internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc dom corp plr-104490-01 date date distributing controlled old controlled sub sub sub sub sub sub sub sub sub sub sub sub sub sub sub sub sub sub sub sub sub sub sub controlled llc llc llc llc llc llc new llc new llc new llc fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub 26a fsub fsub fsub fnewco fnewco fnewco fnewco state a country a country b country c country d country e country f country g country h country i country j country k country l country m country n country o country p country q country r country s country t country u country v country w country x country y business a business b business c business d distributing savings plans controlled savings plans investment banker date a a b c d e f g h i j k l m n o p this letter responds to your date request for rulings on certain federal_income_tax consequences of a proposed transaction the information provided in that request and in later correspondence is summarized below 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 the material submitted in support of the request for rulings has not been verified by this office but is subject_to verification on examination summary of facts publicly traded distributing is the common parent of an affiliated_group that files a consolidated federal_income_tax return distributing has only one class of common_stock outstanding attached to each share of the common_stock is a purchase right not exercisable or transferable separately from the stock unless and until certain events occur the share purchase rights distributing conducts business a through llc and certain other subsidiaries and business b through old controlled_subsidiaries of old controlled and certain other entities llc is a single member limited_liability_company that is disregarded as an entity separate from its owner for federal tax purposes under sec_301_7701-3 of the procedure and administrative regulations distributing owns all of llc old controlled sub sub sub and fsub through llc a percent of llc which is treated as a partnership for federal tax purposes d percent of fsub through llc and e percent of fsub through llc llc wholly owns fsub fsub and fsub fsub wholly owns fsub and fsub wholly owns fsub old controlled owns all of sub through sub and fsub through fsub b percent of llc c percent each of llc and llc d percent of fsub and e percent of fsub old controlled and fsub own f and g percent respectively of fsub sub wholly owns fsub the balance of llc and llc is owned by an unrelated corporation sub wholly owns llc which is disregarded as an entity separate from its owner for federal tax purposes under sec_301_7701-3 and llc wholly owns sub business a is conducted by sub which is a holding_company for business a and business b subsidiaries sub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub and fsub business b is conducted by old controlled sub sub sub sub sub sub sub sub sub sub sub sub sub llc llc fsub fsub fsub fsub fsub fsub fsub and fsub business c is conducted by sub sub fsub and fsub sub conducts business d on date a a sub then a disregarded subsidiary of sub elected under sec_301_7701-3 to be treated as a corporation b sub distributed the stock of sub to distributing c distributing formed llc d llc contributed certain business a intellectual_property to llc e distributing contributed llc to sub and f sub contributed certain business b intellectual_property to llc this series of transactions collectively the date a transactions combined business d with the business a technology and business b technology in a single company structure and separated these technology operations from business c all of the above-described entities are domestic except for fsub a country f corporation fsub a country a corporation fsub a country a corporation fsub a country c_corporation fsub a country a corporation fsub a country c_corporation fsub a country e corporation fsub a country f corporation fsub a country g corporation fsub a country h corporation fsub a country i corporation fsub a country j corporation fsub a country k corporation fsub a country l corporation fsub a country m corporation fsub a country n corporation fsub a country o corporation fsub a country p corporation fsub a country q corporation fsub a country r corporation fsub a country s_corporation fsub a country t corporation fsub a country u corporation fsub a country v corporation fsub a country w corporation fsub a country b corporation fsub a country x corporation fsub a country y corporation fsub a country h corporation and llc a country a corporation distributing has established various employee savings plans under sec_401 of the internal_revenue_code the distributing savings plans in the aggregate the distributing savings plans own over five percent of distributing’s outstanding_stock on behalf of more than big_number employee-participants distributing knows of no other person who owns five percent or more of distributing’s outstanding_stock employee-participants in the distributing savings plans who following the distribution defined below at step xxviii are employed by controlled or its subsidiaries will be allowed either to a remain as participants in the distributing savings plans or b transfer the assets credited to their accounts to new sec_401 savings plans established by controlled the controlled savings plans each employee- participant in the distributing savings plans has and each employee-participant in the controlled savings plans will have the sole authority to vote and sell the distributing or controlled stock credited to his or her account distributing also has various stock_option plans containing customary terms and conditions under which options to purchase shares of distributing common_stock have been and will be granted to employees and directors of distributing the distributing compensatory options similarly controlled will adopt stock_option plans containing customary terms and conditions under which options to purchase shares of controlled common_stock will be granted to employees and directors of controlled the controlled compensatory options distributing contemplates treating distributing compensatory options outstanding at the time of the distribution as follows a stock_options held by business a and business c employees will remain as distributing compensatory options adjusted in accordance with sec_424 of the internal_revenue_code b stock_options held by business b employees will be converted into controlled compensatory options in accordance with sec_424 and c stock_options held by other employees former employees and directors will be split into distributing compensatory options and controlled compensatory options in accordance with sec_424 financial information has been received indicating that business a as conducted by distributing through llc and business b as conducted directly by old controlled each has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years business a and business b have markedly different financial and operating characteristics growth potential and investment risk profiles in particular the two businesses have largely separate groups of customers and competitors and exhibit significantly different product sales channel and customer-support requirements as a result the managerial needs of the two businesses conflict in a variety of significant respects including resource allocation and employee recruiting and retention the management of business a and the management of business b have determined based on the advice of investment banker and other information that separating these businesses the separation will permit each to more efficiently operate and develop proposed transaction to accomplish the separation the following series of transactions has been proposed collectively the transaction i business a and business c asset sales i new llc which will be treated as a partnership for federal tax purposes will be formed and owned d percent by distributing and e percent by sub new llc will in turn form wholly owned subsidiaries fnewco and fnewco fnewco and fnewco will acquire the business a assets of fsub in exchange for an aggregate of h dollars in cash and the assumption of related liabilities fsub which also conducts business b will remain with the controlled_group ii sub will form fnewco as a wholly owned subsidiary fnewco will purchase the business c assets of fsub for i dollars in cash and the assumption of related liabilities fsub which also conducts business b will remain with the controlled_group ii business b asset sales iii old controlled will form fnewco as a wholly owned subsidiary and fnewco will purchase the business b assets of fsub for j dollars in cash and the assumption of related liabilities fsub which also conducts business a will remain with the distributing group iv fsub will purchase the business b assets of sub for k dollars in cash and the assumption of related liabilities sub which also conducts business a will be a controlled_group entity at the time of acquisition but a distributing group entity at the time of the distribution fsub which conducts only business b will remain with the controlled_group iii country a restructuring v sub will contribute l dollars to llc in exchange for an e percent interest vi fsub will distribute m dollars to fsub for country a tax reasons vii fsub will distribute fsub to llc viii as described below in step xix llc will distribute fsub to controlled llc following liquidation described below at step xviii ix