internal_revenue_service number release date index number -------------------------- ------------------- ------------------------------------------------------ --------------------------------------- --------------------------------- re ---------------------------------------- --------------------- 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 b04 plr-119095-11 date date legend grantor_trust trust trust child child child company date date state state court individual statute statute individual trust company --------------------------- ---------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------- ---------------------------- ------------------------------ -------------------------------- ------------------------------- --------------------------- ------------------- ------------ ------------- ---------------------------------------------------------- ---------------------- ------------------------------------------------- ----------------------------------------------------- ------------------- ------------------------------------------------------ plr-119095-11 dear ----------------- this letter responds to your authorized representative’s letter dated date requesting income estate gift and generation-skipping_transfer gst tax rulings with respect to the proposed modifications of trust the facts and representations submitted are summarized as follows on date a date prior to date grantor created trust for the benefit of child and his descendants the current trustees are trust company and individual pursuant to trust during the life of child the trustees in their discretion may distribute the income and principal of trust to or for the benefit of child his spouse and his issue to provide for their care comfort support maintenance and education and to provide for any illness accident emergency disability or other unusual circumstances upon the death of child child may appoint the trust property by will to any one or more of child 1’s issue if child does not exercise the limited_power_of_appointment on his death then until the termination_date the trustees in their discretion may distribute the income and principal of trust to or for the benefit of child 1’s spouse if child is married at the time of his death and his spouse survives him and issue to provide for their care comfort support maintenance and education and to provide for any illness accident emergency disability or other unusual circumstances any income not distributed shall be accumulated and added to principal if at any time prior to the termination_date there are no living issue of child then the trustees in their discretion may distribute the income and principal to or for the benefit of child 1’s spouse and the issue of the grantor to provide for their care comfort support maintenance and education and to provide for any illness accident emergency disability or other unusual circumstance if at any time prior to the termination_date there are no living issue of the grantor then the trustees in their discretion may distribute the income to the issue of grantor’s sister in such amounts as the trustees determine for their care comfort support maintenance education and best interests and to provide for any illness accident emergency disability or other unusual circumstance any income not distributed shall be accumulated and added to principal trust will terminate years after the last survivor of grantor grantor’s wife child child child and other individuals who were living when trust was created on the termination_date the trust property will be divided and distributed outright in equal shares to the grandchildren of child with the issue of any deceased grandchild receiving by right of representation the share such grandchild would have plr-119095-11 received if living if there are no grandchildren or more remote issue of child living on the termination_date then the trust property will be distributed one-half to child 2’s grandchildren and one-half to child 3’s grandchildren in equal shares if only one of child 1’s brothers has grandchildren or more remote issue living on the termination_date then all of the trust property will be distributed to that family line trust provides that a trustee or a successor trustee may resign upon thirty days notice to the grantor if living to child after the grantor’s death or to child 1’s guardian or to each successor beneficiary or the legal guardian of a successor beneficiary if child is deceased if individual dies resigns or for any reason cannot continue to act as the individual trustee then a successor individual trustee shall be appointed by child if living otherwise by the other living children of the grantor if the corporate trustee resigns or for any other reason cannot continue to act as the corporate trustee then a successor or substitute corporate trustee shall be appointed by child if living otherwise by the other living children of the grantor the primary asset of trust is common_stock of company trust provides that the trustees may not sell transfer exchange or dispose_of company stock without first offering to sell the stock to company if the trustees desire to sell company stock company will have an option for thirty days to redeem such stock for a price per share equal to and on the basis of the net_book_value per share of company on date child filed a petition with court a state court requesting that court accept jurisdiction over trust so that the situs of trust is in state and modify trust by approving the following proposed modifications of trust a distribution adviser is named to make all decisions related to the distribution of the trust property to the beneficiaries the distribution adviser shall direct the trustees to distribute income and principal from time to time pursuant to the standards established in the trust instrument if no distribution adviser is acting the trustees will make such decisions the initial distribution adviser will be individual an investment adviser is named to make all decisions related to the investment of the trust property if no investment adviser is acting the trustees will make such decisions the initial investment adviser will be child a_trust protector is named to make certain administrative changes to the trust agreement from time to time the trust_protector may modify the provisions relating to the identity qualifications succession removal and appointment of any fiduciary or trust_protector however the trust_protector may not modify the prohibition on appointment as officeholder see paragraph below the trust_protector may modify plr-119095-11 the investment powers granted to the trustees and the investment adviser the trust_protector may remove any trustee or the investment adviser the trust_protector may not exercise any power that would cause the trust to extend beyond any applicable rule_against_perpetuities nor cause the trust_protector to possess a general_power_of_appointment the initial trust_protector will be child the terminology used to describe the beneficiaries of trust is changed from issue to descendants while the trust situs remains in state at least one trustee must be a state trust company neither grantor nor grantor’s wife may hold any office under this trust instrument no descendant of grantor no spouse of any such descendant and no party that would be a_related_or_subordinate_party within the meaning of sec_672 as to the grantor the grantor’s wife or any such descendant may act as a trustee or as distribution adviser prohibition on appointment as officeholder state law will govern the administration of trust while state law will continue to govern the validity construction and duration of trust for purposes of determining the purchase_price for company’s purchase of any company stock from trust the definition of book_value is clarified to be the value of the stock as of the month end immediately preceding the date notice of the offer to purchase such stock is given to company child or if he fails to act those persons in the oldest generation of living descendants of child who have reached age or if none or if they fail to act those persons in the oldest generation of living descendants of the grantor who have reached age may appoint an individual or trust company to act in any vacant office of the trust the trustees represent that trust has been irrevocable since its creation and that no property has been added to trust after date trust was created under state law trust does not specify that any particular state law is to govern the administration and construction of trust initially a state bank was the trustee of trust currently trust is being administered in state by the corporate trustee trust company which is based in state statute provides that under state law the duration of a_trust and time of vesting of interests in the trust property shall not change merely because the place of administration of the plr-119095-11 trust is changed from some other jurisdiction to state statute provides that under the law of state the use of the term issue means an individual’s descendants you have requested the following rulings the change_of situs of trust for administrative purposes from state to state will not cause trust to lose its exempt status from gst tax the proposed modifications of trust will not cause trust to lose its exempt status from gst tax the proposed modifications of trust will not cause any beneficiary to have made a gift_for gift_tax purposes the proposed modifications of trust will not subject any portion of trust to estate_tax in the estate of any beneficiary the proposed modifications of trust will not cause trust or any beneficiary to realize or recognize any gain_or_loss under sec_61 or sec_1001 law and analysis ruling sec_1 and sec_2601 of the internal_revenue_code imposes a tax on every gst made after date a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides that the term taxable_termination means a termination by death lapse of time release of a power or otherwise of an interest in property held in a_trust unless a immediately after such termination a non-skip_person has an interest in such property or b at no time after such termination may a distribution including distributions on termination be made from such trust to a skip_person sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip under sec_2612 a direct_skip is a transfer subject_to federal estate or gift_tax of an interest in property to a skip_person under a of the tax_reform_act_of_1986 act and sec_26_2601-1 the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 plr-119095-11 the gst tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on 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 gst tax under paragraph b or of this section hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b i a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter 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 sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a 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 modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust plr-119095-11 in sec_26_2601-1 example provides as follows in grantor who was domiciled in state x executed an irrevocable_trust for the benefit of grantor's issue naming a state x bank as trustee under the terms of the trust the trust is to terminate in all events no later than years after the death of the last to die of certain designated individuals living at the time the trust was executed the provisions of the trust do not specify that any particular state law is to govern the administration and construction of the trust in state x the common_law rule_against_perpetuities applies to trusts in a state y bank is named as sole trustee the effect of changing trustees is that the situs of the trust changes to state y and the laws of state y govern the administration and construction of the trust state y law contains no rule_against_perpetuities in this case however in view of the terms of the trust instrument the trust will terminate at the same time before and after the change in situs accordingly the change in situs 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 transfer furthermore the change in situs does not extend the time for vesting of any beneficial_interest in the trust beyond that provided for in the original trust therefore the trust will not be subject_to the provisions of chapter if in this example as a result of the change in situs state y law governed such that the time for vesting was extended beyond the period prescribed under the terms of the original trust instrument the trust would not retain exempt status in sec_26_2601-1 example considers the following situation in grantor established an irrevocable_trust for the benefit of grantor's issue naming a bank and five other individuals as trustees in the appropriate local court approves a modification of the trust that decreases the number of trustees which results in lower administrative costs the modification pertains to the administration of the trust and 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 in addition 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 therefore the trust will not be subject_to the provisions of chapter in this case grantor created trust in state and the trust agreement does not specify that any particular state law is to govern trust initially a state bank was the trustee of trust currently trust company which is based in state is the corporate trustee of trust child petitioned court a state court requesting that court accept jurisdiction over trust so that the situs of trust is in state in addition the proposed modifications provide that state law will govern the administration of trust while state law will continue to govern the validity construction and duration of trust the proposed change in situs and governing law will not change the termination_date of trust thus the proposed change in situs will not shift any beneficial_interest in trust and will not extend the time for vesting of any plr-119095-11 beneficial_interest in trust accordingly based upon the facts submitted and representations made we conclude that the change in situs of trust for administrative purposes from state to state will not cause trust to lose its exempt status from gst tax the proposed modifications of trust to add a distribution adviser an investment_advisor a_trust protector and to require that while trust situs remains in state at least one trustee must be a state trust company are all administrative in nature and under sec_26_2601-1 will not be considered to shift a beneficial_interest to a lower generation in the trust see example of sec_26_2601-1 further the proposed modification to clarify the definition of book_value is administrative in nature and is considered not to shift any beneficial_interest to a lower generation in the trust finally the proposed modification of trust to change the term issue to descendants is consistent with applicable state law and does not result in a shift in any beneficial_interest to a lower generation nor does it extend the time for vesting of any beneficial_interest in trust accordingly based upon the facts submitted and the representation made we conclude that the proposed modifications of of trust will not cause trust to lose its exempt status from gst tax ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during the calendar_year by any individual sec_2511 provides that the gift_tax applies 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_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money_or_money's_worth then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar_year in this case the beneficiaries of trust will have the same interests after the proposed modifications that they had prior to the modifications because the beneficial interests of the beneficiaries are substantially the same no transfer of property will be deemed to occur as a result of the modifications accordingly based on the facts submitted and the representations made we conclude that the proposed modifications of trust will not cause any beneficiary to have made a gift_for gift_tax purposes ruling plr-119095-11 sec_2001 provides that a tax is imposed on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2041 provides for the inclusion in the gross_estate of a decedent any property with respect to which the decedent possesses at the time of his death a general_power_of_appointment created after date sec_2041 provides for the inclusion in the gross_estate of a decedent any property with respect to which the decedent by will exercises a power_of_appointment created after date by creating another power_of_appointment which under the applicable local law can be validly exercised so as to postpone the vesting of any estate or interest in such property or suspend the absolute ownership or power of alienation of such property for a period ascertainable without regard to the date of the creation of the first power sec_2041 provides that the term general_power_of_appointment means a power that is exercisable in favor of the decedent decedent's_estate decedent's creditors or the creditors of decedent's_estate except that a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent is not deemed a general_power_of_appointment sec_20_2041-1 of the estate_tax regulations provides that a power_of_appointment is not a general_power_of_appointment if by its terms it is either a exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent's_estate or the creditors of his estate or b expressly not exercisable in favor of the decedent or his creditors or the creditors of decedent's_estate in revrul_95_58 1995_2_cb_191 the service ruled that a decedent grantor's reservation of an unqualified power to remove a trustee and to appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee's discretionary powers of distribution over the property transferred by the decedent grantor to the trust accordingly the trust corpus is not included in the decedent's gross_estate under sec_2036 or sec_2038 sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor's spouse if living with the grantor or any one of the following the grantor's father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings plr-119095-11 of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in this case child in his capacity as a beneficiary of trust has two powers first child has a testamentary limited_power_of_appointment over trust that may be exercised only in favor of child 1’s descendants this limited_power_of_appointment exists in the original trust instrument this limited_power_of_appointment will not cause trust to be included in child 1’s gross_estate second child has the power to appoint successor fiduciaries the trustees and officeholders of trust these offices include the investment adviser distribution adviser and trust_protector in the original trust instrument child as beneficiary had the power to remove and replace the trustees pursuant to the modifications these powers are expanded to include all officeholders of the trust notwithstanding child 1’s new rights and powers the grantor grantor’s wife any descendants of the grantor any spouses of any descendants of the grantor and any subordinate party as to the grantor the grantor’s wife and any such descendants may not act as a trustee or distribution adviser of trust thus child is not permitted to act as a trustee or distribution adviser of trust further child may not appoint anyone related or subordinate to him as a trustee or distribution adviser accordingly this power will not cause trust to be included in child 1’s gross_estate see revrul_95_58 child will have new rights and powers as the investment adviser and trust_protector of trust as investment adviser child will make all decisions related to the investment of the trust property as trust_protector child may modify the provisions relating to the identity qualifications succession removal and appointment of any fiduciary or protector the trust_protector may modify the investment powers granted to the trustees and investment adviser the trust_protector may remove any trustee or investment adviser the trust_protector may not exercise any power that would cause the trust to extend beyond any applicable rule_against_perpetuities nor cause the protector to possess a general_power_of_appointment although child as trust_protector will have the power to modify provisions relating to the succession removal and appointment of any fiduciary or officeholder of the trust the modifications specify that no trust_protector may modify the prohibition on appointment as officeholder provision thus child or any other descendant of the grantor cannot act as a trustee or distribution adviser of the trust similarly the trustees and distribution adviser appointed by child may not be a_related_or_subordinate_party to child thus the powers of the trustees and distribution adviser will not be attributed to child or any other descendant of the grantor thus child and any beneficiary who may obtain such rights and powers pursuant to the modifications will not be treated as having general powers of appointment by virtue of such powers accordingly based on the facts submitted and the representations made we conclude that the proposed modifications of trust will not subject any portion of trust to estate_tax in the estate of any beneficiary of trust plr-119095-11 ruling sec_61 defines gross_income as all income from whatever source derived under sec_61 gross_income includes g ains derived from dealings in property under sec_61 income from an interest in a_trust is included in gross_income sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the entire amount of gain_or_loss must be recognized except as otherwise provided sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained in 499_us_554 a financial_institution exchanges its interest in one group of residential mortgage loans for another lender’s interest in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution 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 id pincite in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id pincite the court held that mortgage loans made to different obligors and secured_by difference homes embodied distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id pincite in this case the beneficiaries will have the same beneficial interests in trust after the modifications as they had prior to the modifications to the trust accordingly based on the facts submitted and the representations made we conclude that the proposed modifications of trust will not cause trust or any beneficiary to realize or recognize any gain_or_loss under sec_61 or sec_1001 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives plr-119095-11 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 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely _________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr date date re legend decedent spouse trust trustee date date date date state x state x law state x court beneficiary a income beneficiaries plr-118655-99 remainder beneficiaries plr-118655-99 dear this is in response to your letter dated date and subsequent correspondence in which you requested rulings concerning the income and generation- skipping transfer_tax consequences of a proposed division of a_trust facts according to your submission decedent died testate on date a resident of state x article iii of decedent’s will provides that the residue of decedent’s estate shall be distributed to a testamentary_trust trust article iv of decedent’s will provides that the trust income after the payment of trust expenses and monthly distributions to beneficiary a is to be distributed to decedent’s surviving_spouse spouse during her lifetime article iv authorizes the trustee to invade the trust corpus in order to maintain spouse in her customary standard of living and or make the specified monthly payments to beneficiary a article iv also authorizes the trustee to purchase an annuity to fund the monthly distributions to beneficiary a article v provides that upon the death of spouse the trust income after the payment of trust expenses and monthly distributions to beneficiary a shall be divided into eighteen equal parts one for each of decedent’s grandchildren referred to collectively as remainder beneficiaries the income designated for each grandchild will be paid to the grandchild’s income_beneficiary that is the parent of such grandchild who is also decedent’s natural child or if decedent’s said child is not living the other natural parent of such grandchild so long as said income_beneficiary lives article ix states that the trust share benefitting each remainder beneficiary will continue until either the death of the last surviving income_beneficiary of that remainder beneficiary or until such remainder beneficiary becomes twenty-one years of age whichever occurs later upon the termination of each remainder beneficiary’s share of trust the trustee will distribute such trust share outright either in cash or in_kind to the remainder beneficiary whose interest in trust has been terminated spouse died on date it is represented that during spouse’s lifetime the trustee did not invade the trust corpus to maintain spouse in her customary standard of living it is also represented that during date trustee purchased an annuity to plr-118655-99 fund the monthly payment obligation to beneficiary a pursuant to the terms of article v of decedent’s will the trustee has apportioned the net_income of trust into eighteen equal shares one share for each remainder beneficiary living at the time of decedent’s death the trustee has not distributed any trust income or principal to any remainder beneficiary in accordance with article v the trustee has allocated and distributed all of the trust income to the income beneficiaries according to the number of remainder beneficiaries who are the children of such income beneficiaries for example an income_beneficiary who is the parent of three remainder beneficiaries will receive three-eighteenths of the trust income as of the date of this ruling_request there were five living income beneficiaries three of whom are surviving children of decedent and two of whom are the widows of two deceased children of decedent there were also sixteen living remainder beneficiaries as of the date of the request the two deceased remainder beneficiaries died intestate without leaving either a surviving_spouse or issue decedent’s will is silent regarding the distribution of shares of deceased remainder beneficiaries it is represented that the income attributable to the deceased remainder beneficiaries continues to be distributed according to article v of decedent’s will to each of the deceased remainder beneficiary’s respective income_beneficiary by order of state x court on date the assets of trust will be partitioned into five separate trusts each separate trust will benefit a distinct family group which consists of an income_beneficiary and such income beneficiary’s children who are also remainder beneficiaries state x court determined that under state x law the share of trust assets distributed to each of the five separate trusts is to be determined by the number of remainder beneficiaries who were living at decedent’s death and are members the family group benefitting from such separate trust the assets of trust consisting of cash cash equivalents and marketable investment securities are to be allocated among the five separate trusts in a pro_rata manner so that each separate trust will receive its proportionate share of each of the trust assets it is represented that after the division of trust there will be no change in the identity of the income beneficiaries and remainder beneficiaries comprising each of the five family groups the existing administrative and dispositive provisions of trust will continue to govern each of the five separate trusts the trustee however will hold and administer the assets of each separate trust for the exclusive use and benefit of the family group for which such trust was established no income_beneficiary or remainder beneficiary will have any interest in any trust other than the separate trust created for the benefit of the family group of which such income_beneficiary or remainder beneficiary is a member upon the termination of the trust share established for the benefit of each plr-118655-99 remainder beneficiary the trustee will distribute to such remainder beneficiary his or her trust share if the remainder beneficiary has died prior to the termination of his or her respective trust share such share will be distributed according to the terms of the predeceased remainder beneficiary’s will or according to the intestacy laws of the remainder beneficiary’s domicile if such remainder beneficiary dies intestate it is represented that there have been no actual or constructive additions to trust since decedent’s death on date ruling_request sec_1 the proposed division of trust into five separate trusts and the division of the trust assets pro_rata among the five separate trusts will not constitute a sale or other taxable disposition of the trust assets under sec_1001 of the internal_revenue_code the division of trust into five separate trusts and the division of the trust assets pro_rata among the five separate trusts will not result in a transfer subject_to gift_tax under sec_2501 by any of the remainder beneficiaries the five separate trusts resulting from the division of trust will be considered to have been created prior to date for purposes of the gst tax provisions in chapter of the internal_revenue_code and will therefore be exempt from the generation-skipping_transfer_tax under sec_2601 law and analysis ruling_request sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that gain from the sale_or_other_disposition of property is the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in such section 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 exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result thereof thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 plr-118655-99 in revrul_69_486 1969_2_cb_159 distinguished by revrul_83_61 1983_1_cb_78 a non-pro rata distribution of trust property was made in_kind by the trustee although the trust instrument and local law did not convey authority to the trustee to make a non-pro rata distribution_of_property in_kind the distribution was effected as a result of a mutual agreement between the trustee and the beneficiaries because neither the trust instrument nor local law conveyed authority to the trustee to make a non-pro rata distribution revrul_69_486 held that the transaction was equivalent to a pro_rata distribution followed by an exchange between the beneficiaries and was subject_to the provisions of sec_1001 and sec_1002 the present case is distinguishable from revrul_69_486 because it has been represented that the assets of the trust will be allocated among the five separate trusts in a pro_rata manner and each separate trust will receive its proportionate part of each of the assets of trust accordingly the proposed transaction will not be treated as a pro_rata distribution followed by an exchange of assets among the beneficiaries of the three original trusts 499_us_554 addresses the issue of when 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 lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court in cottage savings u s pincite concluded that sec_1_1001-1 of the regulations 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 a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite in cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans it is consistent with the supreme court's opinion in cottage savings to find that the interests of the beneficiaries of the five separate trusts will not differ materially from their interests in the original trust the proposed transaction will not change the interests of the beneficiaries instead the beneficiaries will be entitled to the same benefits after the proposed transaction as before the proposed transaction is similar to the kinds of transactions discussed in revrul_56_437 because the original trust is to be partitioned but all other provisions of trust will remain unchanged further the assets of the trust will be distributed among the five separate trusts in proportions that plr-118655-99 are consistent with the share of the income and principal of the trust to which each beneficiary is entitled under the original trust thus the proposed transaction will not result in a material difference in the kind or extent of the legal entitlements enjoyed by the beneficiaries although decedent’s will does not specify how to distribute the share of a predeceased remainder beneficiary upon the termination of such remainder beneficiary’s trust share it is represented that the distribution of such shares will be consistent with the predeceased remainder beneficiary’s will or according to the intestacy laws of the remainder beneficiary’s domicile if such remainder beneficiary dies intestate therefore the division of the trust into the five separate trusts and the division of the assets of the trust pro_rata among the five separate trusts will not constitute a sale or other taxable disposition of the assets of the trust under sec_1001 ruling_request sec_2501 imposes a tax on the transfer of property by gift by any individual during a calendar_year sec_2511 provides that the tax imposed by sec_2501 applies 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_2511-1 of the gift_tax regulations provides that the gift_tax applies to a transfer by way of gift 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 for example a taxable transfer may be effected by the creation of a_trust sec_25_2511-1 provides that the gift_tax also applies to gifts indirectly made thus any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax sec_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift in this case the interest of each remainder beneficiary remains the same after the proposed division accordingly based on the facts submitted and the representations made we conclude that the proposed division will not cause any remainder beneficiary to be considered as having made a taxable gift under sec_2501 ruling_request sec_2601 imposes a tax on every generation-skipping_transfer section b a of the tax_reform_act_of_1986 the act vol c b and sec_26_2601-1 of the generation-skipping_transfer_tax regulations plr-118655-99 provide that the generation-skipping_transfer_tax shall not apply to any generation- skipping transfer under a_trust that was irrevocable on date but only to the extent that the transfer is not made out of principal added to the trust after date or out of income attributable to principal so added sec_26_2601-1 provides that any trust in existence on date will be considered an irrevocable_trust except as provided in sec_26 b ii b or c relating to property includible in a grantor’s gross_estate under sec_2038 and sec_2042 the existing trust in this case trust is irrevocable because neither sec_2038 nor sec_2042 apply under the facts of this case sec_26_2601-1 provides that if an addition is made after date to an irrevocable_trust that is otherwise exempt from the application of chapter by b a of the act a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter it has been represented that there have been no additions to trust after date however whether trust retains its exempt status for generation- skipping transfer_tax purposes depends upon whether the proposed division of trust into five separate trusts will change the substantive provisions of trust in a manner such that it can no longer be considered to be the same trust that was exempt under b a of the act in general modifications that change the quality value or timing of any of the powers beneficial interests rights or expectancies originally provided for under the terms of a_trust will cause an exempt trust to lose its exempt status in this case the proposed division of trust into five separate trusts in the manner described above will not change the quality value or timing of any of the beneficial interests rights or expectancies provided for under the terms of trust accordingly we rule that the separate trusts created by the proposed transaction will not lose their exempt status with respect to the generation-skipping_transfer_tax under sec_2601 provided that there are no additions constructive or otherwise to the separate trusts after date distributions from these separate trusts will not be subject_to the generation-skipping_transfer_tax the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination 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 plr-118655-99 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries by george masnik chief branch enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b1-plr-147882-01 date date legend x date this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on date the shareholders of x desired that x elect s_corporation treatment effective on date but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed plr-147882-01 sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not timely file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 effective date with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent s dianna k miosi sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------- ------------------------------ ------------------- ------------------------------- ------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-140635-09 date march re ------------------------------------------------------- ---------- -------------------------------------------------- ---------------------------------------------------------------------- legend trust ------------------------------------------------------------------------------------------ ------------------------------------ grandparent -------------------------- date date ------------------- ------------------------- date ---------------------- date grandchild ------------------------------ ------------------------------------ grandchild ----------------------------- grandchild 2’s spouse ---------------------------- family_member family_member ------------------------------------ ------------------------ original trustee ------------------- successor trustee ------------------------------- law