department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division apr - ’ ’ a ‘ é ra ra u i l xxxxxxxxxxxxxxxxxxxxx xxxxxxxkxxxxaxxxkxaxkxkk xxxxxxxxxxxxxxxxxxxxx legend taxpayera xxxxxxxxxxxxxxxxxxx ira x amountd bank b dear xxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx this is in response to your letter dated xxxxxxxxxxxxx as supplemented by correspondence dated xxxxxxxxxxx xxxxxxxxxx xxxxxxxxxx xxxxxxxxx xxxxxxxxxx and xxxxxxxxxxx submitted on your behalf by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of your request taxpayer a represents that on xxxxxxxxxxxxxxxxxxxx he received a distribution from ira x totaling amount d intending to roll it over to another individual_retirement_account which would yield him a higher rate of return as he was losing money from his current investment in ira x taxpayer a asserts that his failure to accomplish a rollover of amount d from ira x within the 60-day period prescribed by sec_408of the code was due to his wife’s serious medical_condition hospitalization the catastrophic events that afflicted his wife and the need for constant medical attention and numerous doctor visits during the 60-day rollover period which together impaired his ability to accomplish a timely rollover taxpayer a further asserts that during the 60-day period he was a full time caregiver to his wife and that his attentions were all devoted to his wife and trying to help her and manage her medical_condition and keep her alive taxpayer a states that he was the person solely responsible for the daily household activities required for his wife’s care house cleaning meals laundry dressing assistance wheelchair assistance bathing assistance and assisting with giving medication as she could do very little for herself and her mental capacity was going downhill rapidly taxpayer’s wife subsequently died on xxxxx taxpayer a states that he withdrew amount d from ira x on xxxxxxxxxx and on xxxxxxxxxxx deposited amount d in his savings account with bank b taxpayer a further states that he was unable to complete the rollover during the 60-day period because he was caring for his wife whose condition was deteriorating amount d remains intact in his savings account with bank b and has not been used for any other purpose based upon the facts and representations taxpayer a requests ruling that the internal_revenue_service the service waive the day rollover requirement with respect to amount d sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i the entire amount received including money and any other_property i is paid into an ira for the benefit of such individual not later than the _ day after the day on which the individual received 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_408i received by an individual from an ira if at any time during the 1-year period ending in the day of such receipt such individual received any other amount described in sec_408 from an ira which was not included in gross_income because of the application of sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity and good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_408 of the code revproc_2003_16 i r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability or hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was caused by his involvement with his wife’s medical_condition hospitalization need for constant medical attention and numerous treatments by doctors during the 60-day rollover period therefore pursuant to code sec_408 the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount d into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount d will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transactions described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions regarding this letter please contact xxxxxxxxxxxxxxxx se t ep ra t at xxxxxxxxxxxxxxxxx sincerely yours on b wir -- laura b warshawsky manager employee_plans technical group enclosures deleted copy of letter_ruling notice


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-125750-08 uilc date date to director submission processing cincinnati oh attn entity unit from office of division counsel associate chief_counsel tax exempt government entities subject railroad_retirement_tax_act status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business was not a covered employer under the railroad retirement act and the railroad unemployment insurance act for the period ---------------through --------------- ----------------------- ----------------------------------- ------------------ --------------------------------- --------------------------------- we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that -----------------------------------was not an employer under the railroad_retirement_tax_act for the period ---------------through -------------------- ------- please take the appropriate action regarding this business cc _____________________________ janine cook


internal_revenue_service number release date index no cc dom fi p - plr-118175-99 date legend taxpayer corporation a a b llc op c d e f g corporation b dear this is in reply to your letter dated date and subsequent submissions requesting a ruling on behalf of taxpayer you have requested the following rulings taxpayer’s interests_in_real_property and the timber thereon constitute real_estate_assets within the meaning of sec_856 and sec_856 of the internal_revenue_code taxpayer’s income from the disposal of timber pursuant to cutting contracts meeting the requirements of sec_631 will be treated as gross_income described in sec_856 and sec_856 and not income derived from prohibited_transactions under sec_857 income from disposals of timber with a holding_period of plr-118175-99 one year or less derived from cutting contracts under which the owner of the timber retains an economic_interest in the timber disposed of constitutes gross_income described in sec_856 and sec_856 and op’s holding_period in its assets will be used in determining the character of the gain allocated to taxpayer by op from gain recognized by op from the sale_or_exchange of property used in a trade_or_business facts taxpayer is a domestic_corporation that intends to elect to be treated as a real_estate_investment_trust reit taxpayer currently is the managing general_partner of op but has no economic_interest in op and no other assets taxpayer will make an underwritten public offering of its stock following the public offering taxpayer will contribute the net_proceeds from the public offering to op in exchange for an increased managing general_partner share the public offering is intended to allow taxpayer to raise equity and debt financing on more favorable terms than are currently available to op or corporation a and to raise equity funds to reduce indebtedness incurred in part to effect an acquisition of timber it is represented that taxpayer has no assets with a fair_market_value in excess of its adjusted tax basis op owns or leases approximately f acres of timberlands op’s revenues come primarily from the sale of timber cut from these timberlands op also owns approximately d percent of the interests in llc llc owns approximately g acres of property most of which were formerly owned by affiliates of corporation a for use as timber properties llc conducts a program of land-use planning and impact management to position these properties for sale to residential commercial and industrial property developers taxpayer’s issued and outstanding_stock is currently owned by corporation a after the public offering corporation a will own a percent of a special class of taxpayer stock that will give corporation a an approximate b percent economic_interest in taxpayer and a right to c percent of the vote or a lesser percentage if required for taxpayer to qualify as a reit as corporation a’s economic_interest increases or decreases its vote will be adjusted accordingly the public will buy a different class of taxpayer voting_stock giving it an approximate d percent economic_interest in taxpayer corporation a is a domestic_corporation which together with plr-118175-99 its subsidiaries is a forest products company engaged in the trading merchandising and manufacturing of logs timber and wood products and in the production and sale of high-value-added specialty pulps corporation a directly and indirectly owns leases manages or controls approximately e acres of timberland corporation a also directly and indirectly operates two pulp mills and a fiberboard plant as part of the transaction that includes taxpayer’s public offering op will form a new corporation corporation b and will contribute its interest in llc and another wholly-owned limited_liability_company to corporation b in exchange op will receive a all of the class b nonvoting common_stock of corporation b representing an approximate d percent economic_interest in corporation b and b the assumption by corporation b of certain op debt corporation a will contribute its member interest in llc to corporation b in exchange for all the class a voting common_stock of corporation b representing an approximate b percent economic_interest in corporation b taxpayer through op intends to enter into timber cutting contracts under which gain from the disposal of timber is intended to qualify as gain from the sale_or_exchange of property used in a trade_or_business under sec_631 law analysis and conclusions sec_856 provides that at least percent of a reit's gross_income excluding gross_income from prohibited_transactions must be derived from among other sources gain from the sale_or_other_disposition of stock securities and real_property including interests_in_real_property and interests in mortgages on real_property which is not property described in sec_1221 sec_856 provides that at least percent of a reit's gross_income excluding gross_income from prohibited_transactions must be derived from among other sources gain from the sale_or_other_disposition of real_property including interests_in_real_property and interests in mortgages on real_property which is not property described in sec_1221 sec_856 provides that at the close of each quarter of its tax_year at least percent of the value of a reit's total assets must be represented by real_estate_assets cash and cash items including receivables and government securities sec_856 provides that not more than percent of the value of a reit's total assets may be represented by securities other than those includible under subparagraph plr-118175-99 a for purposes of this calculation limited in respect of any one issuer to an amount not greater than percent of the value of the total assets of the reit and to not more than percent of the outstanding voting_securities of the issuer sec_856 provides that the term real_estate_assets means real_property including interests_in_real_property and interests in mortgages on real_property and shares or transferable certificates of beneficial_interest in other qualifying reits sec_856 defines the term interests_in_real_property to include fee ownership and co- ownership of land or improvements thereon leaseholds of land or improvements thereon options to acquire land or improvements thereon and options to acquire leaseholds of land or improvements thereon but does not include mineral oil or gas royalty interests sec_1_856-3 of the income_tax regulations provides that local law definitions will not be controlling for purposes of determining the meaning of the term real_property as used in sec_856 and the regulations thereunder sec_856 provides that value means with respect to securities for which market quotations are readily available the market_value of those securities and with respect to other_securities and assets fair value as determined in good_faith by the trustees except that in the case of securities of reits the fair value shall not exceed market_value or asset value whichever is higher under sec_1_856-3 a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and to be entitled to the income of the partnership attributable to that share for purposes of sec_856 the interest of a partner in the partnership's assets shall be determined in accordance with the partner's capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership shall retain the same character in the hands of the partners for all purposes of sec_856 it is a long-standing principle of law that standing timber is treated as real_property for federal_income_tax purposes in hutchins v king 68_us_53 the supreme court stated that timber growing upon the land constituted a portion of the realty more recently the court in 115_fsupp_931 w d wis stated that growing timber under the common_law and the law of the united_states has always been considered a portion of the real_property and the owner of that timber had an interest in so much of the soil as was necessary to sustain it also the service ruled in rev plr-118175-99 rul 1972_2_cb_466 that timber growing on the land is part of the land and that an exchange of timberlands of different qualities nevertheless constitutes a like_kind exchange because both are land held for investment accordingly we conclude that timberlands and the standing timber thereon constitute real_property and therefore real_estate_assets within the meaning of sec_856 and sec_856 sec_631 provides that in the case of the disposal of timber held for more than one year before the disposal by the owner thereof under any form or type of contract by virtue of which the owner retains an economic_interest in the timber the difference between the amount_realized from the disposal of the timber and the adjusted depletion basis thereof shall be considered as though it were a gain_or_loss as the case may be on the sale of the timber in determining the gross_income the adjusted_gross_income or the taxable_income of the lessee the deductions allowable with respect to rents and royalties shall be determined without regard to the provisions of sec_631 the date of the disposal of the timber shall be deemed to be the date the timber is cut but if payment is made to the owner under the contract before the timber is cut the owner may elect to treat the date of payment as the date of disposal of the timber for purposes of this section the term owner means any person who owns an interest in the timber including a sublessor and a holder of a contract to cut timber sec_1_631-2 provides in part that if an owner disposes of timber held for more than one year before such disposal under any form or type of contract whereby the owner retains an economic_interest in the timber the disposal shall be considered to be a sale of the timber sec_1_631-2 provides that in the case of a disposal of timber with a retained economic_interest the provisions of sec_1231 apply and such timber shall be considered property_used_in_the_trade_or_business for the taxable_year in which it is considered to have been sold along with other_property of the taxpayer used_in_the_trade_or_business as defined in sec_1231 whether or not such timber is property held by the taxpayer primarily_for_sale_to_customers in the ordinary_course_of_his_trade_or_business sec_1_631-2 provides in part that where the conditions of sec_1_631-2 are met amounts received or accrued prior to cutting such as advance royalty payments or minimum_royalty payments shall be treated under sec_631 as realized from the sale of timber if the contract of disposal provides that such amounts are to be applied as payment for plr-118175-99 timber subsequently cut sec_1_631-2 provides however that if the right to cut timber under the contract expires terminates or is abandoned before the timber that has been paid for is cut the taxpayer shall treat payments attributable to the uncut timber as ordinary_income and not received from the sale of timber under sec_631 in order for there to be a disposal of timber under a contract for purposes of sec_631 the lessee must have a contractual obligation to cut specified timber see eg revrul_77_229 1977_2_cb_210 citing 251_f2d_163 9th cir 284_f2d_348 9th cir 302_f2d_289 5th cir opinion amended and reh den 305_f2d_557 cert_denied 371_us_921 sec_1 e provides that in order to be the owner of timber a taxpayer must have a right to cut timber for sale on its own account or for use in its trade_or_business sec_631 treats certain disposals of timber as sales of the timber that may qualify for capital_gains treatment to be eligible for this treatment the taxpayer must meet the capital_gains holding_period and must retain an economic_interest in the standing timber an economic_interest in the standing timber is retained if the taxpayer depends on the cutting of the timber for a return on its investment in the timber see sec_1_611-1 a pay-as-you-cut contract generally accomplishes this ie the taxpayer is paid only for the timber that is cut sec_1231 generally provides that gain_or_loss on the sale_or_exchange of property used in a trade_or_business will be treated as gain_or_loss from the sale_or_exchange of a capital_asset sec_1231 provides that property used in a trade_or_business includes timber to which sec_631 applies sec_857 provides that a tax will be imposed upon a reit equal to percent of the net_income derived by the reit from prohibited_transactions sec_857 defines the term prohibited_transaction as a sale_or_other_disposition of property described in sec_1221 which is not foreclosure_property sec_1221 provides that for federal_income_tax purposes capital_asset means property held by the taxpayer whether or not connected with his trade_or_business but does not include stock_in_trade of the taxpayer or other_property of a kind that would properly be included in the inventory of the taxpayer if on hand at the close of the tax_year or property plr-118175-99 held by the taxpayer primarily_for_sale_to_customers in the ordinary_course_of_his_trade_or_business assuming the timber cutting agreements covering the timber owned by taxpayer either directly or through op are governed by sec_631 as submitted by taxpayer the timber will be treated as property used in a trade_or_business under sec_1231 consequently the timber cannot be considered to be property_held_primarily_for_sale to customers in the ordinary course of business pursuant to sec_1221 therefore the sale of timber by taxpayer pursuant to the agreements will not satisfy the definition of a prohibited_transaction under sec_857 when a taxpayer assigns operating rights in a mineral_property or the right to cut timber but upon such assignment the taxpayer retains a continuing economic_interest a royalty in the in the property or timber the transaction constitutes a lease under sec_631 if the lessor has held the timber for more than one year payments to the lessor under the terms of the lease are treated as gain from the sale of a capital_asset in this respect sec_631 provides for timber an exception to the normal treatment of payments to the lessor of mineral_property absent the application of sec_631 for example where the lessor has not met the holding_period requirement the payments to the lessor are treated as royalty payments derived from the lease of the timber property accordingly provided that the timber cutting agreements covering the timber owned by taxpayer either directly or through op are governed by sec_631 as submitted by taxpayer we conclude that gross_income derived from the disposal of timber pursuant to those cutting agreements will constitute gross_income derived from the sale or disposition of real_property or interests_in_real_property which is not property described in sec_1221 under sec_856 and sec_856 gross_income from the disposal of timber with a holding_period of one year or less will be considered rents_from_real_property under sec_856 and sec_856 also such income will not be treated as prohibited_transaction_income under sec_857 finally for purposes of sec_631 and sec_1_856-3 op’s holding_period in its assets shall be used in determining the character of the gain allocated to taxpayer by op from the sale of assets by op pursuant to timber cutting contracts governed by sec_631 additional information no opinion is expressed or implied as to the federal tax consequences of this transaction under any provision not specifically addressed herein in particular no opinion is plr-118175-99 expressed concerning whether the timber cutting contracts referred to above are governed by sec_631 or the character of the income derived from those contracts furthermore no opinion is expressed concerning whether taxpayer will otherwise qualify as a reit under subchapter_m part ii of chapter in addition no opinion is expressed concerning the federal tax consequences of the sale of timber by taxpayer or op other than sales made pursuant to timber cutting contracts governed by sec_631 further no opinion is expressed concerning whether the relationship between taxpayer and any other party will cause taxpayer to fail to satisfy the percent voting_securities requirement of sec_856 sincerely yours acting associate chief_counsel financial institutions products by alvin j kraft chief branch enclosure copy of this letter copy for purposes cc


t c summary opinion united_states tax_court robert f dillon petitioner v commissioner of internal revenue respondent docket no 17382-05s filed date robert f dillon pro_se thomas yang for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioner’s federal_income_tax for the year in the amount of dollar_figure the sole issue for decision is whether petitioner is entitled to an alimony deduction in the amount of dollar_figure for the taxable_year in issue background the stipulation of facts and the attached exhibits are incorporated herein by reference at the time the petition was filed petitioner resided in river forest illinois petitioner and his former spouse ann dillon ms dillon were married on date in cook county illinois six children were born of the marriage on date a judgment of dissolution of marriage judgment was entered in the circuit_court of cook county illinois domestic relations division circuit_court at the time that the judgment was entered two of the six children a d and b d were minors sole care custody and control of the minor children remained with ms dillon in paragraph d of the judgment the circuit_court ordered petitioner to make monthly payments in the amount of dollar_figure described as unallocated support and maintenance paragraph d the court uses the initials of the minor children also states that the amount of payment will be reviewable upon the emancipation of a d the first of the two minor children to reach the age of the judgment is silent otherwise as to the parties’ intent that the payment or any part thereof be deductible as alimony by petitioner and includable as gross_income to ms dillon the judgment itself is also silent as to whether petitioner’s obligation to make the monthly payments would survive petitioner’s death a d turned sometime during the year at issue the record is silent as to whether at that time the amount of the monthly payments being paid_by petitioner was reviewed by the circuit_court petitioner has been employed as a school teacher by consolidated high school in orland park illinois for the past years in accordance with the terms of an order made pursuant to the judgment petitioner’s monthly payments to ms dillon were deducted from his paychecks at trial the court received into evidence three paycheck stubs dated august september and date each of these stubs shows a wage assignment deduction of dollar_figure petitioner did not have with him at the trial any of the stubs from the year in issue however he claimed that given the opportunity he could and would produce the stubs for at the close of the trial the court ordered that the record in this case would remain open for days in order for petitioner to submit either paycheck stubs or a yearend summary of payments from within that time period the court received into evidence a yearend statement from petitioner’s employer showing total deductions from pay for of dollar_figure discussion the commissioner’s determinations are presumed correct and taxpayers generally bear the burden of proving otherwise 290_us_111 petitioner did not argue that sec_7491 is applicable in this case nor did he establish that the burden_of_proof should shift to respondent moreover the issue involved in this case alimony is a legal one and will be decided on the record without regard to the burden_of_proof petitioner however bears the burden of proving that respondent’s determination in the notice_of_deficiency is erroneous see rule a welch v helvering supra pincite an individual may deduct from his or her gross_income the payments he or she made during a taxable_year for alimony or separate_maintenance sec_215 sec_71 defines alimony_or_separate_maintenance_payment as any payment in cash if a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includable in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse the test under sec_71 is conjunctive a payment is deductible as alimony only if all four requirements of sec_71 are present see jaffe v commissioner tcmemo_1999_196 moreover sec_71 provides in pertinent part for no deduction of any payment which is payable for the support of children of the payor spouse in this case the monthly payments prescribed under the judgment fail to comport with sec_71 first there is no provision in the judgment in accordance with sec_71 indicating whether the parties intended either the whole or part of the unallocated support and maintenance payments to be included in income by ms dillon and deducted by petitioner second there is no provision in the judgment imparting liability to petitioner to make payment for any period after ms dillon’s death in accordance with sec_71 finally because the monthly payment prescribed in the judgment is for unallocated maintenance and support we cannot determine what portion of the payment is intended for alimony and what portion is intended for child_support we assume that because the amount is made reviewable upon the occasions when each of the minor children turns that some if not all of the payment is intended as child_support in the latter case if all of the payment was intended as child_support then petitioner would not be entitled to any deduction pursuant to sec_71 in this case petitioner did not change nor did the circuit_court revisit the amount of the monthly payment when a d reached the age of in petitioner rather decided that instead of reducing the amount of the payment or petitioning the court to reduce the amount of the payment that he would allow his ex-wife to keep the extra dollar_figure and pay the taxes on it thus allowing him to accordingly deduct dollar_figure from his gross_income in that year petitioner’s decision and reasoning for his action however do not comport with the requirements of sec_71 as this payment so designated by petitioner is not pursuant to a divorce decree or instrument as required by sec_71 accordingly and based on the foregoing facts and discussion we hold that petitioner is not entitled to an alimony deduction under sec_71 for taxable_year decision will be entered for respondent


internal_revenue_service number release date index number ----------------- ------------------------------------------- ------------------------------------------------- ---------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc tege eoeg eo plr-136549-11 date date system board --------------------------------------------------------------------------- ------------------------------------ association --------------------------------------------------------- program trust -------------------------------------------- ---------------------------------------------------- ----------------------- agreement ------------------------------------------------------------------- state ----------- dear ------------ this letter responds to a letter from your authorized representatives dated date as well as subsequent correspondence submitted on behalf of the trust requesting a ruling that the trust’s income is excludable from gross_income under sec_115 of the internal_revenue_code the trust represents the facts as follows facts the system is an administrative and investment system created by state law whereby municipal_corporations and certain other entities of the state may provide retirement and other_benefits to their employees plr-136549-11 the system is governed by a board_of trustees created by state law the board is composed of elected or appointed officers and elected employees of municipal_corporations among the system’s membership board members may not serve more than consecutive terms the association has received a favorable sec_115 ruling letter the association is organized as a nonprofit corporation under state law to provide educational employee_benefits and technical consulting services to municipalities it is governed by a board_of directors composed of elected and appointed officials the program is a self-insured fund created under state law administered by the association and overseen by the board the program offers various benefit plans and group policies that participating employers may provide their eligible employees the health and welfare benefits provided by the program include health life accidental death and dismemberment short-term disability and dental insurance and other_benefits administered by the association the trust pursuant to state law pools the contributions of certain governmental employers in order to administer the trust to provide health and welfare benefits under the program and to provide for risk-sharing among the participating employers some of these benefits are self-funded while others are provided through third-party insurers only an employer as defined by state law provided that the employer is a state_agency political_subdivision or an entity whose income is excluded under sec_115 is eligible to participate in the trust eligible employers may become participating employers by authorizing participation in the trust by resolution or ordinance and by executing participation agreements the agreement authorizes the board to invest and reinvest trust assets and to pay benefits from those assets except for benefits payable under a group policy the board may delegate this benefit payment authority to the program administrator or its duly authorized representative the administrator currently the association may be removed and replaced by the board with or without cause the trust is held for the exclusive benefit of employees of participating employers and their dependents trust assets shall be used solely to provide health and welfare benefits to participating employers’ eligible employees and their eligible dependents and to pay reasonable trust expenses the board may amend the agreement at any time and in any manner permitted by state law and not inconsistent with sec_115 the board reserves the right at any time plr-136549-11 to terminate the trust any monies or other assets remaining after payment of liabilities incurred before termination self-funded health and welfare benefits and administrative expenses as well as reasonable and necessary expenses_incurred in the termination shall be distributed on a pro_rata basis to participating employers in no event shall trust assets be distributed to an entity that is not a state a political_subdivision of a state or an entity whose income is excluded from gross_income under sec_115 an employer may dissolve the trust with respect to that employer after paying or making reasonable provision to pay all liabilities of the trust with respect to the terminating employer the board will distribute the remaining trust property allocable to that employer in no event will trust assets be transferred to an entity that is not a political_subdivision of the state or an entity whose income is excluded from gross_income under sec_115 law and analysis sec_115 provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign properly to conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the income of an organization formed funded and operated by political subdivisions to pool various risks arising from their obligations regarding public liability workers’ compensation or employees’ health is excludable from gross_income under sec_115 in this ruling private interests did not plr-136549-11 materially participate in the organization nor did they benefit more than incidentally from the organization the trust provides health and welfare benefits to employees of the participating employers and their dependents as well as risk-sharing among those employers providing health and welfare benefits to public employees and risk-sharing among governmental employers constitutes the performance of essential government functions based upon revrul_90_74 and revrul_77_261 the trust performs an essential_governmental_function within the meaning of sec_115 the funding and provision of health and welfare benefits through the trust satisfies the obligation of the participating employers to provide those benefits thus the income of the trust accrues to the participating employers all of which are agencies or political subdivisions of the state or entities the income of which is excluded from gross_income under sec_115 no private interests participate in or benefit from the operation of the trust other than as providers of goods or services the benefit to public employees is incidental to the public benefit upon dissolution no trust assets will be distributed to an entity other than a state a political_subdivision or a sec_115 entity see revrul_90_74 ruling based solely on the facts and representations submitted by the trust we conclude that the income of the trust is derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 consequently we rule that the trust’s income is excludable from gross_income under sec_115 except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no representation is made that contributions or premiums_paid on behalf of or benefits received by employees former employees retirees spouses dependents or others will be tax-free this ruling concerns only the federal tax treatment of the trust’s income and may not be cited or relied upon as to any matter relating to the taxation of accident or health contributions or benefits under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative plr-136549-11 this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely sylvia hunt assistant branch chief exempt_organizations office of division counsel associate chief_counsel tax exempt government entities enclosures copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c date number release date cc dom fs corp uilc internal_revenue_service national_office field_service_advice memorandum for from deborah a butler assistant chief_counsel cc dom fs subject sec_304 - exchange treatment under sec_302 this field_service_advice responds to your request for advice field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend p sec_1 sec_2 sec_3 t1 t2 t3 t4 t5 t6 t7 t8 t9 a1 a2 a3 x y y’s adviser y sub a b c d e f g h i j k l m n o p year year date date date date date date date date date date date date date date date date date date date date date date date date date date date date issue should the effect of the sale of sec_2 to x be taken into account in determining whether the sec_304 redemption of sec_2’s interest by a1 is a distribution under sec_301 or a sale_or_exchange under sec_302 should the effect of the sale of sec_1 to y be taken into account in determining whether the sec_304 redemptions of sec_1’s interests by a1 a2 and a3 are distributions under sec_301 or sales or exchanges under sec_302 conclusion the sale of sec_2 to x in year should be integrated with the sec_304 redemption by a1 to find a complete termination of sec_2’s interest in a1 under sec_302 and therefore sale_or_exchange treatment under sec_302 similarly the sale of sec_1 to y in year should be integrated with the sec_304 redemptions by a1 a2 and a3 to find a complete termination of sec_1’s interest in a1 a2 and a3 under sec_302 and therefore sale_or_exchange treatment under sec_302 issue whether the service should continue to argue conciusion facts p is the parent of a consolidated_group that included sec_1 sec_2 sec_3 t1 t2 t3 t4 t5 t6 t7 t8 t9 a1 a2 and a3 except for sec_1 and sec_2 after their sale to y and x respectively a statutory_notice_of_deficiency proposed reducing the long term capital_loss reported by i sec_1 on the sale of the stock of sec_2 to x in year by dollar_figurea and ii sec_3 on the sale of the stock of sec_1 to y in year by dollar_figureb facts relating to the year sale p wholly owned sec_1 sec_1 wholly owned sec_2 among sec_2’s businesses was holding leases to which sec_2 or its subsidiaries were the owner lessor the principal investments these leases were generating positive cash_flow but had now turned around for tax purposes that is they now generated taxable_income in excess of pre-tax cash_flow in date p’s tax department recommended a tax strategy of selling the stock of sec_2 but retaining the non-principal investment_assets the retained assets in the p group p determined to cause sec_2 to transfer the retained assets to other corporations within the p group and leave only principal investment_assets in sec_2 on date the p board met and discussed the stock sale of sec_2 in date p provided x with information regarding the sale of certain sec_2 assets x had sufficient net operating losses to offset income generated by the principal investments on date a presentation document provided for x by p described the assets that it proposed would be held by sec_2 at time of the sale of sec_2 stock to x the retained assets were not included in that list of assets t1 was wholly owned by sec_2 by resolution dated date sec_2 contributed the retained assets to t1 on date the boards of sec_2 and a1 a wholly owned p subsidiary approved the sale of t1 to a1 the sale closed on date p acted as banker to the p group and kept intercompany loan accounts with each of its subsidiaries the purchase_price of t1 was dollar_figurea the purchase was recorded in p’s books by debiting p’s intercompany loan account with a1 by the amount of the purchase_price and crediting p’s intercompany loan account with sec_2 by the same amount a1’s accumulated_earnings_and_profits exceeded the purchase_price for t1's stock on date there was a presentation to p’s board regarding approval of a nonbinding letter of intent to sell sec_2 to x the transfer of retained assets was described in relation to the necessity of isolating the principal investments in sec_2 for purposes of the sale to x and the tax advantages of structuring the transfer as a stock sale within the group in the section describing calculation of tax basis the presentation stated i t’s the tax aspects that make this sale especially attractive the tax department in conceiving this transaction has creatively applied two different tax concepts to maximize the calculation of p’s tax basis in sec_2 the second concept involved the sale of t1 to other group members rather than distributing t1 stock to sec_1 the section titled the transaction described the first portion as a two-step removal of the retained assets from sec_2 by selling certain subsidiary stock to a1 and declaring a dollar_figured dividend to sec_1 consisting of cash proceeds from the sale of t1 plus other cash receivables and liabilities the second portion was the sale of sec_2 for dollar_figurec to x in addition it appears that the sales terms were well established by this date corporate law and outside counsel have already reviewed a proposed letter of intent once both parties have signed the letter of intent the sales_price will be firmly established subject only to changes in the residual_value by the appraisers and presentation document the letter of intent was signed by p and x on date on date the sec_2 board approved the dollar_figured dividend to sec_1 on date x indicated that there were certain problems arising with purchase presumably in regard to financing the acquisition on date the original letter of intent was extended on date x announced it had obtained the necessary financing effective date a purchase agreement for the purchase of sec_2's stock by x was entered into for a price of dollar_figuree this amount was amended on date the closing date facts relating to the year sale based on a perceived opportunity in the tax law p decided to sell the portion of sec_1's business consisting of ownership of leased property in the aggregate the leases had turned around this purpose is identical to the year sale p decided to sell subsidiaries of sec_1 containing the retained assets to other p group members by date p provided a preliminary memorandum regarding the sale of sec_1 to prospective buyers on date p entered into a confidentiality agreement with y’s adviser regarding y’s proposed purchase of sec_1 on date t2 a wholly owned subsidiary of sec_1 declared a dividend of portfolio_stock to sec_1 on dates and the sale of t2 to a1 for dollar_figuref was approved by the boards of sec_1 and a1 respectively payment of dollar_figureg of the purchase_price was cleared through the intercompany loan accounts like the year sale a1 treated the difference as a loan receivable from sec_1 effective as of date sec_1 i contributed some retained assets to t3 a wholly owned subsidiary of sec_1 ii contributed dollar_figureh to t4 to create a positive book net_worth and iii entered into a purchase agreement for t3 t4 t5 t6 and t7 with a2 a wholly owned subsidiary of p the sale closed on the same date the sales_price was dollar_figurei dollar_figurej paid_by promissory note from a2 and the remainder debited by sec_1 as loan receivable from a2 on date sec_1 ratified the contribution of a non-leasing subsidiary to t8 a wholly owned subsidiary of sec_1 on the same date the boards of sec_1 and a3 approved the sale of t8 to a3 a wholly owned subsidiary of p for dollar_figurek the sale closed the same day on date p approved the contribution of p’s sec_1 stock to sec_3 a newly formed subsidiary of p on date y’s adviser on behalf of itself and y sub provided p with terms for the purchase of sec_1 on date p’s board approved the sale of sec_1 for not less than dollar_figurel the presentation document describes the transaction in similar terms as the year presentation document describing the need to move sec_1 assets the p group desired to retain out of sec_1 before the stock sale and focusing on the tax benefits to the p group and the buyer the proposed structure purportedly afforded the presentation document identifies the purchaser as y’s adviser and y sub the document described the sales to a1 and a2 but included no description of the a3 purchase and a dividend of the sales proceeds and other cash stock receivables and liabilities to sec_3 as preliminary steps in the sale of sec_1 the document summarized the state of negotiations as follows corporate law and outside counsel have already prepared a proposed definitive sales agreement the purchaser has submitted its desired contract changes which are currently being negotiated once both parties have signed the sale will be firmly established subject only to hart scott rodino approval and presentation document on date a nonbinding letter of intent was entered into between p and y regarding the purchase by y or its affiliate of sec_1 from sec_3 on date the boards of sec_1 and a1 approved the sale of t9 a wholly owned subsidiary of sec_1 from sec_1 to a1 the sale closed the same day the purchase_price was dollar_figurem during the time between dates and sec_1 distributed to sec_3 all the proceeds from the various subsidiary sales and certain other assets on date sec_1 declared a dollar_figuren net asset dividend to sec_3 on date p sec_1 sec_3 and y entered a purchase agreement for sale of sec_1 for dollar_figureo plus certain additional contingent_amounts the sale closed the next day each of a1 a2 and a3 had earnings_and_profits in excess of the purchase_price of the subsidiaries it acquired the price of t2 was adjusted upwards to dollar_figurep based on a valuation report the dollar_figureb adjustment to the basis in sec_1’s stock in the deficiency_notice equals the sum of dollar_figurei the purchase_price for t3-7 dollar_figureg the initial price for t2 dollar_figurek the final purchase_price for t8 and dollar_figurem the purchase_price of t9 discussion of issue law sec_304 of the code was enacted to prevent the bailout of earnings_and_profits at capital_gains rates through the sale of stock of one corporation issuing to a related corporation acquiring by a person in control of both corporations transferor if transferor and acquiring are brother sister corporations sec_304 recasts a sale by transferor of issuing stock to acquiring as follows the sale proceeds received by transferor from acquiring are treated as a distribution in redemption of acquiring stock under sec_302 and the transfer of issuing stock by transferor to acquiring is treated to the extent sec_301 applies to the sec_304 redemption distribution as a contribution to acquiring's capital by transferor sec_302 treats the sec_304 redemption as a sale_or_exchange if certain requirements set out in sec_302 are met if none of the requirements are met sec_302 provides that sec_301 applies to the distribution revrul_70_496 1970_2_cb_74 illustrates how sec_304 has been applied where transferor does not directly own any acquiring stock in revrul_70_496 corporation p parent owns percent of the stock of x transferor and percent of the stock of z acquiring transferor owns percent of the stock of y issuing transferor transfers all the stock of issuing to acquiring in exchange for cash equal to the value of the issuing stock transferor is in control of both issuing and acquiring before the transaction under sec_304 and sec_318 the sales proceeds are treated as a distribution by acquiring in redemption of acquiring stock held by transferor even though transferor actually holds no acquiring stock to the extent sec_301 applies to the distribution the transfer of the issuing stock is treated as a contribution to acquiring's capital by transferor however if one of the tests of sec_302 is met the deemed redemption is treated as a sale_or_exchange of property under sec_302 sec_1_1502-80 before it was amended effective date specifically makes sec_304 applicable to the consolidated_return_regulations consolidated_return groups have used sec_304 transactions where transferor owns no acquiring stock in conjunction with the investment_adjustment rules of sec_1_1502-32 and the earnings_and_profits adjustment rules of sec_1_1502-33 to create an artificial loss in transferor stock and thereafter to attempt to recognize loss on a sale of transferor in zenz a sole shareholder sold part of her stock in a corporation to an unrelated purchaser and three weeks later had the corporation redeem the rest of her shares both steps occurring under the same plan the service argued that the redemption was a disguised_dividend because it would have been treated as such if the redemption had occurred before the sale the court disagreed holding that the redemption was part of a transaction that completely terminated the shareholder’s interest in the corporation and thus was entitled to capital_gain treatment the service agreed to follow zenz in revrul_55_745 1955_2_cb_223 emphasizing that the sequence of planned transactions is irrelevant where the overall result is the complete termination of a shareholder’s interest consistent with that ruling the service conceded in u s v carey 289_f2d_531 8th cir and the court held that zenz applies when the redemption precedes the stock sale pursuant to a plan see also revrul_75_447 1975_2_cb_113 sequence of events irrelevant if both clearly part of an overall plan while zenz is typically used by individual shareholders seeking capital_gain treatment it has also been asserted by the service against corporate shareholders looking for dividend characterization in revrul_77_226 1977_2_cb_90 corporation y purchased big_number shares of stock of corporation x which was offering to redeem stock tendered by its shareholders the shares were purchased on the market at the tender price y then tendered shares to x treated the proceeds as a dividend because the redemption was not substantially disproportionate under sec_302 sold the remaining big_number shares at a price reflecting x's reduced net_worth claimed the dividends received deduction for the redemption proceeds and reported a short-term loss on the big_number shares citing zenz the service ruled that in this case the redemption and the sale were undertaken pursuant to an integrated_plan therefore even assuming the redemption distribution standing by itself would have been essentially_equivalent_to_a_dividend the redemption and sale combined completely terminated y's interest in x within the meaning of sec_302 of the code that the redemption occurred before the sale is irrelevant thus because the aggregate amount received by y for the big_number shares equaled its cost for the shares y realized no gain_or_loss see 72_tc_751 aff’d 647_f2d_169 9th cir courts have used the zenz doctrine to analyze not only actual redemptions but also deemed redemptions under sec_304 niederrmeyer v commissioner 62_tc_280 aff’d 535_f2d_500 9th cir 71_tc_692 zenz doctrine used to analyze the sec_302 consequences of a redemption deemed under sec_304 there are several different articulations of when the zenz doctrine will apply to take into account the effects of another transaction when analyzing a redemption the court has articulated its standard several times including in 62_tc_280 where redemptions were executed pursuant to a plan to terminate one’s interest in a corporation it has been held that dividend equivalency may be avoided where the individual redemptions are component parts of a single sale_or_exchange of an entire stock interest citations omitted where there is a plan which is comprised of several steps one involving the redemption of stock that results in a complete termination of the taxpayer’s interest in a corporation sec_302 may apply citations omitted however the redemption must occur as part of a plan which is firm and fixed and in which the steps are clearly integrated citation omitted niedermeyer concerned a sec_304 sale of most of the taxpayer’s stock in a corporation followed three months later by a charitable_contribution of the taxpayer’s remaining stock the service characterized the deemed redemption under sec_304 as a dividend and the court agreed finding the evidence too insubstantial to prove the redemption and contribution were part of a plan the court disregarded the taxpayers self serving statements during trial regarding intent at the time of the sec_304 sale the court also noted that the plan was not in writing nor was there any evidence that the taxpayer had communicated its donative_intent to anyone it continued by the above discussion we do not mean to indicate that all such plans need to be in writing absolutely binding or communicated to others but we do think that the above-mentioned factors all of which are lacking here tend to show a plan which is fixed and firm 72_tc_751 was more similar to the instant case in that in bleily the taxpayer a corporation treated a redemption as essentially_equivalent_to_a_dividend but the service argued it was part of a plan of complete termination under sec_302 in bleily the taxpayer owned percent of another corporation the percent shareholder wanted sole control early cases discussing this issue decided under sec_115 of the code include in re 246_f2d_403 3d cir rev’d on other grounds 246_f2d_403 3d cir and jackson 26_tc_846 aff’d sub nom 247_f2d_156 th cir two additional cases similar to niedermeyer in posture and result are 54_tc_408 and 66_tc_1084 aff’d 592_f2d_1259 5th cir in each case the taxpayer claimed a redemption was part of a plan of complete termination the service took the position that the redemption was essentially_equivalent_to_a_dividend and the court found for the service finding no plan existed and the taxpayer agreed to sell its shares to the issuing_corporation at an agreed price the corporation did not have enough cash to purchase all of the shares at once but purchased all of the taxpayer’s shares over a week period each sale was supported by a separate written redemption agreement after reiterating the niedermeyer standard the court stated each case is necessarily a factual determination and based upon the record we are convinced that the issuing_corporation planned to eliminate the taxpayer as a shareholder although there was no binding agreement the taxpayer clearly had agreed to sell all of its shares the entire sale did not take place immediately due to lack of funding the court found that the issuing_corporation planned to purchase stock from the taxpayer as funds became available lack of a binding agreement did not prevent the court from finding a integrated_plan for complete redemption 77_tc_30 was a sec_302 case in which the litigants framed the issue as whether a series of redemptions were part of a fixed and firm plan to reduce meaningfully the taxpayer’s interest in the redeeming corporation as part of a recapitalization the redeeming corporation a bank adopted a plan to redeem a certain amount of series b preferred_stock each year until no series b preferred remained outstanding it established a sinking_fund for that purpose the bank redeemed some preferred_stock in varying amounts each year for several years the bank had to have adequate capital and obtain regulatory approval for each redemption the court noted that whether there was a firm and fixed plan is a factual determination and found that the series of redemptions was part of a plan to eliminate the series b preferred_stock despite the need for adequate capital and regulatory approval the court stated we do not believe the requirement of a firm and fixed plan for redemptions need be as rigid under the circumstances here involved as would be required in a closely held family_corporation situation where the plan could be changed at any time by the actions of one of two shareholders analysis of issue sec_304 applies to each of sales of the stock of t1 by sec_1 t2 and t9 by sec_2 to a1 the sales of the stock of t3 t4 t5 t6 and t7 stock by sec_2 to a2 and the sale of the stock of t8 by sec_2 to a3 the proceeds of each sale are treated as received by sec_1 or sec_2 in redemption of the stock of a1 a2 or a3 as appropriate for purposes of sec_302 each redemption is tested under sec_302 to determine whether the proceeds will be treated as received in a sale_or_exchange under sec_302 or as a sec_301 distribution the zenz doctrine provides that the effect of other transactions is taken into account in testing whether a redemption is a distribution under sec_301 or a sale_or_exchange under sec_302 under certain circumstances the court applies the zenz doctrine if the redemption and the other_disposition of stock are part of a plan which is firm and fixed and in which the steps are clearly integrated niedermeyer under the niedermeyer test the sale of sec_2 to x in year which removed sec_2 from the p consolidated_group thereby ending its constructive_ownership of a1 should be integrated with the sec_304 redemption by a1 to find a complete termination of sec_2's interest in a1 under sec_302 similarly the sale of sec_1 to y in year should be integrated with the sec_304 redemptions by a1 a2 and a3 to find a complete termination of sec_1's interest in a1 a2 and a3 under sec_302 the sec_304 redemption and the sale of sec_2 to x were clearly integrated if you have any further questions please call deborah a butler assistant chief_counsel field service by steven j hankin special counsel cc dom fs corp


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-136824-08 uilc date date to director submission processing cincinnati oh attn entity unit from office of division counsel associate chief_counsel tax exempt government entities subject railroad_retirement_tax_act status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business became an affiliated employer under the railroad retirement act and the railroad unemployment insurance act effective ---------------------- --------------------------------------- ------------------------------ ---------------------------- -------------------------------------- we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that ------------------------------------became an affiliated employer under the railroad_retirement_tax_act effective ---------------------- the beginning of the first year it was both under common_control with a rail carrier and performed services in connection with railroad transportation please take the appropriate action regarding this business cc _____________________________ janine cook


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 intl b05 plr-134990-06 date date ------ -------- ------------------ x parent ---------------------- products ---------------------- a b dear ----- -------------- we respond to your letter dated x requesting a ruling pursuant to sec_1 e regarding the proper u s federal_income_tax treatment of hedges of parent’s foreign_currency exposure with respect to anticipated purchases of capital equipment used in its products manufacturing operations the rulings given in this letter are based on facts and representations submitted by parent and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process facts parent a u s_corporation and the common parent of an affiliated_group_of_corporations that files a federal consolidated_income_tax_return is an accrual_method taxpayer on a week taxable_year parent conducts its activities directly and through domestic and foreign subsidiaries each of which along with parent has the dollar as its functional_currency as defined in sec_985 of the internal_revenue_code_of_1986 as amended the code plr-134990-06 parent manufactures a variety of highly sophisticated technological devices including products and related components this manufacturing business requires parent to expend substantial capital to construct maintain and upgrade state-of-the-art factories parent invests a large percentage of this cost in acquiring customized equipment that it uses to manufacture and test products because products technology is continuously advancing parent’s manufacturing processes frequently become out-dated and parent must develop and implement new manufacturing processes for certain products in cycles that are typically as short as two years to acquire the necessary manufacturing and testing equipment in time to keep up with technological advances parent must forecast its manufacturing capacity needs and begin negotiating with its equipment suppliers up to five years in advance of the date that such tools will actually be delivered and placed_in_service thus parent must begin this long-range process of acquiring new equipment even before it has designed the new generation of products parent begins this long-range planning process by forecasting its production needs for the next several years parent then projects the quantity and timing of new_capital equipment purchases it will need to make to up-grade its factories to meet its production forecasts for newer products based on these projections parent enters into multi-year master procurement agreements with various equipment suppliers each such agreement sets forth the standard terms and conditions for all equipment purchase orders that parent may choose to place with the supplier that is party to the agreement during the life of the agreement which is typically three to five years these terms include a specified purchase_price for the defined types of equipment covered by the agreement although the agreement commits the equipment supplier to a maximum fixed sales_price during the term of the agreement it does not commit parent to make any specific number of purchases after entering into a procurement agreement parent will typically wait up to several years before placing actual purchase orders for specific pieces of equipment parent times the placement of such orders by forecasting when its factories will need the equipment and estimating how long it will take the supplier to manufacture the equipment suppliers generally take less than a year from the date a purchase order is placed to deliver a piece of equipment thus parent locks in a price for the equipment long before placing a specific order parent frequently enters into procurement agreements and purchases equipment from suppliers that are resident in countries outside the u s initially parent paid u s dollars to acquire equipment from these foreign suppliers when foreign suppliers priced their equipment in u s dollars the price typically reflected either compensation to the supplier for assuming the currency risk inherent in committing to a multi-year contract in non-functional currency or compensation_for the cost of hedging that foreign_currency exposure parent concluded that it would save money if it negotiated the price terms of its procurement agreements in the currency of the foreign supplier and then entered into its own currency hedges parent believed that it could forecast the quantity plr-134990-06 and timing of its equipment purchase orders more reliably than its suppliers could consequently parent believed it would cost less to hedge its own foreign_currency exposure than to compensate the supplier for assuming that risk in accordance with its current internal hedging policy parent hedges a to b of the foreign_currency exposure it expects will arise from foreign-currency priced procurement agreements parent may use a variety of hedging instruments and strategies but predominantly foreign_currency forward contracts parent structures and implements each of its foreign_currency hedges and continually monitors them so as to qualify them for hedge accounting under financial_accounting standards board statement no fa sec_133 to ensure that its designated hedging instruments as well as its hedged transactions qualify for hedge accounting under fa sec_133 parent routinely complies with the following procedures and criteria as required by fa sec_133 first at inception of the hedge parent formally documents the hedging relationship and parent’s risk management objective and strategy for undertaking the hedge such documentation includes identification of the hedging instrument the hedged transaction the nature of the risk being hedged and how the hedging instrument’s effectiveness in hedging the exposure to the hedged transaction’s variability in cash flows attributable to the hedged risk will be assessed parent also provides a reasonable basis for financial reporting purposes for how it plans to assess the hedging instrument’s effectiveness in providing this documentation parent describes the hedged forecasted transaction with sufficient specificity so that when a transaction occurs it is clear whether that transaction is or is not the hedged transaction second at both inception of the hedge and on an ongoing basis parent makes an assessment as required under fa sec_133 to ensure that the hedging relationship is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge parent re-assesses such effectiveness whenever it reports financial statements or earnings and at least every three months parent uses the cumulative dollar-offset method to assess the effectiveness of hedges both prospectively and retrospectively thus parent gauges effectiveness based on a dollar-offset ratio defined by the cumulative changes in cash flows on the hedging derivative instrument divided by the forecasted cumulative changes in cash flows on the hedged item parent uses a range for the dollar-offset ratio that is consistent with industry practice and published accounting guidance third parent identifies the hedged transaction as a single transaction or a group of individual transactions provided that if the hedged transaction is a group of individual transactions those individual transactions share the same risk exposure for which they are designated as being hedged thus parent does not aggregate and treat as a single hedged transaction expected purchases with different forecasted probabilities plr-134990-06 fourth parent makes an assessment as required under fa sec_133 to ensure that the hedging relationship is probable with respect to this probability assessment parent’s treasury accounting function evaluates business forecasts and analysis provided by other functions within parent to calculate the probability of purchasing a certain amount of equipment parent’s policy is to hedge only those transactions that have at least the minimal probability of occurring that is required by fa sec_133 parent generally understands a hedged transaction to satisfy this minimum probability requirement when it has at least a to likelihood of occurring and when it is expected to occur no later than a certain number of days which varies by type of exposure after executing a hedge parent re-assesses the probability of its hedged transactions at least quarterly because fa sec_133 requires that an entity discontinue hedge accounting prospectively if the qualifying criteria are no longer met parent has three internal controls to detect instances in which projected purchases may be over-hedged first parent compiles updated equipment purchase forecasts on a quarterly basis and compares them to updated forecasts of hedge amounts second on a quarterly basis parent compares the amount of spending projected in the monthly hedge effectiveness report to the amount of parent’s latest forecast for equipment purchases third parent continuously monitors changes in business circumstances that affect future equipment purchase orders if parent detected an instance in which it were over-hedged with respect to a hedged transaction it would discontinue hedge accounting for the hedge instrument pursuant to fa sec_133 and would also take steps to eliminate the over-hedging which may include unwinding the hedge reducing the size of the hedge or selling the hedge instrument in complying with these procedures and criteria parent uses a variety of sarbanes oxley controls to ensure that its internal functions are reporting quality hedging data for purposes of evaluating equipment purchase probability hedge instrument effectiveness and potential hedging inconsistencies that might result in over-hedging such controls are monitored and tested at least annually parent has requested a ruling under the authority provided in sec_1_988-5 that it be permitted to apply the principles of the integrated hedged_executory_contract rules of sec_1_988-5 to hedges of anticipated capital equipment purchases under master procurement agreements law sec_988 of the code provides that to the extent provided in regulations if any sec_988 transaction is part of a 988_hedging_transaction all transactions which are part of such 988_hedging_transaction shall be integrated and treated as a single transaction or otherwise treated consistently for purpose of this subtitle sec_988 of the code provides that the term 988_hedging_transaction means any transaction- a entered into by the taxpayer primarily- i to manage risk of plr-134990-06 currency fluctuations with respect to property which is held or to be held by the taxpayer or ii to manage risk of currency fluctuations with respect to borrowings made or to be made or obligations incurred or to be incurred by the taxpayer and b identified by the secretary or the taxpayer as being a 988_hedging_transaction sec_1 b provides that if the taxpayer enters into a hedged_executory_contract as defined in paragraph b of this section the executory_contract and the hedge shall be integrated as provided in paragraph b of this section sec_1 b i provides that a hedged_executory_contract is an executory_contract as defined in paragraph b ii of this section that is the subject of a hedge as defined in paragraph b iii of this section provided that the following requirements are satisfied- a the executory_contract and the hedge are identified as a hedged_executory_contract as provided in paragraph b of this section b the hedge is entered into ie settled or closed or in the case of nonfunctional_currency deposited in an account with a bank or other financial_institution such currency is acquired and deposited on or after the date the executory_contract is entered into and before the accrual date as defined in paragraph b iv of this section c the executory_contract is hedged in whole or in part throughout the period beginning with the date the hedge is identified in accordance with paragraph b of this section and ending on or after the accrual date d none of the parties to the hedge are related the term related means the relationships defined in sec_267 and sec_707 e in the case of a qualified_business_unit with a residence as defined in sec_988 outside of the united_states both the executory_contract and the hedge are properly reflected on the books of the same qualified_business_unit f subject_to the limitations of paragraph b i e of this section both the executory_contract and the hedge are entered into by the same individual partnership trust estate or corporation with respect to a corporation the same corporation must enter into both the executory_contract and the hedge whether or not such corporation is a member_of_an_affiliated_group of corporations that files a consolidated_return g with respect to a foreign_person engaged in a u s trade_or_business that enters into an executory_contract or hedge through such trade_or_business all items of income and expense associated with the executory_contract and the hedge would have been effectively connected with such u s trade_or_business throughout the term of the hedged_executory_contract had this paragraph b not applied sec_1 b ii provides that except as provided in paragraph b ii b of this section an executory_contract is an agreement entered into before the accrual date to pay nonfunctional_currency or an amount determined with reference thereto in the future with respect to the purchase of property used in the ordinary course of the taxpayer's business or the acquisition of a service or services in the future or to receive nonfunctional_currency or an amount determined with reference thereto in the future with respect to the sale of property used or held_for_sale in the ordinary course of the taxpayer's business or the performance of a service or services in the future plr-134990-06 sec_1 b iii a provides that the term hedge means a deposit of nonfunctional_currency in a hedging_account as defined paragraph b iii d of this section a forward or futures_contract described in sec_1_988-1 and iii or combination thereof which reduces the risk of exchange rate fluctuations by reference to the taxpayer's functional_currency with respect to nonfunctional_currency payments made or received under an executory_contract sec_1 b iii b provides that a series of hedges as defined in paragraph b iii a of this section shall be considered a hedge if the executory_contract is hedged in whole or in part throughout the period beginning with the date the hedge is identified in accordance with paragraph b i of this section and ending on or after the accrual date a taxpayer that enters into a series of hedges will be deemed to have satisfied the preceding sentence if the hedge that succeeds a hedge that has been terminated is entered into no later than the business_day following such termination sec_1 b provides that a taxpayer must establish a record and before the close of the date the hedge is entered into the taxpayer must enter into the record a clear description of the executory_contract and the hedge and indicate that the transaction is being identified in accordance with paragraph b of this section sec_1 e provides that in his sole discretion the commissioner may issue an advance_ruling addressing the income_tax consequences of a taxpayer's system of hedging either its net nonfunctional_currency exposure or anticipated nonfunctional_currency exposure the ruling may address the character source and timing of both the sec_988 transaction s making up the hedge and the underlying transactions being hedged the procedures for obtaining a ruling shall be governed by such pertinent revenue procedures and revenue rulings as the commissioner may provide the commissioner will not issue a ruling regarding hedges of a taxpayer's investment in a foreign_subsidiary analysis when parent enters into a master procurement agreement it has no binding obligation to place any orders in the future with the supplier that is party to the agreement thus such master procurement agreements are not executory contracts and do not qualify for integrated hedging treatment under sec_1 b absent an advance_ruling to the contrary under sec_1 e parent is required to treat the financial instruments it enters into to hedge its underlying foreign_currency exposure on its procurement agreements as separate sec_988 transactions that are not integrated with the underlying equipment purchase transactions parent conducts its activities directly and through domestic and foreign subsidiaries all of which have the dollar as their functional_currency when parent enters into master parent’s highly sophisticated manufacturing business requires parent to expend plr-134990-06 procurement agreements with equipment suppliers and agrees to a fixed price in a foreign_currency for future equipment orders parent is subjecting itself to the risk of currency fluctuations in that foreign_currency with respect to transactions that have at least the minimal probability of occurring as governed by fa sec_133 for the period between the time it enters into the agreement and the time it places an order under the agreement such transactions are hereafter referred to as probable transactions accordingly when parent enters into such agreement it also acquires forward contracts and or similar financial instruments to hedge a to b of the currency risk arising with respect to such probable transactions we have determined that parent should be allowed to apply the principles of sec_1 b to integrate its hedges of underlying foreign_currency exposure with respect to its probable transactions with the probable equipment purchase transactions under its procurement agreements for the following reasons substantial capital to maintain and upgrade state-of-the-art factories that frequently become obsolete and must be replaced in maintaining and upgrading such facilities and equipment parent must anticipate its capacity needs several years in advance of ordering new equipment place for projecting its needs for manufacturing capacity and for acquiring the capital equipment required to meet those needs parent has internal controls and procedures in place to ensure that it only executes hedges of its underlying foreign_currency exposure on its procurement agreements that meet the requirements for cash_flow hedge accounting treatment under fa sec_133 specifically a parent formally documents the hedging relationship and parent’s risk management objective and strategy for undertaking the hedge b at both inception of the hedge and on an ongoing basis parent makes an assessment as required under fa sec_133 to ensure that the hedging relationship is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge c parent identifies the hedged transaction as a single transaction or a group of individual transactions provided that if the hedged transaction is a group of individual transactions those individual transactions share the same risk exposure for which they are designated as being hedged and d parent’s policy is to hedge only those transactions that have at least the minimal probability of occurring that is required by fa sec_133 and discontinues hedge accounting treatment whenever any of these criteria are no longer fully met parent routinely re-evaluates each hedge’s compliance with these requirements parent has a complex and highly disciplined long-range planning process in plr-134990-06 parent has represented that if due to a revised forecast parent no longer anticipates making a scheduled equipment purchase under a master procurement agreement parent will treat the hedge as sold for its fair_market_value for federal_income_tax purposes on the date that it makes such determination rulings the hedge meets the requirements for cash_flow hedge accounting the anticipated purchase is covered by a procurement agreement that if due to a revised forecast parent no longer anticipates making the hedged the anticipated purchase has been approved by parent pursuant to parent’s based on the information submitted and the representations made we rule as follows a conditions for applying the principles of sec_1_988-5 under the authority provided in sec_1_988-5 we grant parent permission to apply the principles of sec_1_988-5 as described in the paragraph b below to hedges of anticipated capital equipment purchases under master procurement agreements described in the facts above provided that provides for a specified purchase_price denominated in foreign_currency internal long-range planning process treatment under fa sec_133 and anticipated purchase or if the hedge fails to continue to meet the criteria for hedge accounting treatment under fa sec_133 the hedge is treated as having been sold for its fair_market_value for federal_income_tax purposes on the date that such determination is made b principles of sec_1_988-5 taxpayer shall apply the principles of sec_1_988-5 to hedges of anticipated capital equipment purchases under master procurement agreements meeting the requirements of paragraph a above as follows procurement agreement meeting the requirements of the paragraph a shall be treated as if it were an executory_contract for purposes of applying sec_1_988-5 hereafter referred to as deemed executory_contract capital equipment purchase described in paragraph b the purchase order will be treated as a continuation of the deemed executory_contract described in paragraph b when parent places an actual purchase order with respect to an anticipated an anticipated capital equipment purchase made under a master if parent terminates a purchase order described in paragraph b prior to where taxpayer takes delivery on a purchase order described in paragraph plr-134990-06 b and that order is subject_to a hedge meeting the requirements for cash_flow hedge accounting treatment under fa sec_133 any gain_or_loss on the hedge shall not be recognized but shall be an adjustment to the purchase_price of the capital equipment the delivery date the associated fa sec_133 hedge shall be treated as sold for its fair_market_value on that termination_date and any gain_or_loss shall be recognized on such date as sec_988 gain_or_loss date under a purchase order any gain_or_loss realized on such disposition determined by reference to the spot_rate on that date will not be recognized but will instead be treated as an adjustment to the purchase_price of the equipment purchased under the purchase order order described in paragraphs b and fails to meet the requirements for integrated hedging treatment under fa sec_133 the hedge will be treated as having been sold for its fair_market_value and any gain_or_loss on the hedge will be realized and recognized on such date as sec_988 gain_or_loss if parent terminates or disposes of a fa sec_133 hedge prior to the delivery if at any time a hedge associated with a procurement agreement or purchase caveats we express no opinion on any provisions of the code or regulations not specifically covered by the above ruling procedural statements this ruling is directed only to parent code sec_6110 provides that it may not be used or cited as precedent parent should attach a copy of this ruling letter to its federal_income_tax return for the taxable years to which this letter applies sincerely yours ______________________ jeffrey l dorfman branch chief branch office of associate chief_counsel international


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 tege eoeg teb presp-143794-06 date date dear ----------------- this letter is in response to your application_for an allocation of authority to issue dollar_figure------- --------------- in clean renewable energy bonds crebs under sec_54 of the internal_revenue_code the code pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the projects described in appendix a attached hereto are qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------------------------- -------------- the issuer a qualified issuer under sec_54 to issue up to dollar_figure------------- of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the project described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met sec_54 of the code imposes a limitation of dollar_figure on the amount of crebs which may be issued to finance qualified projects the limitation sec_54 provides that the limitation is to be allocated by the secretary of treasury in such manner as the secretary deems appropriate except that no more than dollar_figure of the limitation may be allocated to finance qualified projects of qualified borrowers which are governmental bodies presp-143794-06 section of notice_2005_98 2005_52_irb_1211 provides that the limitation will be allocated among qualified projects for which a share of such limitation has been requested beginning with the project s requesting the smallest share in dollar amount and continuing with the project s requesting the next-smallest share until the total limitation has been exhausted however in the event that dollar_figure has been allocated to qualified projects of qualified borrowers that are governmental bodies the remaining shares of the limitation will be allocated under the methodology described in the previous sentence only to qualified projects of qualified borrowers that are not governmental bodies for purposes of allocating the limitation among projects all qualified projects located at the same site and owned by the same qualified_borrower are treated as a single project and each project is treated as requesting a single allocation an allocation of shares of the limitation cannot be made with respect to the project owned by the borrower listed in appendix b because such borrower is a governmental body and dollar_figure has already been allocated to applications requesting a smaller share of the limitation to finance qualified projects owned by qualified borrowers that are governmental bodies we appreciate your submission of the application_for our consideration and encourage you to continue to pursue your plans for constructing clean renewable energy projects if you have any questions with respect to this allocation please contact --------------------- ------------------------------------------------------------------------------------------------------------------- - -------- or -----------------------------of the office of division counsel associate chief_counsel tax-exempt and government entities on --------------------- not a toll-free call 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 for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in the appendices attached hereto is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 this determination is directed only to the applicant named above sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation presp-143794-06 the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation 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 application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-143794-06 borrower name appendix a project type project location ------------------------------- wind facility -------------- -------------------------------- -------------- amount allocated --------------- presp-143794-06 borrower name appendix b project type project location ------------------------------- -------------- solar_energy_facility --------------------------------- ---------------------------- amount requested ---------------


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-143755-06 date date ------------ ---------------- ------------------------------------------ -------------------------------- ----------------------- legend x y country d1 dear --------------------- behalf of x requesting a ruling that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts subsidiary under the laws of country on d1 x intended to elect to be treated as a disregarded_entity for federal tax purposes effective d1 however x inadvertently failed to timely file the proper election law and analysis according to the information submitted x was formed by y as its wholly owned this letter is in response to the letter dated date submitted on sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election plr-143755-06 to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules under ' c sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under ' c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term aregulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under ' will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a conclusion based solely on the facts submitted and the representations made we conclude that the requirements of ' have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d1 x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form except as specifically provided herein no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer requesting it sec_6110 of pursuant to the power_of_attorney on file with this office a copy of the letter is plr-143755-06 being sent to your authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely william p o’shea associate chief_counsel passthroughs and special industries


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number release date conex-120525-10 uil the honorable mark warner united_states senator west main street abingdon va attention ---------------- dear senator warner i apologize for the delay in responding to your letter dated date on behalf of your constituent ---------------------- ---- asked for an update of our position on the federal_income_tax treatment of amounts paid to repair damage to personal residences resulting from corrosive drywall building materials we recognize that this issue has a significant impact on ------------ and ---- family as well as many others in ---------- we are continuing to evaluate the interim guidance that the consumer product safety commission released as well as other more recently released information from that agency we are also evaluating the multi-district litigation proceeding in the u s district_court eastern district of louisiana as we determine if this damage qualifies as a casualty_loss under sec_165 of the internal_revenue_code we are doing this as quickly as we can under the circumstances we are also consulting with the treasury department’s office of tax policy to determine if we should publish guidance to address and resolve tax questions surrounding this issue conex-120525-10 i appreciate your continued attention to this issue if you have any questions please contact------------------- or me at --------------------- sincerely christopher f kane branch chief branch income_tax and accounting enclosure copy of letter