internal_revenue_service number release date u i l nos cc fip plr-112141-00 date trust state fund fund fund fund fund fund fund fund agent firm date date date date date year dear this is in response to a ruling_request submitted on behalf of fund sec_1 and collectively funds funds request extensions of time pursuant to sec_301_9100-1 of the procedure and administration regulations to elect under sec_855 of the internal_revenue_code facts funds are portfolios of trust are organized as business trusts under state law and are registered as open-end diversified management companies under the investment_company act of u s c sec_80a-1 et seq each fund is treated as a separate corporation under sec_851 of the code from their inception funds have operated in a manner intended to qualify plr-112141-00 them as regulated_investment_companies rics under part i of subchapter_m of the code agent is responsible for preparation of the first draft of funds’ tax returns including any federal_income_tax elections firm is responsible for the detailed review of funds’ tax returns agent is then responsible for final review of the returns and arranging for execution and timely filing of the returns due to an administrative oversight by agent funds’ initial returns with their elections under sec_855 of the code were not timely filed funds’ initial taxable years ended on date the due_date for their initial income_tax returns was date agent neglected to file forms automatic six-month extensions of time for filing funds’ returns on date agent discovered it had not filed form_7004 for any of funds firm is composed of professional tax advisers it became involved with funds’ failures to elect two days after date when firm was contacted by agent firm advised agent to file returns immediately and that administrative relief under sec_301 of the regulations would have to be requested agent took immediate action to prepare and review funds’ income_tax returns and forward them to firm after firm’s review agent had the appropriate officers of funds execute the returns and agent mailed the returns to the appropriate internal_revenue_service service_center on date the returns made the election under sec_855 of the code agent initially undertook preparing the requests for extension of time under sec_301 of the regulations although it had no prior experience with such requests in december of year firm provided agent with electronic documents to assist them with the preparation of the requests under sec_301 between december of year and the following april agent was involved with year-end tax work for funds and other clients upon realization of the magnitude of the requirements involved in filing requests under sec_301 agent enlisted the aid of firm to complete filing the requests firm thus became involved with filing the requests in april and submitted the requests on date funds make the following representations plr-112141-00 the request for relief was filed by the taxpayers before the failure to make the regulatory elections was discovered by the service granting the relief will not result in the taxpayers having a lower tax_liability in the aggregate for all years to which the regulatory election applies than each taxpayer would have had if the election had been timely made taking into account the time_value_of_money the taxpayers do not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time the taxpayers requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences the taxpayers did not choose to not file the election applicable law sec_301_9100-1 of the regulations provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose deadline is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i of the regulations sets forth rules that the internal_revenue_service generally will use to determine whether under the facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion plr-112141-00 based upon the facts and representations submitted it is held that funds have shown good cause for granting a reasonable extension of time to allow them to make an election under sec_855 of the code accordingly the time for filing the election is extended to date no opinion is expressed as to whether the taxpayer's tax_liability is not lower in the aggregate for all years to which the regulatory election applies than its tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the district director's office will determine the taxpayer's tax_liability for the years involved if the district director's office determines the taxpayer's liability is lower that office will determine the federal_income_tax effect this ruling is limited to the timeliness of funds’ elections this ruling does not relieve funds from any penalties they may owe as a result of their failures to file their federal_income_tax returns on time this ruling's application is limited to the facts code sections and regulations cited herein no opinion is expressed as to whether funds qualify as rics under subchapter_m part i of the code a copy of this letter is being forwarded to the service_center where funds file their returns with instructions that although their returns were not timely filed funds are to be treated as having made timely elections under sec_855 of the code except as specifically provided otherwise no opinion is expressed on the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayers that requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the terms of a power_of_attorney on file in this office the original of this letter is being sent to you and copies are being sent to the second-named authorized representative on the submitted power_of_attorney and to the appropriate officer of the taxpayer sincerely yours lon b smith acting associate chief_counsel financial institutions products


internal_revenue_service number release date index number ------------------------ ---------------------------- -------------------------- ------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-140399-11 date date x ----------------------------------------------------------- --------------------------------------------------------------------------------- state --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- date1 -------------- date2 date3 year1 year2 year3 year4 year5 year6 year7 -------------------------- ---------------------------- -------------------------------- -------------------------------- -------------------------- ------------- ------- ------- ------- plr-140399-11 dollar_figurek dollar_figurel ----------- --------- shareholdera ----------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- remedial distributions ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x's authorized representative requesting inadvertent termination relief under sec_1362 of the internal_revenue_code facts according to the information submitted and representations made x was incorporated under the laws of state on date1 x elected to be treated as an s_corporation for federal tax purposes effective date2 at the time of the s election x had c_corporation accumulated_earnings_and_profits ae p for each of the consecutive taxable years ended year1 year2 and year3 x had passive_investment_income within the meaning of sec_1362 in excess of percent of its yearly gross_receipts as a result x’s s election terminated on date3 x made disproportionate distributions to its shareholders in taxable years year4 year5 year6 and year7 these disproportionate distributions may have created a second class of stock x represents that under its governing provisions all of x's shares of stock possess identical rights to distribution and liquidation proceeds x further represents that neither x nor its shareholders knew that disproportionate distributions could terminate x 's s_corporation_election x will make remedial distributions to its shareholders upon the issuance of a favorable letter_ruling x represents that the circumstances resulting in the termination of its s election on date3 as well as the potential creation of a second class of stock during year4 year5 year6 and year7 were inadvertent and that since date2 x and its shareholders have filed returns consistent with x’s status as an s_corporation x and its shareholders agree to make adjustments consistent with the treatment of x as an s_corporation as might be required by the secretary plr-140399-11 additionally during year4 x distributed dollar_figurek to its shareholders x treated this distribution as paid from ae p and distributed forms 1099-div to its shareholders the shareholders reported their respective shares of the purported dividend as dividend income on their individual returns except that dollar_figurel of shareholdera’s distribution was inadvertently not reported as a dividend x’s accountants did not attach the election required for this treatment under sec_1368 to x’s tax_return for year4 rulings requested x requests a ruling that the termination of its s election on date3 will be treated as an inadvertent termination under sec_1362 x requests a ruling that if the disproportionate distributions during year4 year5 year6 and year7 created a second class of stock resulting in a termination of its s election such termination will be treated as an inadvertent termination under sec_1362 x requests an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_1368 to treat the distribution of dollar_figurek in year4 as a distribution paid from ae p law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in subsection c or an organization described in subsection c who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that an election under sec_1362 shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of three consecutive taxable years and has gross_receipts for each of such years more than percent of which are passive_investment_income sec_1362 provides that any termination under sec_1362 shall be effective on plr-140399-11 and after the first day of the first taxable_year beginning after the third consecutive taxable_year referred to in sec_1362 sec_1375 imposes a tax on the income of an s_corporation that has accumulated_earnings_and_profits at the close of a taxable_year and that has gross_receipts more than percent of which are passive_income within the meaning of sec_1362 sec_1_1361-1 of the income_tax regulations provides in part that a corporation that has more than one class of stock does not qualify as a small_business_corporation except as provided in sec_1_1361-1 relating to instruments obligations or arrangements treated as a second class of stock a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds differences in voting rights among shares of stock of a corporation are disregarded in determining whether a corporation has more than one class of stock sec_1_1361-1 provides in part that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively the governing provisions although a corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights any distributions including actual constructive or deemed distributions that differ in timing or amount are to be given appropriate tax effect in accordance with the facts and circumstances sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to this period then notwithstanding the circumstances resulting in the termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1368 provides rules for determining the source of distributions made by an s_corporation having accumulated_earnings_and_profits with respect to its stock sec_1368 and sec_1_1368-1 provide that an s_corporation may with the consent of all its affected_shareholders elect to distribute accumulated earnings and plr-140399-11 profits first sec_1_1368-1 provides that an s_corporation may elect to distribute all or part of its accumulated_earnings_and_profits through a deemed_dividend if an s_corporation makes the election provided in sec_1_1368-1 the s_corporation will be considered to have made the election under sec_1368 and sec_1_1368-1 to distribute accumulated_earnings_and_profits first section f provides that a corporation makes an election for a taxable_year under sec_1_1368-1 by attaching a statement to a timely filed original or amended_return in the statement the corporation must identify the election it is making under sec_1_1368-1 and must state that each shareholder consents to the election in the case of elections for taxable years beginning after date the statement shall be verified by signing the return a statement of election to make a deemed_dividend under sec_1_1368-1 must include the amount of the deemed_dividend that is distributed to each shareholder sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that x's s_corporation_election terminated on date3 the first day of the first taxable_year after three consecutive years in which x had ae p and also in which more than percent of its income was passive_investment_income under sec_1362 we further conclude that the termination of x’s s election on date3 was inadvertent within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation on and after date3 unless x's s_corporation_election is otherwise terminated under sec_1362 and provided that x distributes its ae p to its shareholders within days of the date of this letter and the shareholders report their plr-140399-11 shares of this distribution as a dividend on their federal tax returns this ruling is contingent on x and shareholdera including the dollar_figurel inadvertently not reported as a dividend during year4 as part of x’s remaining ae p being distributed within days of the date of this letter additionally we conclude that if x's s_corporation_election was terminated for having more than one class of stock as a result of making disproportionate distributions such termination constituted an inadvertent termination within the meaning of sec_1362 accordingly x will be treated as continuing to be an s_corporation from date3 and thereafter provided that x's s_corporation_election is not otherwise terminated under sec_1362 this ruling is contingent upon x making remedial distributions within days of the date of this letter for taxable years year4 year5 year6 and year7 - taxable years in which it made disproportionate distributions to its shareholders the shareholders of x must include their pro_rata shares of the separately_stated and nonseparately computed items of income or loss of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 if x fails to make such remedial distributions or x's shareholders fail to treat themselves as described above this ruling shall be null and void additionally based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make a sec_1368 election for taxable_year year4 by filing an amended_return for taxable_year year4 electing pursuant to sec_1_1368-1 to make a deemed_dividend in the amount of dollar_figurek minus dollar_figurel except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed regarding x's eligibility to be an s_corporation further no opinion is expressed as to whether x's income was passive_investment_income under sec_1362 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-140399-11 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x sincerely joy spies joy spies acting senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


total revue sevice index number jo3 ooo cc dom figp 5-plr-106088-99 sept legend authority proposed debt state act project baseload plant tl peaking plant state federal act w year year year year year a b plr-106088-99 a f a i o i h t i dear u l t t h this responds to your request submitted on behalf of the authority for a ruling-that the proceeds of the proposed debt will be treated as financing property used for governmental purposes under sec_103 and sec_141 facts - a corporate the authority was created by the state act as municipal instrumentality and a political_subdivision of the the authority's primary purpose under the state act is state develop and maintain safe dependable and economic electrical the authority generates transmits power for use in the state and sells electric power principally at wholesale as permitted or required by applicable law to fulfill its statutory objectives to the project is a hydroelectric generating facility which the consists of water intakes waterways the baseload plant peaking plant with storage reservoir and power transformation and transmission facilities is among the least expensive energy produced anywhere in north america to the project the federal energy regulatory commission ferc the rates the combined capacity of the project as authority owns the project based in part on the limited supply of water available the energy generated by the project a kilowatts the federal act governs licensing of the project and expressly directs the federal power commission the predecessor to issue a license to the authority to construct and to ferc the federal power commission issued the operate the project first license to the authority in year and that license will expire in year its license for the project a second license to the authority is currently preparing to renew the authority expects ferc to issue it plr-106088-99 the federal act also governs the allocation of a portion of as used in the federal that portion of preference power that the total power provided by the project act and in this ruling the term power means capacity and associated energy as material to this ruling the federal act requires the authority to allocate b percent of the total power produced by the project preference power to a group of customers consisting of public bodies governmental preference customers and non-profit cooperatives cooperative preference customers and together with governmental preference customers the preference customers is available to governmental preference customers is hereinafter referred to as governméntal preference power further allocates preference power between preference customers within the state and such customers in neighboring states when the authority sells power to preference customers in neighboring states the federal act requires the authority to deal exclusively with bargaining agents when these customers have designated such an agent the federal act authorizes the authority to sell preference power to private utility companies if the authority makes flexible arrangements to withdraw sufficient preference power from the private utility companies to satisfy the reasonably foreseeable needs of the preference all provisions of the federal act described herein customers are incorporated into the terms of the license for the project ek the federal act ok kk k ek for purposes of this ruling_request all cooperative preference customers are considered nongovernmental persons all governmental preference customers are publicly-owned all utilities that sell energy directly to retail end-users governmental preference customers are governmental entities which have been delegated the right to exercise part of the sovereign power of governmental entity invested with some or all of such sovereign power or are the public instrumentality of an entity that has been delegated the right to exercise part of such sovereign power a state_or_local_governmental_unit are part of a larger where it is necessary to draw a distinction between governmental preference customers located within the state and those located in neighboring states we refer to these customers ‘ preference customers within the state are entitled to receive c percent of the power provided by the project and such customers in neighboring states are entitled to receive d percent of the power provided by the project 8s plr-106088-99 respectively as the state governmental preference customers and the out-of-state governmental preference customers otherwise noted the term out-of-state governmental preference customers includes any designated bargaining agent of those customers whether or not the bargaining agent itself is body designated such an agent of-state governmental preference customers and with two exceptions solely as conduits for the exchange of output between the authority and the out-of-state governmental preference customers each out-of-state governmental preference customer has those agents act on behalf of the out- a public unless in satisfaction of the federal act and the terms of the authority's license the authority entered into contracts with the governmental preference customers each governmental preference customer's contract demand which represents entitlement to project capacity governmental preference customers aggregate contractual right to project capacity is e kilowatts or f percent of the capacity of the project e kilowatts a kilowatts contracts governmental preference customers pay their proportionate share of the costs incurred by the authority with respect to the project all contracts specify pursuant to their currently the the state governmental preference customers' contracts following the expiration of these expire in year and the authority expects that these contracts will be extended to year upon renewal of the license to operate the out-of-state governmental preference customers' the project contracts expire in year and contain provisions for month-to- month extensions until year contracts the authority does not anticipate any change in the allocation of power that is contractually committed to governmental preference customers requirements of the federal act and the governmental preference customers continued demand for project power given the economically low cost of purchasing output produced by the project rights of the governmental preference customers as continue and any surrendered rights will be meted out to other governmental preference customers reasonably expects that during the term of the proposed debt the governmental preference customers aggregate rights to share in f percent of the total power provided by the project authority does not expect that the implementation of programs generically described as retail access will reduce the even if particular contracts are not renewed the the power provided by the project will not be less than this is due to the allocation a class will the authority hence and the two of the bargaining agents are also preference customers i vb plr-106088-99 authority's allocation of power that is contractually committed in the aggregate to the governmental preference customers the governmental preference customers currently resell their respective allocations of governmental preference power to various end-users as follows governmental preference power is resold directly to retail customers within the state preference customers' respective service areas including customers who are natural persons not engaged in a trade_or_business retail customers purchase governmental preference power under an arrangement that conveys priority rights or other preferential benefits to these retail customers according to rates imposed under tariffs of general applicability imposed under such tariffs apply to different classes of users the differences in rates are customary and reasonable authority reasonably expects that the state governmental preference customers will resell governmental preference power in this manner during the term of the proposed debt in particular governmental preference power is sold although different rates no such the the contracts with the designated bargaining agents for the in with respect to certain out-of- although different rates imposed under such out-of-state governmental preference customers require such agents to cause all governmental preference power that is sold to the out-of-state governmental preference customers to be resold to retail customers of those out-of-state governmental preference customers including customers who are natural persons not engaged in a trade_or_business state governmental preference customers no such retail customers purchase governmental preference power under an arrangement that conveys priority rights or other preferential benefits particular governmental preference power is sold to these retail customers according to rates imposed under tariffs of general applicability tariffs apply to different classes of users the differences in rates are customary and reasonable for all other out-of-state governmental preference customers payments that are substantially certain to be made in any year by each such -out-of- state governmental preference customer on account of its entire allocation of project power do not exceed percent of the expected average annual debt service on the proposed debt nonetheless the bargaining agents are contractually permitted to enter into arrangements with out-of-state governmental preference customers that allow those customers to resell governmental preference power at wholesale non-conforming sale authority is provided advance written notice and the authority approves the non-conforming sale notified of nor approved any non-conforming sales prior to the submission of this ruling_request expects that all out-of-state governmental preference customers resales of governmental preference power will be exclusive benefit of the retail customers of the authority has neither been the authority reasonably the out-of-state for the if the q plr-106088-99 s governmental preference customers and that such sales will continue to be made in the manner described herein during the term of the proposed debt the authority proposes to use the proceeds of the proposed debt to finance upgrade costs and certain relicensing costs for a portion of the project namely the f percent of project capacity that is allocable to the use of governmental preference the upgrade costs include the capital costs customers associated with specified baseload plant generating units at the project such as engineering procurement construction and the relicensing spare equipment for those generating units costs for the project include licensing studies environmental impact’ studies license application preparation legal expenses costs of expert consultants and miscellaneous improvements and additions not otherwise included as costs to upgrade the baseload plant generating units proposed debt will be used to finance the project's transformation and transmission facilities no portion of the proceeds of the law and analysis sec_103 generally provides that gross_income does not include interest on any state_or_local_bond provides that this exclusion does not apply to any private_activity_bond unless it defined under sec_141 sec_141 a provides that a bond is bond satisfies the private_business_use_test of the private_security_or_payment_test of as material to this ruling_request a private_activity_bond if the and is a qualified_bond as such terms are sec_103 b sec_141 sec_141 under sec_141 and b a private_business_use under a trade_or_business an issue and for this purpose the use of financed any activity carried on by a person other than a the private_business_use_test relates to the use of the occurs if more than percent of the proceeds of the bonds are used directly or indirectly in a trade_or_business carried on by any person other than a governmental person sec_141 b natural_person is treated a sec_3 proceeds of property is treated as the direct use of proceeds sec_1_141-3 a private_business_use_test indirect and direct uses of proceeds general a nongovernmental person is treated as business user of proceeds as beneficial use of property pursuant to a lease or or incentive payment contract or certain other arrangements such as under in determining whether an issue meets the a take or pay or other output-type contract a result of ownership actual or is necessary to look to both the under sec_1_141-3 under sec_1 a management a private in it it plr-106088-99 government_use under sec_141 means any use other than under sec_1_141-1 the term governmental private_business_use person means a state_or_local_governmental_unit as defined in sec_1_103-1 or any instrumentality thereof as material to this ruling_request sec_1_103-1 provides that the term state_or_local_governmental_unit means a state or a political_subdivision of a state sec_1_103-1 provides that the term political_subdivision denotes any division of any state_or_local_governmental_unit which is a municipal corporation or which has been delegated the right to exercise part of the sovereign power of the unit under sec_141 a use as a member of the general_public under sec_1_141-3 under sec_1_141-3 generally use under is not taken into account in determining whether the private business tests are satisfied use of financed property by nongovernmental persons in their trades_or_businesses is treated as general_public use only if the property is intended to be available and in fact is reasonably available for use on the same basis by natural persons not engaged ina trade_or_business an arrangement that conveys priority rights or other preferential benefits is not use on the same basis as the general_public under sec_1_141-3 arrangements providing for use that is available to the general_public at no charge or on the basis of rates that are generally applicable and uniformly applied do not convey priority rights or other preferential benefits sec_1_141-3 generally applicable and uniformly applied even if different rates apply to different classes of users such as volume purchasers if the differences in rates are customary and reasonable under i for this purpose rates may be treated as under sec_141 b the private_security_or_payment_test is met if the payment of the principal of than percent of the proceeds of such issue is directly or indirectly secured_by any interest in property used or to be used for a private_business_use or payments in respect of such property or to be derived from payments whether or not to the issuer in respect of property or borrowed money used or to be used for a private_business_use or the interest on more sec_1_141-7t sets forth rules to determine whether arrangements for purchases of output from an output_facility cause an issue of bonds to meet the private business tests sec_1_141-7t c provides that the private_business_use_test and the private security or payments test are met when a nongovernmental person purchases the available output of an output_facility output contract that is financed with the proceeds of an issue if the purchase has the effect of transferring substantial benefits of owning the facility and substantial burdens of paying the debt service on the bonds used a under sec_1_141-7t c plr-106088-99 directly or indirectly to finance the facility the benefits and burdens test transfers substantial benefits of owing a facility if the contract gives the purchaser directly or indirectly rights to capacity on ii an output contract general_public transfers substantial burdens of paying debt service on an issue to the extent that the issuer reasonably expects that it substantially certain that payments will be made under the terms of the contract disregarding default insolvency or other similar circumstances a basis that is preferential to the rights of the under sec_1_141-7t c i an output contract is sec_1_141-7t output contracts available for purposes of by reference to nameplate_capacity or the equivalent or its maximum capacity which is not reduced for sec_1 output for generating facilities is determined under sec_1 7t b lacking either reserves or other unutilized capacity 7t b iv where a jimited source of supply constrains the an output_facility the number of units produced or output of be produced by the facility must be determined by reasonably taking into account those constraints available output of reference to the reasonably expected annual flow of water through a hydroelectric unit must be determined by for example the however under to the unit under sec_1_141-7t an output contract is not taken into the purchaser is not account under the private business tests if required under the contract to make a payment that is substantially certain to be made under sec_4 141-7t c percent of the average any year in an amount greater than annual debt service on facility an issue that finances the output ii in under sec_1_141-7t a nongovernmental person acting solely as governmentally owned and operated utilities is disregarded in determining whether the private business tests are met with respect to financed facilities owned by a governmental person a conduit for the exchange of output among involves a city and a privately- example of sec_1_141-7t h a size sufficient to take advantage of owned utility that agree to jointly construct an electric the generating facility of the facility will be one-third bond-financed economies of scale and two-thirds financed by the privately-owned utility and will be owned by the city and the private utility jointly as tenants the city and the private utility will share in the in common ownership output proportion to each entity's respective contribution to the cost the facility that is one-third by the city and two-thirds by the city will need only percent of the privately-owned utility its share of i4o of and operating_expenses of the facility in the facility during the the annual output of plr-106088-99 accordingly the city agrees to first years of operations sell percent of its one-third output share to the private utility under a 20-year take contract percent of its share of the annual output of the facility during the first years of operations to numerous other private utilities under contracts of days or less entered into under a prevailing rate schedule including demand charges concludes that the bonds are not private_activity_bonds because the city's one-third interest in the facility is not treated as used by the other owner of the facility and not more than percent of the available output of the city's portion of the facility will be used_in_the_trade_or_business of a nongovernmental person the city will also sell the example the conference_report the conference_report to the tax c b h_r vol conf_rep no cong 2d sess contains a similar reform act of ii-690 example which is substantially incorporated into sec_1_141-8t c in the conference_report example a single issue of tax-exempt_bonds is contemplated to finance the acquisition of million electric generating facility of the facility will be sold to an investor-owned utility under an output contract dollar_figure million of tax-exempt_bonds may be used to acquire the facility dollar_figure million for the percent of the facility that is governmentally used plus dollar_figure million for the allowable private use portion under sec_141 the conference_report example concludes that ten percent of the output a dollar_figure the issue presented here is whether the authority may treat a portion of the project allocable to the use by the governmental preference customers based on their entitlement to percent of the project's capacity as a separate facility and thereby treat the proposed debt as financing such separate facility for purposes of applying the private business tests to the proposed debt special rules apply to governmentally owned output of example facilities for purposes of applying the private business tests to bonds issued to finance those facilities 7t h illustrates the principle that under certain circumstances an undivided ownership_interest in an output_facility may be treated as ownership_interest may be financed on a tax-exempt basis if it governmentally used including any permitted amount of private_business_use even if the remainder of the facility is owned and used by a nongovernmental person the conference_report example which is substantially incorporated into the example at sec_1_141-8t c acknowledges and affirms this principle ina slightly different context owned and used portion of the facility including any permitted amount of private_business_use in that example the governmentally a separate facility this undivided was treated as a separate sec_1 if is plr-106088-99 facility from the remaining portion of the facility that although governmentally owned was used by an investor-owned utility under an output contract it is fundamental to the principle illustrated by these examples that a portion of an output_facility that is both governmentally and privately used may be financed on a tax-exempt basis where the governmental entity has an identifiable interest in the facility eg by ownership contract or statute and the use of the governmental entity's share of the available output of the facility_does not cause the bonds to satisfy the private business tests establish that the governmental preference customers have an identifiable interest in the project and second that the use of the governmental preference customers' share of the available output of the project will not cause the proposed debt to satisfy the private business tests hence the authority must first first we consider the nature of the governmental preference the federal act customers' rights to project capacity to determine whether those rights constitute an identifiable interest in the project the federal act is the source of those rights establishes that b percent of the power provided by the project is set_aside as preference power for all preference customers the federal act permits the authority to sell that portion of the preference power to private utility companies which exceeds the reasonably foreseeable needs of the preference customers a result the federal act guarantees that no customers other than preference customers a group which includes the governmental preference customers may have rights to up to b percent of project capacity provisions of the federal act are incorporated into the terms of the license to operate the project will expire during the term of the proposed debt reasonably expects that it will be re-licensed to operate the project when the current license expires this result is assured by the fact that all although the current license the authority as - the authority's contracts with the governmental preference customers implement the federal act allocation provisions project capacity is a kilowatts which takes into account the limited source of water supply available to the project capacity reserved under contracts with the governmental preference customers is project capacity e kilowatts a kilowatts governmental preference customers' contracts will expire during the term of the proposed debt the source of the governmental e kilowatts which is although all f percent of total g2 plr-106088-99 the rights of the and subordinated to preference customers rights as a class is and will remain the federal act those rights cannot be subverted by the authority in effect the authority's ownership and enjoyment of the project are conditioned on governmental preference customers authority's contracts with the governmental preference customers are not renewed the federal act guarantees that the rights of those customers as a class will continue surrendered by one governmental preference customer will be meted out to other governmental preference customers due to the allocation requirements of the federal act and the expected demand of the governmental preference customers for project power given the economically low cost of purchasing power produced by the project the authority reasonably expects that not less than percent of the project capacity will continue to be allocated to the governmental preference customers over the term of the proposed debt moreover even if the any rights we conclude that the portion of the project percent based on the governmental preference customers entitlement to project capacity allocable to the governmental preference customers represents an identifiable interest in the project second assuming the proposed debt finances an identifiable interest in the project allocable to the governmental preference customers we consider all users of governmental preference power in the determination of whether the proposed debt satisfies the private business tests this is because governmental preference power flows not only to the governmental preference customers but also to bargaining agents and finally to the governmental preference power consumers all governmental preference customers are governmental persons within the meaning of sec_1_141-1 and sec_1_103-1 because they are governmental entities that have been delegated to right to exercise part of the sovereign power of a state or logal governmental_unit are part of a larger governmental entity invested with some or all of such sovereign power of the state or are a public instrumentality of an entity that has been delegated the right to exercise part of such sovereign power the state governmental preference customers resell their respective allocations of governmental preference power directly to retail customers within the state governmental preference customers' respective service areas including customers who are natural persons not engaged in a trade_or_business retail customers purchase governmental preference power under an arrangement that conveys priority rights or other preferential benefits in particular governmental preference power is sold to retail customers according to rates imposed under tariffs of general applicability although different rates imposed under no such ip plr-106088-99 such tariffs apply to different classes of users the differences in rates are customary and reasonable the authority reasonably expects that all state governmental preference customer sales will continue to be for the exclusive benefit of the retail customers of each such state governmental preference customer and that such sales will continue to be made in the manner described herein while the proposed debt remains outstanding as a result state governmental preference customers' resales of governmental preference power will satisfy the sec_1_141-3 exception to the private_business_use_test the contracts with the designated bargaining agents for the with respect to certain out-of- where different rates imposed under such tariffs out-of-state governmental preference customers require such agents to cause all governmental preference power that is sold to the out-of-state governmental preference customers to be resold to retail customers of those out-of-state governmental preference customers including customers who are natural persons not engaged in a trade_or_business state governmental preference customers no such retail customers purchase governmental preference power under an arrangement that conveys priority rights or other preferential benefits in particular governmental preference power is sold to retail customers according to rates imposed under tariffs of general applicability apply to different classes of users the differences in rates are customary and reasonable governmental preference customers payments that are substantially certain to be made by each such out-of-state governmental preference customer on account of its entire allocation of project capacity do not exceed percent of the expected average annual debt service on the proposed debt although bargaining agents are contractually permitted to enter into arrangements with out-of-state governmental preference customers that allow those customers to resell governmental preference power at wholesale the authority has not been notified of any resale of governmental preference power at wholesale and has not approved any such resale prior to the time that this ruling_request was submitted expects that all out-of-state governmental preference customers’ resales of governmental preference power will be for the exclusive benefit of the retail customers of the out-of-state governmental preference customers and that such sales will continue to be made in the manner described herein during the term of the proposed debt for all other out-of-state the authority reasonably hence all resales of governmental preference power by out- of-state governmental preference customers will satisfy either the sec_1_141-7t exception for small purchases of output or will satisfy the sec_1_141-3 exception to the private_business_use_test gu plr-106088-99 although bargaining agents for governmental preference each out-of-state governmental preference customers in neighboring states have been included within the term out-of-state governmental preference customers we separately consider use by the bargaining agents for purposes of determining whether the proposed debt satisfies the private_business_use tests customer has designated a bargaining agent bargaining agent these agents act on behalf of the out-of-state governmental preference customers and solely as conduits for the exchange of output between governmentally owned and operated utilities ie between the authority and such out-of-state governmental preference customers are also preference customers does not alter this result hence the bargaining agents are disregarded under sec_1_141-7t f in determining whether the private business tests are met with respect to the project that two bargaining agents in their role as conclusion we conclude that the use of the portion of the project the the terms of the authority's all use of governmental preference power allocable to the governmental preference customers will not cause the proposed debt to satisfy the private business tests provisions of the federal act license and the authority's contracts create an identifiable interest in percent of the project for the governmental preference customers is either use by a governmental entity or the general_public or use that falls within the exception for small output purchases consequently we conclude that the authority may treat the portion of the project allocable to the use by the governmental preference customers based on their entitlement to percent of the project's capacity as applying the private business tests to the proposed debt accordingly the use of the proceeds of the proposed debt to finance f percent of the costs to upgrade the baseload plant and to relicense the project will not cause the proposed debt to satisfy the private business tests contained in a separate facility for purposes of sec_141 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 material submitted in support of the request for rulings it subject_to verification on examination while this office has not verified any of the is except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item that is not discussed or referenced in this letter express no opinion as we have not been requested to rule on and therefore the relicensing costs to any aspect of plr associated with the rehabilitation of existing project-related recreational facilities and the development of new environmental or recreational facilities this ruling is directed only to the taxpayer s requesting sec_6110 of the code provides that it may not be it 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 the taxpayer sincerely assistant chief_counsel financial institutions products by bruce m serchuk senior technician reviewer branch enclosure copy for sec_6110 purposes


acknowledged significant advice may be disseminated office_of_chief_counsel internal_revenue_service memorandum tl-n-1717-97 date date sca released to associate district_counsel salt lake city from assistant chief_counsel income_tax accounting subject significant service_center advice this responds to your request for significant advice dated date in connection with questions posed by the underreporter branch and examination branch of the compliance division of the ogden service_center disclosure statement unless specifically marked acknowledged significant advice may be disseminated above this memorandum is not to be circulated or disseminated except as provided in ccdm d and e this document may contain confidential information subject_to the attorney-client and deliberative_process privileges therefore this document shall not be disclosed beyond the office or individual s who originated the question discussed in no event shall it be disclosed to taxpayers or their representatives issues when the irs receives duplicate forms 1099-c reporting cancellation of indebtedness for each person with joint_and_several_liability on an indebtedness should the irs treat the full amount of the indebtedness cancelled as income to each separate taxpayer should the irs treat this situation in a manner similar to the way the irs deals with responsible persons under sec_6672 of the internal_revenue_code should the irs change its instructions to third parties who provide the irs with form 1099-c information when the irs receives forms 1099-c reporting cancellation of indebtedness for guarantors or sureties of a debt must the irs treat the full amount of the debt cancelled as income to each surety or guarantor should the irs treat this situation in a manner similar to the way the irs deals with responsible persons under sec_6672 should the irs change its instructions to third parties who provide the irs with form 1099-c information when applying the insolvency test of sec_108 should a taxpayer's interest in a pension_plan that is exempt from tl-n-1717-97 creditor’s claims be included as an asset and if so how should that interest be valued under the particular facts described below is issuance of a form 1099-c appropriate should the irs issue forms 1099-c when cancelling tax debt of individuals discharged in a bankruptcy case or as a result of an offer_in_compromise under sec_7122 should an entity required to report under sec_6050p subtract the proceeds of a foreclosure sale settlement etc from the total debt in arriving at the amount of debt cancelled for box of form 1099-c conclusions when the irs receives forms 1099-c reporting cancellation of indebtedness for each person with joint_and_several_liability on an indebtedness the irs should not treat the full amount of the indebtedness cancelled as income to each separate taxpayer instead a determination should be made as to the appropriate amount of discharged debt allocable to each taxpayer that is jointly and severally liable taking into account all the facts and circumstances reporting of cancellation of indebtedness is not required with respect to guarantors and sureties on an indebtedness how the discharged indebtedness should be treated as to each surety or guarantor if reported will be addressed in a separate memorandum when applying the insolvency test of sec_108 a taxpayer's interest in a pension_plan or other assets that are exempt from creditor's claims should be included as assets of the taxpayer an interest in a pension_plan should be valued in accordance with the principles described below under the particular facts described below in issuance of a form 1099-c is not appropriate the irs should not issue forms 1099-c when cancelling tax debt of individuals discharged in a bankruptcy case or as a result of an offer_in_compromise under sec_7122 an entity required to report under sec_6050p should subtract the proceeds of a foreclosure sale settlement etc from the total debt in arriving at the amount of debt cancelled to be reported in box of form 1099-c tl-n-1717-97 facts the irs receives separate forms 1099-c for obligors with joint_and_several_liability on an indebtedness that is discharged for example when spouses sign a note on a home mortgage and the home goes into foreclosure the irs receives forms 1099-c for guarantors or sureties on an indebtedness a taxpayer that realizes income_from_discharge_of_indebtedness claims the insolvency_exception described in sec_108 and has assets that are exempt from creditor's claims under state or other relevant law a debtor incurs an indebtedness to purchase an automobile in connection with that indebtedness the lender obtains an expensive insurance_policy pursuant to terms of the loan that states that a lender may obtain insurance when the borrower fails to provide proof of insurance when debtors have judicially challenged the insurance policies lending institutions have been required to remove the charge for the insurance policies the lender then issues a form 1099-c showing the removed cost of the insurance as cancellation_of_indebtedness_income the irs cancels debt in a number of situations including tax debt of individuals discharged in a bankruptcy case and debt cancelled through an offer_in_compromise under sec_7122 the service_center has received forms 1099-c in which the reporting entity has failed to subtract the proceeds of a foreclosure sale settlement etc from the total debt in arriving at the amount of debt cancelled for box of form c discussion joint obligors sec_6050p requires certain entities to report discharges of indebtedness final regulations issued under sec_6050p address the treatment of joint obligors in general a reporting entity must report discharges of indebtedness for each debtor discharged from such indebtedness sec_1_6050p-1 in addition in the case of multiple debtors that are jointly and severally liable on an indebtedness the amount of discharged indebtedness required to be reported is the total amount of indebtedness discharged sec_1 6050p- e ii when the reporting requirement of sec_6050p was enacted congress indicated in the legislative_history that it did not expect the reporting institutions to determine whether or not the debtor has income from the discharge_of_indebtedness tl-n-1717-97 h_r conf_rep no 103d cong 1st sess accordingly multiple reporting of the discharged debt is consistent with sec_6050p which requires reporting for each person whose indebtedness was discharged a joint_and_several obligation creates a legal relationship between the creditor and the co-obligors under which the creditor may sue one or more of the parties to the liability separately or all of them together at the creditor's option black's law dictionary pincite at common_law an obligor who is required to satisfy more than that obligor's proportionate share of a common obligation generally is entitled to seek pro_rata contribution from each of the other co-obligors restatement of restitution sec_81 however the right of contribution is an equitable doctrine and depends upon a determination of the facts and circumstances including whether the co-obligors equally enjoyed the use of the proceeds of the indebtedness because a taxpayer has a pro_rata right of contribution from each of the co-obligors under certain circumstances discharge of all of the co-obligors