internal_revenue_service technical_advice_memorandum date numner release date uil t eo b3 taxpayer’s name taxpayer’s ssn earliest year under examination taxable years under examination date of conference date legend x y a b c d e q ------- ------ ------- ---------- issues whether x is an applicable_tax-exempt_organization whether d is a disqualified_person as defined by sec_4958 of the internal_revenue_code code with respect to x defined by sec_4958 whether the use of x’s assets by d constitutes an excess_benefit_transaction as what is the taxable_period for the excess_benefit transactions whether d is liable for the excise_tax imposed by sec_4958 of the code that is equal to percent of the excess_benefit whether d is liable for the excise_tax imposed by sec_4958 of the code that is equal to percent of the excess_benefit_transaction if the transaction is not corrected within the taxable_period facts x was granted tax-exempt status under sec_501 on december ------- it was subsequently ruled that x was not a private_foundation and that it qualified as an organization described in sec_170 as a church x received a revised determination_letter from chief exempt_organizations rulings branch on date q maintaining its sec_501 status and modifying its foundation status to one under sec_509 and sec_170 effective august ------ as of january ------- these rulings were still in effect and had not been revoked or modified on september ------- x adopted restated bylaws article iii the founder sec_1 identifies the founder of x to be a directors are appointed by the founder and will serve until their death disability resignation or removal by the founder a is x’s founder and has always been its president and a director b wife of a is secretary-treasurer and director d son of a and b is also a director credit cards during the years under examination x had charge accounts with --------- and ---------- ------- ----------- d had the use of these cards for gasoline purchases information_document_request idr no asked x to provide a copy of its policy statement ensuring that use of x’s credit cards was for x’s purposes and any personal charges would be reimbursed x provided the following response x’s policy regarding personal_use of any credit cards in the name of x is that credit cards are to be used only for x business and not for any personal_use in the event of any personal_use the person utilizing the credit card would be obligated to reimburse x x retained its credit card statements and a few receipts x did not note any business_purpose or relationship with respect to the entries on such statements x did not otherwise maintain any records account books diaries etc to establish the business_purpose or relationship of such expenditures the agent found that aside from gasoline charges associated with seminar travel d charged over dollar_figure--------- for gasoline during the ---------------period on his x credit cards cell phone during ------- x provided a cell phone to d idr no asked x to provide a copy of its policy statement ensuring that personal_use of x-paid home phones cellular phones and calling cards would be reimbursed to x in response to the idr x stated the policy of x regarding personal_use of telephone is that personal telephone calls should not be charged to any x paid telephone line any personal calls should be reimbursed to x the agent found that during the year ------- d incurred cellular telephone charges of dollar_figure--- ------------- x paid this amount miscellaneous expenses in may ------ x wrote a check to d for the amount of dollar_figure--------- the memo on the check indicated this was for -------------------------------- x held only one seminar in ---------------- during the ------ calendar_year -------------- and there is no evidence on the record to suggest that d ---- ----------------------------- at that seminar c legal principles relating sec_4958 sec_501 of the internal_revenue_code code exempts from federal_income_tax organizations organized and operated exclusively for religious charitable scientific or educational_purposes where no part of the net_earnings inures to the benefit of any private_shareholder_or_individual sec_4958 imposes an excise_tax on each excess business transaction between an applicable_tax-exempt_organization and a disqualified_person sec_4958 was added to the internal_revenue_code by sec_1311 of the taxpayer bill of right sec_2 p l 110_stat_1452 enacted date the sec_4958 excise_taxes generally apply to excess_benefit transactions occurring on or after date the report from the committee on ways and means on the taxpayer bill of right sec_2 h_r was submitted date h_rep_no 104th congress 2d sess final regulations under sec_4958 which apply as of date represent a fair and reasonable interpretation of sec_4958 based on the intent of congress as expressed in the report from the ways_and_means_committee submitted date sec_4958 of the code imposes on each excess_benefit_transaction a tax equal to percent of the excess_benefit the tax imposed shall be paid_by any disqualified_person referred to in subsection f with respect to such transaction sec_4958 of the code imposes an additional tax on the disqualified_person in any case in which an initial tax is imposed by subsection a on an excess_benefit_transaction and the excess_benefit involved in such transaction if not corrected within the taxable_period a tax equal to percent of the excess_benefit involved the tax imposed by this subsection shall be paid_by any disqualified_person referred to in subsection f with respect to such transaction sec_4958 of the code defines an excess_benefit_transaction in general as any transaction in which an economic benefit is provided by an applicable_tax-exempt_organization directly or indirectly to or for_the_use_of any disqualified_person if the value of the economic benefit provided exceeds the value of the consideration including the performance of services received for providing such benefit an economic benefit shall not be treated as consideration for the performance of services unless such organization clearly indicated its intent to so treat such benefit sec_4958 of the code defines excess_benefit as the excess referred to in subparagraph a sec_4958 of the code provides if more than one person is liable for any_tax imposed by subsection a or subsection b all persons shall be jointly and severally liable for such tax sec_4958 of the code defines ‘applicable tax-exempt organization’ as any organization which without regard to any excess_benefit would be described in paragraph or of sec_501 and exempt from tax under sec_501 sec_4958 of the code includes any organization which was described in paragraph at any time during the 5-year period ending on the date of the transaction sec_4958 of the code defines ‘disqualified person’ with respect to any transaction as-- i any person who was at any time during the year period ending on the date of such transaction in a position to exercise substantial influence over the affairs of the organization ii a member_of_the_family of an individual described in subparagraph a or iii a 35-percent_controlled_entity sec_4946 of the code includes spouses ancestors children and spouses of children in the definition of disqualified_person sec_4958 of the code provides that the members of an individual’s family shall be determined under sec_4946 except that such members also shall include the brothers and sisters whether by the whole or half blood of the individual and their spouses sec_4958 of the code defines taxable_period with respect to any excess_benefit_transaction the period beginning with the date on which the transaction occurs and ending on the earliest of-- a the date of mailing a notice_of_deficiency under sec_6212 with respect to the tax imposed by subsection a or b the date on which the tax imposed by subsection a is assessed sec_4958 of the code defines ‘correction’ and ‘correct’ with respect to any excess_benefit_transaction as undoing the excess_benefit to the extent possible and taking any additional measures necessary to place the organization in a financial position not worse than that in which it would be if the disqualified_person were dealing under the highest fiduciary standards sec_53_4958-4 of the federal_income_tax regulations provides that certain economic benefits are disregarded for purposes of sec_4958 including benefits excluded from income under sec_132 of the code and expense reimbursement payments pursuant to an accountable_plan that meets the requirements of sec_1_62-2 and sec_53_4958-4 