internal_revenue_service number release date index number ----------------------- ------------------------------------- ----------------------------------- ----------------------------------- legend department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- id no ----------- telephone number -------------------- refer reply to cc psi b06 plr-149406-13 date date ---------------------------------------- taxpayer ------------------------------------------------- company a company b company c company d company e company f business a individual a individual b individual c individual d utility licensor state a state b state c state d state e state f plant date date date date date date ----------------------------------- --------------------------------------------- ------------------------------------ -------------- --------------------------------- ---------------------------------- ------------------------------------------------ ------------------ ---------------------- ----------------- ---------------------- -------------------------------------- ---------------------- ------------ ----------------- ----------- ------ ------------ ------------ -------------------------------------------- ------ ------ --------------------- -------------------------- ------------------ ------------------------- plr-149406-13 date date date date date date date date additive additve center --------- test rep test rep ------ test rep test rep ------ test rep test rep ------ source region a source region b x y ---------------------- -------------------------- ---------------- ----------------------- ------------------ ----------------------- ---------------- ------------------- -------------------- ---------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------ --------------------- ----------------- ---------------- dear --------------- this is in response to your request for rulings submitted by your authorized representative concerning the federal_income_tax consequences of the transaction described below taxpayer has represented the facts to be as follows background taxpayer a state a limited_liability_company is a calendar_year taxpayer and employs the accrual_method of accounting for both book and tax purposes the members of taxpayer are company a and company b each of which is a state a limited_liability_company the ultimate principal owners of company a are individual a individual b individual c and individual d those individuals have worked and invested together in various projects since at least date some of their prior projects included the development construction and operation of synthetic_fuel production facilities and plr-149406-13 waste coal processing facilities commencing in date the principals agreed to develop a new refined_coal business including that conducted by taxpayer company b is wholly owned by company c which is a state b corporation and wholly owned indirect subsidiary of company d a publicly traded state a corporation that is primarily engaged through its subsidiaries in business a company b is disregarded as a separate_entity from company c for u s federal tax purposes taxpayer was organized on date to construct a facility for the production of refined_coal that was placed_in_service at a mine site in state c on or about date and produced and sold refined_coal with the expectation that it would be burned to produce steam however due to unforeseen difficulties in identifying customers willing to enter into long-term_contracts to purchase refined_coal taxpayer did not continue producing refined_coal after date subsequently on date taxpayer entered into contracts with utility to locate a refined_coal_production_facility on a site adjacent to plant in state d and to sell refined_coal produced in that facility to utility because its existing facility did not meet the functional requirements for producing refined_coal at this new location taxpayer arranged for the construction of a new refined_coal_production_facility in anticipation of the transaction with company b described below taxpayer was reorganized in date pursuant to that reorganization the membership interests in taxpayer were recapitalized into class a and class b interests the class a interests were contributed to company a and the class b interests were contributed to company e each of company a and company e are classified as partnerships for u s federal tax purposes on date company b acquired all of the class b membership interests in taxpayer from company e in a transaction treated as a taxable sale_or_exchange of an interest in a partnership for u s federal_income_tax purposes simultaneously company a and company b entered into a limited_liability agreement with respect to taxpayer setting forth their agreement regarding the respective rights and obligations of the class a and class b interest in taxpayer the management and related decision- making of taxpayer and certain related matters pursuant to its agreements with utility taxpayer purchases coal feedstock from utility the coal supply agreement does not prohibit taxpayer from purchasing coal feedstock from third parties and does not prohibit taxpayer from purchasing more feedstock coal than utility would expect to buy from taxpayer in the form of refined_coal the feedstock coal purchased by taxpayer typically is coal that utility itself purchased from third party vendors consistent with its coal specifications taxpayer uses the process as described below to produce refined_coal that it sells to utility plr-149406-13 pursuant to a refined_coal sales agreement all of the refined_coal produced in the facility is expected to be used as a fuel at plant to produce steam for the generation of electricity however any refined_coal not purchased by utility can be sold to one or more third parties taxpayer has no employees rather it entered into an operations and maintenance agreement with company f a state a limited_liability_company and affiliate of company a pursuant to that agreement company f will operate repair and maintain the facility in accordance with an agreed operating plan will make arrangements to coordinate delivery of spare parts and supplies will coordinate deliveries of coal feedstock purchases and sales of refined_coal and will perform certain administrative functions in support thereof in addition company f will arrange for testing of refined_coal as described below description of the process the process at issue for production of refined_coal currently employed at the facility involves the mixing of proprietary chemicals additives with feedstock coal prior to combustion the process the patent for the process is licensed by licensor to taxpayer licensor is entitled to certain per ton royalties based on production for_the_use_of the technology test results have shown that when mixed with coal the proprietary additives result in reduced nox so2 and mercury emissions during combustion different chemicals are targeted at specific pollutants based on the characteristics of the feedstock coal burned at the plant taxpayer has chosen a combination of additives that target the reduction of nox and mercury in the case of nox taxpayer understands that additive is believed to cause a portion of the nox to adhere to or react with the additive so that it can be captured and is not emitted in the case of mercury taxpayer understands that additive is believed to react with the elemental mercury in the feedstock coal so that it is converted into a chemical species of mercury mercury oxide that can be effectively captured by particulate control devices emissions reduction testing for purposes of determining emissions reductions under sec_45 taxpayer will arrange for pilot-scale combustion testing and laboratory analysis for redetermination purposes and will not rely on any continuous emissions monitoring system or other field testing taxpayer engaged the research center of a prominent university the center to conduct tests on behalf of taxpayer at its pilot-scale combustion test facility ctf to determine the emission reductions associated with burning the refined_coal compared to the feedstock coal center reports described below state the ctf has been extensively used to research and investigate sox and nox emissions and the transformation of toxic trace metals hg mercury as and pb during the combustion of coal and other fuels or waste plr-149406-13 materials the ctf is capable of producing gas and particulate samples that are representative of those produced in industrial- and full-scale pulverized coal pc -fired boilers the ctf is capable of producing gas and particulate samples that are representative of those produced in industrial and full-scale pulverized coal boilers and has several pollution control devices that may be used to reduce emissions including an electrostatic precipitator or fabric filter baghouse for particulate control a selective catalytic reduction column for nox control and a wet scrubber for control of sulfur emissions for purposes of qualifying the refined_coal produced at the facility center conducted pilot-scale combustion tests at its ctf on dates and on feedstock coal of the type typically burned at plant center issued reports with respect to each of those tests which are referred to as test rep test rep test rep test rep test rep and test rep collectively the test reports each test report explains that combustion gas analysis is provided by continuous emissions monitors cems at two locations the furnace exit which is used to monitor and maintain a specified excess air level for all test periods and the outlet of the particulate control device which is used to assess any air inleakage that may have occurred so that emissions of interest sampled at the back end of the system can be corrected for the dilution caused by the inleakage flue gas analyses were obtained from the duct at the outlet of the baghouse flue gas mercury measurements were obtained separately by a continuous mercury monitor located at the flue gas ducting at the exit of the particulate control device center conducted a series of tests on the feedstock and refined_coal blend measuring the emissions with these devices each test report states that the test results indicate that the blend of coal and additives achieved the required reductions in both nox and total mercury emissions both determined on a lb btu basis to satisfy the requirements of at least nox reduction and at least mercury reduction each test report also states that it is expected the emissions reduction reported would be achieved at full scale using the additive levels tested tested coal the plant currently burns coal obtained from various mines located in states d e and f within source regions a and b taxpayer produces refined_coal using this coal and sells that refined_coal to utility which burns it in the plant to generate electricity from steam the rank of the coal burned at the plant is classified by the american society of testing materials astm as approximately x bituminous coal and approximately y subbituminous coal taxpayer requested that center test a blend of coal that represents the coal to be used at the plant the tested coal the reports issued by center state that the emission reduction requirements outlined in sec_45 for nox and mercury were satisfied plr-149406-13 when comparing the results of burning the endpoint fuel to the results of burning the feedstock coal taxpayer expects to continue to operate with the blend and additive levels discussed in the center reports which would be consistent with long-term patterns for coal consumed at the plant to that end samples will be taken for redetermination testing within six months after the last emissions test satisfying the qualified_emission_reduction requirement thereafter within six months after such date another set of samples will be taken for redetermination testing in each case samples will be collected and prepared in accordance with sampling and testing procedures set forth in taxpayer’s operating protocols although testing and preliminary reporting is done timely the center often is not able to issue the final report until after the six-month period although taxpayer does not currently anticipate making changes to its coal feedstock or additive levels or using other coal sources or ranks additional testing will be conducted prior to acquiring coal feedstock from a different coal source region or of a different ranks than reflected in the tested coal in the case of a change in the additive levels tests will also be run at the new minimum levels of additive as the qualified expert advises is necessary to conclude that a qualified emissions reduction will be expected for the new levels of additive rulings requested based on the foregoing you have requested that we rule as follows the refined_coal produced by using the process constitutes refined_coal within the meaning of sec_45 of the code provided that such refined_coal is produced from feedstock coal that is the same source or rank as the tested coal and provided further that the refined_coal satisfies the qualified_emission_reduction test stated in sec_45 of the code provided that the feedstock coals used to produce refined_coal during any determination_period are from the same coal source regions and of the same ranks as the tested coal all feedstock coal that satisfies that criteria shall be treated as feedstock coal of the same source and rank for purposes of section dollar_figure of notice_2010_54 regardless of the mines from which such feedstock coal is purchased testing by center for qualified emissions reduction as set forth in its test reports satisfies the requirements of notice_2010_54 taxpayer may rely on the pilot scale testing conducted at center and subsequent permitted laboratory testing as required for a redetermination described in section a or b of notice to satisfy the qualified_emission_reduction test of sec_45 of the code plr-149406-13 pursuant to section b of notice_2010_54 taxpayer may satisfy the redetermination requirement of section dollar_figure of notice_2010_54 by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal on average do not vary by more than ten percent below the bottom of nor more than ten percent above the top of the range of sulfur content and the range of mercury content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of section dollar_figure of notice_2010_54 the results set forth by the center in a redetermination test report for production may be relied upon after the date of the testing even if the report is not received until after the six month period specified in section i of notice_2010_54 provided the facility was placed_in_service prior to date within the meaning of sec_45 relocation of the facility to a different location after date or replacement of part of a facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_45 provided the fair_market_value of the used_property is more than twenty percent of the facility’s total value the cost of the new property plus the value of the used_property at the time of relocation or replacement law and rationale sec_45 of the code generally provides a credit against federal_income_tax for_the_use_of renewable or alternative resources to produce electricity or fuel for the generation of steam sec_45 of the code provides that in the case of a producer of refined_coal the credit available under sec_45 of the code for any taxable_year shall be increased by an amount equal to dollar_figure5 per ton of qualified refined_coal i produced_by_the_taxpayer at a refined_coal_production_facility during the 10-year period beginning on the date that the facility was originally placed_in_service and which is ii sold by the taxpayer to an unrelated_person during such 10-year period and such taxable_year for purposes of sec_45 of the code section dollar_figure of notice_2010_54 provides that the term refined_coal means a fuel which - i is a liquid gaseous or solid fuel including feedstock coal mixed with an additive or additives produced from coal including lignite or high carbon fly ash including such fuel used as a feedstock ii is sold by the taxpayer with the reasonable expectation that it will be used for the purpose of producing steam and iii is certified by the taxpayer as resulting when used in the production of steam in a qualified_emission_reduction section dollar_figure of the notice provides that the term qualified_emission_reduction means in the case of refined_coal produced at a facility placed_in_service after date a reduction of at least twenty percent of the emissions of nitrogen oxide and at least forty percent of the emissions of either sulfur dioxide or mercury released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the plr-149406-13 feedstock coal or comparable coal predominantly available in the marketplace as of date sec_45 of the code generally provides that the term refined_coal_production_facility means a facility which is placed_in_service after date and before date section dollar_figure of notice_2010_54 generally provides that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as defined in sec_613 a c or i if performed by the mine owner or operator accordingly in determining whether a qualified_emission_reduction has been achieved the emissions released when burning the refined_coal must be compared to the emissions that would be released when burning the feedstock coal feedstock coal is the product resulting from processes that are treated as mining and are actually applied by a taxpayer in any part of the taxpayer’s process of producing refined_coal from coal sec_613 of the code describes treatment processes that are not considered as mining unless they are provided for in sec_613 or are necessary or incidental to a process provided for in sec_613 any cleaning process such as a process that uses ash separation dewatering scrubbing through a centrifugal pump spiral concentration gravity concentration flotation application of liquid hydrocarbons or alcohol to the surface of the fuel particles or to the feed slurry provided such cleaning does not change the physical or chemical structure of the coal and drying to remove free water provided such drying does not change the physical or chemical identity of the coal will be considered as mining section of the notice provides in part that emissions reduction may be determined using continuous emission monitoring system cems field testing section a provides in part that cems field testing is testing that meets all the following requirements i the boiler used to conduct the test is coal-fired and steam-producing and is of a size and type commonly used in commercial operations ii emissions are measured using a cems iii if epa has promulgated a performance standard that applies at the time of the test to the pollutant emission being measured the cems must conform to that standard iv emissions for both the feedstock coal and the refined_coal are measured at the same operating conditions and over a period of at least hours during which the boiler is operating at a steady state at least percent of full load and v a qualified_individual verifies the test results in a manner that satisfies the requirement of section b section of the notice provides that methods other than cems field testing may be used to determine the emission reduction the permissible methods include a testing using a demonstration pilot-scale combustion furnace if it establishes that the method accurately measures the emission reduction that would be achieved in a boiler described in section a i and a qualified_individual verifies the test plr-149406-13 results in a manner that satisfies the requirements of section c i ii v and vi of the notice and b a laboratory analysis of the feedstock coal and the refined_coal that complies with a currently applicable epa or astm standard and is permitted under section b i or ii section of the notice provides that a taxpayer may establish that a qualified_emission_reduction determined under section dollar_figure applies to production from a facility by a determination or redetermination that is valid at the time the production occurs a determination or redetermination is valid for the period beginning on the date of the determination or redetermination and ending with the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of the feedstock coal that occurs after the date of such determination or redetermination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination section of the notice provides that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure must use a method that meets the requirements of section in any other case the redetermination requirement may be satisfied by laboratory analysis establishing that - a the sulfur s or mercury content of the amount of refined_coal necessary to produce an amount of useful energy has been reduced by at least percent percent in the case of facilities placed_in_service after date in comparison to the s or mercury content of the amount of feedstock coal necessary to produce the same amount of useful energy excluding any dilution caused by materials combined or added during the production process b the s or mercury content of both the feedstock coal and the refined_coal do not vary by more than percent from the s and mercury content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of the notice section dollar_figure of the notice provides that the certification requirement of sec_3 c of the notice is satisfied with respect to fuel for which the refined_coal credit is claimed only if the taxpayer attaches to its tax_return on which the credit is claimed a certification that contains the following a statement that the fuel will result in a qualified emissions reduction when used in the production of steam a statement indicating whether cems field testing was used to determine the emissions reduction if cems field testing was not used to determine the emissions reduction a description of the method used a statement that the emissions reduction was determined or redetermined within the six months preceding the production of the fuel and that there have been no changes in the source or rank of the feedstock coal used in the process of producing refined_coal from feedstock coal since the emissions reduction was most recently determined or redetermined and a declaration signed by the taxpayer in the following form under penalties of perjury i declare that i have plr-149406-13 examined this certification and to the best of my knowledge and belief it is true correct and complete finally sec_45 of the code provides that a refined_coal_production_facility must be placed_in_service within certain timeframes for purposes of the refined_coal credit allowable with respect to refined_coal other than steel_industry_fuel the facility must be placed_in_service after date and before date section dollar_figure of notice_2010_54 provides that the year in which property is placed_in_service is determined under the principles of sec_1_46-3 of the regulations ie when the property is placed in a condition or state of readiness and availability for a specifically assigned function section dollar_figure of notice_2010_54 provides that a refined_coal_production_facility will not be treated a placed_in_service after date if more than percent of the facility’s total value the cost of the new property plus the value of the used_property is attributable to property placed_in_service on or before date notice_2010_54 also states that the irs will not issue private letter rulings relating to when a refined_coal_production_facility has been placed_in_service with respect to the first issue the process starts with several chemical additives being added to the feedstock coal prior to its combustion in a furnace the additives provide the chemical structure that results in the reduction of emissions of nitrogen oxide and mercury during combustion section dollar_figure of the notice provides generally that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining if performed by the mine owner or operator in the instant case the process is not a mining process further section dollar_figure of the notice clarifies sec_45 of the code and specifically provides that refined_coal includes feedstock coal mixed with additives thus additive processes that mix certain chemicals or other additives with the coal in order to achieve emissions reductions may qualify for the refined_coal production_tax_credit additionally section dollar_figure defines comparable coal as coal that is of the same rank as the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal accordingly we conclude that the coal produced by using the process constitutes a refined_coal within the meaning of sec_45 of the code provided that the refined_coal i is produced from feedstock coal that is the same source or rank as the tested coal and ii satisfies the qualified_emission_reduction test stated in sec_45 of the code with respect to the second issue the emissions profile of the refined_coal product is compared to the emissions profile of either the feedstock coal or a comparable coal predominantly available in the marketplace as of date section dollar_figure of the notice provides that a comparable coal is defined as coal that is of the same rank as the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal section dollar_figure of provides that a determination or redetermination of a qualified emissions reduction is valid until the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of the feedstock coal that occurs plr-149406-13 after the date of such determination or redetermination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination accordingly we conclude that provided that the feedstock coals during any determination_period are from the same coal source regions and of the same ranks as the tested coal all feedstock coal that satisfies that criteria shall be treated as feedstock coal of the same source and rank for purposes of section dollar_figure of notice_2010_54 regardless of the mines from which such feedstock coal is purchased with respect to the third issue section of the notice provides that any permissible testing method provided for in the notice can be used in emission testing for any pollutant that is a taxpayer can use different testing methods for each of nitrogen oxide sulfur dioxide or mercury provided the method used for any pollutant is a permissible method section provides that an emission test establishing a qualified_emission_reduction qualifies the refined_coal for a six-month period provided there is no change in the process for producing the refined_coal or in the source or rank of the feedstock coal therefore a taxpayer must redetermine the emission reductions to qualify for the succeeding six-month period using one or more approved methods in the instant case taxpayer will arrange for pilot-scale combustion testing and will not rely on any continuous emissions monitoring system or other field testing which is permitted under section dollar_figure of the notice specifically taxpayer will arrange with the center to conduct testing including redetermination testing at its ctf to determine the emissions reductions associated with burning the refined_coal product compared to the feedstock for purposes of qualifying the refined_coal produced at the facility the center has conducted pilot-scale combustion tests at its ctf as documented in the test reports in conducting such tests the center conducted tests on the feedstock and then mixed a separate sample of the feedstock with the additives so that it could conduct tests on the refined_coal product in each of its reports the center reported that the test results indicated that the blend of coal and additives achieved the required emissions reductions based on the foregoing we conclude that testing by the center for qualified emissions reductions as set forth in its test reports including interim reports satisfies the requirements of notice_2010_54 qualified emissions reduction through testing by the center at its combustion research facility or similar pilot-scale combustion testing facilities under notice_2010_54 may be relied upon with respect to the fourth issue section of notice_2010_54 provides in part that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure must use a method that meets the requirements of section in any other case the redetermination requirement may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal do not vary by more than percent from the sulfur and mercury content of the feedstock coal and refined_coal used in the most recent redetermination that meets plr-149406-13 the requirements of the notice accordingly we conclude that taxpayer may satisfy the redetermination requirement of section dollar_figure of notice_2010_54 by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal on average do not vary by more than ten percent below the bottom of nor more than ten percent above the top of the range of sulfur content and the range of mercury content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of section dollar_figure of notice_2010_54 with respect to the fifth issue it is intended that taxpayer will engage in redetermination testing every six months or more frequently if required pursuant to notice_2010_54 however the center is not always able to issue the written report required by section a of notice_2010_54 within the six month period thus although redetermination testing is completed within the six month period the report may be received after the six month period nonetheless the center informed taxpayer of the results of the test on the day of the tests so that it was able to take into account the results of the redetermination within the six month period nevertheless the delay by the center in issuing its report cannot be indefinite accordingly we conclude that the results set forth by the center in a redetermination test report for production may be relied upon after the date of testing even if the report is not received until after the six-month period specified in section i of notice_2010_54 so long as taxpayer receives the written report within days from the date of testing however the redetermination of qualified emissions reduction must occur during the earliest of the events described in section dollar_figure of notice_2010_54 regardless of the time of the actual receipt of center’s test report with respect to the sixth issue during the life of the facility taxpayer may decide to relocate the facility and it may be necessary to replace certain major components in the event of relocation or replacement of a component there should be no change in the placed_in_service_date of the facility as long as the test described in section dollar_figure of notice_2010_54 has been met based on the foregoing we conclude that provided the facility was placed_in_service prior to date within the meaning of sec_45 relocation of the facility to a different location after date or replacement of part of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_45 provided the fair_market_value of the used_property is more than twenty percent of the facility’s total value the cost of the new property plus the value of the used_property at the time of relocation or replacement plr-149406-13 this ruling expresses no opinion regarding any issue not specifically addressed in this ruling letter including whether any person has sold refined_coal to an unrelated_person or when the facility was placed_in_service in particular we express or imply no opinion that taxpayer has sufficient risk or rewards of the production activity to qualify as the producer of the refined_coal the service may challenge an attempt to transfer the credit to a taxpayer who does not qualify as a producer including transfers structured as partnerships sales or leases that do not also transfer sufficient risks and rewards of the production activity in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives a copy of this ruling must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs special industries cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl br1-plr-102390-00 date date a country b year year year year date c this is in response to your letter dated date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s surrender of her u s alien registration card green card did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 a was born in country b in year a began residing in the united_states in a year and obtained her green card in year a returned to country b in year and surrendered her green card expatriated on date c on the date of a’s expatriation her net_worth exceeded the amount set forth in sec_877 plr-102390-00 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former u s citizen or former u s long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual's expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because she is a resident and fully liable to country b tax the country in which she was born a submitted all of the information required to be submitted by notice_97_19 as modified by notice_98_34 including additional information requested by the service after review of the submission accordingly based solely on the facts submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 therefore a will not be presumed under sec_877 to have as one of her principal purposes for expatriating the avoidance of u s taxes we further conclude that a will not be treated under sec_877 as having as one of her principal purposes for expatriating the avoidance of plr-102390-00 u s taxes because the information submitted clearly establishes the lack of a principal purpose to avoid taxes under subtitle a or b of the code 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 in addition no opinion is expressed as to a’s u s tax_liability for the taxable years prior to or after her expatriation under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a senior technical reviewer sincerely yours w edward williams cc intl br1 cc


internal_revenue_service department of nd229 index number washington dc person to contact telephone number refer reply to cc dom corp date date plr-111942-99 legend purchaser sellers target date a date b date c date d date e date f date g date x district p company official tax professional lugs plr-107977-99 authorized representatives dear this responds to your authorized representatives’ letter dated date requesting an extension of time under sec_301_9100-1 through of the ’ procedure and administration regulations to file an election are requesting an extension of time to file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1 h -1 d of the income_tax regulations sometimes hereinafter referred to as the election with respect to purchaser's acquisition of the target stock on date b an examination of the purchaser's return for the fiscal years ended date e and date f years started on date g in the p district of the internal_revenue_service and is currently being examined the national_office has coordinated with the examining agent pursuant to revproc_99_1 ilr b and r b additional information was received in a letter dated date the material information is summarized below purchaser and sellers purchaser is the common parent of a consolidated_group that has a taxable_year ending on june and uses the accrual_method of accounting target was an s_corporation within the meaning of sec_1361 and was wholly owned by sellers individuals target had a calendar taxable_year and used the cash_method_of_accounting on date a purchaser sellers and target entered into a stock purchase agreement for purchaser to acquire all of sellers’ target stock on date b purchaser acquired all of sellers’ target stock pursuant to the stock purchase agreement for cash in fully taxable acquisitions it is represented that purchaser was not related to sellers within the meaning of sec_338 and purchaser's acquisition of target stock qualified as qualified_stock_purchase qsp as defined in sec_338 following the acquisition new target was included in purchaser's consolidated_group as a subchapter_c_corporation purchaser and sellers intended to file the election the election was due on date c but for various reasons it was not filed on date d which is after the due_date for the election purchaser target sellers company official tax professional and iy plr-107977-99 authorized representatives discovered that the election was not filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for purchaser's target's or sellers’ taxable_year s in which the acquisition sale was consummated the taxable_year in which the election should have been filed or for any taxable years that would have been affected by the election had it been timely filed moreover all returns for purchaser target and sellers were filed as if'a valid election had been made ie without the election being attached or filed and the service has not discovered that the election has not been filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election under sec_338 and the acquisition is a qualified_stock_purchase qsp sec_1_338-1 provides that a sec_338 election is an election to apply sec_338 to target sec_338 specifies the requirements for making a sec_338 election sec_1_338_h_10_-1 provides that if a sec_338 election is made for t a sec_338 election is deemed made for t sec_338 defines a qsp as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of corporation is acquired by another corporation by purchase during the month acquisition period sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or i under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 other than paragraph thereof be attributed to the person acquiring such stock sec_338 permits the purchasing and selling corporations to jointly elect to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation the sale of stock included in the qsp is generally ignored a sec_338 election may be made for target only if selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 gain_or_loss on the deemed sale is included in the consolidated_return of the selling group unless the target_corporation is - a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 provides that a sec_338 election may be made for the target_corporation if the purchasing_corporation makes a qsp of the target_corporation stock sec_1_338_h_10_-1 and provide that if a sec_338 election is it is a member of a he plr-107977-99 made for the target_corporation it is irrevocable and a sec_338 election is deemed made for the target_corporation more specifically target is treated as if while a member of the selling group or owned by the selling affiliate or s_corporation shareholders it distributed all of its assets in complete_liquidation if target is an s_corporation immediately before the acquisition_date nothing in the sec_338 provisions prevents a holder of target stock from taking deemed sale gain into account under sec_1366 and sec_1367 see sec_331 or sec_332 for gain_or_loss recognized by the old target shareholders as a result of the deemed liquidation sec_1_338_h_10_-1 no gain_or_loss is recognized on the sale_or_exchange by the selling_consolidated_group or the selling affiliate or an s_corporation shareholder of target stock included in the qsp lf targetisans corporation immediately before target's acquisition_date the sale_or_exchange of old target does not result in a termination of the sec_1362 election for the s_corporation sec_1_338_h_10_-1 sec_1_338_h_10_-1 provides that a sec_338 election is jointly made by a purchaser and the selling_consolidated_group or the selling affiliate or the s_corporation shareholders on form_8023 in accordance with the instructions to the form the regulations further provide that the election must be made not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs the instructions to form_8023 provide that a sec_338 election must be made jointly by the purchasing_corporation or the common parent of the consolidated_group of which the purchasing_corporation is a member or the selling affiliate or s_corporation shareholders and the selling corporation or the common parent of the consolidated_group of which the selling corporation is a member or the selling affiliate or s_corporation shareholders the instructions provide that the form must be signed by each person authorized to act on behalf of each corporation and if made for an s_corporation it must be signed by each s_corporation shareholder who sells target stock in the qualified_stock_purchase the instructions further provide that the signatures dates and titles if applicable of those persons must be provided in a signature attachment and they provide specific details as to the preparation of the sfgnature attachment and its attachment to form_8023 sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax_liability of the consolidated_return_year see also form_8023 and the instructions thereto under sec_301_9100-1 c the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who s abroad under all subtitles of life plr-107977-99 the internal_revenue_code except subtitles e g h and provided the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a in this case the time for filing the election is fixed by the regulations le sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and sellers to file the election provided purchaser and sellers show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser sellers company official tax professional and authorized representatives explain the circumstances that resulted in the failure to timely file a valid election the information establishes that relief was requested under sec_301_9100-3 before the failure to make the election was discovered by the service and that no reporting position was taken by any affected party that did not conform with the election also the information establishes that tax professionals were responsible for the election that purchaser and sellers relied on them to timely make the election and that the government- will not be prejudiced if relief is granted see b v sec_301_9100-3 sec_301_9100-3 and based on the facts and information submitted including the representations made we conclude that purchaser and sellers have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301 -1 until days from the date_of_issuance of this letter for purchaser and sellers to file the election with respect to the acquisition of target as described above plr-107977-99 the above extension of time is conditioned on i both purchaser and each and everyone of the sellers signing the election ii both purchaser and each and everyone of the sellers treating the acquisition sale of the target stock as a sec_338 transaction and iii the taxpayers’ ie purchaser's target's and sellers’ tax_liability if any being not lower in the aggregate for all years to which the election apply than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the district director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ liability is lower sec_301_9100-3 purchaser and sellers must file the election in accordance with sec_1 h - d that is a new election on form_8023 must be executed on or after the date of this fetter which grants an extension and filed in accordance with the instructions to the form attached to the election form see announcement -2 1998_2_irb_38 a copy of this letter should be purchaser target and sellers must amend their applicable returns notwithstanding that they reported the transaction as a sec_338 transaction for the year in with the transaction was consummated and attach to such returns a copy of this letter and a copy of the election form we express no opinion as to whether the acquisition sale of target's stock qualifies as a qsp under sec_338 whether the acquisition sale of target's stock qualifies for sec_338 treatment or if sec_338 is applicable as to the amount and character of gain_or_loss if any recognized by target and thus by sellers on the target's deemed asset sale in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the district_director s should verify all essential facts file the election penalties and interest that would otherwise be applicable if any continue to apply in addition notwithstanding that an extension is granted under sec_301_9100-1 to this letter is directed only to the taxpayer s who requested it k provides that it may not be used or cited as precedent section llhw plr-107977-99 pursuant to the taxpayers’ powers of attorney on file in this office a copy of this letter is being sent to the authorized representative designated to receive a copy and it is expected that such authorized representative will provide his client ie the sellers with a copy sincerely yours assistant chief b unsel corporate richard todd counsel to the assistant chief_counsel corporate v7


internal_revenue_service number release date index number --------------------- ------------- --------------- ---------------------- -------------------------------------------------- in 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 corp b05 plr-134538-08 date date legend distributing shareholder a shareholder b shareholder c controlled ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------- ---------------- ----------------- ------------- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------------- sub1 ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------- manage co ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------------- state x date -------- ------------------ plr-134538-08 date date date date -------------------------- ------- ---------------- ------------------ business ------------------------------ location1 ----------------------- location2 ------------------------------------------------------------ -------- -------- -------- -------- --------------------------------------------------------------------- ------------------------------------------------------------------------------ a b c d x y dear ---------- this letter responds to your date request for rulings regarding certain federal_income_tax consequences of a proposed transaction the information submitted in that request and in later correspondence dated date is summarized below unless otherwise indicated references herein to code sections and regulations sections are to the applicable internal_revenue_code and income_tax regulations the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process plr-134538-08 in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the distribution described below i satisfies the business_purpose requirement of sec_1_355-2 ii is being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in distributing or controlled see sec_355 and sec_1_355-7 facts distributing was incorporated as a state x corporation on date distributing has a single class of voting common_stock owned by three individual shareholders shareholder a and shareholder c each own a and shareholder b owns b of distributing’s stock on date more than ten years ago the shareholders elected to treat distributing as an s_corporation distributing has directly conducted its business for more than five years in two locations location and location on date more than five years ago distributing purchased one hundred percent of the stock of sub1 which expanded distributing’s location business on date distributing made an ineffective election to treat sub1 as an s_corporation on date distributing’s election to treat sub1 as a qualified_subchapter_s_subsidiary became effective distributing is an accrual_method taxpayer filing its returns on a calendar_year controlled will be formed by distributing as a state x corporation in the transactions proposed below controlled will be an accrual_method taxpayer filing its returns on a calendar_year prior to the transactions proposed below distributing plans to sell x business_assets in location prior to or after the transactions proposed below distributing plans to sell y business_assets in location distributing has either held the x and y assets for more than ten years or acquired them in a transaction that would not qualify as a sec_1374 transaction the assets will be sold for cash the cash received for the x assets will be reinvested in location the cash received for the y assets will be reinvested in location after the transactions proposed below distributing and controlled will form with nominal capital an administrative management company manage co manage co will hire the administrative employees formerly employed by distributing and lease such employees to distributing and controlled to perform back-office financial and administrative services distributing and controlled will pay an arm’s length fee for the services provided by manage co the continued success of the business depends on the shareholders complying with two contractual terms first the x assets in location and y assets in location plr-134538-08 must be sold to improve cash_flow that must be reinvested in the business’s respective locations second the business must be separated by location the financial information submitted indicates that taking into account the proceeds from the sale of the x and y assets the location business and the location business have had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for at least each of the past five years the proposed transaction to comply with the two contractual terms governing the business and for what are represented to be valid business reasons distributing proposes to complete the following transactions on the same day i ii iii iv distributing will form controlled distributing will contribute to controlled all the assets including cash from the sales of x assets and controlled will assume all the liabilities associated with the location business the contribution in exchange for controlled stock distributing will distribute all the controlled stock to shareholder b and shareholder c the exchanging shareholders in exchange for all or part of their distributing stock the distribution shareholder b will exchange one-half of his distributing stock for controlled stock while shareholder c exchanges all of his distributing stock for controlled stock following the distribution shareholder a will own c of the common_stock of distributing but no controlled stock shareholder b will own d of the common_stock of distributing and controlled shareholder c will own c of the common_stock of controlled but no distributing stock controlled will make an s election under sec_1362 effective immediately following the distribution thereafter controlled will elect to be taxed as a subchapter_s_corporation on the first available date after the distribution representations the taxpayer has made the following representations in connection with the transaction described above a distributing is an s_corporation within the meaning of sec_1361 of the code immediately following the proposed transaction controlled will elect to be an s_corporation pursuant to sec_1362 there is no plan or intent to revoke or otherwise terminate the s_corporation_election of either distributing or controlled b distributing controlled and each of the shareholders will each pay his or its own expenses_incurred in connection with the proposed transaction plr-134538-08 c d e f g h i j k l the fair_market_value of controlled stock received by each shareholder of distributing will be approximately equal to the fair_market_value of the distributing stock surrendered by the shareholder in the exchange no part of the controlled stock to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation the five years of financial information submitted on behalf of distributing is representative of distributing’s present operation and with regard to distributing there have been no substantial operational changes since the date of the last financial statements submitted following the distribution distributing and controlled will each continue independently and with its separate employees the active_conduct of the business in location and location respectively the distribution of the stock of controlled is carried out for the corporate business_purpose of complying with contractual obligations the distribution of the stock of controlled is motivated in whole or substantial part by this corporate business_purpose the transaction is not being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both distributing did not acquire any of the x or y assets or any of the property transferred in the contribution to controlled in a transaction described in sec_1374 the total adjusted bases of the assets that distributing will transfer to controlled equals or exceeds the sum of the liabilities assumed as determined under sec_357 by controlled the total fair_market_value of the assets that distributing will transfer to controlled will exceed the sum of the amount of any liabilities assumed as determined under sec_357 by controlled in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the contribution plr-134538-08 m the liabilities assumed within the meaning of sec_357 in the contribution were incurred in the ordinary course of business and are associated with the assets being transferred n o p q r s t distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction no investment_credit has been or will be claimed with respect to the transferred property no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of controlled stock payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to the transaction are investment companies as defined in sec_368 and iv for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or 50-percent or more of the value of the total combined shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five- year period determined after applying sec_355 ending on the date of the distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or 50-percent or more of the value of the total combined shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five- year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and during the five- year period determined after applying sec_355 ending on the date of distribution u there is no acquisition of stock of distributing or controlled including any predecessor or successor of any such corporation that is part of a plan or plr-134538-08 series of related transactions within the meaning of sec_1_355-7 that includes the distribution of controlled stock v immediately after the transaction as defined in sec_355 and taking into account the cash received from the sales of x and y assets and all other investment_assets within the meaning of sec_355 neither distributing nor controlled is a disqualified investment_company within the meaning of sec_355 rulings based solely on the information submitted and on the representations set forth above we rule as follows with respect to the proposed transactions the transfer by distributing to controlled of its location assets in exchange for all controlled stock and assumption_of_liabilities followed by the distribution of all controlled stock to the exchanging shareholders will constitute a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss upon the transfer of property to controlled in exchange for controlled stock sec_357 and sec_361 controlled will recognize no gain_or_loss on the receipt of property in exchange for controlled stock sec_1032 controlled’s basis in each asset received from distributing will equal the basis of such asset in the hands of distributing immediately prior to the transaction sec_362 controlled’s holding_period of each asset received from distributing will include the period during which distributing held such asset sec_1223 the exchanging shareholders will recognize no gain_or_loss and no amount will otherwise be included in their income upon receipt of controlled stock sec_355 distributing will recognize no gain_or_loss on the distribution of the controlled stock to the exchanging shareholders sec_361 the aggregate basis of the distributing stock and the controlled stock in the hands of the exchanging shareholders immediately after the distribution will equal each shareholder's aggregate basis in the plr-134538-08 distributing stock held immediately before the distribution such aggregate basis will be allocated between the distributing stock and the controlled stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 the holding_period of the controlled stock received by the exchanging shareholders will include the holding_period of the distributing stock exchanged provided such stock is held as a capital_asset on the date of the distribution sec_1223 distributing’s earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 distributing's accumulated_adjustments_account immediately before the transaction will be allocated between distributing and controlled in a manner similar to the manner in which distributing's earnings_and_profits will be allocated under sec_312 sec_1_312-10 and sec_1_1368-2 distributing's momentary ownership of the stock of controlled as part of the reorganization under sec_368 will not cause controlled to have an ineligible shareholder for any portion of its first taxable_year under sec_1361 if controlled otherwise meets the requirements of a small_business_corporation under sec_1361 controlled will be eligible to elect to be a subchapter_s_corporation under sec_1362 for its first taxable_year the assets of sub1 that are presently subject_to the built-in_gain provisions of sec_1374 continue to be subject_to the built-in_gain provisions of sec_1374 on the same basis as they were subject_to such provisions since date when distributing’s election to treat sub1 as a qualified_subchapter_s_subsidiary became effective sec_1374 caveats 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 in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both and iii whether the distribution and any acquisition or acquisitions are part of a plan or series of related transactions under sec_355 further no opinion is expressed concerning whether distributing’s s election is valid whether controlled is otherwise eligible to be taxed as an s_corporation and whether controlled’s election to be an s_corporation will be valid under sec_1362 plr-134538-08 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 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _debra l carlisle________ debra l carlisle chief branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c mar uilc number release date memorandum for from subject chief branch office of the associate chief_counsel employee_benefits and exempt_organizations cc ebeo - railroad retirement act tax status attached for your information and appropriate action is a copy of a letter from the railroad retirement board concerning the status under the railroad retirement act and the railroad unemployment insurance act of we have reviewed the opinion of the railroad retirement board and based solely upon the information submitted concur in the conclusion that ceased being an employer under the railroad retirement act and the railroad unemployment insurance act effective harry beker cc


t c summary opinion united_states tax_court conrad george olsen petitioner v commissioner of internal revenue respondent docket no 16178-99s filed date bradley s shannon for petitioner gregory m hahn for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code as amended and in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure - respondent determined a deficiency in petitioner’s federal_income_tax in the amount of dollar_figure for the tax_year an addition_to_tax under sec_6651 in the amount of dollar_figure and an accuracy-related_penalty under sec_6662 in the amount of dollar_figure the issues for decision are whether proceeds from a sale of petitioner’s property qualify for nonrecognition treatment under sec_1041 whether petitioner is liable for an addition_to_tax for failure to timely file his return under sec_6651 and whether petitioner is liable for an accuracy-related_penalty under sec_6662 for the year in issue this case was submitted fully stipulated pursuant to rule the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time of filing the petition petitioner resided in onalaska washington petitioner and leah helen olsen ms olsen were married on date shortly thereafter they purchased a home situated on acres of timberland located pincite tryon road onalaska washington tryon road property in petitioner and ms olsen separated and divorced a property settlement agreement agreement was executed by the parties on date pursuant to the agreement petitioner received specified personal_property and the tryon - - road property as his sole and separate_property ms olsen received specified personal_property real_estate located pincite tryon road tryon road property and real_estate located in cosmopolis washington cosmopolis property on date petitioner and ms olsen conveyed and quitclaimed all of their respective interests in the tryon road property the tryon road property and the cosmopolis property to the other party according to the agreement in order to equalize the property division the agreement required petitioner to pay dollar_figure to ms olsen as follows dollar_figure no later than date and an additional dollar_figure plus interest no later than date to secure the obligation petitioner owed to ms olsen petitioner conveyed a deed_of_trust on the tryon road property to title guaranty company of lewis county immediately prior to the conveyance of the deed_of_trust on date petitioner held legal_title to the tryon road property free and clear of any liens mortgages or other encumbrances on the property the agreement did not require petitioner to sell any portion of the tryon road property to satisfy the dollar_figure obligation owed to ms olsen on date petitioner sold acres of the acres of land and timber located on the tryon road property to north fork timber company for dollar_figure of that amount - dollar_figure' was paid directly by north fork timber company to ms olsen in satisfaction of petitioner’s obligation under the agreement petitioner received a note receivable note for the balance of the purchase_price or dollar_figure from north fork timber company the terms of the note stated an 8-percent interest rate and payments of dollar_figure per month payable over months beginning on date and ending on date at the time the tryon road property was sold to north fork timber company on date ms olsen did not have any outstanding liabilities payable to or other obligations owed to north fork timber company title guaranty company of lewis county or petitioner nor did the sale of the tryon road property to north fork timber company relieve ms olsen from any obligations owed to north fork timber company title guaranty company of lewis county or petitioner during the taxable_year petitioner received dollar_figure in interest_income petitioner also received a form 1099-s proceeds from real_estate transactions from title guaranty company of lewis county which reported real_estate sales proceeds in of dollar_figure from the sale of the tryon road property petitioner contends that he did not realize a taxable gain on the sale of the tryon road property and based upon this belief did this amount represents the dollar_figure obligation plus interest - - not file a return to report the dollar_figure in interest_income he received in petitioner did not personally perform any research or other investigation to confirm his belief that he did not realize a taxable gain on the sale of the tryon road property or that he was not required to file a tax_return for the taxable_year petitioner did not file a federal_income_tax return for the taxable_year until date after the internal_revenue_service had inquired why he had not filed a tax_return on his federal_income_tax return petitioner reported dollar_figure of taxable interest and a capital_loss of dollar_figure from the sale of the tryon road property petitioner calculated the capital_loss from the sale of the tryon road property by increasing his cost_basis in the tryon road property by dollar_figure the following is a summary of petitioner’s loss calculation sales_price dollar_figure selling charges adjusted sale price dollar_figure purchase_price s dollar_figure logging permit dollar_figure surveys dollar_figure adjusted_basis s dollar_figure preliminary gain dollar_figure payment to ms olsen big_number reported loss on sale sdollar_figure - - in the notice_of_deficiency respondent determined that petitioner realized a gain of dollar_figure on the sale of the acres of the tryon road property as calculated below sales_price dollar_figure selling charges adjusted sale price dollar_figure purchase_price s dollar_figure logging permit dollar_figure surveys dollar_figure adjusted_basis s dollar_figure preliminary gain dollar_figure other dollar_figure adjusted gain on sale dollar_figure reported loss on sale sdollar_figure proposed_adjustment dollar_figure sec_1041 a sec_1041 provides for nonrecognition_of_gain_or_loss on a transfer of property from an individual to a former spouse provided that the transfer to the former spouse is incident to the divorce for a transaction to be considered although sec_1041 applies to both spouses and former spouses only former spouse will be used in the discussion of the statute sec_1041 transfers of property between spouses or incident_to_divorce a general_rule --no gain_or_loss shall be recognized on a transfer of property from an individual to or in trust for the benefit of -- a spouse or a former spouse but only if the transfer is incident to the divorce continued - incident_to_divorce it must occur within year after the date on which the marriage ceases or is related_to_the_cessation_of_marriage sec_1041 and if the transfer of the tryon road property had been directly between petitioner and ms olsen sec_1041 and c would be satisfied because the transfer occurred within months of the agreement see 90_tc_200 n however because the transfer did not occur directly between petitioner and ms olsen but rather between petitioner and north fork timber company a third party the transfer must be on behalf of the former spouse within the meaning of sec_1_1041-1t q a-9 temporary income_tax regs fed reg date q a-9 in order to qualify for nonrecognition treatment a transfer of property to a third party on behalf of a former spouse will qualify under sec_1041 in three situations where the transfer to the third party 1s required by a divorce_or_separation_instrument where the transfer to the third party is pursuant to the written request of the former spouse or where the transferor continued c incident_to_divorce ---for purposes of subsection a a transfer of property is incident to the divorce if such transfer-- occurs within year after the date on which the marriages ceases or is related to the cessation of the marriage --- - receives from the former spouse a written consent or ratification of the transfer to the third party see id in the three situations described above the transfer of property will be treated as made directly to the nontransferring former spouse and the nontransferring former spouse will be treated as immediately transferring the property to the third party see id the deemed transfer from the nontransferring former spouse does not fall under sec_1041 and is a taxable transaction to the nontransferring former spouse see id in order to prevail petitioner must show that the transfer of the tryon road property qualifies as one of the three situations described in q a-9 petitioner has failed to do so petitioner’s sale of the tryon road property was not pursuant to the terms of the agreement as reguired under the first situation described in q a-9 in fact petitioner stipulated that the agreement did not require petitioner to sell any portion of the tryon road property to satisfy the dollar_figure obligation owed to ms olsen petitioner was free to sell other assets or obtain a loan rather than sell the tryon road property to satisfy his separate monetary obligation to ms olsen moreover petitioner failed to show that the transfer of the tryon road property falls under the second or third situation described in q a-9 the record contains no evidence showing either a written request by --- - ms olsen to sell the property to a third party or a written consent or ratification of the transfer to a third party petitioner cites 114_tc_14 to support his contention that the transfer of the tryon road property to north fork timber company was on behalf of ms olsen we find petitioner’s reliance on read misplaced in read we held that ms read’s transfer of mmp stock to mmp was on behalf of mr read the nontransferring spouse because it gualified under the first situation described in q a-9 id pincite according to the divorce agreement in that case mr read or at his election mmp or mmp’s esop was obligated to purchase ms read’s mmp stock see id pincite as stated above petitioner failed to show that any of the three situations described in q a- were satisfied in 167_f3d_1240 9th cir the court_of_appeals for the ninth circuit’ held that transfers of property to a third party on behalf of a former spouse qualify for nonrecognition if the transfer satisfied an obligation ora mmp was a corporation wholly owned by mr read and ms read ‘ according to the rule set forth in 54_tc_742 affd 445_f2d_985 10th cir we are obligated to follow the law as stated by the court_of_appeals in the circuit to which a case would be appealable accordingly we are bound by the reasoning in 167_f3d_1240 9th cir - liability of the nontransferring former spouse see id pincite in ingham and the instant case the sale of the property did not relieve the nontransferring former spouse of any obligation or liability that the nontransferring former spouse owed to the transferring former spouse or the third party the court_of_appeals stated the sale merely allowed ms ingham to satisfy the debt that she owed to her former husband under their property settlement id pincite similarly petitioner’s sale of the tryon road property satisfied the debt that he owed to ms olsen rather than satisfy an obligation owed by ms olsen to north fork timber company the third party or petitioner as required under ingham supra pincite and read v commissioner supra pincite after reviewing the record we find that petitioner has failed to show that the transfer of the tryon road property to north fork timber company was on behalf of ms olsen therefore we conclude that the gain from the transfer of the tryon road property to north fork timber company does not fall under sec_1041 and is taxable to petitioner sec_6651 a respondent determined an addition_to_tax as a result of petitioner’s failure to timely file his tax_return for we note that this standard was also applied in 114_tc_14 - sec_6651 imposes an addition_to_tax for failure to timely file a tax_return the addition_to_tax is equal to percent of the amount of the tax required to be shown on the return if the failure_to_file is not for more than month see sec_6651 an additional percent is imposed for each month or fraction thereof in which the failure_to_file continues to a maximum of percent of the tax see id the addition is applicable unless petitioner establishes that his failure_to_file was due to reasonable_cause and not willful neglect see id if petitioner exercised ordinary business care and prudence and was nonetheless unable to file his return within the date prescribed by law then reasonable_cause exists see sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure or reckless indifference 469_us_241 petitioner’s federal_income_tax return was due on date petitioner did not file his federal_income_tax return until date after the commencement of the audit petitioner contends that he was not required to file a return to report the dollar_figure in interest_income because he relied on information provided in table filing requirement chart for most taxpayers of the federal_income_tax instructions table informed petitioner that a single_taxpayer under the age of with a gross_income of at least dollar_figure must file a tax_return petitioner believed that he was not required to file a tax_return because his gross_income which incorrectly did not include the gain from the sale of the tryon road property was under dollar_figure however table also provides the following information gross_income means all income you received in the form of money goods property and services that is not exempt from tax including any gain on the sale of your main home even if you may exclude or postpone part or all of the gain petitioner received a form 1099-s proceeds from real_estate transactions from title guaranty company of lewis county reporting the real_estate sale proceeds in of dollar_figure petitioner stipulated that he did not make any attempt to determine whether he should report the amount shown on the form 1099-s on his federal_income_tax return petitioner has failed to show us that he exercised ordinary care and prudence in this case respondent is sustained on this issue sec_6662 a the last issue for decision is whether petitioner is liable for an accuracy-related_penalty pursuant to sec_6662 sec_6662 imposes a penalty of percent of the portion of the underpayment which is attributable to negligence or disregard - - of rules or regulations see sec_6662 negligence is the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances ’ 85_tc_934 quoting marcello v commissioner 380_f2d_499 5th cir affg 43_tc_168 and t c memo negligence also includes any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly see sec_1_6662-3 income_tax regs the term disregard includes any careless reckless or intentional disregard sec_6662 no penalty shall be imposed if it is shown that there was reasonable_cause for the underpayment and the taxpayer acted in good_faith with respect to the underpayment see sec_6664 the determination of whether a taxpayer acted with reasonable_cause and good_faith within the meaning of sec_6662 is made on a case-by-case basis taking into account all the pertinent facts and circumstances see sec_1_6664-4 income_tax regs petitioner failed to show that he had a reasonable basis for his belief that the gain from the tryon road property was not taxable he failed to make reasonable inquiries as to whether the income reported on a form 1099-s was taxable see rosenbaum v commissioner tcmemo_1992_287 affd 998_f2d_1016 7th cir on the basis of the record we hold that petitioner is liable for an accuracy-related_penalty under sec_6662 for the tax_year we have considered all arguments by the parties and to the extent not discussed above conclude that they are irrelevant or without merit reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service number release date index number -------------------------- ------------------------------- --------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc fip b04 plr-152020-05 date february --------------------- -------------------- ---------------------- -------------------------- --------------------------- -------------------------------------------------------------------------------- in re in re taxpayer -------------------------------------------------------------- spouse trust -------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ date date date date amount x dear ------------- this is in response to your authorized representative's submission of date and subsequent submissions requesting a ruling on the proper treatment of a distribution from an annuity under sec_72 and sec_1035 of the internal_revenue_code facts taxpayer is an individual on date a non-qualified annuity annuity was purchased and held by trust a revocable_trust with taxpayer and spouse as grantors and trustees spouse died on date upon the death of spouse taxpayer asked the insurance_company that issued the annuity to exchange the annuity in the trust’s name for an annuity in taxpayer’s name the insurance_company refused to do so ---------------------- ------------------ plr-152020-05 on date the insurance_company distributed the full amount of the annuity amount x to trust requested ruling for purposes of sec_72 and sec_1035 of the code whether taxpayer may roll over or exchange the annuity held by trust for an annuity in taxpayer’s name even though the full amount of the annuity already has been distributed to trust law and analysis sec_72 of the code prescribes the tax treatment of amounts received under an annuity_contract generally sec_72 provides that amounts received under an annuity_contract other than as an annuity are includible in the recipient's gross_income to the extent allocable to income_on_the_contract sec_1035 of the code provides that no gain_or_loss is recognized on the exchange of an annuity_contract for another annuity_contract sec_1_1035-1 of the regulations provides that a tax-free_exchange of an annuity_contract for another annuity_contract under of the code is limited to cases where the same person or person is the obligee or obligees under the contract received in exchange as under the original contract neither sec_1035 nor the regulations thereunder make any special provision for the purchase of an annuity_contract with the proceeds received with respect to another contract taxpayer argues that she should be permitted to roll over the proceeds from annuity into another annuity_contract and cites as support several letter rulings in which the service permitted such rollovers in the case of qualified annuities we disagree however that a rollover may be effected under these facts a rollover occurs when distributions from certain qualified_retirement_plans are contributed or deposited into another qualified_plan within a 60-day time period see sec_1_402_c_-2 sec_402 sec_403 sec_403 sec_408 the distribution of amount x that taxpayer received on date was from a nonqualified_annuity therefore no rollover could have occurred in the alternative taxpayer argues that she may use the proceeds she received under annuity to purchase a second annuity_contract and treat the transaction as an exchange that qualifies as tax-free under the authority of sec_1035 sec_1035 however envisions an exchange of an annuity_contract for another annuity_contract not a distribution under one annuity_contract followed weeks or months later by the purchase of another at this point the insurance company's obligation under the annuity has been satisfied in full by a cash distribution of the entire contract the proceeds made payable to the trust because the trust is a grantor_trust the trust’s assets are the taxpayer’s assets accordingly taxpayer has received distribution of plr-152020-05 the annuity and there is no longer an annuity that can be exchanged for another annuity except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative ----------------------- ----------------------------------------- sincerely s mark smith chief branch office of associate chief_counsel financial institutions products