as described below in step xx controlled llc will distribute its n percent interest in llc to distributing before controlled llc is contributed to controlled in step xxi x as described below in step xxiii distributing will contribute an o percent interest in each of llc2 and new llc to sub after both the country c restructuring described below beginning at step xvi and liquidation iv country b restructuring xi under country b law fsub will divide by tax-free demerger into two separate operating companies fsub which will conduct business a and newly formed fsub 26a which will conduct business b the demerger transaction for country b corporate purposes the demerger transaction will occur as follows fsub 26a will come into existence owning the assets and liabilities associated with business b and the shareholders of fsub will be issued stock in fsub 26a in the same number and the same class as their interests in fsub d percent to old controlled and e percent to distributing through its ownership in llc for federal tax purposes the taxpayer intends to treat the demerger transaction as if fsub a had created wholly owned fsub 26a b had transferred the business b assets to fsub 26a in exchange for fsub 26a stock and the assumption of related liabilities and c had distributed the fsub 26a stock to its shareholders pro_rata xii llc will transfer its e percent interests in fsub and fsub 26a to distributing xiii as part of liquidation see step xviii a below old controlled will transfer its d percent interest in fsub to distributing making distributing the sole owner of fsub xiv after contribution described below in step xxi distributing will contribute its e percent interest in fsub 26a to controlled llc making controlled llc the sole owner of fsub 26a because controlled llc will be a disregarded_entity owned by controlled see steps xviii b and xxi below distributing will be treated as contributing the e percent interest directly to controlled contribution xv after liquidation distributing will contribute its fsub stock to new llc v country c restructuring xvi fsub will distribute its fsub stock to llc xvii as described below in step xix llc will distribute its fsub stock to controlled llc after liquidation but before step xx vi old controlled restructuring including liquidation xviii old controlled will adopt a plan_of_liquidation liquidation under which a old controlled will distribute its stock in sub sub sub sub sub sub sub sub f sub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub d percent fsub and fsub e percent each of which is engaged in business a to distributing and b old controlled then will convert into controlled llc under state a law controlled llc will be disregarded as an entity separate from its owner for federal tax purposes under sec_301_7701-3 controlled llc will hold business_assets and stock formerly held by old controlled including stock or interests in sub sub sub sub sub sub sub sub sub sub sub llc c percent llc c percent fsub fsub fsub fsub fsub 26a d percent and fsub indirectly through sub these business_assets and entities all are involved in business b xix as described above in steps viii and xvii llc will distribute the stock of fsub and fsub to controlled llc in addition before contribution described below in step xxi distributing will contribute the stock of sub to controlled llc in a transaction intended to be disregarded for federal tax purposes xx as described above in step ix controlled llc will distribute its n percent interest in llc to distributing xxi distributing will contribute its interest in controlled llc to newly formed controlled in exchange for all of the controlled stock contribution xxii distributing will contribute to new llc see step i above the stock of all foreign subsidiaries received from old controlled in liquidation step xviii above except for fsub fsub and fsub new llc will serve as a holding_company for the foreign subsidiaries received from distributing fsub will remain a first-tier subsidiary of distributing and distributing will contribute the stock of fsub to new llc a newly formed country l unlimited liability company owned d percent by distributing and e percent by sub new llc will be treated as a partnership for federal tax purposes distributing's e percent interest in fsub will remain with distributing xxiii as described above in step x distributing will contribute an o percent interest in each of llc and new llc to sub xxiv distributing will contribute an o percent interest in new llc to sub xxv controlled llc will merge into controlled under applicable state a law because controlled llc will be a disregarded_entity it is intended that this transaction be disregarded for federal tax purposes vii sub restructuring including liquidation xxvi sub will undergo the following restructuring a llc will contribute business a intellectual_property to sub b distributing will form new llc as a wholly owned limited_liability_company new llc will be disregarded as an entity separate from its owner for federal tax purposes under sec_301_7701-3 sub will adopt a plan_of_liquidation liquidation under which it will effectively dissolve under applicable state a law and all of the sub assets and liabilities including the interest in llc will be transferred by distributing to new llc c llc now a disregarded_entity of new llc will distribute the sub stock to new llc and new llc will distribute the sub stock to distributing it is intended that this step be disregarded for federal tax purposes d distributing will transfer the sub stock to llc it is intended that this step be disregarded for federal tax purposes e distributing will contribute the business b intellectual_property held by llc but treated for federal tax purposes as held by distributing through disregarded entities llc and llc to controlled contribution f distributing will contribute a c percent interest in new llc to controlled contribution contribution together with contribution contribution and contribution the contribution g distributing will transfer the interest in new llc not transferred to controlled in contribution to llc llc then will contribute the interest to sub viii the distribution and other transactions xxvii controlled will borrow funds from an unrelated party and distribute p dollars of these funds to distributing distributing will immediately transfer all of the distributed funds to its creditors pursuant to the plan_of_reorganization xxviii distributing will distribute the controlled stock pro_rata to its shareholders the distribution it is expected that share purchase rights similar to the share purchase rights will attach to the controlled stock in determining the amount of debt that controlled should borrow in step xxvii above distributing and investment banker considered among other factors the absence of other debt carried by controlled the level of debt carried by competitors of controlled the projected future cash_flow and capital needs of controlled and the ability of controlled to secure an investment grade credit rating in connection with the distribution distributing and controlled will enter into certain short-term transition agreements including an employee matters agreement a transition agreement a continuing services agreement and an ecd manufacturing agreement collectively the ancillary agreements in addition distributing and controlled will enter into a tax_sharing_agreement that will set forth each party’s rights and obligations regarding tax matters for periods before and after the date of the distribution the tax_allocation_agreement the tax_allocation_agreement will detail the responsibilities of distributing and controlled for tax_payments and refunds the filing of returns and the conduct of audits the tax_allocation_agreement will also provide for cooperation regarding certain tax matters and for the exchange of information and retention of records that may affect the tax_liability of either party certain payments may be made after the distribution between distributing controlled or their respective subsidiaries pursuant to the tax_allocation_agreement representations liquidation distributing has submitted the following representations concerning step xviii above based on its characterization as a complete_liquidation by ruling below a distributing on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution is completed will be the owner of at least percent of the single outstanding class of stock of old controlled b no shares of old controlled stock will have been redeemed during the three years preceding the adoption of the plan of complete_liquidation c distributions from old controlled to distributing pursuant to the plan of complete_liquidation will be made within a single taxable_year of old controlled d as soon as the first liquidating_distribution has been made old controlled will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets e old controlled will retain no assets following the final liquidating_distribution f old controlled will not have acquired assets in any nontaxable transactions at any time except for acquisitions occurring more than three years before the date of adoption of the plan_of_liquidation g no assets of old controlled have been or will be disposed of by either old controlled or distributing except for dispositions in the ordinary course of business dispositions occurring more than three years before adoption of the plan_of_liquidation and dispositions described in this letter_ruling h the liquidation of old controlled will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of old controlled if persons holding directly or indirectly more than percent in value of the old controlled stock also hold directly or indirectly more than percent in value of the stock in the recipient corporation for purposes of this representation ownership will be determined immediately after the distribution and by applying the constructive_ownership rules of sec_318 as modified by sec_304 i before the adoption of the plan_of_liquidation no assets of old controlled will have been distributed in_kind transferred or sold to distributing except for transactions occurring in the ordinary course of business and transactions occurring more than three years before adoption of the liquidation plan j old controlled will report all earned_income represented by assets that will be distributed to its shareholders such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc k the fair_market_value of the assets of old controlled will exceed its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately before the time the first liquidating_distribution is made l there is no intercorporate debt existing between distributing and old controlled and none has been canceled forgiven or discounted except for transactions that occurred more than three years before the date of adoption of the liquidation plan m distributing is not an organization exempt from federal_income_tax under sec_501 or any other provision n all transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to liquidation have been fully disclosed liquidation distributing has submitted the following representations concerning liquidation o distributing on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution is completed will be the owner of at least percent of the single outstanding class of stock of sub p no shares of sub stock will have been redeemed during the three years preceding the adoption of the plan of complete_liquidation q distributions from sub to distributing pursuant to the plan of complete_liquidation will be made within a single taxable_year of sub r as soon as the first liquidating_distribution has been made sub will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets s sub will retain no assets following the final liquidating_distribution t sub will not have acquired any assets in any nontaxable transactions at any time except in the date a transactions u no assets of sub have been or will be disposed of by either sub or distributing except for dispositions in the ordinary course of business dispositions occurring more than three years before adoption of the plan_of_liquidation and dispositions described in this letter_ruling v the liquidation of sub will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent in value of the stock in the recipient corporation for purposes of this representation ownership will be determined immediately after the distribution and by applying the constructive_ownership rules of sec_318 as modified by sec_304 after liquidation llc a disregarded_entity owned by distributing will hold the sub stock formerly held indirectly by sub sub in turn will hold business a intellectual_property formerly held indirectly by sub a c percent interest in new llc which will hold other assets formerly held by sub and certain other assets previously held by sub these assets together will represent approximately percent by fair_market_value of the business_assets sub held immediately before liquidation w before the adoption of the liquidation plan no assets of sub will have been distributed in_kind transferred or sold to distributing except for transactions occurring in the ordinary course of business and transactions occurring more than three years before adoption of the liquidation plan x sub will report all earned_income represented by assets that will be distributed to its shareholders such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc y the fair_market_value of the assets of sub will exceed its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately before the time the first liquidating_distribution is made z there is no intercorporate debt existing between distributing and sub and none has been canceled forgiven or discounted except for transactions that occurred more than three years before the date of adoption of the liquidation plan aa distributing is not an organization exempt from federal tax under sec_501 or any other provision bb all transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to liquidation have been fully disclosed contribution and distribution distributing has made the following representations concerning the contribution and the distribution cc any debt owned by controlled to distributing after the distribution will not constitute stock_or_securities dd no part of the consideration distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing ee the five years of financial information submitted on behalf of distributing and llc regarding business a and old controlled regarding business b represents the present operations of each entity and with regard to each there have been no substantial operational changes since the date of the last submitted financial statements ff immediately after the distribution the gross assets of the trade or businesses directly conducted by llc and relied on by distributing to satisfy the active_trade_or_business_requirement of sec_355 will have a fair_market_value equal to at least five percent of the total fair_market_value of the gross assets of distributing gg immediately after the distribution the gross assets of the trade or businesses relied on by controlled to satisfy the active_trade_or_business_requirement of sec_355 will have a fair_market_value equal to at least five percent of the total fair_market_value of the gross assets of controlled hh following the distribution distributing through llc and controlled each will continue the active_conduct of its business independently and with its own employees ii the distribution is being carried out to permit the management of business a and the management of business b each to more efficiently operate and develop its business the distribution is motivated in whole or substantial part by this corporate business_purpose it is also motivated by other business reasons jj there is no plan or intention by any shareholder who owns five percent or more of the stock of distributing and the management of distributing to its best knowledge is not aware of any plan or intention on the part of any particular remaining shareholder or security holder of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in or securities of either distributing or controlled after the transaction kk there is no plan or intention by distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 ll there is no plan or intention to liquidate distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business mm the total adjusted_basis and the fair_market_value of the assets transferred to controlled in the contribution each equals or exceeds the sum of the liabilities assumed within the meaning of sec_357 by controlled the liabilities of distributing assumed within the meaning of sec_357 by controlled were incurred in the ordinary course of business and are associated with the assets being transferred nn no intercorporate debt will exist between distributing or any of its subsidiaries and controlled or any of its subsidiaries at the time of or after the distribution other than indebtedness incurred in the ordinary course of business or resulting from the ancillary agreements oo immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 of the income_tax regulations as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account distributing may have in the controlled stock will be included in income immediately before the distribution under the applicable regulations see sec_1_1502-19 pp payments made in connection with any continuing transactions 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 qq no two parties to the transaction are investment companies as defined in sec_368 and iv rr 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 percent or more of the total value of 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 ss 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 percent or more of the total value of 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 the 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 the distribution tt the transaction is not part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of distributing or controlled stock entitled to vote or percent or more of the total value of shares of all classes of distributing or controlled stock within the meaning of sec_355 uu neither distributing nor controlled will have been a united_states_real_property_holding_corporation as defined in sec_897 at any time during the five-year period ending on the date of the distribution and neither will be a united_states_real_property_holding_corporation immediately after the distribution based solely on the information submitted and the representations set forth above we rule as follows on the transaction rulings liquidation the distributions described above in step xviii a combined with the conversion of old controlled into controlled llc under state a law described above in step xviii b will be treated as a complete_liquidation of old controlled under sec_332 liquidation no gain_or_loss will be recognized by distributing on liquidation sec_332 no gain_or_loss will be recognized by old controlled on liquidation sec_336 sec_337 and sec_337 the basis of distributing in each asset received from old controlled in liquidation will equal the basis of that asset in the hands of old controlled immediately before liquidation sec_334 the holding_period distributing will have for each asset received from old controlled in liquidation will include the period during which that asset was held by old controlled sec_1223 distributing will succeed to and take into account the items of old controlled described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 and sec_1_381_a_-1 except to the extent the earnings_and_profits of old controlled are reflected in the earnings_and_profits of distributing distributing will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of old controlled as of the date of liquidation sec_381 sec_1_381_c_2_-1 and sec_1_1502-33 any deficit in the earnings_and_profits of old controlled or distributing will be used only to offset earnings_and_profits accumulated after the date of liquidation sec_381 liquidation liquidation will qualify as a complete_liquidation under sec_332 no gain_or_loss will be recognized by distributing as a result of liquidation sec_332 no gain_or_loss will be recognized by sub as a result of liquidation sec_336 sec_337 and sec_337 the basis distributing has in each asset received in liquidation will equal the basis of that asset in the hands of sub immediately before liquidation sec_334 the holding_period distributing has in each asset received in liquidation will include the period during which that asset was held by sub sec_1223 distributing will succeed to and take into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 sec_1_381_a_-1 except to the extent the earnings_and_profits of sub are reflected in the earnings_and_profits of distributing distributing will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of liquidation sec_381 sec_1_381_c_2_-1 and sec_1_1502-33 any deficit in the earnings_and_profits of sub or distributing will be used only to offset earnings_and_profits accumulated after the date of liquidation sec_381 contribution and distribution the contribution followed by the distribution will be a reorganization under sec_368 distributing and controlled each will be a party to the reorganization under sec_368 no gain_or_loss will be recognized by distributing on the contribution followed by the distribution provided distributing distributes all the cash it receives from controlled in step xxvii above and as a result of ruling below to its creditors pursuant to its plan_of_reorganization sec_357 and sec_361 b and b no gain_or_loss will be recognized by controlled on receipt of the assets in the contribution sec_1032 the basis of each asset received by controlled in the contribution will equal the basis of that asset in the hands of distributing immediately before its transfer increased by the amount of gain if any recognized by distributing sec_362 the holding_period of each asset received by controlled in the contribution will include the period during which that asset was held by distributing sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of the distributing shareholders on their receipt of controlled stock in the distribution sec_355 the aggregate basis of the stock of distributing and controlled in the hands of each distributing shareholder immediately after the distribution will equal the aggregate basis the shareholder has in his her or its distributing stock immediately before the distribution this aggregate basis will be allocated between the distributing and controlled stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 and c the holding_period of the controlled stock received by each distributing shareholder in the distribution will include the holding_period of the distributing stock on which the distribution is made provided the distributing stock is held as a capital_asset on the date of the distribution sec_1223 provided that at the time of the distribution the share purchase rights remain contingent non-exercisable and subject_to redemption if issued the receipt of these rights by distributing and its shareholders will not be a distribution or receipt of property an exchange of stock or property either taxable or nontaxable or any other event giving rise to the realization of income by distributing controlled or the distributing shareholders rev_rul c b earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 sec_1_312-10 and sec_1_1502-33 payments made by distributing to controlled or by controlled to distributing under the tax_allocation_agreement i that have arisen or will arise for a taxable_period ending before the distribution or for a taxable_period beginning on or before and ending after the distribution and ii that will not become fixed and ascertainable until after the distribution will be treated as occurring immediately before the distribution payments treated as made by distributing to controlled under this ruling will be included in the contribution payments treated as made by controlled to distributing under this ruling will be tested under sec_361 and b see ruling above caveats no opinion is expressed about the tax treatment of the transaction under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings in particular no opinion is expressed concerning the tax consequences associated with i the date a transactions ii creation of the controlled savings plans and the controlled compensatory options iii the business a business b and business c asset sales described above in steps i through iv iv the country a country b and country c restructurings described above in steps v through xvii v the contributions described in steps xxii xxiii xxiv xxvi a and xxvi g vi the demerger transaction described in step xi vii the merger described above in step xxv and viii any payments made under the ancillary agreements also ix regarding a the distribution of fsub by fsub described in step vii of the country a restructuring b the distribution of fsub 26a by fsub described in step xi of the country b restructuring and c the distribution of fsub by fsub described in step xvi of the country c restructuring see sec_355 and sec_1_367_b_-5 and x regarding the sale of assets a by fsub to fnewco and fnewco described in step i b by fsub to fnewco described in step ii and c by fsub to fnewco described in step iii see sec_951 sec_954 and sec_367 procedural statements this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to the federal_income_tax return of each taxpayer involved for the taxable_year in which the transaction is consummated under a power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer sincerely associate chief_counsel corporate by senior technician reviewer branch


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi 6-plr-118181-03 date date in re revised schedule of ruling amounts legend plant taxpayer commission a commission b commission c commission d a b c d e f g h i j k l m n o p q r plr-118181-03 s t u v w x y z aa dear this letter responds to the request of taxpayer dated and supplemental information as submitted by taxpayer for a revised schedule of ruling amounts relating to plant's qualified nuclear decommissioning fund fund in accordance with sec_1_468a-3 of the income_tax regulations taxpayer is requesting a new schedule of ruling amounts pursuant to sec_1_468a-3 which requires a new schedule of ruling amounts ten years after the issuance of the most recent schedule of ruling amounts taxpayer previously received a schedule of ruling amounts pertaining to plant on a information was submitted pursuant to sec_1_468a-3 taxpayer owns an undivided b percent of the plant the license for the plant expires on c commission a commission b commission c and commission d have regulatory jurisdiction over the rates charged by taxpayer with respect to plant a portion of taxpayer’s wholesale operations consist of sales to the joint owners of d taxpayer and its affiliated corporations file a consolidated tax_return and are under the audit jurisdiction of the industry director natural_resources and construction lm nrc the jurisdictional percentages allocable to commissions a b c and d are x y z and aa respectively commission a in e effective f authorized nuclear decommissioning costs to be included in cost of service for ratemaking purposes for the plant in the amount of g commission b in h effective i authorized nuclear decommissioning costs to be included in cost of service for ratemaking purposes for the plant in the amount of j commission c in k effective l authorized nuclear decommissioning costs to be included in cost of service for ratemaking purposes for the plant in the amount of m commission d through a series of interconnection agreements of various dates authorized nuclear decommissioning costs to be included in cost of service for ratemaking purposes the commissions use the same assumptions estimates and factors in determining decommissioning costs therefore the total estimated cost of plr-118181-03 decommissioning is n for each of the commissions this base cost escalated using an estimated inflation rate of o results in an estimated future cost of p the level_funding limitation period and the funding_period are q through r the assumed after-tax rate of return to be earned by the assets of the fund is o the rate of escalation to determine the future cost of decommissioning the plant is o the proposed method of decommissioning the plant is prompt removal dismantling taxpayer has determined the estimated period for which the fund is to be in effect is s years t through u and the estimated_useful_life of the plant is v years t through r therefore the qualifying percentage is w sec_468a of the code provides that a taxpayer may elect to deduct the amount of payments made to a qualified decommissioning fund however sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within ½ months after the close of the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest including an interest as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such tax_year if the amount of cash payments plr-118181-03 made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b the excess is not deductible by the electing taxpayer in addition under sec_1_468a-5 there are rules which provide that the internal_revenue_service may disqualify a nuclear decommissioning fund if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 of the regulations provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes plr-118181-03 sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under sec_1_468a-3 the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount plr-118181-03 sections a and c of the energy policy act of act eliminated for taxable years beginning after date the investment restrictions contained in sec_468a sections b and c of the act revised sec_468a by lowering the tax_rate applicable to a nuclear decommissioning fund for taxable years beginning after date section dollar_figure of revproc_92_54 1992_2_cb_393 provides that if a public_utility commission places a nuclear power plant in a taxpayer’s rate base within a reasonable period of time after the date the plant begins sustained and substantial generation of electricity for sale to customers the date of inclusion in rate base will be deemed to be the commercial operations date a reasonable period of time is one that ends on the last day of the second calendar_year after the calendar_year in which the nuclear power plant begins sustained and substantial generation of electricity for sale to customers we have examined the representations and the data submitted by the taxpayer in relation to the requirements set forth in the code and the regulations based solely upon these representations of the facts we reach the following conclusions for the period covered by this schedule of ruling amounts taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commission a commission b commission c and commission d have determined the decommissioning costs to be included in taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by the commissions and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund taxpayer has determined under sec_1_468a-3 of the regulations that the qualifying percentage is w the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the cost of service amount applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts in regard to the commissions satisfies the plr-118181-03 requirements of sec_468a of the code accordingly the schedule of ruling amounts requested by the taxpayer under sec_468a is approved as follows approved schedule of ruling amounts taxable years through commissions a b c and d year comm a comm b comm c comm d total approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued the approved schedule of ruling amounts is being limited to a five-year period as a result of the statutory changes made by the act the elimination of the investment restrictions and the reduction of the tax_rate applicable to income earned by the fund may result in a greater after-tax of return than was estimated prior to the enactment of the act by the commissions this increased after-tax rate of return would over the life of the fund result in a balance in the fund on the last day of the funding_period that would exceed the amount of decommissioning costs allocable to the fund in order to prevent the excess accumulation in the fund this schedule of ruling amounts is limited to a five year period approval of a revised schedule of ruling amounts may be approved after a determination by the applicable public_utility commissions of an after- tax_rate of return that accounts for the reduced_tax_rate and unrestricted investments except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney we are sending a copy of this letter to the taxpayer’s authorized representative we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer plr-118181-03 claims a deduction for payments made to the fund sincerely yours peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-120633-98 date date legend x a d1 dear this letter responds to a letter dated date written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code that x's s_corporation status will be effective as of the taxable_year beginning d1 facts according to the information submitted x was incorporated on d1 and it was decided that x would be an s_corporation a x's sole shareholder hired an accountant to file x's form_2553 election by a small_business_corporation the accountant however failed to timely file x's form_2553 x requests a ruling that it will be recognized as an s_corporation effective for the taxable_year beginning d1 under sec_1362 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective if an s election is made within the first two and one half months of a corporation's taxable_year then that plr-120633-98 corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusions after applying the relevant law to the facts submitted and representations made we conclude that x has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is an s_corporation for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-120633-98 under a power_of_attorney on file in this office we are sending a copy of this letter to x sincerely yours jeff erickson assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number constitution ave nw washington dc number release date person to contact telephone number refer reply to cc dom fi p plr-111479-99 date date legend fund fund fund fund fund fund fund fund fund fund fund plr-111479-99 fund year a year b year c year d state dear this is in reply to a letter dated date seeking consent to revoke for year a and subsequent calendar years thereafter an election previously made by fund fund fund fund fund fund fund fund fund fund fund and fund collectively fund or funds under sec_4982 of the internal_revenue_code_of_1986 as amended the code additionally the funds request that the calculation of their required distributions of capital_gain_net_income under sec_4982 and foreign_currency gains and losses under sec_4982 for the calendar_year ending december year a be determined on the basis of the capital_gains_and_losses and foreign_currency gains and losses realized and recognized during the ten month period from january year a through october year a each fund is organized as a state corporation and except as noted below is registered with the securities_and_exchange_commission as a diversified open-ended management company under the investment_company act of u s c 80a-1 et seq fund is a non-diversified open-ended management company registered with the securities_and_exchange_commission each fund has elected and qualified and intends to continue to qualify to be treated as a regulated_investment_company ric under subchapter_m of the code funds use the accrual_method of accounting for tax and financial_accounting purposes and use the calendar_year for tax purposes beginning with year b funds that existed at the time elected under sec_4982 of the code to use their taxable years the calendar_year in lieu of the one-year period ending on october for the purposes of calculating the required_distribution amount under sec_4982 and sec_4982 new funds beginning operations subsequent to year b made the election in their first year funds taxable years have also been used in determining the treatment of foreign_currency gains and losses under sec_4982 funds assumed that the election under sec_4982 would relieve the administrative plr-111479-99 burden associated with dual calculations of capital_gain_net_income and sec_988 gain_or_loss under the excise_tax and subchapter_m provisions of the code the experience of funds has been that the election has created additional administrative complexities primarily due to the time constraints in declaring required excise_tax distributions further the promulgation of regulations coordinating the excise_tax and subchapter_m provisions has greatly reduced the administrative burden of having a tax_year different from the period used for determining the required_distribution under sec_4982 accordingly funds seek consent to revoke their elections to use their taxable years the calendar_year for purposes of sec_4982 sec_4982 and sec_4982 each fund represents that the desire to revoke its election is due to administrative and non-tax related financial burdens caused by the election it is not seeking to revoke its election for the purpose of preserving or securing a tax_benefit it will neither benefit through hindsight nor prejudice the interests of the government as a result of being permitted to revoke its election it will not make a subsequent election under sec_4982 of the code for five calendar years following the year of the grant of revocation law and analysis sec_4982 of the code which was enacted as part of the tax_reform_act_of_1986 and is effective for tax years beginning after date imposes an excise_tax on every ric for each calendar_year equal to percent of the excess if any of the required_distribution for the calendar_year over the distributed_amount for the calendar_year sec_4982 defines required_distribution to mean with respect to any calendar_year the sum of percent of the ric’s ordinary_income for such calendar_year plus percent of its capital_gain income for the 1-year period ending on october of such calendar_year sec_4982 provides that if the tax_year of the ric ends with the month of november or december the ric may elect to have the capital_gain_net_income for its tax_year applied in lieu of the 1-year period ending on october of the plr-111479-99 calendar_year for the purposes of satisfying the required_distribution defined in sec_4982 sec_4982 provides that once made such an election may be revoked only with the consent of the secretary sec_4982 provides that any foreign_currency_gain_or_loss which is attributable to a sec_988 transaction and which is properly taken into account for the portion of the calendar_year after october shall not be taken into account in determining the amount of ordinary_income of the ric for such calendar_year but shall be taken into account in determining the ordinary_income of the investment_company for the following calendar_year in the case of any company making an election under sec_4982 however the preceding sentence shall be applied by substituting the last day of the company’s taxable_year for october conclusion based on the information submitted and the representations made we conclude that funds’ desire to revoke their elections under sec_4982 is because of administrative burdens and not because of any federal tax-related financial burden caused by the election funds do not seek to revoke their elections for the purpose of preserving or securing a federal tax_benefit additionally funds will neither benefit through hindsight nor prejudice the interests of the government as a result of being permitted to revoke their election accordingly it is held as follows pursuant to sec_4982 the secretary consents to the revocation of the elections made by funds under sec_4982 effective for calendar_year a and subsequent years for purposes of sec_4982 the capital_gain_net_income of funds as defined in sec_4982 and any foreign_currency gains and losses as defined in sec_4982 for the calendar_year ending december year a will be determined on the basis of the capital_gains_and_losses and foreign_currency gains and losses taken into account during the month period from january year a through october year a as a condition to the secretary’s consent to the revocation pursuant to sec_4982 funds may not make a subsequent election under sec_4982 for a period of calendar years following the year to which the grant of revocation applied that is year c through year d plr-111479-99 except as specifically ruled upon above no opinion is expressed or implied as to the federal excise or income_tax consequences regarding funds this ruling is directed only to the taxpayers that requested it sec_6110 of the code provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal income and excise_tax returns filed by funds for the first year to which this ruling applies in accordance with the power_of_attorney on file a copy of this letter is being sent to taxpayer’s authorized representatives sincerely assistant chief_counsel financial institutions products by william e coppersmith william e coppersmith chief branch


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jun _ uniform issue list kak kak kak aa kak legend fund a union b employer c employer d dear in a letter dated date supplemented by letters dated date and date your authorized representative requested a ruling on your behalf concerning the applicability of the provisions of sec_419 and sec_419a of the internal_revenue_code code to contributions made to fund a in the event that employer c’s bargaining unit employees become participants in fund a the following facts and representations have been submitted under penalties of perjury to support the ruling_request fund a was originally established in benefits to employees of employers that have collective bargaining agreements with union b fund a is funded aimost exclusively by employer contributions required by those collective bargaining agreements to provide medical and other welfare union b represents employees in a variety of industries in which it negotiates with employers concerning wages benefits and other terms and conditions of employment of es the covered employees approximately employers contribute to fund a and no single employer_contribution makes up a fund a provides medical dental vision life_insurance and weekly disability payments to covered employees of contributing employers and their dependents _ or more of the total employer contributions to fund the board_of trustees trustees which constitutes fund a’s sponsor is made up of two trustees appointed by union b two trustees appointed by the contributing employers and one neutral trustee chosen by the other four trustees the trustees make all decisions about the benefits that fund a will provide the contributing employers and union b negotiate the amount of the contributions but have no input into the design of fund a except through their respective trustees the trustees decided to permit contributing employers that had collective in bargaining agreements with union b to allow their non-bargaining unit employees to participate in fund a by making the same contributions on behalf of their non-bargaining unit employees as they make for the bargaining unit employees the trustees established that participation of a contributing employer's non-bargaining unit employees must be approved by them and the contributing employer’s obligations with respect to making contributions for its non-bargaining unit employees are identical to its obligations with respect to its bargaining unit employees the benefits under fund a received by a contributing employer's bargaining unit employees and non-bargaining unit employees are identical should the contributing employer fail to contribute to fund a for its bargaining unit employees for any reason it may not contribute to fund a for its non-bargaining unit employees the trustees also forbid the participation of sole proprietors partners in the contributing employers or anyone else who would be prohibited by law from participating since the trustees decided to permit the participation of the non-bargaining unit employees of contributing employers the trustees have approved the participation of non-bargaining unit employees employed by -_non- bargaining unit employees make up less than participants in fund a since the inclusion of these non-bargaining unit employees in contributing employers these percent of the total number of fund a has at all times continued to meet the requirements of sec_419a of the code to be exempt from sec_419 and sec_419a of the code you propose to have the approximately participate in fund a however if those no longer qualify under sec_419a of the code for an exemption from sec_419 and sec_419a of the code bargaining unit employees of employer c employees were added to fund a it would you have represented that the secretary of labor would hold that the agreement between union b and the contributing employers was a collective bargaining agreement your authorized representative has submitted the agreement between employer c and union b agreement and various letters and memoranda between employer c and union b between union b and its members and between union b and the u s department of labor representing the extensive negotiation process which was only overcome after a seven-week strike which is also evidenced from the submitted documentation you have oo also represented that union b employs majority of their time representing employer c’s employees and there are also approximately union b shop stewards who also represent other employees in disputes or matters of concern between the employees and employer c article of the agreement sets out the procedures for an employee to file a grievance and union b’s option of submitting the grievance to arbitration business representatives who spend the neutral trustee the agreement goes on to state that failure of the contributing you have also submitted a current collective bargaining agreement between union b and employer d one of the contributing employers to fund a article of this agreement states that contributions to fund a shall be held in trust by a board_of trustees consisting of trustees representing union b two trustees representing the contributing employer and employer to comply with the provisions of this agreement constitute a material violation of the entire agreement entitling union b at its option to engage in a strike or work stoppage against the contributing employer who is in violation you have also submitted various letters memoranda between union b and employer d between union b and its members and between union b and the federal mediation and conciliation service which evidences the arm’s length nature of the process based on the foregoing you have represented that fund a has at all times met the requirements of sec_419a for exemption from the account limits in that it has met the requirements of sec_1 419a- 2t q a paragraph of the regulations the date of the last determination by the internal_revenue_service that union b was exempt from federal income taxes under sec_501 of the code was date based on the facts and representations you request that fund a continue to be a collectively_bargained_plan within the meaning of sec_419a of the code and sec_1_419a-2t q a-2 of the treasury regulations regulations sec_419 of the code limits the deduction that may be taken for contributions to a welfare_benefit_fund to the qualified_cost for the year one element of the qualified_cost is the amount that may be added to the qualified_asset_account of the fund to the extent the limits of sec_419a of the code are not exceeded in general in order for an amount to be deductible under sec_419 of the code the rules of sec_162 and sec_263 of the code must be satisfied therefore the addition to a qualified_asset_account would be required to satisfy the requirements of sec_162 and sec_263 of the code sec_419 of the code provides that contributions paid_or_accrued by an employer to a welfare_benefit_fund shall not be deductible however if they would otherwise be deductible such contributions shall subject_to the limitations of sec_419 of the code be deductible under sec_419 of the code for the taxable_year in which paid sec_419a of the code provides that no account limits shall apply in the case of any qualified_asset_account under a separate welfare_benefit_fund under a collective bargaining agreement as sec_7701 of the code states that in determining whether there is a collective bargaining agreement between employee_representatives and one or more employers the term employee_representatives shall not include any organization more than one-half of the members of which are employees who are owners officers or executives of the employer an agreement shall not be treated as a collective bargaining agreement unless it is a bona_fide agreement between bona_fide employee_representatives and one or more employers sec_1_419a-2t q a-1 of the regulations provides that contributions to a welfare_benefit_fund maintained pursuant to one or more collective bargaining agreements and the reserves of such a fund generally are subject_to the rules of sec_419 sec_419a and sec_512 of the code however neither contributions to nor reserves of such a collectively bargained welfare_benefit_fund shall be treated as exceeding the otherwise applicable limits of sec_419 sec_419a or sec_512 of the code until the earlier of i the date on which the last of the collective bargaining agreements relating to the fund in effect on or ratified on or before the date_of_issuance of final regulations concerning such limits for collectively bargained welfare funds terminates determined without regard to any extension thereof agreed to after the date_of_issuance of such final regulations or ii the date years after the issuance of such final regulations sec_1_419a-2t q a-2 of the regulations provides that for purposes of q a-1 a collectively bargained welfare_benefit_fund is a welfare_benefit_fund that is maintained pursuant to an agreement which the secretary of labor determines to be a collective bargaining agreement and which meets the requirements of the secretary_of_the_treasury as set forth in paragraph below notwithstanding a determination by the secretary of labor that an agreement is a collective bargaining agreement a welfare_benefit_fund is considered to be maintained pursuant to a collective bargaining agreement only if the benefits provided through the fund were the subject of arms-length negotiations between employee_representatives and one or more employers and if such agreement between employee_representatives and one or more employers satisfies sec_7701 of the code moreover the circumstances surrounding a collective bargaining agreement must evidence good_faith bargaining between adverse parties over the welfare benefits provided through the fund finally a welfare_benefit_fund is not considered to be maintained pursuant to a collective bargaining agreement unless at least percent of the employees eligible to receive benefits under the fund are covered by the collective bargaining agreement in the case of a collectively bargained welfare_benefit_fund only the portion of the fund as determined under allocation rules to be provided by the commissioner attributable to employees covered by a collective bargaining agreement and from which benefits for such employees are provided is considered to be maintained pursuant to a collective bargaining agreement notwithstanding the preceding paragraphs and pending the issuance of regulations setting account limits for collectively bargained welfare_benefit funds a welfare_benefit aa fund will not be treated as a collectively bargained welfare_benefit_fund for purposes of q a-1 if and when after the number of employees who are not covered by a collective bargaining agreement and are eligible to receive benefits under the fund increases by reason of an amendment merger or other action of the employer of the fund in addition pending the issuance of such regulations for purposes of applying the percent test of paragraph to a welfare_benefit_fund that is not in existence on percent shall be substituted for’ _ percent the addition of employees who were not covered by a collectively bargained agreement to fund a’s coverage in _ would not have been different than a closure of fund a and the immediate creation of a new fund consisting of the assets and liabilities of the terminated fund a with the additional aon-bargaining unit employees new fund a established in would have met the requirement of paragraph as modified by paragraph of sec_1 419-2t q a-2 of the regulations the closure of fund a and the transfer of the liabilities and assets to a new fund a would not have been a contravention of paragraph of sec_1 419-2t q a-2 of the regulations non-bargaining unit employees since a with the additional therefore because the addition of non-bargaining unit employees is not substantively different than the above-described alternative formulation that would create the identical end result without affecting the determination of whether the fund is a collectively bargained welfare_benefit_fund we conclude that fund a with the participation of the collectively_bargained_plan within the meaning of sec_419a of the code and sec_1_419a-2t q a-2 of the regulations non-bargaining unit employees continues to be a this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this letter is being sent to your authorized representative in accordance with a power_of_attorney on file in this office if you wish to inquire about this ruling please contact d at please address all correspondence to se t ep ra t3 sincerely yours i eu i soo frances v sloan manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice


internal_revenue_service number release date index number ------------------------------------- -------------------------------------- ------------------------------ ------------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-121426-08 date date ------------------------ ------------------------------------------------------------------------------------------ re -------------------------------------- -------------------------------------------------- legend legend taxpayer trust ------------------------------------------------------------------------------------------------------------ attorney executor date date year year year ---------------------- ----------------------- ---------------------- ---------------------- ------- ------- -------- dear ---------------- this is in response to a letter dated date and other correspondence requesting a ruling for an extension of time under sec_2632 of the internal_revenue_code to elect out of the generation-skipping_transfer gst tax exemption automatic allocation rules the facts submitted and representations made are as follows taxpayer created trust on date taxpayer filed a form_709 united_states gift and generation-skipping_transfer_tax return for year and reported the gift to trust the estate_tax_inclusion_period etip for the transfer to trust ended on date date was after date and in year it is represented that attorney advised taxpayer on creating trust and again when trust ended and taxpayer decided not to allocate any gst_exemption to the transfer to trust attorney however failed to advise taxpayer that from for year must be filed in order to elect out under sec_2632 taxpayer died in year executor requests an extension of time under sec_301_9100-1 and sec_301_9100-3 within which to make an election under sec_2632 to have sec_2632 not apply with respect to trust plr-121426-08 sec_2601 imposes a tax on every generation-skipping_transfer made by a transferor to a skip_person sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any gst transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator is the value of the property transferred to the trust or involved in the direct_skip sec_2631 as in effect for decedents dying after date provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that if any individual makes an indirect_skip during such individual's lifetime any unused portion of such individual's gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred sec_2632 provides that the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust as defined in sec_2632 under sec_2632 and ii an individual may elect to have the automatic allocation rule contained in sec_2632 not apply to an indirect_skip or to any or all transfers made by such individual to a particular trust section sec_2632 provides that an election under sec_2632 may be made on a timely filed gift_tax_return for the calendar_year for which the election is to become effective sec_2632 provides that an indirect_skip to which sec_2642 applies shall be deemed to have been made only at the close of the etip the fair_market_value of such transfer shall be the fair_market_value of the trust property at the close of the etip sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that in the case of a transfer subject_to sec_2642 the election is to be made by plr-121426-08 attaching a statement the election out statement to a form_709 filed on or before the due_date for timely filing of the form_709 for the calendar_year in which the etip closes the form_709 with the attached statement must be filed whether or not any transfer was made in the calendar_year for which the form_709 was filed and whether or not a form_709 otherwise would be required to be filed for that year the election out statement must identify the trust and specifically must provide that the transferor is electing out of the automatic allocation of gst_exemption with respect to the described transfer or transfers prior year transfers that are subject_to sec_2642 the etip and to which the election out is to apply must be specifically described or otherwise identified in the election out statement sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under sec_2642 the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute see notice_2001_50 2001_20_cb_189 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election plr-121426-08 based on the facts and representations made we conclude that the standards of sec_301_9100-1 and sec_301_9100-3 have been met therefore executor is granted an extension of time of days from the date of this letter to make an election under sec_2632 that the automatic allocation rules not apply to taxpayer’s transfer to trust the election should be made in the manner described in sec_26_2632-1 on form_709 united_states gift and generation-skipping_transfer_tax return filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours curt g wilson deputy associate chief_counsel passthroughs special industries enclosure copy of this letter for sec_6110


internal_revenue_service number release date index number -------------------- ------------------- ----------------------------------------------- -------------------------------------- --------------------------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ---------------- telephone number -------------------- refer reply to cc ita b02 plr-142494-14 date date ty ------ legend taxpayer sub1 sub2 cpa1 cpa2 date1 date2 date3 date4 taxable_year dear ------------ ------------------------------------------------------------------ ------------------------ -------------------------------------------------- ----------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------- -------------------------- -------------------------- --------------------------- ----------------------- ------ this is in response to the letter dated -------------------------- submitted on your behalf by cpa2 taxpayer requests an extension of time to file a late safe_harbor election statement under revproc_2011_29 2011_1_cb_746 relating to the allocation of success-based fees paid in business_acquisitions this request for relief is made in accordance with sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations taxpayer represents the following facts on date1 taxpayer was created to effectuate a taxable stock purchase of ----------------- ------------------------- and --------------------------------- both becoming wholly-owned plr-142494-14 subsidiaries of taxpayer via a merger agreement effective on date2 taxpayer incurred investment banking fees and transaction costs including success-based fees upon closing with respect to the success-based fees taxpayer planned to use the safe_harbor election provided in revproc_2011_29 thereby capitalizing percent of the success-based fees and deducted the remaining percent on taxpayer’s return for taxable_year end on date3 an executive of taxpayer signed form 8879-c and submitted it to cpa1 with whom they had a long-term working relationship since taxpayer relied on cpa1 to correctly and timely file taxpayer’s federal return as it had in years past however on date4 taxpayer’s new cpa cpa2 informed taxpayer that their ------ federal return was never filed taxpayer called cpa1 and they confirmed the oversight and e-filed taxpayer’s return unfortunately the return as filed by cpa1 failed to include the mandatory statement required under section dollar_figure of revproc_2011_29 for taxpayers electing to use the safe_harbor method of allocating success- based fees which taxpayer had intended to use upon learning of this error cpa2 advised taxpayer to file this ruling_request for an extension of time to file the required statement accordingly taxpayer requests an extension of time be granted for the purpose of allowing taxpayer to attach to its taxable_year return the mandatory statement to use the safe_harbor method of allocating success-based fees under revproc_2011_29 sec_263 and sec_1_263_a_-2 provide that no deduction shall be allowed for any amount_paid out for property having a useful_life substantially beyond the taxable_year in the case of an acquisition or reorganization of a business_entity costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized 503_us_79 397_us_572 under sec_1_263_a_-5 of the regulations a taxpayer must capitalize an amount_paid to facilitate a business acquisition or reorganization transaction described in sec_1 a - a an amount is paid to facilitate a transaction described in sec_1_263_a_-5 if the amount is paid in the process of investigating or otherwise pursuing the transaction sec_1_263_a_-5 provides that an amount that is contingent on the successful closing of a transaction described in sec_1_263_a_-5 success-based_fee is presumed to facilitate the transaction and thus must be capitalized a taxpayer may rebut the presumption by maintaining sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction and thus may be deductible a taxpayer's method for determining the portion of a success-based_fee that facilitates a plr-142494-14 transaction and the portion that does not facilitate the transaction is a method_of_accounting under sec_446 because the treatment of success-based fees was a continuing subject of controversy between taxpayers and the service the service published revproc_2011_29 revproc_2011_29 provides a safe_harbor method_of_accounting for allocating success- based fees paid in business_acquisitions or reorganizations described in regulations sec_1_263_a_-5 in lieu of maintaining the documentation required by sec_1_263_a_-5 this safe_harbor permits electing taxpayers to treat percent of the success-based_fee as an amount that does not facilitate the transaction that is amounts that can be deducted the remaining portion of the fee must be capitalized as an amount that facilitates the transaction section dollar_figure of revproc_2011_29 allows the taxpayer to make a safe_harbor election with respect to success-based fees section dollar_figure provides that the service will not challenge the taxpayer's allocation of success-based fees between activities that facilitate a transaction described in sec_1_263_a_-5 cost that must be capitalized and activities that do not facilitate the transaction cost that may be deductible if the taxpayer does three things first the taxpayer must treat percent of the amount of the success-based_fee as an amount that does not facilitate the transaction and thus may be deductible second the taxpayer must capitalize the remaining amount of the success-based_fee as an amount which does facilitate the transaction finally the taxpayer must attach a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted treated as not facilitating the transaction and capitalized treated as facilitating the transaction sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting plr-142494-14 relief will not prejudice the interests of the government sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment sec_301_9100-3 provides special rules for accounting_method regulatory elections sec_301_9100-3 provides that the interests of the government are deemed prejudiced except in unusual or compelling circumstances if the accounting_method regulatory election for which relief is requested is subject_to the advance consent procedures for method changes requires a sec_481 adjustment would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination or in any other setting or provides a more favorable method_of_accounting if the election is made by a certain date or taxable_year conclusion based upon our analysis of the facts as represented taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government therefore the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file its mandatory statement as required by section dollar_figure of revproc_2011_29 stating that it is electing the safe_harbor for success-based fees identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized 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 as to whether taxpayer properly included the correct costs as its success-based fees subject_to the retroactive election or whether taxpayer's transaction was within the scope of revproc_2011_29 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-142494-14 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively a taxpayer filing its return electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _____________________________ thomas d moffitt chief branch associate chief_counsel income_tax accounting