firm a --------------------- ------------------------- b -------------------------------------------------- corporate trustee group --------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- plr-140635-09 ---------------------------------------------------------------------------- ---- ------------------------------------------------------- ----------------------------------------------------- -------------------------------------------------- --------------------------------------------------- ----------------------- -------------------------- --------------------------------------------------------------------- charitable subtrust x great-grandchild and spouse great-grandchild and spouse great-grandchild and spouse great-grandchild and spouse great-grandchild great-great grandchild divided trust ---------------------------------------------------------------------- divided trust ---------------------------------------------------------------------- divided trust divided trust divided trust state state statute court ----------------------------------------------------------------------------------------- primary asset ---------------------------------------- ---------------------------------------------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------- ------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- dear ---------------------------------- this responds to the date letter from your authorized representative requesting rulings on the income gift estate and generation-skipping_transfer gst tax consequences of a proposed division of trust the facts and representations are as follows grandparent irrevocably created trust on date prior to date it is represented that no additions constructive or otherwise have been made to trust after date the trust agreement includes the following provisions sec_1 provides that the situs of trust will be that state in which all the trustees acting under the trust agreement have their residence or in the case of a corporate trustee it has its principal_place_of_business if there are three or more trustees then the state in which a majority of trustees have their residence or principal_place_of_business will be the situs the agreement was executed in state compliance with the requirements of execution is to be determined according to state law the law of the state having situs of trust from time to time will govern in all other respects paragraph dollar_figure provides that payment of any benefits whether principal income or otherwise shall be made in the sole discretion of the trustees amounts of net_income capital_gains or other_amounts of principal not paid to a beneficiary are to be accumulated and added to principal payments of income or principal determined by the trustees if any plr-140635-09 except as made to potential charitable beneficiaries shall be made only among the members of the lowest numbered class of individual beneficiaries individual beneficiaries as defined in sec_3 which at the time of payment has one or more living and otherwise eligible potential individual beneficiaries the payments among the members of a class of individual beneficiaries need not be equal and may be made to none to one to all or to any number of members of the class in any proportions both as between individual beneficiaries and charitable beneficiaries as the trustees determine in their sole discretion paragraph dollar_figure provides that the beneficiaries potentially eligible for any payments of income principal or otherwise shall include at any time one or more charitable beneficiaries as defined in sec_3 and one or more members of the class of individual beneficiaries then eligible under sec_3 sec_3 defines the potential individual beneficiaries as i ii iii iv v vi class one the issue of grandchild then living and all spouses of then living or deceased issue of grandchild or class two the issue of grandchild then living and all spouses of then living or deceased issue of grandchild and while any of such issue or spouses is living grandchild if living and any spouse of grandchild or class three the issue of the children of family_member and family_member who are then living and all spouses of then living or deceased issue of the children of family_member and family_member or class four the children of family_member and family_member who are then living and all spouses of then living or deceased children of family_member and family_member or class five family_member if then living any spouse of family_member family_member if then living and any spouse of family_member or class six any spouse of grandchild and with certain exceptions the persons who would be the heirs-at-law of grandchild if grandchild were then deceased who are then living sec_3 provides that the charitable beneficiaries shall be of a group as may be selected by the trustees in their sole discretion consisting of corporations associations and institutions organized and operated exclusively for religious charitable literary and educational_purposes and described in sec_501 of the internal_revenue_code sec_3 provides that the trustees may make a complete distribution of all trust assets at any time in the event final distribution is determined by the trustees or legally plr-140635-09 required_distribution will be made by the trustees to any or all members of the class of individual beneficiaries and charitable beneficiaries then eligible under the provisions of article as determined by the trustees in their sole discretion paragraph dollar_figure provides that trust is intended to endure in perpetuity any assets governed by a rule_of law of situs under which a perpetual duration would render trust invalid are to be distributed on the last date on which the assets can validly remain in trust if the governing rule depends on specified lives in being the duration of trust is to be measured by the lives of all persons described as potential individual beneficiaries in classes one to six as would be determined on the date of execution of trust paragraph dollar_figure provides that all determinations to make apply withhold or accumulate any discretionary payments or distributions of income or principal shall be made only by the trustees then acting who are not related or subordinate parties as to grandparent grandchild or grandchild within the meaning of sec_672 or who are not within the definition of individual beneficiaries and charitable beneficiaries eligible at the time of the determination paragraph dollar_figure provides that if original trustee ceases to serve as trustee he shall be replaced by successor trustee if successor trustee ceases to serve he or his successor shall be replaced by the partner associate or member of law firm as designated by any two partners of law firm the power of designation shall be exercised in such manner by law firm as often as there may be a vacancy in the trusteeship originally filled by original trustee and successor trustee so that except as otherwise provided there shall always be a partner associate or member of law firm serving with the remaining trustees or trustee paragraph dollar_figure provides that the following persons shall have the power to appoint one or more individual trustees or a corporate trustee or one or more individual trustees and a corporate trustee to act with the trustee or trustees then acting and also the further power to determine that any partner associate or member of law firm shall never serve as trustee thus completely nullifying the further service or succession by any member or appointee of law firm these powers shall be exercised by such of the following as qualify at the time of exercise i the individual trustee or trustees as distinguished from any corporate trustee who are acting at the time or ii if there are then no such individual trustees a majority of the potential individual beneficiaries who have attained age and who are members of the lowest-numbered class which contains any such individual beneficiaries as defined in sec_3 or iii if there are then no such individual beneficiaries a majority of the potential individual beneficiaries who have attained the age of majority and who are members of the lowest-numbered class which contains any such individual beneficiaries as defined in sec_3 or iv if there are then no such individual beneficiaries a court of competent jurisdiction paragraph dollar_figure provides that the powers of appointment and determination that no representative of law firm shall serve shall not be exercised by grandparent grandchild plr-140635-09 or grandchild or be exercised during the lifetime of any of them in such manner as to result either i in grandparent grandchild or grandchild becoming a trustee or ii in a majority of the trustees being related or subordinate parties within the meaning of sec_672 as to grandparent grandchild or grandchild sec_5 provides that the trustees may divide trust determining values and designating particular assets for beneficiaries assign like or unlike properties to different beneficiaries or trusts and make distribution and payments in cash or in_kind or in both a and b are the present trustees of trust corporate trustee is a limited trustee with no power to make discretionary distributions the situs of trust is state under the terms of trust and the law of state trust is to continue until the earlier to occur of i the trustees’ complete distribution of the trust assets or ii the death of the last survivor of the persons named in group the trustees of trust requested a private_letter_ruling regarding the creation and funding of a revocable charitable subtrust of trust the private_letter_ruling was issued on date on date pursuant to the letter_ruling the trustees created the revocable charitable subtrust charitable subtrust charitable subtrust has not yet been funded a and b are the trustees of charitable subtrust currently there are no living members of class one that is there is no living issue or spouse of issue of grandchild grandchild is x years old and unmarried it is unlikely that there will ever be any issue or spouse of issue of grandchild therefore at the the charitable subtrust agreement includes the following provisions paragraphs dollar_figure and the trustee may amend the agreement but it shall not be effective without the consent of the trustee of trust the trustee of trust may at any time revoke charitable subtrust paragraph the trustee may not accept contributions from any person or entity other than the trustee of trust paragraph unless sooner terminated by a complete distribution of the assets charitable subtrust will terminate on the date required for the termination of trust and the remaining charitable subtrust assets will be distributed to trust and added to and disposed of as part of the general trust estate under the trust agreement paragraph the payment or accumulation of any amount is vested in the sole discretion of the trustee payments determined by the trustee shall be made only to charitable beneficiaries sec_3 the potential charitable beneficiaries shall be such one or more of a group as may be selected by the trustee in the trustee’s sole discretion consisting only of corporations associations and institutions that are organized and operated exclusively for religious charitable literary or educational_purposes described in sec_170 sec_642 and sec_501 and exempt from taxation under sec_501 paragraph the individual trustee as distinguished from a corporate trustee of trust shall have the power to appoint cotrustees or successor trustees of charitable subtrust any cotrustee or successor trustee may be removed by at any time by the trustee of trust plr-140635-09 present time income and principal of trust may be distributed to the members of class two the next lowest numbered of the classes of individual beneficiaries in addition income and principal may be distributed to the charitable beneficiaries the twelve living members of class two are i grandchild 2’s five adult children great- grandchild great-grandchild great-grandchild great-grandchild and great- grandchild ii the spouses of four of them great-grandchild 1’s spouse great-grandchild 2’s spouse great-grandchild 3’s spouse and great-grandchild 4’s spouse iii a child of one of them great-great grandchild iv grandchild and v grandchild 2’s spouse proposed transaction the trustees will divide the trust assets and liabilities into five approximately equal shares divided trusts the distribution to the divided trusts will be on a pro_rata basis to the extent practical for instance the trustees will divide the primary asset primary asset of trust strictly pro_rata the division will be adjusted to account for modest prior distributions made to certain individual beneficiaries in class two the divided trusts will have the same dispositive termination allocation and administrative provisions as trust except that under sec_3 ii of a respective divided trust class two will be redefined to limit that class of individual beneficiaries to the family line family line of one of the children of grandchild a child’s family line will include the child the child’s spouse the child’s issue and the spouses of the issue of the child in addition grandchild while any issue or spouse of issue of grandchild is living and grandchild 2’s spouse will be members of class two of each divided trust accordingly trust will be divided into divided trust for great-grandchild 1’s family line divided trust for great-grandchild 2’s family line divided trust for great-grandchild 3’s family line divided trust for great-grandchild 4’s family line and divided trust for great- grandchild 5’s family line one or more revocable charitable subtrusts divided charitable subtrusts will be created under the divided trusts the divided charitable subtrusts will have the same provisions as charitable subtrust except that the powers to amend revoke etc a particular divided charitable subtrust will be exercisable by the trustees of the divided trust to which it is associated the divided trusts will provide that if all the members of a child’s family line are deceased their divided trust will terminate the assets and liabilities of that divided trust will be allocated among grandchild 2’s then living issue per stirpes and will be distributed to the respective divided trust held for that issue or to a separate trust having the same terms and trustee as the divided trust for that issue in addition there will be a fractional division of the divided trust assets if grandchild has a subsequent child if the last surviving member of class two dies during the trust term the assets of the divided trusts will be administered for the benefit of the then living members of the next lowest numbered class of individual beneficiaries plr-140635-09 on date pursuant to the trustees’ petition court issued an order authorizing the proposed division the order is subject_to receipt of a favorable private_letter_ruling from the internal_revenue_service you have asked for the following rulings the divided trusts and divided charitable subtrusts will be exempt from the gst tax the division will not cause grandchild grandchild 2’s spouse grandchild 2’s children or any member of their respective family lines to be treated as having made a transfer subject_to gift_tax the division will not cause the assets of the divided trusts or divided charitable subtrusts upon creation to be includible in the gross_estate of grandchild grandchild 2’s spouse grandchild 2’s children or any member of their respective family lines for estate_tax purposes the allocation of assets and liabilities of trust to the divided trusts will not cause trust grandchild grandchild 2’s spouse grandchild 2’s children or any member of their respective family lines to recognize any ordinary_income or loss or capital_gain or loss for income_tax purposes the adjusted_basis of the assets received by the divided trusts and divided charitable subtrusts if any will be the same as the respective adjusted_basis of the assets held by trust for purposes of sec_1015 the holding periods of the assets received by the divided trusts and divided charitable subtrusts if any will be the same as the holding periods of the assets in trust for purposes of sec_1223 issue 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 section b a of the tax_reform_act_of_1986 the act vol c b and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the generation-skipping_transfer_tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that the transfer was not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that if an addition is made after date to an irrevocable_trust which is excluded from the application of chapter by reason of plr-140635-09 sec_26_2601-1 a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter 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 b or b will not cause the trust to lose its exempt status the rules of sec_26_2601-1 apply only to determine whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes they do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter but only 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 in the example the division of the trust into eight 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 interests prior to the division and the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust in this case trust was irrevocable on date and it is represented that no additions have been made since date based on the facts presented and the representations made the division as described above of trust into the divided trusts and the creation of the divided charitable subtrusts will not result in a shift of any beneficial_interest 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 the vesting of any beneficial_interest in the new trusts beyond the period provided for under the original trust accordingly the divided trusts and divided charitable subtrusts if any will not be subject_to the provisions of chapter issue plr-140635-09 sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible sec_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than an adequate_consideration in money_or_money's_worth then the amount by which the value of the property exceeded the value of the consideration is deemed a gift that is included in computing the amount of gifts made during the calendar_year the division of trust and creation of the divided charitable subtrusts as described above will not result in any change in the beneficial interests of any of the beneficiaries accordingly based on the facts submitted and representations made the division will not cause grandchild grandchild 2’s spouse any of grandchild 2’s children or any member of their respective family lines to be treated as having made a transfer subject_to gift_tax issue sec_2036 provides generally that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2037 provides generally that the value of the gross_estate shall include the value of property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of the reversionary_interest immediately before the decedent’s death exceeds five percent of the value of the property sec_2038 provides generally that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment plr-140635-09 thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity by the decedent alone or in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent's death sec_2036 and sec_2037 provide for inclusion of property in a decedent’s gross_estate if the decedent gratuitously transferred the property during life and retained certain rights powers or interests with respect to the property under sec_2038 the transferred property is includible in the decedent’s gross_estate if the decedent held certain rights or powers at death thus the estate_tax inclusion provisions of sec_2036 through apply only in the case of property transferred by the decedent during life in this case the division of trust and creation of the divided charitable subtrusts will not constitute a transfer of property for purposes of sec_2036 through by grandchild grandchild 2’s spouse any child of grandchild or a member of a child’s respective family line the beneficiaries of the trusts will have the same interests after the division as they had prior to the division we therefore conclude that the division of trust into the divided trusts and the creation of the divided charitable subtrusts will not cause the trust assets to be includible the gross_estate of grandchild grandchild 2’s spouse a child of grandchild or a member of a child’s family line under sec_2036 through sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent’s estate the decedent's creditors or the creditors of the decedent's_estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_20_2041-1 of the estate_tax regulations provides that a power in a decedent to remove or discharge a trustee and appoint himself may be a power_of_appointment for example if under the terms of a_trust the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment revrul_79_353 1979_2_cb_325 held that the value of property transferred to a_trust is plr-140635-09 includible in the decedent-grantor's gross_estate under sec_2036 and sec_2038 if the grantor retains the power to remove the corporate trustee without cause and appoint another corporate trustee and the trustee is endowed with broad discretionary powers in revrul_81_51 1981_1_cb_458 the service announced that revrul_79_353 would be applied prospectively only specifically revrul_81_51 held that if on or before date the date of publication of rev_rul a grantor transferred property to an irrevocable_trust and retained the power to remove at will and replace the corporate trustee with another corporate trustee no estate_tax consequences will result on account of the retained removal and replacement power the service reconsidered the position on this issue in revrul_95_58 1995_2_cb_191 this ruling revoked revrul_79_353 and revrul_81_51 and holds that a decedent-settlor’s reservation of an unqualified power to remove a trustee and appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee’s discretionary power of distribution over the property transferred by the decedent-settlor to the trust although revrul_79_353 and revrul_81_51 were revoked a_trust that was exempt from the application of revrul_79_353 by reason of revrul_81_51 does not lose this exemption even if the trust otherwise fails to meet the standard set forth in revrul_95_58 in this case an individual beneficiary may become a trustee of a divided trust held for his or her family line however under paragraph dollar_figure of trust he or she may not participate in any trustee decisions regarding discretionary distributions or as to the assets making up a distributive_share thus the individual beneficiary would have no power to pay directly or indirectly trust principal or income to himself or herself consequently an individual beneficiary will not be regarded as possessing a general_power_of_appointment solely as a result of his or her serving as a trustee further there are circumstances under paragraph in which an individual beneficiary may possess the power to remove at will and replace the trustees of the divided trust held for his or her family line although paragraph dollar_figure does not include the standards of revrul_95_58 for exercising the replacement power the exemption provided by revrul_81_51 is applicable as trust was created and funded before date therefore an individual beneficiary will not be considered to have a general_power_of_appointment within the meaning of sec_2041 solely by reason of possessing a power to remove and replace the trustees issue sec_61 defines gross_income as all income from whatever source derived under sec_61 gross_income includes g ains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining plr-140635-09 gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the entire amount of gain_or_loss must be recognized except as otherwise provided 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 exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained under sec_1_1001-1 the severance of a_trust occurring on or after date is not an exchange of property for other_property differing materially either in_kind or in extent if i an applicable_state_statute or the governing instrument authorizes or directs the trustee to sever the trust and ii any non-pro rata funding of the separate trusts resulting from the severance whether mandatory or in the discretion of the trustee is authorized by an applicable_state_statute or the governing instrument in the present case trust will be severed into the divided trusts on a pro_rata basis to the extent practical the dispositive provisions of each divided trust are the same as those of trust the proposed severance of trust is authorized by the trust agreement in addition applicable state law permits severance transactions under the terms of trust the trustees are authorized to assign assets and liabilities on a non-pro rata as well as a pro_rata basis in the event that they sever trust the severance of a_trust occurring on or after date is not an exchange of property for other_property differing materially in_kind or in extent if the severance satisfies the criteria set forth in sec_1_1001-1 the proposed severance of trust satisfies those criteria accordingly the severance of trust accompanied by the pro_rata funding of the divided trusts resulting from the severance does not constitute an exchange of property for other_property differing materially in_kind or in extent under sec_61 and sec_1001 issue sec_1015 provides that the basis in property acquired by a transfer in trust is the same as it would be in the hands of the grantor with adjustments for gain and loss recognized the basis in the assets in the trusts will be determined under sec_1015 in this case the basis of each trust asset in the hands of the surviving trusts will be the same as the basis of each such asset in the dividing trust prior to the division issue sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which the property was held by any other person if under chapter such property has for the purposes of determining plr-140635-09 gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person assuming the assets transferred from the dividing trust to the surviving trusts will have the same basis before and after the division we conclude that the holding periods for all the assets held by each of the surviving trusts will include the holding periods of the assets of trust the dividing trust under sec_1223 the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the code are in effect during the period at issue except as specifically ruled upon above we express no opinion as to the tax consequences of the transaction described above under the cited provisions of the code or under any other provisions of the code the rulings in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent sincerely yours james f hogan chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110


t c summary opinion united_states tax_court robert l tovar petitioner v commissioner of internal revenue respondent docket no 19073-02s filed date robert l tovar pro_se laura a mckenna for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 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 respondent determined a deficiency of dollar_figure in petitioner's federal_income_tax for unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year at issue the sole issue for decision is whether a payment of dollar_figure by petitioner to his former wife during constitutes alimony deductible under sec_215 that issue is resolved by whether the dollar_figure payment satisfies the definition of alimony_or_separate_maintenance_payment under sec_71 some of the facts were stipulated those facts with the annexed exhibits are so found and are incorporated herein by reference at the time the petition was filed petitioner was a legal resident of cordova tennessee petitioner was formerly married to cynthia lima from date until their divorce on date there were no children of the marriage during their marriage petitioner and ms lima were residents of the state of florida they were married in the state of florida their matrimonial domicile was in the state of florida and their divorce was rendered by a florida state court at the time of their divorce petitioner and ms lima entered into a mediated settlement agreement the agreement dated date that agreement was incorporated into the divorce decree entitled final judgment dissolving of marriage the divorce decree another adjustment in the notice_of_deficiency a decrease in itemized_deductions is computational and will be resolved by the court's holding on the principal issue the agreement essentially dealt with a division of property between petitioner and ms lima there were provisions with respect to past debts and obligations designation of the marital home to petitioner a division of their personal belongings etc paragraph of the agreement provided waiver of alimony each party waives the right to receive alimony or spousal support from the other party paragraph stated this agreement is and shall be deemed to be a florida agreement and shall be governed and construed in all respects by and in accordance with the laws of the state of florida finally the agreement provided agreement in evidence avoidance of merger the parties contemplate the dissolution of their marriage this agreement is intended to be a full settlement of all matters in any dissolution of marriage action and if accepted by the court shall be incorporated by reference in the judgment that may be rendered however notwithstanding future incorporation in the judgment this agreement shall not be merged in the judgment but shall survive the judgment and shall be binding on the parties for all time during his marriage including the year of the divorce petitioner was employed as an inventory manager for a national retailer best buy inc best buy he commenced his employment with best buy in at the time of trial petitioner was still an employee of best buy as an employee of best buy petitioner earned stock_options that entitled him to purchase stock in best buy at a set price of dollar_figure per share regardless of the current market price of the stock in the agreement it was recognized that ms lima was entitled to one-half of these options including one-half of the proceeds from some of the options petitioner had exercised a few months earlier during and as to which petitioner had elected to take cash in lieu of stock after the agreement was executed petitioner exercised additional options and remitted the net entire proceeds from both transactions to ms lima even though he was required to remit only one-half to her for our purposes here the stock purchased in both transactions cost dollar_figure at dollar_figure per share and the gross_proceeds from sale of the stock were dollar_figure resulting in a gain and net_proceeds of dollar_figure all of which petitioner paid to ms lima on his federal_income_tax return for petitioner claimed an alimony deduction of dollar_figure in the notice_of_deficiency respondent disallowed the deduction and made no other adjustments except for the computational adjustments on the itemized_deductions the sole issue is whether petitioner is entitled to a dollar_figure deduction for alimony under sec_215 the court decides this case without regard to the burden_of_proof under sec_7491 since the facts are not in dispute and the issue is a question of law sec_215 provides generally that alimony payments are deductible by the payor spouse under sec_215 alimony means any alimony as defined in sec_71 which is includable in the gross_income of the recipient under sec_71 under sec_71 the term alimony_or_separate_maintenance_payment is defined in sec_71 as any payment in cash meeting the following four criteria a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse petitioner's deduction for alimony is allowable only if the four criteria of sec_71 are met jaffe v commissioner tcmemo_1999_196 the court first notes that in the agreement ms lima was recognized as owner of one-half of all unexercised stock_options of her husband petitioner and additionally a substantial portion of stock_options petitioner had exercised prior to the divorce on this record the court is satisfied that a portion of the dollar_figure gain from the exercise of the options included the options owned by ms lima that portion of the distribution to her therefore was not alimony but was simply an accounting a payment or a distribution to petitioner of property she already owned with respect to the remainder of the dollar_figure respondent's position is that it is not alimony under sec_71 sec_71 requires as a condition to qualify as alimony that the obligation to pay terminate upon the death of the former spouse if the payer is liable for even one otherwise qualifying payment after the recipient's death none of the related payments required before death will be alimony sec_1_71-1t q a-13 temporary income_tax regs fed reg date whether such obligation exists may be determined by the terms of the applicable instrument or if the instrument is silent on the matter by looking to state law 309_us_78 gilbert v the court recognizes that because in the agreement the parties expressly waived the right to alimony it is plausible to conclude that the transfer or payment of the remainder of the net_proceeds from exercise of the stock_options to ms lima was voluntary and perhaps a gift and therefore not deductible respondent however did not make such a contention and since the parties framed the issue as alimony the court decides the case on that basis commissioner tcmemo_2003_92 affd sub nom 94_fedappx_126 3d cir kean v commissioner tcmemo_2003_163 the court agrees with respondent that the payment at issue is not alimony under sec_71 because under the terms of the agreement and under florida law petitioner's obligation to make the payment would have continued if ms lima had died prior to payment of the stock_option proceeds in canakaris v canakaris so 2d fla the florida supreme court stated although the award of lump sum alimony is not dependent upon a finding of a prior vested right there does arise upon the entry of a final judgment of a lump sum award a vested right which is neither terminable upon a spouse's remarriage or death nor subject_to modification it may consist of real or personal_property or may be a monetary award payable in installments jurisdiction may be expressly retained however to terminate lump sum alimony installment payments upon a spouse's remarriage or death when the parties agree to such a provision in a property settlement agreement further jurisdiction may be retained to enter periodic alimony if found necessary after such termination of lump sum alimony installment payments not only did the agreement and the divorce decree fail to provide that petitioner's obligation for payment of the stock_option proceeds would terminate upon the prior death of ms lima there were also no reservations that would have allowed the parties thereafter to incorporate such a condition upon petitioner's liability moreover the agreement specifically states that each party waived the right to alimony petitioner argues that the dollar_figure was included as income on his income_tax return and therefore if he was required to report the stock_option proceeds as income he should be entitled to an alimony deduction the court rejects that argument for two reasons first a payment as alimony qualifies as a deduction only if it meets the criteria of sec_71 as discussed earlier petitioner's payments to ms lima failed to satisfy sec_71 secondly in arguing that he included the stock_option proceeds as income on his income_tax return petitioner implies that he paid taxes on that income and therefore is entitled to a deduction for payment of that income to ms lima that argument fails because petitioner did not pay income taxes on the sales proceeds of the stock_options as he infers the option proceeds are not identified by the issuance of any information returns filed by the payor and moreover petitioner did not compute a tax on the option proceeds he received petitioner's return includes a schedule d capital_gains_and_losses on which he reported a short-term_capital_gain transaction on part i of the schedule he listed the best buy options listed a gross_sales price of dollar_figure a cost_basis of dollar_figure and a zero gain_or_loss petitioner therefore paid no income_tax on this transaction contrary to his argument the court therefore rejects petitioner's argument that he should be allowed a deduction for payment of an amount he reported as income respondent is sustained on this issue reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent as noted earlier petitioner's basis in the stock_options was dollar_figure and theoretically that amount should have been listed on schedule d as the cost or other basis which would have resulted in a gain of dollar_figure respondent made no adjustments in the notice_of_deficiency to reflect such a gain presumably in deference to the terms of the agreement between petitioner and his former spouse which provides that each party was responsible for income taxes on their respective returns petitioner's former wife did not testify at trial her income_tax return was not offered in evidence and counsel for respondent did not indicate to the court how the former spouse treated the stock_option proceeds on her return since the proceeds were all distributed to the former wife the tax if any on those proceeds rested with her sec_1041


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br 1-plr-111015-01 date date legend x d1 this letter responds to the ruling_request dated date which you submitted on behalf of x and which requests relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 x intended to be treated as an s_corporation for federal_income_tax purposes effective on d1 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable plr-111015-01 year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under sec_1362 effective on d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the internal_revenue_code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent s dianna k miosi sincerely yours chief branch associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes