department of the treasury internal_revenue_service washington d c sep tax_exempt_and_government_entities_division uniform issue list tep rat ve kee kkk legend decedent a company b individual c individual d individual e individual f individual g individual h individual individual j individual k custodian l trust t state s ira x aa ee ee kkk wes page ira y wee ira z ee wee aes e ee e e date date date date date date dear this is in response to your letter dated date in which you through your authorized representative request several letter rulings under sec_401 and sec_408 of the intemal revenue code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested decedent a was a resident of state s and established trust t on date on date decedent a died testate at age at the time of her death decedent a owned iras x and y with company b both individual_retirement_accounts within the meaning of sec_408 of the code decedent a’s beneficiary designation form for ira x dated date designated the trustee of trust t as the primary beneficiary decedent a’s beneficiary designation form for ira y dated date designated trust t as the primary beneficiary you represent that trust t is valid under the laws of state s and that a copy of trust t was delivered to company b on or about date a date that precedes october of the calendar_year following the year decedent a died trust t became irrevocable upon decedent a's death article vi of trust t provides that upon the death of decedent a the trust property will be divided into ira trust property and remaining trust property ira trust property consists of all iras payable to trust t page article vii of trust t provides that the ira trust property is to be paid over to nine beneficiaries individuals c d e f g h i j and k provided each beneficiary survives decedent a each of the nine beneficiaries survived decedent a the nine beneficiaries were all born after decedent a and individual e is the oldest born on date none of the nine beneficiaries is decedent a’s surviving_spouse on date after decedent a’s death the trustee of trust t established ira z an ira for the benefit of trust t in the name of decedent a and transferred the funds from ira x and iray to ira z the trustee of trust t now proposes to divide ira z into nine iras one for the benefit of each of decedent a’s nine beneficiaries all in the name of decedent a based on the above you request the following letter rulings that trust t constitutes a see-through trust within the meaning of sec_1_401_a_9_-4 q a-5 of the income_tax regulations regulations that the nine beneficiary iras created by means of trustee-to-trustee transfers from ira z each titled as name of beneficiary bene ira decedent a decd custodian l as custodian are inherited iras within the meaning of sec_408 of the code that sec_401 and sec_408 of the code do not preclude the division of ira z and the establishment of nine beneficiary iras each in the name of decedent a for the benefit of one of the nine named beneficiaries of trust t that the trustee-to-trustee transfers from ira x and ira y to ira z and the trustee-to-trustee transfers from ira z to the nine beneficiary iras will not constitute taxable_distributions or payments nor will they be considered attempted rollovers that the trustee-to-trustee transfers to ira z and to each of the nine beneficiary iras will not cause such iras to lose their qualified status under sec_408 of the code that individuals c d e f g h i j and k may each receive the required minimum distribution under sec_401 of the code from his or her respective inherited ira using the life expectancy of the oldest beneficiary who remains a beneficiary on september of the year following decedent a’s death with respect to your first ruling_request sec_408 of the code provides the rules governing iras sec_408 of the code provides that under page regulations prescribed by the secretary rules similar to the rules of sec_401 and the incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit the trust is maintained sec_401 of the code provides in general that a_trust will not be considered qualified unless the plan provides that the entire_interest of each employee ira holder - i will be distributed to such employee not later than the required_beginning_date or ii will be distributed beginning not later than the required_beginning_date over the life of such employee or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary sec_401 of the code provides in general that if an employee ira holder dies after distribution of his interest has begun in accordance with sec_401 a ii after his required_beginning_date the remaining portion of his interest must be distributed at least as rapidly as under the method of distribution being used as of the date of his death sec_401 of the code provides in relevant part that for purposes of sec_401 the term required_beginning_date means april of the calendar_year following the calendar_year in which the employee attains age sec_401 of the code provides that for purposes of sec_401 the term designated_beneficiary means any individual designated as a beneficiary by the employee on date final regulations were published in the federal_register with respect to sec_401 and sec_408 of the code see also 2002_19_irb_852 date sec_1_408-8 of the regulations q a-1 a provides in part that iras are subject_to the required_minimum_distribution rules under sec_401 of the code and that in order to satisfy sec_401 of the code for purposes of determining required minimum distributions for calendar years beginning on or after date the rules of sec_1_401_a_9_-1 through a -9 of the regulations must be applied except as otherwise provided sec_1_401_a_9_-4 of the regulations q a-1 provides in relevant part that a designated_beneficiary is an individual who is designated as a beneficiary under the plan an individual may be designated as a beneficiary under the plan either by the terms of the plan or if the plan so provides by an affirmative election by the employee or the employee’s surviving_spouse specifying the beneficiary under these regulations a designated_beneficiary need not be specified by page name in the plan in order to be a designated_beneficiary so long as the individual who is to be the beneficiary is identifiable under the plan the member of a class of beneficiaries capable of contraction or expansion will be treated as being identifiable if it is possible to identify the class member with the shortest life expectancy further the passing of an employee’s interest to an individual under a will or otherwise under applicable state law will not make that individual a designated_beneficiary under sec_401 unless that individual is designated as a beneficiary under the plan sec_1_401_a_9_-4 of the regulations q a-3 provides that only individuals may be designated beneficiaries for purposes of sec_401 a person who is not an individual such as the employee’s estate or a charitable_organization may not be a designated_beneficiary sec_1_401_a_9_-4 of the regulations q a-4 provides in relevant part that in order to be a designated_beneficiary an individual must be a beneficiary as of the date of the employee's death generally an employee’s designated_beneficiary will be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of september of the calendar_year following the calendar_year of the date of death sec_1_401_a_9_-4 of the regulations q a-5 provides that where a_trust is named as a beneficiary of an employee the trust is not a designated_beneficiary however beneficiaries of the trust with respect to the trust’s interest in the employee's benefit may be treated as designated beneficiaries if the following requirements are met the trust is valid under state law or would be but for the fact there is no corpus the trust is irrevocable or will by its terms become irrevocable upon the death of the employee the beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the employee’s benefit are identifiable within the meaning of a-1 of this section from the trust instrument relevant documentation has been timely provided to the plan_administrator sec_1_401_a_9_-4 q a-6 b of the regulations provides in relevant summary that at a minimum documentation sufficient to enable an ira custodian to identify beneficiaries of an ira must be provided by a trustee to the custodian by october of the calendar_year immediately following the calendar_year in which the ira owner died is with respect to your first ruling_request you have represented that trust t valid under the laws of state s that it became irrevocable upon the death of decedent a and that a copy of trust t was timely given to custodian l the custodian of iras x and y furthermore the identity of each person entitled to receive any portion of ira x upon decedent a’s death is determinable under the pa page provisions of trust t the beneficiaries of trust t are individuals c d e f g h j and k therefore with respect to your first ruling_request we conclude that trust t constitutes a see-through trust within the meaning of sec_1_401_a_9_-4 q a-5 of the regulations with respect to your next four ruling requests numbered two through five sec_408 of the code provides generally that in accordance with the rules of sec_72 of the code amounts paid or distributed from an ira are included in gross_income by the payee or distributee sec_408 of the code provides that paragraph d of this section does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides generally that amounts from an inherited ira cannot be rolled over into another ira in general an inherited ira is an ira maintained by an individual who acquired the ira by reason of the death of another if the acquiring individual is not the surviving_spouse of such individual sec_1_401_a_9_-4 of the regulations q a-5 c provides in relevant part that the separate_account rules under sec_1_401_a_9_-8 q a-2 are not available to beneficiaries of a_trust with respect to the trust's interest in the employee's benefit revrul_78_406 1978_2_cb_157 rev_rul provides that the direct transfer of funds from one ira trustee to another ira trustee even if at the behest of the ira holder does not constitute a payment or distribution to a participant payee or distributee as those terms are used in sec_408 of the code furthermore such a transfer does not constitute a rollover_distribution revrul_78_406 is applicable if the trustee-to-trustee transfer is directed by the beneficiary of an ira after the death of the ira owner as long as the transferee ira is set up and maintained in the name of the deceased ira owner for the benefit of the beneficiary the beneficiary accomplishing such a post-death - page trustee-to-trustee transfer need not be the surviving_spouse of a deceased ira holder with respect to your second ruling_request each of the nine beneficiary iras titled as beneficiary iras in the name of decedent a were acquired by the beneficiaries by reason of the death of decedent a none of the beneficiaries is the surviving_spouse of decedent a therefore assuming these accounts otherwise qualify as iras under sec_408 of the code they constitute inherited iras as that term is defined under sec_408 of the code therefore with respect to your second ruling_request we conclude that the nine beneficiary iras created by means of trustee-to-trustee transfers from ira z each titled as name of beneficiary bene ira decedent a decd custodian - as custodian are inherited iras within the meaning of sec_408 of the code with respect to your third ruling_request nine distinct beneficiary iras will be set up to benefit individuals c d e f g h i j and k although the regulations under sec_401 of the code preclude separate_account treatment where amounts pass through a_trust neither the code nor the regulations preclude the posthumous division of ira x and ira y into more than one ira therefore we conclude that sec_401 and sec_408 of the code do not preclude the division of ira z and the establishment of nine beneficiary iras each in the name of decedent a for the benefit of one of the nine named beneficiaries of trust t with respect to your fourth and fifth ruling requests sec_408 of the code provides that in general amounts distributed or paid out of an ira are taxable to the payee or distributee sec_408 of the code exempts rollovers but pursuant to paragraph d c of that section amounts from inherited iras may not be rolled over to another ira however as noted above a trustee-to- trustee transfer described in revrul_78_406 does not constitute a payment or distribution such a transfer may be accomplished after the death of the ira holder on behalf of the beneficiaries of a decedent's ira therefore with respect to your fourth and fifth ruling requests we conclude that the trustee-to-trustee transfers from ira x and jra y to ira z and the trustee-to-trustee transfers from ira z to the nine beneficiary iras will not constitute taxable_distributions or payments nor will they be considered attempted rollovers i page that the trustee-to-trustee transfers to ira z and to each of the nine beneficiary iras will not cause such iras to lose their qualified status under sec_408 of the code with respect to your sixth ruling_request sec_1_401_a_9_-4 of the regulations q a-4 provides in relevant part that in general in order to be a designated_beneficiary an individual must be a beneficiary as of the date of death the employee's designated_beneficiary will be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of september of the calendar_year following the calendar_year of the employee's death sec_1_401_a_9_-4 of the regulations q a-5 c provides that if the trust has more than one beneficiary the rules under sec_1_401_a_9_-5 q a-7 determine which beneficiary's life expectancy shall be used to determine the distribution period sec_1_401_a_9_-5 of the regulations q a-5 a provides in relevant part that if an employee dies after distribution of his interest has begun generally on or after the employee's required_beginning_date in order to satisfy sec_401 the applicable distribution period for distribution calendar years after the distribution calendar_year containing the employee's date of death is either- if the employee has a designated_beneficiary as of the date determined under a-4 of sec_1 a h4 the longer of-- i the remaining life expectancy of the employee’s designated_beneficiary and ii the remaining life expectancy of the employee sec_1_401_a_9_-5 of the regulations q a-7 a states that if more than one individual is a designated_beneficiary the beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining the applicable distribution period sec_1_401_a_9_-9 of the regulations q a-1 sets forth the single life table to be used to determine the life expectancy of an individual under the terms of trust t individuals c d e f g h i j and k are the potential designated beneficiaries of ira x after decedent a therefore assuming at least one of these individuals remains a beneficiary as of september of the year following decedent a's death the required minimum distributions for each of the nine beneficiary iras will be determined using the life expectancy of the oldest beneficiary individual e is the oldest beneficiary assuming he remains a beneficiary as of september of the year following decedent a's death all of these individuals were bom therefore with respect to your sixth ruling_request we conclude page that individuals c d e f g h j and k may each receive the required minimum distribution under sec_401 of the code from his or her respective inherited ira using the life expectancy of the oldest beneficiary who remains a beneficiary on september of the year following decedent a’s death this ruling letter is based on the assumption that iras x y and z and the iras to be established met or will meet the requirements of sec_408 of the code at all relevant times furthermore this ruling letter rests on the assumption that trust t is valid under the laws of state s as represented this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact arrarraeerreerererear ee d ett at eee at ee please address all correspondence to se t ep ra t2 sincerely yours we jase leung e ean m acty fy like cba enclosures deleted copy of ruling letter notice of intention to disclose cc kkk kkk kik kee


t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n department of the treasury i n t e r n al r e v e n u e s e rv i c e wa s h i n g t o n d c date person to contact and id number contact telephone number number release date uil dear ---- this letter provides general information in response to your letter dated date regarding follow up submissions to the determinations office concerning change_of a tax- exempt organization’s activities procedures for submitting an exempt organization’s structural and operational changes to the service can be found in publication 4221-pc compliance guide for c public_charities publication 4221-pf compliance guide for c private_foundations and publication 4221-n compliance guide for tax exempt_organizations other than c public_charities and private_foundations the appropriate publication is provided with all current exemption letters these guides provide that any changes should be reported on the organization’s annual information_return it also provides that an organization may submit changes to the eo determinations office but that such submissions do not absolve the organization from reporting such changes on its annual return additionally section i of the regulations provide that exempt_organizations that are not required to file an information_return must notify the irs in writing of any changes in its character operations or purpose for which it was originally created revproc_2012_4 2012_1_irb_125 provides that the irs will not issue determination letters approving or disapproving any completed transaction or determination letters on the effect of changes in activities on tax-exempt status except for areas enumerated in the revenue_procedure this revenue_procedure updated annually has contained this provision since in order to receive the protection from retroactive revocation of a ruling or determination_letter found in revproc_2012_4 and that could result from an organization’s change in activities an organization must follow the procedures found in that revenue_procedure for requesting a private_letter_ruling these procedures include the payment of the dollar_figure fee these are the only procedures that provide any protection from retroactive revocation upon structural or operational changes reporting a change on form_990 form 990-ez or form_990-pf will not prevent the retroactive revocation of a ruling or determination_letter this letter is for informational purposes only and provides general statements of well- defined law it is not a ruling rev_proc i r b we will make this letter available for public inspection after deleting names addresses and other identifying information as appropriate under the freedom_of_information_act announcement i r b a copy of this letter with the proposed deletions is attached i hope this information is helpful if you have any questions please contact me at -------------- or --------- at -------------- sincerely manager exempt_organizations guidance


internal_revenue_service department of the treasury index number dollar_figure washington dc person to contact telephone number refer reply to cc dom it a plr-107101-99 date dec t i t u t l taxpayer taxpayer’s ein taxpayer’s address legend x a b lender city state state act state statute agreement agreement e n u m o c proposal year year year year year year year year year year year year dear u u this responds to taxpayer’s request for a private_letter_ruling dated april specifically taxpayer has requested a ruling that the termination of taxpayer’s power purchase agreement ppa pursuant to the agreement constitutes a compulsory or involuntary_conversion of its ppa and its facility within the meaning of sec_1033 and sec_1231 of the internal_revenue_code code taxpayer has also requested a ruling that the amount of any gain_or_loss required to be recognized by taxpayer in connection with the conversion of its ppa and its facility is a sec_1231 gain or sec_1231 loss taxpayer also requests rulings that the amounts paid to terminate certain agreements relating to its facility are deductible under sec_162 or in the year paid conclusions the termination of the ppa pursuant to the agreement constitutes a compulsory or involuntary_conversion of the ppa and the facility within the meaning of sec_1033 and sec_1231 the amount of any gain_or_loss required to be recognized by taxpayer in connection with the conversion of its ppa and its facility will be treated as a sec_1231 gain or sec_1231 loss in accordance with the provisions of sec_1231 the amount_paid by taxpayer to terminate the operation and maintenance agreement that was necessary for the operation of its facility is deductible under sec_162 the amount_paid by taxpayer to terminate its pilot agreement is deductible under sec_164 taxpayer’s termination_payments that are deductible under sec_162 and sec_164 are deductible in the taxable_year in which the termination_payments were paid taxpayer may deduct under sec_163 in the year of payment amounts paid as penalties for prepayment of the financing agreements discussed below facts x is a regulated_public_utility furnishing electricity to various parts of state taxpayer is an independent power producer ipp that was organized in year for purposes of developing financing constructing and operating a q megawatt hydroelectric facility facility at city in state the facility is owned by taxpayer and is located on land leased from x under a long-term_lease agreement the facility was placed_in_service in year and is certified as a qualifying_facility qf under the public_utility regulatory policies act of u s c 824a as amended purpa and the implementing ferc regulations c f_r purpa requires electric utilities to purchase electricity from and enter into legally enforceable obligations with qfs in addition state enacted parallel provisions to purpa that obligated regulated public_utilities such as x to enter into long-term_contracts to purchase electricity from and granted additional rights to entities such as taxpayer that qualified under the state act as co-generation facilities or small hydro production facilities the prices paid for electricity under these statutorily-mandated contracts were based upon projections of the costs that the regulated_public_utility otherwise would incur to meet its service requirements avoided costs these avoided costs were composed of in all cases variable costs associated with producing electricity and in some cases fixed costs associated with developing and constructing a facility if the regulated_public_utility did not have the generation capacity to meet the demand for electricity ue in august year x entered into a ppa with taxpayer that was priced to reflect both the fixed and variable costs of producing electricity required to be purchased under the agreement for the output of taxpayer’s facility x was obligated beginning in year to pay r per kilowatt hour thereafter the rate escalates annually for the next s years by t percent per year for years u the rate for electricity is calculated based on a formula that offsets the continuing t percent annual escalator by netting out what otherwise would have been escalating rent payments under the ground lease taxpayer projected that the payments to be made to it under the ppa would cover both the fixed costs associated with the development construction maintenance and operation of the facility the ppa has a term of years from the first year the facility was placed_in_service the ppa can be assigned to a third party by taxpayer without x’s consent taxpayer was merely obliged under the ppa to provide prior written notification to x of such an assignment at the time that the ppa was executed the price x was to pay for electricity was agreed to by taxpayer and x and was believed to be a fair price based on x’s projections of the costs it would otherwise have incurred over the term of the ppa however by mid-year x had projected that it had excess electric production capability and thus its new avoided costs rates and accordingly the prices it was required to pay new projects for electricity were substantially less than its year rates thus the price paid_by x pursuant to taxpayer’s ppa has for some time exceeded the state public service commission’s psc current approved rates initially x was able to recover its costs for electricity produced by and purchased from taxpayer and other ipps under its state psc-approved tariffs which included a fuel adjustment clause however x’s electricity rates are much higher than in other areas of the united_states due to the disparity between actual market electricity prices and the price paid for electricity under taxpayer’s ppa and other ppas the state psc and consumers pressured x to reduce its rates and move toward a competitive market as early as march year the state psc began to investigate methods to create competitive opportunities for state electricity consumers including x’s customers and requested that the utilities do the same pursuant to the state psc’s request x commenced negotiations with taxpayer and other ipps to reduce its cost for electricity purchased under those ppas as of april year x had renegotiated ppa agreements with of ipps that had ppas in an attempt to reduce its costs x sought to have rules adopted by the state psc which would permit x to curtail purchases of electricity from the ipps in april year x petitioned the state psc suggesting that such rules were necessary and stating that the currently available settlement opportunities with the ipps had been exhausted although the state psc did not adopt a formal curtailment plan in year it continued its efforts to encourage regulated public_utilities including x to develop a competitive electric market for state in response in october year x submitted a proposal entitled proposal to the state psc for reducing its electric rates to its customers stating that the differences with the ipps had not been resolved the proposal set forth several alternative ways to restructure the ppas including the taking by eminent_domain of the ipps’ electricity generating facilities and the curtailment of x’s obligations to purchase electricity generated by the ipps emphasizing that it was essential to the creation of a competitive market that ppas with a significant number of the unregulated ipps be restructured such that those generating units become independent suppliers competing in the wholesale spot market or become suppliers to customers directly in the proposal x stated that if negotiations with the ipps failed to produce the necessary cost savings it proposed to utilize its power of eminent_domain to acquire the generating units owned by the ipps with which it has ppas and subsequently resell them at auction in order to increase competition in the wholesale power market it also stated that it would soon initiate the process necessary to exercise its power of eminent_domain by filing a petition with the state psc the power of eminent_domain was delegated to x pursuant to state statute which provides that ajn electric corporation shall have the power and authority to acquire such real_estate as may be necessary for its corporate purposes domain procedure law in the manner prescribed by the eminent taxpayer believed that x would institute an eminent_domain proceeding against the facility unless x was otherwise able to reduce its payments to a significant number of ipps with which it had ppas after the proposal was made public x and certain of the ipps entered into negotiations x took no further action towards exercising its eminent_domain powers because of progress with the negotiations with the ipps during these negotiations x’s counsel stated to one of the ipps that if the negotiations were not successful x would have no way to restructure its markets and reduce its costs other than by commencing eminent_domain proceedings in may year the state psc issued an order describing its goals and strategies for restructuring state’s electric utility industry and stated that all possible efforts to reduce electric rates should be continued including efforts to reduce utility commitments under ipps contracts that include obligations for payments well above current wholesale prices it further stated that if the parties were unwilling to restructure these contracts voluntarily it would pursue policies to mitigate the impact of such contracts on rates subsequently in july year the state psc stated publicly that the ppas with the ipps were a major hurdle to lowering electric rates in state and achieving a competitive electric market two weeks after this public statement x made an offer to ipps to buy out their ppas those ipps retained an investment banking firm to evaluate x's offer active negotiations between x and the ipps continued until december year when the negotiations stalled in december year the administrative law judge considering x’s request for curtailment of purchases from the ipps recommended that state utilities be allowed to curtail purchases although taxpayer’s ppa prohibits x’s curtailment of purchases taxpayer was still concerned that some action by x or government authorities could result in curtailment of electricity purchases to some degree in march year taxpayer and other ipps made a counterproposal to the x’s offer which became the basis for further negotiations in may year the state psc approved but did not issue a curtailment order which allowed x to reduce the quantity of electricity that it was required to purchase from certain ipps the ipps believed that the approval of the curtailment order was intended to place additional pressure on the negotiations with x in june year x withdrew its offer to settle with taxpayer under the specific terms of agreement being negotiated with the ipps but agreed to continue to negotiate the terms of a ppa restructuring with taxpayer and eventually reached an initial agreement in july year other ipps but not the taxpayer signed agreement which was subsequently amended in june year the transaction was consummated in accordance with the terms of the amended agreement pursuant to the amended agreement consideration in the aggregate of dollar_figure m cash and n shares of x common_stock would be available for ipps to elect from although taxpayer was not a signatory to agreement its initial agreement with x was conditioned on the consummation of agreement accordingly if agreement was not consummated taxpayer’s initial agreement to amend its ppa would not take effect because of the explicit contractual link between the initial agreement between taxpayer and x and agreement x’s statements concerning the consequences of failing to consummate the transactions contemplated by agreement directly impacted taxpayer’s restructuring agreement and its potential exposure to threats of condemnation and curtailment by x and state psc as such taxpayer remained apprised of x’s proceedings with regard to the other ipps in october year x and taxpayer signed agreement pursuant to agreement taxpayer terminated its ppa and lease and sold the facility to x in exchange for cash consideration taxpayer represents that x had threatened during negotiations to pursue eminent_domain actions against the ipps’ facilities including taxpayer’s facility if the restructuring negotiations were not successful in november year x informed the state psc that it had not pursued the exercise of its power of eminent_domain due to the progress in negotiations with the ipps but that it would take necessary measures including exercise of its power of eminent_domain if the restructuring pursuant to agreement was not effected based on x’s actions taxpayer states that it had a reasonable belief that a threat_or_imminence_of_condemnation existed against its facility taxpayer further represents that if x had condemned its facility the ppa would have been unenforceable and wholly worthless and that it could not have sold electricity to x pursuant to the terms of the ppa taxpayer represents that the ppa was site-specific because that the ppa is limited to the purchase and sale of electricity produced and delivered by the facility referenced in the ppa thus if taxpayer’s facility were taken by x pursuant to its eminent_domain powers taxpayer could not sell electricity to x pursuant to the terms of the ppa nor could it assign its ppa to a third party for value because the third party could not sell electricity to x pursuant to the terms of the ppa taxpayer further represents that one of the requirements for qf status is that the facility must be owned by a person not primarily engaged in the generation or sale of electric power other than electric power solely from cogeneration facilities or small power production facilities thus once x an electric utility acquired the facility the facility would lose its qf status which is required by the ppa to be maintained if the qf status is not maintained x has the option of terminating the ppa and it would have terminated the ppa it is also represented that if x had acquired taxpayer's facility it would have auctioned the facility and the new owner of the facility could not have sold power to x pursuant to the ppa but would have to abide by new pricing protocols in the competitive market taxpayer has not treated the ppa as a separate and distinct asset on its books_and_records costs associated with acquiring the ppa such as attorney’s fees and other related costs have been capitalized into a general asset category and amortized accordingly taxpayer entered into a payment in lieu of tax agreement pilot agreement dated april year with a and local taxing jurisdictions expiring on december year asa result of the restructuring taxpayer terminated the pilot agreement and made a cash termination_payment to a which will make pro_rata termination_payments to the local taxing jurisdictions a required taxpayer to make a cash termination_payment to terminate the pilot agreement to ensure that the amount of tax revenue the local taxing jurisdictions receive with respect to the facility after the sale of the facility pursuant to agreement will be equal to the amount of tax revenue the local taxing jurisdictions would have received pursuant to the remaining term of the pilot agreement taxpayer does not intend to enter into a new pilot agreement with a or another party taxpayer’s facility is operated by b pursuant to an operation and maintenance agreement dated january year and expiring as amended in february year the operation and maintenance agreement as a result of the restructuring taxpayer terminated the operation and maintenance agreement and made a cash termination_payment to b taxpayer does not intend to enter into a new operation and maintenance agreement with b or another party - taxpayer entered into financing agreements dated april year with lender the financing agreements relating to the construction and operation of the facility the financing agreements provide for prepayment penalties taxpayer paid the prepayment penalty and make- whole payments to lender in connection with the early termination of the financing agreements taxpayer will not enter into a new financing agreement with lender or another lender with respect to the facility law and analysis whether the termination of taxpayer’s ppa pursuant to agreement constitutes a compulsory or involuntary_conversion of its ppa and its facility within the meaning of sec_1033 and sec_1231 sec_1033 provides in part that if property as a result of its destruction in whole or in part theft seizure or requisition or condemnation or threat or imminence thereof is compulsorily or involuntarily converted into money the gain if any shall be recognized except to the extent hereinafter provided in this paragraph sec_1033 provides that if a taxpayer during the period specified in sec_1033 for the purpose of replacing the property so converted purchases other_property _ similar_or_related_in_service_or_use to the property so converted then at the taxpayer’s election the gain shall be recognized only to the extent that the amount_realized upon such conversion regardless of whether such amount is received in one or more taxable years exceeds the cost of such other_property sec_1 a of the income_tax regulations provides in part that an involuntary_conversion may be the result of the destruction of property in whole or in part the theft of property the seizure of property the requisition or condemnation of property or the threat or imminence of requisition or condemnation of property rev_rul 1963_2_cb_332 establishes the criteria necessary for the existence of a threat_or_imminence_of_condemnation based on the taxpayer’s reasonable belief generally the threat_or_imminence_of_condemnation exists when a property owner is informed either orally or in writing by a representative of a governmental body or public official authorized to acquire property for public use that such body or official has decided to acquire the owner’s property and the owner has reasonable grounds to believe from the information conveyed to him by such representative that the necessary steps to condemn the property will be instituted if a voluntary sale is not arranged revrul_74_8 1974_1_cb_200 modifying revrul_63_221 provides that a threat_or_imminence_of_condemnation may exist where the purchaser a public_utility lacked actual condemnation authority prior to or at the time of the sale but it generally could readily obtain the power to condemn by application to the appropriate state official authority in the event that a voluntary sale was not arranged and there was no reason to believe that such power to condemn the land purchased would be denied revrul_59_361 1959_2_cb_183 recognized the economic unit theory of 30_tc_741 acg 1959_2_cb_5 the taxpayer in masser owned a freight terminal and the parking lots across the street from the terminal that were necessary for its operation the parking lots were condemned and the taxpayer being unable to secure adequate replacement lots in the same vicinity sold the freight terminal the proceeds of the sale of the freight terminal together with the proceeds from the condemnation of the parking lots were reinvested in a similar terminal and parking facilities suitable for the taxpayer’s business the court allowed involuntary_conversion treatment for the terminal proceeds and the parking lot proceeds on the theory that the two properties were used as an economic unit accordingly the service stated that-where all the facts and circumstances show a substantial economic relationship between the condemned property and the other_property sold by the taxpayer so that together they constituted one economic property unit such as existed in the masser case involuntary_conversion treatment for the proceeds of the voluntary sale will be permitted - revrul_82_147 1982_2_cb_190 held that the sale of the taxpayer’s fishing resort due to an act of congress declaring the area in which it is located a boundary waters canoe area wilderness constituted an involuntary_conversion the act prohibited the use of motorboats with motors of greater than horsepower on the lake the restriction on horsepower of motorboats effectively denied the taxpayer the former economic use of its resort the act gave an affected resort owner the option to require the government to purchase the resort at its fair_market_value without regard to the restriction the restriction together with the provision authorizing purchase effectively constituted a taking of the property upon payment of fair compensation the actions of the state psc and x with regard to the establishment of a competitive electricity market for state provide notice to taxpayer as well as a reasonable basis for taxpayer to conclude that x would pursue its threat to condemn taxpayer’s facility if taxpayer did not renegotiate its ppa further it is clear that x had the authority under state statute to commence eminent_domain proceedings against taxpayer’s facility taxpayer’s representations regarding the relationship between its ppa and its facility establish that the property converted the ppa bears a substantial economic relationship to the threatened property the facility against which x has taken actions that constitute a threat_or_imminence_of_condemnation further if x were to condemn the facility this action would damage completely the value of the ppa to taxpayer thus although x’s threat of condemnation was made to taxpayer’s facility because the facility and the ppa form an economic unit the termination of taxpayer’s ppa pursuant to the agreement constitutes an involuntary_conversion made under a threat_or_imminence_of_condemnation by x of the ppa and the facility whether the amount of any gain_or_loss required to be recognized by taxpayer in connection with the conversion of its ppa and its facility is a sec_1231 gain or sec_1231 loss sec_1231 prescribes in part the treatment of certain gains from involuntary_conversions sec_123 a a ii provides that the term sec_1231 gain means any recognized - gain from the compulsory or involuntary_conversion as a result of destruction in whole or in part theft or seizure or an exercise of the power of requisition or condemnation or the threat or imminence thereof into other_property or money of property used in a trade_or_business or any capital_asset which is held for more than year and is held in connection with a trade_or_business or a transaction entered into for profit see also sec_1231 losses under sec_1231 if sec_1231 gains for the year exceed sec_1231 losses they are treated as long-term_capital_gains and losses if sec_1231 losses exceed sec_1231 gains they are treated as ordinary gains and losses the provisions in sec_1231 that deal with involuntary_conversions provide a statutory_sale or exchange for such transactions so that they may qualify for potential capital_gain treatment depending on the netting of gains and losses under sec_1231 these provisions were added by congress in part to supplement what is now sec_1033 and are generally interpreted in a similar manner see h_rep_no 77t cong 2d sess 1942_2_cb_372 conf_rep no cong 2d sess 1942_2_cb_701 cf rev_rul 1953_2_cb_36 treatment of severance_damages under sec_1231 accordingly any gain_or_loss recognized by taxpayer in connection with the conversion of its ppa and its facility will be treated as a sec_1231 gain or sec_1231 loss whether taxpayer may deduct under sec_162 the amount_paid to terminate the operation and maintenance agreement sec_162 provides in part that taxpayers may deduct all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business further sec_1_162-1 provides in part that deductible business_expenses include the ordinary and necessary expenditures directly connected with or pertaining to the taxpayer’s trade_or_business sec_263 and a provide that taxpayers may not deduct amounts paid for new buildings or for permanent improvements or betterments made to increase the value of any property or estate or any amount expended in restoring property or making good the exhaustion thereof for which an allowance is or has been made in certain instances the courts have allowed taxpayers to currently deduct amounts paid_by taxpayers to terminate burdensome and uneconomic contracts see g 237_f2d_901 7th cir amounts incurred by taxpayer to free itself from an unprofitable agency contract were deductible 171_fsupp_943 ct_cl cash paid and the fair_market_value of stock surrendered to relieve the taxpayer of its obligation under supply contract was deductible business_expense stuart co v commissioner t c memo big_number aff'd 195_f2d_176 9th cir an amount allocable to the cancellation of an onerous supply contract was deductible as an ordinary and necessary business_expense 30_bta_114 aff'd 79_f2d_394 9th cir amount_paid to terminate an unsatisfactory waste disposal contract was a currently deductible business_expense in addition both the courts and the internal_revenue_service have maintained that amounts paid solely to reduce or eliminate future costs are also deductible see eg tj en101_tc_581 amounts paid to majority shareholder to compensate her for refraining from causing a royalty rate increase were currently deductible revrul_95_32 1995_1_cb_8 expenditures incurred by a public_utility for the implementation and operation of energy load management programs are currently deductible under sec_162 revrul_94_77 1994_2_cb_19 supreme court’s decision in 503_us_79 does not affect the treatment of severance payments made by a taxpayer to its employees as business_expenses that are generally deductible taxpayer paid the termination_payment to terminate operation and maintenance agreement with respect to operation of its facility and therefore reduce its future costs accordingly the amount_paid by taxpayer to terminate the operation and maintenance agreement is a deductible expense under sec_162 whether taxpayer may deduct under sec_164 the amount_paid to terminate the pilot agreement sec_164 provides that state and local real_property_taxes are deductible in the year paid_or_accrued the term real_property_taxes means taxes imposed on real_property and levied for the general_public welfare sec_1_164-3 payments in_lieu_of_taxes such as those provided for in the pilot agreement are deductible as real_property_taxes where such payments are made to a public benefit corporation such as a provided the payments are charges imposed on the taxpayer in order to obtain revenue for a public purpose the taxing authority would otherwise lose because the property owner is tax exempt revrul_71_49 1971_1_cb_103 tax equivalency payments made to new york city educational construction fund a public benefit corporation deductible under sec_164 in addition courts have held that a prepayment of real_estate_taxes is deductible under sec_164 see 10_f3d_68 2d cir prepayment of real_estate_taxes as well as discount for prepayment deductible under sec_164 in the year paid ais a public benefit corporation under the laws of state under taxpayer’s pilot agreement taxpayer makes pllot payments to a at a rate or in an amount set forth in the pilot agreement thus to the extent a payment made by taxpayer to terminate the pilot agreement is considered a payment or prepayment of taxes payable thereunder the payments made to terminate the pilot agreement are deductible under sec_164 under taxpayer's pilot agreement taxpayer makes pilot payments to a for distribution to the local taxing jurisdictions at the rates or in the amounts set forth in the pilot agreement the pilot payments made under the pllot agreement are not made in exchange for local benefits but are made for the general_public welfare see revrul_61_152 1961_2_cb_42 service charges constituted taxes within the meaning of sec_164 revrul_71_49 whether a particular charge falls into the category of a tax depends upon its real nature therefore the payments made by taxpayer pursuant to the pilot agreement are tax equivalency payments and are deductible as taxes under sec_164 _ accordingly a payment made by taxpayer to terminate the pilot agreement is a payment or prepayment of taxes and the termination_payment is deductible under sec_164 in which taxable_year may taxpayer deduct the termination_payments for the pilot agreement and operation and maintenance agreement sec_461 provides generally that the amount of any deduction shall be taken for the taxable_year which is the proper year under the method_of_accounting used in computing taxable_income sec_461 provides that in determining whether an amount has been incurred with respect to any item during any taxable_year the all_events_test shall not be treated as met any earlier than when economic_performance with respect to such item occurs sec_461 provides generally that in the case of liabilities other than those described in sec_461 b and c economic_performance occurs at the time determined under the regulations prescribed by the secretary sec_1_461-1 provides generally that under the accrual_method of accounting a liability is incurred and generally taken into account for federal_income_tax purposes in the taxable_year in which all the events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability _ sec_1_461-4 provides that in the case of liabilities described in paragraphs g through of this section economic_performance occurs when and to the extent that payment is made to the person to which the liability is owed sec_1_461-4 provides that payment to a particular person is accomplished if sec_1_461-4gi a is satisfied and a cash_basis taxpayer in the position of that person would be treated as having actually or constructively received the amount of the payment as gross_income under the principles of sec_451 sec_1_461-4 through g set out specific liabilities for which payment is economic_performance in general these liabilities include those arising under a workers compensation act or out of any tort breach of contract or violation of law liabilities to pay rebates or refunds liabilities to provide awards prizes or jackpots liabilities arising out of the provision to the taxpayer of insurance warranty or service contracts and liabilities of a taxpayer to pay taxes sec_1_461-4 provides that if the liability of a taxpayer is to pay a tax economic_performance occurs as the tax is paid to the governmental authority that imposed the tax however under sec_1_461-4 if a taxpayer has made a valid election under sec_461 the taxpayer’s accrual for real_property_taxes is determined under sec_461 otherwise economic_performance with respect to a property_tax liability occurs as the tax is paid as specified in sec_1_461-4 sec_1_461-4 provides that in the case of a taxpayer’s liability for which economic_performance rules are not provided elsewhere in this section or in any other regulation revenue_ruling or revenue_procedure economic_performance occurs as the taxpayer makes payment in satisfaction of the liability to the person to whom the liability is owed on the date that the pilot agreement and operation and maintenance agreement were terminated taxpayer’s liability became fixed and the amount of each liability could be determined with reasonable accuracy under sec_1_461-1 under sec_1_461-4 taxpayer’s liability to compensate a with respect to the pilot agreement constitutes a liability for which economic_performance occurs and consequently taxpayer is entitled to a deduction in the year the termination_payment is made taxpayer’s liability to compensate b with respect to the operation and maintenance agreement constitutes a liability for which economic_performance tules are not provided elsewhere in sec_1_461-4 or in any other regulation revenue_ruling or revenue_procedure thus pursuant to sec_1_461-4 economic_performance occurred when taxpayer made the termination_payment to the other party to the operation and maintenance agreement based on the foregoing analysis taxpayer may deduct termination_payments for the pilot agreement and operation and maintenance agreement in the taxable_year in which the termination_payment was paid with respect to each agreement en whether taxpayer may deduct under sec_163 in the year of payment the amounts paid as penalties for prepayment of the lender financing agreements sec_163 allows a deduction for all interest_paid or accrued within the taxable_year on indebtedness for these purposes the term_interest is defined as amounts paid for the use or forbearance of money 308_us_488 284_us_552 generally for a debtor prepayment charges are deductible as interest because they are considered an additional_amount paid for_the_use_of money revrul_86_42 1986_1_cb_82 this rule applies even to a payment that might otherwise be characterized as a repurchase premium sec_1_163-7 but see sec_1271 and 882_f2d_832 cir amounts received by a creditor to retire debt are amounts received in exchange for the debt in determining whether a payment represents interest or another form of compensation the courts will consider the purpose of the charge as well as whether the charge has the characteristics of interest for example whether the charge is related to the amount borrowed 69_tc_421 additionally amounts paid for specific services _ rather than the use or forbearance of money are not deductible as interest 75_tc_47 in this transaction just as in revrul_86_42 the prepayment penalties are additional fees for the cost of the use of money in each case the penalty is directly related to the amount borrowed under the financing agreement the payment is not for any specific services other than for the loan for this reason the prepayment penalties are deductible as interest to taxpayer on the date that the lender financing agreements were terminated taxpayer’s liability for the prepayment penalties became fixed and the amount of each penalty could be determined with reasonable accuracy under sec_1_461-1 sec_1_461-4 provides that in the case of interest economic_performance occurs as the interest cost economically accrues in accordance with the relevant provisions of the code although the prepayment penalties are deductible as interest under sec_163 since the imposition of the prepayment penalties is not related to the passage of time these costs do not economically accrue in the manner described in e therefore under sec_1_461-4 economic_performance occurred in the taxable_year in which the prepayment penalty was paid with respect to each lender financing agreement accordingly taxpayer may deduct the prepayment penalties under sec_163 in the taxable_year in which the penalties were paid krkk ek based on taxpayer’s representations and the above analysis we rule as follows the termination of the ppa pursuant to the agreement constitutes a compulsory or involuntary_conversion of the ppa and the facility within the meaning of sec_1033 and sec_1231 the amount of any gain_or_loss required to be recognized by taxpayer in connection with the conversion of its ppa and its facility will be treated as a sec_1231 gain or sec_1231 loss in accordance with the provisions of sec_1231 the amount_paid by taxpayer to terminate the operation and maintenance agreement is deductible under sec_162 the amount_paid by taxpayer to terminate the pilot agreement is deductible under sec_164 taxpayer’s payments to terminate the pilot agreement and operation and maintenance agreement are deductible in the taxable_year in which the payments were paid taxpayer may deduct under sec_163 in the year of payment the amounts paid as penalties for prepayment of the lender financing agreements 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 s requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax retum to which it is relevant 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 assistant chief_counsel income_tax accounting by by liber se kelly e altog senior techfiician reviewer branch ce


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 b07 plr-129105-05 date date legend legend corporation ------------------------------------------------------- a b c dear ------------------ ------------------------ ------------------ --------- -------------------------- this letter responds to a letter from your authorized representative dated date requesting permission for corporation to revoke its election under sec_41 of the internal_revenue_code the facts and representations submitted are as follows corporation is an accrual_method taxpayer with each taxable_year ending on a corporation is the parent of a sec_41 controlled_group that files a consolidated federal_income_tax return for its b taxable_year corporation on behalf of itself and the members of is controlled_group elected to compute the credit_for_increasing_research_activities research_credit utilizing the alternative_incremental_research_credit airc rules of sec_41 prior to the due_date including extensions for corporation’s income_tax return for the taxable_year ending on c_corporation on behalf of itself and the members of its controlled_group requested permission to revoke its sec_41 election for the taxable_year ending on c and all subsequent years determine their research_credit under the airc rules of ' c sec_41 provides that any election under ' c a shall apply for the taxable_year in which made and all succeeding taxable years unless revoked with the consent of the secretary for taxable years beginning after date taxpayers may elect to based solely on the facts submitted and representations made we grant plr-129105-05 permission for corporation and its controlled_group to revoke its election to determine its research_credit under the airc rules of ' c for qualified_research_expenses paid_or_incurred during the taxable_year ending on c_corporation should compute its research_credit for the taxable_year ending on c and all succeeding years using the general_rule of ' a provided that neither corporation nor any member of its controlled_group makes a new election to determine its research_credit under the airc rules of ' c in a later year except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we express or imply no opinion concerning expenditures corporation or any member of its controlled_group treated as qualified_research_expenses 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 a copy of this letter must be attached to any income_tax return to which it is relevant the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 sincerely brenda m stewart senior counsel branch passthroughs special industries cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-120778-98 date date company properties state city a b c d e f g plr-120778-98 h i dear this letter responds to your letter dated date as well as subsequent correspondence submitted on behalf of company requesting a ruling that the rental income received by company from the properties is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code company represents the following facts company was incorporated in state on a to acquire develop lease and manage commercial real_estate the properties all located in city company intends to elect under sec_1362 to be an s_corporation effective b through company's c part-time employees and a family_member associate who is paid a fee as well as through independent contractors company provides various services in its real_estate leasing and management business regarding properties company performs such services as regularly monitoring and inspecting the premises analyzing specific property needs and completing all necessary repairs maintaining and repairing the parking lots handling emergency trouble and repair calls during nonbusiness hours weekends and holidays closely supervising and inspecting all work by independent contractors inspecting and maintaining the roofing and structural_components of the buildings as well as the building heating ventilation air conditioning systems constantly monitoring overall facility security and taking necessary actions and monitoring the success of its tenant business and intervening if a tenant experiences business difficulties regarding property which is part of a condominium project company performs such services as regularly monitoring and inspecting the premises as well as handling emergency trouble and repair calls during nonbusiness hours weekends and holidays a property owners' association funded by monthly dues paid_by each owner including company provides such services as parking lot upkeep water and sewer service trash removal exterior building maintenance and renovation security services landscaping and pest control in addition to the services provided to tenants company handles the usual marketing leasing and administrative plr-120778-98 functions involved in leasing and managing the properties for d company received or accrued approximately e in rents and paid_or_incurred approximately f in relevant expenses on the properties the comparable figures for g are h and i except as provided in sec_1362 sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income except as otherwise provided in subparagraph c sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation based solely on the facts as presented in this ruling_request and viewed in light of the applicable law and regulations we conclude that the rents company receives from the properties will not be passive_investment_income under sec_1362 plr-120778-98 except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed regarding company’s eligibility under sec_1361 to be an s_corporation further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 in accordance with the power_of_attorney on file with this office we are sending you the original of this letter and a copy to company this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely donna m young senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries encl copy for sec_6110 purposes


cca_2013050719154266 id ----------------------------- office uilc number release date from ---------------------------- sent tuesday may pm to -------------------- cc ------------------------------------------- subject re procedural question regarding ex_parte communications yes an originating function such as exempt_organizations may alert appeals to a court opinion the court's opinion is in the public domain and the case to which the opinion relates is no longer open in appeals in fact at the present time it does not appear as if there are any open cases in appeals involving the issue in question although one or more cases involving that issue are working their way through the administrative pipeline and it is anticipated that appeals may see the issue in the near future the contemplated communication will be a generic nontaxpayer- specific discussion of an issue which is permissible under sec_2 of revproc_2012_18 additionally to the extent that the communication discusses the particular case the discussion will be about a closed_case which is permissible under the ministerial administrative or procedural matters exception to the ex_parte_communication rules see sec_2 a vi and vii of revproc_2012_18 hence the communication will not violate the ex_parte_communication rules in this regard there is no taxpayer or representative with whom the communication will have to be shared in terms of logistics if the issue in question is an appeals coordinated issue it is recommended that the communication from the originating function be sent to the appeals person who is responsible for coordinating that issue within appeals if it is not an appeals coordinated issue then it is recommended that the communication from the originating function be sent to an appeals person who has program responsibilities relating to that issue that appeals program person could then decide whether or how to disseminate the information within appeals it is preferable that the communication from the originating function not be sent directly to a first- line appeals employee who directly handles live cases moreover if an appeals employee chooses to rely on the court opinion in whole or in part as part of their consideration of a live case down the road the appeals employee should include a reference to that opinion in their discussion of the issue with the taxpayer_representative it is not necessary however for the appeals employee to share the communication from the originating function discussed above or other internal communication regarding the opinion with the taxpayer_representative


department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c o f f i c e o f t h e c h i e f c o u n s e l february number release date conex-139972-16 uil 36b ------------------- --------------------------- --------------------------- ------------------------------- dear ---------------- and ---------------------- of my office about your concerns thank you for your correspondence concerning the premium_tax_credit ptc for eligible taxpayers enrolled in health insurance through a health insurance marketplace marketplace you expressed concern with how the ptc is calculated and the potential inequities for single parent households additionally you spoke with ------------- ----------- the ptc is a refundable tax_credit for certain individuals who enroll or who have a family_member who enrolls in a health insurance plan through a marketplace and is intended to help with the cost of the insurance taxpayers claim the ptc by filing form_8962 premium_tax_credit ptc with their federal_income_tax return the amount of a taxpayer’s ptc for a year depends on the amount of the taxpayer’s household_income and his or her family size for the year for example a qualifying family of with household_income pincite percent of the federal poverty_line for the taxpayer’s family size will get a larger ptc than a similarly-situated family with household_income pincite percent of the federal poverty_line taxpayers with household_income over percent of the federal poverty_line for their family size are not allowed a ptc a taxpayer’s ptc is the lesser_of the premiums for one or more qualified health_plans in which the taxpayer or any individual in the taxpayer’s tax family enrolled enrollment premiums or conex-139972-16 the amount of the second lowest cost silver plan slcsp premium in which the members of the taxpayer’s coverage family may enroll less the taxpayer’s contribution amount a taxpayer’s contribution amount is his or her household_income multiplied by a percentage that varies based on the relationship of the household_income to the federal poverty_line further a taxpayer’s coverage family consists of the individuals in the family who enroll in a marketplace plan and are not eligible to enroll in non-marketplace coverage such as medicaid or the children’s health insurance program chip thus a single parent who enrolls in marketplace coverage and is not eligible to enroll in non- marketplace coverage with three children all eligible for chip has a coverage family of one you stated in your correspondence that there are instances in which the ptc will entirely cover the enrollment premiums for a two-person coverage family who enrolls in a low-cost plan offered by their marketplace whereas the ptc does not entirely cover the premium for a one-person coverage family who enrolls in the same low-cost plan and has the same family size and household_income as the two-person coverage family you expressed concern that this result places an undue financial burden on single-parent households although we do not have independent knowledge of the specific situations you describe we acknowledge that those situations could occur under the law a two-person coverage family eligible for a ptc will generally have a larger ptc than a one-person coverage family if the two families have the same family size and household_income and enroll in the same marketplace plan thus even though the enrollment premiums for the two-person coverage family will be twice that of the one-person coverage family the ptc of the two-person coverage family could be more than twice as much in that case the ptc for the two-person coverage family may entirely cover their enrollment premiums for a low-cost plan whereas the ptc for the one-person coverage family covers some but not all of their enrollment premiums for the same plan congressional action would be required to change this result thank you very much for your concern and your correspondence about this issue please call you have other concerns or questions regarding the ptc --------------------------------------------- ---------------------- ---------------------- or at if sincerely michael j montemurro chief branch office of associate chief_counsel income_tax and accounting


t c summary opinion united_states tax_court scott thomas and jennifer gundry petitioners v commissioner of internal revenue respondent docket no 9543-00s filed date scott thomas and jennifer gundry pro_se daniel j parent for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 in effect when the petition was filed ’ the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated section references hereafter are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioners' federal_income_tax the issues for decision are whether respondent is barred or precluded from making an assessment against petitioners for an erroneous refund and if respondent is not so barred whether petitioners are entitled to an abatement of the interest on the deficiency under sec_6404 e some of the facts were stipulated those facts and the accompanying exhibits are so found and are incorporated herein by reference petitioners' legal residence at the time the petition was filed was suisun california petitioners filed a timely joint federal_income_tax return for attached to their return were three internal_revenue_service irs forms w-2 wage and tax statement for salaries and wages earned by petitioners during that totaled dollar_figure in addition third-party payers reported to the irs through information returns income payments to petitioners during totaling dollar_figure for interest and dividends on their federal_income_tax return for petitioners did not report the dollar_figure dividend and interest_income on line of the return for wages and salaries petitioners reported dollar_figure in wage and salary income rather than the dollar_figure shown on the irs forms w-2 they had received however on page of their return petitioners reported dollar_figure in income which approximated the dollar_figure in wage and salary income the difference of dollar_figure was not explained at trial petitioners calculated the tax on their return based on income of dollar_figure after allowing for deductions and exemptions their tax_liability was dollar_figure petitioners had prepaid dollar_figure through taxes withheld on their wages and thus their return showed a balance due of dollar_figure petitioners paid this amount sometime thereafter petitioners received from respondent a check for the refund of taxes in the amount of dollar_figure at trial counsel for respondent advised the court that the dollar_figure refund was based on respondent's erroneous reliance on the wage income amount of dollar_figure that was shown on line of petitioners’ return and based on such income amount petitioners had overpaid their taxes for which a refund for overpayment was made to petitioners respondent thereafter issued the notice_of_deficiency upon which this case is based to rectify the obvious error by respondent and determined a deficiency based on petitioners' correct wage income plus the interest and dividend income petitioners failed to report on their return the notice_of_deficiency is based on dollar_figure in wage income counsel for respondent at trial agreed that this amount excludes wage income earned by petitioner jennifer gundry in the amount of dollar_figure which respondent inadvertently failed to include in the notice_of_deficiency respondent did not file an answer to assert an increased deficiency for this omitted income and conceded that amount at trial petitioners contend that even though they incorrectly reported the amount of their wage and salary income on page of their return the second page of their return and their computation of tax was based on the correct amount of their wage and salary income but admittedly did not include the dollar_figure in dividend and interest_income therefore petitioners contend that since respondent remitted dollar_figure to them as the refund of an overpayment respondent is precluded from issuing a notice_of_deficiency simply to rectify an error that respondent committed petitioners further contend that the interest on the deficiency should be abated if they are held liable for the amount of the deficiency because the refund was based on an error by respondent the law is well settled that the granting of a refund does not preclude the commissioner from issuing a notice_of_deficiency to recover the refund see 757_f2d_1157 1l1ith cir 733_f2d_435 6th cir affg tcmemo_1982_735 526_f2d_1 9th cir affg tcmemo_1974_243 the taxpayers in gordon v united_states supra and in warner v commissioner supra made the same argument that petitioners are making here ie that the commissioner should not be allowed to make refunds and then demand repayment to this argument the courts of appeals stated 'alas the commissioner confronted by millions of returns and an economy which repeatedly must be nourished by quick refunds must first pay and then look this necessity cannot serve as the basis of an ‘testoppel' ' gordon v united_states supra pincite quoting warner v commissioner f 2d pincite the court therefore must reject petitioners’ position on this issue and sustain respondent with respect to petitioners' contention that the interest on the deficiencies should be abated sec_6404 provides the secretary shall abate the assessment of all interest on any erroneous refund under sec_6602 until the date demand for repayment is made unless--- a the taxpayer or a related_party has in any way caused such erroneous refund or b such erroneous refund exceeds dollar_figure without passing upon the question of whether the refund in this case constitutes an erroneous refund that was caused by petitioners due to the error in reporting income on their income_tax return we hold that this court has no jurisdiction in this case over an abatement of interest issue arising under sec_6404 as the court noted in 89_tc_352 sec_6404 by its very terms does not operate until after there has been an assessment of interest which has not yet occurred in this case in this case neither the deficiency nor the interest on the deficiency has been assessed nor can any assessment be made until the decision in this case is entered petitioners may file with respondent an administrative request for abatement of any interest assessed if in a notice of final_determination petitioners' request is denied petitioners may then petition this court for a review of that determination however this court will order an abatement only if it is shown that the commissioner abused his discretion in denying the abatement see sec_6404 rule b 112_tc_230 reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent sec_6404 was redesignated sec_6404 by the internal_revenue_service restructuring reform act of publaw_105_206 sec_3309 112_stat_685


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 plr-125131-09 date -------------------------------------------------------------------- x -------------------------------------------------- country date -------- ------------------------- dear ------------- this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an entity classification election the information submitted states that x was formed under the laws of country x represents that x is a foreign_entity eligible to be treated as a disregarded_entity but that it failed to timely file form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 plr-125131-09 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center and that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal 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 plr-125131-09 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely curt g wilson associate chief_counsel office_of_chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si - plr-119316-98 date date x a b c d d1 year dear this letter responds to your letter dated date and subsequent correspondence submitted by you as authorized representative of x on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 a b and c were at that time the sole shareholders and officers of x a has since died with d inheriting all of a’s interest in x and acting as the executor of a’s estate c x’s president represents that the shareholders of x intended x to be an s_corporation and that a form_2553 election by a small_business_corporation was prepared and timely filed effective for x’s year taxable_year however neither x nor the internal_revenue_service have any written evidence of the form_2553 having been filed for all taxable years x and its shareholders have filed form_1120s u s income_tax return for an s_corporation and form_1040 u s individual_income_tax_return consistent with x being an s_corporation sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office copies of this letter are being sent to x and to x’s other authorized representative sincerely yours j thomas hines senior technician reviewer office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


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 b03 plr-142994-07 date date legend legend x a b ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------- ------------------------- ------------------------- trust ----------------------------------------------------------------------------------------------------- ----------------------- -------------------- ---------------------- state ----------------------------------- date date date dear ------------- x by x's authorized representative requesting inadvertent termination relief under sec_1362 of the internal_revenue_code ----------------- this letter responds to a letter dated date submitted on behalf of plr-142994-07 facts under the terms of the trust the sole beneficiary of the trust was b x the information submitted states that x was incorporated under the laws of state on date and elected to be treated as an s_corporation effective date a was a shareholder of x on date a transferred shares of x stock to trust represents that the trust was intended to qualify as a qualified_subchapter_s_trust qsst under sec_1361 however b did not file a timely qsst election on behalf of the trust therefore x's s_corporation_election terminated on date b reported b's allocable share of the trust's income consistent with the treatment of the trust as a qsst on all affected returns corporation election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make such adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary x represents that the circumstances resulting in the termination of x's s law and analysis sec_1361 provides in part that the term small_business sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder of a_trust described in sec_1361 the deemed owner shall be treated as the shareholder which a beneficiary makes an election under sec_1361 -- a such trust shall be treated as a_trust described in sec_1361 and b for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that for purposes of sec_1361 in the case sec_1361 provides in part that in the case of a qsst with respect to sec_1361 provides that a beneficiary of a qsst or his legal sec_1_1361-1 of the income_tax regulations provides that the current sec_1362 provides that except as provided in sec_1362 a small_business plr-142994-07 representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1361 shall be effective up to days and months before the date of the election income_beneficiary of the trust must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax return the applicable form or a statement including the information listed in sec_1_1361-1 corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on and after the date of cessation corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination such corporation shall be treated as an s_corporation during the period specified by the secretary sec_1362 provides that if -- an election under sec_1362 by any sec_1362 provides that an election under sec_1362 will be conclusion based solely on the representations made and the information submitted we conclude that x's s_corporation_election terminated under sec_1362 on date when stock was transferred to an ineligible trust we also conclude that this termination was inadvertent within the meaning of sec_1362 accordingly pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided that x's s_corporation_election was valid and was not otherwise terminated under sec_1362 and provided that b files a qsst election for the trust with if the trust x or x's shareholders fail to treat x as described above this ruling plr-142994-07 an effective date of date with the appropriate service_center within days following the date of this letter a copy of this letter should be attached to the qsst election during the termination period and thereafter the trust will be treated as a qsst described in sec_1361 assuming the trust otherwise qualifies as a qsst and b will be treated as the owner of the x stock held by the trust accordingly all of x's shareholders in determining their respective income_tax liabilities during the termination period and thereafter must include their pro_rata share of the separately_stated items of income including tax-exempt_income loss deduction or credit and non-separately computed items of income or loss of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 shall be null and void the federal tax consequences of the transactions described above under any other provision of the code specifically no opinion is expressed or implied on whether x is otherwise eligible to be treated as an s_corporation or whether the trust is eligible to be a qsst under sec_1361 of the code provides that it may not be used or cited as precedent is being sent to x's authorized representative this ruling letter is directed only to the taxpayer requesting it sec_6110 in accordance with a power_of_attorney on file with this office a copy of this letter except as specifically ruled above we express or imply no opinion concerning sincerely s mary beth collins senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures a copy of this letter a copy for sec_6110 purposes