department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division number release date contact person identification_number telephone number date date employer_identification_number uil legend c d e f m dear this responds to your request for rulings under sec_4941 of the internal_revenue_code and related foundation and similar excise_taxes regulations this letter replaces our letter dated date business and relationship of interested parties the parties interested in this request are m c d g and e the interested parties m is a non-profit corporation exempt from federal_income_tax under sec_501 a as an organization described in sec_501 c and is classified as a private_foundation within the meaning of sec_509 m provides funding to other non-profit organizations described in sec_501 c is a son of one of m's founders c is the wife of d is the widow of 's deceased brother g is the widower of a daughter of one of m's founders e is the wife of g substantial contributors to m include descendants of m's founders their spouses and trusts of which one or more of them were grantors or beneficiaries accordingly c d g and e the living descendants of m's founders and their spouses each a family_member and collectively the family or the family members trusts in which such individuals hold more than percent of the beneficial interests collectively the family trusts corporations in which such individuals own more than percent of the total combined voting power each a family_corporation and collectively the family corporations and partnerships and limited_liability companies in which such individuals own more than percent of the profits interest each a family_partnership and collectively the family partnerships are all disqualified persons within the meaning of sec_4946 with respect tom the family corporations and family partnerships are each sometimes called a family company and are collectively the family companies the family companies family members and family trusts are each sometimes called a family party and are collectively the family parties description of the transactions a proposed estate plans and c have created a_trust which will be funded on the death of the first of and c to die and which will be held for the benefit of the survivor the c trust by its terms the c trust will qualify as a qualified_terminable_interest_property trust or qtip_trust if the required qtip_election is made under sec_2056 the survivor will have a limited testamentary_power_of_appointment over the assets of the c trust at the survivor's death the assets of the c trust over which the survivor has not exercised a power_of_appointment will pass to m d's late spouse created a_trust under his will for d's benefit which qualified for the marital_deduction for estate_tax purposes the d trust d has a general_power_of_appointment over the d trust under d's current estate plan she exercises her general_power_of_appointment over the d trust in favor of her estate after the payment of certain specific bequests and all debts expenses and taxes the residue of d's estate will pass to m has created a_trust the trust which will receive assets on the death of regardless of whether his spouse e survives him if e survives the trust will qualify as a qtip_trust if a qtip_election is made with respect thereto at the death of the survivor of and e substantially_all of the remaining balance of the trust will pass to m hereinafter the c trust and if e survives the trust are referred to collectively as the qtip trusts and individually as a qtip_trust b transactions at death i cash redemptions a redemptions of units in investment funds each of c d and the d trust is an investor in one or both of two general partnerships in which family parties pool their excess cash and invest for the long term each an investment fund each investment fund's assets are all or substantially_all cash cash equivalents and marketable_securities each investor in an investment fund is a partner in the fund and his or her ownership_interest in the investment fund is represented by units the units income of each investment fund is distributed monthly among its partners promptly after the last business_day of the applicable_month i required redemptions on death the partnership_agreement for each investment fund requires the investment fund to redeem all of the units owned by a deceased partner's estate or a qtip_trust if those units or the proceeds of sale thereof would otherwise pass to m following the death of such deceased partner or the death of the primary beneficiary of such qtip_trust in each case at the net asset value per unit as of the date of such decedent's death payment to a deceased partner's estate or a qtip_trust may be made in cash or marketable_securities valued at the date of payment or partly in each as the managing partners of the investment fund determine includes interest from the date of the decedent's death at a rate equal to the greater of the mid-term applicable_federal_rate under sec_1274 the mid-term afr as of the date of such decedent's death or the date of payment and must be made no later than the date the deceased partner's estate is terminated for federal_income_tax purposes or in the case of a_trust no later than the date the trust is considered subject_to sec_4947 ii elective redemptions at all times when redemption of a deceased partner's or qtip trust's units is not required the partnership_agreement for each investment fund allows every partner to elect to have the investment fund redeem any one or more of the partner's units and allows the investment fund to elect to redeem all of every partner's units in either case as of the end of any month at the net asset value per unit payment for the units redeemed may be made in cash or marketable_securities valued at the date of payment or partly in each as the managing partners of the investment fund determine and must be made within seven business days of the end of the applicable_month a partner is not entitled to profits earned on redeemed units after the end of the month with respect to which such redemption occurs b other cash redemptions to provide greater flexibility the governing documents of one or more family corporations may be amended either before or after the death of any of the interested parties to provide that the family_corporation will offer to redeem any interest held by the decedent or by a_trust of which such decedent is a primary beneficiary and to redeem all of the securities of the same class as that held by the decedent or trust in a transaction which is intended to constitute a redemption within the meaning of sec_4941 d f and sec_53 d -3 d the purchase_price payable by any family_corporation to a redeeming shareholder for each share of stock being redeemed will be equal to the fair_market_value of all of the shares of the same class of stock as such share divided by the number of all of the shares of the same class of stock outstanding the redemption price together with interest from the date of the decedent's death to the date of payment at the greater of the mid-term afr at the date of the decedent's death or the mid term afr at the date of payment the redemption price of each share of stock payable pursuant to such redemption will be the same regardless of the percentage of the outstanding shares of such class of stock owned by the redeeming owner ii sale of optioned assets a optioned assets i demand loans each of c d f and the d trust has made loans to a family_partnership which acts as a depository of the lenders' excess cash and invests the borrowed funds in short-term debt instruments and other loans approved by its manager the cash fund each loan to the cash fund is repayable on demand each a demand_loan every lender to the cash fund may require repayment of any or all of the amount_loaned together with accrued interest at any time and the cash fund may elect to repay the amount owed to every or any lender at any time in addition there exists with respect to each demand_loan an agreement granting the cash fund the option to purchase that demand_loan upon the lender's death or in the case of a_trust upon the death of the primary beneficiary thereof ii restricted securities and family assets 6_ c d and f individually or through revocable trusts that become irrevocable at death and the d trust each currently owns some or all of the following assets with respect to each of which there exists an agreement each an option agreement granting one or more family parties the option to purchase that asset stock in a publicly traded corporation in which one or more family members serve on the board_of directors each a restricted security and collectively the restricted securities an equity_interest in a family company which is substantially or entirely owned by family parties each a family interest a non-controlling non-marketable interest in a closely held partnership or limited_liability_company which is substantially owned by individuals or entities which are not family parties each a non-family interest an interest in real_estate each a real_estate interest or an interest in tangible_personal_property each a tangible_personal_property interest each family interest non family interest real_estate interest and tangible_personal_property interest which is subject_to such an agreement is sometimes called a family asset and all such interests are sometimes collectively called the family assets in several cases where a family asset is an interest in a family_partnership the option holder under the applicable option agreement is the family_partnership and the family partnership's option to purchase that interest constitutes a right_of_redemption generally the option holder with respect to each restricted security and each family asset may transfer the option to one or more other family parties subject_to any restrictions on transfer imposed under any agreement that is binding on the option holder the option agreements do not restrict lifetime sales of any restricted security or family asset b exercise of options each option on a demand_loan restricted security or family asset is exercisable beginning on the date of death of the owner thereof or if owned by the d trust the 6_ c trust or the f trust on the date of d's 6_'s c's f's ore's death respectively the period during which each option on a demand_loan may be exercised ends days after the cash fund has been notified by the estate representative of the outstanding balance thereof including principal and accrued unpaid interest and of the interest rate to be used in determining the per_diem interest from the date such notice is given each option on a restricted security which because of restrictions imposed by the federal securities law may be sold only during certain limited time periods each a window period is exercisable within days after the decedent's death and the sale must take place on the first business_day of the first window period that is at least days after the date the option is exercised the period during which each option on a family asset may be exercised ends days after the option holder has been notified of the filing of the federal estate_tax_return for the decedent's_estate when an option is exercised the estate representative is required to sell the demand_loan restricted security or family asset to which the option applies the optioned demand_loan restricted security or family asset in accordance with the terms of the applicable option and the sale must be closed within days after the exercise it is expected that each option on a demand_loan restricted security or family asset will be exercised in a timely manner thus the exercise of these options is part of the proposed transaction c purchase_price the purchase_price for each optioned demand_loan is the outstanding balance principal and accrued unpaid interest as of the date the required notice is given by the estate representative to the cash fund plus per_diem interest accruing from the date such notice is given until the date the sale is closed the purchase_price for each optioned restricted security is the fair_market_value of the restricted security on the day the sale is closed determined as provided in sec_20_2031-2 and without any discount due to the restrictions that limit sales to window periods the purchase_price for each optioned family asset whether it is sold or redeemed is equal to the fair_market_value of the family asset as finally determined for federal estate_tax purposes initially the purchase_price is based on the value of the optioned family asset as reported on the estate_tax_return with a later adjustment upwards or downwards if the value as so reported differs from the value of that family asset as finally determined if the optioned family asset is an interest in a pass-through entity the purchase_price is adjusted to reflect any cash transactions such as capital contributions made by the decedent's_estate distributions made to the decedent's_estate and income_tax payments made by the decedent's_estate with respect to its distributive_share of income accrued after the decedent's death that occur between the date of the decedent's death and the date of closing so that as nearly as possible the parties will be in the same economic position as if the sale had occurred on the date of the decedent's death d payment of purchase_price if an option to purchase a demand_loan restricted security real_estate interest or tangible_personal_property interest is exercised the purchase_price is payable solely in cash upon the exercise of an option to purchase a family interest or a non-family interest the transaction is effective as of the date of the decedent's death and the purchase_price is payable at the election of the purchaser either in cash or in equal annual installments under the purchaser's negotiable promissory note with the first payment due on the date of the closing and the remaining payments due annually for or years respectively a note issued pursuant to a redemption of a family interest or a non-family interest is referred to as a company note any other note issued with respect to a family interest or non-family interest is referred to as a family note e the notes the family notes and the company notes each a note and collectively the notes all bear interest from the date of the closing of the transaction payable annually interest that accrues from the date of the decedent's death through the date of the closing is payable at the closing in the case of a note with a 9-year term the interest rate is equal to the greater of ten percent the long-term applicable_federal_rate under sec_1274 the long-term afr at the decedent's death or the long-term afr on the date the note is delivered to the seller in the case of a note with a 29-year term the interest rate is equal to the following a for the first five years after the date of the decedent's death at the greater of the long-term afr at the date of the decedent's death or the long-term afr on the date the note is delivered to the seller b for the next five years ie years through at the greater of the rate under clause a or eight percent c for the next ten years ie year sec_11 through at the greater of the rate under clause a or ten percent and d for the next nine years ie year sec_21 through at the greater of the rate under clause a or twelve percent the increasing interest rate is intended to encourage prepayment of the note by the obligor if the fair_market_value of any optioned family asset as reported on the decedent's federal estate_tax_return differs from the fair_market_value thereof as finally determined for federal estate_tax purposes then the purchase_price for that optioned family asset and the remaining annual payments due under any note with respect to the purchase are adjusted accordingly in addition in the case of an increase in the purchase_price the purchaser will make an immediate cash payment to the seller equal to the excess of the cash that the purchaser would have paid through the date of payment if the initial purchase_price would have been equal to the increased purchase_price over the cash the purchaser has actually paid each note may be prepaid in whole or in part at any time without any premium or penalty the obligor under each family note is required to pay to the holder of that note as a mandatory prepayment of the principal due on that note a fifty percent of any ordinary cash distribution received with respect to the family interest or non-family interest purchased b one hundred percent of any extraordinary cash distribution received with respect to that interest and c one hundred percent of the cash received from any sale_or_exchange of that interest each family note is secured_by a pledge of the family interest or non-family interest that is being purchased and contains customary commercial terms to protect the note holder if the note goes into default each company note is an unsecured obligation of the purchasing company representations for purposes of this ruling_request the interested parties represent that a under the current estate plans of c d and m will have an interest or expectancy as that term is used in sec_53_4941_d_-1 in property held by his or her estate b no charitable deduction was claimed by or allowed to the estate of the late spouse of d with respect to property that passed to the d trust under d's current estate plan m will have an interest or expectancy in the d trust beginning on the date of her death on account of her exercise of her general_power_of_appointment over the assets thereof in favor of her estate c under the current estate plans of and c i m will have an interest or expectancy in the c trust during the lifetime of the survivor and at the survivor's death and ii no deduction will be allowable under sec_170 sec_545 sec_642 sec_2055 sec_2106 or sec_2522 with respect to any assets passing to the c trust on account of the death of the first to die d under 's current estate plan i m will have an interest or expectancy in the trust during e's lifetime and at her death if e survives and ii no deduction will be allowable under sec_170 sec_545 sec_642 sec_2055 sec_2106 or sec_2522 with respect to any assets passing to the trust on account of 's death if e survives e in any redemption of units in an investment fund payment will be made to the redeeming estate_or_trust during the calendar_year with respect to which the redemption occurs and there will be no extension of credit between the investment fund and such redeeming estate_or_trust on january of the year after which the redemption occurs f where the parties are relying on sec_53 d -1 b in order for a transaction between a family party on the one hand and the estate of c d or g following his or her death the d trust following d's death the c trust following the death of the survivor of and c or the trust following the death of the survivor of g and e on the other not to constitute indirect self dealing with respect to m's interest or expectancy in property held by such estate or trust- i the executor of the estate or the trustee of such trust will either a possess a power of sale with respect to the property b have the power to reallocate the property to another beneficiary or c be required to sell the property under the terms of any option subject_to which the property was acquired by such estate_or_trust ii such transaction will be submitted to the probate_court having jurisdiction over such estate_or_trust or to another court having jurisdiction over such estate_or_trust or over m for court approval iii such transaction will occur before such estate is considered terminated for federal_income_tax purposes pursuant to paragraph a of sec_1_641_b_-3 or in the case of a_trust before it is considered subject_to sec_4947 iv such estate_or_trust will receive an amount which equals or exceeds the fair_market_value of m's interest or expectancy in the property at the time of the transaction taking into account the terms of any option subject_to which the property was acquired by such estate_or_trust and v the transaction will either a result in m receiving an interest or expectancy at least as liquid as the one it gave up or b be required under the terms of any option which is binding on such estate_or_trust rulings requested m on its own behalf and on behalf of the other interested parties requests the following rulings the redemption by any family_corporation of the interest in such family_corporation held by the decedent's_estate or the d trust the c trust or the g trust for the redemption price will constitute a redemption within the meaning of sec_4941 d f and sec_53 d -3 d and will not be an act of self-dealing under sec_4941 so long as such family_corporation offers to redeem all interests held by others that are of the same class as that held prior to the redemption by such estate_or_trust on the same terms such estate_or_trust receives no less than fair_market_value for the interest redeemed and there is no extension of credit between such family_corporation and such estate_or_trust on january of the year after the year in which the redemption occurred the estate administration exception to indirect self-dealing set forth in sec_53 d - b will be available a following the death of each of c d and e to such decedent's_estate b following the death of d to the d trust c following the death of the survivor of and c to the c trust and d following the death of the survivor of g and e to the g trust where the executor of a decedent's_estate or the trustee of the d trust the c trust or the g trust is required to sell units in an investment fund or any demand_loan restricted securities family asset or other_property held by such decedent's_estate or trust pursuant to an option or redemption agreement subject_to which such property was acquired by the estate_or_trust which is binding thereon the redemption of the property or sale of the property to the option holder will not constitute an act of indirect self dealing under sec_4941 if the transaction is approved by the probate_court having jurisdiction over the estate or by another court having jurisdiction over the estate such trust or m the transaction occurs before such decedent's_estate is considered terminated for federal_income_tax purposes pursuant to paragraph a of sec_1_641 b -3 or in the case of a_trust before it is considered subject_to sec_4947 and the transaction results in the decedent's_estate or such trust receiving cash or a note or both with an aggregate value equal to or exceeding the fair_market_value of m's interest or expectancy in such property at the time of the transaction taking into account the terms of the option subject_to which the property was acquired by the estate_or_trust the distribution from a decedent's_estate to m of any note which was received by such estate during the administration thereof in a transaction meeting all of the requirements of sec_53 d -1 b and m's receipt of the same its holding of any such note and its receipt of any payments under such note will not constitute an act of direct or indirect self-dealing under sec_4941 none of the following will constitute an act of direct or indirect self-dealing under sec_4941 a the distribution from a decedent's_estate to a qtip_trust and the receipt by such trust of a note which was received by such estate during the administration thereof in a transaction meeting all the requirements of sec_53_4941_d_-1 b such trust's holding of such note during the lifetime of the surviving_spouse or the receipt by such trust of any payments under such note or b the distribution from such trust tom of any note which was received by such trust during the administration of an estate in a transaction meeting all of the requirements of sec_53 d -1 b and m's receipt of the same its holding of any such note or its receipt of any payments under any such note sec_501 a of the internal_revenue_code exempts from federal income_taxation organizations described in sec_501 c sec_501 c describes organizations organized and operated exclusively for charitable and other specified exempt purposes sec_509 provides that unless specifically excepted any organization described in sec_501 c is a private_foundation sec_4941 a imposes an excise_tax on each act of self-dealing between a disqualified_person and a private_foundation the initial tax is equal to ten percent of the amount_involved in the act of self-dealing for each year or part thereof in the taxable_period sec_4941 b imposes an additional tax equal to percent of the amount_involved in the act of self-dealing if the act is not corrected within the taxable_period sec_4941 d a provides that the term self-dealing means any direct or indirect sale_or_exchange or leasing of property between a private_foundation and a disqualified_person sec_4941 d b provides that the term self-dealing means any direct or indirect lending of money or other extension of credit between a private_foundation and a disqualified_person sec_4941 provides that for purposes of paragraph any transaction between a private_foundation and a corporation which is a disqualified_person as defined in sec_4946 pursuant to any liquidation merger redemption recapitalization or other corporate adjustment organization or reorganization shall not be an act of self-dealing if all of the securities of the same class as that held by the foundation are subject_to the same terms and such terms provide for receipt by the foundation of no less than fair_market_value sec_4946 provides that the term disqualified_person means with respect to a private_foundation a person who is- a a substantial_contributor to the foundation b a foundation_manager within the meaning of subsection b c an owner of more than percent of- i ii iii the total combined voting power of a corporation the profits interest of a partnership or the beneficial_interest of a_trust or unincorporated enterprise which is a substantial_contributor to the foundation d a member_of_the_family as defined in subsection d of any individual described in subparagraph a b or c e a corporation of which persons described in subparagraph a b c or d own more than percent of the total combined voting power f a partnership in which persons described in subparagraph a b c or d own more than percent of the profits interest and g a_trust or estate in which persons described in subparagraph a b c or d hold more than percent of the beneficial_interest sec_4946 provides that the term substantial_contributor means a person who is described in sec_507 ie a person who contributed or bequeathed an aggregate amount of more than dollar_figure to the private_foundation if such amount is more than percent of the total contributions and bequests received by the foundation before the close of the taxable_year of the foundation in which the contribution or bequest is received by the foundation from such person sec_4946 provides that the term foundation_manager means with respect to any private_foundation an officer director or trustee of a foundation or an individual having powers or responsibilities similar to those of officers directors or trustees of the foundation sec_4946 provides that for purposes of subsection a the family of any individual shall include only his spouse ancestors children grandchildren great grandchildren and the spouses of children grandchildren and great grandchildren sec_4947 provides that for purposes of chapter a_trust which is not exempt from tax under sec_501 a all of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 c b and for which a deduction was allowed under sec_170 sec_545 sec_642 sec_2055 sec_21 a or shall be treated as an organization described in sec_501 c sec_4947 provides in part that in the case of a_trust which is not exempt from tax under sec_501 a not all of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 c b and which has amounts in trust for which a deduction was allowed under sec_170 sec_545 sec_642 sec_2055 sec_21 a or certain provisions of the code including sec_4941 shall apply as if such trust were a private_foundation this paragraph shall not apply with respect to- a any amounts payable under the terms of such trust to income beneficiaries unless a deduction was allowed under sec_170 sec_2055 or sec_2522 b any amounts in trust other than amounts for which a deduction was allowed under sec_170 sec_545 sec_642 sec_2055 sec_2106 or sec_2522 if such other_amounts are segregated from amounts for which no deduction was allowable or c any amounts transferred in trust before date sec_53_4941_d_-1 provides that for purposes of sec_4941 the term self-dealing means any direct or indirect transaction described in sec_53 d -2 sec_53_4941_d_-1 provides that the term indirect self-dealing shall not include a transaction with respect to a private foundation's interest or expectancy in property whether or not encumbered held by an estate or revocable_trust including a_trust which has become irrevocable on a grantor's death regardless of when title to the property vests under local law if- i the administrator or executor of an estate or trustee of a revocable_trust either- a possesses a power of sale with respect to the property b has the power to reallocate the property to another beneficiary or c is required to sell the property under the terms of any option subject_to which the property was acquired by the estate or revocable_trust ii iii iv such transaction is approved by the probate_court having jurisdiction over the estate or by another court having jurisdiction over the estate_or_trust or over the private_foundation such transaction occurs before the estate is considered terminated for federal_income_tax purposes pursuant to paragraph a of sec_1_641 b -3 or in the case of a revocable_trust before it is considered subject_to sec_4947 the estate_or_trust receives an amount which equals or exceeds the fair_market_value of the foundation's interest or expectancy in such property at the time of the transaction taking into account the terms of any option subject_to which the property was acquired by the estate_or_trust and v with respect to transactions occurring after april16 the transaction either- a results in the foundation receiving an interest or expectancy at least as liquid as the one it gave up b results in the foundation receiving an asset related to the active carrying out of c its exempt purposes or is required under the terms of any option which is binding on the estate_or_trust sec_53_4941_d_-1 provides that the term indirect self-dealing does not include a transaction involving one or more disqualified persons to which a private_foundation is not a party in any case in which the private_foundation by reason of sec_4941 d could itself engage in such a transaction sec_53 d -1 b provides examples to illustrate the provisions of this paragraph b in example a a substantial_contributor to p a private_foundation bequeathed one-half of his estate to his spouse and one-half of his estate to p included in a's estate is one-third interest in ab a partnership the other two-thirds interest in ab is owned by b a disqualified_person with respect top the one-third interest in ab was subject_to an option agreement when it was acquired by the estate the executor of a's estate sells the one-third interest in ab to b pursuant to such option agreement at the price fixed in such option agreement in a sale which meets the requirements of sec_53 d -1 b under these circumstances the sale does not constitute an indirect act of self-dealing between band p sec_53 d -2 c provides that except in the case of the receipt and holding of a note pursuant to a transaction described in sec_53 d -1 b an act of self-dealing occurs where a note the obligor of which is a disqualified_person is transferred by a third party to a private_foundation which becomes the creditor under the note sec_53 d -3 d provides that for purposes of sec_4941 d f any transaction between a private_foundation and a corporation which is a disqualified_person will not be an act of self-dealing if such transaction is engaged in pursuant to a liquidation merger redemption recapitalization or other corporate adjustment organization or reorganization so long as all the securities of the same class as that held prior to such transaction by the foundation are subject_to the same terms and such terms provide for receipt by the foundation of no less than fair_market_value for purposes of this paragraph all of the securities are not subject_to the same terms unless pursuant to such transaction the corporation makes a bona_fide offer on a uniform basis to the foundation and every other person who holds such securities sec_53 d -3 d provides examples to illustrate the provisions of the previous paragraph in example private_foundation y which is on a calendar_year basis acquires percent of the class a preferred_stock of corporation n by will on date n which is also on a calendar_year basis is a disqualified_person with respect to y in n offers to redeem all of the class a preferred_stock for a consideration equal to percent of the face_amount of such stock by the issuance of debentures the offer expires date both y and all other holders of the class a preferred_stock accept the offer and enter into the transaction on date at which time it is determined that the fair_market_value of the debentures is no less than the fair_market_value of the preferred_stock the transaction on date shall not be treated as an act of self-dealing for however because under sec_53 e -1 e i an act of self-dealing occurs on the first day of each taxable_year or portion of a taxable_year that an extension of credit from a foundation to a disqualified_person goes uncorrected if such debentures are held by y after date except as provided in sec_53_4941_d_-4 such extension of credit shall not be excepted from the definition of an act of self-dealing by reason of the date transaction sec_53 e -1 e i provides that if a transaction between a private_foundation and a disqualified_person is determined to be self-dealing as defined in sec_4941 d for purposes of sec_4941 there is generally one act of self-dealing if however such transaction relates to the leasing of property the lending of money or other extension of credit other use of money or property or payment of compensation the transaction will generally be treated for purposes of sec_4941 but not sec_507 or sec_6684 as giving rise to an act of self-dealing on the day the transaction occurs plus an act of self-dealing of the first day of each taxable_year or portion of a taxable_year which is within the taxable_period and which begins after the taxable_year in which the transaction occurs sec_53 e -1 f provides that for purposes of sec_53 a -1 through f - fair_market_value shall be determined pursuant to the provisions of sec_53_4942_a_-2 sec_53_4947-1 provides that the basic purpose of sec_4947 is to prevent trusts which are not exempt from tax under sec_501 a all or part of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 and which have amounts in trust for which a deduction was allowed under sec_170 sec_545 sec_556 c a or from being used to avoid the requirements and restrictions applicable to private_foundations for purposes of this section a_trust shall be presumed in the absence of proof to the contrary to have amounts in trust for which a deduction was allowed under sec_170 sec_545 b c a or if a deduction would have been allowable under one of these sections sec_53_4947-1 provides that for purposes of this section and sec_53_4947-2 a charitable_trust within the meaning of sec_4947 is a_trust which is not exempt from taxation under sec_501 a all of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 and for which a deduction was allowed under sec_170 sec_545 b c a or a charitable_trust as defined in this paragraph shall be treated as an organization described in sec_501 c and if it is determined under sec_509 that the trust is a private_foundation then chapter including sec_4941 shall apply to the trust sec_53_4947-1 provides that when an estate from which the executor or administrator is required to distribute all of the net assets in trust for charitable beneficiaries or free of trust to such beneficiaries is considered terminated for federal_income_tax purposes under sec_1_641 b -3 a then the estate will be treated as a charitable_trust under sec_4947 between the date on which the estate is considered terminated under sec_1_641 b -3 a and the date final distribution of all of the net assets is made to or for the benefit of the charitable beneficiaries sec_53_4947-1 b iv provides in part that for purposes of this paragraph the term reasonable period of settlement means that period reasonably required or if shorter actually required by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust these duties include for example the collection of assets the payment of debts taxes and distributions and the determination of the rights of the subsequent beneficiaries sec_53_4947-1 b v provides that a revocable_trust that becomes irrevocable upon the death of the decedent-grantor or a_trust created by will from which the trustee is required to distribute all of the net assets in trust for or free of trust to charitable beneficiaries is not considered a charitable_trust under sec_4947 for a reasonable period of settlement within the meaning of paragraph b iv of this section after becoming irrevocable after that period the trust is considered a charitable_trust under sec_4947 sec_53_4947-1 provides that a revocable_trust that becomes irrevocable upon the death of the decedent-grantor in which all of the unexpired interests are charitable and under the terms of the governing instrument of which the trustee is required to hold some or all of the net assets in trust after becoming irrevocable solely for charitable beneficiaries is not considered a_trust under sec_4947 for a reasonable period of settlement within the meaning of paragraph b iv of this section after becoming irrevocable except that sec_4941 may apply if the requirements of sec_53 d -1 b are not met after that period the trust is considered a charitable_trust under sec_4947 sec_53_4947-1 c i provides that for purposes of this section and sec_53_4947-2 a split-interest trust within the meaning of sec_4947 is a_trust which is not exempt from taxation under sec_501 a not all of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 and which has amounts in trust for which a deduction was allowed under sec_170 sec_545 sec_556 sec_642 sec_2055 sec_21 a or sec_53_4947-1 provides that a split-interest trust is with certain exceptions subject_to the provisions of sec_4941 in the same manner as if such trust were a private_foundation sec_53_4947-1 provides that when an estate from which the executor or administrator is required to distribute all of the net assets in trust or free of trust to both charitable and non-charitable beneficiaries is considered terminated for federal_income_tax purposes under sec_1_641 b -3 a then the estate will be treated as a split-interest trust under sec_4947 or a charitable_trust under sec_4947 if applicable between the date on which the estate is considered terminated under sec_1_641 b -3 a and the date on which final distribution of the net assets to the last remaining charitable_beneficiary is made sec_53_4947-1 provides that a revocable_trust that becomes irrevocable upon the death of the decedent-grantor under the terms of the governing instrument of which the trustee is required to hold some or all of the net assets in trust after becoming irrevocable for both charitable and non-charitable beneficiaries is not considered a split-interest trust under sec_4947 for a reasonable period of settlement after becoming irrevocable except that sec_4941 may apply if the requirements of sec_53 d -1 b are not met after that period the trust is considered a split-interest trust under sec_4947 for the purposes of this iii the term reasonable period of settlement means that period reasonably required or if shorter actually required by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust these duties include for example the collection of assets the payment of debts taxes and distributions and the determination of rights of the subsequent beneficiaries analysis m is a private_foundation within the meaning of sec_509 by reason of the nature of its support each of the family parties is a disqualified_person within the meaning of sec_4946 with respect tom sec_4941 a imposes an excise_tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 d a and b provide that self-dealing includes a direct or indirect sale_or_exchange or leasing of property or lending of money or other extension of credit between a private_foundation and a disqualified_person while neither the code nor the regulations defines the term indirect self-dealing sec_53 d -1 b describes certain transactions that are specifically excluded from indirect self-dealing ruling sec_4941 and sec_53_4941_d_-3 provide that a stock_redemption between a private_foundation and a corporation is not an act of self-dealing so long as the corporation makes a bona_fide offer on a uniform basis to redeem the stock held by the foundation and the stock of the same class held by every other stockholder and the foundation receives no less than the fair_market_value of its stock under the provisions of sec_53 d -1 b a disqualified_person may do whatever a private_foundation could do by reason of sec_4941 d f without being in violation of indirect self dealing under sec_4941 the redemption by any family_corporation of the interest in that corporation held by a decedent's_estate the q trust the c trust or the trust will not constitute an act of indirect self-dealing and need not comply with sec_53_4941_d_-1 so long as the corporation offers to redeem all interests held by every other person that are of the same class as that held prior to the redemption by the estate_or_trust on the same terms the estate_or_trust receives the redemption price for its interest and there is no extension of credit with respect to the redeemed interest between the estate or such trust and such family_corporation on january of the year following the year in which the redemption occurred ruling sec_53 d -1 b describes certain transactions that will not be treated as indirect self-dealing among which are certain transactions during the administration of an estate_or_trust specifically sec_53 d -1 b commonly referred to as the estate administration exception provides that indirect self-dealing does not include a transaction with respect to a private foundation's interest or expectancy in property held by an estate or a revocable_trust that has become irrevocable at the grantor's death if the following five conditions are satisfied i the administrator or executor of the estate or the trustee of the trust either possesses a power of sale with respect to the property has the power to allocate the property to another beneficiary or is required to sell the property under the terms of any option subject_to which the property was acquired by the estate_or_trust ii the transaction is approved by the probate_court having jurisdiction over the estate or by another court having jurisdiction over the estate_or_trust or over the private_foundation iii the transaction occurs before the estate is considered terminated for federal_income_tax purposes or before the trust is considered subject_to sec_4947 iv the estate_or_trust receives an amount which equals or exceeds the fair_market_value of the foundation's interest or expectancy in such property at the time of the transaction taking into account the terms of any option subject_to which the property was acquired by the estate_or_trust and v the transaction results in the foundation either receiving an interest or expectancy at least as liquid as the one it gave up or an asset related to the active carrying out of its exempt purposes or is required under the terms of any option which is binding on the estate_or_trust this estate administration exception applies to transactions with respect to a private foundation's interest or expectancy in property held by an estate or a revocable_trust that has become irrevocable at the grantor's death the reference in sec_53_4941_d_-1 to a revocable_trust including a_trust which has become irrevocable on a grantor's death is intended to include certain other trusts where the assets of the trust are included in the decedent's gross_estate on d's death the d trust will be included in d's gross_estate the c trust will be included in the gross_estate of the survivor of and c likewise the trust will be included in the gross_estate of the survivor of and e the regulations do not address the issue of when a private_foundation has an interest or expectancy in property held by an estate or a_trust therefore solely for purposes of this ruling_request and based on the understanding that the determination of when m will have an interest or expectancy in property held by the estate of any interested_party or by the d trust the c trust or the trust is to be made under the law of the state of m's incorporation each of c d and has represented that under his or her current estate plan m will have an interest or expectancy in property held by his or her estate d has represented that m will have an interest or expectancy in property held in the q trust after her death and c have represented that m will have an interest or expectancy in the c trust during the lifetime of the survivor of and c and after his or her death and has represented that m will have an interest or expectancy in the trust beginning with 's death in order for a transaction between the d trust the c trust or the trust and a disqualified_person with respect to m to meet the estate administration exception under sec_53 d - b the transaction must occur before the trust is considered subject_to sec_4947 section apples to only two types of trusts charitable trusts described in sec_53 b i and split-interest_trusts described in sec_53_4947-1 a charitable_trust is a_trust for which among other requirements a deduction was allowed under sec_170 sec_545 sec_556 sec_642 sec_2055 sec_21 a or a split-interest trust is a_trust which among other requirements has amounts in trust for which a deduction was allowed under sec_170 sec_545 sec_556 sec_642 sec_2055 sec_2106 or sec_2522 the element common to both charitable trusts and split-interest_trusts is that it has amounts in trust for which a charitable deduction has been allowed whether it be for income gift or estate_tax purposes sec_4947 does not apply to a_trust for which no charitable deduction has been allowed d has represented that no charitable deduction was claimed by or allowed to her late husband's estate with respect to property that passed to the d trust therefore the d trust is not subject_to sec_4947 during d's lifetime likewise each of c and has represented that if he or she is survived by his or her spouse no charitable deduction will be claimed by or allowable to his or her estate with respect to any property that passes to his or her spouse's qtip_trust therefore the c trust will not be subject_to sec_4947 during the lifetime of the survivor of and c and the trust will not be subject_to sec_4947 during e's lifetime on the death of the survivor of and c unless he or she designates otherwise the c trust will be distributable solely to charitable beneficiaries under sec_53_4947-1 b v the c trust will not be considered a charitable_trust under sec_4947 for a reasonable period of settlement after the survivor's death likewise the trust will not be considered a charitable_trust under sec_4947 for a reasonable period after the death of the survivor of and e thus based on the above representations the estate administration exception to indirect self dealing under sec_53 d -1 b will be available with respect to any property held in the estate of each of c q and the d trust following d's death the c trust following the death of the survivor of and c and the trust following the death of the survivor of and e ruling where the sale of property from a decedent's_estate or a_trust to a disqualified_person meets all of the requirements of sec_53 d -1 b sec_53 d -2 c specifically excepts the receipt and holding of the purchaser's note by a private_foundation from the definition of self-dealing the interested parties have represented that in the case of any transaction between a family party on the one hand and an estate the d trust following d's death the c trust following the death of the survivor of and c or the trust following the death of the survivor of and e on the other which would otherwise constitute indirect self-dealing all of the requirements of sec_53 b will be met with respect to each transaction meeting the requirements of sec_53 d -1 b where the executor or trustee is required to sell a demand_loan units in an investment fund any restricted securities or any family asset or other_property pursuant to an option or redemption agreement subject_to which such property was acquired by the estate_or_trust and which is binding on the estate_or_trust the interested parties have represented that the estate_or_trust will receive in exchange cash or the purchaser's note or both in an amount which equals or exceeds the fair_market_value of m's interest or expectancy in such property at the time of the transaction taking into account the terms of the option subject_to which such property was acquired by the estate_or_trust based on these representations the proposed transactions including the sale or redemption of any property held in an estate the d trust the c trust or the trust to the option holder for cash or the purchaser's note or both each of which is required under an option or redemption agreement which is binding on such estate_or_trust will meet all of the five conditions specified in sec_53 d -1 b and therefore none of said transactions will be treated as an act of indirect self-dealing between m and a disqualified_person rulings and sec_53 d -2 c provides that except in the case of the receipt and holding of a note pursuant to a transaction described in sec_53 d -1 b an act of self-dealing occurs where a note the obligor of which is a disqualified_person is transferred by a third party to a private_foundation which becomes the creditor under the note the interested parties have represented that each transaction by the executor of a decedent's_estate or by the trustee of the d trust the c trust or the trust with respect to m's interest or expectancy in property held by such estate_or_trust whereby the estate or such trust receives in exchange a note the obligor of which is a disqualified_person with respect to m will meet all of the requirements of sec_53 d -1 b based on these representations the distribution by an estate the d trust the c trust or the trust to m of any family note or company note m's receipt of the same and the holding of and receipt by m of payments under any such note will not constitute an act of direct or indirect self-dealing under sec_4941 similarly the distribution by the estate of the first to die of and cor by s estate to and the receipt by the c trust or the trust respectively of any family note or company note the holding of and the receipt of payments under any such note by such qtip_trust and the distribution by such qtip_trust to m of any such note m's receipt of the same and its receipt and holding of payments under such note will not constitute an act of direct or indirect self dealing under sec_4941 where the transaction has been approved by a local state court and is otherwise excepted from self-dealing under sec_53 d -1 b conclusion in light of the above we rule as follows the redemption by any family_corporation of the interest in such family_corporation held by the decedent's_estate or by the d trust the c trust or the trust for the redemption price will constitute a redemption within the meaning of sec_4941 d f and sec_53 d -3 d and will not be an act of self-dealing under sec_4941 so long as such family_corporation offers to redeem all interests held by others that are of the same class as that held prior to the redemption by such estate_or_trust on the same terms such estate_or_trust receives no less than fair_market_value for the interest redeemed and there is no extension of credit between such family_corporation and such estate_or_trust on january of the year after the year in which the redemption occurred the estate administration exception to indirect self-dealing set forth in sec_53 d - b will be available a following the death of each of c d and e to such decedent's_estate b following the death of d to the d trust c following the death of the survivor of and c to the c trust and d following the death of the survivor of and e to the trust where the executor of a decedent's_estate or the trustee of the d trust the c trust or the trust is required to sell units in an investment fund or any demand_loan restricted securities family asset or other_property held by such decedent's_estate or trust pursuant to an option or redemption agreement subject_to which such property was acquired by the estate_or_trust which is binding thereon the redemption of the property or sale of the property to the option holder will not constitute an act of indirect self dealing under sec_4941 if the transaction is approved by the probate_court having jurisdiction over the estate or by another court having jurisdiction over the estate such trust or m the transaction occurs before such decedent's_estate is considered terminated for federal_income_tax purposes pursuant to paragraph a of sec_1_641 b -3 or in the case of a_trust before it is considered subject_to sec_4947 and the transaction results in the decedent's_estate or such trust receiving cash or a note or both with an aggregate value equal to or exceeding the fair_market_value of m's interest or expectancy in such property at the time of the transaction taking into account the terms of the option subject_to which the property was acquired by the estate_or_trust the distribution from a decedent's_estate tom of any note which was received by such estate during the administration thereof in a transaction meeting all of the requirements of sec_53 d -1 b and m's receipt of the same its holding of any such note and its receipt of any payments under such note will not constitute an act of direct or indirect self-dealing under sec_4941 none of the following will constitute an act of direct or indirect self-dealing under sec_4941 a the distribution from a decedent's_estate to a qtip_trust and the receipt by such trust of a note which was received by such estate during the administration thereof in a transaction meeting all the requirements of sec_53_4941_d_-1 such trust's holding of such note during the lifetime of the surviving_spouse or the receipt by such trust of any payments under such note or b the distribution from such qtip_trust tom of any note which was received by such trust either from a decedent's_estate during the administration thereof or during the administration of the qtip_trust after the surviving spouse's death in a transaction meeting all of the requirements of sec_53 d -1 b and m's receipt of the same its holding of any such note or its receipt of any payments under any such note this private_letter_ruling request was submitted prior to the issuance of revproc_2011_4 section in which a no-rule position was announced with regard to self-dealing issues involving the issuance of a promissory note by a disqualified_person during the administration of an estate_or_trust this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the person who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely michael seto manager eo technical enclosure notice


internal_revenue_service number release date index number ------------------------------------------ ------------------------------------------- -------------------------------------------- ------------------------------ legend x 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-142273-06 date date ------------------------------------------ ----------------------- ---------- ------------------ d state dear ------------------ this responds to the letter dated date and related correspondence submitted on behalf of x requesting relief under ' b of the internal_revenue_code facts x was incorporated on d under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation s taxable_year then the corporation will be treated as an s_corporation for the year in which the election plr-142273-06 is made if the election is made after the first two and one-half months of a corporation s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to ' a or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under ' a effective d x has however established reasonable_cause for not making a timely election and is entitled to relief under ' b conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely enclosures copy of this letter copy for ' purposes dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries


t c summary opinion united_states tax_court kathryn d ehrmann petitioner v commissioner of internal revenue respondent docket no 1919-13s filed date kathryn d ehrmann pro_se christina l cook and john schmittdiel for respondent summary opinion marvel judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure 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 petitioner seeks review of respondent’s determination denying her relief from joint_and_several_liability for federal_income_tax for pursuant to sec_6015 background some of the facts have been stipulated and are so found the stipulated facts and the facts drawn from stipulated exhibits are incorporated herein by this reference petitioner resided in minnesota when she filed her petition petitioner is a senior managing director at cb richard ellis in its global corporate services division she has a bachelor’s degree and a master’s degree in business administration in petitioner purchased a residence in wayzata minnesota wayzata residence i marriage to peter f pacioni in petitioner married peter f pacioni mr pacioni worked in the sales and construction industry as a manufacturer’s representative and owned a business called pacioni sales during their marriage petitioner and mr pacioni moved several times on account of petitioner’s career in or petitioner purchased a residence in the city of hilton head island south carolina hilton head residence after cb richard ellis transferred her to charlotte north carolina as the senior strategist of its bank of america strategy team petitioner acquired the hilton head residence using nonmarital funds and mr pacioni’s name is not associated with any encumbrances against the property petitioner and mr pacioni lived at the hilton head residence from date through date petitioner did not sell the hilton head residence after she moved in date because she had substantial negative equity in the property and did not wish to sell it at a loss in or around date cb richard ellis transferred petitioner to chicago illinois as the alliance director of its bp north america team petitioner and mr pacioni rented a townhouse in oakbrook illinois chicago townhouse in which they resided from date through date sometime between april and date petitioner and mr pacioni moved back to minnesota in addition to these residences petitioner and mr pacioni also maintained an apartment near chicago between date and date which mr pacioni used for his business throughout their marriage petitioner was the primary income producer before date petitioner and mr pacioni kept separate bank accounts mr pacioni maintained a bank account with u s bank petitioner did not have access to mr pacioni’s u s bank account and was generally unaware of his income and expenditures during this period in date the internal_revenue_service irs levied on mr pacioni’s u s bank account after the levy and pursuant to mr pacioni’s request petitioner opened a wells fargo bank account in her name for his use petitioner had full access to the wells fargo account ii petitioner’s involvement with mr pacioni’s business throughout the marriage petitioner was actively involved with pacioni sales and helped mr pacioni secure clients in petitioner traveled to italy with mr pacioni for an introductory meeting at the headquarters of brai a prospective client where she gave a presentation petitioner was responsible for preparing a national sales agreement between pacioni sales and brai and for drafting national distributor contracts pursuant to the sales agreement in and petitioner created advertisements for brai and helped create a pacioni sales brai web site in petitioner also attended national trade shows as a pacioni sales representative mr pacioni gave petitioner access to his business email and allowed her to prepare invoices for certain clients petitioner knew that mr pacioni was not making estimated_tax payments with respect to his income from pacioni sales iii federal_income_tax matters before their marriage petitioner learned that mr pacioni had outstanding federal tax_liabilities for and some earlier years totaling approximately dollar_figure petitioner paid these liabilities using her personal funds petitioner and mr pacioni filed joint federal_income_tax returns for and for all three years mr pacioni failed to make estimated_tax payments mr pacioni also failed to pay his share of the joint income_tax_liability resulting in a levy on petitioner’s wages petitioner paid the outstanding tax_liability in late petitioner learned that mr pacioni had failed to file tax returns for and in early mr pacioni worked with petitioner’s tax_return_preparer ryan carruth to file his and returns and to enter into an installment_agreement with the irs in date the irs issued to petitioner and mr pacioni a notice cp- proposing an increase in income_tax of dollar_figure for and penalties and interest of dollar_figure totaling dollar_figure mr pacioni hid this notice from petitioner for mr carruth prepared an analysis comparing petitioner’s and mr pacioni’s income_tax liabilities calculated using joint filing_status and married_filing_separately filing_status in petitioner earned wages of dollar_figure and mr pacioni had net business income of dollar_figure according to mr carruth’s analysis if petitioner had filed a married_filing_separately return her total federal_income_tax liability would have been dollar_figure after accounting for her withholdings and prior tax_payments petitioner would have received a refund of dollar_figure mr pacioni’s federal_income_tax liability calculated using a filing_status of married_filing_separately would have been dollar_figure resulting in an unpaid income_tax_liability of dollar_figure by filing jointly petitioner and mr pacioni could reduce their total federal_income_tax liability by dollar_figure at mr pacioni’s request petitioner and mr pacioni filed a joint federal_income_tax return for at that time petitioner was not aware of the proposed additional income_tax_liability for but was aware of mr pacioni’s nonfiling and nonpayment history petitioner signed the joint_return on date iv petitioner’s divorce on date petitioner learned that mr pacioni was having an extramarital affair on date petitioner was served with divorce papers from mr pacioni petitioner believes that mr pacioni had already planned to leave her when he asked her to file a joint_return for on date the hennepin county district_court entered a divorce decree dissolving petitioner and mr pacioni’s marriage with respect to petitioner and mr pacioni’s federal_income_tax liabilities for and the divorce decree provided as follows the outstanding tax_liability due for is dollar_figure as determined by the irs and is due immediately the outstanding tax_liability due for is dollar_figure as determined by the irs and is past due as of date the parties agree to each make a dollar_figure payment towards the outstanding taxes with the liability being paid first wife paid dollar_figure directly to the irs for the liability and provided proof of payment to husband husband has not yet made his dollar_figure payment which shall be applied to the tax_liability it further provided any income taxes owed now or determined to be owed in the future by either party to the state or federal government including interest deficiencies and penalties for the years or shall be the sole responsibility of the party to whom the tax is attributable to as determined by the irs or state in which it was incurred the divorce decree also awarded petitioner the wayzata and hilton head residences and the following vehicles all of which were unencumbered a petitioner made the dollar_figure payment toward the tax_liability on date mercedes-benz r350 a lexus is300 a lexus sc430 and a lexus rx300 with the exception of the mercedes-benz all of the vehicles were nonmarital property that petitioner owned before the marriage v petitioner’s request for relief on date petitioner submitted to the irs a form_8857 request for innocent spouse relief seeking relief from joint_and_several_liability for and in her form_8857 petitioner reported annual wages of dollar_figure and an estimated discretionary bonus of nearly dollar_figure petitioner reported monthly mortgage expenses of dollar_figure food expenses of dollar_figure and car expenses of dollar_figure petitioner’s adult children live with her rent free petitioner also gave the children two of her cars--the mercedes-benz and the lexus petitioner currently drives a mercedes-benz in mr pacioni gave petitioner the mercedes-benz in return for her payment of his tax_liability in the divorce proceedings before the hennepin county district_court petitioner submitted an affidavit dated date representing that her base salary at cb richard ellis is dollar_figure that her average discretionary bonus for the past four years had been dollar_figure that she had received a one-time additional bonus of dollar_figure in and that she had received commissions totaling dollar_figure for and respondent granted petitioner’s request for relief for in a final_determination dated date respondent denied petitioner’s request for relief for petitioner seeks a refund of the dollar_figure payment that she made toward the tax_liability discussion generally married taxpayers who file a joint federal_income_tax return are jointly and severally liable for the tax reported or reportable on the return sec_6013 114_tc_276 sec_6015 however allows a spouse to obtain relief from joint_and_several_liability in certain circumstances sec_6015 provides that a spouse who has made a joint_return may elect to seek relief from joint_and_several_liability under subsection b dealing with relief from liability for an understatement_of_tax with respect to a joint_return sec_6015 provides that an eligible spouse may elect to limit that spouse’s liability for any deficiency with respect to a joint_return under subsection c dealing with relief from joint_and_several_liability for taxpayers who are no longer married or who are legally_separated or no longer living the record does not establish whether or how petitioner’s request for relief for was resolved together if a taxpayer does not qualify for relief under either subsection b or c the taxpayer may seek equitable relief under subsection f this case does not involve an understatement_of_tax or a deficiency and petitioner does not argue that she is entitled to relief under sec_6015 or c we therefore address whether petitioner is entitled to relief under sec_6015 i the standard and scope of review in determining whether a taxpayer is entitled to equitable relief under sec_6015 we apply a de novo standard and scope of review 132_tc_203 petitioner bears the burden of proving that she is entitled to relief under sec_6015 see id see also rule a the commissioner has prescribed guidelines in revproc_2013_34 2013_43_irb_397 modifying and superseding revproc_2003_61 2003_2_cb_296 for determining whether a requesting spouse qualifies for relief under sec_6015 this court considers those guidelines but is not bound by them in evaluating the facts and circumstances of a case see 136_tc_432 porter v commissioner t c pincite ii rev_proc threshold conditions revproc_2013_34 sec_4 i r b pincite sets forth seven threshold conditions that a requesting spouse must satisfy to be eligible for relief under sec_6015 the requesting spouse filed a joint federal_income_tax return for the tax_year or years for which relief is sought the requesting spouse does not qualify for relief under sec_6015 or c the claim for relief is timely filed no assets were transferred between the spouses as part of a fraudulent scheme the nonrequesting spouse did not transfer disqualified assets to the requesting spouse the requesting spouse did not knowingly participate in the filing of a fraudulent joint_return and the liability from which relief is sought is attributable to an item of the nonrequesting spouse respondent does not argue that petitioner has failed to satisfy any of the seven threshold requirements and we deem this issue conceded see schneider v commissioner tcmemo_1992_96 63_tcm_2100 seibly v commissioner tcmemo_1991_125 61_tcm_2201 iii rev_proc equitable factors if a requesting spouse satisfies the threshold conditions of revproc_2013_34 sec_4 the commissioner considers whether the requesting spouse is entitled to a streamlined determination of equitable relief under sec_6015 pursuant to revproc_2013_34 sec_4 i r b pincite if a requesting spouse is not entitled to a streamlined determination because the requesting spouse does not satisfy all the elements in revproc_2013_34 sec_4 the requesting spouse’s request for relief may be considered using the equitable relief factors in revproc_2013_34 sec_4 i r b pincite petitioner does not argue that she satisfies the requirements for a streamlined determination under revproc_2013_34 sec_4 instead petitioner argues for relief under the equitable relief factors in revproc_2013_34 sec_4 respondent argues that petitioner does not qualify for relief under revproc_2013_34 sec_4 equitable relief under sec_6015 may be granted if taking into account all the facts and circumstances it would be inequitable to hold the requesting spouse responsible for all or part of the liability in making the decision the commissioner weighs a number of factors including but not limited to a marital status whether the requesting spouse is no longer married to the nonrequesting spouse as of the date the service makes its determination the elements required for making a streamlined determination are on the date of the request for relief the requesting spouse is no longer married to or is legally_separated from the nonrequesting spouse on the date the return was filed or the date the requesting spouse reasonably believed the return was filed the requesting spouse did not know and had no reason to know that the nonrequesting spouse would not pay the tax_liability and the requesting spouse will suffer economic hardship if the commissioner does not grant relief revproc_2013_34 sec_4 2013_43_irb_397 b economic hardship whether the requesting spouse will suffer economic hardship if relief is not granted c knowledge or reason to know in the case of an income_tax_liability that was properly reported but not paid whether as of the date the return was filed or the date the requesting spouse reasonably believed the return was filed the requesting spouse knew or had reason to know that the nonrequesting spouse would not or could not pay the tax_liability at that time or within a reasonable period of time after the filing of the return d legal_obligation whether the requesting spouse or the nonrequesting spouse has a legal_obligation to pay the outstanding federal_income_tax liability e significant benefit whether the requesting spouse significantly benefitted from the unpaid income_tax_liability or understatement f compliance with income_tax laws whether the requesting spouse has made a good_faith effort to comply with the income_tax laws in the taxable years following the taxable_year or years to which the request for relief relates g mental or physical health whether the requesting spouse was in poor physical or mental health id sec_4 i r b pincite no single factor is determinative id pincite several of these factors are not in dispute first the parties agree that petitioner is now divorced and that the first factor marital status weighs in favor of relief second the parties agree that petitioner has been in compliance with income_tax laws and that this factor also weighs in favor of relief third the parties agree that petitioner has not claimed any mental or physical health problems and that this factor is neutral finally the parties agree that petitioner has not alleged any abuse or financial control by the nonrequesting spouse and that this factor is also neutral we address each disputed factor below in turn a economic hardship7 for purposes of this factor an economic hardship exists if satisfaction of the tax_liability in whole or in part will cause the requesting spouse to be unable to pay reasonable basic living_expenses id sec_4 b i r b pincite the facts and circumstances considered in determining whether the requesting spouse will suffer economic hardship include the requesting spouse’s age employment status and history ability to earn and number of dependents the amount reasonably necessary for food clothing housing medical_expenses transportation and current tax_payments and any extraordinary circumstances such as special education expenses a medical catastrophe or a natural disaster sec_301_6343-1 proced admin regs in addition consideration is although both parties agreed in their pretrial memoranda that the economic hardship factor was neutral petitioner claimed economic hardship at trial we therefore consider this factor to be in dispute and address it accordingly given to the requesting spouse’s current income and expenses and the requesting spouse’s assets revproc_2013_34 sec_4 b this factor weighs in favor of relief where the requesting spouse would suffer economic hardship if relief is denied and is neutral where the requesting spouse would not suffer economic hardship if relief is denied id petitioner has failed to establish that she would suffer economic hardship if relief were denied first petitioner seeks a refund of money that has already been paid thus her current financial circumstances will not be adversely affected if relief is denied see eg mcknight v commissioner tcmemo_2006_155 second petitioner earns significant income from her position as a senior managing director at cb richard ellis third petitioner owns substantial assets including the wayzata and hilton head residences and a number of luxury vehicles fourth although petitioner has no dependents her expenses include expenses paid to support her adult children see eg karam v commissioner tcmemo_2011_ aff’d 504_fedappx_416 6th cir on her form_8857 petitioner estimated that her salary and bonus would total over dollar_figure in her affidavit filed with the hennepin county district_court petitioner disclosed that she earned nearly dollar_figure in salary and bonuses for moreover nothing in the record suggests that petitioner’s earning potential has declined since then petitioner has failed to prove that a failure to grant her sec_6015 relief would cause her economic hardship this factor is neutral b legal_obligation for purposes of this factor a legal_obligation is an obligation arising from a divorce decree or other legally binding agreement revproc_2013_34 sec_4 d i r b pincite this factor weighs in favor of relief if the nonrequesting spouse has the sole legal_obligation to pay the outstanding income_tax_liability pursuant to a divorce decree or agreement and weighs against relief if the requesting spouse has the sole legal_obligation id this factor is neutral if both spouses have a legal_obligation to pay pursuant to a divorce decree or agreement or if the divorce decree or agreement is silent as to any obligation to pay the outstanding income_tax_liability id respondent argues that this factor weighs against relief because the divorce decree required petitioner to pay dollar_figure toward the tax_liability we disagree the divorce decree provides that a ny income taxes owed now by either party for the years or shall be the sole responsibility of the party to whom the tax is attributable to as determined by the irs emphasis added the divorce decree therefore assigns to the irs the responsibility for determining each party’s federal_income_tax for through this factor is neutral c significant benefit for purposes of this factor a significant benefit is any benefit in excess of normal support revproc_2013_34 sec_4 e normal support is measured by the circumstances of the particular parties porter v commissioner t c pincite this factor weighs against relief if the requesting spouse enjoyed the benefits of a lavish lifestyle eg owning luxury assets and taking expensive vacations and weighs in favor of relief if the nonrequesting spouse significantly benefited from the unpaid tax and the requesting spouse had little or no benefit or the nonrequesting spouse enjoyed the benefit to the requesting spouse’s detriment revproc_2013_34 sec_4 e the record establishes that mr pacioni alone benefited by filing a joint_return for mr carruth’s comparative analysis showed that by filing jointly petitioner forfeited a dollar_figure refund while mr pacioni’s share of their total_tax liability was reduced by dollar_figure in addition petitioner credibly testified that she and mr pacioni maintained separate bank accounts thus petitioner received no benefit from mr pacioni’s nonpayment of the tax_liability respondent argues that this factor weighs against relief because petitioner lived a lavish lifestyle during the marriage respondent alleges that petitioner owned multiple homes and that she paid for friends and family to vacation at the hilton head residence we disagree petitioner and mr pacioni had a number of residences throughout their marriage because of petitioner’s work obligations and because of mr pacioni’s business needs respondent has not introduced any evidence proving a connection between the unpaid tax and these residences petitioner purchased the wayzata residence using nonmarital funds many years before her marriage to mr pacioni petitioner purchased the hilton head residence before using nonmarital funds petitioner and mr pacioni terminated their chicago townhouse lease after they returned to minnesota petitioner and mr pacioni kept separate bank accounts and the record does not reveal whether or to what extent mr pacioni paid any of the rent due under the chicago townhouse lease we also find no credible_evidence in the record that petitioner paid for friends or family to vacation at the hilton head residence this factor weighs in favor of relief the record is devoid of any evidence that petitioner paid for friends or family to vacation at the hilton head residence d knowledge or reason to know this factor examines whether the requesting spouse knew or had reason to know that the nonrequesting spouse would not or could not pay a reported but unpaid tax_liability revproc_2013_34 sec_4 c ii i r b pincite in determining whether the requesting spouse knew or had reason to know that the requesting spouse would not or could not pay the following facts and circumstances are considered the requesting spouse’s level of education the requesting spouse’s degree of involvement in the activity generating the income_tax_liability the requesting spouse’s involvement in business or household financial matters the requesting spouse’s business or financial expertise any deceit or evasiveness of the nonrequesting spouse and any lavish or unusual expenditures compared with past spending levels id sec_4 c iii i r b pincite this factor weighs in favor of relief if the requesting spouse reasonably expected the nonrequesting spouse to pay the tax_liability reported on the return and weighs against relief if the requesting spouse’s belief that the nonrequesting spouse would pay was not reasonable id sec_4 c ii this factor generally weighs against relief where the requesting spouse knew of the nonrequesting spouse’s prior bankruptcies financial difficulties or other problems with the irs or other creditors id respondent argues that this factor weighs against relief because petitioner was aware of mr pacioni’s long history of noncompliance with tax laws when she signed the return petitioner argues that had she known about mr pacioni’s affair and his alleged plan to divorce her she would never have agreed to expose herself to the tax_liability arising from his business no matter how great the tax savings we agree with respondent even if we were to credit petitioner’s assertion that she would not have filed a joint_return for had she known of the affair and mr pacioni’s alleged divorce plans the knowledge factor focuses on the requesting spouse’s expectation of payment by the nonrequesting spouse at the time petitioner signed the return she knew that mr pacioni had failed to timely pay his individual income_tax liabilities for and petitioner also knew that mr pacioni had failed to pay his portion of their joint tax_liability resulting in a levy on her wages petitioner filed a joint return with mr pacioni with full knowledge of his nonfiling and nonpayment history petitioner is a highly educated individual and an experienced business professional in addition she was the primary income producer of the household and had significant influence on household financial matters moreover petitioner was actively involved with pacioni sales and knew from her involvement that mr pacioni had not made any estimated_tax payments for as well as for and in the light of the above facts and circumstances we find petitioner’s claimed belief that mr pacioni would pay the tax_liability even if credible was not reasonable this factor weighs heavily against relief iv conclusion in summary three of the eight factors weigh in favor of relief one factor weighs against relief and the remaining factors are neutral in sec_6015 cases however we do not simply count factors we evaluate all of the relevant facts and circumstances to reach a conclusion see pullins v commissioner t c pincite revproc_2013_34 sec_3 i r b pincite some of the most compelling facts in our analysis are the findings that petitioner knew of mr pacioni’s long history of tax noncompliance dating back to and earlier when she agreed to file jointly for petitioner was actively involved with mr pacioni’s business activities which generated the unpaid income_tax_liability petitioner knew that mr pacioni had failed to make estimated_tax payments for and prior years petitioner exercised considerable control_over the household finances and decisionmaking and petitioner would not suffer economic hardship if relief were denied taking into account the foregoing and considering all the facts and circumstances we find that petitioner has failed to persuade us that the equities weigh in her favor accordingly we conclude that petitioner is not entitled to relief from joint_and_several_liability under sec_6015 for we have considered the parties’ remaining arguments for results contrary to those discussed herein and to the extent not discussed above we conclude those arguments are irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ----------------------- ------------------- ------------------------------------- ---------------------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc psi b01 plr-121490-13 date date legend x ------------------------------------------- ------------------------------------- state -------------- dear ----------------- this letter responds to a letter dated date submitted on behalf of x by x’s authorized representatives requesting a ruling under sec_7704 of the internal_revenue_code facts x is a limited_partnership organized under the laws of state x is a publicly_traded_partnership within the meaning of sec_7704 x is principally engaged in the business of operating a system of petroleum_product and crude pipelines storage tanks distribution terminals and loading rack facilities x intends to acquire an air separation unit asu located in a crude_oil refinery the asu is a permanent piece of equipment built on the site of the refinery the asu is integrated into the refinery facilities and all of the asu’s existing capacity is dedicated to supply nitrogen and oxygen to the refinery x represents that it will not use the asu outside of its present activities integrated with the crude_oil refinery operations x may acquire or construct asus located at other crude_oil refineries to supply and service those other refineries in a similar manner plr-121490-13 x represents that nitrogen and oxygen are essential elements used in operating a refinery refineries typically either have their own asu on site to produce nitrogen and oxygen or purchase nitrogen and oxygen from third-party suppliers nitrogen is used to displace oxygen in tanks hoses piping and equipment throughout the refinery in order to prevent the potential for unwanted reactions and prevent corrosion damage caused by air and moisture oxygen is used to treat byproducts from the refining process for example oxygen is used to increase capacity in a process that converts toxic hydrogen sulfide into elemental sulfur and water the asu that x intends to acquire uses a cryogenic process to separate atmospheric air into nitrogen and oxygen by adjusting flow rates temperature and pressure the asu concentrates oxygen to a purity of and removes it to one tower while nitrogen is concentrated to a purity of and separated in another tower the oxygen and nitrogen streams are then directed to plant supply headers an employee of x will provide on-site supply services consulting with the refinery personnel regarding the refinery’s demand for nitrogen and oxygen the inventory levels of nitrogen and oxygen at the asu and related maintenance issues at the refinery law and analysis sec_7704 provides that except as provided in sec_7704 a publicly_traded_partnership will be treated as a corporation sec_7704 provides that the term publicly_traded_partnership means any partnership if interests in that partnership are traded on an established_securities_market or interests in that partnership are readily_tradable on a secondary market or the substantial equivalent thereof sec_7704 provides that sec_7704 does not apply to a publicly_traded_partnership for any taxable_year if such partnership meets the gross_income requirements of sec_7704 for the taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence sec_7704 provides in relevant part that a partnership meets the gross_income requirements of sec_7704 for any taxable_year if percent or more of the gross_income of the partnership for the taxable_year consists of qualifying_income sec_7704 provides that the term qualifying_income includes income and gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource including fertilizer geothermal_energy and timber plr-121490-13 conclusion based solely on the facts submitted and the representations made we conclude that income derived by x from the operation of an onsite asu used to supply nitrogen and oxygen to a crude_oil refinery for use in the processing refining and transportation of crude_oil and refined petroleum products and the provision of related_services constitutes qualifying_income within the meaning of sec_7704 except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether x meets the percent gross_income requirement of sec_7704 in any taxable_year for which this ruling may apply this ruling is directed only to the taxpayer requesting it however in the event of a technical_termination of x under sec_708 the resulting_partnership may continue to rely on this ruling in determining its qualifying_income under sec_7704 sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely david r haglund david r haglund chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc