internal_revenue_service number release date index number ----------------------------- -------------------------- -------------------------------- in re ----------------------------- ------------------------ legend taxpayer trust date a corporation foundation fund state case case 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-127646-05 date april ------------------------------------------------------ ------------------------------------------------------------------ ---------------------------------- -------------------------- --------- -------------------------------------------- ----------------------------------------------------------------- ------------------------------------------------- ----------- ------------------------------------------------------------------ ---------------------- ------------------------------------------------------------------ --------------------- -- this is in response to your date letter and other correspondence x dear ----------------- concerning the gift and income_tax consequences of taxpayer’s proposed renunciation of her unitrust_interest in trust and irrevocable designation of the charitable_beneficiary or beneficiaries in trust trust a charitable_remainder_unitrust crut on date trust was funded with a shares of corporation common_stock the trustees of trust are taxpayer’s three daughters trustees shall pay taxpayer during her life a unitrust_amount equal to the lesser_of a_trust income for the taxable_year as defined in sec_643 and b x percent of the the facts and representations are summarized as follows taxpayer established paragraph first of trust provides that in each taxable_year of trust the plr-127646-05 net fair_market_value of the assets of trust valued as of the first day of each taxable_year of trust the unitrust_amount for any year shall also include any amount of trust income for such year that is in excess of the amount required to be distributed under b above to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as x percent of the net fair_market_value of trust assets on the valuation dates paragraph first provides that upon the death of taxpayer the trustees shall distribute all of the then principal and income of trust other than any amount due the taxpayer or the taxpayer’s estate under the provisions above to such one or more organizations described in sec_170 sec_2055 and sec_2522 in such proportions or amounts as taxpayer shall at any time and from time to time designate a by written instrument duly executed and acknowledged and delivered to the trustees during taxpayer’s lifetime or b by taxpayer’s will the designation made by taxpayer’s will or if no such designation is made then the last such designation so delivered during taxpayer’s lifetime shall govern if any organization s named in the governing designation is not an organization described in sec_170 sec_2055 and sec_2522 at the time when any principal or income of trust is to be distributed to it then the trustees shall distribute such principal and income to the remaining one or more organizations which are described in sec_170 sec_2055 and sec_2522 if any proportionately but if none of such organizations is an organization described in sec_170 sec_2055 and sec_2522 at the time when any principal or income of trust is to be distributed to it or if no designation is made then the trustees shall distribute such principal and income to foundation a state not-for-profit corporation to be added to fund if a distribution to foundation as above provided would not qualify under sec_170 sec_2055 and sec_2522 at the time when any principal or income of trust is to be distributed then the trustees shall distribute such principal and income to such one or more organizations described in sec_170 sec_2055 and sec_2522 as the trustees shall select in their sole discretion paragraph first provides that the operation of trust is to be governed by the laws of state it is represented that at the time trust was created taxpayer had no intention to divide the unitrust and remainder interests as a method to avoid the partial interest rules of sec_170 under state law if taxpayer renounces her interests in trust the renunciation will accelerate the remainder_interest see case and taxpayer proposes to renounce her interests in trust ie her right to receive any future unitrust distributions of income and or principal from trust and her right to make further charitable_beneficiary designations and then taxpayer will irrevocably designate one or more charitable organizations described in sec_170 sec_2055 plr-127646-05 and a as the remainder beneficiary or beneficiaries of trust irrevocable renunciation and designation taxpayer and her daughters as trustees of trust will file an action with the probate_court having jurisdiction over trust requesting that the court rule that taxpayer has the right to renounce her unitrust_interest in trust and that as a result of the renunciation the remainder_interest will be accelerated and all principal and income remaining in trust at the time of the renunciation other than the final prorated unitrust_amount that is due and payable to taxpayer will be immediately payable to the charitable organizations irrevocably designated by taxpayer as the remainder beneficiary or beneficiaries you have requested the following rulings taxpayer will be entitled to a gift_tax deduction under sec_2522 for the value of her unitrust_interest and the remainder_interest in trust transferred as a result of her execution of the irrevocable renunciation and designation taxpayer will be entitled to an income_tax deduction under sec_170 for the value of her unitrust_interest in trust transferred as a result of her execution of the irrevocable renunciation and designation law and analysis sec_170 of the internal_revenue_code allows as an income_tax sec_170 provides that no charitable_contribution_deduction is allowed ruling sec_1 and deduction any contribution or gift to or for_the_use_of organizations described in sec_170 payment of which is made within the taxable_year for the value of any interest in property other than a remainder_interest transferred in trust unless the interest is in the form of a guaranteed annuity or a fixed percentage distributed annually of the fair_market_value of the trust property determined annually and the grantor is treated as the owner of the interest for purposes of applying sec_671 relating to grantor trusts sec_170 provides that a contribution not made by a transfer in trust of less than the taxpayer's entire_interest in such property is not allowed as a charitable_contribution_deduction except to the extent that the value of the interest contributed would be allowable as a deduction had such interest been transferred in trust sec_1_170a-6 and sec_1_170a-7 of the income_tax regulations provide that a deduction is allowed for a contribution of a partial interest in property if sec_1_170a-1 provides that if a charitable_contribution is made in plr-127646-05 such interest is the taxpayer's entire_interest in the property such as an income_interest or a remainder_interest if however the property in which such partial interest exists was divided in