at the expiration of years after the death of the last to die of settlor her children and her grandchildren living at the time of her death on termination the principal and undistributed_income are to be distributed outright to the beneficiaries entitled to take the co-trustees propose to modify article third paragraph b to limit the time during which son may exercise his annual power to withdraw during his life such amounts from the principal of trust as he may designate up to but not exceeding the sum or value of dollar_figure or percent of the trust principal whichever is larger in any one calendar_year the proposed modification will provide that son may exercise the withdrawal power during the month of january of each calendar_year rather than at any time during each calendar_year as presently provided in the trust instrument it is represented that son has not previously exercised the withdrawal right on date the co-trustees submitted to the court a petition for modification of trust on date the court issued a conditional order amending trust the order is subject_to and conditioned on trust receiving a favorable letter_ruling in this matter the final order will modify trust to provide that son shall have the right at any time during the month of january of each calendar_year prior to his death to direct the trustee in plr-133852-08 writing to pay to or apply for son’s benefit such amounts from the principal of trust as he may designate up to but not exceeding the sum or value of dollar_figure or percent of the trust principal whichever is larger in any one calendar_year you have requested the following rulings the modification of trust and the implementation of the court’s order modifying trust will not result in a transfer by son that is subject_to the gift_tax under sec_2501 of the internal_revenue_code the modification of trust and the implementation of the court’s order modifying trust will not cause trust to lose its grandfathered status under sec_26_2601-1 of the generation-skipping_transfer_tax regulations law and analysis ruling sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during the calendar_year sec_2511 provides that the gift_tax shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2514 provides that the exercise or release of a general_power_of_appointment shall be deemed the transfer of property by the individual possessing the power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power his estate his creditors or creditors of his estate sec_2514 provides that the lapse of a power_of_appointment during the life of the individual possessing the power shall be considered a release of such power the rule shall apply with respect to the lapse of powers during any calendar_year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeds in value the greater of dollar_figure or percent of the aggregate value of the assets out of which or the proceeds of which the exercise of the lapsed power could be satisfied in this case after the modification each beneficiary will have the same interest in the trust assets as he or she had before the modification because the beneficial interests rights and expectancies of the beneficiaries are substantially_similar both before and after the modification no transfer of property for less than adequate and full plr-133852-08 consideration in money_or_money's_worth will occur as a result of the proposed modification accordingly based on the facts submitted and representations made we conclude that the modification of trust and the implementation of the court's order modifying trust will not result in a transfer by any beneficiary of trust ruling sec_2601 provides that a tax is imposed on every generation-skipping_transfer made by a transferor to a skip_person under a of the tax_reform_act_of_1986 act and sec_26_2601-1 of the generation-skipping_transfer gst tax regulations the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are generally applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes unless the regulations specifically provide otherwise the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer a modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial_interest in the trust in this case trust is exempt from the gst tax because it was irrevocable on or before date and no actual or constructive additions have been made to trust since that date after the modification son will continue to have a noncumulative power to withdraw the greater of dollar_figure or percent of the value of the trust property plr-133852-08 however the withdrawal right will be exercisable only during the month of january of each year the modification will not result in a shift of any beneficial_interest in trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the modification further the modification will not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in the original trust under these circumstances we conclude that the modification of trust and the implementation of the court order modifying trust will not cause trust to lose its exempt status for gst purposes and that distributions from trust as modified will not be subject_to gst tax the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as 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 accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 of provides that it may not be used or cited as precedent sincerely yours _________________________ james hogan senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc