id office uilc cca_2008111713031732 ---------- number release date from ------------------ sent monday date pm to ------------------- cc subject completed transaction here is the memo completed transactions for cap --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- ---------------- attachment office_of_chief_counsel internal_revenue_service memorandum cc lm nr slc ljshuman pref-109360-06 uilc date date to deborah m nolan commissioner large and midsize division from christopher sterner division counsel large mid-size business subject application of the compliance assurance process cap to prospective or incomplete transactions pref-109360-06 lmsb personnel working cap cases receive information from cap taxpayers relating to transactions occurring during the cap year and transactions proposed to occur during the cap year questions have arisen as to when the cap teams may discuss information related to these transactions with the taxpayers or their authorized representatives issue when can lmsb cap teams receiving information relating to cap year tax items discuss the information with the taxpayers or their representatives conclusion because the cap_program does not change existing service procedures for issuing determinations regarding prospective transactions or incomplete transactions and oral discussions of these types of transactions present significant hazards cap teams should not discuss with taxpayers the tax implications of any transaction or item until the tax treatment of that transaction or item can no longer be affected by events that have not yet occurred discussion some cap taxpayers are providing information relating to proposed transactions or incomplete transactions this information may assist the cap team in understanding the taxpayer’s business and in identifying issues for compliance review further to the extent that these transactions are actually carried out as proposed the information may accelerate the compliance review process the cap memorandum of understanding provides that the objectives of cap are to have the irs contemporaneously work with the taxpayer to achieve federal tax compliance to have the parties resolve all or most issues prior to the filing of a tax_return to have the irs reach an acceptable level of assurance regarding the accuracy and correctness of filed tax returns and to eliminate or substantially reduce the need for a post-filing examination thus cap is intended to achieve reporting compliance if all of the identified items are resolved and the items are reported on the filed return as agreed there generally will be no further examination of the return cap is not intended to assist the taxpayer in planning its transactions or in getting board_of director approval of a transaction by providing guidance on a proposed transaction pref-109360-06 private_letter_ruling process revproc_2006_1 2006_1_irb_1 explains the forms of advice and the manner in which advice is requested by taxpayers and provided by the service the letter_ruling process described in revproc_2006_1 provides the exclusive means for taxpayers to obtain a written_determination by the service applying the tax laws to a taxpayer's specific set of facts where those facts concern prospective transactions revproc_2006_1 provides formal procedures for obtaining determinations concerning prospective transactions these procedures are very detailed and provide important safeguards for the service and taxpayers in providing an orderly procedure for obtaining pretransactional legal advice the revenue_procedure seeks to achieve several goals these goals include a consistent treatment of taxpayers b fair treatment to similarly situated taxpayers c establishment of procedures to determine where legal resources should be focused d provision of a vehicle for taxpayers to request legal advice and make decisions based on that legal advice and e establishment of a structure that allows the service to audit an issue or a transaction to verify that the facts relied on for the legal advice are as represented under the traditional audit process the examination divisions may audit return positions to verify that the facts on which a private_letter_ruling relies are in fact consistent with the actual facts the legal conclusion in a private_letter_ruling may not be relied upon if the facts differ materially from those represented the written description of the facts underlying the letter_ruling is thus critical to determine whether the taxpayer has appropriately relied upon the ruling in taking its return position all of the associates have been briefed on cap and understand the need to accelerate the private_letter_ruling process in cap cases thus a taxpayer wishing certainty in a pre-transactional environment must utilize the private_letter_ruling process the decision to issue a private_letter_ruling or other guidance lies with the appropriate associate chief_counsel sections dollar_figure and of revproc_2006_1 provide various circumstances under which the service does not issue letter rulings ultimately if the associate office determines that the issuance of private letter rulings is not in the best interest of tax_administration the rulings will not be issued once an associate chief_counsel determines that his or her office will not issue private letter rulings involving a particular issue any discussion about this issue before the tax treatment of that issue is pref-109360-06 complete that does not fall within the exceptions involving oral non-binding guidance could lead to claims of disparate treatment from non-cap taxpayers discussions about incomplete or proposed transactions between cap teams and taxpayers provides taxpayers with legal guidance and should be avoided section dollar_figure of revproc_2006_1 states that the service does not orally issue letter rulings or determination letters nor does it issue letter rulings or determination letters in response to oral requests from taxpayers at the discretion of the service and as time permits substantive issues may be discussed such a discussion will not be binding on the service or on the office_of_chief_counsel substantive tax issues involving the taxpayer that are under examination in appeals or in litigation will not be discussed by service employees not directly involved in the examination appeal or litigation of the issues unless the discussion is coordinated with the service employees who are directly involved in the examination appeal or litigation a taxpayer may seek oral technical guidance from a taxpayer service representative in a field_office or service_center when preparing a return or report oral guidance is advisory only and the service is not bound to recognize it in the examination of the taxpayer’s return pre-filing agreement program the pfa program does not provide pre-transactional determinations unlike letter rulings and other forms of written guidance provided by the offices of the associate chief_counsel a pfa does not determine the tax treatment of prospective or future transactions or events but only of completed transactions or events whose tax treatment has not yet been reported on a return see section dollar_figure of revproc_2005_12 section dollar_figure of revproc_2005_12 further limits the issues eligible for pfas pfas are limited to issues that require either a determination of facts or the application of well-established legal principles to known facts section dollar_figure also provides that the service will in general consider entering into a pfa regarding a methodology used by a taxpayer to determine the appropriate amount of an item_of_income allowance deduction or credit the methodology pfa does not address the tax treatment of an item but rather the methodology for computing an item as the cap_program expands taxpayers may seek input from the account coordinators on prospective or incomplete transactions when the transactions are material and complex and the issues involved are technical issues without a clear cut answer in this scenario the account coordinators may be asked to provide legal advice or to issue advice to the taxpayer for tax planning that is not permitted to the extent that the service provides pre-transactional guidance it should be pursuant to revproc_2006_1 because discussions about prospective or incomplete transactions could alter the taxpayers’ plans result in changes to the transaction or lead to claims of reliance secret law or disparate treatment such discussions should be limited pref-109360-06 what is a prospective or incomplete transaction or issue a prospective transaction is one that has not yet occurred an incomplete transaction or issue is one for which the tax consequences may be affected by events that have not yet occurred below are various scenarios that may arise in a cap case followed by a discussion considering whether issues are permissible for consideration in cap abc corporation a cap taxpayer enters into a contract with z corporation for z to develop an improved product for abc’s business abc agrees to make progress payments during the cap year abc provides the cap team with a copy of the contract and asks the cap team to consider the research_credit implications the cap team may consider discuss and resolve the base_amount computations including the fixed_base_percentage and the average annual gross_receipts for the four preceding years because the fixed_base_percentage and the average annual gross_receipts for the four preceding years are not affected by events that have not yet occurred however any determinations relating to the base_amount computations should include the caveat that the computations may change as a result of any mergers acquisitions or dispositions further the cap team may consider and discuss the contract between abc and z corporations to determine if under the contract the abc corporation bears the risk for development of the improved product and if any research would be considered funded the cap team however should not discuss or resolve issues around whether the research is qualified_research consideration may be given to phases of a project however until an activity has occurred the facts to determine if the activity constitutes qualified_research are not completed during the cap year xyz corporation a cap taxpayer entered into an agreement with w corporation for w corporation to purchase all of the stock of its wholly owned subsidiary s the contract requires that the parties elect under sec_338 to treat the transaction as a sale of assets before the transaction occurs xyz corporation provides the contract to the cap team and asks the cap team to consider various proposals to achieve a desired tax result while the cap team may review the contract the cap team should not discuss the tax consequences of any proposals to structure transactions with the taxpayer any discussion about the proposals could be considered legal guidance xyz corporation should consider requesting a ruling from the appropriate associate chief_counsel office r corporation a cap taxpayer and s_corporation propose to merge pending the merger there will be golden parachute payments under sec_280g prior to closing of the merger r corporation has asked for resolution of the golden parachute issue because this transaction is not complete until the merger occurs discussions about this issue should be avoided prior to closing of the merger taxpayer could alter its transaction as a result of such discussions pref-109360-06 x corporation a us manufacturer and distributor of bicycles is a cap taxpayer currently x manufactures the frame the brake assembly gear assembly seat and handlebars it purchases the wheel assembly and tires from a company in china and the entire bicycle is assembled in mexico x corporation indicates that it intends to claim the sec_199 deduction the cap team may consider and discuss different methods for allocating gross_receipts it may also consider and discuss the hypothetical computations including whether x will have contributed of the cost_of_goods_sold to the product in the us by only manufacturing the brake assembly gear assembly seat and handlebars the team can further explain that if it has so met the safe_harbor the taxpayer can treat the bicycle as qualified production property same a sec_4 except that x is contemplating purchasing the frame from the mexican assembling company rather than manufacturing the frame were x to purchase the frame from the mexican assembling company the only manufacturing it would be performing is the brake assembly gear assembly seat and handlebars x has asked the cap team to consider the sec_199 implications of purchasing rather than manufacturing the bicycle frame the team should avoid discussions about the sec_199 implications of the proposal to purchase the bicycle frame because the transaction is not complete however should the cost of purchasing the frame increase so that x is not contributing to the cost_of_goods_sold the team should not agree to whether the manufacture of the brake assembly gear assembly seat and handlebar components is substantial in nature it is questionable whether the team would even want to weigh in on the safe_harbor computation because the costs of purchasing from the mexican company may be subject_to increases during the cap year thereby shedding doubt on x’s ability to meet the safe_harbor the team can also alert the taxpayer to the shrink back rule ie shrinking back to the largest components that qualify in this instance each of the brake assembly gear assembly seat and handlebars the shrink back items the brake assembly gear assembly seat and handlebars will most certainly meet the safe_harbor since they were manufactured entirely in the us in this example this memorandum responds to your request for assistance this advice may not be used or cited as precedent please call lisa shuman at if you have any further questions by _____________________________ division counsel large mid-size business pref-109360-06 cc douglas o'donnell deputy director pre-filing and technical guidance cheryl teifer program manager cap large and mid-size business


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 b03 plr-139721-06 date date ------------------------ ---------------------------------- --------------------------------------- legend parent -------------------------------------------------------------------- ------------------------------------------------------------------------------ sub ------------------------------------------------------------------------ ------------------------------------------------------------------------------ sub -------------------------------------------------------------------- ----------------------------------------------------------------------------------- date a date b 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 parent to file an election under sec_1 i of the income_tax regulations to apply --------------------------- -------------------------- ---------------------- plr-139721-06 the provisions described in sec_1 i ii ie sec_1_337_d_-2 to determine the allowable losses sustained upon the sale of the stock of a subsidiary member of its consolidated_group the material information submitted for consideration is summarized below parent is the common parent of a consolidated_group that included sub and sub parent owned all of the stock through direct and indirect ownership of sub which owned all of the stock of sub on date a sub sold all of the stock of sub in a taxable transaction the sale resulted in a capital_loss reportable on parent’s tax_return for the taxable_year ending on date b an election under sec_1 i to apply the provisions in sec_1_337_d_-2 was required to be filed with or as part of parent’s timely filed return for its taxable_year that included date however for various reasons a valid election was not filed subsequently it was discovered that a valid election was not filed accordingly this request was submitted under sec_301_9100-3 for an extension of time to file a valid election the period of limitations on assessment under sec_6501 has not expired for the taxable_year for which the election should have been filed or for any subsequent taxable_year sec_1 i ii provides that in the case of a disposition of stock of a subsidiary before date a consolidated_group may determine the amount of the member’s allowable loss by making an election to apply the provisions of sec_1_337_d_-2 sec_1 i of the regulations provides in general that an election to determine allowable loss by applying the provisions described in sec_1 i i or ii is made by including the statement described in sec_1 i with or as part of any timely filed including any extensions original return for the taxable_year that includes date or with or as part of an amended_return filed before the date the original return for the taxable_year that includes date is due including any extensions 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 sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to plr-139721-06 establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government in this case the time for filing the election is fixed by the regulations ie sec_1 i 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 it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent and company official 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 interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations that have been made we conclude that parent has established it acted reasonably and in good_faith in failing to timely file the election the requirements sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-3 until days from the date on this letter for parent to file the election described in sec_1 i to apply the provisions of sec_1_337_d_-2 within days of the date on this letter parent must amend its return for its taxable_year that included date to include the statement described in sec_1 i a copy of this letter must be attached to the return and any other relevant return alternatively in lieu of attaching a copy of this letter to the returns taxpayers filing their returns electronically may attach a statement to the return that provides the date and control number of the letter_ruling the above extension of time is conditioned on parent's consolidated 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 made timely taking into account the time_value_of_money no opinion is expressed as to parent's consolidated group's tax_liability for the years involved a determination thereof will be made upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that parent's consolidated group's liability is lower sec_301_9100-3 no opinion is expressed as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301 we relied on certain statements and representations made by the plr-139721-06 taxpayer and its representatives however all of the essential facts must be verified 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely __________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c 2dli38028 tax_exempt_and_government_entities_division jun u i l xxxxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxxxxxxx legend taxpayer a xxxxxxxxxxx individual b xxxxxxxxxxx ira x xxxxxxxxxxx date states amount d company c city m date date date date xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx dear xxxxxxxxxx this is in response to your letter dated date submitted on your behalf by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of your request on date taxpayer a received a distribution from ira x totaling amount d taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to his involvement with the medical_condition of his mother individual b and his duties as her caregiver which impaired his ability to accomplish a timely rollover taxpayer a is a caregiver for individual b his mother whose health has continued to deteriorate taxpayer a represents that prior to and during the 60-day rollover period individual b experienced numerous medical problems during this time taxpayer a was required to assist with her medical needs including ensuring she had an adequate oxygen supply picking up her medications taking her to see her doctor and other household duties taxpayer a has provided a letter from individual b's doctor verifying her condition on date taxpayer a withdrew amount d from ira x with the intent to rollover the funds back into ira x within the 60-day rollover period on date taxpayer a was expecting to return home and deposit amount d into ira x on date but he found himself completely preoccupied with taking care of individual b and was forced to stay an extra day to take care of her on date one day after the expiration of the 60-day rollover period taxpayer a returned home and rolled over amount d into ira x which company c deposited on date based on the facts and representations taxpayer a requests that the internal_revenue_service service waive the day rollover requirement with respect to the distribution of amount d 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 ii 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 60th day after the day on which the individual received the payment or distribution or 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 60th 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 included 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 rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 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 the failure to waive such requirement would be against equity and good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_408 of the code revproc_2003_16 i r b 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 or 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 presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was due to the medical_condition of individual band his duties as her caregiver which impaired his ability to accomplish a timely rollover therefore pursuant to code sec_408 the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x provided all other requirements of sec_408 of the code except the 60-day requirement were met with respect to such contribution the contribution of amount d into ira x will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code 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 letter is directed only to the taxpayer that requested it sec_611 o k of the code provides that it may not be used or cited as precedent a copy of this letter is being sent to your authorized representative pursuant to a power_of_attorney on file with this office if you have any questions regarding this letter please contact xxxxxxxxxxxx xxxxxxxxx at xxxxxxxxxxxxx all correspondence should be addressed to se t ep ra t sincerely yours erri edelman manager employee_plans technical enclosures deleted copy of letter_ruling notice of intention to disclose cc xxxxxxxxxxxxxxx


internal_revenue_service number release date index number department of the treasury washington dc in re person to contact telephone number refer reply to cc psi 9-plr-149708-02 date date legend trust year trusts trustor accountant accounting firm company company date date date date date date date date date year year year date date a b plr-149708-02 c d e f g dear this is in response to your letter dated date requesting on behalf of trustor an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make allocations of trustor’s generation-skipping_transfer gst tax exemptions to certain transfers to an irrevocable_trust a summary of the facts and representations submitted is as follows on date trustor formed trust for the benefit of her four sons and their descendants article i paragraph of the trust provides that the trust estate shall be divided into four trusts one to benefit each son article i paragraph provides that the trustee shall distribute principal and income to the beneficiary of each trust and such beneficiary’s descendants subject_to an ascertainable_standard article i paragraph provides that each son’s trust will terminate upon his death every other trust created pursuant to the terms of the trust shall terminate when the beneficiary thereof attains age or upon the death of trustor whichever is later upon termination the trustee shall distribute all unappointed trust property to the beneficiary thereof article i paragraph provides that each beneficiary of a_trust has a limited power to appoint his or her trust’s property outright or in trust among persons related to the beneficiary by blood marriage or adoption or to any charity the trustor’s sons must exercise this power by acknowledged instruments during their lifetime delivered to the trustee while other beneficiaries must exercise this power by specific reference in their wills no power_of_appointment is valid if it requires a distribution of trust property to an appointee prior to trustor’s death article paragraph provides that if a beneficiary’s death terminates his or her trust or a beneficiary dies prior to the termination of his or her trust then the remaining unappointed assets of his or her trust shall be divided into shares and distributed to the beneficiary’s then living descendants per stirpes if the recipient of a distribution is not the beneficiary of a_trust established under the trust the distribution will be held in a separate trust to benefit that descendant said trust to be governed by the terms of the trust if however the recipient of a distribution is the beneficiary of a_trust established plr-149708-02 under the trust the distribution is to be added to that trust in the event the beneficiary is not survived by then living descendants all the remaining unappointed assets of his or her trust shall be distributed per stirpes to the then living descendants of the trustor’s son who was the ancestor of such beneficiary or if no such descendant is then living to the trustor’s then living descendants per stirpes on date trustor transferred a shares of stock in company to trust trustor retained accountant to prepare her united_states gift and generation-skipping_transfer_tax return form_709 reporting this transfer accountant incorrectly allocated trustor’s gst_exemption to only a portion of the assets transferred to the trust and a notice of allocation was not attached to the form_709 on date trustor transferred b shares of stock in company to trust trustor retained accountant to prepare the form_709 for the year of the date transfer accountant incorrectly allocated trustor’s gst_exemption to only a portion of the assets transferred to the trust on date and a notice of allocation was not attached to the form_709 on date trustor transferred c shares of stock in company to the trust trustor retained accountant to prepare the form_709 for the year of the date transfer accountant incorrectly allocated trustor’s gst_exemption to only a portion of the assets transferred to the trust on date and a notice of allocation was not attached to the form_709 on date trustor transferred d shares of stock in company and e shares of stock in company to the trust trustor retained accountant to prepare the form_709 for the year of the date transfers accountant incorrectly allocated trustor’s gst_exemption to only a portion of the assets transferred to the trust on date and a notice of allocation was not attached to the form_709 on date trustor transferred dollar_figuref to the trust trustor retained accountant to prepare the form_709 for the year of the date transfer accountant incorrectly allocated trustor’s gst_exemption to only a portion of the assets transferred to the trust on date and a notice of allocation was not attached to the form_709 on date trustor transferred interests_in_real_property to the trust trustor retained accountant to prepare the form_709 for the year of the date transfer accountant incorrectly allocated trustor’s gst_exemption to only a portion of the assets transferred to the trust on date and a notice of allocation was not attached to the form_709 on date trustor transferred an interest_in_real_property to the trust trustor retained accountant to prepare the form_709 for the year of the date transfer accountant incorrectly allocated trustor’s gst_exemption to only a portion of the assets transferred to the trust on date and a notice of allocation was not attached to the form_709 plr-149708-02 on date trustor transferred an interest_in_real_property to the trust trustor retained accountant to prepare the form_709 for the year of the date transfer accountant incorrectly allocated trustor’s gst_exemption to only a portion of the assets transferred to the trust on date and a notice of allocation was not attached to the form_709 on date trustor transferred interests_in_real_property to the trust trustor retained accountant to prepare the form_709 for the year of the date transfer accountant incorrectly allocated trustor’s gst_exemption to only a portion of the assets transferred to the trust on date and a notice of allocation was not attached to the form_709 in year trustor transferred additional real_property and assigned certain note receivables to the trust a form_709 was not prepared and filed reporting this transfer you have represented that a form_709 will be prepared and filed reporting this transfer on date trustor transferred dollar_figureg to each of four trusts established for trustor’s sons in year year trusts in the same year on date trustor transferred stock in publicly traded companies to the trust trustor retained accountant to prepare the form_709 for the year of the date and date transfers accountant reported the transfers to the year trusts and allocated trustor’s gst_exemption to these transfers however the accountant did not report the date transfer to the trust it has been represented that a form_709 will be prepared and filed reporting this transfer trustor engaged accounting firm to prepare her year form_1041 united_states income_tax return for trusts_and_estates as part of that engagement accounting firm reviewed the trustor’s form sec_709 and discovered the errors made thereon it has been represented that trustor has made no additional gifts to the trust the year trusts or any skip_person the following rulings have been requested that trustor be granted an extension of time under sec_2642 and sec_301_9100-3 to make a late gst_exemption allocation to such additions to the trust as trustor elects that such allocations be made as of the respective dates of the original transfers to the trust and that trustor’s only valid allocation of her gst_exemption is the date allocation of dollar_figureg to each of the year trusts law and analysis sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip plr-149708-02 sec_2631 as in effect for the years involved provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 as applicable during the years at issue sec_2642 provided that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c - a the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and b such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 enacted on date provides in part that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant sec_2642 further provides that for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2624 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust plr-149708-02 as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore trustor is granted an extension of time of sixty days from the date of this letter to allocate her available gst_exemption to the transfers to the trust the allocations once made will be effective as of the date of the original transfers to the trust the value of the assets transferred as of the date of the original transfers will be used in determining the amount of the trustor’s gst_exemption to be allocated to each transfer to the trust further trustor’s only valid allocation of her gst_exemption is the date allocation of dollar_figureg to each of the year trusts the allocations for trustor should be made on separate supplemental form sec_709 for each year a transfer was made to the trust to which trustor is allocating her gst_exemption and filed with the internal_revenue_service center cincinnati ohio the supplemental return for the year of the date transfer should report the date transfer as well as any allocation of trustor’s gst_exemption for the year transfer plr-149708-02 an original form_709 should be filed reporting the transfer and any allocation of trustor’s gst_exemption a copy of this letter should be attached to each form_709 eleven copies are enclosed for this purpose the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed or implied regarding the value of the property transferred to the trust and the date trusts in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayers this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes eleven copies of this letter


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 b09 plr-145186-04 date date legend decedent ------------------------------------------------------------------------------------------------- ------------------------- -------------------------- ----------------------------------------------------------------- -------------------------- -------------------------- ------------- ------------------ date trust date date x date dear ------------------ this is in response to your letter dated date submitted on behalf of decedent’s estate requesting an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make an allocation of generation-skipping_transfer gst_exemption the facts and representations submitted are summarized as follows on date decedent established trust an irrevocable_trust for the benefit of decedent’s grandchildren article of trust provides that the trust is established for a class consisting of all of decedent’s grandchildren including those who are and are not yet in being at the time of the creation of the trust each beneficiary shall have an equal share of principal article provides that the net_income of the trust shall be distributed to the beneficiaries at times and in amounts as the trustee in his discretion shall determine article generally provides that the trustee may invade principal for the support and maintenance of a beneficiary article provides that the trust shall not terminate prior to date the earliest plr-145186-04 termination_date upon the death of a beneficiary prior to the earliest termination_date his or her interest shall vest in his or her heirs the trust shall continue past the earliest termination_date with respect to the share of each principal beneficiary until the beneficiary reaches age thirty-five at which time the beneficiary shall receive his or her share of the trust upon the death of a beneficiary after the earliest termination_date his or her share of accumulated income and principal shall be distributed to his or her heirs or legatees if a beneficiary dies without descendants during the term of the trust or at its termination his or her interest shall vest in the other members of the class of beneficiaries on date decedent funded trust with dollar_figurex cash decedent relied upon her attorneys to advise her regarding tax matters however due to an oversight a form_709 united_states gift and generation-skipping_transfer_tax return gift_tax_return was not filed for year and no allocation of decedent’s gst_exemption was made for the year transfer to trust decedent died on date as decedent’s attorney gathered the information necessary to prepare decedent’s federal estate_tax_return he discovered that no gift_tax_return had been filed for year and that no allocation of decedent’s gst_exemption had been made decedent’s estate has requested the following rulings an extension of time under sec_2642 and sec_301_9100-1 and sec_301_9100-3 to make an allocation of decedent’s gst_exemption with respect to the year transfer to trust that the allocation will be effective as of the date of the transfer to trust and that the allocation will be made based on the value of the property transferred to trust as of the date of the transfer sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed plr-145186-04 for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in part that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 an allocation of gst_exemption to a_trust is void to the extent the amount allocated exceeds the amount necessary to obtain an inclusion_ratio of zero with respect to the trust sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except plr-145186-04 in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election 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 an allocation of decedent’s available gst_exemption with respect to the transfer to trust the allocation will be effective as of date the date of the transfer and the gift_tax value of the transfer to trust will be used in determining the amount of gst_exemption to be allocated to trust this allocation should be made on a form_709 united_states gift and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to the form_709 copies are enclosed for this purpose 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 tax consequences of the transaction under the cited provisions or under any other provisions of the code except as specifically ruled herein we express or imply no opinion on the federal plr-145186-04 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the executor of decedent’s estate this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of letter


t c no united_states tax_court intel corporation and consolidated subsidiaries petitioner v commissioner of internal revenue respondent docket no filed date p had deficiencies in its federal_income_tax for the taxable years and from the taxable_year p carried back an amount of foreign tax to and from p carried back additional foreign tax to r computed interest under sec_6601 i r c from the respective due dates of the returns for and until the end of for the deficiency amounts for and respectively eliminated by the carryback from for the deficiency amount in eliminated by the carryback from r computed interest from the due_date of the return for until the due_date of the return for p filed a motion under sec_7481 i r c to redetermine interest held for the years at issue sec_904 i r c does not prevent this supplements 100_tc_616 affd 67_f3d_1445 9th cir amended and superseded 76_f3d_976 9th cir interest from being imposed on the deficiency without reduction by a foreign tax carryback from a subsequent year held further the interest on the deficiency amounts eliminated by the carryback from stops accruing as of the end of and the interest on the deficiency amount eliminated by the carryback from stops accruing as of the due_date of the return cf sec_6611 now sec_6611 i r c prior to and after the tax equity and fiscal responsibility act of publaw_97_248 96_stat_637 joel v williamson wayne s kaplan thomas l kittle-kamp marjorie m margolies and robert h perlman for petitioner beth l williams and ewan d purkiss for respondent supplemental opinion tannenwald judge a decision was entered in this case on date pursuant to a stipulated computation in accordance with this court's opinion 100_tc_616 affd 67_f3d_1445 9th cir amended and superseded 76_f3d_976 9th cir on date petitioner filed a motion under sec_7481 c and rule to redetermine interest on the deficiencies for the and taxable years we refer to sec_7481 of the internal_revenue_code as in effect at the time petitioner's motion was filed unless otherwise indicated all other section references are to the internal_revenue_code in effect for the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure the parties agree that for the taxable years and petitioner had foreign tax carrybacks from and as follows year used amount year originated dollar_figure big_number big_number the parties disagree as to the effect if any of these carrybacks on the calculation of interest on the deficiencies for and the principal issue for decision is whether interest accrues on the portion of a deficiency that is eliminated by such carrybacks if it does accrue when does it end ie at the close of the taxable_year of the carryback or on the due_date for the filing of the tax_return for that year we direct our attention in the first instance to the principal issue sec_6601 provides that interest shall be paid on the amount of tax not paid on or before the last date prescribed for payment for the period from such last date to the date paid the last date prescribed for payment of income_tax is generally the due_date for filing the return without regard to any extension of time for filing sec_6601 in general interest liability is determined under sec_6601 synchronically looking at the period during which interest accrues without reference to future events such as loss or credit carrybacks 109_tc_1 sec_6601 reflects the use of money principle that is the party who has the use of the money pays interest up until the event which causes the party no longer to have use of that money id pincite in the absence of a clear legislative expression to the contrary the question of who properly should possess the right of use of the money owed the government for the period it is owed must be answered in favor of the government 338_us_561 in this latter connection we are not persuaded by petitioner's argument that we should not give any consideration to the time-value-of-money element because that concept can be applied only in the presence of a legislative directive to do so 103_tc_481 affd 70_f3d_142 d c cir that language was used in analyzing the applicability of time-value-of-money substantive provisions of the code interest per se involves the time_value_of_money and if a directive is needed it can be found in sec_6601 sec_901 allows a taxpayer who so elects a credit subject_to the limitation of sec_904 for the amounts of certain taxes paid_or_accrued during the taxable_year to any foreign_country or to any possession_of_the_united_states plus those taxes deemed to have been paid under sec_902 and sec_960 sec_901 and b the purpose of sec_901 is to provide relief from u s taxation where income already has been taxed by another country 103_tc_464 sec_904 provides that the amount of the foreign_tax_credit shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer's taxable_income_from_sources_without_the_united_states bears to his entire taxable_income for the same taxable_year this limitation was enacted to prevent foreign tax_credits from eliminating u s tax on u s -source income perkin-elmer corp subs v commissioner supra pincite sec_904 provides for carryback and carryover of any excess foreign taxes as follows c carryback and carryover of excess tax paid -- any amount by which all taxes paid_or_accrued to foreign countries or possessions of the united_states for any taxable_year for which the taxpayer chooses to have the benefits of this subpart exceed the limitation under subsection a shall be deemed taxes paid_or_accrued to foreign countries in the second preceding_taxable_year in the first preceding_taxable_year and in the first second third fourth or fifth succeeding taxable years in that order and to the extent not deemed taxes paid_or_accrued in a prior taxable_year in the amount by which the limitation under subsection a for such preceding or succeeding taxable_year exceeds the sum of the taxes paid_or_accrued to foreign countries for such preceding or succeeding taxable_year and the amount of the taxes for any taxable_year earlier than the current taxable_year which shall be deemed to have been paid_or_accrued in such preceding or subsequent taxable_year petitioner argues that sec_904 is a clear legislative expression that interest is not imposed on tax_liability paid_by foreign tax carrybacks because such carrybacks are deemed taxes paid_or_accrued to foreign countries in emphasis added the year to which they are carried back and no statutory provision exists that contradicts this plain language petitioner describes the various interest provisions in the internal_revenue_code as detailed and complex and points to the absence of a specific interest provision concerning foreign tax carrybacks in situations involving deficiencies as significant in light of other provisions dealing with the question of interest on deficiencies involving other types of carrybacks respondent urges us to preserve symmetry between the treatment of interest on deficiencies with that of interest on overpayments in the foreign tax carryback situation in keeping with manning v seeley tube box co supra 348_us_254 and the recently decided 126_f3d_1397 fed cir we begin our analysis of the scope of the language of sec_904 mindful of our observations in 107_tc_73 the language of a statute cannot be viewed in isolation in construing the meaning of a section it is necessary to consider all of the words of the statute as well as their context the purposes of the law and the circumstances under which the words were employed furthermore we must view the statute in context as a whole and with a view to its place in the overall statutory scheme citations omitted prior to there were no carrybacks of any kind and therefore there was no problem in respect of interest on any overpayment or reduced underpayments attributable to carrybacks sec_153 of the revenue act of act ch 56_stat_847 amended sec_122 of the code to provide for a 2-year carryback of net operating losses section b of the act 56_stat_900 amended section c of the code to provide a 2-year carryback of unused excess profit tax_credit sec_153 of the act 56_stat_848 amended section by adding subsection e to eliminate any interest on an overpayment attributable to either of such carrybacks for the period prior to the filing of a claim_for_refund for such overpayment there was no comparable provision dealing with underpayments later reduced or eliminated by any as will subsequently appear we have included in our historical recital of the statutory provisions dealing with interest and carrybacks references to legislative actions subsequent to the time when sec_904 was enacted in so doing we emphasize that we have done so for the sake of presenting a full history recognizing that actions of subsequent congresses provide a 'hazardous basis for inferring the intent of an earlier one' 30_f3d_1077 9th cir quoting 361_us_304 such carryback nor was there any comment in the legislative_history adverting to such a situation the foregoing action by congress was the subject of litigation culminating in manning v seeley tube box co supra involving the propriety of charging interest on a deficiency which was later reduced by a net_operating_loss_carryback the supreme court held that the taxpayer was liable for the interest reasoning that the net_operating_loss_carryback provision did not alter the taxpayer's duty to pay the full tax when due the supreme court found support for its conclusion in section e of the code the predecessor of sec_6611 of the code which as pointed out above specifically prohibited the taxpayer from receiving interest on any overpayment created by the use of a net_operating_loss_carryback for the period prior to filing a claim_for_refund of such overpayment the next step in the unfolding history came with the enactment of sec_6601 of the code ch 68a stat which codified the holding of 338_us_561 at the same time congress enacted sec_6611 now sec_6611 which contained the provisions prohibiting interest in respect of an overpayment 68a stat thus symmetry was provided in respect of the obligation for interest resulting from the use of a net operating carryback whether an underpayment or overpayment was involved in one respect the prior provision dealing with an overpayment and its application to deficiencies by the supreme court in manning v seeley tube box co supra was changed in that the commencement of the running of interest on an overpayment was moved to the close of the taxable_year of the loss see infra p in in united_states v koppers co supra the supreme court held that relief in the form of a reduction in excess_profits_tax did not release the taxpayer from the obligation to pay interest on the original deficiency liability until the time the reduction in tax occurred although the code contained no specific provision dealing with interest with respect to deficiencies abated by the excess_profits_tax adjustment the supreme court as in manning v seeley tube box co supra relied on the general deficiency_interest provision now sec_6601 and a provision prohibiting interest for the similar period on overpayments created by such adjustment now sec_6611 when congress enacted sec_904 in the technical amendments act of publaw_85_866 72_stat_3 the code provision did not include unused excess_profits_tax carrybacks presumably because the excess_profits_tax had expired on date it also enacted sec_6611 now sec_6611 which provided if any overpayment_of_tax results from a carryback of tax paid_or_accrued to foreign countries or possessions of the united_states such overpayment shall be deemed not to have been paid_or_accrued prior to the close of the taxable_year under this subtitle in which such taxes were in fact paid_or_accrued technical amendments act of publaw_85_866 72_stat_1640 the legislative_history sheds little light on the question now before us beyond reiterating the above provisions such history addresses only the purpose of sec_904 ie to eliminate the double_taxation that could result from timing differences between the methods of reporting income of the united_states and the foreign_country and the foreign_tax_credit limitations existing at that time and the mechanics of determining the amounts of the foreign tax carryback and carryover to be applied to the appropriate years specified in sec_904 h rept 85th cong 1st sess 1958_3_cb_811 congress did not include in the legislation a provision like the one it had enacted in for net operating sec_6611 was amended effective for interest accruing after date to replace the close of the taxable_year with the filing_date as defined in subsection f for the taxable_year tax equity and fiscal responsibility act of publaw_97_248 96_stat_637 sec_6611 defines filing_date as the last date prescribed for filing the return without regard to extensions see also discussion infra pp loss_carrybacks addressing the effect of foreign tax carrybacks on deficiency_interest between and congress amended sec_6601 and sec_6611 several times in order to deal with the impact of various carrybacks on the running of interest on underpayments and overpayments see act of date publaw_95_628 sec c and c a and b 92_stat_3632 tax reduction and simplification act of publaw_95_30 sec d c and d 91_stat_150 employee credit carrybacks tax reform act of publaw_94_455 and d 90_stat_1904 win_credit carryback attributable to investment_tax_credit carryback from subsequent year revenue act of publaw_92_ sec_601 and 85_stat_559 work incentive credit carrybacks tax reform act of publaw_91_172 and 83_stat_641 capital_loss carrybacks act of date publaw_90_225 and f 81_stat_731 unused investment_tax_credit arising from nol carrybacks act of date publaw_88_571 and e 78_stat_858 carrybacks of certain unused deductions of life_insurance_companies revenue act of publaw_87_834 and 76_stat_971 investment_credit carrybacks sec_6601 see supra p as is apparent none of the legislative actions dealt with foreign tax carrybacks in however congress did enact amendments to sec_6601 and sec_6611 substituting the filing_date for in place of the last day of or the close of the taxable_year see tax equity and fiscal responsibility act of tefra publaw_97_248 and 96_stat_637 then in those sections were further amended to take into account the elimination of the carryback of unused deductions of life_insurance_companies see deficit_reduction_act_of_1984 publaw_98_369 and 98_stat_757 finally in congress enacted sec_6601 in the taxpayer_relief_act_of_1997 publaw_105_34 111_stat_944 effective for foreign tax carrybacks arising in taxable years beginning after date thus although this provision is not applicable to the issue now before us it moots this issue for the future the foregoing provides a background for our consideration of petitioner's arguments and the impact of a recent decision 126_f3d_1397 fed cir which involved the identical issue for decision herein in that case the court_of_appeals_for_the_federal_circuit concluded that the reasoning of 338_us_561 and 348_us_254 applied and that the taxpayer was required to pay interest on a deficiency in an amount unreduced by reason of the carryback of foreign taxes from later years the foundation of the court of appeals' decision was the general principle embodied in sec_6601 that a taxpayer must pay interest on any deficiency ie what he owes the government and that any departures from that principle would require ‘a clear legislative expression to the contrary’ fluor corp affiliates v united_states f 3d pincite quoting manning v seeley tube box co u s pincite the court_of_appeals found that the deemed paid in language of sec_904 did not meet this standard and that there was no other_sufficient_evidence fleshing out the statutory language to justify a different result in reaching its conclusion the court_of_appeals_for_the_federal_circuit found unpersuasive the arguments advanced by petitioner herein it is to these arguments that we now turn petitioner insists that the language of sec_904 is clear that the foreign tax carryback is deemed paid in the year to which it is carried back not only for purposes of computing the amount of the foreign_tax_credit for that year but for all purposes including interest we disagree the critical language of sec_904 deemed paid_or_accrued in does no more than provide for taking the carryback into account and a methodology for calculating the amount of the carryback which would be available it says nothing about any other purpose and is thus distinguishable from 862_f2d_1561 fed cir cited by petitioner where it was clear that the statute there involved was to be retroactive for all purposes the court_of_appeals_for_the_federal_circuit cogently made the appropriate distinction in fluor corp affiliates when it observed while interpreting the word deemed to mean treated as if answers the question of what year the credit will be applied to it does not answer the question of when the reallocation of the foreign_tax_credit will be deemed to occur--whether in the carryback_year or at the time the carryback was generated one or two years later we are thus confronted with an ambiguity as to whether congress meant the language of sec_904 to forbid the assessment of interest on a previous tax_deficiency that is erased as a result of the foreign tax carryback fluor corp affiliates v united_states f 3d pincite2 thus the phrase is ambiguous and it is our task to determine its meaning in so doing we must find our way without the benefit of any legislative_history directed to this ambiguity in this connection we think it of some significance albeit tangential that in the technical changes act of ch 63_stat_891 congress amended sec_131 of the internal_revenue_code_of_1939 to include a provision reenacted in sec_905 of the code that if a taxpayer received a refund of foreign taxes for which credit had been claimed the taxpayer would have to pay interest on the deficiency thus created only to the extent such interest was received from the foreign government petitioner seeks to draw some support for its position herein by contending that such action shows that at the time of the amendments to sec_904 congress had limited interest on deficiencies attributable to a foreign_tax_credit we do not agree in the first place no foreign tax carryback was involved secondly if any inference were to be drawn from such action it is that congress assumed that interest on deficiencies involving foreign tax_credits would be imposed and that limiting such interest was necessary in order to avoid double payment of interest on taxes paid on the same income see h rept 81st cong 1st sess it is a far cry to say that the objective of avoiding double payment of interest should be considered as blessing the position of petitioner herein that no interest should be paid at all petitioner argues that congress' enactment of sec_6611 now sec_6611 prohibiting interest on an overpayment ie a refund created by a carryback of foreign taxes makes significant the failure to amend sec_6601 to include such a carryback among the specified carrybacks which were not to reduce an underpayment ie a deficiency for the purpose of determining interest due we decline to adopt petitioner's position as the court_of_appeals_for_the_federal_circuit explained in rejecting the same argument in fluor corp affiliates v united_states f 3d pincite while there is some force to that argument in the end we do not find it persuasive sec_6601 in effect codifies the rule_of seeley tube and koppers for all the carryback provisions that the statute covers fluor's argument is that because congress codified the rule_of seeley tube and koppers for other carryback provisions but not for the foreign tax carryback the seeley tube-koppers rule does not apply to the foreign tax carryback we do not accept the contention that by codifying the rule for some carrybacks congress must necessarily have meant to repudiate it for any carryback not included in the codification nor are we prepared to reach a different conclusion because of the failure of congress in the ensuing years from to to take action in respect of interest on underpayments involving carrybacks of foreign taxes this position was also advanced and rejected in fluor corp affiliates the court_of_appeals_for_the_federal_circuit declared that congress knew about manning v seeley tube box co supra and united_states v koppers co supra and that since the rule_of those cases did not depend on specific_legislation imposing deficiency_interest congress had no need to legislate in order to ensure that deficiency_interest would be imposed indeed the contrary was true in light of seeley tube and koppers an informed congress would have assumed that specific_legislation would be required if it intended deficiency_interest not to accrue when a carryback eliminated a deficiency in the carryback_year fluor corp affiliates v united_states f 3d pincite5 beyond the foregoing analysis we again observe see supra note that as a general_rule actions by subsequent congresses carry minimal weight we think this is especially the case where the attempt to use the record of legislative action upon which petitioner relies is directed to turning a legislative silence into an inferred relief from the overriding rule_of sec_6601 that interest is due on taxes owed to the government our view in this regard is reinforced by the fact that when the rule_of no reduction in computing an underpayment by virtue of a carryback of excess foreign taxes was enacted in see supra p the legislative_history makes clear that it was intended to overrule the decision of the court of federal claims in 35_fedclaims_520 which allowed a foreign tax carryback to reduce an underpayment for purposes of computing interest and that the congress believed that the rule should be the same for both underpayments and overpayments see h conf rept s rept h rept the committee reports specifically comment that no inference is to be drawn under prior_law as to the proper computation of interest on an underpayment when there is a carryback of excess foreign taxes one final element in the more than years of history is involved in resolving the principal issue before us petitioner the legislation was enacted before 126_f3d_1397 revg 35_fedclaims_520 suggests on brief but without any evidentiary support that respondent adopted the interpretation advanced by petitioner and administratively reduced deficiencies by carrybacks of excess foreign taxes for the purpose of computing interest presumably petitioner seeks to establish an administrative practice which could be taken into account in interpreting an ambiguous statute see bankamerica corp v commissioner t c pincite citing 369_us_672 a similar argument was made by the taxpayer in fluor corp and rejected by the court_of_appeals_for_the_federal_circuit see fluor corp affiliates v united_states f 3d pincite we have traveled a complicated path in an effort to discern an answer to the choice before us that choice is whether we should hold for petitioner on the ground that there is a loophole which we should leave to congress to close as it has done for the future or we should hold for respondent on the ground that there is at most a glitch in the statutory framework and that the statutory provisions are sufficiently elastic united_states v koppers co u s pincite to accord as the court_of_appeals_for_the_federal_circuit has done in fluor compelling effect to sec_6601 and continued vitality to seeley tube box co and koppers co so as to hold that an underpayment ie deficiency is not reduced by a carryback of foreign taxes for the purpose of computing interest we have been unable to perceive any persuasive reasons why carrybacks of excess foreign taxes should be treated differently where an underpayment rather than an overpayment is concerned petitioner has argued that unlike other carrybacks such as a net_operating_loss_carryback a matching rather than an averaging principle is involved we are unimpressed such matching stemmed according to petitioner from a desire to mitigate distortions arising from differences in taxable years and accounting methods between the united_states and foreign tax systems we are not persuaded that such matching element dictates that we provide petitioner with the relief sought herein the same matching principle if applicable would dictate that a taxpayer was entitled to interest on an overpayment as well as relief from interest on an unreduced underpayment again a similar argument was made by the taxpayer in fluor corp affiliates and rejected by the court_of_appeals_for_the_federal_circuit which stated even if that matching were the sole purpose behind sec_904 however it would not answer the question whether foreign tax carrybacks cancel the deficiency_interest that would be due on any deficiency eliminated by the carryback the fact that congress wanted to allow some room for matching foreign tax_credits with the recognition of corresponding income under the u s tax system does not mean that congress wanted to allow taxpayers to use foreign tax carrybacks to avoid the normal consequences of tax underpayments in prior years fluor corp affiliates v united_states f 3d pincite the same rationale applies to other situations pointed to by petitioner where foreign tax_credits are involved eg a year statute_of_limitations for refunds of such credits the inapplicability of quickie refunds and the relation back of deductions in respect of disputed foreign taxes the long and the short of the matter is that we think that the statutory provisions are not so explicit as to require us to conclude that congress intended that interest be denied to a taxpayer on overpayments due to carrybacks of foreign taxes but that a taxpayer who fails to pay his taxes when due is relieved of interest on the ground that such carrybacks reduce his underpayment this result would be eccentric if not absurd adjectives that should be avoided when dealing with actions by the legislature see 86_tc_745 as we see it the principle of symmetry in respect of the obligation for interest owed to or by the government is mandated by the historical development of legislative and judicial action such development has continued to reflect the continued vitality of seeley tube box co and koppers co we hold as did the court_of_appeals_for_the_federal_circuit in fluor corp affiliates that an underpayment ie a deficiency is not reduced by a carryback of foreign taxes for purposes of computing interest this leaves us with the question of when the interest stops accruing on the portion of the reductions of the deficiencies attributable to the foreign tax carrybacks in the tax equity and fiscal responsibility act of publaw_97_248 96_stat_637 congress changed the effective dates of carryback credits in all of the carryback interest provisions for both overpayments and deficiencies from the last day of the taxable_year in which the credit arose to the due_date for filing the return for that year this change was effective for interest accruing after date in fluor corp affiliates v united_states supra the taxpayer used a foreign tax carryback from to offset a deficiency in its tax the court_of_appeals_for_the_federal_circuit held that the accrual of interest on the amount of the deficiency represented by the carryback ended as of the close of the taxable_year in which the carryback became available not on the due_date of the taxpayer's return for that year id pincite it selected the close of the taxable_year because that was the date in the interest provisions as they existed in when the foreign tax carryback and carryover provision sec_904 was enacted the court_of_appeals reasoned although congress in changed the timing rules for interest on carrybacks covered by sec_6601 we decline the government's invitation to treat that legislative change as if it changed the period for calculating interest under the non-statutory deficiency_interest rule applicable to foreign tax carryovers there was no statutory change made in with respect to the foreign tax carryover so we cannot attribute to congress the intention to have the foreign tax carryover timing rules follow the legislative change in the rules applicable to other carryovers id pincite we find this approach difficult to understand having previously held that the absence of a specific statutory treatment did not preclude symmetrical treatment of interest on underpayments and overpayments as articulated by manning v seeley tube box co supra and united_states v koppers co supra a ruling that a deficiency for one year was not reduced by a foreign tax carryback from a later year for purposes of calculating interest due the court_of_appeals_for_the_federal_circuit then proceeds to adopt an asymmetrical approach to the issue of when interest on the amount of the deficiency offset by the carryback ceases to accrue in so doing the court_of_appeals_for_the_federal_circuit considered the specific provision of sec_6611 now sec_6611 dealing with cessation of interest in respect of foreign tax carrybacks where an overpayment was involved see supra p a barrier to recognizing the filing_date of the return rather than the close of the taxable_year in which the carryback arose as the critical date where an underpayment was involved and there was no applicable specific statutory provision we are not persuaded that the absence of a specific statutory counterpart to sec_6611 dealing with interest on overpayments which was specifically amended by tefra provides a sufficient basis for reaching the opposite result in respect of the applicable_date when an underpayment is involved such a consequence at the very least suggests eccentric action by the congress a concept we are not prepared to adopt under the circumstances herein see 312_f2d_65 2d cir affg 37_tc_1013 in short with all due respect to the court_of_appeals_for_the_federal_circuit we opt for the same symmetrical disposition of the cutoff date in respect of interest as was accorded the obligation to pay interest where an excess foreign tax carryback is involved petitioner has excess foreign tax carrybacks from and to reduce its deficiencies for and the interest on the carryback is not affected by the tefra amendments the carryback from became effective as of the last day of the taxable_year date and the carryback from became effective as of the due_date of the return for that year date we hold that the interest accrues until such dates as computed by respondent in keeping with the above holdings an appropriate order will be entered denying petitioner's motion reviewed by the court cohen chabot swift jacobs gerber wells ruwe colvin halpern chiechi gale and thornton jj agree with this opinion parr beghe laro and marvel jj did not participate in the consideration of this opinion


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 plr-164608-05 date date internal_revenue_service number release date index number ------------------------------------ ------------------------------- ---------------------------- -------------------------------- - company company shareholder state a ------------------------------- ------------------------------- ---------------------- --------------------------- ------------------------- ------------------- ------------------- dear -------------------- this letter responds to a letter from your authorized representative dated date requesting a ruling under ' b of the internal_revenue_code that company's late election under ' a to be an s_corporation will be treated as timely made facts company was incorporated under the laws of state on a shareholder intended company to be an s_corporation from inception however form_2553 election by a small_business_corporation was not timely filed with the internal_revenue_service company has filed timely federal tax returns form_1120s - u s income_tax return for an s_corporation for all relevant tax years and shareholder has timely filed her own federal tax returns form_1040 - u s individual_income_tax_return for the same years consistent with company’s intended status as an s_corporation law and analysis sec_1362 provides in general that an election by a small_business_corporation under ' a to be an s_corporation may be made for any_tax year a at any time during the preceding tax_year or b at any time during the tax_year and on or before the 15th day of the 3d month of the tax_year plr-164608-05 sec_1362 provides that if a a small_business_corporation makes an election under ' a for any_tax year and b that election is made after the 15th day of the 3d month of the tax_year and on or before the 15th day of the 3d month of the following tax_year then that election shall be treated as made for the following tax_year sec_1362 provides that if a an election under ' a is made for any_tax year determined without regard to ' b after the date prescribed by sec_1362 for making the election for that tax_year or no such election is made for any_tax year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such election as timely made for that tax_year and ' b shall not apply conclusion based on the facts and representations submitted we rule that company has established reasonable_cause for its failure to make a timely election under sec_1362 and that such election by company is to be treated under ' b as filed timely for its tax_year beginning a this ruling is contingent on company filing form_2553 to be effective on a with the appropriate service_center no later than days from the date of this letter a copy of this letter should be attached to the form_2553 except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion on whether company otherwise is eligible to be an s_corporation under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer on whose behalf it was requested according to ' k this ruling may not be used or cited as precedent s sincerely james a quinn senior counsel branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes cc


number release date id office uilc cca_2010060415114941 ---------------------------- from ------------------ sent friday june pm to ------------------------- cc subject continuous audit program cap case regarding your cap case question on sec_419 taxpayer ------------------------------------------------- year ------------------------------------------- year ------------------------------------------- x --------------- market ------------------------ date -------------------------- date ------------------------- consultants ---------------------- taxpayer is an accrual basis fiscal_year taxpayer taxpayer pays severance benefits in its discretion on an ad hoc basis and vacation benefits pursuant to its established policy historically taxpayer has paid both severance and vacation pay from its general assets due to a decline in the market over the past few years taxpayer has paid significant severance and expects to continue to pay additional severance over the next few years effective date taxpayer established trust to pay this anticipated severance and vacation pay trust intends to submit an application_for recognition of exempt status in year on date taxpayer contributed over dollar_figurex to the trust and deducted that amount on its tax_return for year taxpayer indicates that beginning date taxpayer will make payments for vacation and severance and will seek reimbursement from the trust taxpayer computed the amount deducted based on the limitation set forth in sec_419a taxpayer has not provided any information documenting any severance claims incurred in year that it expects to pay in year taxpayer indicates that because the trust was established to pay severance that they anticipate they will have to pay over the next few years and because the amount deducted is within the limit set forth in sec_419a that the deduction is proper a memorandum provided to taxpayer by consultants further indicates it can use amounts in the trust for other_benefits including vacation pay law and legislative_history under a contributions paid_or_accrued by an employer to a welfare_benefit_fund if otherwise deductible are deductible under sec_419 in the year in which paid the trust is a welfare_benefit_fund under sec_419 the deduction is limited to the trust’s qualified_cost for the taxable_year under sec_419 qualified_cost means with respect to any taxable_year the sum of a qualified_direct_cost for such taxable_year and b subject_to 419a b any addition to a qualified_asset_account for the taxable_year under sec_419 the qualified_cost is reduced by the fund’s after tax income for the taxable_year under sec_419 qualified_direct_cost means with respect to any taxable_year the aggregate amount including administrative expenses which would have been allowable as a deduction to the employer with respect to the benefits provided during the a taxable_year if i such benefits were provided directly by the employer and ii the employer used the cash_receipts_and_disbursements_method of accounting sec_419a defines the term qualified_asset_account to mean any account set_aside to provide for payment of disability benefits medical benefits sub or severance_pay benefits or life_insurance benefits sec_419a states that no addition to any qualified_asset_account may be taken into account under sec_419 to the extent such addition results in the amount in such account exceeding the account limit sec_419a provides that except as otherwise provided in sec_419a the account limit for any qualified_asset_account for any taxable_year is the amount reasonably and actuarially necessary to fund - a claims incurred but unpaid as of the close of such taxable_year for benefits referred to in subsection a and b administrative costs with respect to such claims sec_419a provides that unless there is an actuarial certification of the account limit for any taxable_year the account limit shall not exceed the sum of the safe_harbor limits for the taxable_year sec_419a sets forth safe_harbor limits for the various types of reservable benefits sec_419a provides that in the case of sub or severance_pay benefits the safe_harbor limit for any taxable_year is the amount determined under paragraph 419a c sec_419a provides that the account limit for any taxable_year with respect to sub or severance_pay benefits i sec_75 percent of the average annual qualified direct costs for sub or severance_pay benefits for any of the immediately preceding taxable years as selected by the fund the legislative_history of sec_419 specifically states even if the safe harbors are satisfied the taxpayer is to show that the reserves as allowed under the general standards provided by the bill eg claims incurred but unpaid are reasonable conference committee report on the deficit_reduction_act_of_1984 house report the conference_report pincite with respect to what is meant by claims incurred the conference_report explains claims are incurred only when an event entitling the employee to benefits such as a medical expense a separation a disability or a death actually occurs the allowable reserve includes amounts for claims estimated to have been incurred but which have not yet been reported as well as those claims which have been reported but have not yet been paid id pincite my analysis and conclusions assuming the addition to the reserve is within the limit for severance benefits set forth in 419a c taxpayer is not required to have actuarial certification of the amount however sec_419a is not a safe_harbor in the conventional sense this section does not provide an alternative for determining the account limit but rather the limit is an upper limit on the amount that an employer may treat as an addition to a reserve for severance_pay benefits without actuarial certification see eg 103_tc_216 pincite aff’d 142_f3d_546 2nd cir in which the tax_court stated s ection 419a c b does not allow a taxpayer to automatically claim percent of its prior year’s qualified direct costs as the amount of incurred but unpaid medical claims rather the statute merely allows a taxpayer to claim amounts at or below this threshold without obtaining an actuarial certification sec_419a the general signal court cited h conf rept quoted above thus to deduct the amount contributed under sec_419 in year taxpayer must demonstrate that the amount contributed and deducted in year for severance benefits is not greater than the sum of qualified direct costs plus permitted additions to the qualified_asset_account minus after-tax_income of the fund accordingly the amounts either had to be used for benefits paid in year qualified direct costs or be within the general limit for severance_pay benefits under 419a c of an amount reasonably and actuarially necessary to pay the claims incurred but unpaid as of the end of year and therefore be a permitted addition to a qualified_asset_account under sec_419a whether an amount is reasonably and actuarially necessary to pay the claims incurred but unpaid as of the end of year is a determination that should be made based upon the particular facts and circumstances among factors to take into consideration is whether there is an established obligation to make severance payments for a fixed amount of time or whether continuation of any severance payments is in the taxpayer’s discretion according to the memo provided by consultants taxpayer pays severance benefits in its discretion and on an ad hoc basis accordingly taxpayer’s employees do not have an automatic right to severance benefits if they are terminated to establish that the severance benefits were incurred by the end of year at minimum taxpayer would need to demonstrate that as of the end of year some of its employees had been terminated and also demonstrate that it reasonably expected to pay severance benefits to those employees beyond year in any event the amount of the deduction in year should not exceed amounts paid in severance benefits in year plus the amount that taxpayer can demonstrate it reasonably expected as of the end of year to pay beyond year in severance benefits for those terminated employees the reserve for incurred but unpaid claims as of the end of year would not take into account benefits expected to be paid to employees who as of the end of year were still employed by taxpayer the reserve should not take into account any benefits for employees that were expected to be severed in year and beyond because any severance claims for such employees were not incurred by the end of year the reserve must be intended to pay severance benefits and use for vacation or other_benefits if the trust is amended particularly within a short_period of time would tend to negate taxpayer’s demonstration of intent cf 142_f3d_546 2nd cir affirming 103_tc_216 pincite general signal addressed whether the taxpayer established a reserve for postretirement medical benefits under sec_419a and the second circuit said that depended upon the taxpayer’s intent at the time the reserve was established the second circuit explained later depletions of a fund may serve as evidence of what a taxpayer’s intent may have been while our reading of the statute does not imply a commitment to establish funding through the working lives of covered employees if subsequent events rendered maintenance of the reserve impossible evidence of the reason for discontinuing or spending down the reserve could be presented in response to any accusation that a taxpayer never intended to be established in the first place