order to create such interest and thus avoid sec_170 and f a the deduction is not allowed property other than money the amount of the contribution is generally the fair_market_value of the property at the time of the contribution charitable purposes is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible by gift during such calendar_year by any individual sec_2501 imposes a tax for each calendar_year on the transfer of property sec_1_170a-1 provides that if as of the date of the gift a transfer for sec_2511 provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides in part that a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard thus a gift would be incomplete to the extent the donor retains the power to designate the beneficiaries of the gift even if the power retained is limited to designating charitable beneficiaries see eg revrul_77_275 1977_2_cb_346 sec_25_2511-2 provides in part that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by the death of the donor the statute being confined to transfers by living donors is regarded as the event that completes the gift and causes the tax to apply sec_2522 provides that in computing taxable_gifts for the calendar_year there shall be allowed as a deduction the amount of all gifts made during such year to or for_the_use_of a corporation or trust or community chest fund or foundation organized and operated exclusively for religious charitable scientific literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_2522 provides that where a donor transfers an interest in property other than an interest described in sec_170 to a person or for a use plr-127646-05 described in sec_2522 or b and an interest in the same property is retained by the donor or is transferred or has been transferred for less than an adequate_and_full_consideration in money_or_money's_worth from the donor to a person or for a use not described in sec_2522 or b no deduction shall be allowed under this section for the interest which is or has been transferred unless-- a in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly situation of revrul_86_60 1986_1_cb_302 considers whether a transfer to charity by the grantor a of a charitable_remainder_annuity_trust of a’s entire retained annuity interest qualifies for the gift_tax_charitable_deduction following the transfer a did not retain any interest in the trust and neither at that time nor at any prior time did a make a transfer from the trust for private purposes although the transfer of the remainder_interest to charity divided a’s prior interest that transfer was for charitable not private purposes consequently a’s transfer of the annuity interest to charity was not required to be in a form described in sec_2522 and sec_25_2522_c_-3 in order to qualify for the charitable deduction accordingly a’s transfer of a’s annuity interest to charity qualifies for a deduction under sec_2522 further a’s transfer qualifies for an income_tax charitable deduction under sec_170 because although a had previously divided the interest a held in the property the division was not to avoid sec_170 thus under sec_1_170a-7 a’s transfer of a’s entire life_annuity interest qualifies for an income_tax deduction under sec_170 on date taxpayer established trust a charitable_remainder_unitrust taxpayer is the beneficiary of the unitrust_interest because taxpayer retained the right to designate the charitable_remainder beneficiary or beneficiaries of trust the taxpayer did not make a completed_gift to charity of the remainder_interest for gift_tax purposes at the time trust was created under the proposed transaction taxpayer will renounce her unitrust interst in trust then taxpayer will irrevocable designate a charity or charities as the remainder beneficiary or beneficiaries when taxpayer designates the charitable_remainder beneficiary the taxpayer’s gift will become complete for gift_tax purposes and the charity or charities designated will receive the entire_interest in trust outright as in situation of revrul_86_60 taxpayer will donate her entire_interest in trust to charity and following the transfer taxpayer will not retain any interest in trust accordingly we rule that taxpayer will entitled to a gift_tax deduction under sec_2522 for the value of taxpayer’s unitrust_interest and the remainder_interest in trust and taxpayer will be entitled to an income_tax deduction under sec_170 for the value of taxpayer’s unitrust_interest in trust plr-127646-05 in accordance with the power_of_attorney on file with this office a copy of this except as expressly provided herein no opinion is expressed or implied the rulings contained in this letter are based upon information and letter is being sent to your authorized representatives concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer s requesting it sec_6110 sincerely _________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosure copy of letter for sec_6110 purposes


t c memo united_states tax_court richard r pelham and paula a pelham petitioners v commissioner of internal revenue respondent rrp trust richard r pelham trustee petitioner v commissioner of internal revenue respondent docket nos filed date w mcnab miller iii for petitioners w lance stodghill for respondent memorandum findings_of_fact and opinion cohen judge respondent determined deficiencies in petitioners’ federal income taxes and accuracy-related_penalties under sec_6662 as follows richard r and paula a pelham docket no penalty year deficiency sec_6662 a dollar_figure dollar_figure big_number big_number rrp trust richard r pelham trustee docket no penalty year deficiency sec_6662 a dollar_figure dollar_figure big_number big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions by the parties the issue remaining for decision is whether petitioner rrp trust the trust should be disregarded for federal_income_tax purposes and the income and expense from the business operations of lake lock key attributed to petitioners richard r pelham and paula a pelham the pelhams findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference richard r pelham richard pelham and paula a pelham paula pelham husband and wife resided in humble texas at the time they filed their petition the principal address of the trust was humble texas at the time of filing its petition prior to the establishment of the trust richard pelham owned and operated lake lock key as a sole_proprietorship lake lock key was engaged in the sale repair and maintenance of locks and keys for homes and motor vehicles including selling locks and keys installing and repairing locks for homes and motor vehicles opening and repairing broken locks and those with missing keys and making replacement keys as a sole_proprietorship all of the equipment was owned or provided by richard pelham individually the trust was established upon the suggestion of the pelhams’ accountant the pelhams then consulted with a tax attorney to whom they paid dollar_figure to draft the trust document edwina hamilton hamilton the adult daughter of the pelhams was involved in the trust arrangement and on date hamilton as donor and richard pelham as trustee executed the trust agreement the trust designated richard pelham as both the trustee and beneficiary of the trust paula pelham was named as the successor trustee under the terms of the trust the beneficiary while serving as trustee had the power to appoint cotrustees and successor trustees the trust was initially funded with dollar_figure from hamilton and upon the request of richard pelham hamilton wrote a check for q4e- dollar_figure dated date that was deposited into the trust bank account the trust agreement provided that any other person could add property acceptable to the trustee richard pelham operated the lock and key business under the assumed name lake lock key until date when he filed a withdrawal notice of assumed name certificate stating that the trust would be conducting business under the name lake lock key the operations of the lock and key business did not change after the business was transferred to the trust as trustee richard pelham performed the same duties for lake lock key that he performed before the creation of the trust lake lock key used the same work order invoices lake lock key used the same taxpayer_identification_number for the filing of sales_tax returns to the state of texas and for the filing of state unemployment tax returns both before and after richard pelham began operating the business through the trust richard pelham worked for lake lock key both before and after the establishment of the trust after the establishment of the trust richard pelham both individually and as trustee entered into a signed employment contract dated date in that contract richard pelham agreed to provide his services as a chief residential and commercial lock and key service technician in exchange for a salary of dollar_figure annually - - richard pelham received a form_w-2 wage and tax statement for from the trust in the amount of dollar_figure and for from the trust in the amount of dollar_figure the ownership of the business bank account was transferred from richard pelham individually to the trust in date richard pelham paid personal expenses out of the trust bank account the pelhams reported the income and expenses of lake lock key from january to date on schedule c profit or loss from business of their jointly filed form_1040 u s individual_income_tax_return subsequent to date the trust reported the income and expenses of lake lock key on schedule c of its form_1041 u s income_tax return for estates and trusts the trust reported no taxable_income in either or because its net_income from the lock and key business operations was deducted as an income distribution_deduction and reported as such on a schedule_k-1 beneficiary’s share of income deductions credits etc to richard pelham as the beneficiary richard pelham reported the income distribution from the trust on schedule eh supplemental income and loss part iii income or loss from kstate and trusts of the pelhams’ jointly filed federal individual_income_tax_return richard pelham owned the equipment used in the lock and key business_lease payments in the amount of dollar_figure per year were - - reported as income by the pelhams on schedule c of their jointly filed form_1040 and were claimed as an expense on the trust’s schedule c of its form_1041 no lease agreement was executed no payments were made by the trust to richard pelham for use of the equipment but the trust did make the payments on the truck owned by richard pelham the handling of the equipment lease transaction and of reporting for tax purposes was done by the pelhams’ tax preparer opinion respondent’s position is that the trust lacks economic_substance and should be disregarded for federal_income_tax purposes respondent maintains that richard pelham created a mere paper entity the trust and transferred the business operations of his sole_proprietorship lake lock key to the trust for the purpose of avoiding self-employment_tax under sec_1402 petitioners argue that the trust should be treated as a separate_entity because the trust is a valid trust under state law a business may lawfully change from one form of entity to another provided that the legal requirements are met and the trustee of the trust may operate a sole_proprietorship business within the trust entity petitioners claim that the income and expenses of lake lock key were properly reported for federal_income_tax purposes because the - net_income from the trust was reported as an income distribution on a schedule_k-1 to richard pelham and accordingly was reflected on the pelhams’ schedule e of their jointly filed federal individual_income_tax_return taxpayers are entitled to structure their transactions to minimize their tax obligations 293_us_465 however transactions that have no significant purpose other than to avoid tax and that do not reflect economic reality will not be recognized for federal_income_tax purposes 79_tc_714 affd 731_f2d_1417 9th cir 73_tc_1235 see also 45_tc_360 affd 381_f2d_22 5th cir where the form of a transaction has not altered any cognizable economic relationships we look through the form of the transaction and apply the tax law according to the transaction’s substance markosian v commissioner supra pincite this principle applies regardless of whether the transaction creates an entity with separate existence under state law dzamuda v commissioner supra pincite see also furman v commissioner supra pincite in deciding whether a purported trust lacks economic_substance we consider the following factors whether the taxpayer’s relationship as grantor to property purportedly transferred into trust differed materially before and after the --- - trust’s formation whether the trust had a bona_fide independent_trustee whether an economic_interest in the trust passed to trust beneficiaries other than the grantor and whether the taxpayer honored restrictions imposed by the trust or by the law of trusts see markosian v commissioner supra pincite5 respondent argues that richard pelham was effectively the grantor of the trust because he arranged and paid for the establishment of the trust and effectively transferred his locksmith business to the trust respondent relies on zmuda v commissioner supra pincite and does not rely on the grantor_trust provisions under sec_671 to petitioners assert that hamilton was the settlor of the trust because she is named as the donor in the trust document and she funded the trust with dollar_figure richard pelham claims that he did not transfer assets not even personal assets to the trust because he leased the business equipment to the trust however richard pelham testified that he had not signed the purported lease and no payments were made by the trust to him for use of the equipment rather the trust made the payments on the truck owned by richard pelham in determining the settlors of a_trust we look beyond the named grantors to the economic realities to determine the true grantor id hamilton was a straw_man who acted only in form --- - as the grantor of the trust hamilton’s involvement was a mere formality she signed the trust document and funded the trust with a nominal amount considering the economic realities the true grantor of the trust was richard pelham richard pelham upon the advice of his tax preparer consulted with an attorney who drafted the trust documents and richard pelham paid dollar_figure for the trust package and asked his daughter to write a check for dollar_figure to the trust richard pelham also transferred intangible assets to the trust such as the business name and the ongoing business operations of lake lock key the business was operated in substantially the same manner both before and after the trust was created the business and its activities continued under the same name used the same work order invoices used the same taxpayer_identification_number for filing its state unemployment tax_return and sales_tax return with the state of texas and used the same business equipment after the establishment of the trust richard pelham continued to manage and work for the business the trust did not have an independent_trustee richard pelham had control_over the trust activities and trust assets richard pelham was named as the sole trustee of the trust and he had exclusive control_over the trust and the business operations richard pelham paid the personal expenses of the pelhams from the trust bank account additionally paula pelham was named as -- - successor trustee under the terms of the trust the trustee had the power to appoint successor trustees and cotrustees petitioners assert that the personal expenses that were paid from the trust bank account were accounted for as a distribution and that only the legitimate business_expenses were deducted even so richard pelham had the ability to control fully the trust’s activities and trust assets for his own benefit because no independent_trustee had any meaningful control_over the management of the trust no one other than richard pelham held any meaningful economic_interest in the trust because under the terms of the trust agreement richard pelham was the named beneficiary of the income and principal of the trust petitioners argue that richard pelham achieved benefits from operating the sole_proprietorship within a_trust and not forming a corporation because the trust could avoid the state franchise tax imposed on the profits of a corporation which would have been approximately dollar_figure the trust would not have to pay the state incorporation filing fee of dollar_figure and the trust did not have to maintain corporate formalities such as shareholder minutes petitioners’ argument that a_trust had advantages over a corporation misses the point the incorporation alternative is not an issue here petitioners chose the form of a_trust and are responsible for the consequences of their decision those consequences are not the same as corporate form the u s supreme court has observed repeatedly while a taxpayer is free to organize his affairs as he chooses nevertheless once having done so he must accept the tax consequences of his choice whether contemplated or not and may not enjoy the benefit of some other route he might have chosen to follow but did not 417_us_134 citations omitted richard pelham testified at trial about his decision to use a_trust entity to operate his sole_proprietorship q and how was it decided that you wanted to start operating lake lock key through the trust a just for the retirement reason q which retirement reason are we talking about a about saving that money for ten years and letting it build up and the life_insurance_policy otherwise i’m--maybe tax reasons i guess because i was--i just turned--i went on social_security and i was allowed to make like dollar_figure a month that’s what i understood that i wouldn’t have to pay like--i’d have to pay taxes on income from the business but not social_security after dollar_figure q mr pelham if everything stayed the same what was the purpose of forming the trust a my retirement money that i had to invest every month and to my knowledge not--just being a layman on the tax part only paying tax on the income and not social_security like for instance if i made let’s say big_number in a year i only had to pay social_security on that big_number that i paid myself but let’s say the other balance of the big_number i had to pay income_tax on but not social_security_tax that was my understanding i guess what you’d say is for tax reasons based on richard pelham’s testimony and the totality of the evidence we conclude that the primary purpose of establishing the trust was to avoid employment_tax the trust lacked independent economic_substance richard pelham was in substance the grantor of the trust thus the income and expenses from the operations of lake lock key during the years in issue are attributable to the pelhams and not to the trust the pelhams are liable for self-employment taxes on the net_income of lake lock key for the years in issue to reflect the foregoing and concessions of the parties decisions will be entered under rule


internal_revenue_service number release date index numbers ---------------------------------- -------------------------- -------------------------------------------------- --------------------------------------- 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 b3 plr-145162-08 date march x --------------------------------------------------------------------------------------------------- ------------------------ legend legend country ---------------- date -------------------------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity under sec_301_7701-3 facts x was formed under the laws of country on date x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x intended to be classified as a disregarded_entity effective date however due to inadvertence form_8832 entity classification election was not timely filed law sec_301_7701-3 provides in part 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 as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a plr-145162-08 partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer plr-145162-08 acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination sincerely s curtis g wilson associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c summary opinion united_states tax_court thomas h ploss petitioner v commissioner of internal revenue respondent docket no 1217-01s filed date thomas h ploss pro_se david s weiner for respondent dinan special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subseguent section references are to the internal_revenue_code in - - effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the taxable_year the issue for decision is whether petitioner must include certain retirement annuity payments in gross_income ’ some of the facts have been stipulated and are so found the stipulations of fact and the attached exhibits are incorporated herein by this reference petitioner resided in wilmette illinois on the date the petition was filed in this case petitioner is an attorney and administrative law judge he was employed by the chicago milwaukee st paul and pacific railroad company milwaukee road from until when his employment was terminated due to the company’s bankruptcy asa result of his employment at milwaukee road petitioner became vested in benefits in the form of an annuity payable upon retirement after petitioner’s employment was terminated in ‘respondent also determined that petitioner received unreported tier railroad retirement benefits which for federal tax purposes are treated in the same manner as social_security_benefits sec_86 the parties agree that petitioner received dollar_figure of such benefits in and that they were reported on petitioner’s tax_return but that they were reported as pension or annuity income rather than as social_security_benefits the portion of these benefits which is correctly includable in gross_income pursuant to sec_86 is computational and will be determined by our holding on the issue in this case milwaukee road was merged into the soo line railroad company soo line and the soo line pension_plan became the successor of the milwaukee road pension_plan in petitioner applied for retirement benefits in the form of an annuity from the soo line pension_plan and in the year in issue petitioner received dollar_figure in benefits therefrom on his federal_income_tax return petitioner did not report any of the benefits received from the soo line pension fund in the statutory_notice_of_deficiency respondent determined that petitioner had unreported pension or annuity income gross_income generally includes income from whatever source derived including income from pensions and annuities sec_61 sec_72 however gross_income does not include that part of any amount_received_as_an_annuity under an annuity_contract which bears the same ratio to such amount as the investment_in_the_contract bears to the expected_return under the contract sec_72 see also sec_72 petitioner argues that no portion of the pension distributions he received in should be taxable because the benefits were funded by contributions made by deductions from the notice_of_deficiency states in one instance that the total pension and annuity income received by petitioner in was dollar_figure and then states in another instance that it was dollar_figure we accept the parties’ stipulation that petitioner received total distributions of dollar_figure q4e- previously taxed earnings_of petitioner petitioner however provides no evidence to support this assertion other than language used by milwaukee road in a document to the effect that petitioner had vested in certain pension benefits petitioner argues that the use of the term vested implies that he made contributions to the plan however the use of this term carries no such implication see eg sec_411 minimum vesting requirements for contributions made by an employer on behalf of an employee under a qualified_plan petitioner asserts that because the alleged contributions to the retirement_plan were made with funds which had already been taxed none of the benefits he now receives from the retirement_plan should be subject_to further taxation however petitioner cites and we find no authority for this proposition assuming arguendo that petitioner in fact made contributions to the pension_plan petitioner may have been entitled to exclude that portion of the benefits he received which represents a ratable portion of his investment in the pension annuity sec_72 d the excluded amount typically would have been a portion of the benefits he received in any given year and not as petitioner argues the entire amount of the benefits id however petitioner has provided no evidence supporting his assertion that he made any contributions and we accordingly have - no way of determining his investment if any in the annuity consequently the full amount of the pension benefits is includable in his income sec 6l a sec_72 reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered under rule sec_7491 does not shift the burden_of_proof to respondent in this case because petitioner has provided no credible_evidence with respect to his investment in the annuity sec_7491


internal_revenue_service department of the treasury index number washington dc number release date x a d1 d2 person to contact telephone number refer reply to cc dom p si - plr-118629-98 date date year dear this letter responds to the letter dated date and subsequent correspondence submitted by x’s authorized representative on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d2 a x’s president represents that x was intended to be treated as an s_corporation effective for year x’s first taxable_year a represents that a form_2553 election by a small_business_corporation effective for d1 was prepared and timely mailed however the internal_revenue_service has no record of the filing of a form_2553 for x for year and all subsequent years x has filed form_1120s u s income_tax return for an s_corporation and a has filed form_1040 u s individual tax_return consistent with x being an s_corporation sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year mr wall -2- -2- within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 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 code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to x’s authorized representative sincerely yours j thomas hines senior technician reviewer branch office of the assistant 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 b04 plr-110170-13 date date legend parent sub sub sub llc ----------------------------- ------------------------- ---------------------------------- ------------------------------------------------------- ------------------------- ---------------------------------- ------------------------------------ ------------------------ ------------------------------------------- --------------------------------------------- ------------------------- ------------------------------------------- -------------------------- ------------------------- ------------------------------------------------ llc ---------------------- ------------------------- ------------------------------------------------- date ------------------- plr-110170-13 date date date date ------------------- --------------------- ------------------------ --------------------------- tax professional ----------------------------------------- ---------------------------- company official ----------------------------------------------------- ----------------------------- 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 the extension is being requested for the parent sub sub and sub the parent group to make an election to file their first consolidated federal_income_tax return with parent as the common parent under sec_1_1502-75 hereinafter referred to as election effective for the taxable_year ending date the information provided in that letter and in later correspondence is summarized below as of date pursuant to a series of transactions on date date date and date parent owned all of the outstanding_stock of sub sub and sub all includible corporations within the meaning of sec_1504 of the internal_revenue_code and all of the equity interests in llc and llc entities disregarded as separate from their owner for federal tax purposes prior to the taxable_year ending date the parent group did not file a consolidated federal_income_tax return an election to file a consolidated_return for the taxable_year ending date was due by the due_date of parent’s return including extensions but for various reasons a valid election was not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for parent’s sub 1’s sub 2’s or sub 3’s taxable_year ending date or any subsequent taxable_year 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 at the time parent requested relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 and for which the new return position requires or permits a regulatory election for which relief is requested plr-110170-13 sec_1_1502-75 provides that a group which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for filing the common parent’s return under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish 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 information 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 make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown 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 accordingly provided parent group qualifies substantively to file a consolidated_return for the applicable_taxable_year an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file the election by filing a consolidated_return with parent as the common parent and attaching a form_1122 for each of sub sub and sub for the taxable_year ending date the above extension of time is conditioned on the parent group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayer’s tax_liability for the years plr-110170-13 involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion with respect to whether parent group qualifies substantively to file a consolidated_return in addition we express no opinion as to the tax effects or consequences of filing the return or election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayer and its representatives however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply 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 pursuant to the power_of_attorney on file in this office copies of this letter are being sent to your authorized representatives sincerely ________________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


id uilc cca_2013032115421301 number release date from sent thursday date pm to cc bcc subject re tefra question - you may not be characterizing the fsa correctly if the non-partner spouse's partnership items converted due to the settlement of the other spouse then the non-partner spouse is not entitled to consistent settlement of partnership items because the items are no longer partnership items for the requesting non-partner spouse see sec_301 c - b ii items must be partnership items of the requesting partner if the items did not convert under the dubin and calloway analysis which has been adopted by sec_301_6231_a_12_-1 then the non-settling spouse would be entitled to request consistent settlement of partnership items assuming all other criteria are met other than the above conversion issue continuing marital status should not affect consistent settlement rights


internal_revenue_service number release date index number ---------------------------- ----------------------- ----------------------------- in re ---------------------------- - department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - plr-100779-04 date date ---------------------------------- legend x ------------------------------------------------- date dear ---------------- ------------------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting relief under ' b of the internal_revenue_code facts x was formed on date the shareholders of x desired that x elect s_corporation treatment effective on date but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under ' b however if an s election is made after the first two and one-half months of plr-100779-04 a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no ' a election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and ' b shall not apply x did not file an election to be treated as an s_corporation under ' a x has however established reasonable_cause for not making a timely s election and is entitled to relief under ' b conclusion except as expressly provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer s requesting it sec_6110 of based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 effective date with a copy of this letter attached to the relevant service_center concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the code provides that it may not be used or cited as precedent letter is being sent to your taxpayer representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this the rulings contained in this letter are based upon information and sincerely dianna miosi branch chief office of the associate chief_counsel passthroughs special industries


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date ------------------------------------- conex-123402-09 number info release date uil the honorable tammy baldwin member u s house of representatives east doty street suite madison wi attention ---------------------- dear congresswoman baldwin this letter responds to your enquiry dated date requesting information about the first-time_homebuyer credit submitted on behalf of one of your constituents specifically you asked whether the constituent can take the first-time_homebuyer credit for the purchase of a residence from her husband’s parents her in-laws we understand that the internal_revenue_service irs has previously informed your constituent that she can not take the credit because of her relationship to the seller generally sec_36 of the internal_revenue_code code provides for a refundable_credit to first-time homebuyers for the purchase of a principal_residence a first-time_homebuyer is an individual who has not had an ownership_interest in a principal_residence at any time during the three year period before the date of the purchase of the residence if married both spouses must be first-time homebuyers as of the date of the purchase for residences purchased in the amount of the credit is ten percent of the purchase_price of the residence up to a maximum credit of dollar_figure to qualify for the credit the taxpayer cannot acquire the residence by gift but must purchase the residence in a bona_fide sale see sec_36 of the code also the taxpayer cannot acquire the residence from a related_person see sec_36 for purposes of the first-time_homebuyer credit family members treated as related_persons include only the taxpayer’s spouse ancestors and lineal_descendants the law does not list a person related through marriage for example in- laws as a related_person see sec_36 and sec_267 conex-123402-09 you state that your constituent and her husband purchased the residence from her husband’s parents although her husband cannot take the credit because he acquired his interest from his parents related_persons she is not prohibited from taking the credit because in-laws are not related_persons for purposes of the first-time_homebuyer credit we regret any inconvenience caused by the irs’s prior incorrect information i hope this information is helpful if you have any questions on the first-time_homebuyer credit please contact -----------------------------at --------------------- sincerely michael j montemurro chief branch office of associate chief_counsel income_tax accounting


department of the treasury internal_revenue_service te_ge eo examination fulton street room breekiyn ny tax exempt and government entities ee date may release number xx date address address a pate org organization name vil foe or address dear taxpayer_identification_number identification_number contact telephone number last date for filing a pleading with the tax_court the claims_court or the united_states district_court for the district of columbia august 20xx this is a final_determination regarding your exempt status under sec_501 of the internal_revenue_code irc recognition of your exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 is retroactively revoked to july 20xx because it is determined that you have not established that you are observing the conditions required for the continuation of an exempt status sec_501 exempts from taxation organizations which are organized and operated exclusively for charitable or educational_purposes no part of the net_earnings of which inure to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which do not participate in or intervene in any political campaign on behalf of or in opposition to any candidate for public_office sec_6033 provides that every organization except as provided therein exempt from taxation under sec_501 of the code shall file an annual return stating specifically the items of gross_income receipts and disbursements and shall keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary_of_the_treasury or_his_delegate may from time to time prescribe revrul_59_95 1959_1_cb_627 held that failure or inability to file the required information_return or otherwise to comply with the provision of sec_6033 of the code and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of an exempt status in accordance with sec_6033 and revrul_59_95 we have determined that the organization has not established that it is observing the conditions required for continuation of exempt status you have failed to produce documents to establish you are operating exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 and that no part of your net_earnings inure to the benefit of private shareholders or individuals also you have failed to keep adequate books_and_records as required by internal_revenue_code sec_6001 and the regulations thereunder we are revoking your exemption from federal_income_tax as an organization described in sec_501 of the internal_revenue_code effective july 20xx contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for all years beginning july 20xx processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must file a pleading seeking a declaratory_judgment in the united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia before the day after the date this final_determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing pleadings for declaratory judgments and refer to the enclosed publication you may write to these courts at the following addresses you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours marsha a ramirez director eo examinations enclosure publication form 886-a name of taxpayer explanation of items year period ended schedule no or exhibit org 20xx06 legend org organization name issue whether org org qualifies for exemption under sec_501 c of the internal_revenue_code date xx exhibit a provides copies of the internal_revenue_service correspondence facts requesting org file the form_990 for the tax period ending june 20xx or to respond to the internal_revenue_service correspondence as to why they are not filing law sec_6001 of the code provides that every person liable for any_tax imposed by the code or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 of the code provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6001-1 of the regulations in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 a of the code and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 sec_1_6001-1 of the regulations states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law sec_1_6033-1 of the regulations provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status department of the treasury - internal_revenue_service form 886-a page of ferm 886-a name of taxpayer explanation of items year period ended schedule no or exhibit org 20xx06 and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax government's position we propose to revoke org’s tax exemption under sec_501 taxpayer's position unknown conclusion it is the internal revenue service's position that org failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under c of the internal_revenue_code accordingly org's exempt status is revoked effective november 20xx org will not continue to qualify for tax exemption under sec_501 as of july 20xx form_1120 returns should be filed for the tax periods after july 20xx department of the treasury - internal_revenue_service form 886-a page of tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service north eighth street room box richmond virginia taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely marsha ramirez director eo examinations enclosures publication publication report of examination letter catalog number 34809f


internal_revenue_service department of the treasury washington dc uic legend taxpayer a taxpayer b taxpayer c_corporation m company n plan x plan y dear this is in response to the contact person telephone number in reference to t ep ra t3 date dec - behalf by your authorized representative as supplemented by correspondence dated request a letter_ruling under sec_401 code request the following facts and representations support your ruling in which you and of the internal revenue letter submitted on your taxpayer a formed corporation m on date corporation m established plan x plan on july plan x was amended and restated as plan y of that date effective as a defined benefit pension_plan on december a profit-sharing your authorized representative has asserted on your behalf that plans x and y are qualified under code sec_401 on date taxpayer a made an election with respect to benefits due him under plan x under that election taxpayer a elected to receive plan x benefits in one lump sum as soon as administratively possible after the close of the plan_year in which he reaches the age which is one year less than his life expectancy determined as date he retires of the additionally under that election taxpayer a elected to have his death_benefits paid in one lump sum as soon as administratively possible after the close of the plan_year in which he dies primary beneficiary and taxpayer c finally under that election taxpayer a named taxpayer b as his secondary beneficiary as his page on july of corporation m directed that the trustee of plan x transfer the total net assets of plan x to company n the trustee of plan y taxpayer a acting in his capacity of president your authorized representative has provided documentation to the internal_revenue_service that indicates that the trustee-to-trustee transfer of assets authorized under the july apparently occurred prior to date tirective your authorized representative has also asserted on your behalf that the assets transferred from plan x to plan y have been accounted for separately from other assets held in plan y finally your authorized representative has asserted that the above-referenced transfer from plan x to the trustee of plan y complied with the requirements of code sec_414 based on the above facts and representations you through your éuthorized representative request the following letter_ruling that the transfer of taxpayer a's accrued_benefit under plan x to plan y pursuant to the date corporation m directive did not revoke taxpayer a’s date tefra sec_242 b election entered into with respect to taxpayer a’s plan x benefit with respect to your ruling_request code sec_401 general provides the rules governing minimum required distributions from plans qualified within the meaning of code sec_401 in sec_401 of the code was amended by sec_242 of the tax equity and fiscal responsibility act of c b tax_reform_act_of_1984 and of the tax_reform_act_of_1986 sec_242 affected by the later amendments to sec_401 a pub pub pub l l of tefra provided a transition rule that was not tra'84 and by sections tra'86 tefra and was further amended by sec_521 of the l sec_242 of tefra provides that amendments to section of the code made by sec_242 of tefra shall apply to plan years beginning after december of tefra provides the following transitional rule however sec_242 b a_trust forming part of transition rule not be disqualified under paragraph 491l a by subsection a designation before january of distribution of the internal_revenue_code of by reason of distributions under a a plan shall of section a s amended by any employee of a method vn page a which does not meet the requirements of such paragraph but b which would not have disqualified such trust under paragraph in effect before the amendment made by subsection a of sec_401 of such code as notice_83_23 c provides guidance with respect to distributions that may be made by a qualified_plan under the transition rule_of sec_242 of tefra in order for the transitional rule in sec_242 qualified_trust the distribution must be made in accordance with the following requirements as set forth in notice of tefra to apply to a distribution from a d n s w the distribution by the trust is one which would not have disqualified the trust under sec_401 a in effect immediately prior to the effective date of a of the code as of tefra in accordance with a method distribution designated by the employee whose if the distribution is of interest in the trust is being distributed or the employee is deceased by a beneficiary of such employee such designation is employee or the beneficiary and is made before january in writing is signed by the the employee whose interest in the trust is being gistributed has accrued a benefit under the plan of which the trust is a part as of date s the method of distribution designated by the employee specifies the following the form of the distribution lump sum level a dollar annuity formula annuity specified percentage payment per year etc the time at which distributions will commence b upon retirement at a stated age etc the period over which distributions will be c made stated number of years etc over the employee's life expectancy over a and in the case of any distribution upon the d employee's death iisted in order of priority the beneficiaries of the employee page the designation must information te fix the time determination cf plan payments not allow further choice in and of itself provide sufficient and the formula for the definite the designation must be complete and a distribution upon death will not be covered by this transitional rule unless the information in the designation contains the information described in items distributions to be made upon the death of the employee a - d above with respect to the if a designation made in accordance with the above requirements the transitional rule in if the employee is deceased by his as amended by sec_242 of tefra of tefra will not apply to the distribution and the is revoked by an employee or beneficiary subsequent to december sec_242 employee's interest must be distributed in accordance with sec_401 any change in the designation will be considered to be however the mere substitution or addition of another beneficiary one not named in the designation under the designation will not be considered to be a revocation of the designation so long as such substitution or addition does not alter the period over which distributions are to be made under the designation directly or indirectly for example by altering the relevant measuring life a revocation of the designation sec_1_401_a_9_-1 of the proposed income_tax regulations question and answer j-2 provides in relevant part that if is transferred from one plan transferor plan to another plan transferee_plan the amount transferred may be distributed in accordance with a sec_242 election made under the transferor plan if the employee did not elect to have the amount transferred and if the amount transferred is separately accounted for by the transferee an amount da sec_1_401_a_9_-1 of the proposed_regulations q a j-3 provides in relevant part that an amount distributed from one plan and rolled over into another plan may not be distributed in accordance with a sec_242 election entered into under the distributing plan - sec_1 a -1 of the proposed_regulations q a j -2 provides in relevant part amounts from cne pian under which a sec_242 election was made to another made rollover for purposes of qs as j-2 and j-3 the transfer shall be treated as an employee elects to transfer a distribution and that if from the evidence presented the service believes that the beneficiary designation made by taxpayer a does satisfy the requirements of sec_242 of tefra and notice_83_23 the issue presented in this case is whether the transfer of assets from plan x’s trust to plan y’s trust constitutes an elective page transfer as that term is used in sec_1 regulations qs éas j-2 and j-3 a -1 of the proposed in this case of plan y was made pursuant to the july signed by the president of corporation m participant did not direct that his interest in plan x be transferred to plan y the pre-1985 transfer of plan x assets to the trust corporation m directive taxpayer a a plan xx as based on the above the service concludes that the transfer of to plan y did not constitute taxpayer a’s accrued_benefit from plan x an elective transfer as that term is used in the questions and answers of the proposed_regulations referenced above thus based on the above facts and representations the service concludes as follows with respect to your ruling_request that the transfer of taxpayer a’s accrued_benefit under plan x to plan y pursuant to the date corporation m directive did not revoke taxpayer a’s date tefra sec_242 b election entered into with respect to taxpayer a’s plan x benefit this ruling letter is based on the assumption that plans x and y at all times relevant have met the requirements of code sec_40l a thereto pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours poe u hte frances v sloan manager employee_plans technical group tax_exempt_and_government_entities_division aosures deleted copy of letter_ruling form_437