internal_revenue_service national_office technical_advice_memorandum no index uil case mis no tam-109286-99 sep v taxpayers' name taxpayers' address taxpayers' tin years involved conference held legend corp x corp y corp z h w f e_p i o o n i ssue u l t u i w whether the circular lending transactions among h and his three s_corporations constituted an arrangement that protected taxpayers against loss so that they were not considered at risk under sec_465 of the internal_revenue_code of conclusion with regard to the lending transactions the circularity of payments the nature of the notes with demand and deferral provisions and the similarity of ownership among the entities when taken together are sufficient to demonstrate that the taxpayers were effectively immunized from any realistic possibility of suffering an economic loss under sec_465 thus were not at risk for the amounts in issue and facts taxpayers are husband h and corp z 4h of corp x corp y of both corp y and corp z with h individually owning a dollar_figure percent majority interest w and their children own w who own part or all h individually owns percent and wife corp xx corp x is an s_corporation that has been engaged in the at one time h owned but estate_planning considerations after building corp x into a successful company h trucking business since its incorporation all of the stock of corp x motivated him to transfer interests in corp x to w and their children became concerned over liability issues involving the trucks and trailers used in the business x's liability h formed two corporations corp y and corp z own the trucks and trailers used by corp x that are used in over-the-road trucking and leases them to corp x corp x and performs maintenance work corp z also owns trailers as well as tractors leases them to therefore in order to limit corp corp y owns trailers to because of large depreciation_deductions on their tractors and trailers corp z and corp y immediately began generating losses to pass through to taxpayers 2's passthrough losses exceeded h's bases in the corporations thereby limiting taxpayers’ ability to claim the losses therefore h sought a way of increasing his basis in each corporation in order to claim the losses however corp y's and corp h had always used corp x assets to capitalize corp and under the advice of his however because corp x had corp z and wished to continue doing so tax advisors h considered capitalizing corp y and corp z with distributions from corp x accumulated_earnings_and_profits from prior years as corporation h was restricted in the amount of tax-free distributions he could receive from corp x his tax advisors h determined that he would resolve the basis problem by lending to corps y and z thereby creating basis in indebtedness of each corporation to its shareholder accordingly h borrowed the proceeds from corp x and re-loaned them to each of corp y and corp each of which re-loaned the proceeds back to corp x lending transactions manner h hoped to create basis in each of corp x and corp y for in this in consultation with c a iid indebtedness of the corporations to a shareholder in all three sets of lending transactions involved h corp h in and corp y and corp z and one set involved corp x x the first set involving corp y which occurred on a corp x loaned dollar_figure million to h in exchange for h's recourse promissory h re-loaned the proceeds to corp y in exchange for corp note y's note and increased his basis in corp y stock y turned around and re-loaned the same proceeds back to corp x in from where they originated in exchange for corp x's note the second set which occurred on b corp x loaned dollar_figure million to h who re-loaned the proceeds to corp y which re-loaned the proceeds to corp x million to h who re-loaned dollar_figure million to corp y which re- loaned the proceeds to corp x z which occurred on d corp x loaned dollar_figure million to h in h re-loaned dollar_figure exchange for h's recourse promissory note million to corp z in exchange for corp z's note and increased his basis in corp z stock loaned the proceeds to corp x from which dollar_figure million originated in exchange for corp x's note finally corp z turned around and re- in the single set involving corp on corp x loaned dollar_figure in the third set finally corp all of the loans involved in the lending transactions were documented with notes that provided for the same rate of interest and provided for principal to be due days after demand in addition no collateral was provided as security for any of the loans the sets of loans offsetting interest payments were made by the parties to no principal payments were made thus when the losses from corps y and z exceeded h' bases the taxpayers together claimed for taxable in these corporations h arranged the lending transactions to create additional basis against which to continue claiming losses from corps y and z years e approximately dollar_figuref in losses that passed through from corps y and z the revenue_agent examining the taxpayers concluded that these circular loans should not cause taxpayers to be at risk for the amounts involved in the lending transactions which originated from corp x's loans to h claimed by taxpayers were disallowed determination we agree with the -agent's therefore the losses law and analysis sec_465 provides that in the case of an individual engaged in an activity to which sec_465 applies any loss from the activity for the taxable_year shall be allowed only to the extent of the aggregate amount with respect to which the taxpayer is risk within the meaning of close of the taxable_year sec_465 for such activity at the at l sec_465 provides that for purposes of sec_465 a the amount of money and the adjusted the amounts borrowed with respect to such sec_465 provides that for purposes of taxpayer shall be considered at risk for an activity with respect to amounts including a basis of other_property contributed by the taxpayer to the activity and b activity a taxpayer shall be considered at risk with respect to amounts borrowed for use in an activity to the extent that he has personally liable for the repayment of the amounts or pledged property other than property used in the activity as security for the borrowed amount to the extent of the net fair_market_value of the taxpayer's interest in the property property shall be taken into account as security if such property is directly or indirectly financed by indebtedness that is secured_by property described in sec_465 sec_465 b a no is sec_465 provides that notwithstanding any other a taxpayer shall not be considered at risk provision of with respect to amount protected against loss through nonrecourse_financing guarantees stop loss agreements or other similar arrangements sec_465 the issue presented for technical_advice is whether taxpayers were protected against loss by other similar arrangements the phrase other similar arrangements was analyzed by the ninth circuit in considering loss protection in a computer purchasing and leasing transaction under sec_465 principals leasing corp v u s 904_f2d_477 in american principals the taxpayers were held to be not at risk for their obligations in a computer leasing transaction because they were protected from loss by a system of circular book entries the court propounded the realistic possibility or economic reality test in analyzing the phrase other similar arrangements see american principals leasing corp v u s cir in american at under this test it is enough to show that as a practical matter it was unlikely that anyone would ever force the taxpayer to pay actual cash in its discussion the court states is to suspend at t he purpose of sub sec_465 risk treatment where a transaction is structured - by whatever method - to remove any realistic possibility that the taxpayer will suffer an economic loss if the transaction turns out to be unprofitable theoretical possibility that the taxpayer will suffer economic loss is insufficient to avoid the applicability of this subsection b be guided by economic reality date the unexpected occurs and the taxpayer will suffer at some future we must if a a loss the taxpayer will at that time become at risk and be able to take the deductions for previous years that were suspended under this subsection american principal leasing corp v u s pincite using this economic reality test the court found under the facts involved that no circumstances existed under which one of the parties would break the chain of payments or even demand that its obligee satisfy its obligations in cash or sell a note to an outside party who would demand cash payment court no party could expect any benefit from doing so according to the thus the ninth circuit's test asks whether there is any realistic possibility that the taxpayer ultimately will be subject_to economic loss on the investment at issue this standard the substance of the transaction not its form guides the test looks not to any single factor but whether the combination of factors and characteristics of the transaction rises to the level of an other similar arrangements with the effect of protecting taxpayers against risk in applying affd the tax_court approved this test in levien v commissioner cir for t c another computer purchasing and leasing transaction addition the tax_court has held that the potential insolvency of the party providing the loss protection is not a consideration in determining whether amounts are protected from loss unless and until the insolvency occurs see capek v commissioner 86_tc_77 f 3d in under the facts of taxpayers' case corp x loaned money to h who re-loaned the money to either of corp y or corp z which re-loaned the money back to corp x transactions the proceeds of all of three loans originated with corp x and ended up with corp x transactions the terms of all of the loans among the parties were identical the same rate of interest no principal payments until demand and payment due days after demand for each set of lending for each set of lending - the circular nature of each set of lending transactions in sec_465 b part protected h against loss within the meaning of applying the above economic reality test to the facts involved we find no circumstances existed under which one of the parties would break the chain of payments or even demand that its obligee satisfy its obligations in cash or sell a note to an outside party who would demand cash payment expected any benefit from doing so since that would have triggered a demand for payment from each of the other parties resulting in the same circularity of payment as there was of lending essentially matching flow of interest payments with no principal moreover the provisions of the loans created an no party could have payments per se constitute an other arrangements for purposes of sec_465 they are an element to be considered while no rule exists that holds circular payments to in addition the common ownership of the s_corporations and in the deferral provisions of the loans are other elements to be taken into account in determining insulation from risk vander heide v commissioner t c memo the court stated that the circularity of the payments when combined with the common ownership of two parties to a computer purchasing and leasing transaction provided little incentive for the creditor of the limited_partnership involved to pursue the limited partners for their share of the debt in the event of a default in holding that the petitioner was effectively immunized from any realistic possibility of suffering economic loss and therefore not at risk the entities as an element of its determination case common ownership existed among the parties shareholder of both corps y and z and the majority shareholder of corp x the court cited the similarity of ownership among in which w is also a shareholder in the instant is the h also in vander heide there were deferral provisions for delaying the rental payments and the payment of principal and interest on the note for the computer equipment purchase court cited the deferral provisions as another element in its determination of whether taxpayers were at risk case loans that were not payable until days after demand in the instant the loans involved in the lending transactions were demand the we conclude that the circularity of payments the demand notes with deferral provisions and the similarity of ownership among the entities when taken together are sufficient to demonstrate that the taxpayers were effectively immunized from any realistic possibility of suffering an economic loss under sec_465 and thus were not at risk for the amounts in issue the issue of whether the lending transactions created basis for h in either corp y or corp z for purposes of presented for technical_advice because both the appeals officer and the taxpayers' representative believe that the government's position on that issue is clear and unchanged that is these transactions do not create either debt or equity basis in the corporations sec_1366 was not a copy of this technical_advice_memorandum is to be given to the taxpayers may not be used or cited as precedent sec_6110 of the code provides that it o y


internal_revenue_service number release date index number ----------------------- -------------------------- ------------------------ --------------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ----------------- telephone number --------------------- refer reply to cc corp plr-141120-11 date date legend parent distributing controlled state state state a business a business b business c ------------------------ -------------------------------------- ----------------------- ----------------------------- ------------------------------- ----------------------- ---------------------------------- ------------------------------- ----------------------- -------------------- ------------- ------------- ----- --------------------------------- ---------------------------- ---------------------------- plr-141120-11 --------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- ------------------------------ --------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- ----------------------------------------------------------------------- ---------------------------------------------------- shared services debt dear --------------- this letter responds to your authorized representative's letter dated date requesting rulings under sec_332 and sec_355 of the internal_revenue_code the code and related provisions with respect to the proposed transaction defined below described herein the information submitted in that request and in subsequent communications is summarized below the rulings contained in this letter are based on information and representations submitted by parent and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the distribution defined below i satisfies the business_purpose requirement of sec_1 b of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a ----percent or greater interest in distributing or controlled see sec_355 and sec_1_355-7 summary of facts parent a publicly traded corporation organized under the laws of state owns all the issued and outstanding_stock of distributing a state corporation distributing owns all the issued and outstanding_stock of controlled a state corporation parent distributing controlled and several other direct and indirect subsidiaries of parent are members of an affiliated_group that join together in filing a consolidated federal_income_tax return with parent as the common parent of the group parent has outstanding a debt the debt due to controlled parent is solvent and able to satisfy its obligations under the debt as they become due plr-141120-11 distributing is engaged in business a and business b controlled is engaged in business c parent has submitted financial information indicating that business a and business b conducted by distributing have had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years parent also submitted financial information indicating that business c conducted by controlled has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years parent files state_income_tax returns in combined return states and one separate_return state controlled files state_income_tax returns in multiple separate_return states and combined return states the management of parent has determined that it can achieve material state tax savings by consolidating controlled with parent proposed transaction parent has proposed the following series of transactions the proposed transaction to achieve the desired savings i distributing will distribute all the issued and outstanding_stock of controlled to parent the distribution and ii at least a day after the distribution controlled will convert under state law to a limited_liability_company llc the conversion representations parent makes the following representations with respect to the proposed transaction the distribution the following representations are made regarding the distribution a the indebtedness if any owed by controlled to distributing after the distribution will not constitute stock_or_securities b no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation c the five years of financial information submitted on behalf of distributing is representative of distributing's present operations and with regard to such plr-141120-11 corporation there have been no substantial operational changes since the date of the last financial statements submitted d the five years of financial information submitted on behalf of controlled is representative of controlled's present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted e following the distribution no person will hold a greater than --- percent interest in either distributing or controlled within the meaning of sec_355 who did not hold such an interest immediately before the distribution f following the transaction except with respect to shared services distributing and controlled will each continue the active_conduct of its respective business independently and with its separate employees g the distribution will be carried out for the corporate business_purpose of state_income_tax savings the distribution is motivated in whole or substantial part by this corporate business_purpose h the distribution will not be used principally as a device for distributing the earnings_and_profits of distributing or controlled or both i for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing ----- percent or more of the total combined voting power of all classes of distributing stock entitled to vote or --- percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution j for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing ----- percent or more of the total combined voting power of all classes of controlled stock entitled to vote or --- percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution plr-141120-11 k other than payables created through shared services which reflect the fair_market_value of providing these services or trade account indebtedness created in the ordinary course of business through continuing transactions no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution l immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d immediately before the distribution distributing will not have an excess_loss_account within the meaning of sec_1_1502-19 in controlled stock m payments made in connection with all continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length n the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a --- -percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor to any such corporation the conversion the following representations are made regarding the conversion o parent and controlled will adopt a plan of conversion under state law to convert controlled into a limited_liability_company plan_of_liquidation and the conversion will occur pursuant to that plan_of_liquidation p parent on the date of adoption of the plan_of_liquidation and at all times thereafter until the conversion is completed will own percent of the single outstanding class of controlled stock and controlled has no and will have no outstanding warrants options convertible securities or other obligations that may be classified as equity for federal_income_tax purposes q no shares of controlled stock have been redeemed during the three years preceding the conversion and no shares of controlled stock have been the subject of a prior intercompany recognition transaction under sec_1_1502-13 or its predecessor or basis_reduction under sec_108 and sec_1017 and sec_1_1502-28 plr-141120-11 r upon the conversion controlled will cease to be regarded as a taxable entity separate from parent for federal_income_tax purposes s controlled as a corporation will retain no assets and cease to conduct any activities for federal_income_tax purposes following the conversion t controlled will not have acquired assets in any nontaxable_transaction at any time except for acquisitions occurring more than three years prior to the effective time of the conversion u no assets of controlled have been or will be disposed of by controlled or parent except for dispositions i in the ordinary course of business ii which occurred more than three years prior to the effective time of the conversion or iii described in this letter that occur as part of the proposed transaction v the conversion will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation of all or a part of the businesses or assets of controlled if the persons holding directly or indirectly more than ----- percent in value of the stock of controlled also hold directly or indirectly more than ----percent in value of the stock of the recipient corporation for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 w there is no plan or intention to undertake any_action eg an election to be treated as an association_taxable_as_a_corporation for federal_income_tax purposes under sec_301_7701-3 etc and no other circumstances will exist eg the existence of a second regarded_owner of a member interest following the conversion that will prevent controlled from being disregarded as an entity separate from parent for federal_income_tax purposes under sec_301_7701-2 and sec_301_7701-3 x prior to the effective time of the conversion no assets of controlled will have been distributed in_kind transferred or sold to parent except for i transactions occurring in the normal course of business and ii transactions occurring more than three years prior to the effective time of the conversion y controlled will report all earned_income represented by assets that will be deemed to have been distributed to parent as a result of the conversion such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc plr-141120-11 z the fair_market_value of the assets of controlled will exceed its liabilities both at the time of the adoption of the plan_of_liquidation and immediately before the close of the day before the effective date of the conversion aa the debt is the only intercompany debt that will exist between parent and controlled at the time the conversion no intercorporate debt existing between parent and controlled has been cancelled forgiven or discounted except for transactions that occurred more than three years prior to the effective time of the conversion and except for the deemed extinguishment of the debt as a result of the conversion bb all of the rights and obligations under the debt will be extinguished in the conversion an intercompany_transaction under sec_1_1502-13 and i all income and deduction amounts with respect to the debt will have been taken into account before the conversion ii the fair_market_value of the debt will approximately equal parent's adjusted_issue_price in the debt and controlled's basis in the debt and iii parent's corresponding_item and controlled's intercompany_item after taking into account the special rules of sec_1_1502-13 with respect to the debt will offset in amount cc parent is not an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code dd all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the conversion have been fully disclosed rulings based solely on the information submitted and the representations set forth above we rule as follows regarding the distribution no gain_or_loss will be recognized by and no amount will be included in the income of parent upon the distribution sec_355 no gain_or_loss will be recognized by distributing upon the distribution sec_355 the aggregate basis of the distributing and controlled stock in the hands of parent immediately after the distribution will be the same as parent’s aggregate basis in the distributing stock held immediately before the distribution allocated in the manner described in sec_1_358-2 in accordance with sec_358 through c plr-141120-11 the holding_period of the controlled stock received by parent in the distribution includes the holding_period of the distributing stock with respect to which the distribution was made provided such distributing stock is held as a capital_asset by parent on the date of the distribution sec_1223 the earnings_and_profits of distributing and controlled will be adjusted in accordance with sec_312 and sec_1_312-10 as applicable based solely on the information submitted and the representations set forth above we rule as follows regarding the conversion the conversion will be treated as a distribution in complete_liquidation of controlled under sec_332 no gain_or_loss will be recognized by parent on its deemed receipt of the assets and assumption of the liabilities of controlled in the conversion sec_332 no gain_or_loss will be recognized by controlled on the deemed_distribution of its assets to and assumption_of_liabilities by parent in the conversion sec_337 the basis of each asset of controlled deemed received by parent in the conversion will equal the basis of that asset in the hands of controlled immediately before the conversion sec_334 the holding_period of each asset of controlled deemed received by parent in the conversion will include the period for which the asset was held by controlled sec_1223 parent will succeed to and take into account the items of controlled described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 sec_384 and sec_1502 and the regulations thereunder sec_381 and sec_1_381_a_-1 except to the extent controlled's earnings_and_profits are reflected in parent's earnings_and_profits parent will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of controlled as of the date of the conversion and any deficit in the earnings_and_profits of controlled will be used only to offset earnings_and_profits accumulated after the date of the conversion sec_381 and sec_1_381_c_2_-1 sec_1_1502-33 and sec_1_1502-80 plr-141120-11 caveats no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and regulations or on the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the distribution was used principally as a device for the distribution of earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 or iii whether the distribution was part of a plan or series of related transactions under sec_355 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _______________________________ maury passman assistant to the branch chief branch associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c contact person id number telephone number gx no third party contact 03-o7 date sep legend nau wpe won wpm sxxx yyy - sxxx yyy - dollar_figure dollar_figure dear sir or madam this is regarding approval for a set-aside under section in response to your request for a ruling dated g for the fiscal_year ending september design and construction of a public garden and park of the internal_revenue_code in the amount of dollar_figurexx yyy to pay for the our records indicate that you are exempt from federal_income_tax under sec_501 private_foundation within the meaning of sec_509 code request for set-aside dated september initial design phase for the garden and park your fiscal_year ends september you were granted a during the of the code and that you are a of the you are in the process of establishing a public garden and this garden and park will be park recreation and horticultural and botanical education a habitat for threatened and endangered species and a haven of peace and tranquility in an increasingly stressful urban environment garden will be open to the public a place for relaxation the you initially entered into a joint_venture protocol with a for the design and development of the garden in date advised you that it did not have adequate staffing and must withdraw from the protocol numerous unrelated third party entities submitted their qualifications and tentative bids on the design aspects of a public garden area you selected b and management services timetable and a payment schedule the agreement with b provides a after a lengthy process whereby to provide the overall design a the construction of the garden will require drainage irrigation landscaping and the construction of restrooms a pavilion shelter and other smaller structures including an information kiosk light poles park benches trash receptacles and water fountains an open-air theater contiguous to a natural grass slope which will provide seating the plans provide for a shell rock pathway to encircle the garden area turf and concrete parking areas and extensive plantings formal garden fern grotto garden area entry plaza area outdoor performance area there will also be a and the geotechnical investigations for the entry road design were completed on november grading plans for the entry road and parking area were reviewed in early date soil under the anticipated sites for the entrance road and buildings final construction documents for the entry road and parking area were completed in early date you hired c to provide tests of the the preliminary drainage and various governmental approvals are required for this for example a permit application was made to as a result of unanticipated delays in obtaining project date the necessary permits construction has been delayed in addition initial plans called for a prefabricated pavilion however after review the foundation managers determined that the prefabricated pavilion was neither attractive nor aesthetically consistent with the garden and park the pavilion are expected to be completed by the end of date the design documents for d on requests for bids have been solicited for mobilization site two bids have been work hardscape irrigation and landscaping submitted and are being reviewed b currently estimates that the entire public garden and park project will cost xxx yyy to complete which is an amount in excess of the aggregate of the set-aside approved last year and the requested xx yyy set-aside -3- the contribution and land have been received governmental once the plans are finalized and the contractors is anticipated that the landscaping and amphitheater approvals are in place and plans are under way for completion of the project selected it can be completed within a year of the beginning of construction as the billings along with your payments will occur after september it other features will be completed a result of the lengthy design and permitting process many of is contemplated that the pavilion restrooms pathways and your current year-end in the following year in order for these payments to be considered qualifying distributions for the purpose of preventing the imposition of the excise_tax under sec_4942 you request approval to set-aside dollar_figurexxx yyy as a qualifying_distribution for your fiscal_year ending date set-aside in the current taxable_year that will result in qualifying_distribution in the current taxable_year when the funds are set_aside rather than in the year actually paid this set-aside will allow you to establish a a your foundation_manager has stated that the amount will actually be paid for the garden and park by september which is within a specified period of time that ends not more than months after the date of this set-aside sec_4942 of the code imposes on the undistributed_income_of_a_private_foundation for any taxable_year which has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year a tax equal to undistributed at the beginning of such second or succeeding taxable_year percent of the amount of such income remaining section g of the code defines qualifying distribu- an organization controlled by the foundation or one or more a private_foundation which is not tion as any amount_paid to accomplish one or more purposes described in sec_170 b other than any contribution to i disqualified persons or an operating_foundation except as provided in paragraph any amount_paid to acquire an asset used directly in carrying out and or more purposes described in sec_170 b ii or sec_4942 a of the code provides that for all taxable years beginning on or after january set-aside for a specific project which comes within one or more purposes described in sec_170 b may be treated as qualifying_distribution if graph b it meets the requirements of subpara- an amount a 3l7 sec_4942 g b i of the code provides that an amount set-aside for a specific project shall meet the requirements of this subparagraph if at the time of the set-aside the founda- tion establishes to the satisfaction of the secretary that the amount will be paid for the specific project within years and at the time of the set-aside the private_foundation establishes to the satisfaction of the secretary that the project is one which can be better accomplished by such set-aside than by immediate payment of funds or the project will not be completed before the end of the taxable_year of the foundation in which the set-aside is made sec_53_4942_a_-3 of the foundation and similar or b may be treated as _ excise_taxes regulations provide that the amount set-aside for a special project that is for one or more of the purposes described in sec_170 distribution in the year in which set-aside if the requirements of sec_4942 requirements of paragraph b that the amount set_aside will be paid for the specific project within months after it satisfies the suitability test satisfies the cash distribution test described in subparagraph of this paragraph the is established the private_foundation and this paragraph b is set-aside and are satisfied if are satisfied the set-aside a qualifying ii i or it sec_53_4942_a_-3 of the regulations provide that a matching-grant program the suitability test prescribed by the code is satisfied where the specific project is one in which relative long-term grants or expenditures must be made in order to assure the continuity of particular charitable projects or program-related investments or where grants are made as part of projects include for example a plan to erect a building to house the direct charitable educational or other similar exempt activity of the foundation such as paintings are to be hung even though the exact location and architectural plans have not been finalized a plan to purchase an additional group of paintings offered for sale only as a unit that requires an expenditure of more than one year's income or a plan to fund a specific research program that is tude as to require an accumulation of funds before beginning the research even though not all of the details of the program have been finalized for good cause shown the period for paying the amount set-aside may be extended by the service a museum building in which of such magni- such based on the information presented we rule that your proposed set-aside of dollar_figurexx yyy in your current fiscal_year meets the requirements of sec_4942 of the code and sec_53 a - b of the regulations our approval of your set-aside is based upon our understand- ing that the set_aside will in fact be pledged for the specific project indicated and in the amount indicated and that the pledged funds will be expended within the month period a future date or dates under sec_53_4942_a_-3 of the regulations your a dollar proposed set-aside must be evidenced by the entry of amount on your books_and_records as paid at shall be taken into account for purposes of determining your minimum_investment_return under section a -2 c of the regulations and any income attributable to such set-aside must be taken into account in computing adjusted_net_income under sec_53 a -2 d any amount which is set-aside a pledge or obligation to be this ruling is directed only to the organization that requested it not be used or cited as precedent sec_6110 of the code states that it may because this letter could help resolve questions you should keep this copy in your permanent records sincerely yours merated vv sack gerald v sack chief exempt_organizations technical group4 be


internal_revenue_service department of the treasury number release date index no 2601-dollar_figure p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi - plr-139673-01 date july in re legend settlor a b grandchild grandchild grandchild grandchild trust trust trust trust trust date court state dear this responds to your letter dated date and subsequent correspondence requesting rulings regarding the generation-skipping_transfer gst tax consequences of the proposed modification of certain trusts plr-139673-01 facts the facts submitted and representations made are as follows on date settlor created trust an irrevocable_trust for the benefit of his grandchildren grandchild grandchild grandchild and grandchild article three paragraph a of the trust instrument provides that the trustee is to divide trust into four equal shares one for each grandchild under article three paragraph b each share is to be administered as a separate trust trust is for the benefit of grandchild trust is for the benefit of grandchild trust is for the benefit of grandchild and trust is for the benefit of grandchild a is currently serving as trustee of trust trust trust and trust article three paragraph b provides as follows the trustee shall accumulate the income of each trust and may pay to the grandchild for whom the trust is set_aside as much of the current or accumulated income and principal thereof as the trustee shall determine in the trustee’s discretion to be necessary and appropriate for the grandchild’s support education care and maintenance taking into consideration to the extent the trustee considers advisable any income or resources of the grandchild outside the grandchild’s trust known to the trustee and reasonably available for these purposes article three paragraph b provides upon the last to occur of i the attainment of age eighteen by each grandchild of the settlor or ii the death of both a and b each such trust shall terminate and the trust as then constituted including both principal and accumulated and current income shall be distributed free of trust to the grandchild for whom said trust is then being administered under this instrument if any grandchild shall die before becoming entitled to distribution of his trust as specified in this paragraph b the undistributed balance of that grandchild’s trust shall be distributed free of trust to the then living issue of such grandchild by right of representation or if there are no such then living issue to such of the issue of a and b as are then living by right of representation article six paragraph i of trust provides that any other provision of trust notwithstanding income and principal of the trust estate shall not be utilized to discharge the legal_obligation of any person to support a_trust beneficiary the parties desire to facilitate trust’s qualification as a qualified_subchapter_s_trust for purposes of sec_1361 of the internal_revenue_code therefore as permitted under the laws of state a and the beneficiary of each trust propose to petition the plr-139673-01 court with jurisdiction over the trusts to obtain an order from the court approving the following proposed modification of article three paragraph b as follows the trustee shall distribute all of the income within the meaning of sec_643 of the internal_revenue_code of each trust currently and may pay to the grandchild for whom the trust is set_aside as much of the principal thereof as the trustee shall determine in the trustee’s discretion to be necessary and appropriate for the grandchild’s support education care and maintenance taking into consideration to the extent the trustee considers advisable any income or resources of the grandchild outside the grandchild’s trust known to the trustee and reasonably available for these purposes you represent that no additions actual or constructive have been made to any of the trusts since date we have been asked to rule that the proposed modification will not constitute an addition to corpus and will not affect the grandfathered status of any trust for generation-skipping_transfer_tax purposes law and analysis sec_2601 imposes a tax on every generation-skipping_transfer under a of the tax_reform_act_of_1986 the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the tax reform act and sec_26_2601-1 of the generation- skipping transfer_tax regulations the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification 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 sec_2651 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 for in the original trust 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 plr-139673-01 in the present case trust was irrevocable on date and it is represented that no additions actual or constructive have been made to trust after that date the proposed modification will not result in a shift of any beneficial_interest to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the proposed division in addition the proposed modification will not extend the time for vesting of any beneficial_interest beyond the period provided for in the trust instrument further the proposed modification will not constitute an addition to trust within the meaning of b a of the tax_reform_act_of_1986 accordingly based on the facts submitted and the representations made we conclude that the proposed modification will not subject trust trust trust trust or trust to gst tax by reason of b a of the tax_reform_act_of_1986 and sec_26_2601-1 therefore after the modification the trusts will continue to be exempt from the gst tax imposed under sec_2601 provided there are no additions to the trusts after date except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours chief branch office of the associate chief_counsel passthroughs and special industries by_________________________ george l masnik enclosure 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 corp b3 plr-116920-13 date date taxpayer --------------------------------------------------- ---------------------------------------------------------- -------------------------------------- ------------ -------------------------------- ------------------------------------------------- state a exchange date dear -------------- we respond to your letter dated date on behalf of taxpayer that requests rulings under sec_301 and sec_305 of the internal_revenue_code the code the information submitted in that letter is summarized below facts taxpayer is a state a corporation that is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return on a calendar_year basis taxpayer has one class of common_stock outstanding taxpayer stock which is publicly traded and listed on the exchange taxpayer intends to elect under sec_856 of the code to be treated as a real_estate_investment_trust reit effective date the first reit taxable_year in connection with the reit election prior to the end of the first reit taxable_year taxpayer intends to distribute to its shareholders with respect to their taxpayer stock all of its plr-116920-13 earnings_and_profits that were or will be accumulated by taxpayer for all taxable periods ending prior to the first reit taxable_year as required by sec_857 the special dividend taxpayer intends to provide each shareholder with an election to receive his her or its share of the special dividend in the form of i cash ii taxpayer stock or iii a combination of both cash and taxpayer stock if a shareholder fails to make a valid election by the election deadline that shareholder will be deemed to have made an election to receive only taxpayer stock taxpayer intends to place a limit on the aggregate amount of cash to be distributed in payment of the special dividend cash will comprise at least percent of the special dividend the cash limitation to the extent necessary taxpayer will issue cash in lieu of fractional shares of taxpayer stock any cash paid in lieu of fractional shares will not count towards the cash limitation if all elections to receive the special dividend are for cash or a combination of cash and taxpayer stock and would result in the payment of cash in an aggregate amount that is less than or equal to the cash limitation then all such elections will receive the requested amount of cash if all such elections would result in the payment of cash in an aggregate amount in excess of the cash limitation then a each shareholder electing to receive the special dividend in cash on percent or less of the total number of shares of taxpayer stock he holds will receive his elected amount of cash b each shareholder electing to receive the special dividend in cash on more than percent of the total number of shares of taxpayer stock he holds will receive i cash on the number of elected shares equal to percent of his total number of shares of taxpayer stock plus ii cash on the number of elected shares exceeding percent of the total number of shares of taxpayer stock he holds in a prorated amount based on a formula plus iii shares of taxpayer stock for the remaining amount of the elected shares for cash that were not paid in cash taxpayer intends to distribute its stock and the cash in the special dividend during the first reit taxable_year and as soon as reasonably practicable following the date of the election deadline the calculation of the number of shares to be received by any shareholder will be determined over a period of two weeks ending as soon as practicable before the date of the special dividend payment and will be based upon a formula that utilizes market plr-116920-13 prices and is designed to equate in value the number of shares to be received with the amount of money that could be received instead taxpayer represents that it currently does not have a dividend_reinvestment_plan drip in effect but taxpayer intends that for any taxpayer shareholder participating in a future drip the drip will apply to the special dividend only to the extent of the cash the taxpayer shareholder would have received in the special distribution in the absence of the drip rulings based solely on the information submitted and the representations made we rule as follows all of the cash and taxpayer stock to be distributed in the special dividend by taxpayer to holders of taxpayer stock will be treated as a distribution_of_property with respect to its stock to which sec_301 and sec_305 apply provided a the taxpayer elects to be taxed as and qualifies as a reit as of the first reit taxable_year and b the special dividend occurs during the first reit taxable_year the amount of the distribution of stock shall be considered to equal the amount of cash that could have been received instead of such stock sec_1_305-1 and sec_1_305-2 example of the income_tax regulations caveats rulings concerning the special dividend are void and we do not express any opinion on the tax consequences of the special dividend if the special dividend is not completed by the end of the first reit taxable_year further except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transaction under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above holdings in particular we are not ruling on whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code or any_tax consequences resulting from the establishment of a drip procedural statements 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 plr-116920-13 by an appropriate party while this office has not verified any of the materials submitted in support of the request for rulings it is subject_to verification on examination 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 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 in accordance with the power_of_attorney on file with our office we are sending a copy of this letter to your authorized representatives sincerely filiz a serbes branch chief branch office of associate chief_counsel corporate cc


id office uilc cca_2009083116243037 -------------- number release date from ------------------- sent monday date pm to -------------------- cc ------------------------------------------------------- subject fw cis image agreements below is ------------------'s recommendation we generally recommend that the service follow irm guidance and in this case recommend that the service follow the fax signature restrictions in the irm we believe the same issues that surround fax documents also apply to documents that have been scanned by the service through the cis process in date the commissioner of internal revenue adopted a policy statement entitled use of fax and signature stamps for taxpayer submissions one of the policy statements adopted was consents to assess additional tax forms and others of dollar_figure or less can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax consents to assess tax in excess of dollar_figure should be secured with original signatures that are delivered in person or by mail


internal_revenue_service number release date ---------------------------------- ----------------------------- --------------------------------------------- -------------------------------- in re --------------------------------------------- ----------------------------- -------------------------- ------------------------ - department of the treasury washington dc person to contact ---------------- id no ------------- cc ita telephone number --------------------- refer reply to plr-120258-05 date date legend a --------------------------------------------------------------- ------------------------------------------------- dates -------------------------- -------------------------- --------------------------- groups taxpayers and on attachment taxpayers and on attachment all other taxpayers on attachment dear -------------------- this letter responds to your letter and submissions of date supplementing a previous submission of march in which you requested on behalf of a above and forty other related parties the taxpayers - see attachment certain private letter rulings relating to the late-filing of forms election to have a tax_year other than a required tax_year specifically you requested that the taxpayers’ late-filed forms be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations we are pleased to address your concerns the information submitted indicates that each of the forty-one taxpayers on whose behalf rulings are requested is a partnership employing an overall accrual_method of accounting taxpayers are members of a tiered_structure as defined in sec_1_444-2t of the temporary income_tax regulations under sec_706 of the internal_revenue_code a partnership’s taxable_year must be its required_taxable_year unless among other exceptions not relevant here the partnership elects under sec_444 of the code to use a taxable_year other than its required_taxable_year sec_444 and permit an eligible_partnership to elect or change to a taxable_year only if the deferral_period of the taxable_year elected is not longer than the shorter of three months or the deferral_period of the taxable_year being changed the term deferral_period generally refers to the number of months between the beginning of the entity’s taxable_year and the close of the first required_taxable_year ending within such taxable_year in the instant circumstances taxpayers desired to elect a taxable_year ending november for their initial taxable_year which is a permitted taxable_year under sec_444 sec_444 of the code and sec_1_444-2t of the regulations provide in relevant part that entities that are part of a tiered_structure that consists only of partnerships all of which have the same taxable_year may make or continue an election under sec_444 of the code sec_1_444-3t of the regulations provides among other requirements that form_8716 must be filed by the earlier of i the 15th day of the fifth month following the month that includes the first day of the tax_year for which the election will first be effective or ii the due_date without regard to extensions of the income_tax return resulting from the sec_444 election sec_301_9100-1 of the regulations set forth rules respecting the granting of extensions of time for making certain elections under these rules the commissioner in his discretion may grant a reasonable extension of time to make a regulatory election under subtitle a provided the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government sec_301_9100-2 sets forth rules governing automatic extensions for regulatory elections including elections to use other than the required tax_year under sec_444 if the provisions of section' do not apply to the taxpayer's situation as in the instant case the provisions of sec_301_9100-3 other extensions may apply sec_301_9100-3 sets forth standards that the commissioner will employ in determining whether to grant discretionary relief in situations that do not meet the requirements of sec_301_9100-2 the standards applied are whether the taxpayer acted reasonably and in good_faith in the matter and whether the granting of relief will prejudice the interests of the government generally a taxpayer will be deemed to have acted reasonably and in good_faith where for example the taxpayer reasonably relied on a qualified_tax professional and that professional failed to make or advise the taxpayer to make the election at issue in the instant circumstances group taxpayers’ forms electing to use a taxable_year ending november were due on or before date group taxpayers’ forms electing to use a taxable_year ending november were due on or before date and group taxpayers’ forms electing to use a taxable_year ending november were due on or before date due to an error or misunderstanding none of the forms was timely filed however the error was not due to any lack of due diligence or prompt action on the part of any taxpayer the information submitted and representations furnished by the taxpayers and their tax professionals establish that taxpayers acted reasonably and in good_faith in respect of this matter furthermore we have determined that the granting of relief in this case will not prejudice the interests of the government within the intendment of sec_301_9100-3 accordingly the requirements of sec_301_9100-3 for the granting of relief have been satisfied within days of the date of this ruling each taxpayer should file with the irs cincinnati service_center attn entity control a form_8716 electing to use a tax_year ending november effective for its first taxable_year ending either date date or date as appropriate a copy of this letter_ruling should accompany such submission and each taxpayer should type or print at the top of the form filed under sec_301_9100-3 of the regulations this ruling is further conditioned on taxpayers complying with sec_1 1t a which provides in relevant part that for each taxable_year that a partnership has an election under sec_444 in effect the partnership must i file a return as provided in sec_1_7519-2t and ii make any required_payment as provided in sec_1_7519-2t except for the specific ruling above which is restricted to the filing of forms we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the code or regulations that may be applicable thereto this letter_ruling is based on facts and representations provided by the taxpayers and their authorized representatives and is limited to the matters specifically addressed no opinion is expressed as to the tax treatment of the transactions considered herein under the provisions of any other sections of the code or regulations which may be applicable thereto or the tax treatment of any conditions existing at the time of or effects resulting from such transactions which are not specifically addressed herein because it could help resolve federal tax issues a copy of this letter should be maintained with the taxpayers’ permanent records pursuant to a power_of_attorney currently on file with this office the original of this letter_ruling is being sent to the taxpayers’ authorized representative and copies are being furnished to the taxpayers and their second-designated authorized representatives a copy of this letter is also being sent to the taxpayers’ appropriate irs industry director this ruling is directed only to the taxpayers who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent associate chief_counsel income_tax accounting s william a jackson by _________________________ william a jackson chief branch attachment enclosures copy of this letter copy for sec_6110 purposes attachment plr-119941-05 ---------------------------------------------------------------- -------------------------------------------------------------- plr- -------------------------------- plr-119947-05 --------------------------------------------------------------------------- plr-119950-05 --------------------------------------------------------- plr-119955-05 ------------------------------------------ plr- ---------------------------------------- plr-120150-05 ------------------------------------- plr-120154-05 -------------------------------------------------- plr-120199-05 ------------------------------------------------------- plr- --------------------------------------------- plr-120212-05 -------------------------------------------------- plr-120219-05 ----------------------------------------- plr-120220-05 ------------------------------------ plr-120218-05 --------------------------------------- plr-120222-05 ---------------------------- plr-120231-05 ------------------------------------------ plr-120233-05 ----------------------------------------------------- ---------------------------------------------------- plr-120235-05 ------------------------------------ plr-120236-05 -------------------------------------------------- plr-120237-05 ----------------------------------------------------------- plr-120239-05 ---------------------------------------------- plr-120248-05 ----------------------------------- plr-120249-05 -------------------------------------- plr-120252-05 -------------------------------------------- plr-120254-05 ---------------------------------------------------------- plr-120258-05 ----------------------------------------- plr-120263-05 ---------------------------------------------- plr-120268-05 --------------------------------------- plr-120270-05 -------------------------------------------------------------- plr-120507-05 ------------------------------------------- plr-120514-05 ------------------------- plr-120512-05 ------------------------ plr-120517-05 ------------------------------------------------- plr-120519-05 ----------------------------------------- plr-120526-05 -------------------------------- plr-120527-05 ---------------------------------------------------------- plr-120566-05 ------------------------------------------------- plr-120528-05 ----------------------------------------------- plr-120548-05 ------------------------------------------------- plr-120550-05 ---------------------------------------- plr-120552-05


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 fip branch plr-101521-17 date date legend issuer ----------------------------------------------------------- -------------------------------------------------------------------------------- state ------------------------ power plant -------------------------------------------------------------- -------------------------------------------------------------------------------- city state cooperative corporation iso ------------------------------------ ------------------------- ------------------------------------------------------ ---------------------------------------------------------- ----------------------------------------- bonds -------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- -------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- ------------------------------------------------------- plr-101521-17 year year a ------- ------- ---- dear ----------------- this is in response to the request submitted on behalf of issuer for a ruling that the city’s proposed contracts described below will not result in private_business_use of the proceeds of the bonds under sec_141 of the internal_revenue_code code facts and representations issuer was created pursuant to state law for the purpose of permitting political subdivisions of state that own and operate retail electric utility systems to secure by joint action an adequate reliable and economical supply of electric power issuer has the authority to develop finance construct acquire and operate generation transmission and distribution facilities to meet the electricity requirements of its members issuer is authorized to issue bonds for this purpose issuer allows certain rural_electric_cooperatives and municipalities located outside of state to participate in issuer’s power supply programs and projects as non-voting members city is a municipality in state city owns and operates an electric distribution system through which it delivers electricity to its customers within city power plant is an electric generating station located in city issuer has an undivided ownership_interest in power plant and financed or refinanced substantially_all of the acquisition and construction costs of its interest in power plant with the bonds the bonds are revenue bonds payable from the revenues of power plant including payments received under power purchase agreements with municipalities located in state sec_1 and including city city’s power purchase agreement the ppa entitles city to a specified percentage share of the capacity of and energy generated by issuer’s interest in power plant and requires that city pay to issuer that same percentage share of issuer’s costs of acquisition and construction including the debt service on the bonds fixed costs and operation variable costs of power plant on a take or pay basis iso is a regional transmission organization that was recognized as such by the federal energy regulatory commission in year in year iso’s geographical region expanded to include the area in which power plant is located iso also operates as an energy market the iso market by buying energy from participating generators and plr-101521-17 selling that energy to the load serving entities lses that sell energy to wholesale and retail customers iso along with regulators from states participating in iso has the responsibility to ensure that sufficient electric generating capacity exists within the iso system or elsewhere from which electricity can be delivered into the iso system to cover the anticipated peak demand plus an appropriate reserve margin for each lse within iso’s region the amount of capacity required for an lse is referred to as its resource adequacy requirement the market mechanism that iso uses to ensure an lse meets its resource adequacy requirement is zonal resource credits zrcs all of the generating capacity within iso’s region is assigned an amount of zrcs with zrc equal to megawatt-day of capacity the number of zrcs for any generating facility is determined once per year based upon a variety of factors including the type of facility and historical generation at the facility an lse can meet its resource adequacy requirement by owning a generation asset available to produce power within the iso system to which zrcs will be assigned having contractual rights equivalent to ownership of such a generation asset such as for example a take_or_pay_contract for the purchase of power entering into bilateral contracts to purchase zrcs or purchasing zrcs at the yearly iso zrc auction if a lse fails to meet its resource adequacy requirement that is has an insufficient amount of zrcs for its load it pays a penalty to iso if an iso market participant has zrcs in excess of its resource adequacy requirement it must make such zrcs above an iso-determined threshold available in the yearly iso auction to allow the lses with inadequate zrcs to purchase the needed amount of zrcs the market_value of zrcs is largely dependent on the ratio between the capacity and the load that the iso serves and the availability of transmission services for the load served under the iso regulations the owner of a generating facility that has sold assigned zrcs must offer the electric energy produced by that facility in the iso market a purchase of a zrc provides no legal entitlement to the energy corresponding to the zrc purchased city proposes to enter into three agreements city plans to enter into a long-term electric service_contract with cooperative an entity exempt from federal_income_tax under sec_501 of the code the electric supply agreement under the electric supply agreement cooperative will supply all of city’s electricity requirements as a result of the electric supply agreement city will no longer need the electricity that it receives from power plant under the ppa city plans to sell that electricity through short-term contracts and spot sales in the iso market to hedge the difference between the revenue city collects from selling its ppa power in the iso market and the price city must pay to issuer under the ppa city will enter into a a-year financial swap agreement with corporation the swap specifically city will pay corporation the plr-101521-17 excess of the price for which city sells its electricity under the ppa in the iso market over the variable costs it incurs in producing its electricity at power plant and corporation will pay city the excess of the variable costs city incurs in such production over the price at which city sells its ppa electricity in the iso market the fixed costs payable to issuer under the ppa including the debt service on the bonds are not factored into the swap payments corporation is an electric generation and transmission cooperative corporation located and operating in state it serves its member_cooperatives through long-term all requirements_contracts cooperative is a member of corporation but not a related_party to corporation under sec_1_150-1 of the income_tax regulations as a result of the electric supply agreement and cooperative’s requirements contract with corporation city’s resource adequacy requirement will be transferred to corporation as cooperative’s supplier consequently the zrcs assigned to city’s share of the capacity of power plant will be available for city to sell city will enter into a a-year contract to sell its zrcs to corporation the zrc sales agreement corporation will use these zrcs to satisfy its resource adequacy requirement or may resell them to other lses the zrc sales agreement does not entitle corporation to any energy capacity or control_over the operations of power plant law and analysis sec_103 of the code provides that gross_income does not include interest on any state_or_local_bond sec_103 provides that sec_103 does not apply to any private_activity_bond which is not a qualified_bond within the meaning of sec_141 sec_141 provides that a private_activity_bond is any bond issued as part of an issue that meets either the private_business_use_test of sec_141 and the private_security_or_payment_test of sec_141 or the private_loan_financing_test of sec_141 sec_141 provides that generally a bond issue meets the private_business_use_test if more than percent of the proceeds of the issue are to be used for any private_business_use sec_141 provides that the term private_business_use means use directly or indirectly in a trade_or_business carried on by any person other than a governmental_unit sec_141 provides that for purposes of sec_141 any activity carried on by a person other than a natural_person shall be treated as a trade_or_business sec_1_141-3 of the income_tax regulations provides that the private_business_use_test relates to the use of the proceeds of an issue and for this purpose the use of financed property is treated as the direct use of proceeds plr-101521-17 sec_1_141-3 provides that both actual and beneficial use by a nongovernmental person may be treated as private_business_use in most cases the private_business_use_test is met only if a nongovernmental person has special legal entitlements to use the financed property under an arrangement with the issuer in general a nongovernmental person is treated as a private business user of proceeds and financed property as a result of ownership actual or beneficial use of property pursuant to a lease or a management or incentive payment contract or certain other arrangements such as a take or pay or other output-type contract sec_1_141-3 provides that any other arrangement that conveys special legal entitlements for beneficial use of bond proceeds or of financed property that are comparable to special legal entitlements such as ownership leases or output contracts or other arrangements not relevant for this purpose results in private_business_use for example an arrangement that conveys priority rights to the use or capacity of a facility generally results in private_business_use sec_1_141-7 provides special rules to determine whether arrangements for the purchase of output from an output_facility cause an issue of bonds to meet the private business tests sec_1_141-3 applies to determine whether other types of arrangements for use of an output_facility cause an issue to meet the private business tests sec_1_141-1 provides that an output_facility means electric and gas generation transmission distribution and related facilities and water collection storage and distribution facilities sec_1_141-7 provides that the available output of a facility financed by an issue is determined by multiplying the number of units produced or to be produced by the facility in one year by the number of years in the measurement_period of that facility for that issue sec_1_141-7 provides that the number of units produced or to be produced by a generating facility in one year is determined by reference to its nameplate_capacity or the equivalent or where there is no nameplate_capacity or the equivalent its maximum capacity which is not reduced for reserves maintenance or other unutilized capacity sec_1_141-7 provides that the purchase pursuant to a contract by a nongovernmental person of available output of an output_facility output contract financed with proceeds of an issue is taken into account under the private business test if the purchase has the effect of transferring the benefits of owning the facility and the burdens of paying the debt service on the bonds used directly or indirectly to finance the facility the burdens and benefits_test issuer is requesting a ruling that the three agreements described above specifically the electric supply agreement the swap and the zrcs sale agreement collectively the agreements will not result in private_business_use under sec_141 of the code proceeds of the bonds were spent on the costs of acquiring constructing and refinancing issuer’s interest in power plant an output_facility as defined in sec_1_141-1 plr-101521-17 although zrcs are assigned to power plant based on its capacity zrcs do not increase or otherwise impact the nameplate_capacity of power plant and the sale of zrcs does not affect the units of electricity that may be sold nor entitle corporation the zrc purchaser to any energy or capacity of power plant we thus conclude that zrcs are not output for purposes of sec_141 and the rules in sec_1_141-7 do not apply to the zrc sales agreement the rules under sec_1_141-3 must also be examined to determine whether there is private_business_use under the agreements corporation the purchaser of city’s zrcs will receive no legal entitlements to the energy or capacity of power plant the zrcs are a market mechanism to meet the lse resource adequacy requirements and do not themselves constitute capacity or use of power plant under the zrc sales agreement city will have no obligation to corporation to produce any electricity and corporation will have no control_over power plant and its operations thus corporation has no direct or indirect control of the operation of or any other special legal entitlement with respect to power plant under sec_1_141-3 similarly the swap is not an output contract and does not grant any special legal entitlements to corporation the swap counterparty regarding the energy capacity or control_over the operations of power plant finally the electricity supply agreement is not an agreement with respect to the output of power plant nor does it grant cooperative any special legal entitlements relating to the energy capacity or control_over the operations of power plant conclusion based on the foregoing we conclude that the agreements will not result in private_business_use of the bonds 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 s requesting it sec_6110 of the code provides that it may not be used or cited as precedent 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 plr-101521-17 by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely associate chief_counsel financial institutions products s by ______________________ johanna som de cerff senior technician reviewer branch


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-121724-98 date date re legend husband wife bank trust_beneficiary daughter granddaughter a granddaughter b grandson year year date court we received a letter dated date from your authorized representative requesting rulings concerning the application of the generation-skipping_transfer gst tax imposed by sec_2601 of the internal_revenue_code to the proposed modification of eight trusts according to the facts submitted in year husband and wife created inter_vivos trusts for the benefit of daughter and granddaughter a year is prior to date subsequent thereto but also prior to date granddaughter b and grandson were born and pursuant to the terms of the trust instrument trusts were also created for the benefit of granddaughter b and grandson you represent that trust is one of eight trusts and that the trusts are identical except for the beneficiaries and the investments trust was created primarily for the benefit of beneficiary and such beneficiary’s issue during the term of trust bank the corporate trustee has the sole discretion to distribute the trust estate in the best interests of beneficiary if not otherwise terminated sooner trust terminates when beneficiary dies at which time the trust estate is to be distributed to beneficiary’s issue in year the trustees petitioned court to modify paragraph of each trust instrument as modified paragraph provides that should husband cease or fail to serve as co-trustee with bank the following persons in order of succession shall serve as co-trustees with bank a wife b all of the following named persons daughter granddaughter a granddaughter b and grandson c all of such of the persons named in b who are able to act on date you received a private_letter_ruling from the internal_revenue_service that the modification to the trusts in year did not cause any of the trusts to lose their exempt status for gst tax purposes under sec_2601 you now proposed to petition court to modify paragraph once again as modified paragraph will provide that should husband cease or fail to serve as co-trustee with bank the following persons in order of succession shall serve as co-trustee with bank a wife and b the person for whom each trust is created and named with respect to trust_beneficiary if both husband and wife are unable to act as co-trustee and beneficiary is unable to act as co-trustee bank shall serve as sole trustee you represent that no additions of assets constructive or otherwise have been made to any of the trusts subsequent to date in addition no modifications or amendments other than the modification in year for which you received a private_letter_ruling on date have been made to any of the trusts in addition the trusts were irrevocable as of the date of creation prior to date you have requested a ruling that the proposed modification to paragraph of trust will not constitute an addition to trust or otherwise subject trust to the gst tax under sec_2601 of the code sec_2601 provides that a tax is imposed on every generation-skipping_transfer sec_2611 defines the term generation-skipping_transfer to mean a taxable_termination a taxable_distribution or a direct_skip sec_2612 defines the term taxable_distribution to mean any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip sec_2613 defines the term skip_person as including a natural_person assigned to a generation that is two or more generations below the generation assignment of the transferor trust in this case is a generation-skipping_trust because trust provides for distributions to persons that are two or more generations below the transferors’ generation thus unless trust is excepted from the gst tax provisions by reason of b a of the tax_reform_act_of_1986 act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations trust would be subject_to the gst tax section b a of the act and sec_26_2601-1 of the regulations provide that the gst tax shall not apply to any gst under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added a modification of a generation-skipping_trust that is otherwise exempt under the act and the regulations will generally result in a loss of its exempt or grandfathered status if the modification changes the quality value or timing of any powers beneficial_interest rights or expectancies originally provided for under the terms of the trust based on the facts presented and representations made we conclude that the proposed modification of trust is administrative in nature and will not result in any change in the quality value or timing of any beneficial_interest in trust consequently trust will continue to be exempt from the gst tax therefore provided there are no additions constructive or otherwise to trust neither distributions from nor the termination of trust will be subject_to the gst tax under sec_2601 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative sincerely assistant chief_counsel passthroughs and special industries by_____________________ george masnik chief branch enclosure copy for sec_6110 purposes