internal_revenue_service number release date index number 468a ------------------------------------ ------------------------------------------------------------ -------------------------------------------------------- -------------------------------------- ------------------------------- 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 b01 plr-103706-17 date august legend y x state pooling arrangement trust fund a fund b fund c fund d fund e fund f year year date n1 n2 n3 n4 -------------------------------------------------------------------------------------------- ----------------------------------- -------------------------------------------------------------------------------------------- -------------------- ---------------------- -------------- 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--------------------------- ---- ---- ---- ---- plr-103706-17 n5 n6 ---- ---- dear -------------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of pooling arrangement fund a fund b fund c fund d fund e and fund f collectively the funds by their authorized representative requesting permission to revoke an election made pursuant to sec_761 of the internal_revenue_code the code that was intended to exclude pooling arrangement from subchapter_k of chapter of the code additional rulings related to the revocation the election are also requested specifically you requested the following rulings permission to revoke the election made pursuant to sec_1_761-2 to be excluded from the application of subchapter_k the recapitalization of each fund’s interest in pooling arrangement will not result in gain_or_loss and will not cause a termination under sec_708 pursuant to revproc_2001_36 pooling arrangement requests permission to aggregate built-in gains and built-in losses from contributed_property for purposes of making sec_704 and reverse sec_704 allocations neither the revocation of pooling arrangement’s sec_761 election nor the recapitalization of pooling arrangement is a prohibited act of self-dealing under sec_468a and none of the funds will be disqualified under sec_468a as a result of i the revocation the sec_761 election and subsequent treatment of pooling arrangement as a partnership subject_to subchapter_k or ii the recapitalization of pooling arrangement facts y a wholly owned subsidiary of company x is engaged in providing electric public_utility service to customers in state y owns an interest in six electric nuclear generating stations units y is responsible for a share of the eventual decommissioning costs associated with each unit y established separate qualified funds fund a fund b fund c fund d fund e and fund f for the nuclear decommissioning costs of each unit under a single qualified_trust agreement trust each fund is a qualified_fund subject_to the rules of sec_468a y contributes to each fund its respective share of each unit’s decommissioning costs that will qualify for a current deduction under sec_468a plr-103706-17 trust permits the trustee to pool together the funds’ assets for investment purposes pooling arrangement was established by y with respect to the funds for investment purposes currently pooling arrangement allocates investment gains and losses pro-rata based on each fund’s account balance relative to pooling arrangement’s total fund account balances each fund’s account is separately maintained by the trustee to account for all decommissioning contributions and all income and other increments to each fund and all distributions from each fund in year y requested and the service issued plr-9515006 date concluding that pooling arrangement would be classified as a partnership for federal_income_tax purposes pooling arrangement’s form_1065 partnership return of income for the taxable_year ended date included the election under sec_761 to be excluded from the application of subchapter_k y represents that as required under sec_1_468a-4 a return on form 1120-nd is filed each year for each fund ------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- in order to continue to more accurately reflect each fund’s income and investment balances and to more effectively meet its investment objectives the parties want to revoke the prior election under sec_761 to be excluded from the application of subchapter_k upon granting permission to revoke the election made pursuant to sec_761 y represents it will treat each fund as having contributed its securities to pooling arrangement in exchange for interests therein in a non-recognition transaction under sec_721 further sec_721 will not apply to any such contribution because each fund will contribute a portfolio of assets that was diversified within the meaning of sec_1 c i after formation of the partnership y states pooling arrangement will undergo a recapitalization y states that each fund will exchange its n1 interest in fixed income investments and n2 interest in equity investments of pooling arrangement for in the case of each of fund a fund b and fund c a n3 of the fixed income investments and n4 of the equity investments of pooling arrangement and in the case of each of fund d fund e and fund f a n5 in the fixed income investments and n6 in equity investments in pooling arrangement y represents that each fund’s proportionate share of pooling arrangement will remain the same after the planned recapitalization of the membership interests plr-103706-17 y represents that each fund will maintain detailed capital accounts each capital_account will consist of two sub-account to correspond with each fund’s fixed and equity_investment accounts of the asset pools and will track the asset pool’s performance an interest in a particular asset pool entitles a fund to an interest in the profits losses and capital of the asset pool to which that interest relates the sub-accounts and the capital_account will be maintained in accordance with sec_1_704-1 pooling arrangement will make special allocations of items of income gain loss deduction or credit to specific funds in the pool each fund will track the difference between the fair_market_value and tax basis of the assets contributed to pooling arrangement in accordance with sec_704 and revproc_94_75 1994_2_cb_824 on the recapitalization each fund will determine its sec_704 amounts for the assets contributed to pooling arrangement y states that pooling arrangement will increase the sec_704 accounts by allocating any gain on the sale of assets to the fund that receives the cash associated with the sale or if no cash is being distributed in accordance with each funds’ capital_account once that fund receives an allocation of gain equal to its sec_704 amount any remaining gain will be allocated to the other funds based upon each fund’s relative capital_account until all sec_704 amounts are eliminated for purposes of tracking the sec_704 amount the sec_704 amounts will be aggregated y further represents as follows the assets of pooling arrangement constitute a diversified portfolio of stocks and securities within the meaning of sec_1_351-1 pooling arrangement is not an investment_company within the meaning of sec_351 and sec_1_351-1 after the revocation of its prior election under sec_761 pooling arrangement will qualify as a securities_partnership as defined in sec_1_704-3 pooling arrangement will make revaluations at least annually in accordance with the burden of making sec_704 allocations separately from reverse sec_704 sec_1_704-3 allocations is substantial and pooling arrangement’s contributions revaluations and the corresponding allocations of tax items are not made with a view to shifting the tax consequences of built-in_gain or loss among the funds in a manner that would substantially reduce the present_value of the funds’ aggregate tax_liability law and analysis ruling permission to revoke the election made pursuant to sec_1_761-2 to be excluded from the application of subchapter_k plr-103706-17 sec_761 provides that under regulations the secretary may at the election of all the members of an unincorporated organization exclude such organization from the application of all or part of subchapter_k if it is availed of for investment purposes only and not for the active_conduct of a business if the income of the members of the organization may be adequately determined without the computation of partnership taxable_income sec_1_761-2 provides that an unincorporated organization described in sec_1_761-2 may be excluded from the application of all or a part of the provisions of subchapter_k such organization must be availed of for investment purposes only and not for the active_conduct of a business the members of such organization must be able to compute their income without the necessity of computing partnership taxable_income any syndicate group pool or joint_venture which is classifiable as an association or any group operating under an agreement which creates an organization classifiable as an association does not fall within these provisions sec_1_761-2 provides that where the participants in the joint purchase retention sale_or_exchange of investment property-- i own the property as co-owners ii reserve the right separately to take or dispose_of their shares of any property acquired or retained and iii do not actively conduct business or irrevocably authorize some person or persons acting in a representative capacity to purchase sell or exchange such investment_property although each separate participant may delegate authority to purchase sell or exchange his share of any such investment_property for the time being for his account but not for a period of more than a year then such group may be excluded from the application of the provisions of subchapter_k under the rules set forth in paragraph b of this section based on the information provided and the representations made pooling arrangement and the funds may revoke the election under sec_761 of the code by filing a statement to that effect with pooling arrangement’s form_1065 for its first taxable_year for which the revocation is to be effective ruling the recapitalization of each fund’s interest in pooling arrangement will not result in gain_or_loss and will not cause a termination under sec_708 sec_741 provides in part that when a partnership_interest is sold or exchanged the transferor partner recognizes gain_or_loss under sec_1001 if there is a sale_or_other_disposition of property the entire amount of the gain_or_loss realized thereunder will be recognized unless another section of subtitle a provides for nonrecognition under sec_721 no gain_or_loss is recognized by a partnership or any of its partners upon the contribution of property to the partnership in exchange for an interest therein plr-103706-17 sec_708 provides in part that a partnership continues if it is not terminated a partnership terminates only if no part of any business financial operation or venture of the partnership continues to be carried on by any of its partners in a partnership or within a 12-month_period there is a sale_or_exchange of percent or more of the total interest in partnership capital and profits revrul_84_52 1984_1_cb_158 addressed the circumstance where a general_partnership interest was converted into a limited_partnership_interest in the same partnership each partner’s total percent ownership_interest in the partnership remained the same after the conversion revrul_84_52 holds in part that the partnership was not terminated because the conversion was not a sale_or_exchange for sec_708 purposes based on the facts provided and the representations made no gain_or_loss will be recognized by the funds on the conversion of fixed income investments into equity investments in pooling arrangement and vice versa on a one-to-one basis further we determine the recapitalization of the funds interest in the pooling arrangement will not result in a termination of the pooling arrangement under sec_708 ruling pursuant to revproc_2001_36 pooling arrangement requests permission to aggregate built-in gains and built-in losses from contributed_property for purposes of making sec_704 and reverse sec_704 allocations the aggregation rule_of sec_1_704-3 applies only to reverse sec_704 allocations therefore a securities_partnership using an aggregate approach must generally account for any built-in_gain or loss from contributed_property separately the preamble to sec_1_704-3 explains that the final regulations do not authorize aggregation of pre-contribution built-in gains and losses with built-in gains and losses from revaluations because this type of aggregation can lead to substantial distortions in the character and timing of income and loss recognized by contributing partners t d 1995_1_cb_120 the preamble however also recognizes that there may be instances in which the likelihood of character and timing distortions is minimal and the burden of making sec_704 allocations separate from reverse sec_704 allocations is great consequently sec_1_704-3 authorizes the commissioner to permit by published guidance or private_letter_ruling aggregation of qualified_financial_assets for purposes of making sec_704 allocations in the same manner as that described in sec_1_704-3 in revproc_2001_36 2001_1_cb_1326 the service granted automatic permission for certain securities partnerships to aggregate contributed_property for purposes of making sec_704 allocations revproc_2001_36 also described the information that must be included with the ruling requests for permission to aggregate contributed_property for purposes of making sec_704 allocations submitted by partnerships that do not qualify for automatic permission plr-103706-17 revproc_94_75 1994_52_irb_29 provides that the commissioner will not challenge a partnership’s reverse sec_704 allocations if all of the partners in the partnership are nuclear decommissioning reserve funds that under the provisions of the internal_revenue_code are in the same tax_bracket at all times and for all income all of the partnership’s book and tax allocations are made in proportion to the partners’ relative book capital accounts state or federal regulations require that until substantial completion of nuclear decommissioning of the nuclear_powerplant the assets of the partnership may only be used to pay the partners’ statutory decommissioning liabilities and associated administrative costs and no partner makes a contribution to the pooling arrangement with a principal purpose of substantially reducing the present_value of the partners’ aggregate federal tax_liability pooling arrangement represents that the burden to it of making sec_704 allocations separate from reverse sec_704 allocations is substantial pooling arrangement represents that it will comply with revrul_94_75 with respect to its reverse sec_704 allocations based on the information submitted and representations made we find that pooling arrangement’s method of making sec_704 allocations including reverse allocations for the funds is permissible under sec_1_704-3 provided that a contribution or revaluation of the property and the corresponding allocation of tax items with respect to the property are not made with a view to shifting the tax consequences of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the funds’ aggregate tax_liability ruling neither the revocation of pooling arrangement’s sec_761 election nor the recapitalization of pooling arrangement is a prohibited act of self-dealing under sec_468a sec_468a of the code provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund hereinafter referred to as the fund that meets the requirements of sec_468a sec_468a provides that in any case in which the fund violates any provision of this section or sec_4951 the secretary may disqualify such fund from the application of this section sec_1_468a-1 provides that a qualified nuclear decommissioning fund is a fund that satisfies the requirements of sec_1_468a-5 sec_1_468a-5 provides that if at any time during the taxable_year a qualified nuclear decommissioning fund does not satisfy a requirement of sec_1 468a- a or the fund and a disqualified_person engage in an act of self-dealing the service may in its discretion disqualify all or a portion of the fund as of the date that the fund does not satisfy such requirements plr-103706-17 sec_468a prohibits self-dealing by providing that under regulations prescribed by the secretary for purposes of sec_4951 a qualified nuclear decommissioning fund shall be treated in the same manner as a_trust described in sec_501 sec_4951 imposes a tax on each act of self-dealing between a disqualified_person and a_trust described in sec_501 sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law sec_1_468a-5 provides that except as otherwise provided in paragraph b the excise_taxes imposed by sec_4951 apply to each act of self-dealing between a disqualified_person and a nuclear decommissioning fund further sec_1 468a- b provides that with exceptions not relevant to this analysis for purposes of paragraph b the term self-dealing means any act described in sec_4951 sec_4951 provides in relevant part that the term self-dealing means any direct or indirect sale exchange or leasing of real or personal_property between a_trust described in sec_501 and a disqualified_person sec_1_468a-5 provides that for these purposes the term disqualified_person includes each person described in sec_4951 and sec_53_4951-1 sec_4951 provides that the term disqualified_person means with respect to a_trust described in sec_501 a person who is- a a contributor to the trust b a trustee of the trust c an owner of more than of-- i the total combined voting power of a corporation ii the profits interest of a partnership or iii the beneficial_interest of a_trust or unincorporated enterprise which is a contributor to the trust d an officer director or employee of a person who is a contributor to the trust e the spouse ancestor lineal descendant or spouse of a lineal descendant of an individual described in subparagraph a b c or d f a corporation of which persons described in subparagraph a b c d or e own more than of the total combined voting power g a partnership in which persons described in subparagraph a b c d or e own more than of the profits interest or h a_trust or estate in which persons described in subparagraph a b c d or e hold more than of the beneficial_interest plr-103706-17 the flush language of sec_4951 following sec_4951 provides in part that for purposes of sec_4951 an owner of more than of the total combined voting power of a corporation that is a contributor to a particular trust and f a corporation in which specified disqualified persons own more than of the combined voting power there shall be taken into account indirect stockholdings which would be taken into account under sec_267 further this flush language also provides that for purposes of sec_4951 and iii an owner of more than of the profits interest of a partnership or of the beneficial_interest of a_trust or unincorporated enterprise which is a contributor to the trust g a partnership in which disqualified persons own more than of the profits interest and h a_trust or estate in which disqualified persons own more than of the beneficial_interest the ownership of profits or beneficial interests shall be determined in accordance with the rules for constructive_ownership of stock provided in sec_267 sec_267 provides that stock owned directly or indirectly by or for a corporation partnership estate_or_trust shall be considered as being owned proportionately by or for its shareholders partners or beneficiaries sec_267 provides in part that stock constructively owned by a person by reason of sec_267 shall for purposes of applying sec_267 be treated as actually owned by such person sec_53_4946-1 contains rules for the attribution of profits and beneficial interests in particular sec_53_4946-1 provides that for purposes of sec_53_4946-1 relating to an owner of more than of the profits interests of a partnership and sec_53_4946-1 relating to the beneficial interests of a_trust ownership of profits or beneficial interests shall be taken into account as though such ownership related to stockholdings if such stockholdings would be taken into account under sec_267 and the regulations thereunder however for purposes of sec_53_4946-1 any profits interest or beneficial_interest which has been counted once whether by reason of actual or constructive_ownership in applying sec_4946 relating to a partnership in which disqualified persons hold more than of the beneficial_interest or sec_4946 relating to a_trust or estate in which disqualified persons hold more than of the beneficial_interest shall not be counted a second time the revocation of pooling arrangement’s sec_761 election and the recapitalization of the funds are two separate transactions in which self-dealing potentially may occur under sec_468a a nuclear decommissioning reserve fund is treated in the same manner as a_trust described in sec_501 for purposes of sec_4951 each fund is a qualified_fund subject_to the rules of sec_468a accordingly each fund is treated in the same manner as a_trust described in sec_501 and is subject_to the excise_tax on self-dealing imposed by sec_4951 plr-103706-17 applying the rules under sec_4951 to the facts as provided we determined y contributes its share of the decommissioning costs to each fund and therefore is a disqualified_person described in sec_4951 with respect to each fund each fund is a disqualified_person with respect to any other fund with respect to which a disqualified_person described in sec_4951 holds more than of the beneficial_interest and pooling arrangement is not a disqualified_person with respect to any of the funds because the profits interests in pooling arrangement held by the funds are considered as owned proportionately by or for y in order for an act of self-dealing to have occurred either or both the revocation of the sec_761 election and the recapitalization of the funds must be a direct or indirect sale_or_exchange of real or personal_property between the funds and y or among the funds as represented by y the revocation of its sec_761 election results in a sec_721 contribution of the investment_assets by each fund to pooling arrangement and not a sale_or_exchange of real or personal_property for purposes of sec_4951 therefore the revocation the sec_761 election does not result in an act of self-dealing for purposes of sec_468a similarly recapitalization of the funds results in the deemed exchange of one interest in pooling arrangement for another interest that represents a specific mix of assets in the different asset pools y represents that the total fair_market_value of the investments of each fund will be the same before and after the recapitalization because pooling arrangement is not a qualified_person with respect to the funds no act of self-dealing occurs for purposes of sec_468a ruling none of the funds will be disqualified under sec_468a as a result of the revocation of pooling arrangement’s sec_761 election and subsequent treatment of pooling arrangement as a partnership subject_to subchapter_k or the recapitalization of pooling arrangement because neither the revocation of pooling arrangement’s sec_761 election and subsequent treatment of pooling arrangement as a partnership subject_to subchapter_k nor the recapitalization of pooling arrangement result in an act of self-dealing for purposes of sec_4951 and sec_468a none of the funds will be disqualified under sec_468a except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder specifically we express or plr-103706-17 imply no opinion regarding whether pooling arrangement is a partnership or the tax consequences resulting from the revocation of the sec_761 election this ruling is limited to allocations of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets made under sec_704 sec_704 and sec_1 a specifically no opinion is expressed concerning allocations of items other than items of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets or the aggregation of built-in gains and losses from qualified_financial_assets contributed to pooling arrangement by any owner other than the funds described in this ruling pooling arrangement must maintain sufficient records to enable it and its funds to comply with sec_704 and sec_737 additionally this ruling applies only to the contributions to pooling arrangement by the funds for whom pooling arrangement supplied specific information concerning the contributed assets as described above and not to any other contributions by the funds or any other future owner this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copy of this letter is being sent to y’s authorized representatives sincerely david r haglund david r haglund branch chief branch passthroughs special industries enclosures copy of this letter copy for purposes cc


internal_revenue_service number release date index number ----------------------------------------- ------------------------------ ------------------------------------------ in re --------------------------------------------------- ----------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------- id no ----------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-119894-13 date date legend decedent --------------------------- dear ------------------ this responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file a form_8939 allocation of increase in basis for property_acquired_from_a_decedent to make the sec_1022 election and to allocate basis provided by sec_1022 of the internal_revenue_code code to eligible_property transferred as a result of decedent’s death the facts and representations submitted are as follows decedent died in the executor for decedent’s estate retained a tax professional to advise him on estate_tax matters including the necessity to file a form_8939 the executor of decedent’s estate is requesting an extension of time pursuant to sec_301_9100-3 to file the form_8939 to make the sec_1022 election and to allocate basis provided by sec_1022 to eligible_property transferred as a result of decedent’s death law and analysis sec_1022 provides that property_acquired_from_a_decedent who died after date is treated as transferred by gift and the basis of the person acquiring the property from such a decedent is the lesser_of the adjusted_basis of the decedent or the fair_market_value of the property at the date of the decedent's death sec_1022 provides in general that the basis_of_property under sec_1022 is increased by basis increase that is allocated to the property plr-119894-13 sec_1022 provides in general that basis increase is the portion of the aggregate basis increase that is allocated to the property sec_1022 and c provide that the aggregate basis increase is dollar_figure and that the aggregate basis increase is increased by-- i the sum of the amount of any capital_loss_carryover under sec_1212 and the amount of any net_operating_loss_carryover under sec_172 that would but for the decedent's death be carried from the decedent's last taxable_year to a later taxable_year of the decedent plus ii the sum of the amount of any losses that would have been allowable under sec_165 if the property acquired from the decedent had been sold at fair_market_value immediately before the decedent's death sec_1022 provides that in the case of property that is qualified spousal property the basis of such property under sec_1022 as increased under sec_1022 is increased by spousal property basis increase allocated to the property sec_1022 provides in general that spousal property basis increase is the portion of the aggregate spousal property basis increase which is allocated to the property sec_1022 provides that the aggregate spousal property basis increase is dollar_figure sec_1022 provides in general that the basis_of_property acquired from a decedent may be increased under sec_1022 or c only if the property was owned by the decedent at the time of death sec_1022 describes property that is considered to be owned by the decedent at the time of death sec_1022 provides that the basis adjustments under sec_1022 and c shall not increase the basis of any interest in property above its fair_market_value in the hands of the decedent as of the date of the decedent's death sec_1022 provides in general that the executor is to allocate the basis adjustments under sec_1022 and c on the return required by sec_6018 and that any allocation made may be changed only as provided by the secretary sec_1022 describes property that is considered to be acquired from the decedent for purposes of sec_1022 subtitle a of title v of the economic_growth_and_tax_relief_reconciliation_act_of_2001 p l stat enacted sec_2210 which made chapter the estate_tax inapplicable to the estate of any decedent who died in and chapter the generation skipping transfer gst tax inapplicable to generation-skipping transfers made in on date tax relief unemployment insurance reauthorization and job creation act of truirjca p l stat became law and sec_301 of truirjca retroactively reinstated the estate plr-119894-13 and gst taxes however sec_301 of truirjca allows the executor of the estate of a decedent who died in to elect to apply the code as though sec_301 of truirjca did not apply with respect to chapter and for property acquired or passing from a decedent within the meaning of sec_1014 thus sec_301 of truirjca allows the executor of the estate of a decedent who died in to elect not to have the provisions of chapter apply to the decedent’s estate but rather to have the provisions of sec_1022 apply the sec_1022 election notice_2011_66 2011_35_irb_184 section i a provides that the executor of the estate of a decedent who died in makes the sec_1022 election by filing a form_8939 on or before date notice_2011_76 2011_40_irb_479 extended the due_date of the form_8939 and thus the election from date to date notice_2011_66 section i d provides that the internal_revenue_service will not grant extensions of time to file a form_8939 and will not accept a form_8939 filed after the due_date except in four limited circumstances provided in section i d under this section of notice_2011_66 an executor may apply for relief under sec_301_9100-3 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore the executor of decedent’s estate is granted an extension of time of days from the date of this letter to make the sec_1022 election on a form_8939 and allocate additional basis to eligible_property as provided by sec_1022 a copy of this letter should be attached to the form_8939 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-119894-13 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely james f hogan james f hogan chief branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc


internal_revenue_service number release date index number - ----------------------------- ------------------------------------------------------------ ------------------- ------------------ ------------------------ - department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-132691-06 date october --------------------------------------------------------------------------------------------------- legend x ------------------------------------------ decedent ------------------------------------------- a -------------------- --------------- ------------------------- --------------------------------------------------------------- ----------------------- ---------- ---------------- ------------------------- ---------------------- trust state d1 d2 d3 dear ----------- this letter responds to a letter dated date submitted by x's authorized representative on behalf of x requesting inadvertent termination relief under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated under the laws of state on d1 and elected to be an s_corporation effective d1 on d2 decedent one of x’s shareholders died pursuant to decedent’s will decedent’s shares in x were distributed as of d3 to trust x represents that trust is eligible to be a qualified_subchapter_s_trust qsst however due to inadvertence a the beneficiary of trust plr-132691-06 failed to elect to treat trust as a qsst because of this failure to make the qsst election trust was an ineligible s_corporation shareholder as a result x’s s_corporation_election terminated x represents that the transfer of stock to trust and the subsequent failure_to_file the qsst election were not motivated by tax_avoidance furthermore x and all its shareholders represent that from d3 until the present x and the shareholders have all filed returns consistent with x’s status as an s_corporation x and all its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that a small_business_corporation cannot have as a shareholder a person other than an estate and other than a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a subchapter_s_corporation shareholder sec_1361 provides that a qsst with respect to which a beneficiary makes an election under sec_1361 will be treated as a_trust described in sec_1361 and the qsst’s beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst’s s_corporation stock to which the election under sec_1361 applies under sec_1361 a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply under sec_1361 an election under sec_1361 will be effective up to days and months before the date of the election sec_1361 provides that the term qsst means a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary's death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or plr-132691-06 resident_of_the_united_states sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the taxable_year for which a corporation is an s_corporation such corporation ceases to be a small_business_corporation a termination of an s_corporation_election under sec_1362 is effective on and after the date of cessation sec_1_1361-1 of the income_tax regulations provides that if a corporation's s election terminates because of a late qsst election the corporation may request inadvertent termination relief under sec_1362 sec_1362 provides that if an election under sec_1362 by any corporation was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusions based solely on the facts presented and the representations made we conclude that x's s_corporation_election was terminated on d3 because a failed to make a timely qsst election under sec_1361 for trust we also conclude that the termination was inadvertent within the meaning of sec_1362 therefore under sec_1362 x will be treated as an s_corporation from d3 and thereafter assuming that x’s s_corporation_election is valid and is not otherwise terminated under sec_1362 however this ruling is contingent upon a filing a qsst election for trust with an effective date of d3 with the appropriate service_center within days of the date of this ruling a copy of this letter must be attached to the qsst election except as specifically ruled above we express no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed on whether x’s original election to be an s_corporation was a valid election under sec_1362 or whether trust qualifies as a qsst within the meaning of sec_1361 plr-132691-06 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your first and second authorized representatives 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 enclosures copy of this letter copy for sec_6110 purposes sincerely beverly katz senior technician reviewer branch office of the associate chief_counsel passthroughs special industries ------------------------------- plr-132691-06 cc ------------------------------------------------ ---------------------------------------------------------------------------- --------------------------------------- cc ----------------------------- --------------------------------------- ---------------------------------- ---------------------------------------------------------------------------- --------------------------------------- cc ----------------------- ----------------------- ------------------------------------- -----------------------------------


internal_revenue_service department of the treasury washington dc contact person o o telephone number in reference to date dec s iln legend company a plan x stock exchange y dear this is in reply to your ruling_request of date as supplemented by letters dated date and date submitted on your behalf by your authorized representative regarding the federal_income_tax consequences of proposed amendments to plan x the following facts and representations have been submitted by your authorized representative company a established plan x a defined_contribution_plan as of date under plan x employees of company x and its subsidiaries can make pre-tax elective contributions pursuant to sec_401 of the internal_revenue_code and receive employer matching_contributions on the pre-tax elective contributions plan x is qualified under sec_401 a and k of the code and its trust is exempt under sec_501 plan x is administered by an administrative committee appointed by the chairman of company a all funds contributed to plan x are placed in a_trust for the benefit of participants and their beneficiaries and are held by a trustee plan assets are invested in one or more investment funds established by the trustee at the direction of the administrative committee the investment funds may include i a company stock fund ii a pooled_fund established for the investment of the assets of tax-qualified pension and or profit- sharing plans iii any other investment vehicle suitable for the investment of trust funds all dividends interest and other distributions received by the trustee in respect of any of the investment funds including the company stock fund are reinvested in the same fund company a's stock is traded on stock exchange y a national securities exchange registered under section of the securities exchange act of a mutual_fund iv a contract issued by an insurance_company and v f nl a company a is proposing certain amendments to plan x which would accomplish the following i a portion of plan x will be designated as forming a stock_bonus_plan as described in sec_1_401-1 of the income_tax regulations and a non- leveraged employee_stock_ownership_plan esop as described in sec_4975 of the code the esop portion so created will consist of all esop accounts maintained by plan x the esop accounts maintained for each participant will consist of the portion of each participant's account that is invested in the company stock fund the esop accounts will be primarily invested at all times in company a stock ii any cash dividend paid with respect to shares of company a stock held in the esop accounts will be paid in cash to participants automatically company a intends that the elective_deferrals of participants who receive payment of cash dividends will be increased automatically by an amount equal to the amount of dividends received dividends will be distributed only to participants who are able within the limitations of sec_402 and sec_415 of the code to increase their elective_deferrals for such year by the amount of dividends_paid iii any dividend payments to participants will be paid in the sole discretion of the committee by company a’s dividend disbursing agent to the trustee and then distributed by the trustee to participants no later than days after the end of the plan_year in which paid to the trustee or to the trustee who may then appoint company a's or a participating subsidiary's payroll department as disbursing agent for the trustee for distribution to participants if a participant elected not to increase his or her before-tax contributions to plan x by the amount of dividends then the payroll department would increase the amount of the next payroll check to each participant receiving a distribution of dividends by the amount of the dividends payable to the participant but if a participant is deemed to have elected to increase his or her compensation deferral election to provide for an additional deferral of compensation up to the amount of the esop dividend subject_to limitations under sec_402 and sec_415 of the code such amount would be deducted from the participant’s_compensation for the next payroll and added to the amount normally contributed to plan x for that period to each participant at the end of the year on form 1099-div all dividends_paid during a year would be reported unless a participant who receives a dividend distribution elects otherwise he or she will be deemed to have increased his or her compensation deferral election for the pay period in which such dividends are distributed and the amount of such participant's elective_deferral will be automatically increased by the amount of the dividend ifthe participant elects not to so increase his or her compensation deferral election which notice is given through the means provided for this particular purpose by company a his or her payroll check deposit will be increased by the amount of the cash dividend company a will not make matching_contributions on additional elective_deferrals made pursuant to this procedure based on the foregoing you request a ruling that dividends_paid or distributed on company a stock held by the esop maintained by company a and participating subsidiaries will be deductible under sec_404 of the code if such dividends are paid in the sole discretion of the committee i by company a's dividend disbursing agent directly to the trustee and distributed by the trustee to participants no later than days after the end of the plan_year in which paid to the trustee or ii by company a's dividend disbursing agent to the trustee who may then appoint company a's or a participating subsidiary's payroll department as disbursing agent for the trustee for distribution to participants by the letter dated date you withdrew the ruling_request with respect to the application of sec_3402 of the code to certain employee deferrals with respect to the ruling_request sec_404 of the code provides that in the case of a corporation there shall be allowed as a deduction for a taxable_year the amount of any applicable_dividend paid in cash by such corporation during the taxable_year with respect to applicable_employer_securities such deduction is in addition to the deductions allowed under sec_404 a sec_404 of the code provides in relevant part that the term applicable_dividend means any dividend which in accordance with the plan provisions is paid to the plan and is distributed in cash to the participants in the plan or their beneficiaries not later than days after the close of the plan_year in which paid sec_404 of the code provides that for purposes of this subsection applicable_employer_securities means with respect to any dividend an employee_stock_ownership_plan which is maintained by-- a the corporation paying such dividend or b any other corporation which is a member of a controlled_group_of_corporations within the meaning of sec_409 which includes such corporation sec_404 of the code provides that for purposes of sec_404 employer_securities has the meaning given such term by sec_409 of the code sec_409 of the code provides that the term employer_securities means common_stock issued by the employer or by a corporation that is a member of the same controlled_group which is readily_tradable on an established_securities_market sec_404 of the code provides that the secretary may disallow the deduction under paragraph for any dividend if the secretary determined that such dividend constitutes in substance an evasion of taxation based upon your representations the subject dividends on company a stock allocated to the plan participants’ esop accounts will be paid to the plan participants within days of the close of the plan_year if they not elect to have the dividends retained by plan x accordingly we conclude with respect to your ruling_request that dividends_paid or distributed on company a stock held by an esop maintained by company a and participating subsidiaries will be deductible under sec_404 of the code if such dividends are paid in the sole discretion of the committee i by company a's dividend disbursing agent directly to the trustee and distributed by the trustee to participants no later than days after the end of the plan_year in which paid to the trustee or ii by company a's dividend disbursing agent to the trustee who may then appoint company a's or a participating subsidiary's payroll department as disbursing agent for the trustee for distribution to participants the above ruling is based on the assumption that plan x will be qualified under sec_401 sec_401 and sec_409 of the code and the related trust will be tax exempt under sec_501 at the time that the above transaction takes place in addition we are assuming that the subject shares allocated to the participants’ accounts in plan x are applicable employee securities within the meaning of sec_404 with respect to the subject dividends this ruling is also based on the assumption that the proposed dividends do not constitute in substance an evasion of taxation within the meaning of sec_404 of the code we are expressing no opinion as to whether or not the disallowance of deductions provided for in that section would be applicable here a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office sincerely yours signed joyce b floyd joyce e floyd chief employee_plans technical branch enclosures deleted copy of letter notice of intention to disclose


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division feb uniform issue list set ep pat legend bank a bank b ira x amount d dear this is in response to a request submitted by your authorized representative dated date for a ruling to waive the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code correspondence dated date supplemented the request the following facts and representation have been submitted under penalties of perjury to support the ruling_request you closed ira you are over age you maintained ira x at bank a on august x and withdrew amount d in the form of a check on the same day intending that amount d be rolled over into an individual_retirement_arrangement ira you opened two certificates of the receipts for the certificates of deposit which you deposit at bank b totaling amount d believed were qualified iras indicated that they were individual accounts when you were preparing to file your tax_return for properly rolled over you discovered that amount d was not based on the foregoing you request that the internal_revenue_service waive the 60-day rollover limitation under sec_408 of the code in order to allow you to roll over the ira x distribution to another ira page sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information you presented demonstrates that you attempted to affect a timely rollover but that due to a miscommunication between you and the bank you were unable to satisfy the requirement to redeposit amount d in a proper ira the information presented by you is consistent with your assertion that you attempted to rollover amount d you deposited the same amount that was distributed from ira x into an account at bank b on the same day that you received the distribution the certificates of deposit that you received as evidence of the deposit were labeled individual accounts amount d remains in those accounts in conclusion we believe that the information presented demonstrates circumstances that would justify a waiver of the 60-day rollover period pursuant to sec_408 of the code under page these circumstances the failure to waive the 60-day requirement would be against equity or good conscience therefore pursuant to sec_408 of the code the service waives the 60-day rollover requirement with respect to the distributions of the amounts from ira x you are granted a period of days from the issuance of this ruling letter to make your rollover requirements of sec_408 of the code except the 60-day requirement are met with respect to amount d such amount will be considered a rollover_contribution within the meaning of sec_408 d of the code f all other you are over and therefore have attained your required_beginning_date for purposes of sec_401 of the code in this regard this ruling does not authorize the rollover of any portion of amount d that may be required to be distributed to you by sec_401 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto 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 if you wish to inquire about this ruling please contact id ttrerereny of fr hhl not a toll free number please address all reresporpience to se t ep ra t3 sincerely yours ' francés v sloan manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


t c memo united_states tax_court ertan and susan eren petitioners v commissioner of internal revenue respondent docket no filed date james daniel mccarthy for petitioners aretha jones for respondent memorandum findings_of_fact and opinion jacobs judge respondent determined a dollar_figure deficiency in petitioners' federal_income_tax the sole issue for decision is whether petitioner ertan eren's income from the u s department of state office of foreign buildings operations fbo qualifies for the sec_911 foreign_earned_income_exclusion petitioners' entitlement to such exclusion depends upon the classification independent_contractor vis-a-vis employee of ertan eren's employment relationship with fbo during the year under consideration for the reasons set forth herein we hold that such relationship was that of an employee with the consequence that petitioners are not entitled to the claimed sec_911 foreign_earned_income_exclusion all section references are to the internal_revenue_code for the year under consideration and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference background petitioners ertan and susan eren husband and wife resided in rockville maryland at the time they filed their petition they filed a joint federal_income_tax return for ertan eren is an architect1 he resided in bogota colombia from date through date at that time he worked for fbo as project director for the construction of an annex to the u s embassy in bogota ertan eren all references to petitioner in the singular will be to petitioner's contracts with fbo during the late 1970's and early 1980's petitioner rendered architectural services to fbo on an as needed basis under a labor hour contract for various fbo projects in brazil he signed his first personal_service_contract psc with fbo in and has been performing services solely for fbo since that time his subsequent contracts with fbo have been renewed modified or renegotiated on an annual basis on date petitioner and fbo signed a contract designating petitioner as the project manager2 with respect to the improvements and repairs at the u s embassy in ankara turkey and other u s foreign service posts petitioner worked in turkey for a number of years under modified versions of this psc in date he was transferred from turkey to bogota petitioner's contract with fbo as in effect during states in part the project manager will inspect construction improvements and or repairs at project sites and will be directly responsible to fbo in the performance of his duties under this contract the contract provides that petitioner will perform appropriate functions and obligations in accordance with procedures or other directives issued by the contracting officer or his designee used interchangeably herein the term project manager and project director are petitioner's duties in bogota as project director for the bogota annex petitioner was responsible for the inspection and supervision of the construction of such annex he was not subject_to daily supervision by fbo fbo provided petitioner with a project director's handbook which he was to use as a guide in performing his duties petitioner was required to personally perform his duties to fbo on a full-time basis he was required to work a minimum of hours a week however he typically worked longer hours petitioner was not paid for the extra hours he worked fbo provided petitioner with all requisite contract documents specifications and drawings for the annex construction petitioner did not have authority to change the documents petitioner was appointed a contracting officer's technical representative cotr pursuant to a memorandum dated date the memorandum outlined specific duties and activities that petitioner had to perform as cotr primarily petitioner was required to insure that all materials furnished and the work performed on the bogota annex project were in accordance with the contract specifications and that the work progressed on schedule petitioner had substantial control_over the contractor hired to build the annex he was able to order work redone or stopped because of the contractor's failure to follow accepted safety procedures or project specifications without prior fbo approval before authorizing fbo to pay the contractor continued petitioner was required to maintain a daily log describing the work progress on the construction site pursuant to a date memorandum that supplemented the date memorandum petitioner was given authority to substitute materials equipment and or products for the construction of the bogota annex so long as they were equal to or better than those specified in the contract and the substitution did not entail an additional cost to the government during the year under consideration petitioner was required to submit two types of monthly reports regarding the progress of the construction of the bogota annex to the fbo area branch chief for construction management one was a telegraphic report that had to be sent before the 10th of each month the other was a written report kept in book form the reports included statements of progress and problems incurred or anticipated in the construction of the annex fbo had the right to terminate petitioner's contract if he failed to submit these monthly reports the bogota project budget when petitioner was assigned to a project post he was required to prepare a budget proposal and submitted it to fbo for approval with regard to the bogota annex project fbo approved continued petitioner inspected the job site to ensure that the contractor was performing satisfactory work petitioner's request for dollar_figure for although petitioner did not have authority to exceed the approved budget he could allocate approved budget funds as necessary the dollar_figure budget for did not include petitioner's dollar_figure salary his biweekly salary was based on a government schedule the foreign service schedule petitioner did not receive any per_diem in petitioner had the authority to hire and fire his staff without fbo approval he hired several workers who entered into contracts with fbo and were paid_by fbo psc provisions petitioner did not receive standard government employee_benefits such as life_insurance and retirement benefits under the terms of his psc rather percent of his compensation was allocated for purchasing health insurance petitioner received home_leave sick leave and annual leave department of state directives and memorandum two fbo directives required that personal service contractors be treated as employees the first directive issued date refers to the foreign affairs manual which states that a personal service contractor is not eligible for the 'foreign earned_income exclusion' the second issued date and revised on foreign service workers home_leave is a mandatory department of state leave for date and date provides that overseas psc's treat a contractor as an fbo government employee for all purposes except retirement petitioner was notified by a date fbo memorandum that as a result of an internal_revenue_service review of fbo personnel policies it was determined that psc's signed by fbo contractors created an employee-employer relationship between the parties and that petitioner should designate himself as an fbo employee rather than as an independent_contractor on his federal_income_tax return subsequent to the issuance of this memorandum fbo issued petitioner a form_w-2 for wages tips and other compensation in the amount of dollar_figure fbo withheld social_security_tax from petitioner's income in the amount of dollar_figure petitioners' federal_income_tax return on petitioners' form_1040 petitioners reported dollar_figure as business income on line and then subtracted dollar_figure on line other income with the notation exclusion from form_2555 thus petitioner claimed a sec_911 exclusion for a exclusion was dollar_figure the maximum amount permitted for the earned_income form_2555 foreign_earned_income attached to petitioners' return reported foreign_earned_income of dollar_figure and listed name of employer as self substantial portion of the compensation he received from fbo respondent disallowed the claimed exclusion petitioner also calculated self-employment_tax on form se in the amount of dollar_figure respondent concedes that petitioner is not liable for self-employment_tax if we hold that he was an employee of fbo in ultimate finding of fact petitioner was an fbo employee in opinion at issue is the characterization for tax purposes of petitioner's relationship with fbo during petitioner argues that his relationship with fbo in was that of an independent_contractor and therefore petitioners are entitled to exclude dollar_figure of his income from fbo as foreign_earned_income within the purview of sec_911 respondent contends that petitioner's relationship with fbo in was that of an employee and therefore petitioners are not entitled to the exclusion sec_911 provides in relevant part a exclusion_from_gross_income --at the election of a qualified_individual made separately with respect to paragraphs and there shall be excluded from the gross_income of such individual and exempt from taxation under this subtitle for any taxable year-- the foreign_earned_income of such individual and the housing_cost_amount of such individual b foreign_earned_income -- definition --for purposes of this section-- a in general --the term foreign_earned_income with respect to any individual means the amount received by such individual from sources within a foreign_country or countries which constitute earned_income attributable to services performed by such individual during in subparagraph a or b of subsection d whichever is applicable described period the b certain amounts not included in foreign_earned_income --the foreign_earned_income for an individual shall not include amounts-- ii paid_by the united_states or an agency thereof to an employee of the united_states or an agency thereof the term employee is not defined in the code therefore common_law rules must be applied to determine whether an individual is an employee 503_us_318 matthews v commissioner t c pincite affd 907_f2d_1173 d c cir 64_tc_974 whether an employer-employee relationship7 sec_31_3401_c_-1 employment_tax regs defines an continued exists is a question of fact 478_f2d_575 8th cir 89_tc_225 affd 862_f2d_751 9th cir if an employer-employee relationship exists its characterization by the parties as some other relationship such as independent_contractor is of no consequence sec_31_3121_d_-1 employment_tax regs continued employer-employee relationship as follows b generally the relationship of employer and employee exists when the person for whom services are performed has the right to control and direct the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished that is an employee is subject_to the will and control of the employer not only as to what shall be done but how it shall be done in this connection it is not necessary that the employer actually direct or control the manner in which the services are performed it is sufficient if he or she has the right to do so the right to discharge is also an important factor indicating that the person possessing that right is an employer other factors characteristic of an employer but not necessarily present in every case are the furnishing of tools and the furnishing of a place to work to the individual who performs the services in general if an individual is subject_to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result he or she is not an employee this court has enumerated the following factors8 in determining whether an employee-employer relationship exists the degree of control exercised by the principal over the details of the work which party invests in the facilities used in the work the opportunity of the individual for profit or loss whether the principal has the right to discharge the individual whether the work is part of the principal's regular business the permanency of the relationship and the relationship the parties believe they are creating weber v commissioner 103_tc_378 affd per curiam 60_f3d_1104 4th cir professional executive leasing inc v commissioner t c pincite simpson v commissioner supra pincite see also 331_us_704 no single factor is dispositive simpson v commissioner supra pincite all of the facts and circumstances must be studied professional executive leasing inc v commissioner supra pincite while all of the above factors are important the right-to- control is the master test in determining the nature of a working relationship matthews v commissioner t c pincite both the control exercised by the alleged employer and the degree to which the alleged employer may intervene to impose control must the parties cite revrul_87_41 1987_1_cb_296 which lists factors to consider in determining whether a common_law employer-employee relationship exists many of these factors are incorporated into this court's seven factors be examined 135_f2d_715 2d cir detorres v commissioner tcmemo_1993_161 n o actual control need be exercised as long as the employer has the right to control professional executive leasing inc v commissioner f 2d pincite in order for an employer to retain the requisite control_over the details of an employee's work the employer need not direct each step taken by the employee professional executive leasing inc v commissioner t c pincite gierek v commissioner tcmemo_1993_642 the exact amount of control required to find an employer-employee relationship varies with different occupations 397_us_179 in fact the threshold level of control necessary to find employee status is in most circumstances lower when applied to professional services than when applied to nonprofessional services 388_f2d_74 8th cir professional and executive leasing inc v commissioner supra pincite from the very nature of the services rendered by professionals it would be wholly unrealistic to suggest that an employer should undertake the task of controlling the manner in which the professional conducts his activities azad v united_states supra weber v commissioner t c pincite an alleged employer's control must necessarily be more tenuous and general than the control_over nonprofessional employees 25_tc_1296 we begin our analysis of the seven factors enumerated above with the control factor the record contains numerous illustrations of fbo's right to control petitioner and its actual control_over him petitioner's contract with fbo during the year under consideration stated that petitioner will be directly responsible to fbo in the performance of his duties under this contract while petitioner was permitted to hire and fire his staff and order substitutions of materials fbo did not permit him to deviate from the construction documents or exceed the budget further he was required to follow a project director's handbook fbo also controlled petitioner by dictating his hours pay and leave fbo required petitioner to work full time a minimum of hours a week petitioner's biweekly fbo salary was based on the foreign service schedule in addition to his salary fbo permitted petitioner to earn and accrue home_leave annual leave and sick leave petitioner also was required to maintain a daily log of the progress of the construction_project and submit both oral and written reports to fbo these monthly reports were not optional while petitioner had to pay for his own health insurance and did not accrue retirement benefits we do not believe such facts preclude a holding that petitioner was an fbo employee if petitioner failed to submit such reports fbo had the right to terminate his contract we are satisfied that petitioner was subject_to substantial control by fbo although petitioner worked for fbo in a professional capacity which would limit the amount of control fbo had over petitioner's day-to-day activities fbo dictated the contract documents and drawings budget hours and monthly reports with which petitioner was required to comply we therefore conclude that fbo had the right to exercise control_over petitioner and in fact exerted a substantial amount of control_over him see james v commissioner supra we now turn to the other factors with respect to the second factor petitioner had no investment in the work facilities rather fbo provided petitioner with office space and staff assistance see professional executive leasing v commissioner t c pincite fbo entered into contracts with petitioner's staff and paid their salaries as to the third factor petitioner had no opportunity for profit or loss the pay he received depended only upon the number petitioner argues that he was not an employee because he scheduled his own daily activities we believe that petitioner's ability to schedule his activities only demonstrates that in connection with professionals less supervision is necessary see 388_f2d_74 8th cir of days he worked the amount fbo paid petitioner was not dependent upon completion of the project as to the fourth factor while fbo had the right to discharge petitioner without cause with a 30-day notice petitioner also could terminate the contract as to the fifth factor fbo was in charge of constructing u s government buildings overseas petitioner's assignment in bogota during the year under consideration was to oversee the construction of an annex to the u s embassy this type of work was clearly within the scope of fbo's regular business as to the sixth factor we believe that the relationship between petitioner and fbo was intended to be somewhat permanent as opposed to transitory petitioner had been working solely for fbo since he was required to personally perform the services of project director designated in his contract with fbo he did not offer his services to the public and did not perform services for any individual or entity other than fbo as would an independent_contractor see jacobs v commissioner tcmemo_1993_570 casety v commissioner tcmemo_1993_410 gamal-eldin v commissioner tcmemo_1988_150 affd without published opinion 876_f2d_896 9th cir finally as to the seventh factor the type of relationship the parties intended to create when they signed various modifications to petitioner's contract is not clear however in date fbo provided petitioner with a form_w-2 and withheld social_security_tax from petitioner's income this in our opinion indicates that fbo intended to create an employer-employee relationship see eg juliard v commissioner tcmemo_1991_ further fbo policy and procedures directives in effect during the year under consideration provided that a personal services contractor is not eligible for the foreign_earned_income_exclusion and that overseas psc's treat the contractor as an fbo government employee for all purposes except retirement and petitioner was advised by the date fbo memorandum that he should designate himself as an fbo employee on his return after considering all the facts and circumstances present in this case we conclude that petitioner was an fbo employee in therefore petitioners are not entitled to the foreign_earned_income_exclusion under sec_911 for such year to reflect the foregoing and respondent's concession decision will be entered under rule


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 b01 plr-132818-06 date november ------------------------- ------------------------------------ ------------------------------------------- -------------------------------------------- legend x ------------------------------------------------- y ------------------------------------------------- z ------------------------------------------------- trust state dear ------------- this responds to a letter dated date submitted on behalf of x y and z by their authorized representatives requesting entity classification rulings under sec_7701 and sec_7704 of the internal_revenue_code the information submitted states that x is a life_insurance_company licensed in states and the district of columbia to provide various life_insurance products annuities mutual funds and other investment products y a wholly owned subsidiary of x is a life_insurance and annuity company that provides a variety of life_insurance products annuities and other investment products to individuals and businesses in all states and the district of columbia -------------------- plr-132818-06 trust is an open-end management investment_company organized under the laws of state the beneficial interests in trust’s property consist of transferable shares shares in multiple segregated portfolios of assets including portfolio z each with separate investments the portfolios support x’s and y’s variable_contracts shares of the portfolios may only be purchased by domestic life_insurance_companies either directly or through separate_accounts of such companies x has nine separate_accounts and y has four separate_accounts premiums received by x and y are allocated to their respective separate_accounts collectively the accounts of x and y own all of the shares of the portfolios and have the right to purchase additional shares or have shares redeemed at any time contract holders may specify in which separate_account the premium is to be invested the benefits x and y pay to the contract holder are determined by reference to the investment return associated with and the market_value of the relevant portfolio supporting the variable_contract however the benefits under the variable_contracts can vary significantly from the value of the shares in the portfolios especially where a contract holder dies before his or her life expectancy the contract holder is typically entitled to a minimum payment regardless of the portfolio’s performance typically a variable_contract cannot be redeemed within a specified period without a penalty nor sold at face value furthermore the shares in the portfolios are owned by the insurance_company issuing the variable_contract for federal_income_tax purposes the contract holder only has claims against the insurance_company issuing the variable_contract and not against the income gains losses or distributions of the portfolios each portfolio is currently a regulated_investment_company ric within the meaning of sec_851 z proposes to elect to be treated as a partnership z requests a ruling that it will be classified as a partnership and not a publicly_traded_partnership x and y make the following representations trust is a business_trust that has never held itself out to be a state law corporation each portfolio is currently a separate ric as defined in sec_851 z will have at least two members x and y investing through their separate_accounts and will elect to be treated as a partnership for federal tax purposes if shares are sold to other insurance_companies the shares will not be held by more than domestic life_insurance_companies if shares are sold to other insurance_companies the shares will only be issued to separate_accounts of domestic life_insurance_companies x and y are and will be treated as the owners of the shares in the portfolios for federal_income_tax purposes the assets of the separate_accounts will be adequately diversified within the meaning of sec_817 and sec_1_817-5 of the income_tax regulations allocations of taxable_income gain loss deductions and credits of the portfolios will be made in accordance with sec_704 and c and except as required by sec_704 plr-132818-06 each holder of a share will be allocated its share of each portfolio’s income or loss which will be composed of a proportionate share of each item of the portfolio’s income or loss public access to z is only available through the purchase of a variable_contract the shares are not and will not be traded on an established_securities_market the shares are not and will not be regularly quoted by any person such as a broker or dealer making a market in the shares no person regularly makes available and will not make available to the public including customers or subscribers bid or offer quotes with respect to the shares or stands ready or will stand ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others no holder of shares has or will have a readily available regular and ongoing opportunity to sell or exchange the shares through a public means of obtaining or providing information of offers to buy sell or exchange shares there is no plan or intention for the redemption of shares by z to be combined with the issuance of shares in z to a new partner partnership ruling sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes sec_301_7701-3 provides that unless it elects otherwise a domestic eligible_entity is classified as a partnership if it has two or more members x and y represent that z will have at least two members and will elect pursuant to sec_301_7701-3 to be classified as a partnership provided z ha sec_2 or more members and makes the entity classification election to be classified as a partnership z will be properly classified as a partnership for federal tax purposes publicly_traded_partnership ruling sec_7704 provides that except as provided in sec_7704 a publicly_traded_partnership will be treated as a corporation sec_7704 provides that the term publicly_traded_partnership means any partnership if interests in such partnership are traded on an established_securities_market and interests in such partnership are readily_tradable on a secondary market or the substantial equivalent thereof sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 an interest in a partnership includes a any interest in the capital or profits of the partnership including the right to partnership_distributions and b any financial plr-132818-06 instrument or contract the value of which is determined in whole or in part by reference to the partnership including the amount of partnership_distributions the value of partnership assets or the results of partnership operations sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 a transfer of an interest in a partnership means a transfer in any form including a redemption by the partnership or the entering into of a financial_instrument or contract described in sec_1_7704-1 sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 interests in a partnership that are not traded on an established_securities_market within the meaning of sec_7704 and sec_1_7704-1 are readily_tradable on a secondary market or the substantial equivalent thereof if taking into account all of the facts and circumstances the partners are readily able to buy sell or exchange their partnership interests in a manner that is comparable economically to trading on an established_securities_market sec_1_7704-1 provides that for purposes of sec_1_7704-1 interests in a partnership are readily_tradable on a secondary market or the substantial equivalent thereof if i interests in the partnership are regularly quoted by any person such as a broker or dealer making a market in the interests ii any person regularly makes available to the public including customers or subscribers bid or offer quotes with respect to interests in the partnership and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others iii the holder of an interest in the partnership has a readily available regular and ongoing opportunity to sell or exchange the interest through a public means of obtaining or providing information of offers to buy sell or exchange interests in the partnership or iv prospective buyers and sellers otherwise have the opportunity to buy sell or exchange interests in the partnership in a time frame and with the regularity and continuity that is comparable to that described in the other provisions of sec_1_7704-1 sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 interests in a partnership are not traded on an established_securities_market within the meaning of sec_1_7704-1 and are not readily_tradable on a secondary market or the substantial equivalent thereof within the meaning of sec_1_7704-1 even if interests in the partnership are traded or readily_tradable in a manner described in sec_1_7704-1 or c unless the partnership participates in the establishment of the market or the inclusion of its interests thereon or the partnership recognizes any transfers made on the market by i redeeming the transferor partner in the case of a redemption or repurchase by the partnership or ii admitting the transferee as a partner or otherwise recognizing any rights of the transferee such as a right of the transferee to receive partnership_distributions directly or indirectly or to acquire an interest in the capital or profits of the partnership plr-132818-06 the shares sold by x to the segregated_asset accounts of other insurance_companies are interests in the capital or profits of the portfolios therefore the shares are partnership interests for purposes of sec_7704 see sec_1_7704-1 the sale of shares to the segregated_asset accounts of other insurance_companies does not fall within the definition of trading on an established_securities_market as defined in sec_7704 and sec_1_7704-1 additionally shares may only be sold to the segregated_asset accounts of other insurance_companies and i are not regularly quoted by any person such as a broker or dealer making a market in the interests ii no person regularly makes available to the public including customers or subscribers bid or offer quotes with respect to the shares and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others iii the unit holder does not have a readily available regular and ongoing opportunity to sell or exchange the interest through a public means of obtaining or providing information of offers to buy sell or exchange interests in the partnership or iv prospective buyers and sellers do not otherwise have the opportunity to buy sell or exchange shares in a time frame and with the regularity and continuity that is comparable to that described in the other provisions of sec_1_7704-1 the shares are not traded on an established_securities_market and the shares are not readily_tradable on a secondary market or substantial equivalent thereof therefore based solely on the information submitted and the representations made we conclude that after z elects to be classified as a partnership z will not be a publicly_traded_partnership except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision 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 plr-132818-06 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to z’s authorized representatives sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------- -------------------------- ----------------------------------------- ---------------------------------------- ----------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ---------------- telephone number ------------------ refer reply to cc corp plr-110086-14 date date legend parent ---------------------------------------------------------- ---------------------------------------- date date date date x company official ---------- ------------------ ------------------ --------------------- -- -------------------------------------------------------------------------------- ------------------------------------------------------------------------------ -------------------------------------------------------------------------------- tax professional -------------------------------------------------------- dear ------------ this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular parent is requesting an extension of time for the consolidated_group of which parent is the common parent to elect an extended carryback period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration is summarized below parent is the common parent of a consolidated_group the parent group that uses a fiscal_year ending date as its taxable_year parent group incurred a cnol for its plr-110086-14 taxable_year ending date the year cnol parent seeks to carry back the year cnol x years to its taxable_year ending on date under sec_172 of the internal_revenue_code parent was required to file the election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on date but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election parent has represented that it is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 sec_172 generally permits a taxpayer to carry back a net_operating_loss nol to each of the taxable years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back an applicable net_operating_loss applicable nol to each of the or taxable years preceding the taxable_year of the applicable nol in lieu of the 2-year period provided by sec_172 sec_172 provides that an applicable nol is the taxpayer's nol for a taxable_year ending after date and beginning before date sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected and adjusted in such manner as clearly to reflect the income_tax_liability and the various factors necessary for the determination of such liability and in order to prevent avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns sec_1_1502-21 of the income_tax regulations provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 sec_1_1502-21 provides that nol carryovers and carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1_1502-21 plr-110086-14 sec_1_1502-21t provides that a consolidated_group may elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 corporation application_for tentative refund sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 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 relief will not prejudice the interests of the government sec_301_9100-3 the election by a consolidated_group to extend the carryback period under sec_172 for a cnol is a regulatory election therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent establishes to the satisfaction of the commissioner that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v plr-110086-14 based on the facts and information submitted including the affidavits submitted and the representations made we conclude that parent has shown it acted reasonably and in good_faith that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and that granting relief will not prejudice the interests of the government accordingly provided that and to the extent that the parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for parent to file the election this letter does not extend the period of time described in sec_6511 by which a taxpayer is required to file a claim for credit or refund of an overpayment_of_tax parent may file the election under sec_172 to carry back the year cnol to its taxable_year ending on date on form 1120x amended u s_corporation income_tax return for the taxable_year ending either date or date according to the procedures set forth in revproc_2009_52 a copy of this letter must be attached to the form 1120x if parent files form 1120x electronically parent may satisfy the requirement of attaching a copy of this letter by attaching a statement to the parent group’s amended_return that provides the date and control number plr-110086-14 of this letter_ruling the above extension of time is conditioned on the parent group’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money we express no opinion as to the parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether parent qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by parent company official and tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable continue to apply this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-110086-14 pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely ken cohen acting chief branch office of associate chief_counsel corporate cc