department of the treasury internal_revenue_service washington d c date number release date cc dom fs p si uilc internal_revenue_service national_office field_service_advice memorandum for district_counsel north texas district dallas cc msr ntx dal from subject assistant chief_counsel field service cc dom fs eligible_access_expenditures this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend taxpayer year year amount dollar_figure amount dollar_figure machine a machine b issue whether any portion of the amounts expended to acquire two dental x-ray machines purchased by a family practice dentist are eligible for the disabled_access_credit under sec_44 of the internal_revenue_code conclusion the disabled_access_credit is not available for any portion of the amounts expended to acquire these two x-ray machines the expenditures to acquire the machines do not qualify as eligible_access_expenditures because the machines were not purchased by the dentist to comply with any requirement of the americans with disabilities act facts taxpayer is a dentist who started a sole practice in year the practice was a family practice we do not know the exact number of taxpayer’s patients who were disabled or the nature of their disabilities only that they were not more than a usual number originally the taxpayer worked in other dental offices as an independent_contractor and used standard dental x-ray machines the kind that take postage stamp size pictures while the film is in the patient’s mouth taxpayer purchased two x-ray machines and claimed the sec_44 credit when taxpayer commenced an independent practice of dentistry in year these two new machines have different functions than a standard x-ray machine machine a rotates around the patient’s head taking a panoramic view of all the patient’s teeth the x-ray picture it produces is cheaper than a full mouth series produced by a standard machine machine b creates a cephalogram an x-ray of the patient’s entire head it allows the petitioner to determine if the patient has problems with his jaw structure or the positioning of his teeth the brochure describing this machine stresses that it can be used by all patients the brochure states that the machine makes total oral diagnostics practical and comfortable for all patients - standing seated or in a wheelchair - without changes to the unit or optional accessories the taxpayer has stated that the primary consideration in purchasing these particular x-ray machines was their price some other machines that take these kinds of pictures are considerably more expensive these two machines cost a total of amount the taxpayer claimed half that amount as a disabled_access_credit allowable under sec_44 of the code the service denied that credit but the net_adjustment to income was only amount due to an offsetting increase in allowable_depreciation on the machines the americans with disabilities act the americans with disabilities act of the ada public law is a national mandate for the elimination of discrimination against individuals with disabilities sec_302 of the ada provides that no individual may be discriminated against on the basis of disability in the full and equal enjoyment of the goods services and facilities of any place of public accommodation sec_301 of the ada defines public accommodation to include the professional offices of health care providers discrimination is defined in sec_302 of the ada to include a failure to make reasonable modifications in policies practices or procedures when such modifications are necessary to afford goods facilities or accommodations to individuals with disabilities this section also provides that discrimination includes the failure to take steps necessary to ensure that no individual with a disability is excluded denied services segregated or otherwise treated differently than other individuals because of the absence of auxiliary aids and services unless the entity can demonstrate that taking such steps would fundamentally alter the nature of the good service or accommodation being offered or would otherwise result in an undue burden the disabled_access_credit the disabled_access_credit was enacted as sec_44 of the internal_revenue_code by section of the budget reconciliation act of it was intended to assist eligible small businesses to comply with the applicable_requirements of the ada see conference_report rept no 101st cong 2nd sess date the general_rule allows eligible small businesses to claim a credit equal to percent of eligible_access_expenditures in excess of dollar_figure but not to exceed dollar_figure therefore the maximum allowable credit in any year is dollar_figure eligible_access_expenditures are defined in sec_44 as amounts paid_or_incurred by an eligible_small_business for the purpose of enabling such small_business to comply with applicable_requirements under the americans with disabilities act of in other words as the conference_report confirms eligible_access_expenditures are expenditures required by the ada therefore expenditures not required by the ada even those with some perceived benefit for the disabled are not eligible for the credit sec_44 provides that eligible_access_expenditures include amounts paid_or_incurred whether taxpayer is an eligible_small_business is outside the scope of this advice however businesses with gross annual receipts of no more than dollar_figure million or having no more than employees are eligible small businesses therefore for purposes of this advice we assume taxpayer falls within this definition a for the purpose of removing architectural communication physical or transportation barriers which prevent a business from being accessible to or usable by individuals with disabilities b to provide qualified interpreters or other effective methods of making aurally delivered material available to individuals with visual impairments c to provide qualified readers taped texts and other effective methods of making visually delivered material available to individuals with visual impairments d to acquire or modify equipment or devices for individuals with disabilities or e to provide other similar services modifications materials or equipment sec_44 c provides that eligible_access_expenditures includes only expenditures which are reasonable expenditures that are unnecessary to accomplish the purposes in sec_44 are not included discussion there is no indication that taxpayer was required by the ada to purchase the two x-ray machines in issue moreover the machines are not designed to address a particular concern of the disabled but have general usefulness in serving all patients whether or not they are disabled the primary benefit of the machines is to taxpayer’s sole family dental practice the machines provide x-ray pictures that would not otherwise be available through other types of x-ray equipment or would be available only with more effort and at increased cost using a standard dental x- ray machine any benefit to disabled patients is ancillary to the primary purpose of assisting in the practice of family dentistry indeed there is no reason to believe the machines benefit disabled patients presumably all patients sit in the dental chair for other aspects of their diagnosis and treatment if so then having their x-rays taken while they remain in their wheelchair would not be of any benefit case development hazards and other considerations if you have any further questions please call by patrick putzi special counsel passthroughs and special industries branch field service division


t c summary opinion united_states tax_court terence m taylor petitioner v commissioner of internal revenue respondent docket no 1340-00s filed date terence m taylor pro_se raymond m boulanger for respondent dinan special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subseguent section references are to the internal_revenue_code in - - effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the taxable_year the issues for decision are whether petitioner is entitled to head_of_household filing_status whether petitioner is entitled to three dependency_exemption deductions and whether petitioner is entitled to an earned_income_credit petitioner does not dispute respondent’s determination that he is liable for self-employment_income tax and entitled to a deduction therefor petitioner resided in buffalo new york on the date the petition was filed in this case petitioner has three children who have resided with him from birth tamaris l taylor now deceased lakeda s taylor and twila n taylor at the end of the year in issue these children were and years old respectively petitioner worked hours per week tamaris was not employed and lakeda and twila were in school the children’s mother resided in a portion of the same house as petitioner and the children and was employed as a dietician petitioner and the children’s mother have never been married and custody of the children has never been legally established - - petitioner filed a federal_income_tax return for taxable_year as a head_of_household he claimed three dependency_exemption deductions one for each of his children and he claimed an earned_income_credit with two qualifying children-- lakeda and twila he reported the following income_tax_liability wage income dollar_figure standard_deduction big_number personal_exemption deduction big_number dependency_exemption deductions big_number taxable_income -q- total_tax -q- rarned income credit big_number in the statutory_notice_of_deficiency respondent changed petitioner’s filing_status to single disallowed the three dependency_exemption deductions and disallowed the full amount of the claimed earned_income_credit because petitioner had not provided supporting information at trial respondent’s sole argument was that petitioner is not entitled to head_of_household filing_status the dependency_exemption deductions and the earned_income_credit because he has not provided documentary_evidence proving he has legal custody of the children among other requirements a taxpayer generally is entitled to a dependency_exemption deduction for a child if the taxpayer provides over half of the child’s support during the taxable_year sec_15l a c and a the child’s gross_income - must not exceed the exemption_amount or the child must be either under the age of or a student