of the full amount of a joint_and_several obligation by a creditor should not be treated as income to each co-obligor in the full amount of the discharged obligation under sec_61 see kahle v commissioner t c memo 73_tcm_2080 which suggests that the amount of cancellation_of_indebtedness_income to a debtor in bankruptcy that gives rise to attribute reduction may be reduced because certain of the discharged debts were joint liabilities bressi v commissioner 62_tcm_1668 amount of discharge_of_indebtedness income for two taxpayers with joint_and_several_liability for indebtedness was equal to the total amount of the indebtedness discharged revrul_92_97 1992_2_cb_124 amount of discharge_of_indebtedness income for partnership and two jointly and severally liable partners equal to total amount of indebtedness discharged rather an appropriate allocation of the discharged indebtedness should be made between the co- obligors based on all the facts and circumstances in addition in response to your question whether the irs should change its instructions to third parties who provide the irs with form 1099-c information we note that reporting for multiple debtors was modified in the final regulations under sec_6050p while the general requirement for reporting the full amount of the debt for multiple debtors was retained several important exceptions were provided the decision to retain the general requirement for reporting the full amount of the debt for multiple debtors is explained in the preamble to the final regulations as follows the irs and treasury believe however that requiring reporting for multiple debtors is consistent with sec_6050p which provides that the reporting of a name address and tin is required for each person whose indebtedness tl-n-1717-97 was discharged the exceptions are described in sec_1 6050p- e i which states in the case of indebtedness of dollar_figure or more incurred on or after date that involves more than one debtor a reporting entity is subject_to the requirements of paragraph a of this section for each debtor discharged from such indebtedness in the case of indebtedness incurred prior to date and indebtedness of less than dollar_figure incurred on or after date involving multiple debtors reporting under this section is required only with respect to the primary or first-named debtor additionally only one return of information is required under this section if the reporting entity knows or has reason to know that co-obligors were husband and wife living at the same address when an indebtedness was incurred and does not know or have reason to know that such circumstances have changed at the date of a discharge of the indebtedness this paragraph e applies to discharges of indebtedness after date guarantors and sureties the final regulations under sec_6050p do not require reporting of discharges of indebtedness with respect to guarantors or sureties sec_1_6050p-1 states solely for purposes of the reporting requirements of this section a guarantor is not a debtor thus in the case of guaranteed indebtedness reporting under this section is not required with respect to a guarantor whether or not there has been a default and demand for payment made upon the guarantor the treatment of a reported discharge_of_indebtedness to each surety or guarantor will be addressed in a separate memorandum determination of insolvency and exempt assets sec_108 defines insolvent as the excess of liabilities over the fair_market_value of assets although case law interpreting the judicial insolvency exclusion that was in effect prior to the enactment of the bankruptcy_tax_act_of_1980 excluded assets exempt from creditors under state law see 42_bta_1110 marcus estate v commissioner tcmemo_1975_9 aod date the statutory language places no limitation on assets that are taken into account in determining a taxpayer's solvency the plain meaning of the term asset in sec_108 would include all of the taxpayer's assets in the insolvency calculation generally where the language of a statute is clear and unambiguous no further inquiry into the meaning of the statute is needed mertens law of federal taxation dollar_figure further sec_108 as an exclusion from income is to be construed narrowly u s v centennial savings bank fsb 499_us_573 excluding exempt assets from the measure of insolvency would provide taxpayers who are economically solvent ie whose total assets exceed their tl-n-1717-97 liabilities the opportunity to defer a current tax in instances where they have the ability to pay the tax therefore a debtor’s interest in a pension_plan should be taken into account in determining the debtor’s solvency even though the assets may be exempt from the reach of creditors under state law regarding the valuation of the pension assets we note that there are generally two categories of deferred_compensation plans defined contribution plans and defined benefit plans in the case of a defined_contribution_plan the actual earnings_of the trust assets are allocated among the accounts of the participants at least annually therefore the value of the benefits of an individual under a defined_contribution_plan is simply the value of the individual’s account or accounts under the plan defined benefit plans generally provide for a benefit that is defined by the plan with respect to factors such as the individual’s compensation length of service and age at benefit commencement thus there is no individual_account but a promise of a pension benefit that would usually be for the life of the individual with further payments possible to a survivor after the individual’s death in most cases an individual has the ability to elect to have the pension benefits paid in one or more optional forms of benefit in a case where an individual has commenced the receipt of benefits under a defined_benefit_plan and accordingly has elected a form of benefit payment that includes an annuity or installment payments we believe that value of the benefit should be the actuarial present_value of the payments that are to be made under the annuity or series of installments on or after the relevant date that is the date as of which the insolvency determination is made we suggest that the actuarial present_value be determined using the interest rate and the mortality tables set forth in sec_20_2031-7 of the regulations which are used to value annuities for federal estate_tax purposes this would appear to be consistent with the valuation requirements of sec_7520 of the code in the case where an individual has not commenced the receipt of retirement benefits under the plan and accordingly has not elected a form of benefit payment we suggest that the value of the benefit should be the greater of the actuarial present_value of the accrued_benefit payable at the plan's normal_retirement_age or the amount of any single-sum distribution that the participant could receive under the plan on the date as of the relevant date the suggested approach would ignore optional forms of benefits that could be chosen except that it would take into account any option that provides for an immediate cash payment tl-n-1717-97 there are certain types of defined benefit plans that base the individual’s benefit in part upon the separate_account of an individual see sec_414 of the code that may be contained in the plan for example a defined_benefit_plan could provide for a voluntary contribution account or for a rollover account for an individual in such a case we suggest that the value of the individual's benefit be the sum of the value of the separate_account treating the separate_account as a defined_contribution_plan plus the actuarial present_value of the part of the benefit that does not depend upon the separate_account as described above currently the actuarial factors used to value annuities under can be found in internal revenue publication entitled actuarial values alpha volume note however we understand that during the coming year the regulations will likely be changed to use a new mortality_table based on the united_states life tables for for estate and gift_tax purposes once this takes place publication will be revised to reflect the new table no liability under the facts described above we agree with your conclusion that issuance of the form 1099-c is improper in the fact situation you present the debtor has established that there was no debt therefore because the debtor owed nothing there was no cancellation of a debt and no resulting income from cancellation of any indebtedness cancellation of debt by irs cancellation of a tax debt by means of an offer_in_compromise does not give rise to discharge_of_indebtedness income 348_f2d_528 ct_cl the court in eagle asbestos concluded that a compromise of the interest portion of a tax debt did not give rise to income from the discharge_of_indebtedness because t he effect of the compromise settlement itself and the intentions of the parties in entering into it was to extinguish all tax_liabilities included in the items making up the compromise such an intent could not be fulfilled if taxable_income arose from the agreement this rationale applies equally 1under some plans the separate_account may be an account that is in a separate defined_contribution_plan rather than in the defined_benefit_plan itself an example of this type is a so-called floor-offset plan under a floor-offset plan the benefit otherwise payable under the defined_benefit_plan is reduced or offset by the actuarial equivalent of the account balance in the defined_contribution_plan in such a case the net benefit after application of the offset is the benefit payable from the defined_benefit_plan and can be valued under the suggested approach for defined benefit plans generally tl-n-1717-97 to cancellation of a tax debt itself as well as interest on a tax debt therefore no form 1099-c is required to be issued however we note that if the irs cancels a debt that is not a tax debt the amount cancelled is includible in discharge_of_indebtedness income and a form 1099-c should be issued with respect to tax debts of individuals discharged in bankruptcy regulations under sec_1_6050p-1 state reporting is required under this section in the case of a discharge_of_indebtedness in bankruptcy only if the creditor knows from information included in the reporting entity's books_and_records pertaining to the indebtedness that the debt was incurred for business or investment purposes further sec_1_6050p-1 states indebtedness is considered incurred for business purposes if it is incurred in connection with the conduct of any trade_or_business other than the trade_or_business of performing services as an employee indebtedness is considered incurred for investment purposes if it is incurred to purchase property_held_for_investment as defined in sec_163 an indebtedness arising as a result of nonpayment of an individual income_tax_liability is not incurred for business or investment purposes see sec_1_163-9t and 65_f3d_687 8th cir but see 106_tc_31 therefore a cancellation of such an indebtedness in bankruptcy would not give rise to a reporting requirement under sec_1_6050p-1 amount of indebtedness discharged when lender receives foreclosure proceeds or other settlement proceeds revrul_90_16 1990_1_cb_12 citing 311_us_504 indicates that a mortgage foreclosure is a disposition within the scope of sec_1001 of the code sec_1_1001-2 of the income_tax regulations provides that the amount_realized from the disposition of property includes the amount of liabilities from which the transferor is discharged as a result of the disposition therefore to the extent that an amount of a debt is satisfied by the transfer of property in foreclosure there is a sec_1001 disposition event and there is no cancellation_of_indebtedness_income the regulations make clear that in the case of a transfer to a creditor of an asset encumbered by indebtedness for which the debtor is personally liable combined with a discharge by the creditor of the full amount of the debt there is a cancellation of indebtedness only to the extent the indebtedness exceeds the fair_market_value of the property sec_1_1001-2 example because the debt is being partially satisfied by the transfer of the property it is cancelled only to the extent the debt exceeds the value of the property consequently the amount of the debt satisfied should not be reported as discharged debt under sec_6050p entities required to report under sec_6050p should subtract the proceeds of a foreclosure sale settlement etc from the total debt in tl-n-1717-97 arriving at the amount of debt cancelled for box of form c the instructions to the form will be reviewed to consider whether a clarification in the instructions is appropriate thank you for your questions concerning these matters sincerely assistant chief_counsel income_tax accounting by s christopher f kane assistant to the chief br


department of the treasury internal_revenue_service washington d c tex eneney ano sep uniform issue list se tep atl legend taxpayer a taxpayer b company m individual a irav iraw ira x iray account m amount a amount b amount c amount d dear this letter is in response to a ruling_request submitted by your authorized representative dated date as supplemented by correspondence dated date date and date 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 the ruling requested taxpayer a and taxpayer b file their income_tax retum as married_filing_jointly they both had iras individual_retirement_accounts as described in sec_408 of the gode ira v and ira w respectively with company m ‘taxpayer a was aware that he and his wife were required to begin withdrawals from their iras when they attained age taxpayers a and b each attained age in date and date respectively during date they went to company m to make arrangements for taking their required minimum distributions company m told taxpayers a and b that they had two options available to them they could elect to withdraw the required minimum distributions from their ras but could not withdraw more than the required_minimum_distribution in each subsequent year or they could withdraw the entire amount from their iras and invest the proceeds in a taxable certificate of deposit with company m based on the options company m presented them taxpayers a and felt that a complete withdrawal from their iras was the only prudent choice and assented to the conversion of their iras into certificates of deposit with company m on date taxpayer a withdrew amount a from ira v and deposited amount a into account m a taxable account with company m similarly on date taxpayer b withdrew amount b from ira w and deposited amount b into account m on date taxpayers a and b met with individual a to have their federal and state_income_tax retums prepared during that meeting individual a discovered a form 1099-r for taxpayer a and a form 1099-r for taxpayer b reporting a distribution from their respective iras iras v and w individual inquired as to the rationale for the liquidation of the iras and then informed taxpayers a and b that company m had provided erroneous advice regarding their ira distribution options taxpayers a and b had attempted to comply with the requirement that they begin to receive at least the required_minimum_distribution from their iras they did net otherwise need to access their ira funds and did not spend the funds withdrawn from the iras 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 based on the above facts and representations you request a ruling that the internal_revenue_service the service waive the 60-day rollover requirement with respect to the distribution of amounts a and b contained in sec_408 d of the code on date taxpayer a withdrew amount c from account m and deposited it into ira x m and deposited it into ira y similarly on date taxpayer withdrew amount d from account sec_408 d 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 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 day after the day on which the individual receives 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 inctudible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 d '3 does not apply to any amount describad in sec_408 3xa i received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 d 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 or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider ail relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postat 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 taxpayers a and b consistent with their assertion that their failure to accomplish a timely rollover was caused by errors committed by a financial_institution is therefore pursuant to sec_408 of the code the service hereby waives the day rollover requirement with respect to the distribution of amount a from ira v and amount b from ira w taxpayer a is granted a period of days from the issuance of this ruling letter to roll over no more than amount a minus ail required minimum distributions taxpayer b is granted a period of days from the issuance of this ruling letter to roll over no more than amount b minus all required minimum distributions provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contributions amount a minus all required minimum distributions and amount b minus all required minimum distributions will be considered rollover_contributions within the meaning of sec_408 a of the code any amount in excess of amount a minus all required minimum distributions contributed to ira x will be considered excess_contributions subject_to the tax on excess_contributions imposed by sec_4973 of the code any amount in excess of amaunt b minus all required minimum distributions contributed to ira y will be considered excess_contributions subject_to the tax on excess_contributions imposed by sec_4973 of the code this ruling dees not authorize the rollover of amounts that are required to be distributed by sec_401 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 taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter_ruling has been sent to your authorized representative pursuant to a power_of_attorney on file in this office if you wish to inquire about this ruling please contact at sincerely yours cinlfor-h vibe employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice ce


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 ita b04 plr-152166-08 date date legend x y z ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------ ------------------------------------------------------------------------------------------------- ------- ------------------------------------------------------------------------------------------------- ------------------------------------------- taxpayer ----------------------------------------------------- ein ---------------- date ------------------ tort -------------------------- dear ----------------- this letter responds to a request for a letter_ruling that x payments subject_to y up to z are not reportable under sec_6041 of the internal_revenue_code because the payments plr-152166-08 are excludable from the gross_income of the recipients as damages received on account of a personal physical injury or physical sickness under sec_104 facts taxpayer is a qualified_settlement_fund under sec_468b of the code and sec_1_468b-1 of the income_tax regulations taxpayer was established on date to process liquidate and pay personal physical injury claims claims resulting from tort claimants may receive x payments subject_to y in satisfaction of their claims law and analysis sec_61 provides that except as otherwise provided by law gross_income includes all income from whatever source derived accordingly a taxpayer must include in gross_income an accession to wealth unless it is excluded from income by another section of the code sec_104 excludes from gross_income the amount of any damages other than punitive_damages received whether by suit or agreement and whether as lump sum or as periodic_payments on account of personal physical injuries or physical sickness sec_1_104-1 defines the term damages received whether by suit or agreement as an amount received other than workmen’s compensation through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution sec_6041 requires all persons engaged in a trade_or_business and making payment in the course of such trade_or_business to another person of rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income of dollar_figure or more in any taxable_year to file an information_return with the service and to furnish an information statement to the payee sec_1_6041-1 provides that income is fixed when it is paid in amounts definitely predetermined income is determinable whenever there is a basis of calculation by which the amount to be paid may be ascertained sec_1_6041-1 requires a payor to report sec_6041 amounts on form_1099 conclusions based solely on the submitted documents and representations made by taxpayer we conclude that x payments subject_to y up to z are excluded from gross_income under sec_104 as damages received on account of a personal physical injury or sickness we also conclude that taxpayer is not required to issue an information_return for x payments subject_to y up to z paid to a claimant plr-152166-08 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely donna j welsh senior technician reviewer branch office of associate chief_counsel income_tax accounting cc


department of the treasury l internal_revenue_service washington d c aug tax_exempt_and_government_entities_division ti lp rats u l kk xk kk k kk x e k legend organization a organization b organization c church r hospital p state j directory s plan x plan y dear kk this letter is in response to your request dated date as supplemented by correspondence dated date date date date date date date and date submitted on your behalf by your authorized representatives regarding the church_plan status of plan x within the meaning of sec_414 of the internal_revenue_code code the following facts and representations have been submitted under penalties of perjury on your behalf hospital p was created by organization b of state j to meet the charitable needs of people by providing health and human services to people in need organization b is a religious community organized within church r hospital p was originally incorporated on date pursuant to articles of incorporation articles that have been amended from time to time the articles provided that the sole member of hospital p was organization c a non-profit corporation hospital p is exempt from federal income_taxation under sec_501 as an organization described under sec_501 of the code and is listed in directory s the official directory of church r under article ill of hospital p’s bylaws the powers of hospital p generally were exercised by the board_of trustees board the board consisted of from five to thirty trustees including the congregational leader of organization b and two trustees who were the designated representatives of organization b the exact number of trustees was fixed by organization c and with the exception of the congregational leader of organization b the two representatives of organization b and the president of hospital p all trustees were subject_to certain term limitations trustees were required to agree to conduct the activities and business of hospital p under the philosophy of and ethical and religious directives for church r health facilities as adopted by the national clerical leadership of church r and implemented by organization b congregational leader of organization b had the right to veto any trustee otherwise approved by organization c in addition the in june hospital p participated in a reorganization which resulted in the creation of a new parent_corporation known as organization a organization a is a nonprofit state j corporation exempt from federal income_taxation under sec_501 of the code by virtue of being an organization described in sec_501 of the code article tll of organization a’s restated bylaws provides that the sole member of organization a is the congregational leader of organization b the board_of governors governors has the authority to manage organization a but the congregational leader of organization b has the sole authority and discretion to appoint and remove all governors of organization a as well as the trustees of any subsidiaries and the executive director of any subsidiary of organization a the congregational leader of organization b also has the sole authority to veto any_action by organization a or it’s governors and to exercise any powers designated to organization a with respect to any subsidiary effective date hospital p established plan y a retirement savings_plan for the benefit of its employees and the employees of its subsidiaries in june organization a assumed the sponsorship of plan y and renamed it plan x plan x is a qualified_plan as described in sec_401 of the code ae evise5ud2 organization a has not made an election under sec_410 of the code with respect to plan x plan x is administered by a retirement_plan committee committee whose members are appointed by the congregational leader of organization b past the committee was controlled by the board which was controlled by church r currently the committee is controlled by the congregational leader of organization b the committee serves as the plan x administrator and exercises the sole authority to construe and to interpret the provisions of plan x determine eligibility for benefits thereunder and otherwise manage the operations of plan x in the in accordance with revproc_2011_44 2011_39_irb_446 notice to employees with reference to plan x was originally provided on date and was reissued on date with a minor correction this notice explained to participants of plan x the consequences of church_plan status based on the foregoing you request a ruling that plan x is a church_plan under the provisions of sec_414 of the code effective as of date sec_414 was added to the code by sec_1015 of erisa sec_1017 of erisa provided that sec_414 of the code applied as of the date of erisa’s enactment however sec_414 of the code was subsequently amended by sec_407 of the multiemployer pension_plan amendments act of pub law to provide that sec_414 of the code was effective as of date sec_414 of the code generally defines a church_plan as a plan established and maintained for its employees or their beneficiaries by a church or a convention or association of churches which is exempt from taxation under sec_501 of the code sec_414 of the code provides in part that the term church_plan does not include a plan that is established and maintained primarily for the benefit of employees or their beneficiaries of such church_or_convention_or_association_of_churches who are employed in connection with one or more unrelated trades_or_businesses within the meaning of sec_513 of the code or if less than substantially_all of the individuals included in the plan are individuals described in sec_414 of the code or sec_414 of the code or their beneficiaries sec_414 of the code provides that a plan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches includes a plan maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association of churches if such organization is controlled by or associated with a church or a convention or association of churches sec_414 of the code defines employee of a church or a convention or association of churches to include a duly ordained commissioned or licensed minister of a church in the exercise of his or her ministry regardless of the source of his or her compensation and an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 of the code and which is controlled by or associated with a church or a convention or association of churches sec_414 of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 of the code shall be deemed the employer of any individual included as an employee under subparagraph b sec_414 of the code provides that an organization whether a law corporation or otherwise is associated with a church or a convention or association of churches if the organization shares common religious bonds and convictions with that church_or_convention_or_association_of_churches civil revproc_2011_44 2011_39_irb_446 supplements the procedures for requesting a letter_ruling under sec_414 of the code relating to church plans the revenue_procedure requires that plan participants and other interested persons receive a notice in connection with a letter_ruling request under sec_414 of the code for a qualified_plan requires that a copy of the notice be submitted to the internal_revenue_service irs as part of the ruling_request and provides procedures for the irs to receive and consider comments relating to the ruling_request from interested persons in order for an organization that is not itself a church_or_convention_or_association_of_churches to have a qualified church_plan it must establish that its employees are employees or deemed employees of a church_or_convention_or_association_of_churches under sec_414 of the code by virtue of the organization's control by or affiliation with a church_or_convention_or_association_of_churches employees of any organization maintaining a plan are considered to be church employees if the organization is exempt from tax under sec_501 of the code and is controlled by or associated with a church_or_convention_or_association_of_churches in addition in order to be a church_plan the plan must be administered or funded or both by an organization described in sec_414 of the code to be described in sec_414 of the code an organization must have as its principal purpose the administration or funding of the plan and must also be controlled by or associated with a church_or_convention_or_association_of_churches in this case organization a and its predecessor hospital p are organizations described in sec_501 of the code which are exempt from tax under sec_501 of the code organization a is listed in directory s which is the official directory of church r the sole member of organization a congregational leader of organization b organization b is a religious community which carries out the functions of church r and is listed in directory s therefore organization a is indirectly controlled by church r through its relationship with organization b is the in view of the common religious bonds between church r and organization a and the indirect contro of organization a by church r through organization b we conclude that organization a the successor to hospital p is associated with a church or a convention or association of churches within the meaning of sec_414 of the code that the employees of organization a meet the definition of employee under sec_414 of the code and that they are deemed to be employees of a church or a convention or association of churches by virtue of being employees of an organization which is exempt from tax under sec_501 of the code and which is controlled by or associated with a church or a convention or association of churches in the past the board controlled the plan x is administered by the committee whose members are appointed by the congregational leader of organization b committee but currently the congregational leader of organization b controls the committee therefore the committee is associated with and under the control of organization b and is indirectly associated with and under the control of church r further as represented above the sole purpose of the committee is the administration of plan x for the provision of retirement benefits for the employees of organization a as a result the committee constitutes an organization described in sec_414 of the code based on the foregoing facts and representations we conclude that plan x is a church_plan within the meaning of sec_414 of the code and has been a church_plan within the meaning of sec_414 of the code retroactive to date in addition we conclude that plan x has not been maintained primarily for the benefit of employees who are employed in connection with one or more unrelated trades or business as defined in sec_513 of the code this letter expresses no opinion as to whether plan x satisfies the requirements for qualification under sec_401 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this letter is being sent to your authorized representatives pursuant to a power_of_attorney on file in this office if you have any questions regarding this letter please contact id number at please address all correspondence to se t ep ra t3 sincerely yours jo cm laura b warshawsky manager employee_plans technical group enclosures deleted copy of letter_ruling notice cc wkk