and ii of the regulations sec_1_62-2 of the regulations provides that an accountable_plan must meet the business connection substantiation and returning-excess-payments provisions of the regulation sec_1_62-2 of the regulations provides that expenses reimbursable under an accountable_plan must constitute deductible business_expenses under sec_162 or other business deduction statutes sec_1_62-2 of the regulations provides that expense reimbursements under an accountable_plan must satisfy the substantiation rules of sec_1_162-17 or sec_1_274-5t of the regulations sec_162 of the code provides in part that there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business including a reasonable allowance for salaries or other compensation_for_personal_services rendered traveling expenses including amounts expended for meals_and_lodging other than amounts which are lavish_or_extravagant under the circumstances while away from home in the pursuit of a trade_or_business sec_1_162-1 of the regulations states in general that business_expenses deductible from gross_income include the ordinary and necessary expenditures directly connected with or pertaining to the taxpayer’s trade_or_business except items which are used as the basis for a deduction or a credit under provisions of law other than sec_162 sec_274 of the code provides that no deduction or credit shall be allowed under sec_162 or sec_212 for any traveling expense for any item with respect to an activity which is of a type generally considered to constitute entertainment amusement or recreation or with respect to a facility used in connection with such an activity for any expense for gifts or with respect to any listed_property as defined in sec_280f unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement regarding amount time and place business_purpose and business relationship sec_1_274-5t of the regulations requires each employee to provide substantiation of the business_purpose of each expense generally in writing sec_1_274-5t of the regulations provides that no deduction or credit shall be allowed for travel unless the taxpayer substantiates the following elements amount - amount of each separate expenditure for traveling away from home time - dates of departure and return for each trip away from home and number of days away from home spent on business places - destinations or locality of travel and business_purpose - business reason for travel or nature of the business benefit derived as a result of the travel sec_1_274-5t of the regulations provides the elements that must be proved with respect to an expenditure for listed_property to include the amount of each separate expenditure the amount of business investment use the date of the expenditure or use and the business or investment purpose sec_1_274-5t of the regulations states that a taxpayer to meet the adequate_records requirements of sec_274 shall maintain an account book diary statement of expense or similar record and documentary_evidence which in combination are sufficient to establish each element of an expenditure sec_1_274-5t of the regulations states that the account book diary statement of expense or similar record must be prepared or maintained in such manner that each recording of an element of an expenditure is made at or near the time of the expenditure sec_1_274-5t and for periods after date sec_1 c ii of the regulations requires the employee to maintain documentary_evidence such as receipts paid bills or similar evidence sec_1_274-5t of the regulations provides that if an employee fails to establish to the satisfaction of the service that the employee has substantially complied with the adequate_records requirements of the regulations the employee may satisfy such requirement by providing i the employee’s own statement whether written or oral containing specific information in detail as to each element plus ii other corroborative evidence sufficient to establish each element sec_280f of the code defines listed_property as any passenger_automobile other_property used as a means of transportation any computer_or_peripheral_equipment and any cellular telephone or other similar telecommunications equipment sec_53_4958-4 of the foundation and similar excise_taxes regulations provides that an economic benefit is not treated as consideration for the performance of services ie compensation unless the organization providing the benefit clearly indicates its intent to treat the benefit as compensation when the benefit is paid if an organization fails to provide contemporaneous substantiation of such intent any services provided by the disqualified_person will not be treated as provided in consideration for the economic benefit for purposes of determining the reasonableness of the transaction if the substantiation requirement is not satisfied then the value of the benefit will be treated as an automatic excess_benefit taxable under code sec_4958 sec_53_4958-4 of the regulations provides that a benefit may be contemporaneously substantiated as compensation i if the organization reports the benefit as compensation on a federal tax information_return or ii if the disqualified_person timely reports the value of the benefit as income on the person’s federal_income_tax return or iii if the benefit is described as compensation to the disqualified_person in a contemporaneous employment contract board_of directors minutes or other documents indicating that an authorized body of the organization approved the benefit as compensation in john marshall law school v united_states ct_cl the law school and the college paid for the founding family’s automobiles education travel_expenses insurance policies and personal equipment the court determined that the expenditures_for the founding family were not ordinary and necessary expenses in the course of the law school’s and the college’s operations the court also held that the payment of such personal expenses for the founder’s children by the law school provided direct and substantial benefit to the founder of the law school and his brother the court held that these payments constituted prohibited inurement of the law school’s earnings to the founder and his brother parents of the children receiving the benefits analysis before the enactment of sec_4958 of the code in inurement violations resulted only in adverse consequences to the exempt_organization sec_4958 now imposes intermediate_sanctions excise_taxes on each excess_benefit_transaction between an applicable_tax-exempt_organization and a disqualified_person the sanction is assessed against the disqualified_person if a disqualified_person has received excess_benefits within the meaning of sec_4958 issue applicable_tax-exempt_organization x is an applicable tax exempt_organization as defined under sec_4958 of the code and sec_53_4958-2 of the regulations since it was recognized as an organization described in sec_501 and was exempt from tax under sec_501 but was not a private_foundation as defined in sec_509 for the years under examination issue disqualified_person d is a disqualified_person as defined by sec_4958 of the code sec_4958 defines a disqualified_person as any person who was at any time during the 5-year period ending on the date of such transaction in a position to exercise substantial influence over the affairs of the organization sec_4958 defines a disqualified_person as a member_of_the_family of an individual described in sec_4958 of the regulations sec_4958 defines a family_member as the family of any individual to include his spouse ancestors children grandchildren great grandchildren and the spouses of children grandchildren and great grandchildren brothers and sisters and their spouses are also part of the family a is the founder and president of x b is a’s wife d is a son of a and b and an x director issue excess_benefit transactions an excess_benefit_transaction is a transaction in which an economic benefit is provided by an applicable_tax-exempt_organization directly or indirectly to or for_the_use_of any disqualified_person and the value of the economic benefit provided by the organization exceeds the value of the consideration including the performance of services received for providing such benefit reimbursements of an employee’s expenses by the exempt_organization are disregarded for purposes of sec_4958 if the reimbursements satisfy all of the requirements of sec_1_62-2 of the regulations including the requirements for substantiation of expenses sec_53_4958-4 of the regulations expenditures of organization funds by an employee that satisfy the deductions requirements under sec_162 and to the extent relevant including the substantiation requirements of those provisions and the regulations thereunder do not constitute excess_benefits under sec_4958 any reimbursement of expenses by the organizations to an employee or direct expenditures of organization funds by the employee are automatic excess_benefits to the extent that they do not satisfy the requirements of sec_1_62-2 per sec_53 a ii or sec_162 and to the extent relevant of the code and the regulations thereunder unless they are substantiated as compensation pursuant to sec_53 c of the regulations in the instant case d and his relatives expended funds of x and used x assets in a variety of ways described below and in separate technical_advice memoranda issued to his father mother brother c and brother-in-law e d does not contend that these expenditures and uses were intended as compensation to himself or his relatives in any event there is no evidence in the record that would satisfy the contemporaneous substantiation rules of section c of the regulations it follows that unless d can satisfy the accountable_plan requirements of sec_1_62-2 of the regulations or the requirements of sec_162 and to the extent relevant and the regulations thereunder for ordinary and necessary business_expenses the expenditures and use of x funds described below must be treated as automatic excess_benefits credit cards sec_162 and to the extent relevant of the code provide that expenses must be ordinary and necessary to be a business deduction the expenses must be contemporaneously documented with time place business_purpose and business relationship x maintained credit card statements and a few receipts however neither x nor d documented the business_purpose or relationship of his expenditures it does not appear that d kept any account books diary or other records demonstrating that the charges he made on the x credit cards were for business purposes the excess_benefit_transaction amounts involving the use of the gas credit cards by d are as follows ------- ------- ------- dollar_figure ------------dollar_figure ------------dollar_figure ------------ cell phones sec_274 and sec_280f of the code provide that cellular telephones are listed_property strict substantiation requirements must be in place otherwise the use of cell phones is taxable to the employee our office has been provided with voluminous records listing calls from x cellular phones however the documents list only the telephone numbers and do not indicate with whom d spoke and the business reasons for their conversation aside from phone calls made to x phones that would most likely be x business all other calls were not substantiated as required accordingly the excess_benefit_transaction amount for the undocumented use by d of the x cell phone is dollar_figure------------ for ------- miscellaneous expenses sec_1_274-5t of the regulations provides the elements that must be proved with respect to an expenditure for travel include amount - amount of each separate expenditure for traveling away from home time - dates of departure and return for each trip away from home and number of days away from home spent on business places - destinations or locality of travel and business_purpose - business reason for travel or nature of the business benefit derived as a result of the travel sec_1_274-5t of the regulations states that the account book diary statement of expense or similar record must be prepared or maintained in such manner that each recording of an element of an expenditure is made at or near the time of the expenditure in may ------ x wrote a check to d for the amount of dollar_figure--------- the memo on the check indicated that it was for -------------------------------- as noted above x held only one seminar in los angeles during ------- d has not established that the x expenditure was for business purposes the total of d’s unsubstantiated excess_benefit transactions for all years under examination is listed below gas-cr card cell phone undocumented travel total for all years issue taxable_period ------- ------- ------- dollar_figure ------------dollar_figure ------------dollar_figure ------------ dollar_figure ------------dollar_figure --------dollar_figure -------- dollar_figure --------dollar_figure --------dollar_figure --------- dollar_figure ------------dollar_figure ------------dollar_figure ------------ dollar_figure------------- the excess_benefit transactions occurred in the years under audit the taxable periods are determined to begin on ---------------------- ---------------------- and ---------------------- issue initial tax on the disqualified persons an excise_tax as provided by sec_4958 of the code equal to percent of the excess_benefit amount should be imposed on d d is the son of a the founder of x and as such constitutes a disqualified_person under the applicable regulations in addition we note that a was founder president and chief executive of x as a practical matter he had total control of all x expenditures he either approved of the excess_benefit transactions by his son or he acquiesced in them if a had withdrawn funds from x and given them to his family members there would have been no question that such gifts would be taxable_excess benefits to him by authorizing or allowing his son and other relatives-the natural objects of his bounty-to make unlimited expenditures of x funds for personal purposes without any substantiation or evidence of an x business_purpose he in effect improperly removed charitable assets from x and gave them to his relatives accordingly a not only is liable for the excess_benefit transactions from which he personally benefited but also is jointly and severally liable for all the excess_benefits outlined in technical_advice memoranda of today regarding d b c and e see john marshall law school v united_states supra code sec_4958 issue second_tier_tax on the disqualified_person an excise_tax as provided by sec_4958 of the code equal to of the excess_benefit must be imposed if the transaction is not corrected within the taxable_period the taxable_period means the period beginning with the date on which the transaction occurs and ending on the earlier of the date of mailing a notice_of_deficiency or the date on which the tax imposed by sec_4958 is assessed because the transactions were not corrected within the taxable_period pursuant to sec_4958 of the code the percent tax should be included in the statutory_notice_of_deficiency


internal_revenue_service number release date index number --------------------- ------------------------------------- ------------------------------------------------------------ --------- ------------------------------------ -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-116325-15 date date legend x ------------------------------------- ----------------------------------------------------------- country date date ------- --------------------------- -------------------------- dear ---------------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of x by x’s representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed under the laws of country on date as of date x represents that x is a foreign_entity eligible to elect to be treated as a disregarded_entity however x did not timely file form_8832 entity classification election electing to treat x as a disregarded_entity for federal tax purposes law and analysis plr-116325-15 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed sec_301_7701-3 provides that for purposes of sec_301_7701-3 a foreign eligible entity’s classification is relevant when its classification affects the liability of any person for federal tax or information purposes the date that the classification of a foreign eligible_entity is relevant is the date an event occurs that creates an obligation to file a federal tax_return information_return or statement for which the classification of the entity must be determined thus the classification of a foreign_entity is relevant for example on the date that an interest in the entity is acquired which will require a u_s_person to file an information_return on form_5471 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 plr-116325-15 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 file a form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on the owner of x filing within days of the date of this letter all required returns or amended returns for all open years consistent with the requested relief these returns may include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations and ii forms information_return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as specifically set forth above 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 s 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 taxpayer_representative sincerely joy c spies joy c spies senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------------------- ------------------------- ------------------ ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number -------------------- refer reply to cc psi plr-126924-08 date august legend ---------------------------------------------------- -------------------------------------------------- ---------------------------------------------- ---------------------------------------------- --------------------------------------------- --------------------------------------------- ---------------------------------------------------------------- -------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------- ----------------------------------------------------------------------------- -------------------------------------------------- dear --------------- this responds to a letter dated date submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the code plr-126924-08 x made an election to be treated as an s_corporation x’s election was inadvertently terminated effective d1 because x’s stock was transferred to partnership an ineligible s_corporation shareholder on that date x’s election would have inadvertently terminated effective d2 had it not already terminated because x’s stock was transferred to partnership on that date on d3 partnership distributed its x stock to its individual partners on d4 partnership transferred its x stock to trust which the taxpayer has represented as being eligible to make an electing_small_business_trust election x represents that the termination was not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation that the secretary determines sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary the circumstances resulting in based solely on the facts submitted and the representations made we conclude that the termination of x’s s_corporation_election on d1 was inadvertent within the meaning of sec_1362 we further conclude that x’s s election would have inadvertently terminated within the meaning of sec_1362 on d2 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from d1 and thereafter provided x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1362 plr-126924-08 except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------------------- ----------------------------- ---------------------------------------- ----------------------------------------------- ----------------------- re ------------------------------------------ - department of the treasury washington dc person to contact -------------------------- id ------------- telephone number --------------------- refer reply to cc psi b09 - plr-103649-03 date date ------------------- --------------------------- --------------------------- -------------------------- ----------------------------------------------------- legend legend trustees --------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- corporation state a_trust trust date settlors state b state b citation ------------------------------------------------------ state b statute ----------------------------------------------------- ------------------------------------------------------------- -------------------------------- --------------------------- ------------------ --------- ------------------------------------------------------------ plr-103649-03 state b court dear ---- ---------- this is in response to your letter dated date submitted on behalf of trustees requesting a ruling regarding the income gift and generation-skipping_transfer gst tax consequences of the proposed judicial modification of two trusts the information submitted and representations made are as follows corporation is the owner of certain residential_real_property the property located in state a corporation's stock is owned approximately ------ by trust and approximately ------ by trust on date settlors created trust for the benefit of their four children pursuant to article ii of trust the trust estate was divided into four equal trust shares one for each child article iii paragraph a of trust provides in part that until the death of the last surviving child of settlors the trustee shall after consulting with the respective beneficiaries of trust and trust allocate the use of property owned by corporation among the settlors' children and the beneficiaries of trust article iii paragraph b provides that each child possesses the testamentary power to appoint the principal of such child's separate share among any one or more of such child's creditors to the extent that a child does not effectively exercise her testamentary_power_of_appointment the unappointed property shall be added to and commingled with the principal of trust article v permits the trustee to hold and operate shares in corporation to exercise voting rights with respect to corporation and to sell any property received from the settlors or any other source at either public or private sale for cash or on credit on date settlors also created trust for the benefit of their grandchildren and great-grandchildren article iii paragraph a of trust provides in part that the trust estate shall be held as a single trust for the benefit of settlors' grandchildren and great-grandchildren including grandchildren and great-grandchildren born prior to the termination of trust during the term of the trust the trustee shall after consulting with the respective beneficiaries of trust and trust allocate the use of property owned by corporation among the various beneficiaries of trust and trust plr-103649-03 article iii paragraph b provides that on the death of the last survivor of the named grandchildren and great-grandchildren trust shall terminate and the trust estate shall be distributed to the settlors' then living issue per capita article v permits the trustee to hold and operate shares in corporation to exercise voting rights with respect to corporation and to sell any property received from settlors or any other source at either public or private sale for cash or on credit trustees represent that trust presently has an inclusion_ratio of zero because of allocations of settlors’ gst exemptions that occurred each time property was transferred to trust trustees further represent that there have been no additions actual or constructive to trust after the dates of the gst allocations to trust the beneficiaries under article iii paragraph a of trust and trust the beneficiaries have determined that they no longer wish to use property as a result beneficiaries now seek to compel trustees pursuant to the authority granted under the terms of trust and trust to cause corporation to dispose_of property and to invest the proceeds of sale into income-producing property because neither trust nor trust contains any provisions governing how the trusts will be administered if property is converted into other assets it will be impossible for trustees to satisfy the dispositive provisions of trust and trust following the sale_or_other_disposition of property in light of the fact that beneficiaries no longer wish to use property trustees have a fiduciary obligation to cause the conversion of property into productive assets in addition if trustees compel corporation to convert property into income-producing assets trustees will be required to distribute the income to beneficiaries in lieu of beneficiaries’ right to use property pursuant to state b law state b citation thus under state b law a use interest in trust and trust is equivalent to an income_interest in trust and trust the conversion of beneficiaries’ income interests in trust and trust to unitrust interests is also supported by state b law more specifically state b statute provides in part that a trustee may convert an income trust to a total return unitrust if i the trustee adopts a written_statement regarding trust distributions that provides that future distributions from the trust will be unitrust amounts rather than net_income and indicates the manner in which the unitrust_amount will be calculated and the method in which the fair_market_value of the trust will be determined and ii the percentage to be used to calculate the unitrust_amount is not greater than or less than state b statute further provides that if a trustee desires to convert an income trust to a total return unitrust the trustee may petition the circuit_court for such order as the trustee deems appropriate plr-103649-03 in accordance with the foregoing trustees have petitioned state b court for an order i authorizing trustees to cause corporation to sell property ii directing trustees to vote trust and trust 2’s shares in corporation in a manner that will cause corporation to distribute income to its shareholders at least annually and iii modifying the terms of trust and trust to simultaneously convert beneficiaries’ interests in the trusts from use interests to income interests and then from income interests to unitrust interests pursuant to state b law the resulting trusts shall be referred to herein as restated trust and restated trust pursuant to article iii of restated trust the trust estate will divide into four separate trust shares one for each child article iii paragraph a of restated trust provides generally that the trustee shall in each taxable_year of each trust pay a unitrust_amount equal to of the net fair_market_value of the assets held in trust valued as of the first day of the taxable_year to or for the benefit of each child in cash in_kind or partly in each article iii paragraph e of restated trust provides that each child's separate trust shall terminate upon each child’s respective date of death in addition each child possesses the testamentary power to appoint the principal of such child's separate share among any one or more of such child's creditors to the extent that a child does not effectively exercise her testamentary_power_of_appointment the unappointed property shall be added to and commingled with the principal of trust article iii of restated trust provides that the trust estate will be held for the benefit of the settlors' grandchildren and great-grandchildren including grandchildren and great-grandchildren born prior to the termination of trust article iii paragraph a of restated trust provides generally that the trustee shall in each taxable_year of the trust pay a unitrust_amount equal to of the net fair_market_value of the assets held in trust valued as of the first day of the taxable_year to or for the benefit of the beneficiaries in cash in_kind or partly in each article iii paragraph of restated trust provides that on the death of the last survivor of the named grandchildren and great-grandchildren trust shall terminate and the trust estate shall be distributed to the settlors' then living issue per capita upon court approval of the proposed modifications to trust and trust corporation will file form_2553 to be treated as an s_corporation pursuant to sec_1361 each trust share of restated trust will file an election to be treated as an electing_small_business_trust esbt pursuant to sec_1361 restated trust will file an esbt election pursuant to sec_1361 plr-103649-03 trustees represent that trust and trust have not made elections to be qualified subchaper s trusts trust and trust are not exempt from tax under subtitle a of the code and each beneficiary of trust and trust is an individual trustees request the following rulings the proposed judicial modification of trust will not adversely affect trust 2’s zero inclusion_ratio attributable to the gst_exemption previously allocated thereto the proposed judicial modification of trust and trust will not cause either trust to be subject_to federal gift_tax under sec_2501 the proposed judicial modification of trust and trust will not cause there to be a disposition under either trust for purposes of sec_1001 and therefore will not result in the recognition of gain_or_loss the four equal trust shares of restated trust and restated trust satisfy the requirements of sec_1361 ruling sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 defines the term generation-skipping_transfer as a taxable_distribution a taxable_termination and a direct_skip under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax provisions do not apply to any generation skipping transfer under a_trust as defined in sec_2652 that was irrevocable on date however this exemption does not apply if additions actual or constructive are made to the trust after date every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor that has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows - a first to property that is the subject of a direct_skip occurring at such individual’s death and b second to trusts with respect to which such sec_2632 provides that any portion of an individual’s gst_exemption sec_2631 provides that for purposes of determining the inclusion_ratio sec_2654 provides that the portions of a_trust attributable to transfers plr-103649-03 individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual’s death from different transferors shall be treated as separate trusts sec_26_2601-1 provides generally that any trust in existence on date will be considered an irrevocable_trust unless otherwise provided in sec_26_2601-1 or c relating to property includible in a grantor's gross_estate under sec_2038 and sec_2042 judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status the rules contained in sec_26_2601-1 are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides rules for determining when a modification sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy ' b i a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided in the original trust sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in ' than the person or plr-103649-03 persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust in addition administration of a_trust in conformance with applicable local law that defines the term income as a unitrust_amount or permits a right to income to be satisfied by such an amount or that permits the trustee to adjust between principal and income to fulfill the trustee’s duty_of impartiality between income and principal beneficiaries will not be considered to shift a beneficial_interest in the trust if applicable local law provides for a reasonable apportionment between the income and remainder beneficiaries of the total return of the trust and meets the requirements of sec_1_643_b_-1 sec_26_2601-1 example considers a situation where a_trust that is otherwise exempt from the gst tax provides that trust income is payable to a for life and upon a's death the remainder is to pass to a's issue per stirpes state x the situs of the trust then amends its income and principal statute to define income as a unitrust_amount of of the fair_market_value of the trust assets valued annually the example concludes that the administration of the trust in accordance with the state statute defining the income to be a unitrust_amount will not be considered to shift a beneficial_interest in the trust therefore the trust will not be subject_to the provisions of chapter further under the facts of the example no trust_beneficiary will be treated as having made a gift_for federal gift_tax purposes and neither the trust nor any trust_beneficiary will be treated as having made a taxable_exchange for federal_income_tax purposes the supreme court of state b has determined that upon the conversion of residential_real_property held in trust into income-producing assets the trustee must distribute the income to the trust beneficiaries in lieu of the beneficiaries’ right to use the real_property state b citation in addition state b statute provides in part that a trustee may convert an income trust to a total return unitrust if i the trustee adopts a written_statement regarding trust distributions that provides that future distributions from the trust will be unitrust amounts rather than net_income and indicates the manner in which the unitrust_amount will be calculated and the method in which the fair_market_value of the trust will be determined and ii the percentage to be used to calculate the unitrust_amount is not greater than or less than state b statute further provides that with regard to residential property that as of the first business_day of the current valuation year one or more beneficiaries of the trust have a right to occupy or possess the right to possession and control shall be deemed to be the unitrust_amount with respect to such property no guidance has been issued concerning judicial modifications that may affect the status of trusts that are exempt from gst tax because sufficient gst_exemption plr-103649-03 was allocated to the trust to result in an inclusion_ratio of zero at a minimum a modification that would not affect the gst status of a grandfathered trust should similarly not affect the exempt status of such a_trust in this case the terms of trust and trust provide that until the death of the survivor of beneficiaries the trustee shall allocate the use of property owned by corporation among beneficiaries trustees have petitioned state b court for an order modifying the terms of trust and trust to convert beneficiaries’ use interests in the trusts to income interests and then convert beneficiaries’ income interests to unitrust interests pursuant to state b law in state b upon the conversion of residential_real_property held in trust into income-producing assets the trustee must distribute the income to the trust beneficiaries in lieu of the beneficiaries’ right to use the real_property see state b citation thus beneficiaries’ use interests in property are equivalent to income interests in that property under state b law furthermore pursuant to sec_26_2601-1 and sec_26_2601-1 example the conversion of beneficiaries income interests into unitrust interests in conformance state b statute will not be considered to shift a beneficial_interest in the trust based on the foregoing we conclude that the proposed judicial modification of trust will not adversely affect trust 2’s zero inclusion_ratio and that trust and restated trust will continue to be exempt from the gst tax ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during the calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money_or_money's_worth then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar_year in this case the proposed judicial modifications to trust and trust are consistent with applicable state law that would be applied by the highest court of plr-103649-03 state b because beneficiaries will have the same beneficial_interest in trust and trust following the proposed modification as they had prior to any modification no transfer of property will be deemed to occur therefore we conclude that the proposed judicial modifications of trust and trust will not cause a direct or indirect transfer of property accordingly the proposed judicial modifications do not constitute taxable_gifts under sec_2501 ruling sec_61 provides that gross_income includes gains derived from dealings in property under sec_1_61-1 gross_income means all income from whatever source derived unless excluded by law gross_income includes income realized in any form whether in money property or services under sec_1001 gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized under sec_1_1001-1 the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially in_kind or in extent is treated as income or loss sustained the conversion of trust and trust from use trusts to income trusts results from the exercise by trustees’ of their authority to dispose_of property under the trust documents and therefore there is no sale_or_other_disposition under sec_1001 of a_trust interest by any beneficiary the court order being sought will amend the terms of the trusts to reflect their new status as income trusts in addition the conversion of trust and trust from income trusts to unitrusts by a court-approved exercise of the trustee’s authority to make the conversion under state b statute is not a sale_or_other_disposition under sec_1001 of a_trust interest by any beneficiary ruling 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 sec_1361 provides that the term small_business trust means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other then an estate a_trust described in sec_1361 or an organization described in sec_1361 c have a nonresident_alien as a shareholder and d more than one class of stock plr-103649-03 under sec_1361 an electing_small_business_trust is an eligible shareholder of an s_corporation sec_1361 defines electing_small_business_trust sec_1361 provides that except as provided in sec_1361 the term electing_small_business_trust means any trust if - i such trust does not have as a beneficiary any person other than an individual an estate or an organization described in paragraph or of sec_170 ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that the term electing_small_business_trust shall not include - i any qualified_subchapter_s_trust as defined in sec_1361 if an election under sec_1361 applies to any corporation the stock of which is held by such trust ii any trust exempt from tax under subtitle a of chapter and iii any trust exempt from tax under subtitle a of chapter and iii any charitable_remainder_annuity_trust or charitable_remainder_unitrust as defined in sec_644 sec_1361 provides that for purposes of sec_1361 the term potential_current_beneficiary means with respect to any period any person who at any time during such period is entitled to or at the discretion of any person may receive a distribution from the principal or income of the trust notice_97_49 1997_2_cb_304 provides that for purposes of sec_361 the term beneficiary does not include a distributee trust but does include those persons who have a beneficial_interest in the property held by the distributee trust furthermore the notice provides that for purposes of sec_1361 if a distributee trust becomes entitled to or at the discretion of any person may receive a distribution from principal or income of the esbt then the trust will become a potential_current_beneficiary and the s_corporation_election will terminate unless the distributee trust is a_trust described in sec_1361 based on the representations made the information provided and the assumption that the interest of any contingent charitable_beneficiary of the trusts described in sec_170 is so remote as to be negligible and that such contingent charitable beneficiaries are therefore not beneficiaries of restated trust and restated trust as described in sec_1361 we conclude that the beneficiaries of restated trust and restated trust individuals and are qualified beneficiaries accordingly upon the four equal trust shares of restated trust and restated trust making valid and timely elections under sec_1361 the trusts will satisfy the requirements of sec_1361 except as expressly provided herein no opinion is expressed or implied this ruling is directed only to the taxpayers requesting it sec_6110 plr-103649-03 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter provides that it may not be used or cited as precedent letter is being sent to your taxpayer representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this the rulings contained in this letter are based upon information and sincerely james f hogan james f hogan acting branch chief branch office of associate chief_counsel passthroughs special industries enclosure copy for purposes


internal_revenue_service number release date index number ----------------------------- ------------------------ ------------------------------------------------------------ ------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ----------------- telephone number --------------------- refer reply to cc psi plr-126598-10 date december company ------------------------------------------------------------------------------------------------- ----------------------- country --------------- date ------------------ dear ----------------------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of company requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts company was formed under the laws of country on date company represents that it is a foreign_entity eligible to elect to be treated as a partnership for federal tax purposes as company was not properly advised regarding the consequences of making or not making an entity election company failed to file form_8832 entity classification election electing to treat company as a partnership effective date law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner plr-126598-10 sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-126598-10 conclusion based solely on the information submitted and the representations made we conclude that company has satisfied requirements of sec_301_9100-1 and sec_301_9100-3 consequently company is granted an extension of time of one hundred twenty days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a partnership effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on the owners of company filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief these returns may include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations ii forms return of u s persons with respect to certain foreign_partnerships and iii forms information_return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to company’s authorized representative plr-126598-10 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by s danielle m grimm acting senior technician reviewer branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


number release date id office uilc cca_2012021015285826 -------------- from ----------------- sent friday date pm to ------------------- cc subject nominee situations hi -------- here are some quick thoughts about your question on nominee liens where a tp transferred title to his principal_residence to his girlfriend right before the service made an assessment for the tfrp generally we’d issue a levy before asking doj to file a lien foreclosure suit because as a general_rule the administrative collection remedies available to the government are adequate irm administrative collection devices are not feasible or adequate at but the fact that the asset is a principal_residence means the service can’t simply levy and the fact that the asset is being held by a nominee may override the preference for an administrative remedy of course if at any point a taxpayer indicates that he or she wants to cooperate and become compliant the tp may be willing to transfer the residence back into his or her name the government may bring the usual suit to foreclose a ftl on a principal_residence under sec_7403 but to administratively seize a principal_residence the government must obtain a court order under sec_6334 irm suit referrals involving a principal_residence an area director must approve a recommendation to bring either action irm at the narrative report for the recommendation should explain why one option is being recommended over the other irm at the procedures for preparing a seizure recommendation package for area director approval and for preparing the suit recommendation package are in irm dollar_figure judicial approval for principal_residence seizures the sec_6334 proceeding is generally commenced in the same manner as suits by the government to collect taxes ie an ro’s recommendation is forwarded to area_counsel the same information required to be provided in a lien foreclosure recommendation must be provided in a sec_6334 proceeding recommendation irm proceeding to seize a principal_residence at doj will rely on that information in drafting its complaint if it decides to bring suit irm preparing recommendation to institute an action to foreclose tax_liens at in considering which is the better option to recommend note that when there are issues related to ownership or a nominee situation then a suit recommendation to foreclose the ftl and or to reduce the tax claim to judgment may be the appropriate action irm dollar_figure judicial approval for principal_residence seizures at the ftl extends to property held by the nominee of the taxpayer but still it’s desirable to prepare an individual nftl for the nominee irm effect of errors in notice_of_federal_tax_lien at see also irm preliminary actions re procedures for irs employees initiating suits request approval for and file nominee lien notices as needed prior to suit referral to protect the government's interest during the pendency of the action the nftl in a nominee situation is identical to the standard nftl except that the nominee is identified as the name of the taxpayer since the ftl only attaches to property actually owned by a taxpayer it will only reach the property of the nominee that he or she holds for the taxpayer therefore the nominee nftl will usually contain a notation on its face that the lien is filed to attach specifically to certain identified property irm nominee liens at the taxpayer and not the nominee is given cdp notification sec_301_6320-1 and may have a cdp hearing sec_301_6320-1 a nominee may have a hearing under the collection_appeals_program an ro is direct to request area_counsel advice before filing a nominee lien irm preparing nominee liens at and to request area_counsel direction regarding enforcement of the lien irm at to those irm directives here’s some background on nominee situations whether a nominee situation exists depends first on whether the taxpayer holds a beneficial_interest in the property under local law the second step isn’t necessary to get into ie whether that interest is property under sec_6321 or see 528_us_49 where state law is undeveloped on the issue of nominee ownership the federal courts have relied on a relatively well-defined body of federal common_law 135_tc_393 lists factors 429_f3d_248 6th cir list sec_12 factors see also irm nominee liens with a similar list taken from the factors used by courts even though state law might not explicitly refer to a nominee doctrine some courts will consider state law variants that in effect make the same determination in this regard it might be useful to look at dalton t c pincite to get a feel for how complex the question may become - the service had concluded that state law was silent on the nominee doctrine but the tax_court disagreed note that we disagree with the opinion and the case is on appeal to the 1st circuit the tax_court exercised jurisdiction in dalton a cdp case to decide the nominee interest issue as it pertained to the rejection of an oic on the basis that it didn’t take account of the taxpayers interest in property held by a nominee in any event a court will expect that state law was fully considered before applying the federal common_law test see fourth investment lp v u s not reported in f_supp 2d s d cal and it may be that there’s no real difference between the federal common_law and state law see u s isaacson slip copy d n h date at fn the parties disagree over whether federal or state law governs the nominee analysis but the court didn’t need to resolve the issue because federal and state law are so similar that the distinction is of little moment finally note that we disagree with dalton’s treatment of fraudulent conveyance law as a variant on the nominee doctrine fraudulent conveyance concerns the circumstances surrounding the transfer and not factors going to whether the taxpayers have a beneficial_interest


internal_revenue_service number release date index number ---------------------------------- ----------------------- ----------------------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc tege eb hw plr-148971-09 date may legend city state ----------------------- -------------- plan a -------------------------------------------------- ------------------------------------------------------------------------------------------ plan b --------------------------------------------------------------------- dear ------------------ city is a body corporate and politic organized under laws of state city has adopted plan a and plan b the plans for payment of post employment health and medical_expenses the post employment health and medical benefits provided are reimbursement of medical_care expenses and reimbursement of health insurance premiums plans provide that both city and eligible employees contribute to fund post employment health and medical benefits employee contributions consist of mandatory_contributions by each participant of salary and mandatory_contributions of accumulated unused sick leave vacation and severance upon separation from employment individual participants cannot elect to contribute additional_amounts to either plan similarly plan participants cannot elect to receive non-plan benefits in lieu of either plan contributions or plan benefits mandatory employee contributions are made as a condition_of_employment with city sec_61 of the internal_revenue_code the code and sec_1_61-21 of the income_tax regulations provide that except as otherwise provided in subtitle a of the code gross_income includes compensation_for services including fees commissions fringe_benefits and similar items plr-148971-09 however sec_106 of the code provides that gross_income of an employee does not include employer-provided coverage under an accident_or_health_plan sec_1_106-1 of the regulations provides that the gross_income of an employee does not include contributions which his employer makes to an accident_or_health_plan for compensation through insurance or otherwise to the employee for personal injuries or sickness incurred by him his spouse or his dependents as defined in sec_152 the employer may contribute to an accident_or_health_plan either by paying the premium or a portion of the premium on a policy of accident_or_health_insurance covering one or more of his employees or by contributing to a separate trust or fund including a fund referred to in sec_105 which provides accident and health benefits directly or through insurance to one or more of his employees however if the insurance_policy trust or fund provides other_benefits in addition to accident or health sec_106 applies only to the portion of the contributions allocable to accident or health benefits coverage provided under an accident_and_health_plan to former employees and their spouses and dependents is excludable from gross_income under sec_106 see revrul_62_199 1962_2_cb_32 revrul_82_196 1982_2_cb_53 sec_105 provides that except as otherwise provided in sec_105 amounts received by an employee through accident_or_health_insurance for personal injuries or sickness shall be included in gross_income to the extent such amounts are attributable to contributions by the employer which were not includible in the gross_income of the employee or are paid_by the employer sec_105 provides that except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical_expenses for any prior taxable_year gross_income does not include amounts referred to in subsection a if such amounts are paid directly or indirectly to the taxpayer to reimburse the taxpayer for expenses_incurred for medical_care as defined in sec_213 sec_3101 imposes taxes under the federal_insurance_contributions_act fica on an employee’s wages sec_3306 imposes taxes under the federal_unemployment_tax_act futa sec_3121 and sec_3306 provide that with certain exceptions for fica and futa_tax purposes the term wages means all remuneration for employment including the cash_value of all remuneration including benefits paid in any medium other than cash however sec_3121 and sec_3306 provide that the term wages does not include any payment including any amount_paid by an employer for insurance made to or on behalf of an employee or any of his dependents for medical or hospitalization expenses plr-148971-09 based on the information submitted and representations made we conclude as follows contributions paid to plans and payments made from plans which are used exclusively to pay for the health and medical benefits of plan participants their spouses and dependents are excludable from the gross_income of plan participants under sec_106 and sec_105 of the code contributions to and payments for health and medical benefits are not subject_to fica or futa taxes under sec_3121 and sec_3306 no opinion is expressed concerning the federal tax consequences of plans under any other provision of the code other than those specifically stated herein in particular sec_3 of revproc_2009_1 2009_1_irb_107 provides that the service will not issue a ruling concerning whether a self-insured_medical_reimbursement_plan satisfies the requirements of sec_105 for a plan_year accordingly no opinion is expressed concerning whether plans satisfy the nondiscrimination requirements of sec_105 of the code and sec_1_105-11 of the regulations 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 representatives sincerely harry beker chief health and welfare branch office of division counsel associate chief_counsel tax exempt government entities


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-165078-04 uilc date date to director submission processing cincinnati oh attn entity unit from office of division counsel associate chief_counsel tax exempt government entities subject railroad_retirement_tax_act status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that coverage terminated under the jurisdiction of the railroad retirement act and the railroad unemployment insurance act effective ----------------------for the following company -------------------------------------------------- ----------------------------------------------------------------------------------------------------- ---------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------ we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that coverage terminated under the jurisdiction of the railroad_retirement_tax_act act for ----------------------------------------- effective ------------------------------------- postn-165078-04 ---------------------- the date upon which it merged into the ----------------------------------------- ----- and thereby cease to exist the -------------------------------------------- remains an employer under the act please take the appropriate action regarding this business _____________________________ --------------------------------- --------------------------------------- --------------------------------- ---------------------------------------- janine cook


internal_revenue_service department of the treasury number release date index number u i l no washington dc person to contact telephone number refer reply to cc psi plr-111278-00 date date legend company state shareholders a b dear this letter responds to a letter dated date and subsequent correspondence requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has six shareholders shareholders it is represented that company has intended to be an s_corporation since b however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on b sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-111278-00 sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on b however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of b with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 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 specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours robert honigman acting assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service number release date index numbers ------------------- ------------------------- -------------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ----------------- telephone number --------------------- refer reply to cc psi b03 plr-123101-10 date october legend company ----------------------------------------------------------------------------------------------- ----------------------- subsidiary ----------------------------------------------------------------------------------------------- ----------------------- state ------------- d1 d2 --------------------------- ------------------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of company requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations for company to elect to treat subsidiary as a qualified_subchapter_s_subsidiary qsub under sec_1361 of the internal_revenue_code code facts according to the information submitted company is a state corporation that elected to be an s_corporation effective d1 company intended its wholly-owned subsidiary subsidiary to be treated as a qsub for federal tax purposes effective d2 however company failed to timely file the required election law and analysis plr-123101-10 sec_1361 provides that except as provided in regulations prescribed by the secretary for purposes of title i a corporation which is a qsub shall not be treated as a separate corporation and ii all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items as the case may be of the s_corporation sec_1361 defines the term qualified_subchapter_s_subsidiary as a domestic_corporation which is not an ineligible_corporation if percent of the stock of the corporation is held by an s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1_1361-3 of the income_tax regulations provides the time and manner of making a qsub election a taxpayer makes a qsub election for a subsidiary by filing form_8869 qualified_subchapter_s_subsidiary election with the appropriate service_center sec_1_1361-3 provides that a qsub election cannot be effective more than two months and days prior to the date of filing sec_1_1361-3 provides that an extension of time to make a qsub election may be available under sec_301_9100-1 and sec_301_9100-3 sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based on the facts submitted and representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently company is granted an extension of time of days from the date of this letter to elect plr-123101-10 to treat subsidiary as a qsub effective d2 the election should be made by filing form_8869 with the appropriate service_center a copy of this letter should be attached to the election except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically we express or imply no opinion concerning whether company is a valid s_corporation or whether subsidiary is eligible to be a qsub under a power_of_attorney on file with this office we are sending a copy of this letter to company's authorized representative 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 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by s mary beth carchia senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes