internal_revenue_service department of the q9 ol significant index no washington dc contact person telephone number in réfererice to datel ep ra t a2 sep 2m inre request_for_ruling on behalf of taxpayer t this letter is in response to your request dated date in which you asked for a tuling as to whether certain proposed distributions from an individual_retirement_account ira owned by taxpayer t are part of a series of substantially_equal_periodic_payments and are therefore not subject_to the percent additional tax imposed under sec_72 of the internal_revenue_code code the ruling_request was amended by you as the taxpayer's authorized representative pursuant to form in a letter dated date and in telephone calls with of our office including calls on date and on date to modify the age and interest rate used in the methodology used to calculate distributions for and subsequent years according to the facts as stated taxpayer t is the owner of two iras ira and ira which were merged by a trustee to trustee transfer into a third ira ira on date taxpayer t attained age in taxpayer t started taking distributions from ira in and calculated an annual distribution amount for by dividing the aggregated account balances of ira sec_1 and as of date by an age annuity factor from table s irs publication actuarial values aleph volume using an assumed interest rate of percent taxpayer t wants to avoid the additional percent tax imposed under sec_72 on early distributions by using the exception provided in sec_72iv of the code for substantially_equal_periodic_payments taxpayer t will attain age in taxpayer t proposes to calculate the annual distribution amount for by dividing the date account balance of ira by an anmuity factor derived from table s as published in date using taxpayer t's age attained in and an interest rate equal to percent of the federal_mid-term_rate in effect for date rounded down to the nearest even tenth of a percent the annual distribution amount for succeeding years will be calculated in the same manner that is the account balance of ira as of december of the prior year will be divided by an annuity 24v factor from table s with such annuity factor derived using taxpayer t's age attained in the distribution year and an imterest rate equal to percent of the federal_mid-term_rate for january of the distribution year rounded down to the nearest even tenth ofa percent all distributions will be taken from ira ruling requested based on these facts you have requested the following ruling the proposed method of determining periodic_payments satisfies one of the methods described in notice_89_25 and results in substantially_equal_periodic_payments within the meaning of sec_72 of the code and such payments will not be subject_to the additional tax of sec_72 unless the requirements of sec_72 are not met applicable law sec_408 of the internal_revenue_code provides that amounts paid or distributed out of an individual_retirement_plan must be included in gross_income by the payee or distributee in the manner provided under sec_72 of the code sec_72 of the internal_revenue_code provides rules for determining how amounts received as annuities endowments or life_insurance contracts and distributions from qualified_plans are to be taxed sec_72 of the internal_revenue_code was added to the code by the tax_reform_act_of_1986 tra_'86 effective generally for taxable years beginning after date sec_72 provides for the imposition of an additional percent tax on early distributions from qualified_plans including iras the additional tax is imposed on that portion of the distribution that is includible in gross_income sec_72 of the code provides that sec_72 shail not apply to distributions which are part of a series of substantially_equal_periodic_payments not less frequently than annually made for the life or life expectancy of the employee or the joint lives or joint life expectancies of such employee and his beneficiary sec_72 of the code imposes the additional limitation on distributions excepted from the percent tax by sec_72 that if the series of payments is subsequently modified other than by reason of death or disability before the later of the close of the 5-year ay period beginning with the date of the first payment and the employee's attainment of age then the taxpayer's tax for the first taxable_year in which such modification occurs shall be increased by an amount determined under regulations equal to the tax which would have been imposed except for the sec_72 exception plus interest for the deferral_period sec_1_72-9 of the income_tax regulations regulations provides tables that are to be used in connection with computations under sec_72 and the regulations thereunder included in this section are tables giving life expectancies for one life table v and joint life and last survivor expectancies for two lives table v1 notice_89_25 1989_1_cb_662 provides guidance in the form of questions and answers on certain provisions of the tax_reform_act_of_1986 tra_'86 in the absence of regulations on sec_72 of the code this notice provides guidance with respect to the exception to the tax on premature distributions provided under sec_72t aj iv q a-12 of notice_89_25 provides three methods for determining substanti ly equal periodic_payments for purposes of sec_72 iv of the code two of these methods involve the use of an interest rate assumption which must be an interest rate that does not exceed a reasonable interest rate on the date payments commence proposed methodology the proposed method for determining anmmual periodic_payments described in the ruling_request as modified is to calculate an end-of-year annual distribution amount by dividing the account balance of ira as of the end of the prior year by an annuity factor with such annuity factor derived from table s of irs publication using the age attained in the distribution year and a specified interest rate the annual end-of-year distribution amount for was derived by dividing the aggregated account balances as of date of the two iras ira and tra which were merged into ira by an annuity factor derived from table s as inchuded in irs publication actuarial values alpha volume using an effective annual interest tate of percent and taxpayer t’s age attained in for the year and subsequent years an end-of-year annual distribution amount will be calculated by dividing the account balance of ira as of december of the prior year by an annuity factor with such annuity factor derived from the currently effective table s currently included in irs publication actuarial values book aleph using taxpayer t's age attained in the distribution year and an effective annual interest rate equal to percent of the federal_mid-term_rate used for purposes of code sec_1274 and rounded down to the nearest even tenth of a percent in effect for january of the year for which the distribution is calculated for example where percent of the federal_mid-term_rate is a rate that is greater than and less than such as or the rate will be rounded down to all annual distribution amounts will be taken out of ira and only from ira conclusion the annuity factor and the interest rate used are such that they do not result in the circumvention of the requirements of sec_72 a iv and of the code through the use of an unreasonable annuity factor or an unreasonably high interest rate accordingly we conclude that the proposed method as modified of determining periodic paytnents satisfies one of the methods described in notice_89_25 and results in substantially_equal_periodic_payments within the meaning of sec_72 a gv of the code and such payments will not be subject_to the additional tax of sec_72 unless the requirements of sec_72 are not met this ruling is directed only to the individual that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent sincerely yours what eppumd martin l pippins manager employee_plans actuarial group tax_exempt_and_government_entities_division xs


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 b04 plr-122806-09 date date legend legend taxpayer a state b year x -------------------------------------------- ---------------------------------------------- ------------- ------- dear -------------------------- this is in response to your authorized representative's submission dated date and subsequent submissions requesting rulings that certain extended service contracts issued by taxpayer during year x and that taxpayer expects to continue issuing are insurance contracts for federal tax purposes and beginning on january year x taxpayer qualifies as an insurance_company taxable under the provisions of sec_831 facts taxpayer is incorporated in state b taxpayer is not licensed as an insurance_company under the laws of state b taxpayer's stock is wholly owned by an individual the same individual also wholly owns and operates a taxpayer directly issues and administers motor_vehicle service contracts mvsc in addition taxpayer administers extended service contracts esc taxpayer’s business consists solely of its activities related to the mvscs and escs the services performed by the taxpayer include warranty administration claims administration and adjusting functions a markets both escs and mvscs to independent automobile dealers in several states under the mvscs taxpayer directly contracts with vehicle purchasers providing coverage for mechanical failures the purpose of the mvsc is to provide the auto purchaser with protection against economic loss for repair resulting from the mechanical breakdown of covered parts the mvscs provide that for the contract period the taxpayer must pay the cost in excess of any deductible to repair and or replace any plr-122806-09 covered parts that are defective in materials or workmanship the contract period depends upon the coverage purchased and is the lesser_of the term or the elapsed vehicle mileage the mvscs do not cover parts already covered by existing manufacturer’s warranties mvscs are sold by auto dealers to vehicle purchasers at the time of purchase the premiums on the mvscs are collected by the auto dealers at the time of purchase and remitted to the taxpayer the escs are written in a standard form whereby the auto dealer acts as the principal and obligor under the escs the auto dealer is required to indemnify the purchaser for costs of automobile breakdowns if the mechanical breakdowns are caused by the failure of covered parts in normal use and for which the original manufacturer’s warranty does not cover repair purchasers are not required to have repairs performed by the selling auto dealer the escs are not separately_stated from the total purchase_price of the vehicle rather the escs are sold and included in the total cost of the vehicle after execution of the agreement between the auto dealer and purchaser the auto dealer assigns the contract to taxpayer a predetermined amount of the final purchase_price of the automobile is remitted to the taxpayer to be held in a loss reserve fund to secure performance of taxpayer’s obligations taxpayer provides no automotive services to the holders purchasers of either the mvscs or escs taxpayer represents that for the period ended june year x more than of the taxpayer’s business is related to the sale of mvscs taxpayer further represents that similar growth is expected for the remainder of year x and for future periods thereafter taxpayer has accepted a large number of risks for year x and expects to continue accepting similar risks for future periods the number of risks taxpayer accepts depends on the number of mvscs sold accepting a large number of risks will enable taxpayer to use the law of large numbers so as to make its average loss statistically more predictable taxpayer will invest the premiums it receives from the sale of mvscs taxpayer anticipates utilizing professional investment advisors to manage the investment of any excess cash taxpayer represents that its investment activities are and will be de_minimis or incidental to its insurance activities requested ruling sec_1 the mvscs are insurance contracts for federal tax purposes plr-122806-09 the escs are insurance contracts for federal tax purposes taxpayer will be taxed as an insurance_company under sec_831 law and analysis sec_831 provides that taxes as computed in sec_11 will be imposed on the taxable_income of each insurance_company other than a life_insurance_company sec_831 provides that for purposes of sec_831 and sec_832 the term_insurance companies means only those companies that qualify as insurance_companies under the definition in former sec_1_801-1 now sec_1_801-3 sec_1_801-3 provides that the term_insurance company means a company whose primary and predominant business activity during the taxable_year is the issuing of insurance or annuity_contracts or the reinsuring of risks underwritten by insurance_companies sec_1_801-3 further provides that though the company's name charter powers and subjection to state insurance laws are significant in determining the business that a company is authorized and intends to carry on it is the character of the business actually done in the taxable_year that determines whether the company is taxable as an insurance_company under the code see also 285_us_182 to the same effect as the regulation revrul_83_172 1983_2_cb_107 holding taxpayer was an insurance_company as defined in sec_1_801-3 notwithstanding that taxpayer was not recognized as an insurance_company for state law purposes neither the internal_revenue_code nor the regulations thereunder define the terms insurance or insurance_contract the accepted definition of insurance for federal_income_tax purposes relates back to 312_us_531 in which the supreme court stated that h istorically and commonly insurance involves risk-shifting and risk-distributing case law has defined insurance as involv ing a contract whereby for an adequate_consideration one party undertakes to indemnify another against loss arising from certain specified contingencies or perils i t is contractual security against possible anticipated loss see 199_f2d_508 7th cir in addition the risk transferred must be risk of economic loss 572_f2d_1190 7th cir cert_denied 439_us_835 risk shifting occurs when a person facing the possibility of an economic loss transfers some or all of the financial consequences of the potential loss to the insurer see revrul_92_93 1992_2_cb_45 while parent_corporation purchased a group-term_life_insurance policy from its wholly owned insurance subsidiary the arrangement was not held to be self-insurance because the economic risk of loss was not that of the parent modified on other grounds revrul_2001_31 2000_1_cb_1348 if the insured plr-122806-09 has shifted its risk to the insurer then a loss by the insured does not affect the insured because the loss is offset by the insurance payment see 811_f2d_1297 9th cir risk_distribution incorporates the statistical phenomenon known as the law of large numbers distributing risk allows the insurer to reduce the possibility that a single costly claim will exceed the amount taken in as a premium and set_aside for the payment of such a claim insuring many independent risks in return for numerous premiums serves to distribute risk by assuming numerous relatively small independent risks that occur randomly over time the insurer smooths out losses to match more closely its receipt of premiums see clougherty packing co f 2d pincite based on the information submitted we conclude that for federal tax purposes the mvscs are insurance contracts not prepaid service contracts unlike prepaid service contracts the mvscs are aleatory contracts under the mvscs taxpayer for a fixed price is obligated to indemnify the vehicle purchaser for economic loss not covered by the manufacturer's warranty arising from the mechanical breakdown of and repair expense to a purchased automobile the contracts are not prepaid service contracts because taxpayer does not provide any repair services further by accepting a large number of risks taxpayer has distributed the risk of loss under the contracts so as to make the average loss more predictable we further conclude that for federal tax purposes the escs are not insurance contracts because they do not reinsure risks underwritten by an insurance_company based on the taxpayer's representations concerning its business activities we find that taxpayer's primary and predominant business activity up to june year x is the issuing of mvscs which we have just concluded are insurance contracts for federal tax purposes as represented by taxpayer similar growth is expected for the remainder of year x and for future periods if at the end of year x more than of taxpayer’s business is related to mvscs taxpayer will under sec_1_801-3 qualify as an insurance_company in year x for purposes of sec_831 prior to filing a form 1120-pc u s property and casualty insurance_company income_tax return taxpayer must submit a form_3115 application_for change in accounting_method if taxpayer desires to file a form 1120-pc for year x its form_3115 should be filed before the end of year x conclusion sec_1 the mvscs are insurance contracts for federal tax purposes the escs are not insurance contracts for federal tax purposes plr-122806-09 if more than of taxpayer’s business for year x is related to mvscs taxpayer will qualify as an insurance_company in year x for purposes of sec_831 caveat sec_1 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 no ruling has been requested and no opinion is expressed concerning whether taxpayer's gross premiums written include the entire amount the purchasers of the mvscs pay to the participating dealers for their contracts no ruling has been requested and no opinion is expressed concerning what amount if any paid_by the purchasers of the escs and mvscs and retained by auto dealers is deductible as a commission expense by taxpayer this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to taxpayer's federal_income_tax return for year x 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 sincerely s sheryl b flum chief branch office of associate chief_counsel financial institutions products cc


internal_revenue_service number release date index number --------------------------------- ------------------------------- --------------------------- ---------------------------------- ty 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 ita b01 plr-110347-16 date date --------------------------------------------------------- taxpayer taxable_year ------ x year company a y date company b company c firm firm firm advisor -------------------------------------------- ------ --------------------------------------------- ---------------------------------------------- ---------------- --------------- ---------------- ------------------ --------------------- ----------------------------- --------------------------------------- dear ----------------- this letter responds to your letter dated date submitted on behalf of taxpayer requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make the election described in sec_4 of revproc_2011_29 2011_18_irb_746 which includes attaching statements to taxpayer’s original federal_income_tax return for taxable_year facts taxpayer is the common parent of a consolidated_group engaged in the business of x in year taxpayer was formed for the purpose of acquiring company a which was engaged in the business of y on date taxpayer acquired percent of the stock of company a in a taxable stock acquisition shortly after the acquisition company a’s plr-110347-16 name was changed to company b taxpayer incurred success-based fees payable to three consultants firm firm and firm in connection with the acquisition of company a pursuant to the formal engagement letters firm firm and firm earned the fees based on the value of the acquisition which were due only when and if the transaction closed successfully on taxpayer’s original federal_income_tax return for taxable_year prepared by advisor taxpayer capitalized percent of the success-based_fee related to the acquisition and deducted the remaining percent pursuant to sec_263 and the safe_harbor election provided in revproc_2011_29 however in reliance on advisor taxpayer failed to attach the mandatory statements identifying the transaction and setting forth the allocation as required by sec_4 of revproc_2011_29 law sec_263 of the internal_revenue_code and sec_1_263_a_-2 of the income_tax regulations provide that no deduction shall be allowed for any amount_paid out for property having a useful_life substantially beyond the taxable_year in the case of an acquisition or reorganization of a business_entity cost that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized 503_us_79 112_sct_1039 117_led_226 397_us_572 90_sct_1302 25_led_577 under sec_1_263_a_-5 a taxpayer must capitalize an amount_paid to facilitate the business acquisition or reorganization transactions described in sec_1_263_a_-5 in general an amount is paid to facilitate a transaction described in sec_1_263_a_-5 if the amount is paid in the process of investigating or otherwise pursuing the transaction whether an amount is paid in the process of investigating or otherwise pursing the transaction is determined based on all of the facts and circumstances see sec_1_263_a_-5 sec_1_263_a_-5 provides that an amount_paid that is contingent on the successful closing of a transaction described in sec_1_263_a_-5 ie a success-based_fee is presumed to facilitate the transaction a taxpayer may rebut this presumption by maintaining sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction section dollar_figure of revproc_2011_29 provides a safe_harbor election for taxpayers that pay or incur success-based fees for services performed in the process of investigating or otherwise pursuing a covered transaction described in sec_1_263_a_-5 in lieu of maintaining the documentation required by sec_1_263_a_-5 a taxpayer may elect to the acquisition of company b was part of a larger transaction which included other businesses of company b’s ultimate parent company c only the success-based fees associated with the stock acquisition of company b are at issue in this ruling_request plr-110347-16 allocate a success-based_fee between activities that facilitate the transaction and activities that do not facilitate the transaction and by treating percent of the amount of the success-based_fee as an amount that does not facilitate the transaction and by capitalizing the remaining percent as an amount that does facilitate the transaction in addition the taxpayer must attach a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide that standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief 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 the relief will not prejudice the interests of the government see also sec_301_9100-3 and c conclusion based solely on the facts and representations submitted we conclude that taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government accordingly the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file its mandatory statements as required by section dollar_figure of revproc_2011_29 stating that it is electing the safe_harbor for success-based fees identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized 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 plr-110347-16 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 including whether taxpayer properly included the correct costs as success- based fees subject_to the retroactive election or whether taxpayer’s transactions were within the scope of revproc_2011_29 moreover this ruling does not express or imply any opinion whether taxpayer’s acquisitions are within the scope of revrul_90_95 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 a copy of this ruling should be attached to taxpayer’s federal tax returns for the tax years affected alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely lewis k brickates branch chief branch income_tax accounting cc


internal_revenue_service number release date index number --------------------------------- ------------------------------------ ------------------------------- ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-104217-07 date date ------------------------------------ legend x ---------------------------------- state ------------ d1 dear ----------- ------------------ this responds to the letter dated date submitted on behalf of x requesting relief under ' b of the internal_revenue_code facts according to the information submitted x was incorporated on d1 under the laws of state the shareholder of x intended that x be treated as an s_corporation effective on d1 but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under plr-104217-07 ' b however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no ' a election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and ' b shall not apply x did not timely file an election to be treated as an s_corporation under ' a x has however established reasonable_cause for not making a timely s election and is entitled to relief under ' b conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as specifically set forth above no opinion is expressed or implied as to this ruling is directed only to the taxpayer requesting it sec_6110 the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes provides that it may not be used or cited as precedent enclosures dianna k miosi chief branch office of associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes sincerely


tax_exempt_and_government_entities_division uniform issue list department of the treasury internal_revenue_service washington d c jun legend taxpayer a ira x amount m custodian n custodian p custodian g financial_institution m dear this is in response to your letters dated date date date date and date submitted on your behalf by your authorized representative in which you request a waiver of the 60-day ira rollover requirements contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age maintained an individual_retirement_account ira ira x maintained by custodian n taxpayer a asserts that on date she intended to transfer amount m from ira x to a rollover ira at financial_institution m and that her failure to accomplish a rollover of amount m within the 60-day period prescribed by sec_408 of the code was due to errors on the part of custodian g and financial_institution m that resulted in amount m being transferred to a non-ira page account taxpayer a further represents that amount m has not been used for any other purpose in custodian n decided to terminate its services program as of date all participants with active accounts including taxpayer a were requested to close those accounts either by redeeming out of the account by transferring or rolling over the assets to another custodial_account custodians p and g were engaged to administer the custodian n program's account liquidations transfers registration changes and address changes as part of the administration of accounts an associate at custodian g in error added the name of taxpayer a’s spouse and their address to the account registration and account statement mailing address for ira x on april taxpayer a selected and contacted a new ira custodian financial_institution m and requested that an ira rollover account be established to accept the asset transfer from custodian n via a qualified ira rollover to the newly established rollover ira account at financial_institution m taxpayer a provided financial_institution m a copy of her account statement which as a result of the error by the associate of custodian g showed her husband as co-owner of ira x based on the incorrect account statement information processing and contrary to taxpayer a’s instructions financial_institution m opened a joint non-retirement account on date amount m was transferred to the non-retirement joint tenant account maintained by financial_institution m instead of to an ira rollover account as requested by taxpayer a taxpayer a believed that amount m had been properly rolled over to another ira taxpayer a first discovered there was a problem with her ira in date while preparing her federal_income_tax return taxpayer a contacted custodians p and g and they recoded the date transfer to custodian m as a distribution and issued a form 1099-r based on the facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement contained in sec_408 of the - code with respect to the distribution of amount m sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers the ira is maintained if sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit page i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement revproc_2003_16 ilr b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the internal_revenue_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 rollover of amount m within the day period prescribed by sec_408 of the code was due to errors on the part of employees of custodian g and financial_institution m therefore pursuant to sec_408 of the code the internal_revenue_service hereby waives the 60-day rollover requirement with respect to the distribution of amount m from ira x pursuant to this ruling letter taxpayer a is granted a period of days from the date of the issuance of this letter_ruling to make a rollover_contribution of page amount m to a rollover ira provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such contribution amount m will be considered a valid 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 pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative 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 have any questions please contact or fax at d by phone at sincerely yours pun whe laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


myles lorentz inc petitioner v commissioner of internal revenue respondent docket no filed date p used specialized but highway-legal trucks known as tractors and belly-dump trailers in its business p’s trac- tors operated most economically off highway p’s tractors and trailers were modified for heavy use but no legal or technical obstacles prevented p from driving either tractors or trailers on highways p’s tractors could pull trailers other than the belly-dump trailers likewise p’s trailers could be moved by vehicles other than p’s tractors approximately percent of p’s tractors’ mileage during the years in question occurred off highway for tax years ending date and date p claimed credits under sec_34 and sec_6427 for its tractors’ nontaxable_use under the off- highway business use exception of sec_6427 r disallowed p’s credits p stipulates that its tractors and trailers are highway vehicles under sec_6421 per sec_48_4061_a_-1 manufacturers retailers excise_tax regs but argues that the special-design and substantial impair ment exception of sec_48_4061_a_-1 manu- facturers retailers excise_tax regs applies making them off-highway vehicles and the fuel they use off-highway cred- itable held the tractors and trailers are not analyzed together for purposes of interpreting the term vehicle the plain language of sec_48_4061_a_-1 manufacturers retailers excise_tax regs and the fact that the tractors and trailers could each perform their designed functions paired with other vehicles indicate that tractors and trailers are each a distinct vehicle for purposes of the credit held further the tractors are not specially designed for off-highway use because while heavy duty modifications allowed them to work off highway they were in most respects identical to unmodified tractors used on highway and were not designed to transport a particular type of load held further the trac- tors are not substantially impaired with respect to on-high- way use because they could fit and operate on a highway at regular highway speeds held further for tax_year ending date p’s tractors do not qualify for the off-high- way transportation exception in sec_48_4061_a_-1 manufacturers retailers excise_tax regs held further for verdate 0ct jun jkt po frm fmt sfmt v files myles sheila myles lorentz inc v commissioner tax_year ending date sec_7701 defines highway vehicle even more narrowly such that p’s tractors do not constitute off-highway vehicles gordon p heinson for petitioner william r peck for respondent opinion holmes judge the code gives a credit for fuel taxes paid on diesel consumed in an off-highway_business_use myles lorentz inc mli bought diesel for vehicles that it used in roadbuilding and mining and which it moved from job to job mli is not claiming the credit for the fuel that its vehicles consume on highways but it does want the credit for the fuel that they consume off public highways whether mli gets the credit depends on exactly what vehicles we look at and whether those vehicles are highway vehicles under the code and regulations background mli is in the business of moving dirt and it moves the dirt with a fleet of mack trucks these trucks are tractors but not the kind driven by farmers they are called tractors because they can pull other things they are also the sort of vehicles that get alphanumeric designations that those in the trade recognize but no one else would mli’s fleet had four rw713s one tm600 and the rest a mix of rd690ss and rd688ss all these tractors were heavy-duty ie they had lower-than-normal gear ratios and their suspensions axles gearboxes and chassis assemblies had all been modi- fied to mli’s specifications to give them extreme strength and power mli used these heavy tractors mainly to pull what are called belly-dump trailers-trailers that open at the bottom to dump their contents and that are hooked up to the fifth wheels of the tractors mli’s trailers could each hold approxi- mately tons and each had side panels made of steel to help hold their gargantuan loads all of this would make the tractor-trailer combination a daunting thing for a mere pas- these numbers are drawn from mli’s records for its tax_year ending date mli didn’t give us much for the following year but any subsequent change in the asset mix doesn’t upset our analysis verdate 0ct jun jkt po frm fmt sfmt v files myles sheila united_states tax_court reports senger car to meet on the road when mli needed to move these behemoths it altered the trailers by adding mud flaps and removing the trailers’ steel side panels and push bumpers -special bumpers that enable bulldozers to push them along when they’re used off highway these tractor-trailers were not only heavy-duty but used heavily mli registered its fleet of tractors for use in states in mli drove them almost a million miles on and between projects in minnesota wisconsin north dakota nebraska and oklahoma in it used them in north dakota kansas and colorado a large part of this mileage was off road but about percent each year was on public highways and the tractors did not rack up this mileage only while pulling fully loaded belly-dump trailers-mli also used them either to haul the belly-dump trailers empty or to haul a completely different type of trailer that carried construc- tion-support equipment even when empty though a tractor- belly-dump-trailer combination weighed about tons most states have limits on the weight of vehicles using their high- ways-many pincite tons though nebraska allows around yet even if laden with the maximum permissible load the tractors could maintain regular highway speeds mli claimed a credit on its returns for the diesel consumed in and by the tractors on projects that were entirely off highway dollar_figure for the tax_year ending date and dollar_figure for the year ending date mli did not claim a credit on either return for the fuel its vehicles used in projects which mixed off-highway use and on-highway use the commissioner disallowed the entire amount as a credit for both tax years in his notice_of_deficiency but he did determine that mli should be allowed the amount as an increased deduction for total fuel expense mli wants the neither the height nor the width of the tractors or trailers prevented mli from using them on highways our court is one of limited jurisdiction and we hear only those cases congress tells us we can see sec_7442 83_tc_309 we don’t typically have jurisdiction over this type of excise_tax see sec_6211 but the commissioner here disallowed the sec_34 credits that mli claimed on its income-tax returns and we do have jurisdiction to redetermine the deficiency that resulted from that disallowance the commissioner applied the total expense to the tax_year ending in date-he car- ried the tax-year-ending-in-january-2005 portion forward in the form of a net-operating-loss de- duction this reduction of income also led to a redetermination of mli’s domestic-production- activities deduction verdate 0ct jun jkt po frm fmt sfmt v files myles sheila myles lorentz inc v commissioner greater benefit a tax_credit would give it and in challenging the notice_of_deficiency now also asks us to allow it a credit for all the diesel its vehicles used while off highway even on projects with mixed off-highway and on-highway use we set the case for trial in st paul but then mli and the commissioner submitted it for decision on fully stipulated facts under rule mli’s principal_place_of_business was minnesota when it filed its petition discussion the code taxes every gallon of diesel_fuel that is to be used in the united_states at a rate of cents per gallon see sec_4081 if the government doesn’t get its money from the diesel producer either the retailer or the consumer can be on the hook see sec_4041 and b but for the taxpayer whose vehicles use diesel off highway there’s a potential break sec_34 and sec_6427 tell the commissioner to credit the tax imposed to the diesel’s ultimate_purchaser for each gallon of his nontaxable_use the code lists several nontaxable uses but the one driving this case is what sec_6421 calls off-highway_business_use see sec_6427 sec_4041 c sec_6421 tells us that the first requirement for this credit is that a taxpayer be engaged in a trade_or_business or income- producing activity no one disputes that mli is sec_6421 then defines off-highway_business_use by saying what it’s not it’s not fuel used in a highway vehicle that’s reg- istered or that should be registered for highway use mli admitted its vehicles were registered for highway use and didn’t deny that they fell within the general definition of a highway vehicle -a highway vehicle is any self-pro- pelled vehicle or any trailer or semitrailer designed to per- form a function of transporting a load over public highways unless otherwise noted all section references are to the internal_revenue_code as amended and in effect for each year at issue and all rule references are to the tax_court rules of prac- tice and procedure this rate includes a 1-cent-per-gallon increase for the leaking_underground_storage_tank_trust_fund lust_tax see sec_4041 sec_4081 in congress enacted legislation that changed the amount of the credit a taxpayer could claim for diesel_fuel used in a nontaxable_use see energy policy act of pub_l_no sec_1362 sec_119 stat pincite for fuel used before date taxpayers could claim a credit for the lust_tax so the applicable_rate wa sec_24 cents per gallon after sep- tember taxpayers could claim only a credit of cents per gallon verdate 0ct jun jkt po frm fmt sfmt v files myles sheila united_states tax_court reports whether or not also designed to perform other functions sec_48_4061_a_-1 manufacturers retailers excise_tax regs emphasis added mli steered us instead toward one of the exceptions to these general rules-the one for vehicles specially designed for off-highway transportation see sec_48_4061_a_-1 manufacturers retailers excise_tax regs the off-highway exception has two require- ments special design-mli’s vehicles must be specially designed for the primary function of transporting a par- ticular load eg for mining or construction other than on a public highway substantial impairment-the special design must also substantially limit or substantially impair the transport of such load over the public highways relevant factors include but are not limited to whether the vehicle travels at highway speeds the vehicle requires a special permit for highway use or the vehicle is too heavy too high or too wide for regular use see id if mli can drive over these two speed bumps with its argu- ment unrattled it can claim the sec_34 credit for its tax_year ending in but the regulation takes us only so far-relatively new sec_7701 applies to and although congress incorporated most of the regulation’s lan- guage into that section it also made a few changes which may or may not turn out to be important because of this change in the law we need to look at each year separately but before we do that we have to answer a very important question common to both years-are the vehicles we’re supposed to classify the giant tractors by themselves or the tractors in tandem with the belly-dump trailers once we do this we can figure out whether the t he term ‘public highway’ includes any road whether a federal highway state highway city street or otherwise in the united_states which is not a private roadway sec_48 a - d manufacturers retailers excise_tax regs in congress added paragraph defining off-highway vehicles to sec_7701 and made it apply for tax periods beginning after date american_jobs_creation_act_of_2004 pub_l_no sec_852 c stat pincite because mli’s fiscal_year runs through january its tax_year ending date is the first to which sec_7701 applies verdate 0ct jun jkt po frm fmt sfmt v files myles sheila myles lorentz inc v commissioner is specially designed vehicle for off-highway use by applying the regulation for mli’s tax_year ending in date and then deciding if sec_7701 leads to a dif- ferent result for the tax_year ending in date a what is a vehicle the parties agree that the regulation’s definition of high- way vehicle governs for both years mli however says its tractor-trailer combination is the vehicle we judge the commissioner argues that we should look at the tractors and trailers separately the commissioner has his reason if the regulation applies separately to tractors and trailers we need look only at the vehicle that uses diesel fuel-the tractor-and can ignore the design and use of the trailers we look first to see if the regulation has some plain meaning see 137_tc_100 this may not get us very far because the regulation defines a vehicle as consisting of a chassis and a body but does not include the vehicle’s load sec_48_4061_a_-1 manufacturers retailers excise_tax regs but the rest of the regulation is more helpful exam- ples of vehicles are truck tractors trailers and semitrailers id it also defines highway vehicle as any self-propelled vehicle or any trailer or semitrailer designed to perform a function of transporting a load over public high- ways id emphasis added and because the term trans- port includes the term tow see id we know that a high- way vehicle includes a self-propelled vehicle towing a load over public highways we think this gives the commissioner the better of the argument and read the regulation like he does as treating mli’s tractors as vehicles separate from its belly-dump trailers both by definition and by example the regulation distinguishes the two it uses the disjunctive or and it does not use a phrase such as or a combination thereof see also 55_fedclaims_203 given the clear language of the regulation and the consistent case law the court sees no reason to couple the tractor and trailer mli has failed to show that a belly-dump trailer that it hitches to a tractor becomes a single vehicle-in fact the evi- verdate 0ct jun jkt po frm fmt sfmt v files myles sheila united_states tax_court reports dence showed the contrary the standard fifth wheel allows different kinds of trailers to be hitched to the same mack tractor mli actually hitched its tractors to trailers other than its belly-dump trailer when it needed to move construc- tion-support equipment to a job site and the belly-dump trailers had off-highway bumpers that enabled them to be pushed by still another type of vehicle-bulldozers this leads us to find that mli’s tractors and belly-dump trailers were separate vehicles since the tractors not the trailers consumed the diesel they are what we will analyze b tax_year ending date the regulation that we don’t find the tractor-trailer combination to be a single vehicle does not mean that the trailers are irrelevant to our analysis for the first year at issue we look to the regulation and the first part of its definition of the off-high- way-vehicle exception requires that mli’s tractors be spe- cially designed for the primary function of transporting a particular type of load other than over the public highway in connection with a construction or mining operation sec_48_4061_a_-1 manufacturers retailers excise_tax regs remember that transportation includes towing so if the tractors were specially designed for the primary function of towing belly-dump trailers or even as mli argues for moving construction or mining material in those trailers mli would have a good argument we do not however find the design of mli’s tractors to be special in this sense caselaw teaches us that the word pri- mary in the regulation does not mean exclusive see world- wide equip inc v united_states 605_f3d_319 6th cir but instead something like of first importance or principally see 383_us_569 while the context in which the word primary is used is important-malat looked at section 1221-there is nothing in the regulation or sec_7701 that suggests primary means anything else in this context see eg dehaai v commissioner tcmemo_1989_127 applying why then would the exceptions under sec_48_4061_a_-1 manufacturers retailers ex- cise tax regs even list trailers which by definition don’t burn fuel presumably because that definition also applies to sec_4051’s heavy-vehicle retail tax sec_4071’s highway-vehicle- tires tax and sec_4481’s annual heavy-vehicle use_tax e g sec_48_4061_a_-1 manufac- turers retailers excise_tax regs unlike the fuel excise_tax these taxes are not creditable under sec_34 verdate 0ct jun jkt po frm fmt sfmt v files myles sheila myles lorentz inc v commissioner malat to sec_1_167_a_-1 income_tax regs with that meaning in mind we look at the functions of the mli trac- tors’ special design the first thing we find is that the tractors were not spe- cially designed to primarily transport a particular type of load they were not tailored to tow belly-dump trailers or as mli claims even to transport construction and mining mate- rial they had a more general purpose-hauling very heavy loads-that allowed these tractors to pull a variety of different types of trailers after all the tractors had a standard fifth wheel and the different types of loads that those trailers themselves could haul the tractors had modi- fied suspensions axles gearboxes chassis assemblies and lower-than-normal gear ratios the parties agree that these features made the tractors heavy-duty but we can’t discern from the special design of these heavy-duty tractors that they were designed for a particular type of load we find moreover that the tractors were not designed pri- marily for off-highway use while the modifications allowed the tractors to work off highway they also allowed those same tractors to haul loads large or small on a highway the parties agreed that mli’s modified tractors and the manufacturers’ unmodified tractors were otherwise identical in particular the manufacturers’ specifications for the trac- tors list the vehicles’ application as class a highway which is the same application that unmodified tractors have we therefore find that the tractors weren’t designed for the primary function of transporting a particular type of load other than over the public highway even if mli had successfully avoided plowing into the spe- cial-design requirement of the exception it would still have to show that by reason of such special design the use of such vehicle to transport such load over the public highways is substantially limited or substantially impaired sec_48_4061_a_-1 manufacturers retailers excise_tax although mli used the tractors primarily to haul belly-dump trailers the special-design re- quirement tells us to look at design not actual use see eg 605_f3d_319 6th cir in a letter dated date a mack sales representative opined that mack truck models ctp7 and rd686 were for construction use but without stating how the heavier speci- fications were used in construction these models were similar to the ones at issue but even if we assumed the tractors’ primary function was for construction that fact would still leave us without anything in the record about whether they were designed for a particular type of load verdate 0ct jun jkt po frm fmt sfmt v files myles sheila united_states tax_court reports regs for mli’s tax_year ending in date the gov- erning regulation required that the special design substan- tially limit or impair the vehicles’ use on highways the regu- lation lists particular limits could the vehicles travel at normal highway speeds did they need a special permit to use the highways or were they too high or too wide or too heavy for regular highway use see id the substantial- limitation test would still be a problem because mli has not shown that any of these limitations existed the regulation does however allow us to consider other relevant considerations and these are what mli points to for starters it highlights a limitation with the belly-dump trailers mli needs to remove the push-bumpers and side panels and add mud flaps before it can use the trailers on the highway we agree that changing those parts would limit the belly-dump trailer-but because of the way we define vehicle we look only to the special design of the tractors not the trailers and ask whether there’s any element of their design that substantially limits or impairs their highway use mli does make one argument that is on point since the tare weight of the tractor-trailer combination is so great it not only gets lower fuel mileage it can’t carry as much cargo without exceeding state-imposed maximum-weight limits this makes for a plausible argument that mli’s trac- tors are economically inefficient for highway use even if physically capable of it mli points to flow boy inc v united_states no civ-80- 602-e wl w d okla date aff ’d wl 10th cir date in flow boy the vehicle looked a bit like a dump truck but discharged hot-mix asphalt via a conveyer belt rather than by gravity the vehicle could travel at normal highway speeds had acces- sories that permitted normal highway use and was not too long too wide or too high but the jury still found for the taxpayer and that decision was affirmed on appeal see flow by mli’s own admission the same would be true for the tractor-trailer combination if that was the vehicle we looked at mli’s tractor-trailers did not require a special permit for highway use could travel at normal highway speeds and were not too high or too wide or too heavy for regular highway use tare weight is the weight of a vehicle without a load the same flow boy semitrailer was at issue in j h holland co v united_states no 1090-e wl w d okla date applying the pre-1977 regulation and a similar flow boy model swirled by in 247_fsupp2d_299 w d n y verdate 0ct jun jkt po frm fmt sfmt v files myles sheila myles lorentz inc v commissioner boy wl at the logic it would be illegal for the vehicle to travel on public highways at full capacity and because the vehicle had to be loaded to full capacity to be profitable it could not economically operate with a lighter legal load id mli’s modified tractors are heavier than unmodified trucks and we agree that they are not as fuel efficient as unmodified tractors we also agree that they will bump up against state weight limits carrying less cargo than unmodified tractors a mack sales representative made the same point in a letter in which he wrote that mack’s modifications to the tractors made them heavier and inefficient but we can’t stop there because in our reading the regula- tion requires more-it requires that the impairments or limitations be substantial and here we find mli’s argument fails consider first how flow boy is distinguishable in flow boy the vehicles would have been unprofitable if carrying anything other than a full load although mli’s tractors if fully loaded could have gross weights of more than tons there’s no evidence in the record in this case that mli needed the tractors to be fully loaded to turn a profit see fla power light co v united_states 56_fedclaims_328 distinguishing flow boy because additional costs attrib- utable to vehicles’ weight speed and fuel efficiency did not render public-highway operations unprofitable we also don’t think that mli’s tractors could have been all that limited they did after all spend much of their time on public highways-almost percent of all the miles traveled by the tractors when hauling the trailers was on public high- ways during its fiscal_year ending in date mli did not provide information for fiscal_year we there- fore find that the weight of the tractors was not a substantial limitation under the regulation the court evaluating flow boy units in gateway also found they had to be fully loaded to be profitable gateway f_supp 2d pincite and at least one other court has read the regula- tion as focused on safety not economic efficiency see 55_fedclaims_203 but mli didn’t argue that the weight of its tractors made them unsafe on public highways unlike the special-design test the substantial-limitation test focuses on use and we thus read the regulation as letting us analyze the particular use a taxpayer makes of his vehicles verdate 0ct jun jkt po frm fmt sfmt v files myles sheila united_states tax_court reports c tax_year ending date effect of the new section like the regulation sec_7701 looks to both a vehicle’s design and whether that design substantially limits or impairs its use on the public highways a vehicle shall not be treated as a highway vehicle if such vehicle is spe- cially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design such vehicle’s capability to transport a load over the public highway is substantially limited or impaired emphasis added sec_7701’s phrasing is different from the regulation in four ways the change_of the phrase such load to the more general a load a vehicle’s design is determined solely on the basis of its physical characteristics sec_7701 the listed considerations for substantial limitation or impairment are now the size of the vehicle whether such vehicle is subject_to the licensing safety and other require- ments applicable to highway vehicles and whether such vehicle can transport a load at a sustained speed of at least miles per hour sec_7701 and the ability of a vehicle to transport a greater load off the public highway than such vehicle is permitted to trans- port over sec_7701 the public highway immaterial is none of the differences between the statute and the regula- tion helps mli for example if towing the belly-dump trailer over a public highway were to prove unprofitable for mli and we were to find substantial limitation or impairment under the regulation this factor alone would now not be enough under the statute the change to a load from such load means that we would have to take the additional step of evaluating the tractors’ efficiency when transporting for example another kind of trailer that could also be hooked to the tractors’ fifth wheels next we read the phrase a vehicle’s design is determined solely on the basis of its physical characteristics to restrict us from looking at a vehicle’s actual use in deciding whether it was specially designed for a particular type of off-highway load mli’s use of the tractors to tow belly-dump trailers full verdate 0ct jun jkt po frm fmt sfmt v files myles sheila myles lorentz inc v commissioner of dirt and other material is now an inappropriate fact for us to consider because it goes beyond looking at only the phys- ical characteristics of the tractors as for the substantial-limitation-or-impairment factors that the code now lists they are nearly the same as those in the old regulation except that instead of describing whether mli’s tractors may travel at regular highway speeds we now may consider whether the tractors with a load can sustain speeds of miles per hour on a public highway we know that mli’s tractors could travel at regular highway speeds while transporting a maximum load as permitted by state law there’s no evidence that it can’t sustain that speed over any particular period of time let alone sustain a speed of only miles per hour finally there’s no doubt that mli’s tractors can haul more weight off a public highway than on one because their hauling capacity exceeds that which is permissible under state laws the statute explicitly tells us this fact is now immaterial all of this means that for mli’s tractors the statute is even less liberal than the regulation and thus mli’s argu- ments for the work its vehicles did in also fail decision will be entered for respondent f verdate 0ct jun jkt po frm fmt sfmt v files myles sheila


internal_revenue_service number info release date uil date cor-115906-00 the honorable donald a manzullo u s house of representatives washington d c dear mr manzullo thank you for your letter of date signed by you and a number of your colleagues encouraging the internal_revenue_service to immediately readjust the business standard mileage rate to reflect the recent increase in gasoline prices you note that the increased cost has particularly burdened self-employed taxpayers who use automobiles for business purposes gasoline prices we realize increased gasoline prices are an economic burden however the cost of gasoline is only one part of the business standard mileage rate which includes fixed and operating automobile costs these costs include depreciation or lease payments maintenance and repairs insurance and license and registration fees in addition to gasoline and oil less than one-third of the cents per mile rate comes from the cost of gasoline and oil thus an immediate adjustment in the rate taking into account the recent increase in gasoline prices might not be significant setting the business standard mileage rate the rate is a national average amount determined by an annual study performed by an independent_contractor who is an expert in the cost analysis of business use of automobiles the contractor uses recent data from each state on the component costs of operating the most popular automobiles the contractor then combines this data to achieve a national composite cents-per-mile rate advantages of using the business standard mileage rate reducing a taxpayer’s record-keeping burden is the principal advantage of using the rate gasoline prices rise and fall during the year but taxpayers may continue to use the same rate without having to keep records of actual expenses although rising gasoline prices can be a disadvantage for taxpayers who use the rate falling prices can work to their advantage for example although gasoline prices fell in for all of and through date taxpayers were able to use the rate that reflected the earlier higher prices taxpayer’s options to deduct the ordinary and necessary expenses of using an automobile for business purposes a taxpayer must substantiate the cost date place and business_purpose of each use of the automobile by adequate_records for the cost the taxpayer has two options cid substantiate actual cost by keeping records or by other_sufficient_evidence cid use the business standard mileage rate using the rate gives approximate not actual costs taxpayers can deduct the actual business_expenses of using a personally-owned automobile and this may be advantageous when automobile costs are rising publication travel entertainment gift and car expenses contains further information on how taxpayers should substantiate expenses i have enclosed the relevant pages from that publication i am sending a similar letter to your colleagues i hope this information is helpful please call me at or robert a berkovsky at if you have any questions sincerely charles o rossotti 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 psi b06 plr-149046-07 date date legend taxpayer state location parent date a b c d e f g h i j k dear -------------- -------------------------------- ein ---------------- ------------- ------------------------------- -------------------------------------- ein ---------------- -------------------- --- ----- ----- --- ----- -- --- -- -------- -------- --- this letter responds to your request dated ----------------------- requesting private letter rulings regarding taxpayer’s qualification under sec_45 of the internal_revenue_code for a tax_credit for the production and sale of electricity from a plant that generates electricity from both municipal_solid_waste and open-loop_biomass the facts as represented by taxpayer and taxpayer’s representatives are as follows plr-149046-07 taxpayer is a state limited_liability_company that was formed on date as a holding_company for ------- -- disregarded subsidiaries project companies each of which will own a section of a power project plant being developed near location taxpayer is expected to have other members by the time the plant is placed_in_service taxpayer is a disregarded subsidiary of parent which is treated as a partnership for federal tax purposes taxpayer and parent use the accrual_method of accounting the plant is a a-megawatt power plant that will burn a combination of municipal_solid_waste b tons per day and open-loop_biomass construction and demolition debris c tons per day to generate electricity the fuels will be referred to collectively as waste first the waste will be sorted to divert recyclable materials such as cardboard metals glass plastics and reusable paper and to remove hazardous waste such as batteries and treated wood that might release dangerous toxins if burned the material that remains will move along a conveyor belt and be fed into the plant the material fed into the plant prior to sorting is expected to be at least d percent organic by weight the material that makes it through sorting to fuel the plant will be e percent organic in terms of btu content at the front of the plant will be f large hollow vertical tubes each about g feet tall and h feet in diameter one of the tubes will be a gasification chamber and the other a combustion chamber the waste will be fed into the gasification chamber where sand will mix the waste causing the waste to be rapidly heated in less than one second to approximately i degrees fahrenheit turning the waste into ash and char and releasing methane hydrogen and some carbon monoxide the sand and char will then enter the second tube combustion chamber the char which is similar in makeup to charcoal will be burned in the combustion chamber to heat the sand to about j degrees fahrenheit and also to act as a further heat source for boiling water in the boiler to make steam the sand will then be transferred into the first tube gasification chamber completing the cycle the gas produced in the gasification chamber will be separated and will move into a separate gas conditioning chamber where it will be cleaned to remove pollutants and then be fed into a combustion turbine to generate electricity the exhaust from the combustion turbine will cause water to boil in a boiler turning into steam that will be run through a steam turbine to generate more electricity meanwhile the ash from the combustion chamber will ultimately be removed like it is in a coal-fired power plant and it may be used for making cement or fertilizers the electricity from the plant will be sold into the state power pool the pool dispatches generators that have signed up to supply power each half-hour based on the prices at which they have indicated they are prepared to supply electricity starting with the lowest-cost provider that half-hour until the electricity that utilities have indicated that they want to buy that half-hour has been fully supplied there is a possibility that some of the electricity will be sold to an energy trading company as part of a hedging arrangement to ensure more predictable prices during the period of debt borrowed to finance the plant will have to be repaid nothing will be paid plr-149046-07 for the waste that the plant uses as fuel rather the plant expects to be paid tipping fees of approximately dollar_figurek per ton from haulers for accepting the waste taxpayer represents that the plant will be a qualifying small power production facility within the meaning of sec_3 of the federal power act u s c c as in effect on date no government grants tax-exempt_financing or subsidized_energy_financing within the meaning of sec_45 will be used to pay or finance any portion of the capital cost of the plant no tax-exempt_entity will own an interest in taxpayer or parent the project companies will not lease the plant rather they will either operate the plant themselves or hire a qualified third party to operate the plant under a standard operating and maintenance agreement taxpayer provided a process diagram of the proposed plant see diagram attached as exhibit a taxpayer represents that it will not treat any building that is part of the plant as a 5-year_property under sec_168 of the internal_revenue_code taxpayer requests the following rulings assuming the plant is placed_in_service by the deadline in sec_45 to qualify for production tax_credits such credits may be claimed on the electricity generated at the plant and sold to unrelated persons net of any electricity supplied from the grid for use in the plant the equipment at the plant as illustrated in exhibit a excluding the equipment in the shaded area in exhibit a and excluding any building and any other sec_1250 property qualifies as 5-year_property under sec_168 any termination of the taxpayer under sec_708 will not prevent the reconstituted partnership or the sole partner if the taxpayer turns into a disregarded_entity from continuing to rely on the rulings ruling sec_38 provides for a general business_tax_credit that includes the amount of the current_year_business_credit sec_38 provides that the amount of the current_year_business_credit includes the renewable_electricity_production_credit under sec_45 sec_45 provides a renewable_electricity_production_credit in an amount equal to the product of cents multiplied by the kilowatt hours of electricity produced_by_the_taxpayer from qualified_energy_resources and at a qualified_facility during the year period beginning on the date the facility was originally placed_in_service and sold by the taxpayer to an unrelated_person during the taxable_year sec_45 limits and adjusts the amount of credit available under sec_45 sec_45 requires a phaseout of the credit in an amount which bears the same ratio to the amount of the credit determined without regard to this paragraph as the amount by which the reference_price for the calendar_year in which the sale occurs plr-149046-07 exceeds cents bears to cents sec_45 requires that the credit be phased out based on the inflation_adjustment_factor for the calendar_year in which the sale occurs sec_45 requires the credit_amount determined under sec_45 to be reduced by the amount of grants tax-exempt_bonds subsidized_energy_financing and other credits received by a taxpayer as of the close of the taxable_year with respect to any project for any taxable_year sec_45 provides the credit rate and establishes the period in which electricity must be produced and sold from certain facilities under sec_45 for a facility which burns municipal_solid_waste to produce electricity and sells the electricity in any calendar_year after the credit_amount for such calendar_year determined before the application of the credit phaseout adjustment shall be reduced by one-half sec_45 provides that the credit_period for a facility which burns municipal_solid_waste to produce electricity is the 5-year period beginning on date with the exception of any facility placed_in_service after date sec_45 defines qualified_energy_resources to include municipal_solid_waste and open-loop_biomass sec_45 states that the term municipal_solid_waste has the meaning given the term solid_waste under sec_2 of the solid_waste disposal act u s c sec_45 defines a qualified_facility in the case of a facility which burns municipal_solid_waste to produce electricity as any facility owned by the taxpayer that is originally placed_in_service after date and before date the term qualified_facility includes a new unit placed_in_service in connection with a facility placed_in_service on or before date but only to the extent of the increased amount of electricity produced at the facility by reason of such new unit although sec_45 does not define placed_in_service the term has been defined for purposes of the deduction for depreciation and the investment_tax_credit for these purposes property is considered to be placed_in_service in the taxable_year that the property is placed in a condition or state of readiness and available for a specifically assigned function see sec_1_46-3 and sec_1_167_a_-11 of the income_tax regulations sec_45 defines the term open-loop_biomass to mean i any agricultural_livestock_waste_nutrients or ii any solid nonhazardous cellulosic waste material or any lignin material which is derived from i any of the following forest-related resources mill and harvesting residues precommercial thinnings slash and brush ii solid wood waste materials including waste pallets crates dunnage manufacturing and construction wood wastes other than pressure-treated chemically-treated or painted wood wastes and landscape or right-of-way tree trimmings but not including municipal_solid_waste gas derived from the biodegradation of solid_waste or paper which is commonly recycled or iii agriculture sources including orchard tree crops vineyard grain legumes sugar and other crop by-products or residues further sec_45 requires that in the case of a facility using open-loop_biomass to produce electricity the term qualified_facility means any facility owned by the taxpayer which i in the case of a facility using agricultural_livestock_waste_nutrients i is originally placed_in_service after date and before date plr-149046-07 and ii the nameplate_capacity rating of which is not less than kilowatts and ii in the case of any other facility is originally placed_in_service before date sec_45 also provides that for facilities described in sec_45 if the owner of such facility is not the producer of the electricity the person eligible for the credit allowable under sec_45 shall be the lessee or the operator of such facility in notice_2006_88 2006_42_irb_686 regarding electricity produced from open- loop biomass the service announced that it will not issue private letter rulings regarding sec_45 as it relates to open-loop_biomass as a result the service will not make a determination as to the plant’s eligibility for sec_45 tax_credits for electricity generated from open-loop_biomass used a fuel in the plant in the instant case assuming the plant is placed_in_service before date the plant should qualify as a qualified_facility that burns municipal_solid_waste to generate electricity as owner of the plant taxpayer may claim sec_45 tax_credits for electricity generated at the plant and sold to unrelated parties net of any electricity supplied from the grid for use in the plant ruling sec_168 provides that the term 5-year_property includes any property which is described in paragraph of sec_48 as in effect on the day before the date of enactment of the revenue reconciliation act of and is a qualifying small power production facility within the meaning of sec_3 of the federal power act u s c c as in effect on date former sec_48 defines the term biomass_property the definition incorporates by reference part of former sec_48 as modified by former sec_48 the following items comprise biomass_property a a boiler the primary_fuel for which will be an alternate_substance sec_1_48-9 of the income_tax regulations provides that a boiler is a device for producing vapor from a liquid and that boilers in general have a burner in which fuel is burned sec_1_48-9 further provides that a boiler includes a fire box boiler tubes the containment shell pumps pressure and operating controls and safety equipment but not pollution_control_equipment as defined in sec_1_48-9 b a burner including necessary on-site equipment to bring the alternate_substance to the burner for a combustor other than a boiler if the primary_fuel for such burner will be an alternate_substance sec_1_48-9 provides that a burner includes equipment such as conveyors flame control devices and safety monitoring devices located at the site of the burner and necessary to bring the alternate_substance to the burner c equipment for converting an alternate_substance into a qualified_fuel d pollution_control_equipment required by federal state or local regulations to be installed on or in connection with equipment described in paragraphs a b or c above plr-149046-07 e equipment used for the unloading transfer storage reclaiming from storage and preparation including but not limited to washing crushing drying and weighing at the point of use of an alternate_substance for use in equipment described in paragraphs a b c or d above this equipment includes equipment used for the storage of fuel derived from garbage at the site to which such fuel was produced from garbage with respect to biomass under former sec_48 the term alternate_substance means any organic substance other than oil natural_gas coal including lignite or any product thereof sec_1_48-9 provides that the term primary_fuel is a fuel comprising more than percent of the fuel requirement of an item of equipment measured in terms of btus for the remainder of the taxable_year from the date the equipment is placed_in_service and for each taxable_year thereafter electricity and waste heat are not fuels the legislative_history of the crude_oil windfall profit tax of which added former sec_48 to the code states that biomass_property is property to convert biomass into a synthetic solid fuel or to burn this fuel or biomass conf_rep no 96th cong 2d sess 1980_3_cb_292 this conference_report further states that biomass is generally any organic substance other than oil natural_gas or coal or a product of oil or natural_gas or coal for this purpose biomass includes waste sewage sludge grain wood oceanic and terrestrial crops and crop residues and includes waste products which have a market_value the conferees also intend that the definition of biomass does not exclude waste materials such as municipal and industrial waste which include such processed products of oil natural_gas or coal such as used in plastic containers and asphalt shingles id in this case the plant is comprised of a boiler as defined in former sec_48 and associated equipment as defined in former sec_48 and viii prior to sorting the waste contains both organic and inorganic matter however based on taxpayer’s representations the waste that makes it through sorting is the primary_fuel for the plant will be organic matter and comprises more than percent of the fuel requirements in terms of btus of the plant consequently the provisions of former sec_48 and sec_1_48-9 are met furthermore the waste in this case is municipal_solid_waste and open-loop_biomass construction and demolition debris thereby meeting the language included in the previously mentioned conference_report thus the equipment at the plant excluding the equipment in the shaded area in exhibit a is biomass_property under former sec_48 moreover taxpayer represents that the plant will be a qualifying small power production facility within the meaning of sec_3 of the federal power act u s c c as in effect on date ruling finally in notice_2006_88 the service announced that it will not rule on any issues under subchapter_k for partnerships claiming the sec_45 credit for this reason plr-149046-07 the service will not make a determination in response to taxpayer’s inquiry whether a termination of taxpayer under sec_708 will prevent the reconstituted partnership or the sole partner if taxpayer turns into a disregarded_entity from continuing to rely on the rulings based solely on the facts and representations provided and the relevant law and regulations set forth above we conclude as follows assuming that the plant is a qualified_facility under sec_45 that produces electricity from a qualified_energy resource as defined by sec_45 if the plant is placed_in_service by the deadline provided in sec_45 to qualify for production tax_credits under sec_45 such credits may be claimed on the electricity generated at the plant and sold to unrelated persons net of any electricity supplied from the grid for use in the plant the equipment at the plant as illustrated in exhibit a excluding the equipment in the shaded area in exhibit a and excluding any building and any other sec_1250 property qualifies as 5-year_property under sec_168 this ruling is conditioned on a the primary_fuel for the plant comprising more than percent of the fuel requirements of the items of equipment of the plant measured in terms of btus for the remainder of the taxable_year from the date the equipment is placed_in_service and for each taxable_year thereafter and b the plant being a qualifying small power production facility within the meaning of sec_3 of the federal power act u s c c as in effect on date pursuant to the no rule position announced by notice_2006_88 the service will not determine whether a termination of the taxpayer under sec_708 will prevent the reconstituted partnership or the sole partner if the taxpayer turns into a disregarded_entity from continuing to rely on the rulings except as specifically set forth above no opinion is expressed or implied concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations we express no opinion as to whether sec_45 regarding credit reductions for grants tax-exempt_bonds subsidized_energy_financing and other credits is applicable in this case this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc