t c memo united_states tax_court ricardo a and tari scurlock garcia petitioners v commissioner of internal revenue respondent docket no filed date william a roberts and kyle r coleman for petitioners christopher s kippes daniel l timmons and jeffrey l dorfman for respondent memorandum opinion haines judge this case is before the court on respondent’s motion for partial summary_judgment filed pursuant to rule 1unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and all rule references are to the tax_court rules_of_practice and procedure we must decide whether over-the-counter foreign_currency options entered into by a limited_liability_company wholly owned by petitioner ricardo a garcia were foreign_currency contracts under sec_1256 the following facts are based upon the parties’ pleadings affidavits stipulations and exhibits in support of and in opposition to the motion for partial summary_judgment they are stated solely for the purpose of deciding the motion and not as findings_of_fact see fed r civ p a at the time of the filing of the petition petitioners background resided in texas at all times relevant to this case petitioner ricardo a garcia owned percent of the membership units of l l c a georgia limited_liability_company the llc the llc was treated as a disregarded_entity for federal_income_tax purposes on december and the llc sold eight foreign_currency options to montgomery global advisors v llc based in san francisco california montgomery for dollar_figure the llc also purchased eight offsetting foreign_currency options from montgomery for dollar_figure the net premium paid_by the llc was dollar_figure the maturity_date for each option was date eight of the foreign_currency options had barrier features none of the options were securities traded on a qualified_board_or_exchange as defined by sec_1256 the options pegged to the european euro euro and the u s dollar are major foreign_currency options and the options pegged to the danish krone are minor foreign_currency options the following chart summarizes the foreign_currency option positions held by the llc on date the long positions having been purchased from montgomery by the llc and the short positions having been sold by the llc to montgomery barrier options are a type of option whose exercise is dependent on the option’s reaching or failing to reach a certain price there are two types of barrier options knock- in and knock-out options knock-in options are not exercisable unless the barrier price is reached before the expiration of the option knock-out options on the other hand are exercisable only if the barrier price is not reached before the expiration of the option the barrier feature does not change the fact that the derivative is an option therefore a barrier feature does not change our analysis hereunder 3a major foreign_currency is a currency in which positions are traded through regulated_futures_contracts sec_1256 the term regulated_futures_contract as defined in sec_1256 means a contract-- a with respect to which the amount required to be deposited and the amount which may be withdrawn depends on a system of marking to market and b which is traded on or subject_to the rules of a qualified_board_or_exchange major currencies include the u s dollar british pound japanese yen swiss franc and the euro minor currencies include the danish krone foreign_currency option positions position strike_price base currency counter currency premium long eur usd short eur usd long eur usd short eur usd long dkk usd short dkk usd long eur dkk short eur dkk long eur usd short eur usd long eur usd short eur usd long dkk usd short dkk usd long eur dkk short eur dkk usd eur usd eur usd eur usd eur dkk usd dkk usd dkk eur dkk eur usd eur usd eur usd eur usd eur dkk usd dkk usd dkk eur dkk eur big_number big_number big_number big_number kr big_number kr big_number big_number big_number big_number big_number big_number big_number kr big_number kr big_number big_number big_number dollar_figure dollar_figure dollar_figure big_number dollar_figure big_number dollar_figure dollar_figure big_number big_number dollar_figure kr big_number big_number kr big_number big_number big_number dollar_figure big_number dollar_figure dollar_figure big_number dollar_figure dollar_figure big_number big_number dollar_figure kr big_number big_number big_number kr big_number on date the llc assigned approximately dollar_figure percent of long position dollar_figure percent of short position dollar_figure percent of long position dollar_figure percent of long position and dollar_figure percent of short position to the holy innocents building fund the building fund an organization claiming sec_170 charitable status the building fund assumed obligations with respect to the two short positions totaling dollar_figure and received three long positions valued in the aggregate at dollar_figure providing for a net value of the positions assigned to the building fund of dollar_figure when the llc assigned dollar_figure percent of the long position to the building fund it was valued at dollar_figure and the llc’s claimed adjusted_basis in the position was dollar_figure on their federal_income_tax return petitioners took the position that because long position was a major foreign_currency option the assignment was subject_to the mark-to-market rules under sec_1256 and 79_f3d_1348 2d cir accordingly because petitioner ricardo a garcia wa sec_4petitioners received a tax opinion dated date from garza staples p c which concluded that major foreign_currency options are subject_to the mark-to-market rules of sec_1256 the assignment of a major foreign_currency option to a charity triggers a termination under sec_1256 and 79_f3d_1348 2d cir and petitioners must recognize gains and losses with respect to any major foreign_currency option assigned to a charity unlike the present case however greene dealt with transfers of regulated_futures_contracts to a charity regulated_futures_contracts are sec_1256 contracts sec_1256 g the sole member of the llc petitioners reported a loss of dollar_figure million with respect to the portion of the long position assigned to the building fund on the other hand because long position sec_5 and were minor foreign_currency options denominated in the danish krone petitioners took the position that they were not subject_to the mark-to-market rules under sec_1256 and did not report any gain_or_loss from those positions on their federal_income_tax return petitioners filed a timely federal_income_tax return for a notice_of_deficiency was mailed to petitioners on date and petitioners timely filed their petition with this court discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 the court may grant summary_judgment when there is no genuine issue of material fact and a decision may be rendered as matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 the court will view any factual material and inferences in the light most favorable to the nonmoving party 85_tc_812 85_tc_527 we conclude that there are no genuine issues of material fact on the sec_1256 issue and a decision may be rendered as a matter of law respondent’s motion will be granted denying the purported loss on the assignment of the major foreign_currency option to the building fund i sec_1256 sec_1256 generally permits certain financial instruments to be marked to market on the last business_day of the taxable_year and any gain_or_loss on those contracts to be included on the taxpayer’s federal_income_tax return any gain_or_loss with respect to a sec_1256 contract is treated as a short-term_capital_gain or loss to the extent of percent of such gain_or_loss and a long-term_capital_gain or loss to the extent of percent of such gain_or_loss sec_1256 the taxpayer may argue that a loss is characterized as ordinary if the transaction also qualifies as a sec_988 transaction sec_1256 defines a sec_1256 contract to include any regulated_futures_contract any foreign_currency_contract any nonequity_option any dealer_equity_option and any dealer_securities_futures_contract sec_1256 excludes from the definition of a sec_1256 contract any securities_futures_contract or option on such a 5see sec_988 and sec_1_988-3 income_tax regs which override the characterization of capital losses specified in sec_1256 if sec_988 also applies contract unless the contract or option is a dealer_securities_futures_contract a regulated_futures_contract means a contract with respect to which the amount required to be deposited and the amount which may be withdrawn depend on a system of marking to market and which is traded on or subject_to the rules of a qualified_board_or_exchange sec_1256 a qualified exchange means a national securities exchange which is registered with the securities_and_exchange_commission a domestic board_of trade designated as a contract market by the commodity futures trading commission or any other exchange board_of trade or other market which the secretary determines has rules adequate to carry out the purposes of sec_1256 sec_1256 in contrast sec_1256 covers contracts that are not traded on a qualified exchange ie foreign_currency contracts a foreign_currency_contract is defined as a contract i which requires delivery of or the settlement of which depends on the value of a foreign_currency which is a currency in which positions are also traded through regulated future contracts ii which is traded in the interbank market and 6in sec_1256 was amended pursuant to the dodd-frank wall street reform and consumer protection act publaw_111_203 sec 124_stat_2223 to additionally exclude from the definition of a sec_1256 contract any interest_rate_swap currency swap basis_swap interest rate cap interest rate floor commodity_swap equity_swap equity index swap credit default swap or similar agreement iii which is entered into at arm’s length at a price determined by reference to the price in the interbank market id for a more detailed discussion on the language requirements and legislative_history of sec_1256 see this court’s recent decision in 134_tc_248 ii major minor transactions the issue before us arises in the context of what are sometimes known as major minor transactions major minor transactions typically involve a taxpayer’s engaging in offsetting long and short major and minor foreign_currency options the long and short positions in each option move inversely in value with respect to each other accordingly at any particular time the options provide the holder substantially offsetting gain and loss positions a major minor transaction usually involves a taxpayer’s assigning a major foreign_currency long option that has a potential loss to a charity again relying on sec_1256 and 79_f3d_1348 2d cir the taxpayer takes the position for federal tax purposes that the major foreign_currency long option assigned to the charity is a sec_1256 foreign_currency_contract and marks 7a charity is an organization defined in sec_170 contributions to which are deductible for income_tax purposes as charitable_contributions to market the major foreign_currency long option when the option is assigned recognizing a loss at that time in contrast because the taxpayer takes the position that the assigned minor foreign_currency option is not a sec_1256 foreign_currency_contract the taxpayer claims that the charity’s assumption of the minor obligation does not cause the taxpayer to recognize gain further the taxpayer does not recognize gain when the option either expires or terminates iii summitt we must decide whether a major foreign_currency option comes within the meaning of foreign_currency_contract so as to qualify for sec_1256 treatment this is the same issue we decided in summitt v commissioner supra in summitt we held that it does not we see no reason to decide this case differently the taxpayers in summitt were shareholders of an s_corporation the corporation purchased two major foreign_currency options and sold two minor foreign_currency options the major foreign_currency options were reciprocal put and call positions pegged to the u s dollar and the euro similarly 8in 134_tc_248 we referred to reciprocal put and call options and therefore use the same terms here in our discussion of summitt in brief and throughout the record the parties used the terms short and long to refer to the subject foreign_currency options accordingly we refer to the subject foreign_currency options as short and long options in our discussion of the facts and continued the minor foreign_currency options were reciprocal put and call positions however those positions were pegged to the u s dollar and the danish krone the net premium paid_by the corporation in respect of the two major and the two minor options was dollar_figure soon after purchasing the two major and the two minor options the corporation assigned the major call option and the minor call option to a charity at the time of the assignment the corporation held a loss position in the major call option and a substantially offsetting gain position in the minor call option pursuant to sec_1256 the corporation reported the loss on the major call position and not the gain on its minor call position on its federal_income_tax return in summitt v commissioner supra pincite we analyzed the delivery or settlement requirement under sec_1256 concluding a foreign_currency option is a unilateral contract that does not require delivery or settlement unless and until the option is exercised by the holder an obligation to settle may never arise if the holder does not exercise its rights under the option it is clear that as originally enacted in the statute applied only to forward contracts the statute referred to a contract which required delivery of the foreign_currency not to a contract in which delivery was left to the discretion of the holder continued analysis of this case despite the difference in terminology the short and long foreign_currency options in this case have the same characteristics as the put and call foreign_currency options discussed in summitt respectively we have not considered whether those terms are interchangeable in any other circumstances we further held that the phrase or the settlement of which depends on the value of in sec_1256 which was added to the original statute pursuant to the deficit_reduction_act_of_1984 publaw_98_369 98_stat_972 was added to allow a cash-settled forward_contract to come within the term foreign_currency_contract foreign_currency contracts can be physically settled or cash-settled but they still must require by their terms at inception settlement at expiration id pincite finding the plain language of the statute to be dispositive we held that a foreign_currency option does not fall within the meaning of a foreign_currency_contract under sec_1256 id pincite the only factual distinction the court sees between the options discussed in summitt v commissioner supra and the options before us is the fact that the options in this case had barrier features as stated above a barrier feature does not change the fact that the derivative is an option accordingly consistent with our conclusion in summitt we find that the foreign_currency options petitioners entered into are not foreign_currency contracts as defined by sec_1256 and we sustain respondent’s determinations for with respect to respondent’s motion for partial summary judgement petitioners argue that summitt was decided on an incomplete factual base petitioners suggest that because summitt was decided without the testimony of a foreign_currency options expert the court did not have the information needed to make a proper judgment we disagree 134_tc_248 like this case was decided on summary_judgment and therefore the facts were viewed in a light most favorable to the taxpayers under those circumstances summitt held that foreign_currency options were economically distinguishable from contracts covered by sec_1256 id pincite the testimony suggested by petitioners is nothing more than the legal conclusions of a supposed industry expert we made our legal determination on the sec_1256 issue in summitt we have considered all of petitioner’s contentions arguments and requests that are not discussed herein and we conclude that they are without merit or irrelevant to reflect the foregoing an appropriate order will be issued


internal_revenue_service number release date index number --------------------------- ------------------------------------- ---------------------------------- -------------- ty --------------- legend department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------------- id no ------------------ telephone number -------------------- refer reply to cc intl br1 plr-139848-11 date date taxpayer -------------------------------------------------------------- ---------------------------- rrsp ----------------------------------------------------------------- ---------------------------- year year year ------- ------- ------- tax years --------------- dear -------------------- this is in reply to a letter from your representative dated date as supplemented by letters dated date and date requesting an extension of time under sec_301_9100-3 for taxpayer to elect the provisions of revproc_2002_23 2002_1_cb_744 for tax years 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 plr-139848-11 facts taxpayer was born in the united_states and is a u s citizen he has lived in canada since year and he became a canadian citizen in year taxpayer established rrsp while he was a resident of canada taxpayer has filed u s and canadian income_tax returns for tax years however prior to year taxpayer was unaware of the need to make an election under revrul_2002_23 to defer recognition of undistributed_earnings in rrsp pursuant to article viii of the u s -canada income_tax treaty the treaty after seeking professional advice in year taxpayer learned of the requirement and immediately engaged a tax professional to request an extension of time to file an election under sec_301_9100-3 taxpayer represents that he has not received any distributions from rrsp and that the internal_revenue_service has not communicated with him concerning rrsp ruling requested taxpayer requests the consent of the commissioner of the internal_revenue_service for an extension of time under sec_301_9100-3 to make an election for tax years pursuant to revproc_2002_23 to defer u s federal income_taxation on income accrued in rrsp as provided for in article xviii of the treaty law and analysis sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-139848-11 in the present situation the election provided in revproc_2002_23 is a regulatory election within the meaning of sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards set forth in sec_301_9100-3 based solely on the information submitted and representations made we conclude that taxpayer satisfies the standards of sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to make an election for tax years under revproc_2002_23 as provided in sec_301_9100-1 the granting of an extension of time is not a determination that taxpayer is otherwise eligible to make the above-described election pursuant to section dollar_figure of revproc_2002_23 the election once made cannot be revoked except with the consent of the commissioner for each open tax_year taxpayer must file an amended u s income_tax return to which taxpayer attaches forms u s information_return for beneficiaries of certain canadian registered retirement plans for rrsp for each subsequent tax_year through the tax_year in which the final distribution is made from rrsp taxpayer must attach to his u s income_tax return a form_8891 for rrsp a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically my satisfy this requirement by attaching a statement to their return that provides the date and control number of this letter_ruling except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely m grace fleeman senior technical reviewer office of the associate chief_counsel international


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-103267-00 date date trust x a b d1 d2 d3 d4 d5 court a b dear this letter responds to a letter dated date and subsequent correspondence submitted by an authorized representative of trust on behalf of trust requesting a ruling with respect to the proposed division of trust into two separate trusts the information submitted states that a and b then husband and wife established trust on d1 a and b are trustors and co- trustees of trust trust provides that the trustors desire to establish a charitable_remainder_unitrust crut within the meaning of of revproc_90_31 1990_1_cb_539 and sec_664 and sec_664 of the internal_revenue_code paragraph of trust provides that trust is irrevocable and cannot be amended except as provided in paragraph sec_3_3 and concerning distribution to remaindermen and conformity with sec_664 of the code respectively a and b have funded trust with various property including shares of x sec_3 of trust provides for distributions of trust principal and income paragraph provides that during the lifetimes of a and b the trustee shall pay to a and b jointly in each taxable_year of the trust the unitrust_amount computed as provided in sec_4 paragraph provides that upon the death of a or b the trustee shall pay to the survivor of a and b in each taxable_year of the trust the unitrust_amount computed as provided in sec_4 paragraph provides in general that upon the death of the survivor of a and b the trustee shall distribute all of the then principal and income of the trust estate other than any amount due to a unitrust recipient to certain named charities or to such additional or replacement beneficiaries as designated by a or b or the survivor of a and b in a dated written instrument the named charities and any additional or replacement beneficiaries shall be organizations described in sec_170 sec_170 sec_2055 and sec_2522 of the code sec_4 of trust provides that the unitrust_amount required to be distributed under sec_3 shall be computed as provided in sec_4 paragraph provides that the basic unitrust_amount shall be ten percent of the net fair market of the trust assets valued as of the first business_day of the trust’s taxable_year except as otherwise provided in sec_4 the unitrust_amount shall be the basic unitrust_amount as defined in paragraph paragraph provides that if the basic unitrust_amount is greater than the amount of trust income as defined in sec_643 of the code and the regulations thereunder for the trust’s taxable_year the unitrust_amount shall be limited to the amount of the trust income paragraph provides that if the amount of trust income as defined in sec_643 of the code and the regulations thereunder for the trust’s taxable_year exceeds the basic unitrust_amount the unitrust_amount shall include such excess income to the extent that the aggregate of the unitrust amounts paid to the unitrust recipient in prior taxable years of the trust is less than the aggregate of the basic unitrust amounts for such years subsequent to the establishment of trust a and b became legally_separated and commenced divorce proceedings in court as part of the proceedings on d2 court issued a judgment ordering a and b to join in a petition to divide trust into two separate trusts with a as sole trustee of the separate trust for a’s benefit and b as sole trustee of the separate trust for b’s benefit on d3 court issued a supplemental judgment ordering the division of trust property between the two separate trusts the stock of x is to be divided evenly between the two trusts but the remainder of the trust corpus is to be divided into an a percent share for a’s trust and a b percent share for b’s trust on d4 court also issued a judgment ordering each of a and b to be named successor trustee for the other in the event of the other’s death and providing that if one of them predeceases the other as to that person’s respective trust the other shall be the continuing life_beneficiary on d5 court additionally issued an order authorizing the conversion of trust from a charitable_remainder_unitrust with a net_income makeup method of payment to a charitable_remainder_unitrust with a standard fixed percentage_method of payment such court order also modified certain other provisions of trust not relevant to this ruling_request the provisions of this order are not the subject of this ruling_request a and b represent that trust as modified by the d5 court order meets all of the qualifications and requirements of sec_664 a and b further represent that all of the other provisions and requirements of the two separate trusts will be identical to those of trust as modified by the d5 court order the unitrust_amount for each separate trust will remain at ten percent of the net fair_market_value of the property of the respective separate trust sec_664 of the code sets forth the requirements to be a charitable_remainder_unitrust sec_664 provides that a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of the assets valued annually is to be paid not less often than annually to one or more persons at least one of whom is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals no amount other than the above-described payments may be paid to or for_the_use_of any person other than an organization described in sec_170 following the termination of the payments described above the remainder_interest in the trust generally is to be transferred to or for_the_use_of an organization described in sec_170 with respect to each contribution of property to the trust the value of the remainder_interest in such property must be at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust based solely on the facts and representations submitted we conclude that the division of trust into two separate trusts will not cause trust or the two separate trusts to fail to qualify as charitable_remainder trusts under sec_664 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code in particular sec_61 sec_170 sec_1001 and sec_1041 we express no opinion on whether trust qualifies as a charitable_remainder_trust under sec_664 or whether the separate trusts each will qualify as charitable_remainder trusts under sec_664 this ruling 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 pursuant to a power_of_attorney on file with this office copies of this letter are being forwarded to a b and trust’s other authorized representative sincerely yours h grace kim assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


sigmefceit ube foi iii io iri ir ir fri or io toit orr ito ii fo for iir rr ioi i iori re fri iit rr iii rrr kick rr ak for ii tor iii ir rik pe keke eae ll d t ep ra jun legend state a city a agency a agency b agency c agency d rrr kkk k eek reerke rrr rra rk ere kkekee rrr kiki kkk ee kerr kee kr rk rak kr ik ei ri itok ree ke eir ke ek rrr kkk kek keke keke rekeee me rrr rior rk ir keke eek ek ri kr ik krrekkkekekkkerek commission cc kk kk kkk keke kkk kkk kek kkk ere keke rekrkkkee plan x board m regulation n kkekkkkkkkkk rk kkk keke kekkkekreekekkekkeerekkkekkk rak kher ke kkk kek kkrekkekkeeee kk kk kkk kkk kk kek kk kkk rk e kek ke keke kkk eker keke keke keke kr eker ree krekrekeke kkk kkk keke kk kee ker keke kre eee kekkkeer krekrkekekrekrkkrkreekeeeek regulation o kk kk kkk kek rr kek kkk eker kkk keke ke kerekek kk kerr keke kkk kkk keke kher keke ek rekeeeekee kerr rrr kek ker eker ere eker ekkeerrekkeere kkk kek kkk kkk ekekkk kkk ek keke re ke krekek proposed form p kkk keke kerr kk eker kkk eker kekeee kr kkk ke kk kkk keke kek ke ekekekkreekrerekek proposed form r kkkkkkekeekekekekeekrkkke keke kekkkkekek keke kkek eker eker kekkekekrekrekekkkeeekk kkk kkk keke kek kek kkk eker kekekekeee kkrkkkkekekkekekkkekkekrekekkekkeeek dear mek rrr rr kee kkk this is in response to a ruling_request submitted by your authorized representative dated september supplemented by correspondence dated date january march the federal_income_tax treatment of certain contribution sec_2001 with respect to and date as axp kkk kkk keke kkk kerekkekerekrkeeheee to plan x under sec_414 code of the internal revenue the following facts and representations have been submitted on your behalf plan x is a contributory retirement_system established b c and d and its auxiliary agencies plan x for employees of city a is administered by board m agencies a is comprised of five members the city auditor ex board m officio a second member appointed by the mayor of city a two members elected by the members of plan x in or retired from service and a member chosen by the other four who is not an employee retiree or official of the governmental_unit program which includes a mandatory employee contribution feature and certain elective contribution features and which for purposes of this ruling_request is assumed to be qualified under sec_401 of the code board m administers plan x a defined benefit the governing provisions for plan x are statutorily promulgated by the state a legislature documents are the relevant sections of the state a general laws and the relevant portions of the code of state a regulations as promulgated by commission c state a which has general oversight over numerous retirement board functions an agency of the plan x plan x provides retirement disability and survivor benefits to all employees of city a and its auxiliary agencies including but not limited to employees public safety employees emergency medical service employees clerical and administrative employees city attorneys and staff highway employees all employees of agencies a teachers in the public schools of city a and the approximately big_number all city c and d b contributions to plan x are mandatory for all members in service and are made by payroll deductions equal to a percentage of each member's regular compensation ranging from five percent to nine percent depending upon the member's date of service additional two percent of each member's regular compensation over dollar_figure are required for members who joined plan x after january payroll deductions equal to an ty 20013504y kkk kkk kerr ere kkkhkkerekkkkeeee pursuant to chapter sec_22 of state a that is each governmental_unit to which a statutes each employer shall pick up all of the members' contributions system pertains shall assume and pay the contributions which would be payable by the employees as members contributions although designated as employee contributions will be paid_by the applicable government unit in lieu of contributions by the employee employee will have the option of choosing to receive such contributed amounts directly instead of having them paid_by the employing governmental_unit assumed shall be treated as employer contributions in determining tax treatment under the internal_revenue_code the contributions so further no such the calculation of benefits is based upon a formula that includes a creditable service age at retirement and average annual rate of regular compensation_for a member's highest compensated three consecutive years_of_service creditable service is defined as time that an individual has worked as an employee of city a or its auxiliary agencies or employment which included membership of any public state a retirement_system and for which the individual has paid or transferred retirement contributions to plan x creditable service is earned by employees who are employed on at least a half-time basis and who are contributing members of plan x for regular employment for city a or its auxiliary agencies authorized leave of absence and active military service during membership employees automatically receive credit and also includes certain military service in addition to creditable service received as a result of mandatory_contributions to plan x teachers in city a may also purchase credit for prior substitute teaching teaching in an out-of-state public school and certain non- public teaching while all employees including teachers of city a or its auxiliary agencies may purchase credit for other state a public service and active military service if a member withdrew retirement account amounts from plan the member may also receive creditable service upon x repaying the amount withdrawn plus interest prior to the date of retirement the cost of purchasing past service is based on what a member would have paid in contributions during that period plus interest to date or what the member actually paid rs rrr eker kee keke rkeekekerk ke kerri all forms of types of service eligible for purchase and withdrew plus interest to date creditable service must be purchased prior to the member's date of retirement by members are overseas dependent school teaching service public school teaching service in state a or out-of- state part-time teaching or tutoring service service superannuation retirement state a public school substitute temporary or state a public out-of-state public school teaching active military service maternity and non- recently enacted state a legislation provides generally with respect to maternity leave that a teacher a member of plan x who was on maternity leave prior who is to membership service may purchase service_credit for the period of maternity leave up to four years and who has completed ten or more years of the legislation further establishes an alternative a member of plan this provides an any teacher who is and such members will be further any member of a contributory retirement may elect to participate in the and before july superannuation retirement benefit program program for teachers who are members of plan x enhanced retirement benefit for qualified members participation in the program is mandatory for teachers hired on or after july required to make contributions equal to percent of regular compensation x before july program on or after date a teacher may elect to system who transfers into plan x as participate in the program within days of establishing membership in plan x program is irrevocable shall be required to make a minimum of five years of retirement contributions at the rate of regular compensation elects to participate in the program the member may also elect to accelerate payment of the five year minimum of the percent contributions from all actual salary or compensation a member who elects to participate any election to participate in the these payments could be made as a separate matter if percent of a member pursuant to state a statutes board m has authority to propose rules governing the employer pick-up of employee contributions were adopted by board m on september purpose of providing a pick-up of employee contributions in this regard for the final regulations n and orl kk kkkkekk keke ek ekkeekekekkekekrekek of the code for contributions that under sec_414 are made for the purpose of purchasing service_credit or service buybacks regulation n of employee contributions for up to five years of accelerated contributions regulation pursuant to the alternative superannuation retirement benefit program of sec_114 of chapter statutes that are made or to provide a pick-up of state a under regulation n members in service who elect to a a purchase or buy back service through installments in accordance with a schedule established by board m may elect to do so through executing proposed form p binding irrevocable payroll reduction authorization member in service having executed an authorization with respect to any such picked-up contributions shall not be entitled to any option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to board m remitted to board m pursuant to state a statutes in the same manner as all other contributions made thereunder and shall be credited to the member's annuity savings account such contributions although designated as employee contributions will be paid_by the employer in lieu of contributions by the employee assumed shall be paid_by the employer in lieu of contributions by the employee assumed shall be treated as tax-deferred employer pick-up contributions pursuant to sec_414 subject_to receipt of revenue service service of the code a favorable ruling by the internal such contributions shall be the contributions so the contributions so further under regulation n members in service may elect to pay all or part of any service purchase or buyback through such payroll reduction the amounts of the payroll reduction and the duration of the reduction shall be specified on proposed form p and the amounts and duration shall be irrevocable and binding once made amounts covered by the authorization is not permitted however a member may pay amounts not covered by the authorization with after-tax_dollars reduction shall begin unless and until the member in service executes proposed form p board m will send proposed form p to the treasurer or other disbursing officer of the employer authorization the treasurer or other disbursing officer of after receiving the no such payroll prepayment of o27 kek ker erk ikke kkk kek kekrekkekkeke kerr ek the employer shall continue to each employer shall add such contributions to the contributions deducted from the member's regular compensation each payday make such reductions for the number of weeks or months specified on proposed form p and shall treat these reductions as picked-up contributions reductions including the amounts and the duration specified shall be binding and irrevocable upon the member's execution of proposed form p above provisions of regulation n regulation n provides that such reductions will cease only after the authorization has expired by its terms or upon the member's death or the termination of the member's employment notwithstanding the all such payroll in the event of the member's death an eligible_beneficiary or spouse having a right to a member-survivor allowance may pay the remaining amount owed in one lump sum using after-tax_dollars if the entire remaining amount is not paid the beneficiary or spouse eligible for a member- survivor allowance shall be entitled to credit for that proportion of the additional_contribution made prior to the member's death in the event of the termination of the member's employment the member shall have the right to pay the remaining amount owed in one lump sum using after-tax_dollars during the same calendar_year and within six months of the date of termination or before the date of retirement whichever occurs earlier not pay the entire remaining amount and the member retires the member shall be entitled to credit for that proportion of the additional contributions actually made contributions in the case of the member's death or termination of employment shall only be received to the extent allowed by sec_415 of the code reductions and installment agreements of regulation n shall last no longer than five years if the member does the payroll after-tax proposed form p relates to the irrevocable payroll reduction authorization for the purpose of purchasing service credits or service buybacks through the deposit of additional contributions pursuant to proposed form p member directs his her employer to make reductions from salary per pay_period for the purpose of purchasing or buying back additional creditable service and to remit the reduction amounts to board m together with other a kee kk kkk kee eek eere ekrkekekekeee by signing the member acknowledges that the payroll the contributions are a result although as statutorily authorized contributions of specific amounts per pay_period beginning with the pay_period immediately after the employer receives proposed form p and continuing for a specific number of weeks or months proposed form p reduction authorization is irrevocable the maximum duration of the authorization is five years after the execution of the authorization the member has no option of receiving the reduction amounts directly instead of having them paid_by the employer to board m being picked up by the employer and designated as employee contributions they are being paid directly to board m in lieu of contributions by the member the member may make more than one irrevocable binding payroll reduction authorization so long as reduction authorization does not amend the binding irrevocable authorization while the agreement is effect that with respect to the buyback or service being purchased by the contributions designated therein board m will only accept payment from the employer and not directly from the member if the member terminates employment with the employer or dies prior to completion of the installment payments the binding irrevocable payroll reduction authorization shall expire and that the right survivor's right will pro-rate is governed by regulation n and payroll reduction authorization is not effective until signed by the member and by an authorized representative of the employer and the pick-up is only applicable to contributions to the extent the contribution is from compensation earned for services after the effective date of the pick-up to finish the payment or whether board m a subsequent a reduction the or in the purpose of regulation o is to provide a pick-up of of the code employee contributions under sec_414 h for accelerated contributions that are made pursuant to the alternative supernannuation retirement benefits program of state a statutes and applies only to teachers who are active members of plan x who elect to participate in the enhanced benefit program elect to accelerate their contributions under regulation o unless paid directly to the plan x these accelerated contributions must be made in accordance with a schedule established by board m through a binding irrevocable payroll reduction authorization proposed form r described in detail below such electing teachers may also kekkkreekkeekrkrrkeekkke eere ehh ekkeee eo under regulation teachers who are members in a such contributions shall be remitted to board m service of plan x having executed proposed form r binding irrevocable payroll reduction authorization with respect to any such contributions shall not be entitled to any option of choosing to receive the contributed amounts directly in stead of having them paid_by the employer to board m in the same manner as all other contributions made thereunder and shall be credited to the member's annuity savings account as employee contributions will be paid_by the employer in lieu of contributions by the employee so assumed shall be paid_by the employer in lieu of contributions by the employee assumed shall be treated as tax-deferred employer pick-up contributions pursuant to sec_414 subject_to a favorable letter_ruling by the service such contributions although designated the contributions so the contributions of the code regulation o also provides that teachers who are however nothing within prepayment of amounts covered by the members in service of plan x may elect to pay all or part of the accelerated contributions through such payroll reduction the amounts of the payroll reduction and the duration of the reduction shall be specified on proposed form r the authorization form prescribed by board m and the amounts and duration shall be irrevocable and binding once made authorization is not permitted regulation o shall prevent a member from paying any amounts not covered by the authorization with after-tax_dollars no such payroll reduction shall begin unless and until the member in service executes the payroll reduction authorization described on proposed form r as prescribed by board m treasurer or other disbursing officer of the employer after receiving proposed form r payroll reduction authorization the treasurer or other disbursing officer of each employer shall add such contributions to the contributions deducted from the member's regular compensation each pay day pursuant to state a statute the employer shall continue to make such reductions for the period specified on proposed form r and shall treat these reductions as picked-up contributions all such payroll reductions including the amounts and the duration specified shall be binding and irrevocable upon the member's execution of the prescribed proposed form r board m will send proposed form r to the the binding irrevocable keke kk keke keke kkerekekekekehekeeekee a notwithstanding the above regulation n provides that upon the member's death an such reductions will cease only after the authorization has expired by its terms or upon the member's death or termination of employment eligible_beneficiary or spouse having a right to a member- survivor allowance shall pay the remaining amount owed in one lump sum using after-tax_dollars remaining amount cannot be paid due to code sec_415 limitations the beneficiary or spouse eligible for a member-survivor allowance shall be entitled to the benefit available under regulation o accelerated contributions actually made in no event shall the member receive a return of the payroll reductions from compensation made hereunder except as specifically provided as as provided in state a statutes or as provided in regulation o for the benefit of terminates without completing thirty years of creditable service a refund together with all other contributions a member who retires or in proportion to the if the entire proposed form r relates to the irrevocable payroll the member directs the employer to reduction authorization for the teachers alternative retirement program accelerated contributions and provides that the member is entitled to participate in the alternative superannuation retirement program by paying contributions at the rate of per cent on all regular compensation and that he she has elected to do so further it provides that the member is entitled to elect to pay accelerated contributions and that the member desires to do so through accelerated contributions through payroll reductions make specified reductions from salary per pay_period for the purpose of receiving the alternative superannuation retirement benefit and to remit them to board m together with other statutorily specified contributions beginning with the pay_period immediately after the employer receives proposed form r and continuing for a specified number of weeks or months for a stated total dollar amount signing proposed form r payroll reduction authorization is irrevocable the maximum duration of the authorization is five years after the execution of the authorization the member has no option of receiving the reduction amounts directly instead of having them paid_by the employer to board m being picked up by the employer and the contributions are as a result although the member acknowledges that the by krekekekkkkikkekhkhkkkeekekkkkkkkkkeee in lieu of contributions by the member designated as employee contributions they are being paid directly to board m the member may make more than one irrevocable binding payroll reduction authorization so long as a subsequent reduction authorization does not amend the binding irrevocable authorization while the agreement is effect that with respect to the accelerated contributions designated therein board m will only accept payment from the employer and not directly from the member if the member terminates employment with the employer or dies prior to completion of the installment payments the binding irrevocable payroll reduction authorization shall expire and that the right or survivor's right to finish the payment or whether board m will pro-rate is governed by regulation authorization is not effective until singed by the member and by an authorized representative of the employer and the pick-up is only applicable to contributions to the extent the contribution is deducted from compensation earned for services after the effective date of the pick-up the payroll reduction and in based on the foregoing facts and representations you have requested the following rulings a redeposit previously withdrawn that the amount deducted by employers from an employee's compensation and paid to plan x in order to contributions credit or accelerated cost of the alternative superannuation retirement benefit program qualify as contributions that are picked-up by the employer under sec_414 c pay the regular cost and the b purchase additional service of the code and that the picked-up contributions will not be treated as annual_additions for purposes of sec_415 of the code with respect to ruling_request one sec_414 h of the code provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to a plan described in sec_401 established by a state government or a political_subdivision thereof and are picked up by the employing unit ril kkk eker kkk kkkkkeererekkkkekee the federal_income_tax treatment to be accorded in that revenue of the code is specified contributions which are picked up by the employer within the meaning of sec_414 in revrul_77_462 c b ruling the employer school district agreed to assume and pay the amounts employees were required by state law to contribute to a state pension_plan concluded that the school district's picked-up contributions to the plan are excluded from the employees' gross_income until such time as they are distributed to the employees the revenue_ruling held further that under the provisions of sec_3401 a school district's contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages therefore no withholding is required from the employees' salaries with respect to such picked-up contributions revrul_77_462 of the code the the issue of whether contributions have been picked up of these the employer must specify that the by an employer within the meaning of sec_414 the code is addressed in revrul_81_35 1981_1_cb_255 and revrul_81_36 c b revenue rulings established that the following two criteria must be met contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and the employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan immaterial for purposes of the applicability of sec_414 whether an employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both furthermore it i sec_136 provides that the required in order to satisfy revenue rulings and with respect to particular contributions revrul_87_10 c b specification of designated employee contributions must be completed before the period to which such contributions relate being paid_by the employer are actually employee contributions paid_by the employee and recharacterized at later date designated employee contributions as paid_by the employing unit the retroactive pick-up of designated the designated employee contributions the retroactive specification of if not ie thus a xi aaa keke kkkekrkekkeekkekekekee kerr keeekekaek employee contributions by a governmental employer is not permitted under sec_414 of the code with respect to the pick up of employee contributions further proposed form p in lieu of contributions by for the purpose of purchasing service_credit or service buybacks regulation n satisfies the criteria set forth in revrul_81_35 and revrul_81_36 by providing that the employer will make contributions on behalf of members participating in plan x the members and that no member will have the option of receiving the contributions directly instead of having them contributed to plan x irrevocable and provides that the contributions are being picked up by the employer and paid directly by the employer to board m and that the member does not have the option of receiving the contributed amounts directly instead of having them paid to plan x the pick-up of employee contributions to purchase service_credit or service buybacks is not effective until proposed form r is signed by the member and an authorized representative of the employer contributions to purchase service_credit or service buy backs is only applicable to contributions to the extent the contribution is deducted from compensation earned for services after the effective date of the pick-up as administrator of plan x the pick-up of employee is with respect to the pick-up of employee contributions for accelerated contributions that are made pursuant to the alternative superannuation retirement benefit provisions regulation o satisfies the criteria set forth in revrul_81_35 and revrul_81_36 by providing that the contributions although designated as employee contributions will be paid_by the employer in lieu of contributions by the member and that the member shall not have any option of choosing to receive the contribution amounts directly instead of having them paid to plan x further proposed form r the contributions although designated as employee contributions are being paid directly to board m administrator of plan x members and that the members do not have the option of receiving the amounts directly instead of having them paid to plan x signed by both the member and an authorized representative of the employer applicable to contributions to the extent the contribution additionally the pick-up is only is irrevocable and provides that in lieu of contributions by the is not effective until it proposed form r as is idollar_figure ke kkekekk eker eker kekkeekeekeer is deducted from compensation earned for services after the effective date of the pick-up accordingly we conclude with respect to ruling_request one that the amount deducted by employers from an employee's compensation and paid to plan x in order to a b purchase redeposit previously withdrawn contributions additional service_credit or c pay the regular cost and the accelerated cost of the alternative superannuation retirement benefit program qualify as contributions that are picked-up by the employer under sec_414 the code of with respect to ruling_request two sec_1 sec_1 d further provides of the income_tax regulations provides that where d a defined_benefit_plan provides for mandatory employee contributions the annual_benefit attributable to such contributions is not taken into account for purposes of applying the limitations on benefits described in sec_415 of the code that the mandatory employee contributions are considered a separate defined_contribution_plan maintained by the employer that is subject_to the limitations on contributions and other annual_additions described in code sec_415 employee contributions that are picked up by employers pursuant to sec_414 employer contributions and additions to a separate defined_contribution_plan for purposes of code sec_415 are treated as are not annual as such accordingly with respect to ruling_request two we conclude that picked-up contributions under the facts proposed will not be treated as annual_additions for purposes of sec_415 of the code our conclusions with respect to ruling_request one apply only if the effective date for the commencement of any proposed pick up as specified in the final regulations can not be any earlier than the later of the date the final regulations are signed or the date they are put into effect these rulings are based upon regulation n and regulation o as adopted by board m on september and submitted to us under a letter dated december and proposed form p as revised and proposed form r as fo es keke krekrkekkekrekrer ere rekekekekkeek revised as set forth in your letter dated date in accordance with revrul_87_10 this ruling does not apply to any contribution to the extent it relates to compensation earned before the later of the effective date of the relevant statutes the date the pick-up election is executed or the date it is put into effect no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act the amounts in question are being paid pursuant to a salary reduction agreement within the meaning of sec_3121 b no opinion is expressed as to whether of the code by letter dated date you through your and two do not apply with respect to the pick-up of authorized representative withdrew that part of the above ruling requests relating to the inclusion of accrued sick_pay as compensation available for an employer pick-up therefore our conclusions with respect to ruling requests one accrued sick_pay as compensation conclusions with respect to the pick up of contributions to redeposit amounts previously withdrawn purchase additional service_credit and pay the regular cost and the accelerated cost of the alternative superannuation retirement benefit program do not apply to the purchase with after-tax_dollars of these benefits by a member or a beneficiary upon the death of the member in the event the member terminates employment or dies before paying the remaining amount owed to purchase the additional service_credit or the alternative superannuation benefit in addition our this ruling is directed only to the taxpayer who requested it it may not be used or cited by others as precedent sec_6110 of the code provides that these rulings express no opinion as to the impact of these proposed transactions upon the qualified nor the continuing qualified status of the plan involved rulings are based on the assumption that plan x will be qualified under sec_401 of the code at all relevant times these further this ruling is not a ruling with respect to the tax effects of the pick-up on employees of a346 kekkkkekkkekekekekkk kkk kkk kkk kee participating employers however in order for the tax effects that follow from this ruling to apply to those a particular participating employer described employees of in the preceding sentence the pick-up arrangement must be adopted and implemented by that participating employer in the manner described herein a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office sincerely yours signed joyos b floyd joyce e floyd manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of this letter notice of intention to disclose ce


internal_revenue_service uil nos 7702a ruling release date november cc dom fi p plr-116462-98 ancillary receiver company a date b state c reinsurer d reinsurer e state f number g year h amount j dear this is in response to the ruling_request of date b as supplemented submitted by reinsurers d and e taxpayers as to the federal tax consequences of a proposed assumption_reinsurance of certain annuity and life_insurance contracts issued by company a company a is a state f life_insurance_company which was licensed to do business in more than number g states including state c company a became insolvent in year h in that same year the insurance commissioner of state f the state of company a’s domicile obtained a court order placing company a in conservatorship where it still resides when company a first sought a certificate of authority to conduct business in state c company a was required to place in the custody of the insurance commissioner for state c certain government guaranteed securities having a value at that time of approximately amount j the special deposit the special deposit was required to be increased from time to time based on the growth in company a’s business with state c policyholders the purpose of the special deposit was to provide security for state c policyholders in the event of nonperformance of company a’s contractual obligations to the policyholders and their beneficiaries accordingly when company a was placed in conservatorship in state f the insurance commissioner of state c obtained an order from the state c court establishing an ancillary receivership by that order the insurance commissioner of state c was appointed as ancillary receiver and directed to liquidate the special deposit and state c liabilities of company a from that point forward after some litigation to settle the rights to the special deposit the original conservatorship in state f and the ancillary receivership in state c have operated separately although information has been exchanged as necessary pursuant to the court’s order the ancillary receiver has developed an overall plan the plan to liquidate company a pursuant to the plan the ancillary receiver has arranged where possible for the reinsurance of certain blocks of company a's business by creditworthy insurance_companies including taxpayers taxpayers are both life_insurance_companies subject_to federal income_taxation as life_insurance_companies under part i of subchapter_l of the code are accrual-basis calendar-year taxpayers and file a consolidated federal return with a joint parent in order to accomplish the reinsurance of company a’s contracts the plan requires that company a’s contracts be in some cases restructured to correspond to contract forms currently in use by a reinsurer because company a's state c liabilities do not currently and are not expected to exceed the special deposit the plan does not require downward adjustments to the account values of company a's contracts further because there is no reduction in the value of the contracts holders of company a contracts were not given an opportunity to agree or disagree with the restructuring of their contracts or to the reinsurance of the restructured contracts under the rehabilitation plan as applicable to state c policyholders the ancillary receiver plans to dispose_of blocks of business the contracts to taxpayers through assumption_reinsurance to be effective on a date to be determined and approved by the court certain life_insurance contracts and certain annuity_contracts will be restructured to match reinsurer d contract forms immediately before the reinsurance arrangement is consummated the economic rights and benefits of the restructured contracts immediately after the restructuring will be substantially_similar to the economic rights and benefits of the contracts immediately before the restructuring the restructuring will be accomplished by endorsement certain other company a state c contracts including group annuity_contracts and single premium immediate_annuity contracts will be assumed by reinsurer e without restructuring the pending assumption_reinsurance transactions were the result of a bidding process involving several potential reinsurers conversion of assumed contracts to existing policy forms of a bidder had a material effect on the bidder’s anticipated costs of administering the assumed contracts and was a material consideration in bidding the ancillary receiver represents that the restructuring of certain contracts to conform with reinsurer d policy forms will occur as an integral part of the state c ancillary receivership of company a and will occur pursuant to the order and approval of the state c court no terms of any of the contracts to be assumed and reinsured by the taxpayers whether previously restructured or not will be changed by the assumption_reinsurance transaction except that the reinsurers will become the insurer of the contracts under the agreements reinsurers will deliver to each policyholder of an assumed contract a certificate confirming its assumption of all of company a's liabilities under the restructured contract a policyholder has no further claims against company a upon the assumption of the contract by reinsurer taxpayers represent that the contracts to be assumed that are issued as life_insurance policies constitute life_insurance contracts for federal_income_tax purposes further taxpayers represent that the contracts to be assumed that are issued as annuity_contracts constitute annuity_contracts for federal_income_tax purposes law and analysis sec_1035 of the internal_revenue_code provides that no gain_or_loss is recognized on the exchange of -- a contract of life_insurance for another contract of life_insurance or for an endowment or annuity_contract a contract of endowment_insurance either for another contract of endowment_insurance that provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged or for an annuity_contract or an annuity_contract for an annuity_contract see also sec_1_1035-1 of the income_tax regulations the legislative_history of sec_1035 states that exchange treatment is appropriate for individuals who have merely exchanged one insurance_policy for another better suited to their needs and who have not actually realized gain h_r rep no 83d cong 2d sess sec_1031 provides in part that if an exchange would be within the provisions of sec_1035 if it were not for the fact the property received in exchange consists not only of property permitted by these provisions to be received without the recognition of gain but also of other_property or money then the gain if any to the recipient shall be recognized but in an amount not in excess of the sum of such money and the fair_market_value of such other_property sec_1031 provides for property acquired in an exchange described in sec_1035 that the basis shall be the same as that of the property exchanged decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange although the primary purpose of reinsurance is to avoid too large a concentration of risk within one company a company may wish to withdraw from business entirely or from a particular territory by transferring all or a specific_portion of the company's existing liabilities to a reinsuring company reinsurer including the administration of the contracts directly with the policyholders this transaction is known as assumption_reinsurance k black jr and h skipper jr life_insurance ndollar_figure 12th ed rev assumption_reinsurance is the assumption by one company of all of the functions and obligations of one or more contracts issued by another company generally the insured will look to the assuming company in the future for all benefit payments under the policy will pay all premiums to the assuming company and will deal with the assuming company in the same manner as if it had originally written the policy steffen reinsurance in life and health insurance handbook d gregg and v lucas eds 3d ed the intent of an assumption_reinsurance transaction is that the reinsurer will replace the original insurer in all respects by accomplishing this replacement through a reinsurance technique rather than the cancellation of old contracts and the issuance of new ones a simplification and saving can be accomplished the regulations state that the term assumption_reinsurance means an arrangement whereby another person the reinsurer becomes solely liable to the policyholders on the contracts transferred by the taxpayer sec_1_809-5 of the regulations an assumption_reinsurance agreement is not initiated by the policyholder and does not result in a change_of the existing contractual obligations of the underlying life_insurance_policy it merely allows the obligation of the original insurer under the existing contracts to be assumed by the reinsurer see sec_1_809-5 of the regulations after completion of the reinsurance all terms of the reinsured underlying contracts remain unchanged including the amount and pattern of death_benefit the premium pattern the rate guaranteed on issuance of the contract and the mortality and expense charges the substitution of the taxpayers for the original insurer is the only modification to the underlying contracts the contracts that the policyholders will have after the assumption_reinsurance transaction are the same restructured or unrestructured contracts the policyholders would have maintained with company a except for the fact that the original insurer will be replaced no formal exchange of contracts will occur as a result of the assumption_reinsurance transaction policyholders will receive an assumption certificate as notification of the change in insurers they will not receive a new policy form accordingly based solely on the information submitted and on the representations made it is held as follows the assumption_reinsurance transaction entered into by the ancillary receiver with reinsurer d in accordance with the plan pursuant to which reinsurer d will assume the contracts after they are restructured in taxpayer if such transaction does not change the terms and conditions of the contracts assumed other than the insurer will not have an effect on the date that each contract was issued entered into or purchased for purposes of sec_72 sec_101 sec_264 sec_7702 and sec_7702a and will not require retesting or the start of a new test period under sec_264 sec_7702 b - e and 7702a c the assumption_reinsurance transaction entered into by the ancillary receiver with reinsurer e in accordance with the plan pursuant to which reinsurer e will assume the contracts if such transaction does not change the terms and conditions of the contracts assumed other than the insurer will not have an effect on the date that each contract was issued entered into or purchased for purposes of sec_72 sec_101 sec_264 sec_7702 and sec_7702a and will not require retesting or the start of a new test period under sec_264 sec_7702 b - e and 7702a c no opinion is expressed as to the tax treatment of the contracts under the provisions of other sections of the code and income_tax regulations which may also be applicable thereto this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax returns to be filed by taxpayers in the taxable_year that includes the date upon which the assumption_reinsurance agreement covering the contracts is closed sincerely yours assistant chief_counsel financial institutions products by __________________________ donald j drees jr senior technician reviewer branch


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 b03 plr-152892-11 date date legend parent ---------------------------------------------------------------------------- ---------------------------------------------------------------------- ------------------- date date -------------------------- --------------------------- company officials and tax professionals ----------------------------------------------------------------- ----------------------- ------------------------------------------------------------------------ --------------------------------------------------------------------------------- ---------------------------------------------------------------- --------------------- dear ----------------- this is in response to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the extension is being requested for parent to file an election under sec_1_1502-21 to relinquish the entire carryback period for the parent consolidated group’s consolidated net operating losses cnols for the tax_year ending date the election additional information was submitted in a letter dated date the material information submitted for consideration is summarized below plr-152892-11 parent is the common parent of a consolidated_group parent group parent group incurred a cnol for the tax_year ending date parent has represented that parent group has not and will not carry any portion of the cnol to a prior consolidated_return_year of parent group and that no member of parent group for the tax_year ending date had a separate_return_year within the meaning of sec_1_1502-1 at any time during the carryback period parent has also represented that parent group is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time parent requested relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 and for which the new return position requires or permits a regulatory election for which relief is requested parent intended to file the election the election was required to be filed by date but for various reasons parent failed to file a valid election the period of limitations on assessment under sec_6501 has not expired for parent group’s tax_year ending date or any subsequent taxable_year sec_1_1502-21 provides that a consolidated_group may make an irrevocable election to relinquish the entire carryback period with respect to a cnol for any consolidated_return_year the election is made in a separate statement entitled this is an election under sec_1_1502-21 to waive the entire carryback period pursuant to sec_172 for the insert consolidated_return_year cnols of the consolidated_group of which insert name and employer_identification_number of common parent is the common parent sec_1_1502-21 also provides that the statement must be filed with the group's income_tax return for the consolidated_return_year in which the loss arises under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_1502-21 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided plr-152892-11 parent shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent and company officials and tax professionals explain the circumstances that resulted in the failure to timely file the election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election with respect to the relinquishment of the entire carryback period for the cnol for the tax_year ending date as described above the above extension of time is conditioned on the taxpayers’ parent and the members of its consolidated_group tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved parent should file the election in accordance with sec_1_1502-21 parent group’s returns must be amended to attach the election statement required by sec_1_1502-21 a copy of this letter should be attached to the election statement alternatively if parent group files its returns electronically parent may satisfy this latter requirement by attaching a statement to its return that provides the date and control number of this letter_ruling we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by parent and company officials and tax professionals however the director should verify all essential facts moreover notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any still apply plr-152892-11 this ruling is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely __________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


t c memo united_states tax_court estate of michabrl a conviser deceased barbara l conviser personal representative and barbara l conviser petitioners v commissioner of internal revenue respondent docket no filed date robert a wherry jr for petitioners robert a varra for respondent supplemental memorandum opinion colvin judge the case is before the court on petitioners’ motion to reconsider our prior opinion in this case conviser v commissioner tcmemo_1999_47 the sole issue for decision in this opinion supplements conviser v commissioner tcmemo_1999_47 _9- that opinion was whether discharge_of_indebtedness income from an s_corporation increases petitioners' basis in that corporation we held that it does not following 110_tc_114 affd 182_f3d_1152 10th cir background petitioners were shareholders in mikama inc mikama an s_corporation from to from to mikama was a general_partner with a 10-percent interest ina limited_partnership known as dove canyon co dove canyon dove canyon realized dollar_figure in discharge_of_indebtedness income in and dollar_figure in the parties agree that if petitioners may increase their basis in mikama by the discharge_of_indebtedness income no deficiencies in income_tax are due from petitioners for and discussion in gitlitz v commissioner u s ____ 121_sct_701 the supreme court held that a shareholder of an insolvent s_corporation may increase his or her basis by his or her pro_rata share of discharge_of_indebtedness income to the s_corporation contrary to our holding in nelson v commissioner supra the parties agree that gitlitz controls here accordingly petitioners’ motion for reconsideration will -3- be granted and petitioners may increase their basis in mikama by their share of the dove canyon discharge_of_indebtedness income to reflect the foregoing an appropriate order will be issued and decision will be entered for petitioners


id office uilc cca_2012040516072032 -------------- number release date from ---------------------- sent thursday april pm to -------------------- cc --------------------- subject re confirmation needed for tour and other site access -------------i see nothing objectionable with confirming for them that the items they list would constitute return_information as they would be collected by the service with respect to the taxpayer's potential liability -----


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc intl br4-plr-113271-00 date date number release date index number legend trust d trust e trust f husband wife corp a corp b firm year year dear this is in reply to your letter of date in which you requested a ruling that corp a be allowed to make a retroactive election under sec_1_1295-3 for year with respect to corp b additional information was submitted on date and date 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 corp a is a u s limited_liability_company that was formed in year to hold shares of corp b corp a is equally owned by three complex trusts trust d trust e and trust f each of these trusts was formed for the benefit of one of the three children of plr-113271-00 husband and wife in year husband and wife transferred to corp a their rights to buy common_stock in corp b in year corp a exercised those rights and acquired approximately ten percent of the common_stock of corp b corp b is a foreign_corporation that has been a pfic within the meaning of sec_1297 during corp a’s entire period of ownership for the years at issue corp a’s pro_rata share of corp b’s ordinary_earnings and net_capital_gain within the meaning of sec_1295 was zero firm a law firm specializing in domestic and international tax law did the legal and administrative work involved in the formation of corp a firm had access to all the relevant information concerning corp a’s assets including its ownership of corp b stock husband and wife their children the trustees of trusts d e and f and corp a relied upon firm to advise them regarding the international aspects of u s tax law as applicable to corp a including the consequences of making or failing to make available elections firm failed to identify corp b as a pfic and failed to advise of the consequences of corp a making or failing to make the sec_1295 election in year wife was alerted by an independent advisor to the possibility that corp b was a pfic wife informed firm of this concern which subsequently verified that corp b was a pfic corp a then requested the commissioner’s consent to retroactively elect qef treatment with respect to the stock it owned in corp b neither corp a husband and wife their children nor any trustees of trusts d e and f were aware until year that corp b was a pfic the pfic status of corp b has not been raised by the internal_revenue_service on audit for any taxable_year of corp a a pfic will be treated as a qualified_electing_fund qef with respect to a taxpayer if the taxpayer makes a valid qef election under sec_1295 a taxpayer that elects qef treatment includes in gross_income his pro_rata share of the ordinary_earnings and net_capital_gain of the qef for the taxable_year a qef election applies to the taxable_year for which it is made and all subsequent taxable years unless revoked by the taxpayer with the consent of the secretary sec_1295 a qef election may be made on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations a qef election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic sec_1295 sec_1_1295-3 provides rules for making a retroactive qef election under these regulations a shareholder of a pfic that meets certain conditions may make a retroactive election without obtaining the consent of the commissioner sec_1_1295-3 or e corp a has not met these conditions a shareholder may also plr-113271-00 make a retroactive qef election with the commissioner’s consent if it meets the requirements of sec_1_1295-3 the commissioner will grant relief under sec_1_1295-3 only if four requirements are satisfied sec_1_1295-3 i - iv the first requirement is that the shareholder reasonably relied on a qualified_tax professional who failed to identify the foreign_corporation as a pfic or failed to advise the shareholder of the consequences of making or failing to make a sec_1295 election sec_1_1295-3 provides that a shareholder will not be considered to have reasonably relied upon a qualified_tax professional if the shareholder knew or reasonably should have known that the foreign_corporation was a pfic and knew of the availability of a sec_1295 election in addition a shareholder cannot claim reliance upon a tax professional that the taxpayer knew or reasonably should have known was not competent to render tax_advice with respect to stock ownership of a foreign_corporation or did not have access to all relevant facts and circumstances husband and wife their children the trustees of trusts d e and f and corp a relied upon firm for advice concerning international aspects of u s taxation pertaining to corp a including the consequences of making or failing to make all available elections until year neither corp a husband and wife their children nor the trustees of trusts d e and f knew that corp b was a pfic or that a sec_1295 election was available and firm did not inform them about this election firm was competent to render tax_advice with respect to stock ownership of a foreign_corporation and had access to all the relevant facts and circumstances thus corp a reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 and the second requirement of sec_1_1295-3 is that granting consent will not prejudice the interests of the united_states government under sec_1 f i the interests of the u s government are prejudiced if granting relief would result in the shareholder having a lower tax_liability taking into account applicable_interest charges in the aggregate for all years affected by the retroactive election other than by a de_minimis amount than the shareholder would have had if the shareholder had made the sec_1295 election by the election due_date the time_value_of_money is taken into account for purposes of this computation because corp a would have had no income inclusion for the years in question under sec_1293 if it had made a timely qef election for those years the interests of the u s government will not be prejudiced by allowing corp a to make a retroactive sec_1295 election the third requirement for making a special consent election under sec_1 f is that the request must be made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder corp a has requested consent under these special consent provisions before the issue has been raised on audit plr-113271-00 the final requirement for making a special consent election is that the procedural requirements set forth in sec_1_1295-3 must be met affidavits meeting these requirements and describing firm’s failure to inform corp a of its need to make a qef election have been submitted corp a has therefore met the procedural requirements of sec_1_1295-3 based on the information submitted and representations made consent will be granted to allow corp a to make a retroactive election under sec_1_1295-3 for its year taxable_year provided corp a complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election a copy of this letter must be attached to any income_tax return to which it is relevant this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this ruling is forwarded to the taxpayer and its second representative sincerely valerie mark lippe senior technical reviewer cc intl br2