under the age of sec_151 generally an unmarried taxpayer is entitled to head_of_household filing_status if the taxpayer maintains a household which is the principal_place_of_abode of at least one unmarried child sec_2 under sec_32 an eligible_individual is allowed a credit which is calculated as a percentage of the individual’s earned_income subject_to certain limitations sec_32 any individual with a qualifying_child is an eligible_individual sec_32 as is relevant here the definition of a gualifying child for purposes of sec_32 includes a child of a taxpayer who has the same principal_place_of_abode as the taxpayer for more than half of the taxable_year sec_32 a a qualifying_child must be either under the age of or a student under the age of at the close of the taxable_year or be permanently_and_totally_disabled at any time during the year sec_32 c we found petitioner to be a credible witness and accept his testimony concerning his relationship with his children and their residence during the year in issue on these facts we find it unnecessary for petitioner to produce legal documentation proving he had custody of his children during that year as respondent - - argues is necessary petitioner has established to our satisfaction that he meets the requirements for each of the relevant code provisions with respect to the dependency_exemption deductions filing_status and earned_income_credit there is scant evidence in the record concerning the financial support of the children the cost of maintaining their household or the income of the children’s mother however because respondent was clear at trial that his sole disagreement with petitioner was over legal custody of the children we find that respondent has conceded these issues we accordingly hold that petitioner is entitled to head_of_household filing_status the dependency_exemption deductions and the earned_income_credit as claimed reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered under rule


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend w name x name y name r amount t amount u amount v dollars amount w dollars amount x dollars amount y dollars amount dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated date our records indicate that you were recognized as exempt from federal_income_tax under sec_501 of the code and that you are is classified as a private_foundation as defined in sec_509 you will conduct w the purpose of w potential and future viability of performing artists in specific fields as part of w you will operate two grant programs x and y is to invest in empower and celebrate the the purpose of x is to provide grants to leading artists support the artists’ creative and professional development in the performing arts to the purpose of y to provide grants to fellows in the performing arts to support their creative and professional development grant procedures for x grant recipients for x will be selected without any_action on their part to receive the grant hence there will be no application process or similar procedure that will be used to select grant recipients you will contract with an unrelated third party organization that along with your staff will identify eligible grant recipients the third party organization will also manage the selection process and provide technical assistance to recipients of grants each year it is anticipated that approximately r performing artists will be eligible to receive a grant under x you expect to award up to t grants under x annually over five years to individuals in the performing arts combination of both unrestricted and restricted portions and consist of x dollars of unrestricted funding and up to y dollars of restricted funding the grant award is a unrestricted funding is for promoting the artists long-term creative and professional development through activities such as travel study time for reflection professional skills enhancement and professional development this unrestricted funding will enable artists to take creative risks explore new ideas and address important needs and thus improve or enhance an artistic capacity skill or talent restricted funding is project specific and designed to support efforts to connect the artist to their audiences more meaningfully whether through audience development programs or arts education activities in addition this funding is offered to explore new deeper and more effective ways of engaging the public in their work and cultivating long-term audience relationships a committee consisting of a distinguished arts leaders who offer general expertise in the contemporary performing arts and b field specialists who have expertise in each performing arts discipline will select recipients of the grants members of the selection committee will not be in a position to derive a private benefit directly or indirectly if certain potential grant recipients are recommended or selected as the case may be over others your board_of directors and or board committee or one or more of your officers will review and approve each group of grant recipients selected for funding by the selection committee grant recipients will be selected based on eligibility exceptional creativity evidence of artistic maturity and developed expressive style evidence of ongoing creative investigation and self-challenge evidence of outstanding contribution to their field s evidence of commitment to making work in the nonprofit sector and the potential to make a continuing significant contribution to their field s in the future all grant recipients will be selected on an objective and non- discriminatory basis without regard to race gender religion national origin ethnicity or sexual orientation the terms and conditions of each grant will be contained in a letter agreement sent to the grant recipient to notify him her of the grant the letter provides the following concerning the unrestricted portion of the grant a description of the specific purpose of the grant its duration the expenses that can be paid_by the grant and requirements for annual and final reports to you and annual affirmation that the grant recipient intends to continue working professionally in the arts field including the due dates of the reports each recipient will his or her artistic capacity skill or talent with the award funds and a payout schedule for receiving the funds be required to provide his or her plan for improving or enhancing the letter provides the following concerning the restricted portion of the grant the specific purpose of the grant that it is to be used for a specific project involving either audience development programs or arts education activities furthermore the letter provides the grant’s duration the expenses that can be paid_by the grant and requirements for annual and final reports to you and an annual affirmation that the grant recipient intends to continue working professionally in the arts field including the due dates of the reports once the award recipients are notified of the awards they must provide proposed plans projects and budgets for the unrestricted and restricted portions of the awards for the restricted funds the project needs to identify the audience it intends to reach the value of the audience for the artist's long-term goals and the value of the project in cultivating that deeper audience connection the selection committee will review the proposed project and budget to determine if the proposed project addresses the goal of connecting the artist to and expanding his her audiences if they determine that the proposed project does not address expanding audiences for artistic work and or arts education activities the artist will be notified and a request will be made that a revised or new budget and proposed project be submitted for approval the recipient will be required to sign a copy of the letter agreement and return it to you to confirm his or her acceptance of the terms and conditions payment of the grant funds will be made directly to the individual grant recipient in accordance with a schedule to be defined by the grant recipient with no more than a specified percentage of the unrestricted funding paid out in any one year awards are not renewable beyond the specific period listed in the original proposal grant procedures for y grant recipients for y will be selected without any_action on their part to receive the grant hence there will be no application process or similar procedure that will be used to select grant recipients you will contract with an unrelated third party organization that along with your staff will invite recipients of the x grant other arts professionals and established artists to nominate up to three eligible artists in the performing arts who the nominators believe have the potential to impact and advance their respective fields the third party organization will also manage the selection process and provide technical assistance to recipients of grants you expect to award up to t grants per year under y over five years to art fellows in the performing arts you will consider at least u nominations for y in the first year nominees not chosen in a given year will automatically continue to be eligible for consideration in subsequent years and the program staff will solicit a minimum of u new nominations each year eligible recipients of y will be residents or citizens of the united_states be generative or interpretive artists where generative means they are the person primarily responsible for creation of new works in specific performing arts disciplines and interpretive means artists who interpret or execute works created by others and have been nominated for the grant and have demonstrated the potential to influence their respective fields but who in general have yet to receive the level of recognition in national competitions that the recipients under x have achieved the grant award is a combination of both unrestricted and restricted portions awards under y will consist of v dollars of unrestricted funding and up to w dollars of restricted funding unrestricted funding is for promoting the artists long-term creative and professional development through activities such as travel study time for reflection professional skills enhancement and professional development this unrestricted funding will enable artists to take creative risks explore new ideas and address important needs - and thus improve or enhance an artistic capacity skill or talent restricted funding is project specific and designed to support efforts to connect the artist to their audiences more meaningfully whether through audience development programs or arts education activities in addition this funding is offered to explore new deeper and more effective ways of engaging the public in their work and cultivating long-term audience relationships a committee consisting of notable and rising performing arts professionals and artists will select recipients of the grants from among the nominees your board_of directors and or board committee or one or more of your officers will review and approve each group of grant recipients selected for funding by the selection committee grant recipients will be selected by the selection committee based on their potential to influence their respective fields on an objective and non-discriminatory basis without regard to race gender religion national origin ethnicity or sexual orientation all grant recipients will be selected the terms and conditions of each grant will be contained in a letter agreement sent to the grant recipient to notify him her of the grant the letter provides the following concerning the unrestricted portion of the grant a description of the specific purpose of the grant its duration the expenses that can be paid_by the grant and requirements for annual and final reports to you and annual affirmation that the grant recipient intends to continue working professionally in the arts field including the due dates of the reports each recipient will his or her artistic capacity skill or talent with the award funds and a payout schedule for receiving the funds be required to provide his or her plan for improving or enhancing the letter provides the following concerning the restricted portion of the grant the specific purpose of the grant that it is to be used for a specific project involving either audience development programs or arts education activities furthermore the letter provides the grant’s duration the expenses that can be paid_by the grant and requirements for annual and final reports to you and an annual affirmation that the grant recipient intends to continue working professionally in the arts field including the due dates of the reports once the award recipients are notified of the awards they must provide proposed plans projects and budgets for the unrestricted and restricted portions of the awards for the restricted funds the project needs to identify the audience it intends to reach the value of the audience for the artist's long-term goals and the value of the project in cultivating that deeper audience connection the selection committee will review the proposed project and budget to determine if the proposed project addresses the goal of connecting the artist to and expanding his her audiences if they determine that the proposed project does not address expanding audiences for artistic work and or arts education activities the artist will be notified and a request will be made that a revised or new budget and proposed project be submitted for approval the recipient will be required to sign a copy of the letter agreement and return it to you to confirm his or her acceptance of the terms and conditions payment of the grant funds will be made directly to the individual grant recipient in accordance with a schedule to be defined by the grant recipient with no more than a specified percent of the unrestricted funding paid out in any one year awards are not renewable beyond the specific period listed in the original proposal oversight and reporting procedures for both x and y no grants will be made i to your substantial contributors ii to your directors or officers iii to any member of the selection committee iv to any family members of any of the persons listed in clauses i through iii above or v to any disqualified_person with respect to you in addition no grants will be made for a purpose that is inconsistent with your charitable and educational_purposes you will require each grant recipient to submit a report at specified periods which will be at least once each year detailing the use of the grant funds and the progress the grant recipient has made toward achieving the purposes for which the grant was made as well as accounting for the funds that have been spent up to the date_of_the_report in addition an annual affirmation is required upon final expenditure of the grant funds the grant recipient will be required to make a final report describing the grant recipient’s accomplishments with respect to the grant and accounting for all the funds received under the grant reports will be reviewed and approved by the program staff and your staff annually to determine both that recipients are spending funds for the purposes awarded and the payout request meets the requirements of the program which specifies that an individual recipient cannot receive more than a certain percentage of the total unrestricted funding in any one year grant recipients may affirm or revise their payout schedule and or plan periodically with the approval of program staff and your staff if a grant recipient chooses to cease working in the arts fields the recipient will be ineligible to receive any outstanding unpaid funding additionally in the unlikely event of a recipient's death before the grant has been fully paid funding for the deceased recipient will cease and no further grant funds would be paid where reports to you or other information including the failure to submit reports after a reasonable_time has elapsed from their due_date indicates that all or any part of the grant funds are not being used for the purposes of the grant you will initiate and investigation if you determine that any part of the grant has been used for improper purposes you will take all reasonable and appropriate steps to recover diverted grant funds or to insure the restoration of diverted funds and the dedication of other grant funds held by the grant recipient to the purposes being financed by the grant these steps will include i withholding any remaining disbursements of the grant funds until you have received a the grant recipient’s assurances that future diversions will not occur and b any delinquent reports from the grant recipient and ii if necessary any legal actions unless such action would in all probability not result in the satisfaction of execution on a judgment you agree to maintain records that include the following i information used to evaluate the qualification of potential grantees ii identification of the grantees including any relationship of any grantee to the private_foundation iii the amount and purpose of each grant and iv all grantee reports and other follow-up data obtained in administering the private foundation’s grant program sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i ii its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your educational grant procedures is a one-time approval of your system standards and procedures that will result in grants which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent grant programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours holly o paz director exempt_organizations rulings and agreements enclosures notice a copy of the redacted letter


third party communication none date of communication not applicable office_of_chief_counsel internal_revenue_service memorandum number release date cc psi dsryan postf-120621-11 uilc date september to frances f regan area_counsel cc sb mary p hamilton senior attorney cc sb bos from curt g wilson associate chief_counsel cc psi subject ------------------------------------ this memorandum responds to your request for assistance this document may not be used or cited as precedent legend -------------- --------------- ------------------------------------ -------------------------------------------------- ------------------- -------------------- ------------------------ ------------------------- -------------- ------------------------------------------------------------------------ donor a donor b donors trust date child a child b state other forum rules other forum ------------------------------------------------------------- cite ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- cite ------------------------------------------------------------------ ------------------------------------------------------------------------ postf-120621-11 cite ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- cite ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------- cite cite ------------------------------------------------------------------------ ------------------------------------------------------- issue sec_1 whether the donors made completed gifts on transferring property to the trust whether annual exclusions are allowable under sec_2503 for the withdrawal rights provided in the trust conclusion sec_1 on transferring the property to the trust the donors made completed gifts of the beneficial term interests the withdrawal rights are unenforceable and illusory no annual exclusion is allowable under sec_2503 for the purported withdrawal rights facts donor a and donor b donors gratuitously transferred property to a_trust trust on date and designated their adult child child a as the sole trustee the trust beneficiaries are the donors’ children other lineal_descendants and their spouses the trust will terminate when both donors have died the trust provisions the trust states that it is irrevocable and that the donors renounce any power to determine or control the beneficial_enjoyment of trust income or principal however the trust provides the donors with testamentary limited powers of appointment if the donors do not exercise their testamentary powers the property remaining in the trust at termination will be distributed to child a and child b the trustee child a has absolute and unreviewable discretion in administering the trust for the benefit of the donors’ children other lineal_descendants and their spouses beneficial term interests income and principal may be distributed at any time for a beneficiary’s health education maintenance support wedding costs purchase of a primary residence or business or for any other purpose income and principal may also be distributed to a charitable_organization postf-120621-11 each beneficiary may withdraw an amount of property based on the sec_2503 annual exclusion amount in any year in which a transfer is made to the trust however this may be voided by the trustee for additions made to the trust the trust provides that the construction validity and administration of the trust are to be determined by state law but provision is made for other forum rules specifically all questions and disputes concerning the trust must be submitted to the other forum that is charged with enforcing the trust a beneficiary filing or participating in a civil_proceeding to enforce the trust will be excluded from any further participation in the trust law and analysis issue the donors’ representative contends that because the donors retained testamentary limited powers of appointment over the trust they retained dominion and control_over the transferred property therefore they did not make any completed gifts sec_2501 of the internal_revenue_code imposes a tax on the transfer of property by gift by any individual under sec_2502 the gift_tax imposed under sec_2501 is the liability of the donor sec_2511 provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 provides in part that the gift_tax is an excise upon the donor’s act of making the transfer and is measured by the value of the property passing from the donor sec_25_2511-2 provides in part that as to any property or interest therein of which the donor has so parted with dominion and control as to leave in him no power to change its disposition the gift is complete sec_25_2511-2 further provides in part that if upon a transfer of property the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides in part that a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard the relinquishment or postf-120621-11 termination of a power to change the beneficiaries of transferred property occurring otherwise than by the death of the donor the statute being confined to transfers by living donors is regarded as the event that completes the gift and causes the tax to apply in 205_us_466 the supreme court considered in part the legal_interest that is subject_to a testamentary_power_of_appointment in that case a grantor created a_trust providing a lifetime income_interest for his daughter the trust also provided the daughter with a testamentary limited power to appoint the trust property if she failed to exercise the power when she died the trust property was to be distributed to designated persons the court held that for new york inheritance_tax purposes the daughter’s execution of her testamentary power was considered the source of title to the remainder as the holder of a testamentary_power_of_appointment she controlled the remainder passing at her death see u s pincite though it predates the enactment of the gift_tax the chanler opinion supports the proposition that a testamentary_power_of_appointment relates to the remainder of a_trust not the preceding beneficial term interests the testamentary power does not and cannot affect the trust beneficiaries’ rights and interests in the property during the trust term rather a trustee with complete discretion to distribute income and principal to the term beneficiaries may in exercising his discretion distribute some or all of the trust property during the trust term the holder of a testamentary power has no authority to control or alter these distributions because his power relates only to the remainder ie the property that will still be in the trust when the beneficial term interests are terminated see bowe-parker page on the law of wills dollar_figure see also bittker and lokken federal taxation of income estate and gifts howard m zaritsky tax planning for family wealth transfers 4th ed cum supp no from the time the gift_tax was enacted taxpayers have contested the issue of when a donor parts with dominion and control so as to make a completed_gift for example in sanford’s 308_us_39 the grantor in transferred property to a_trust for others he reserved i a revocation power exercisable at any time during his life to retrieve the property and thereby terminate every beneficial_interest and ii a modification power exercisable at any time during his life to terminate or change every beneficial_interest in the grantor relinquished his revocation power but he retained his modification power in he relinquished his modification power the court held that notwithstanding the grantor’s creation of the trust and relinquishment of his revocation power he retained dominion and control_over the disposition of the trust property until he renounced his power to modify the trust consequently the grantor made a taxable gift in when he relinquished his modification power see 288_us_280 following sanford’s estate the supreme court considered various situations in which a_trust instrument purported to divest the respective grantor of all dominion and postf-120621-11 control_over property to the extent that the property could not be returned to the grantor except by reason of contingencies beyond his control in these cases the court noted that the respective grantor lost all economic control upon making the transfer which he would not regain unless certain contingencies occurred the court concluded that the respective gifts were complete except for the value of the retained rights 318_us_176 318_us_184 5_tc_588 see sec_25_2511-2 consistent with chanler v kelsey the service has maintained in litigation that a power holder’s testamentary limited_power_of_appointment relates only to the remainder of the respective trust see 858_f2d_917 3d cir testamentary power holder’s renunciation of her power relates to the remainder aff’g 86_tc_478 see also 675_f2d_774 5th cir grantor’s power to change the beneficiaries who would receive trust property when her lifetime income_interest terminated constituted a gift of the remainder aff’g 75_tc_346 see smith v shaughnessy supra right to receive income during the trust term and testamentary power to appoint the remainder are separate and severable interests in the case at hand when each donor transferred property to the trust on date he or she retained a testamentary limited power to appoint so much of it as would still be in the trust at his or her death the trust emphasizes that the donors do not retain any powers or rights to affect the beneficial term interests of their children other issue and their spouses and charities during the trust term with respect to those interests the donors fully divested themselves of dominion and control of the property when they transferred the property to the trust on date indeed during the period extending from the creation of the trust until the donors’ deaths the trustee child a has sole and unquestionable discretion to distribute income and principal to the beneficial term interests he may even terminate the trust by distributing all of the property accordingly for gift_tax purposes the donors’ transfers to the trust constituted a completed_gift of the beneficial term interests the donors’ testamentary limited powers of appointment relate only to the trust remainder their relinquishment of their testamentary powers during the trust term would affect only the ultimate disposition of the remainder and as such would constitute a transfer of the remainder bittker and lokken federal taxation of income estates and gifts we note that the trust has conflicting provisions in one provision the donors emphatically renounce any power to determine or control the beneficial_enjoyment of the trust but other provisions state that the donors have testamentary limited powers of appointment under state law generally if two provisions conflict and cannot be reconciled the latter provision is considered to indicate the grantor’s subsequent intention and that provision prevails that is the rule unless the general scope of the trust leads to a contrary conclusion cite we believe that the highest court of state would conclude that the donors intended to retain the testamentary limited powers and thus did so postf-120621-11 issue the donors’ representative contends that if the donors made completed gifts on date the gifts were of minority interests to the beneficiaries equal in value to their respective withdrawal rights crummey powers therefore the gift_tax exclusions allowable under sec_2503 effectively reduced the amount of taxable_gifts to zero the withdrawal rights are not legally enforceable and thus are not present interests sec_2503 provides in part that the term taxable_gifts means the total_amount_of_gifts made during the calendar_year sec_2503 provides in part that in the case of gifts other than gifts of future interests in property made to any person during the calendar_year the first dollar_figure of such gifts to such person shall not for purposes of sec_2503 be included in the total_amount_of_gifts made during such year sec_25_2503-3 provides in part that no part of the value of a gift of a future_interest may be excluded in determining the total_amount_of_gifts an unrestricted right to the immediate use possession or enjoyment of property or the income from property is a present_interest in property to be a present_interest a withdrawal right must be legally enforceable for example if a_trust provides for withdrawal rights and the trustee refuses to comply with a beneficiary’s withdrawal demand the beneficiary must be able to go before a state court to enforce it see cristofani v commissioner 97_tc_74 restatement of the law of trusts sec_197 nature of remedies of beneficiary bogert trusts and trustees vol sec_861 remedies of the beneficiary and trustee as a matter of public policy the federal courts are the proper venue for determining an individual’s federal tax status and the federal courts are not bound by the determinations of a private forum such as other forum concerning such status 116_f3d_334 8th cir likewise as a matter of public policy a state court will not take judicial_notice of a private forum’s or group’s or sect’s construction and determination of state law pertaining to a_trust agreement such as the trust in this case cite these determinations are strictly within the purview of the state courts cite cite under state law a_trust clause may prohibit a beneficiary from seeking civil redress cite although the state legislature made a public policy decision to allow a beneficiary to make certain inquiries without fear of risking forfeiture these safe harbors are not relevant here cite postf-120621-11 under the terms of the trust in this case a beneficiary cannot enforce his withdrawal right in a state court he may only press his demand before an other forum and be subject_to the other forum’s rules notwithstanding any provisions in the trust to the contrary the other forum will not recognize state or federal_law if the beneficiary proceeds to a state court his existing right to income and or principal for his health education maintenance and support will immediately terminate he will not receive any income or principal for his marriage to buy a home or business to enter a trade or for any other purpose he will not have withdrawal rights in the future and his contingent inheritance rights will be extinguished thus a beneficiary faces dire consequences if he seeks legal redress as a practical matter a beneficiary is foreclosed from enforcing his withdrawal right in a state court of law or equity withdrawal rights such as these are not the legally enforceable rights necessary to constitute a present_interest because the threat of severe economic punishment looms over any beneficiary contemplating a civil enforcement suit the withdrawal rights are illusory consequently no annual exclusion under sec_2503 is allowable for any of the withdrawal rights see revrul_85_24 1985_1_cb_329 revrul_81_7 1981_1_cb_474 case development hazards and other considerations it is our belief that sec_2702 applies in valuing the gifts in this case sec_2702 provides special valuation rules with respect to transfers of interests in trusts generally under sec_2702 the value of any retained_interest which is not a qualified_interest shall be treated as being zero sec_25_2702-2 provides that an interest in trust includes a power with respect to a_trust if the existence of the power would cause any portion of a transfer to be treated as an incomplete_gift accordingly under sec_25_2702-2 the donors’ retained testamentary powers are interests and the value of their retained interests is zero therefore the value of the donors’ gift is the full value of the transferred property if additions were made to the trust annual exclusions are not allowable for withdrawal rights relating to the additions because the trustee can void those rights after an addition is made sec_25_2503-3 example and example please note however that our belief in this regard carries certain hazards to the extent further study is required should you wish to pursue this argument please coordinate with the national_office postf-120621-11 this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call deborah s ryan at if you have any further questions sincerely associate chief_counsel passthroughs special industries ______________________________ by leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs special industries


t c memo united_states tax_court estate of kestutis biskis deceased meilute biskis independent administrator and meilute biskis petitioners v commissioner of internal revenue respondent docket no filed date dominic s rizzo for petitioners marie eb small for respondent memorandum opinion panuthos chief special_trial_judge this case is before the court on petitioners’ motion to dismiss for lack of jurisdiction filed pursuant to rule petitioners contend unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue continued - - that we lack jurisdiction because the notice_of_deficiency was invalid further petitioners argue that respondent is barred from proceeding in this case because the 3-year statute_of_limitations period provided by sec_6501 expired background at the time of filing the petition petitioner meilute biskis resided in downers grove illinois all references to petitioner are to meilute biskis kestutis biskis mr biskis and petitioner jointly filed their federal_income_tax return for taxable_year on date mr biskis died on date in lithuania on date petitioner submitted to respondent form_2848 power_of_attorney and declaration of representative appointing vytautas vebeliunas an accountant to represent petitioner and the estate of mr biskis for taxable_year petitioner requested that mr vebeliunas receive all original communications from respondent and all copies should be sent to petitioner on date ms winslow an internal_revenue_service irs tax_auditor notified petitioners and mr vebeliunas that petitioner had failed to file form_56 letter of testamentary and death certificate which was required to validate form_2848 as to the estate of mr biskis t continued and all rule references are to the tax_court rules_of_practice and procedure on date respondent mailed by certified mail a notice_of_deficiency addressed to mr biskis and petitioner pincite janes avenue downers grove illinois the notice determined a deficiency in their joint income_tax for on date petitioner received the notice wrapped in a plastic bag the envelope in which the statutory notice was contained was ripped anda letter of apology from a manager of a branch of the u s postal service usps was affixed to the envelope or plastic bag respondent did not send the original or a copy of the notice_of_deficiency for taxable_year to mr vebeliunas upon receipt of the notice_of_deficiency petitioner immediately forwarded the notice to mr vebeliunas respondent sent a copy of the notice_of_deficiency to petitioners on date respondent did not send an original or a copy of the notice_of_deficiency to mr vebeliunas on date petitioners filed a timely petition with this court petitioners filed the instant motion asserting that the notice_of_deficiency was invalid because the original notice was not sent to the individual listed on form_2848 further petitioners argue that even if the notice was valid it was untimely since it was not properly mailed and it was received by petitioners after the period of limitations expired the letter was erroneously dated date q4e- respondent asserts that the notice_of_deficiency was valid even if it was not mailed to petitioners’ last_known_address because the notice was actually received by petitioners and petitioners filed a timely petition with this court further respondent argues the period of limitations was tolled on date by the timely mailing of the notice_of_deficiency discussion a validity of the statutory notice sec_6212 provides that the secretary is authorized to send a notice_of_deficiency to a taxpayer by certified mail or registered mail if a notice_of_deficiency is mailed to a taxpayer within the united_states the taxpayer may file a petition in this court within days after the notice_of_deficiency is mailed see sec_6213 a valid notice_of_deficiency and a timely petition are prerequisites to the jurisdiction of the tax_court see wilt v commissioner 1t c sec_6212 permits respondent to mail the notice to a taxpayer’s last_known_address sec_6212 is not a mandatory provision rather it is a safe_harbor that does not require respondent to establish actual delivery for a valid notice see 235_f3d_886 4th cir affg tcmemo_1996_256 89_tc_1063 affd --- - f 2d 9th cir 81_tc_42 a notice_of_deficiency will be valid if the taxpayer actually receives the notice in sufficient time to file a timely petition without prejudicial delay see 527_f2d_754 9th cir affg 57_tc_102 81_tc_65 providing the taxpayer with actual notice of the deficiency ina timely manner is the essence of the statutory scheme mulvania v commissioner supra pincite we have held that a taxpayer is not prejudiced if he received the notice and had days remaining in the 90-day period to file a petition see bonty v commissioner tcmemo_1997_372 bowers v commissioner tcmemo_1991_609 loftin v commissioner tcmemo_1986_322 days remaining respondent mailed the notice_of_deficiency by certified mail to petitioners on date petitioners actually received the notice_of_deficiency on date days after the notice was mailed allowing petitioner sec_73 days to file a petition in this court petitioner immediately forwarded the notice to mr vebeliunas and a timely petition was filed with this court accordingly since petitioners received the notice_of_deficiency and filed a timely petition with this court we conclude the notice_of_deficiency is valid as a result of this -- - conclusion we need not and do not decide whether the notice was sent to petitioners’ last_known_address b the damaged notice petitioners argue that the notice_of_deficiency mailed on date was damaged by the usps and as a result the notice was invalid petitioners submitted a copy of the torn envelope with the apology notice from the usps petitioners did not submit an original or copy of the notice_of_deficiency in successive pleadings by petitioners the condition of the notice_of_deficiency deteriorated from damaged to destroyed we have some doubt as to the extent of the damage to the notice_of_deficiency however petitioners were not prejudiced as they received actual notice and in fact filed a timely petition with this court contesting the determinations in the notice c statute_of_limitations sec_6501 provides that respondent generally must assess any deficiency in the payment of income taxes within years of the filing of a return the period of limitations is suspended upon the mailing of a notice_of_deficiency pursuant to sec_6212 see sec_6503 this court has repeatedly held that the date the notice_of_deficiency is mailed not the date on which it was received by the taxpayer determines whether for the same reasons we need not decide whether the form_2848 as to mr biskis’ estate was a valid power_of_attorney - jj - the notice is timely see frieling v commissioner supra pincite 61_tc_182 11_tc_696 affd per curiam 177_f2d_351 2d cir also see st joseph lease capital corp v commissioner supra petitioners assert that a notice_of_deficiency must be received by a taxpayer before the expiration of the period of limitations petitioners filed their tax_return on date the notice was mailed to petitioners on date less than years after the tax_return was filed therefore respondent timely mailed the statutory notice to petitioners prior to the expiration of the 3-year period petitioners further argue that the notice_of_deficiency was untimely because the original was not sent to petitioners’ representative whose address constitutes petitioners’ last_known_address this court and others have interpreted sec_6212 a and a to provide that a notice sent by mail will toll the period of limitations so long as the taxpayer has actual notice and is not prejudiced in seeking redress to this court see st joseph lease capital corp v commissioner supra pincite 967_f2d_1448 10th cir affg tcmemo_1985_235 749_f2d_691 llth cir clodfelter v commissioner f 2d pincite frieling v commissioner supra --- - as we previously indicated petitioners received actual notice of the deficiency from respondent petitioners timely filed a petition with this court therefore the mailing of the notice on date tolled the period of limitations and we hold for respondent on this issue conclusion for the reasons set forth above we shall deny petitioners’ motion to dismiss for lack of jurisdiction in so holding we have carefully considered the remaining arguments made by petitioners for a result contrary to that expressed herein and to the extent not discussed above we consider those arguments to be without merit to reflect the foregoing an appropriate order will be issued


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 b02 plr-152576-07 date may legend x country d1 dear ------------------ ------------------------------------------- ------------------------ --------------------- ----------------------- this is in response to a letter dated date submitted on behalf of x by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a disregarded_entity for federal tax purposes facts the information submitted states that x was formed under the laws of country as an entity eligible to make a classification election d1 x’s default status was as an association_taxable_as_a_corporation for federal tax purposes x intended to be classified as a disregarded_entity for federal tax purposes effective d1 however a form_8832 entity classification election for x to elect to be treated as a disregarded_entity effective d1 was not timely filed plr-152576-07 law and analysis sec_301_7701-2 generally provides that 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 that so long as a business_entity is not classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_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 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing a form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election 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 six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation 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 an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-152576-07 conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of sixty days from the date of this letter to elect to be classified as a disregarded_entity for federal tax purposes effective d1 the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to x’s authorized representative sincerely william p o’shea associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index numbers washington dc attn re person to contact telephone number refer reply to cc psi 4-plr-115083-00 date date legend decedent trust trustee date date date sibling a sibling b sibling c child a-1 child a-2 child b-1 child b-2 child c-1 child c-2 child c-3 child c-4 child c-5 child c-6 child c-7 grandchild local court - - - - - - - - - - - - - - - - - - - - - - dear this is in response to the date letter and other correspondence requesting rulings concerning the generation-skipping_transfer_tax and income_tax consequences of the proposed division of the trust the facts submitted are as follows decedent executed a will on date prior to date and did not amend the terms of the will prior to decedent’s death on date after date and before date decedent was a resident of georgia at the date of her death trustee is the successor trustee of trust plr-115083-00 under the provisions of item seven of decedent’s will the residue of decedent’s estate after payment of debts taxes and bequests of certain personal_property passed in trust item seven a of trust provides that trust will terminate twenty-one years after the death of decedent thus the termination_date of trust is date item seven b of trust provides that during the term of trust the trustee shall pay over and distribute the net_income of trust in four equal parts to decedent’s brother sibling a decedent’s sister sibling b decedent’s brother sibling c and decedent’s grandchild grandchild item seven c requires that the income be distributed quarterly or more frequently if in the opinion of the trustee it is expedient to do so item seven d states that should grandchild fail to survive the trust period and should he fail to leave descendant or descendants surviving him then his portion of the trust shall be added to the remaining three portions and the income therefrom be distributed in equal amounts among those portions should grandchild not survive the trust period and should he leave a descendant or descendants surviving then his descendant or descendants shall continue to receive the benefits herein provided for the remainder of the trust period item seven e states that should either of sibling a sibling b or sibling c not survive the trust period then his or her part of the income shall be paid over to his or her children in equal parts during the remainder of the trust period item seven f states that upon the trust terminating then the principal of the trust together with any undistributed_income at the time remaining shall be delivered to the original trust beneficiaries if they are in life if grandchild is not in life and he leaves descendant or descendants surviving him then his part shall be delivered to his descendant or descendants if he does not survive the trust period and leaves no descendant or descendants then his part shall be paid over to the beneficiaries of the remaining three parts should either sibling a sibling b or sibling c not survive the trust period then the principal remaining at the end of the trust period shall be distributed to the children of any deceased brother or sister per stirpes sibling a sibling b and sibling c had all predeceased decedent sibling a was survived by two children child a-1 and child a-2 sibling b was survived by two children child b-1 and child b-2 and sibling c was survived by seven children child c-1 child c-2 child c-3 child c-4 child c-5 child c-6 and child c-7 all of the plr-115083-00 children and grandchild are currently living and adults consequently pursuant to the terms of trust the income has been distributed as follows percent to grandchild percent divided among the children of sibling a as follows a percent to child a-1 b percent to child a-2 percent divided among the children of sibling b as follows a percent to child b-1 b percent to child b-2 and percent divided among the children of sibling c as follows a percent to child c-1 b percent to child c-2 c percent to child c-3 d percent to child c-4 e percent to child c-5 f percent to child c-6 g percent to child c-7 you have represented that trust has not been amended and no additions including constructive additions have been made to the trust since decedent’s death on date other than the initial funding of trust the trustee and each of the beneficiaries of trust the parties propose to file a petition for partition of the trust with local court pursuant to ga code ann b which provides the following upon petition by a trustee beneficiary or any party in interest for good cause shown the court after conducting a hearing with notice to all parties_in_interest in such manner as the court may direct may divide a_trust into two or more single trusts or consolidate two or more trusts into a single trust upon such terms and conditions as it deems appropriate the court shall not approve any such consolidation or division unless such consolidation or division is not inconsistent with the intent of the grantor donor settlor or other testator with regard to any trust to be consolidated or divided would facilitate administration of the trust or trusts and would be in the best interest of all beneficiaries and not materially impair their respective interests plr-115083-00 under the proposal trust will be divided into twelve separate trusts one each for grandchild and the adult children of sibling a sibling b and sibling c trustee will continue to be the trustee of each of the new trusts the parties will file a petition with the local court requesting an order approving the division of the trust into twelve separate trusts the assets of the trust will be allocated among the twelve new trusts on a pro_rata basis each new trust will receive a percentage share of each asset in the trust that corresponds to the percentage share held by each current income_beneficiary of trust to the extent that such allocation of assets would result in the fractionalization of any share or unit of any security cash will be used to supplement the allocation in order to equalize the values so that no share or unit of security will be fractionalized the administrative provisions of each of the twelve new trusts will be identical to those of trust and trustee will continue to be the trustee of each of the new trusts trustee will be required to continue to exercise the same standard of fiduciary responsibility over the separate trusts as trustee previously exercised with respect to trust each new trust will terminate on date the same termination_date of trust the dispositive provisions of each of the new trusts will differ from those of trust in that each of the new trusts will have one primary beneficiary as described above who is a current income_beneficiary of trust the terms of each of the twelve new trusts will provide that the trustee will pay the net_income to the beneficiary quarterly or more frequently if in the opinion of the trustee it is more expedient to do so each of the new trusts will provide that in the event that the primary beneficiary dies before the termination of the trust the net_income will be distributed to that beneficiary’s lineal_descendants per stirpes if the primary beneficiary dies before the trust terminates and is either not survived by lineal_descendants or is survived by lineal_descendants all of whom in turn die before the trust terminates then at the death of the primary beneficiary or the later death of surviving lineal_descendants prior to termination of the trust the trust corpus will be distributed to the remaining new trusts proportionately based on the initial allocation of the assets of trust to the remaining trusts upon termination of each new trust on date each trust corpus will be distributed to the respective primary beneficiary of that trust if living on date if the primary beneficiary of a new trust is not living on date that trust corpus will be distributed to the lineal_descendants of that primary beneficiary per stirpes rulings requested you have requested the following rulings the proposed division of trust into twelve separate trusts will not result in the realization of income under sec_61 and will not result in the realization of gain_or_loss under sec_1001 the proposed division of trust will not affect the exempt status of trust with respect to the generation-skipping_transfer_tax and will not cause any distribution from or termination of any interest in trust or the resulting twelve trusts to be plr-115083-00 subject_to the generation-skipping_transfer_tax ruling_request sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that a taxpayer’s gain from the sale of property is the excess of the amount_realized over the taxpayer’s adjusted_basis provided in sec_1001 for determining gain and that the taxpayer’s loss from the sale of property is the excess of the taxpayer’s adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or extent is treated as income or loss sustained revrul_56_437 1956_2_cb_507 holds that the severance of a joint_tenancy in stock under a partition action provided for by state law to compel the issuance of separate stock certificates is not a sale_or_exchange likewise the conversion of a joint_tenancy in stock into a tenancy_in_common is a nontaxable_transaction under applicable state law the right of the owners of the property to pursue such action is an inherent ownership right each party possessed with respect to the property involved 499_us_554 concerns whether a sale_or_exchange has taken place that results in realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another group of residential mortgage loans the two groups of mortgage loans were considered substantially identical by the agency that regulated the financial_institution in cottage savings the supreme court concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes materially different for purposes of sec_1001 the supreme court stated that properties are different in a sense that is material so long as the respective parties enjoy legal entitlements that are different in_kind or extent u s pincite the supreme court held that mortgage loans made to different obligors and secured_by different homes embodied distinct legal entitlements and that the taxpayer realized losses when the loans were exchanged id pincite thus in order for a transaction to result in a sec_1001 taxable_event the transaction must be a sale exchange or other_disposition and if an exchange the exchange must result in the receipt of property that is materially different as defined in cottage savings from the property that was given up in this case the first element will not be present because the trust beneficiaries do not acquire their interest plr-115083-00 in the individual trusts as a result of an exchange of their interests in the trust but rather by reason of the authority granted under the georgia law there is no exchange of property here instead the trustee is merely exercising a right to divide the trust as allowed by state law in this case the transaction is similar to revrul_56_437 in which the joint owners of property exercised a right inherent in their ownership rights in the property to partition the property further the interests that each of the beneficiaries will have in the separate trusts is the same as each currently has in trust therefore the trust the separate trusts and the beneficiaries of these trusts will not realize gain_or_loss under sec_1001 ruling_request sec_2601 imposes a tax on every generation-skipping_transfer gst which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under of the tax_reform_act_of_1986 the act the generation-skipping_transfer gst tax is generally applicable to generation-skipping transfers made after date however under b b of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a will or revocable_trust that was executed before date provided that the document in existence on date is not amended at any time after date in any respect which results in the creation of or an increase in the amount of a generation-skipping_transfer and the decedent dies before date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in a beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer sec_26_2601-1 example illustrates a situation where a_trust that is otherwise exempt from the gst tax is divided into two trusts under the facts presented the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division and the division does not extend the time for vesting of any beneficial_interest in the trust plr-115083-00 beyond the period provided for in the original trust accordingly the two partitioned trusts will not be subject_to the provisions of chapter in this case decedent’s will was executed before date and decedent died before date you have represented that decedent’s will was not amended at any time after date and before decedent’s date of death and that no additions including constructive additions have been made to trust other than the initial funding since decedent’s death on date based on the submitted information the division of trust by the trustees will not result in a shift of any beneficial_interest in the trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the division further the proposed division will not extend the time for vesting of any beneficial_interest in the new trusts beyond the period provided for in the original trust accordingly based on the facts submitted and the representations made we conclude that the proposed division of the trust into twelve separate trusts will not cause either trust or the twelve new trusts to lose exempt status for generation-skipping_transfer_tax purposes and that distributions from trust to the twelve new trusts and distributions from the twelve new trusts will not be subject_to the gst tax in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative a copy of this letter should be attached to any gift estate or generation-skipping_transfer_tax returns that you may file relating to this matter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by the appropriate party while this office has not verified any part of the material submitted in support of the request for rulings it is subject_to verification and examination except as specifically ruled above no opinion is expressed as to the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code or regulations 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 sincerely yours george masnik branch chief branch associate chief_counsel passthroughs and special industries enclosure 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 ita plr-112604-15 date october re request to revoke the election not to deduct the additional first year depreciation legend p sec_1 sec_2 sec_3 sec_4 sec_5 s6 s7 a year1 year2 ---------------------- --------------------------- -------------------------------------------------- --------------------------- ----------------------------------------------------- --------------------------- ---------------------------------------------------------------------------------------------------- ------------------------------------------------------------- --------------------------- ------------------------------------------------- --------------------------- ------------------------------------------- --------------------------- ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------- --------------------------- ---------------------------------------------------------------------------------------------------- ------------------------------------------------------------- --------------------------- ---------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ------- ------- plr-112604-15 date1 date2 date3 date4 date5 date6 --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- -------------------- dear ------------------ this letter_ruling responds to a letter dated date and supplemental correspondence submitted by p on behalf of itself and sec_1 sec_2 sec_3 sec_4 sec_5 s6 and s7 hereinafter p sec_1 sec_2 sec_3 sec_4 sec_5 s6 and s7 will be collectively referred to as taxpayer requesting the consent of the commissioner of internal revenue to revoke taxpayer's election not to deduct the additional first year depreciation provided by sec_168 of the internal_revenue_code for all classes of qualified_property placed_in_service by taxpayer during the taxable years for which the period of limitation on assessment under sec_6501 has not expired open taxable years facts taxpayer represents that the facts are as follows taxpayer files a consolidated federal_income_tax return on a calendar_year basis taxpayer’s overall_method_of_accounting is the accrual_method taxpayer is in the business of a taxpayer placed_in_service qualified_property as defined in sec_168 during the taxable years ending date1 the year1 taxable_year through date4 the year2 taxable_year p prepared taxpayer’s consolidated federal_income_tax returns for the year1 through year2 taxable years on its timely filed consolidated federal_income_tax returns for the year1 through year2 taxable years taxpayer made the election under sec_168 not to claim the 50-percent and 100-percent additional first year depreciation deduction for all classes of qualified_property placed_in_service during those taxable years taxpayer made this election based on the erroneous advice of a member of p’s tax department this person incorrectly determined that taxpayer’s fixed asset system could not accommodate the changes necessary to implement the additional first year depreciation deduction for the year1 taxable_year and concluded that taxpayer should make the election not to deduct the additional first year depreciation for all classes of qualified_property for the taxable years after the year1 taxable_year through the year2 taxable_year this initial decision was continued without a detailed review subsequently a qualified professional outside tax preparer reviewed taxpayer’s fixed asset system and plr-112604-15 determined that it could accommodate the changes necessary to implement the additional first year depreciation deduction except for routine system updates and patches taxpayer’s fixed asset system did not change in any significant way during the years at issue the period of limitation on assessment under sec_6501 is extended for the taxable years ending date3 through date4 until date5 the period of limitation on assessment under sec_6501 expired for the taxable years ending date1 and date2 on date6 which is before the date of this letter taxpayer did not make the election under sec_168 to accelerate alternative_minimum_tax credits and research credits in lieu of the additional first year depreciation deduction ruling requested consequently taxpayer requests to revoke the election not to deduct any additional first year depreciation provided by sec_168 for all classes of qualified_property placed_in_service by taxpayer during the taxable years ending date1 through date4 that are open taxable years law and analysis sec_168 provides a 50-percent additional first year depreciation deduction for the placed-in-service year for qualified_property i acquired by a taxpayer after date and before date or acquired by a taxpayer generally after date and before date and ii placed_in_service by the taxpayer before date or after date or date for qualified_property described in sec_168 or c and before date or date for qualified_property described in sec_168 or c sec_168 provides a 100-percent additional first year depreciation deduction for the placed-in-service year for qualified_property acquired by a taxpayer after date and generally before date and placed_in_service by the taxpayer after date and before date or date for qualified_property described in sec_168 or c see sec_3 of revproc_2011_26 2011_16_irb_664 sec_168 provides that a taxpayer may elect not to deduct the additional first year depreciation for any class of property placed_in_service during the taxable_year the term class of property is defined in sec_1_168_k_-1 of the income_tax regulations as meaning in general each class of property described in sec_168 for example 5-year_property see section dollar_figure of revproc_2008_54 c b plr-112604-15 and section dollar_figure of revproc_2011_26 i r b pincite rules similar to the rules in sec_1_168_k_-1 for qualified_property or for 30-percent additional first year depreciation deduction apply for purposes of sec_168 as currently in effect sec_1_168_k_-1 provides that an election not to deduct the additional first year depreciation for a class of property that is qualified_property once made may be revoked only with the written consent of the commissioner of internal revenue to seek the commissioner's consent the taxpayer must submit a request for a letter_ruling conclusions based solely on the facts and representations submitted we conclude that a revocation of taxpayer's election not to deduct any additional first year depreciation under sec_168 and k for all classes of qualified_property placed_in_service by taxpayer in the taxable years ending date1 through date4 that are open taxable years as of the date provided in the next sentence is permitted under sec_1_168_k_-1 accordingly taxpayer is granted calendar days from the date of this letter to revoke its election not to deduct the additional first year depreciation for all classes of qualified_property placed_in_service by taxpayer in the taxable years ending on date1 through date2 that are open taxable years as of the date provided in this sentence the revocation must be made by filing amended consolidated federal_income_tax returns for such taxable years these amended returns must include i the adjustment to taxable_income attributable to the revocation of the election not to deduct the additional first year depreciation deduction for all classes of qualified_property and any collateral adjustments to taxable_income or to tax_liability for example adjust the amount of the regular depreciation deduction allowable for the qualified_property adjust the amount and character of gain_or_loss recognized on any disposition of qualified_property placed_in_service during the taxable years at issue and ii a written_statement revoking the election not to deduct the additional first year depreciation for all classes of qualified_property placed_in_service during that taxable_year further such collateral adjustments also must be made on amended consolidated federal_income_tax returns or informal claims as applicable for any affected succeeding taxable_year in addition a copy of this letter_ruling must be attached to these amended returns or informal claims as applicable a copy is enclosed for that purpose except as specifically ruled upon above no opinion is expressed or implied concerning the tax consequences of the facts described above under any other provisions of the code including other subsections of sec_168 specifically no opinion is expressed or implied on whether any item of depreciable_property placed_in_service by plr-112604-15 taxpayer in the taxable years ended date through date is eligible for the percent or 100-percent additional first year depreciation deduction under sec_168 in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer's authorized representative we are also sending a copy of this letter to the appropriate industry director large business international division lb_i this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely kathleen reed kathleen reed chief branch office of associate chief_counsel income_tax and accounting enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp-- plr-130808-00 date date re legend purchaser parent seller target target_affiliate target_affiliate date a date b date c company officials tax professionals dear this letter responds to a letter dated date submitted on behalf of purchaser and parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election purchaser and parent are requesting an extension to file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax regulations with respect to purchaser’s acquisition of the stock of target plr-130808-00 and the deemed acquisition of the stock of target_affiliate and target_affiliate sometimes hereinafter referred to in the aggregate as the election on date b all citations in this letter to regulations under sec_338 are to regulations in effect on date b additional information was received in letters dated date date and date the material information is summarized below parent was the common parent of a consolidated_group that included seller target target_affiliate and target_affiliate target_affiliate was a subsidiary of target_affiliate which was a subsidiary of target which was a owned subsidiary of seller was owned by purchaser on date a purchaser parent and seller entered into a letter of intent for purchaser to acquire all of seller’s target stock on date b purchaser acquired all of seller’s target stock it is represented that purchaser’s acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 purchaser and parent intended to file the election the election was due on date c but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for parent’s consolidated group’s purchaser’s target’s target_affiliate 1's or target_affiliate 2's taxable years in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase sec_338 permits the purchasing and selling corporations to elect jointly to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation a sec_338 election may be made for target only if purchaser acquires stock meeting the requirements of sec_1504 from a selling_consolidated_group a selling affiliate or the s_corporation shareholders in a qualified_stock_purchase sec_1_338_h_10_-1 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic plr-130808-00 extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and parent to file the election provided purchaser and parent show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser parent and company officials tax professionals explain the circumstances that resulted in the failure to timely file a valid election the information establishes that purchaser and parent reasonably relied on a qualified_tax professional who failed to make or advise purchaser and parent to make the election and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that purchaser and parent have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for purchaser and parent to file the election with respect to the acquisition of the stock of target ie the direct_acquisition of the stock of target and the deemed acquisition of the stock of target_affiliate and target_affiliate as described above the above extension of time is conditioned on the filing within days of the date on this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' parent’s consolidated group’s purchaser's target’s target_affiliate 1's and target_affiliate 2's tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 purchaser and parent must file the election in accordance with sec_1_338_h_10_-1 that is a new election on form_8023 must be executed on or after the date on this letter which grants an extension and filed in accordance with the instructions to the form a copy of this letter must be attached to the election form purchaser and parent must file or amend as applicable their returns to report the transaction as a sec_338 transaction for the taxable_year in which the transaction plr-130808-00 was consummated and for any other affected_taxable_year and to attach to the returns a copy of this letter and a copy of the election we express no opinion and make no assumptions as to whether the acquisition sale of target stock ie the direct_acquisition of the stock of target and or and the deemed acquisition of the stock of target_affiliate and or target_affiliate qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target stock qualifies for sec_338 treatment or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc