internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp -plr date date legend company district selling shareholders date date date date state c xxx ppp project b ddd percent purchaser purchaser purchaser ccc plr hhh dollar_figurefff dollar_figureggg dollar_figureiii case j dear this letter responds to the date request for rulings submitted by your representative on behalf of company and the selling shareholders listed on the attached schedule a with respect to the transfer of certain water rights you have requested a ruling that for federal_income_tax purposes company's participation in the procedures by which the transfer of the water is accomplished in conjunction with the sales by the selling shareholders of their rights to the water will not constitute a sale_or_other_disposition of property by company nor a distribution_of_property by the company to the selling shareholders with respect to their stock additionally you have requested rulings on whether the water rights will constitute capital assets in the hands of the selling shareholders and whether certain_sales of these water rights will constitute sales or exchanges of capital assets the information submitted in the request and in a later submission is summarized below facts company was organized on date as a ditch and reservoir company and is subject_to state c's statutory requirements for mutual ditch companies company uses the cash_method_of_accounting and its fiscal_year ends on date approximately xxx of the company's shareholders are selling shareholders the other shareholders are not transferring any of their water rights and are not involved in the transactions described herein state c mutual ditch companies generally were created when a group of farmers banded together and formed the cooperative company for the express purpose of storing and conducting water for irrigation purposes company's primary function has been to deliver to and store the water of its shareholders the company's assets are limited to those necessary to deliver and store the water these assets include weirs canals dams water control devices and a storage reservoir the shareholders used the bylaws and shares to quantify each of their beneficial use rights in the water transported by the company the company owns no land on which to make use of the water it transports and stores although water is derived from two sources only the water from project b the project b water as described below is the subject of this ruling_request plr on date district a quasi-governmental corporation subject_to state c's statutory requirements for such entities entered into an agreement the repayment contract with the united_states bureau of reclamation the bureau for the development of project b project b emanates from the reclamation act of as amended the repayment contract grants district the right to allocate the project b water the district does so through allotment contracts that require the water users to pay their proportionate share of the district's costs to operate and maintain project b and to repay the federal government for its construction costs the operating reimbursements costs on date district entered into an allotment contract with company which provided that company would be entitled to receive an allocation of water for the beneficial use of its shareholders the project b water was then allocated pro_rata among the shareholders based on their shares in addition to paying on a pro_rata basis company's annual operating_expenses based on their respective allocation of project b water each shareholder pays his proportionate share of the operating reimbursements costs under the allotment contract conditions in state c are such that water is in great demand as such the selling shareholders intend to relinquish their beneficial_ownership of ddd percent of the project b water through three sales agreements the master sales agreements with purchaser purchaser and purchaser the master sales agreements with purchaser and purchaser provide they will acquire an aggregate of ccc units of project b water at dollar_figurefff per unit and dollar_figureggg per unit respectively the master sales agreement with purchaser provides for an allocation of hhh units of project b water at dollar_figureiii per unit in order to satisfy certain transfer requirements of the district the master sales agreement with purchaser includes an option for purchaser to take all or some of the units through a twenty-five year interruptible supply contract the interruptible supply contract under the interruptible supply contract the price for the units is the same as in the master sales agreement and it includes an option to purchase the units for a nominal fee by its terms the interruptible supply contract will remove beneficial_ownership of the units from the selling shareholders you have indicated that purchaser has elected to take all the units pursuant to the interruptible supply contract the selling shareholders will be paid in full for all units upon the closing of all three transactions including the transaction subject_to the interruptible supply contract to facilitate the negotiation of the master sales agreements and the interruptible supply contract the selling shareholders created ppp to act as their agent the only members of ppp are the selling shareholders the selling shareholders are not selling their shares in company but their shares will bear a legend to reflect that they are no longer entitled to their full allocation of the project b water plr you have indicated that company is not materially participating in the transactions described above company as a party to the allotment contract however will agree to the amendment of the allotment contract to reflect the reduced allotment of project b water the master sales agreements and the interruptible supply contract are conditioned on our rulings herein however the selling shareholders due to the crisis situation in state c have already transferred some of the project b water to the purchasers the emergency sales the consideration received by the selling shareholders from these emergency sales is being held in escrow pending our rulings herein according to the courts of state c mutual ditch companies are unique entities which are formed not under state c' s general corporation statutes but under special legislation reserved for ditch and reservoir companies in analyzing the relationship between the shareholders and mutual ditch companies in regards to water rights the supreme court of state c in case j has stated that a mutual ditch company is merely engaged in the business of transporting and storing the water for its shareholders benefit and the law of state c uniformly holds that the actual ownership of the water rights is in the shareholder the supreme court's analysis noted that a longstanding tenet of state c law is that ownership of a water right can be acquired only by the actual beneficial use of the water mere diversion is not sufficient to meet the requirements of state c's constitution finally the supreme court noted that it is well established that the water rights owned by the shareholders are property rights accordingly based on this supreme court's decision and other decisions by this court it is clear that under state c law company is not the beneficial_owner of any of the water it transports for the benefit of its shareholders including the project b water representations company has represented that it is not a party to the master sales agreements or the interruptible supply contract and shall not receive any proceeds or other consideration arising or resulting from the transactions described herein based on the information and representations submitted we rule as follows the selling shareholders for federal_income_tax purposes are the beneficial owners of the project b water rights and the sale of such rights including the short-term emergency sales described above will not be deemed to be a sale_or_other_disposition of property by the company or a distribution_of_property by the company to the selling shareholders with respect to their stock accordingly the company will not realize gain_or_loss as a result of the selling shareholders' transactions sec_1001 sec_301 sec_311 plr the beneficial rights in the project b water constitutes a capital_asset in the hands of the selling shareholders sec_1221 the transfer of the beneficial rights in the project b water under the master sales agreements and the interruptible supply contract constitute sales of capital assets by the selling shareholders sec_1222 caveat no opinion is expressed about the tax treatment of the transactions under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above ruling for example no opinion is expressed about whether the short-term emergency sales constitute sales or exchanges of capital assets nor are we opining on the selling shareholders' bases in these water rights the rulings contained in this letter are based upon information and a representation submitted by the company 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 procedural statements this ruling is directed only to the taxpayers 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 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 steven hankin senior technical reviewer branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c l4 tax_exempt_and_government_entities_division jun uniform issue list dollar_figure legend taxpayer ira x financial_institution a financial_institution b amount amount amount dear this is in response to your request dated date as supplemented by correspondence dated date in which your authorized representative on your behalf requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer represents that he received a distribution of amount from ira x amount was withheld from the distribution for federal_income_tax within days of the date of distribution taxpayer rolled over the net distribution amount into ira x taxpayer asserts that his failure to accomplish a rollover of amount within the day period prescribed by sec_408 of the code was due to an error made by his financial adviser a representative of financial_institution a taxpayer represents that amount has not been used for any other purpose taxpayer met with his investment adviser at financial_institution a the custodian of ira x a portion of ira x was invested in an annuity with financial_institution b the adviser indicated that he would arrange a withdrawal from the annuity at financial_institution b to be rolled over into ira x the adviser obtained the necessary form from financial_institution band completed it for taxpayer's signature however the sections of the form indicating that it was intended to be a direct transfer within ira x and that there should be no tax withholding were not completed taxpayer signed the distribution form on date a check for amount with amount being withheld was issued on date and received by taxpayer on or about date taxpayer immediately gave the check to his financial adviser and it was deposited in ira x on date taxpayer represents that he did not realize that taxes had been withheld until after the expiration of the 60-day rollover period based on the facts and representations you request a ruling that the internal_revenue_service the service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 of the code any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 of the code does not apply to any amount described in sec_408 of the code received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 of the code from an ira which was not includible in gross_income because of the application of sec_408 of the code sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 of the code do not apply to any amount required to be distributed under sec_408 of the code sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer is consistent with his assertion that his failure to accomplish a timely rollover was caused by an error on the part of a representative of financial_institution a therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira x taxpayer is granted a period of days from the issuance of this ruling letter to contribute amount into an ira or other eligible_retirement_plan provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution the contribution of amount will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 a of the code no opinion is expressed as to the tax treatment of the transaction described in this ruling under the provisions of any other section of either the code or regulations which may be applicable this letter is directed only to the taxpayer who requested it sec_611 o k of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t2 enclosures deleted copy of ruling letter notice of intention to disclose cc


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person identification_number se t eo ra t telephone number employer_identification_number number release date date date uil no legend crt llc a foreign_corporation b c dear ------------------ this is in response to your request for a ruling regarding the proposed transaction described below crt is a charitable_remainder_trust it intends to make investments in stocks securities and other financial instruments by purchasing a limited_partnership_interest in llc which is organized under the laws of the state of a and classified as a partnership for u s federal_income_tax purposes llc trades in stock securities and other financial instruments by investing substantially_all of its assets in foreign_corporation a corporation that is organized in b foreign_corporation trades in stock securities and other financial instruments by investing substantially_all of its assets in c a partnership organized in b c’s principal business is trading in stock securities and other financial instruments for its own account directly or indirectly through u s and non-u s partnerships and other investment vehicles foreign_corporation is governed by the laws of b it is treated as a non-u s_corporation for u s federal_income_tax purposes all corporate formalities with respect to foreign_corporation will be followed the status of foreign_corporation and its assets as separate from crt and its assets will be observed and foreign_corporation will not act as an agent for crt llc or their trustees or partners neither crt nor llc will incur debt in order to invest in foreign_corporation foreign_corporation and c were organized to provide a vehicle for investors to participate in the returns of various unregistered privately offered investment companies as part of its investment activities c will borrow funds and purchase securities on margin neither c nor foreign_corporation will engage in any insurance activities or derive any insurance-related income until the number of non-u s investors increases for u s federal_income_tax purposes foreign_corporation will be classified as a controlled_foreign_corporation within the meaning of sec_957 of the internal_revenue_code based on these representations you have asked us to rule as follows crt will not realize unrelated_business_taxable_income ubti within the meaning of sec_512 of the code as a result of being a limited_partner in llc and receiving allocations of income gain loss deduction and credit and distributions related to llc’s investment in foreign_corporation amounts distributed by foreign_corporation to llc will not constitute ubti to crt amounts of subpart_f_income derived by crt from its direct ownership of foreign_corporation will not constitute ubti to crt law sec_664 of the code provides that a charitable_remainder_trust is exempt from income_tax for any taxable_year unless the trust has ubti for such year if the trust has ubti for any taxable_year then the trust is not exempt from taxes and is subject_to taxation under sec_512 sec_512 of the code defines ubti as the gross_income derived from an unrelated_trade_or_business regularly carried on less allowable deductions and subject_to certain modifications sec_512 of the code provides that dividends received or accrued shall be excluded from ubti sec_512 of the code provides that notwithstanding the general exclusion of dividends from ubti dividends and other passive_investment_income derived from certain debt-financed_property and corresponding deductions are included as an item_of_gross_income derived from an unrelated_trade_or_business in an amount ascertained under sec_514 sec_514 of the code provides that the term debt-financed_property means any property which is held to produce income and with respect to which there is acquisition_indebtedness at any time during the taxable_year sec_512 of the code provides that if a trade_or_business regularly carried on by a partnership of which an organization is a member is an unrelated_trade_or_business with respect to such organization such organization in computing its ubti shall include its share whether or not distributed of the gross_income of the partnership from such unrelated_trade_or_business and its share of the partnership deductions directly connected with such gross_income sec_512 of the code provides that any amount included in gross_income under sec_951 shall be included as an item_of_gross_income derived from an unrelated_trade_or_business to the extent that the amount so included is attributable to insurance_income as defined in sec_953 sec_953 of the code defines insurance_income in part as income which is attributable to the issuing of an insurance_or_annuity_contract sec_951 through of the code comprise subpart_f - controlled_foreign_corporations sec_951 provides that a united_states_shareholder of a controlled_foreign_corporation must include in gross_income his pro_rata share of the controlled foreign corporation's subpart_f_income for the year even if not distributed sec_954 of the code provides that subpart_f_income includes investment_income analysis dividends received by a tax exempt_organization are normally excluded from ubti under sec_512 of the code notwithstanding the general exclusion of dividends from ubti amounts received by a tax exempt member of a partnership that are attributable to insurance_income as defined in sec_953 of the code are considered ubti to the tax exempt member under sec_512 foreign_corporation is organized independently from crt and llc and will follow all corporate formalities foreign_corporation will pay dividends to llc in which crt has a partnership_interest the income crt receives from foreign_corporation through llc will not be insurance- related as foreign_corporation will not engage in any insurance activities as defined in sec_953 of the code nor derive any insurance-related income therefore the income crt receives from foreign_corporation will not constitute ubti under sec_512 but rather dividend income under sec_512 notwithstanding the general exclusion of dividends from ubti amounts received by a partnership from certain debt-financed_property are considered ubti to a tax exempt member of the partnership in proportion to that member’s share of the gross_income from the partnership under sec_512 sec_512 and sec_514 of the code llc will not incur indebtedness to make an investment in foreign_corporation and crt will not borrow or incur indebtedness to acquire a partnership_interest in llc thus any allocations to crt of income gain loss deduction and credit and distributions related to llc’s investment in foreign_corporation will not constitute debt-financed_income as described in sec_514 of the code or result in ubti to crt because the amounts of subpart_f_income llc and crt will be deemed to receive from foreign_corporation under sec_951 of the code will neither be debt-financed as described in sec_512 nor insurance-related as described in sec_512 such subpart_f_income will not constitute ubti to crt based on the information submitted we rule as follows crt will not realize ubti within the meaning of sec_512 of the code as a result of being a limited_partner in llc and receiving allocations of income gain loss deduction and credit and distributions related to llc’s investment in foreign_corporation amounts distributed by foreign_corporation to llc will not constitute ubti to crt amounts of subpart_f_income derived by crt from its direct ownership of foreign_corporation will not constitute ubti to crt this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter enclosure notice steven godnitzky acting manager exempt_organizations technical group sincerely


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 ec plr-141515-04 date date x x ------------ ------------ ------------------------ y ------------------- ------------------------ b z dollar_figurea ----------- ------------ exchange ------------- ------------------------------------ dear ------------------------- sec_422 of the internal_revenue_code specifically you requested a ruling that y’s plan qualifies under sec_422 of the code as an incentive_stock_option iso plan and that the shareholder approval procedures satisfy the shareholder approval requirements of sec_422 of the code sub-plan plan to the z employee share acquisition plan under the plan options that are intended to be isos for american depository shares traded on a stock exchange z shares are granted to employees of x and certain related corporations y is an indirect wholly owned subsidiary of z z adopted a share acquisition this letter responds to your request dated date for rulings under the first business_day after the end of the one-month enrollment period is the the plan will be operated by means of a payroll deduction mechanism under plr-141515-04 the plan provides that the maximum number of shares after taking into account certain adjustments relating to variations in share capital that may be issued under the plan is b shares the plan also describes the categories of employees who are eligible to participate in the plan the plan provides certain limitations on awards including that no grant will be considered an iso to the extent the dollar_figure limitation described in sec_422 of the code is exceeded and special rules for shareholders who own more than of the total combined voting power of stock under the plan awards may not be sold transferred pledged assigned encumbered or otherwise alienated by the participant to whom the award is made and such award may only be exercised by such participant this system there is a one-month enrollment period participants at enrollment are permitted to elect how much will be deducted per month in after-tax_dollars from their paychecks up to an annual maximum not to exceed dollar_figurea per participant grant_date for participants participants then accumulate after-tax_dollars in accordance with their elections on a paycheck-by-paycheck basis during a one-year savings period the exercise price is set on the grant_date without a discount the purchase_price is set at the closing price of z shares on the exchange on the date of grant the option exercise is made at the end of the one-year savings period although there are no restrictions on a participant’s right to sell purchased shares the plan requires that purchased shares be held in an employee nominee account operated by a bank for a one-year period after purchase or until sold by the participant if earlier for purposes of administrative convenience during the period shares are held in an employee nominee account the participant forfeits any voting rights with respect to such shares fractional shares may be held in such account however on any transfer of shares to a participant’s own brokerage account any such fractional shares are forfeited the maximum aggregate number of shares that may be issued under the plan ie b shares after taking into account adjustments and ii the eligible employees under the plan ie salaried regular status employees non-union hourly employees as may be designated by x as the administrator of the plan or its permitted delegate and employees represented by collective bargaining agreement if their collective bargaining agreement provides for participation in the plan the proxy card will include a check- the-box mechanism for voting for or against approval of the plan approval within_12_months before or after the date the plan is adopted will require a majority of the votes cast at the annual shareholder meeting of z at which a quorum representing a majority of all outstanding voting_stock will be present and voting in person or by proxy on the plan at the annual shareholder meeting of z z will ask its shareholders to approve i participants have the right to sell their shares at any time after purchase sec_422 defines an incentive_stock_option as an option granted to an sec_422 of the code provides that sec_421 applies to the transfer of sec_421 of the code provides that if a share of stock is transferred to an plr-141515-04 individual in a transfer in respect of which the requirements of sec_422 are met i no income results to the individual at the time of the transfer of the share to the individual on exercise of the option ii no deduction under sec_162 is allowable at any time to the employer_corporation or its parent or subsidiary corporations with respect to the share transferred and iii no amount other than the price paid under the option is considered as received by such corporations for the share transferred stock to an individual pursuant to the exercise of an iso if i no disposition of the stock is made by the employee within two years from the date of the grant of the option or within one year from the date the stock is transferred to the individual and ii at all times during the period beginning on the date the option is granted and ending three months before the date of its exercise the optionee was an employee of either the corporation granting the option a parent or subsidiary of such corporation or a corporation or a parent or subsidiary_corporation of such corporation issuing or assuming an option in a transaction to which sec_424 applies individual for any reason connected with his employment by a corporation if granted by the employer_corporation or its parent or subsidiary_corporation to purchase stock of any of such corporations but only if- aggregate number of shares which may be issued under options and the employees or class of employees eligible to receive options and which is approved by the stockholders of the granting corporation within_12_months before or after the date such plan is adopted the date such plan is approved by the stockholders whichever is earlier from the date the option is granted such option is granted by the laws of descent and distribution and is exercisable during his lifetime only by him and possessing more than percent of the total combined voting power of all classes of stock of the employer_corporation or its parent or subsidiary_corporation sec_1_422-2 of the income_tax regulations defines an iso to include among other things an option granted pursuant to a plan that meets the requirements described in sec_1_422-2 under sec_1_422-2 the plan must be such option is granted within years from the date such plan is adopted or such option by its terms is not transferable by such individual otherwise than the option_price is not less than the fair_market_value of the stock at the time such option by its terms is not exercisable after the expiration of years the option is granted pursuant to a plan which includes the maximum such individual at the time the option is granted does not own stock in sec_1_422-2 example iii of the regulations s_corporation is a plr-141515-04 approved by the stockholders of the corporation granting the iso within_12_months before or after the date such plan is adopted ordinarily a plan is adopted when it is approved by the granting corporation’s board_of directors and the date of the board’s action is the reference point for determining whether stockholder approval occurs within the 12-month_period subsidiary of p corporation a publicly traded corporation on date s adopts a plan under which isos for s stock are granted to s employees the plan is approved by the stockholders of s in this case p on date on date s changes the plan to provide that isos for p stock will be granted to s employees under the plan because there is a change in the stock available for grant under the plan the change is considered the adoption of a new plan that must be approved by the stockholders of p within_12_months before or after date sec_1_422-3 of the regulations provides that if state law does not prescribe a method and degree of stockholder approval in such cases an iso must be approved a by a majority of votes cast at a duly held stockholders’ meeting at which a quorum representing a majority of all outstanding voting_stock is either in person or by proxy present and voting on the plan or b by a method and degree that would be treated as adequate under applicable state law in the case of an action requiring stockholder approval ie an action on which stockholders would be entitled to vote if the action were taken at a duly held stockholders’ meeting additionally the maximum aggregate number of shares that may be issued under the plan and the employees eligible to participate in the plan will be approved by the shareholders the approval procedures require that the shareholders of z approve the plan and the approval procedures comply with the requirements of sec_1_422-2 and sec_1_422-3 of the regulations assuming the approval is obtained within_12_months before or after the date of the plan’s adoption the shareholder approval requirements of sec_422 are satisfied plan and requirements of sec_422 of the code the plan qualifies under sec_422 of the code as an incentive_stock_option the plan’s shareholder approval procedures satisfy the shareholder approval the plan as submitted includes the terms described in sec_422 based solely on the information submitted we rule as follows except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically this ruling does not address whether the administration of the plan or subsequent changes to the plan or to the terms of an plr-141515-04 option affect the plan’s status as an incentive_stock_option plan or the option as an incentive_stock_option as defined in sec_422 of the code additionally this ruling does not address the compensation inclusion compensation deduction or employment_tax and withholding consequences that may occur on a disqualifying_disposition 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 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 sincerely robert misner senior technician reviewer executive compensation branch office of the division counsel chief_counsel tax exempt and government entities


internal_revenue_service number release date index number ---------------------- ----------------------------------- ------------------- ------------------------------------------------- ------------------------------------------------------------ -------------------------------- in re ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b06 plr-130887-18 date date legend taxpayer parent state state holdings commission organization formula rate location plr year year date -------------------------------------------------- --------------------------------------------- -------------- -------------- ---------------------------------------------------- ------------------------------------------------------- -------------------------------------------------------------------- ------------------- -------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------- --------------------------------- ----------------------- ------- ------- ------------------ plr-130887-18 date date date date date date date date date a b c d e f g -------------- --------------- ------------------ --------------------------- ------------------------ ---------------------------- ---------------------- ---------------------- ----------------------- ---------- ------------ ---- -- -- ---- -- dear --------------- this letter responds to a request for a ruling dated date and subsequent correspondence submitted on behalf of taxpayer by your authorized representatives taxpayer requests a ruling on the application of the depreciation normalization rules of sec_168 of the internal_revenue_code and sec_1_167_i_-1 of the income_tax regulations together the normalization rules to certain commission regulatory procedures which are described below the relevant facts as represented in your submission are set forth below plr-130887-18 taxpayer an independent electric transmission utility incorporated in state operates a high-voltage transmission system in state state state and state taxpayer is owned by holdings an indirect subsidiary of parent which is a state corporation taxpayer files a consolidated federal_income_tax return on a calendar_year basis with its affiliates including parent taxpayer’s rates are regulated by commission and are established on a cost-of-service model taxpayer implemented formula-based rates effective date as calculated under organization’s formula rate as authorized by a commission order the annual formula-based rates are based on a forward-looking test year and are subject_to a true- up adjustment based on the actual financial results of the test period since year the formula rate employed by taxpayer has been authorized by a commission order the modifications to the formula rate templates of taxpayer in year were in part intended to implement the holdings of a private_letter_ruling plr issued to taxpayer related to the normalization rules organization is a not-for-profit regional transmission organization managing the operations and investments in approximately a miles of high-voltage transmission and b megawatts of power-generating resources owned by utilities in the all or parts of c u s states and location its objectives include improving reliability coordination of operations seams management and price and informational transparency of the electric transmission utilities operating in its region organization bills and collects revenues from the customers of taxpayer taxpayer’s transmission rates are set annually using a commission-approved formula rate the rates remain in effect for a d-year period on date of each year taxpayer estimates its revenue requirement for the forthcoming calendar_year the service year based in part on the facilities in service or expected to be placed_in_service during that forthcoming year the revenue requirement determined based on the annual projection becomes effective on date of the service year by completing the formula rate templates approved by organization on an annual basis taxpayer is able to adjust its transmission rates to reflect changing operational data and financial performance including the amount of network load on the transmission systems operating_expenses and additions of utility plant when placed_in_service among other items the commission-approved rate formulas use previously-approved rates of return on equity and do not require further action or commission filings for the calculated rate to go into effect although the rate is subject_to legal challenge at commission taxpayer will continue to use formula rates to calculate its annual revenue requirements unless commission determines that such rate formulas are unjust and unreasonable or another mechanism is determined by commission to be just and reasonable the cost-based formula templates include a true-up mechanism whereby plr-130887-18 taxpayer compares its actual revenue requirement determined after the end of the service year to its billed revenues for the service year to determine any over-collection or under-collection of the revenue requirement the intent of the true-up mechanism is to ensure that customers are paying no more than the actual cost of service if the actual net revenue requirement is less than the billed revenues that were based on the projected revenue requirements an over-collection and to protect taxpayer if the actual net revenue requirement is more than the billed revenues an under-collection the actual net revenue requirement for the service year and accordingly the true-up amount computed in the year following the service period are based largely on the amounts reported to commission for the service year the amount of over-collection or under-collection is reflected in customer bills within e years of the service year under the provisions of the formula rate specifically an over-collection for a given service year is subtracted from the revenue requirement for the service year that is e years after the service year to which the over- collection relates a regulatory liability is recorded for over-collections under the true-up mechanism and carrying charges are paid to customers until these amounts reduce prices charged in the future an under-collection for a given service year is added to the revenue requirement for the service year that is e years after the service year to which the under-collection relates a regulatory asset is recorded for under-collections under the true-up mechanism and carrying charges are charged to customers until these amounts are recovered thus the actual revenue requirement for a service year is charged both during such service year and as part of a true-up adjustment reflected in rates charged e years after the service year to which it relates the revenue requirement charged for a given service year that is charged during such period is based on the monthly billing rate calculated in the previous year in the filing due by date using the projected revenue requirement and projected customer loads for such service year as applied to the actual monthly peak loads during the service year the actual revenue requirement for a service year is determined after the end of the service year the true-up adjustment reflects differences primarily between projected and actual operating costs rate base and interest_expense as well as differences between projected and actual customer loads sales volumes an over-collection or under-collection typically results from differences between the projected revenue requirement used to establish the billing rate charged during the service year and actual revenue requirement determined after the service year or from differences between actual and projected monthly peak loads in accordance with the provisions of the commission-approved formula rate templates taxpayer computes the rate base for its annual projections and its actual revenue requirements used to determine the true-up adjustments using average rate base calculations average rate base uses average plant balances including accumulated depreciation in determining the annual revenue requirement based on f- month averaging average rate base uses simple averaging for land held for future use plr-130887-18 materials_and_supplies and prepayments gross rate base is reduced by accumulated deferred federal income taxes adfit prior to the issuance of the plr to taxpayer average adfit was computed based on the simple averaging_convention since the issuance of the plr average adfit has been computed on the basis of the f-month averaging_convention for purposes of the projected revenue requirement computations and on the basis of the simple averaging methodology for purposes of the actual revenue requirement computations used to determine the true-up adjustments the same test year is used for all rate base components for the annual projected revenue requirement components for the annual projected revenue requirement computations and actual revenue requirement computations used to determine true-up adjustments balances for all month-ends agree with accounting_records and year-end balances for the actual revenue requirement calculation agree with the relevant commission filings prior to the issuance of the plr taxpayer did not apply the sec_1_167_l_-1 proration requirement to adfit increases or decreases for purposes or either projected revenue requirements or the actual revenue requirements used to determine the true-up adjustments since the issuance of the plr taxpayer has computed monthly adfit balances for purposes of the projected revenue requirements based on the application of the proration formula to forecasted monthly adfit increases or decreases and used these prorated month-end adfit amounts in the f-month averaging for its projected revenue requirement computations taxpayer does not apply the proration formula to any portion of actual adfit increases or decreases to compute average actual adfit for its actual revenue requirements used to determine its true-up adjustments taxpayer has modified its formula rate templates as necessary to conform to the guidance in the plr including corrective actions that the service described as a condition required to avoid the denial of accelerated_depreciation taxpayer considers the plr to be clear and complete and intended that the modifications to its adfit calculations implemented shortly after receipt of the plr would be the only template modifications required to maintain compliance with the normalization rules in the foreseeable future however taxpayer currently believes that its formula rate template ratemaking practices since the receipt of the plr comply with the normalization rules because they adhere to the holdings of the plr a date commission order the date commission order instituted proceedings to examine the methodology used by f utilities for calculating their adfit balances in their projected test year and annual true-up calculations for their transmission formula rates the date commission order requires the f companies including taxpayer to change their computations of adfit and rate base in a manner that applies one of the holdings of ----------------------- taxpayer responded to the date commission order by jointly filing an initial brief not on a consolidated basis with its e affiliates that are filing substantially identical private_letter_ruling requests and g unrelated companies that are organization members date initial brief plr-130887-18 further taxpayer and its e affiliates that are filing substantially identical private_letter_ruling requests jointly filed with commission proposed revisions to their formula rate templates complying with the date commission order for projected revenue requirement computations and actual revenue requirement computations used to determine true-up adjustments of each of the companies to become effective after the service issues the private letter rulings that taxpayer and its e affiliates are requesting date filing taxpayer jointly filed a reply brief not on a consolidated basis with its e affiliates filing a substantially identical private_letter_ruling request and g unrelated organization companies on date in response to a brief filed by an intervenor date reply brief the specific adfit computational change ordered by commission involves the use of averaging and thus the deferred tax consistency_requirement and would be contrary to a statement in the plr describing the corrective actions involving the adfit computations required in taxpayer’s subsequent rate proceedings the change mandated by the date commission order would affect both the projected revenue requirement computations and the actual revenue requirement computations used to determine true-up adjustments although taxpayer is not contesting that the adfit computational change ordered by commission would also comply with the normalization rules taxpayer is hesitant to unilaterally cease adhering to one of the corrective actions described in the plr as a condition required to avoid the sanction of denial of accelerated_depreciation due to its pre-year formula rate adfit computational methodology taxpayer is seeking a private_letter_ruling to supplement the plr to clarify that the corrective actions described in the plr were not intended to be the sole adfit computation allowable after issuance of the plr in order for taxpayer to be treated as having complied with the normalization rules in years prior to receipt of the plr thus taxpayer may make further adfit computational changes in order to comply with the date commission order prospectively while maintaining compliance with the normalization rules taxpayer also addresses certain holdings of -----------------------that are not the focus of the date commission order the holdings clarify that the proration requirement used in the projected revenue requirement also applies to an extent specified in ----------------------- to actual revenue requirement computations used to determine true-up adjustments taxpayer intends to modify its templates used for true- up adjustments at the next available opportunity in order to apply these holdings if the service rules favorably in this supplemental ruling_request the date commission order and related proceedings are focused on an adfit computation that the commission refers to as ---------------------------------------------- ------------------- and on --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- plr-130887-18 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------specifically the commission refers to adfit averaging using adfit amounts that have been prorated ---------------------------------------- ----------------------taxpayer has employed this approach since the annual projected revenue requirement filing immediately following the receipt of the plr until formally instructed otherwise by the service taxpayer considers its adfit computational approach to be a mandatory aspect of the corrective actions in accordance within the analysis of issue of the plr this computational issue was not analyzed in the private_letter_ruling request submitted by taxpayer resulting in the plr and this topic was not the subject of any of the specific rulings requested by taxpayer at that time thus the terms of compliance with the normalization rules were likely not intended to imply that the approach taxpayer indicated it would use after issuance of the plr was the only means to satisfy the normalization rules applicable to future test periods and average rate base however taxpayer believes that unilaterally ceasing to adhere to a specific corrective action described in the plr may be inappropriate and inconsistent with the historical practice of the service and the utility industry in establishing maintaining and remedying compliance with the normalization rules prior to the issuance of the safe_harbor guidance of revproc_2017_47 2017_38_irb_233 which permits utilities to self-correct inadvertent non-compliance with the normalization rules in certain circumstances in addition to addressing -------------------------------------------------------------------------- -----------------------------------------------------------------------------------taxpayer proposed to commission in its date filing that its template for its actual revenue requirement used to compute its true-up adjustment be amended to reflect the principles of ------------------- ----------------regarding preservation of the effects of the proration formula although taxpayer considers itself in compliance with the normalization rules at this time because this aspect of the proration computation in annual ratemaking with true-up adjustments is not mandated in the plr taxpayer believes that it is necessary to revise its templates to adopt all clarifications of the adfit normalization rules resulting from ------------------------if it modifies its templates to reflect any of the holdings of ---------- ---------------- on date taxpayer responded to the commission date order by filing an initial brief taxpayer is willing to make the adfit computational change as mandated by the commission date order and believes such computational method would also comply with the deferred tax normalization rules however taxpayer is hesitant to unilaterally cease adhering to the corrective action described in taxpayer’s private_letter_ruling without the service’s guidance plr-130887-18 on date commission issued an order indicating that it did not believe it was necessary for taxpayer to delay the implementation of the template changes pending approval from the internal_revenue_service and ordering taxpayer to make a compliance filing to implement the template changes on date taxpayer submitted its compliance filing addressing ------------------------------------------------- including tariff revisions to reflect the preservation-of-proration holdings of ------------------ ----------------- the date compliance filing taxpayer represents that it intended to continue to employ --------------------------------------------------allowed in the plr until receiving additional guidance from the service however to comply with the commission date order taxpayer will cease using --------------------------------------------- ------------------ beginning on date rulings requested taxpayer requests the following rulings the corrective action described in the plr includes an example of an adfit computation that would comply with the normalization requirements but it was not intended to be the sole allowable computation therefore taxpayer would not be subject_to the sanction of denial of accelerated_depreciation in years prior to the receipt of the plr and would maintain compliance with the normalization rules if another adfit computation consistent with the normalization requirements were employed in any of the rate cycles after receiving the plr taxpayer would comply with the consistency_requirement under sec_168 in computing its projected revenue requirement employing a future test period with an average rate base computation by a applying the proration formula rules under sec_1_167_l_-1 to the projected monthly increases or decreases in adfit without b further applying an averaging_convention as applied to other elements of rate base either to the prorated end-of-period adfit balance or to the prorated increases or decreases in adfit used to compute the prorated end- of-period adfit balance taxpayer would comply with the consistency_requirement under sec_168 and the proration formula rules under sec_1_167_l_-1 in computing its actual revenue requirement computations used to determine true-up adjustments by a continuing to apply the proration formula rules to its actual adfit increases or decreases to the extent such increases or decreases were projected and prorated in computing its projected revenue requirement and b applying an averaging_convention to actual adfit increase or decreases or portions thereof to the extent not previously subjected to the proration formula taxpayer would violate the normalization rules in computing its actual revenue requirement used to determine its true-up adjustments if any portion of its actual adfit increases plr-130887-18 or decreases is neither prorated nor averaged law and analysis sec_168 of the internal_revenue_code provides that the depreciation deduction determined under sec_168 shall not apply to any public_utility_property within the meaning of sec_168 if the taxpayer does not use a normalization method_of_accounting sec_168 provides that in the case of any public_utility_property to which sec_168 does not apply by reason of sec_168 the allowance for depreciation under sec_167 shall be an amount computed using the method and period referred to in sec_168 former sec_167 generally provided that public_utilities were entitled to use accelerated methods for depreciation if they used a normalization method_of_accounting a normalization method_of_accounting was defined in former sec_167 in a manner consistent with that found in sec_168 sec_1 -1 a of the income_tax regulations provides that the normalization requirements for public_utility_property pertain only to the deferral of federal_income_tax liability resulting from the use of an accelerated method_of_depreciation for computing the allowance for depreciation under sec_167 and the use of straight-line_depreciation for computing tax expense and depreciation expense for purposes of establishing cost of services and for reflecting operating results in regulated books of account these regulations do not pertain to other book-tax timing differences with respect to state income taxes f i c a taxes construction costs or any other taxes and items prior to the revenue reconciliation act of the definition of public_utility_property was contained in sec_167 and sec_168 which defined public_utility_property by means of a cross reference to sec_167 the definition of public_utility_property is unchanged sec_1_167_l_-1 provides that under sec_167 property is public_utility_property during any period in which it is used predominantly in a sec_167 public_utility activity the term sec_167 public_utility activity means in part the trade_or_business of the furnishing or sale of electrical energy if the rates for such furnishing or sale as the case may be are regulated ie have been established or approved by a regulatory body described in sec_167 the term regulatory body described in sec_167 means a state including the district of columbia or political_subdivision thereof any agency_or_instrumentality of the united_states or a public service or public_utility commission or other body of any state or political_subdivision thereof similar to such a commission the term established or approved includes the filing of a schedule of rates with a regulatory body which has the power to approve such rates though such body has taken no action on the filed schedule or generally leaves undisturbed rates filed by the taxpayer plr-130887-18 in order to use a normalization method_of_accounting sec_168 requires that a taxpayer in computing its tax expense for establishing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account to use a method_of_depreciation with respect to public_utility_property that is the same as and a depreciation period for such property that is not shorter than the method and period used to compute its depreciation expense for such purposes under sec_168 if the amount allowable as a deduction under sec_168 differs from the amount that would be allowable as a deduction under sec_167 using the method period first and last year convention and salvage_value used to compute regulated tax expense under sec_168 the taxpayer must make adjustments to a reserve to reflect the deferral of taxes resulting from such difference sec_1_167_l_-1 provides that the reserve established for public_utility_property should reflect the total amount of the deferral of income_tax_liability resulting from the taxpayer’s use of different depreciation methods for tax and ratemaking purposes sec_1_167_l_-1 provides that the amount of federal_income_tax liability deferred as a result of the use of different depreciation methods for tax and ratemaking purposes is the excess computed without regard to credits of the amount the tax_liability would have been had the depreciation method for ratemaking purposes been used over the amount of the actual tax_liability this amount shall be taken into account for the taxable_year in which the different methods of depreciation are used if however in respect of any taxable_year the use of a method_of_depreciation other than a subsection method for purposes of determining the taxpayer’s reasonable allowance under sec_167 results in a net_operating_loss_carryover nolc to a year succeeding such taxable_year which would not have arisen or an increase in such carryover which would not have arisen had the taxpayer determined his reasonable allowance under sec_167 using a subsection method then the amount and time of the deferral of tax_liability shall be taken into account in such appropriate time and manner as is satisfactory to the district_director sec_1_167_l_-1 provides that the taxpayer must credit this amount of deferred taxes to a reserve for deferred taxes a depreciation_reserve or other reserve_account this regulation further provides that with respect to any account the aggregate amount allocable to deferred tax under sec_167 shall not be reduced except to reflect the amount for any taxable_year by which federal income taxes are greater by reason of the prior use of different methods of depreciation that section also notes that the aggregate amount allocable to deferred taxes may be reduced to reflect the amount for any taxable_year by which federal income taxes are greater by reason of the prior use of different methods of depreciation under sec_1_167_l_-1 or to reflect asset retirements or the expiration of the period for depreciation used for determining the allowance for depreciation under sec_167 plr-130887-18 under sec_1_167_l_-1 a taxpayer does not use a normalization method of regulated accounting if for ratemaking purposes the amount of the reserve for deferred taxes under sec_167 which is excluded from the base to which the taxpayer's rate of return is applied or which is treated as no-cost capital in those rate cases in which the rate of return is based upon the cost of capital exceeds the amount of such reserve for deferred taxes for the period used in determining the taxpayer's tax expense in computing cost of service in such ratemaking sec_1_167_l_-1 provides that for the purpose of determining the maximum amount of the reserve to be excluded from the rate base or to be included as no-cost capital under subdivision i above if solely an historical period is used to determine depreciation for federal_income_tax expense for ratemaking purposes then the amount of the reserve_account for the period is the amount of the reserve determined under sec_1_167_l_-1 at the end of the historical period if solely a future period is used for such determination the amount of the reserve_account for the period is the amount of the reserve at the beginning of the period and a pro_rata portion of the amount of any projected increase to be credited or decrease to be charged to the account during such period if such determination is made by reference both to an historical portion and to a future portion of a period the amount of the reserve_account for the period is the amount of the reserve at the end of the historical portion of the period and a pro_rata portion of the amount of any projected increase to be credited or decrease to be charged to the account during the future portion of the period the pro_rata portion of any increase to be credited or decrease to be charged during a future period or the future portion of a part-historical and part-future period shall be determined by multiplying any such increase or decrease by a fraction the numerator of which is the number of days remaining in the period at the time such increase or decrease is to be accrued and the denominator of which is the total number of days in the period or future portion sec_168 provides that one way the requirements of sec_168 will not be satisfied is if the taxpayer for ratemaking purposes uses a procedure or adjustment which is inconsistent with such requirements under sec_168 such inconsistent procedures and adjustments include the use of an estimate or projection of the taxpayer's tax expense depreciation expense or reserve for deferred taxes under sec_168 unless such estimate or projection is also used for ratemaking purposes with respect to all three of these items and with respect to the rate base hereinafter referred to as the consistency rule issue the corrective action in the plr includes an example of an adfit computation that would comply with the normalization rules we agree that the example was not intended to be the sole allowable computation therefore taxpayer would not be subject_to the sanction of denial of accelerated_depreciation in years prior to the receipt plr-130887-18 of the plr and would maintain compliance with the normalization rules if another adfit computation consistent with the normalization rules were employed in any of the rate cycles after receiving the plr issue taxpayer states that if the purpose of the regulatory averaging and proration can be shown to be the same the consistency_requirement should not apply taxpayer represents that the purpose of the proration requirement is to take into account for ratemaking purposes the economic fact that changes in adfit balances in a future test period and the attendant cash flows will occur over a period of time according to taxpayer the critical question is whether the averaging_convention has a different purpose according to taxpayer the answer appears to lie in the nature of the test period if the test period is part historical part future the timing of the rate base expenditures cannot be what regulatory averaging was meant to address however taxpayer maintains that the purposes of regulatory averaging and proration can be the same when the entire test year is a future test period taxpayer maintains and we agree that averaging conventions when applied to entirely future test periods should presumptively be treated as having the same purpose as the proration requirement thereby negating the necessity to apply both conventions serially to changes in adfit balances therefore taxpayer would comply with the consistency_requirement under sec_168 in computing its projected revenue requirement employing a future test period with an average rate base computation by a applying the proration formula rules under sec_1_167_l_-1 to the projected monthly increases or decreases in adfit and without b further applying an averaging_convention as applied to other elements of the rate base either to the prorated end-of- period adfit balance or to the prorated increases or decreases in adfit used to compute the prorated end-of-period adfit balance issue it is satisfactory under the normalization rules to determine adfit in the projected revenue requirement for a future period with an average rate base by applying the proration formula rules to projected adfit increases and decreases without a separate averaging_convention identical or similar to the averaging applied to other rate base items for purposes of the actual revenue requirement used for the true-up mechanism we believe that it is permissible under the normalization rules to not average the portion of actual adfit increases and decreases that were prorated in the calculation of the projected revenue requirement and it is impermissible under the normalization rules for the differential between actual and projected adfit increases and decreases to not be subjected to an averaging_convention plr-130887-18 therefore taxpayer would comply with the consistency_requirement under sec_168 and the proration formula rules under sec_1_167_l_-1 in computing its actual revenue requirement computations used to determine true-up adjustments by a continuing to apply the proration formula rules to its actual adfit increase or decreases to the extent such increases or decreases were projected and prorated in computing its projected revenue requirement and b applying an averaging_convention to actual adfit increase or decreases or portions thereof to the extent not previously subjected to the proration formula taxpayer would violate the normalization rules in computing its actual revenue requirement used to determine its true-up adjustments if any portion of its actual adfit increases or decreases is neither prorated nor averaged except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalties 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 upon examination this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling must be attached to any federal_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 representatives we are also sending a copy of this letter to the appropriate industry director lb_i sincerely david a selig senior counsel branch office of associate chief_counsel passthroughs special industries


i department of the treasury internal_revenue_service washington d c feb sotarexemptand division u i l tt ep ra legend taxpayer a ira x company h company s account f individual l individual m amount d dear’ this is in response to your letter dated date as supplemented by correspondence dated date date date date and date submitted by your authorized representative in which you request a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalties of perjury in support of your request et taxpayer a maintained an individual_retirement_arrangement ira x with company h taxpayer a states that in early she decided to move her investment accounts including ira x from company h to company s documentation submitted by taxpayer a shows that on date she signed a company h surrender request form with box three checked instructing company h to wire transfer the ira x surrender amount to an account at company h the explanation for this option indicates that it is only available for deposits into checking and savings accounts individual l is named on the surrender request form as the contact person at company s documentation submitted by taxpayer a also shows that amount d was deposited into account f at company s on date account f is described as a regular brokerage account that taxpayer a already maintained with company s taxpayer a represents that in date she received a form 1099-r from company h indicating that a normal taxable_distribution from ira x was made in taxpayer a states that she contacted company s about-the status of the account and was informed that amount d had been placed in taxpayer a's regular brokerage account rather than an ira taxpayer a indicates that individual l did not code the transmittal as an ira which resulted in amount d not being rolled over into another ira at company 5s within days taxpayer a states that it was her intention to rollover amount d to an ira with company s and that she believed that such amount had been rolled over to an ira at company s even though no documentation has been submitted that shows that an ira was established or attempted to be established at company s either prior to the distribution from ira x or within days after amount d had been deposited into account f individual l completed the company h in a letter dated date addressed to taxpayer a individual m a senior vice president of company s under penalties of perjury acknowledged that a representative of company s surrender request form requesting that the distribution from ira x be wired to company s individual m stated that the representative individual l made a mistake or error in not realizing that the distribution was from an ira individual m states that the box in section f line direct transfer-ira to ra should have been checked indicating a trustee to trustee rollover but that box of the surrender request form was checked resulting in the ira being wired in error directly to a taxable account the completed surrender request form was then forwarded to taxpayer a for execution individual m further states that it was taxpayer a's intent to have the proceeds from the ira annuity directiy transferred to a self-directed_ira at company and that company s's signature on the last page of the surrender request form reinforces the intent to have the funds directly transferred to an ira due to the fact that company s would not be required to sign off on a full distribution of an ira annuity in a letter to taxpayer a from company s dated date individual m further states under penalties of perjury that individual l failed to establish an ira for taxpayer a as required by the internal procedures of company s and as a result of not establishing an ira per those procedures taxpayer a was unable to roll over the ira x distribution from company h to company s within the 60-day rollover requirement f taxpayer a asserts that her failure to complete a rollover within the 60-day rollover period was due to individual l's error in not establishing an ira as she was required to do based upon company s’ internal procedures which resulted in amount d not being rolled over into an ira within days of being distributed from ira x taxpayer a further asserts that she has not used or withdrawn any of amount d since it has been deposited in account f as supported by account f monthly statements ae based upon the foregoing facts and representations you request that the service waive the day rollover requirement with respect to the distribution of amount d from ira x sec_408 of the code provides that except as-otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be inthe manner provided under sec_72 ofthe code ss i sec_408 of the code defines and provides the rules applicable to ira_rollovers a sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out-of an ira to the individual ' for whose benefit the ira is maintained if- i ii - the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual received the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of day after the date on which the such individual not later than the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 -- ae sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending in the day of such receipt such individual received any other amount described in sec_408 from an ira which was not included in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity and good conscience including casualty disaster or other events beyond thie reasonable’ control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 dx3 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rolloverdue to death disability or hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of amount distributed for example in - the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and the documentation submitted by taxpayer a is consistent with her assertions that she failed to complete a rollover of amount d to an ira within the 60-day rollover period because of the errors committed by company s therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x taxpayer a is granted a period of days from the date of this ruling to contribute amount d to an ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount d will be considered a valid rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed to taxpayer a by sec_401 of the code _ no opinion is expressed as to the tax treatment of the transactions described herein under the provisions of any other section of either the code or regulations which may be applicabie thereto this ruling is directed only to the taxpayer that requested it section k of the code provides that it may not be used or cited by others as precedent if you have any questions regarding this letter please contact se t ep ra t sincerely yours signed joyoe eb floyd joyce e floyd manager employee_plans technical group enclosures ‘deleted copy of letter_ruling notice -


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-106494-15 date date legend x ---------------------------------------------------- -------------------------------------- state date date date date date date dollar_figuren1 ----------- ----------------------- ----------------------- -------------------------- ----------------------- ------------------- ------------------------- ---------- class a ------------------------------------------------------------------------------------------ -------------------- class b -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ dear --------------- plr-106494-15 this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted states that x was formed as a state limited_liability_company prior to date and made an election to be treated as an s_corporation effective date x's operating_agreement was amended and restated as of date to authorize the issuance of new classes of membership interests in x the shares held by the original members were classified as class a units the amended operating_agreement provided that a holder of the class a units would each receive a dollar_figuren1 preferential_distribution right over the class b unit holders and would hold the sole voting rights class b unit holders would share in the distributions after the preferential distributions on a pro_rata basis with the class a unit holders at the time that the operating_agreement was amended the original members exchanged their ownership interests for class a units beginning on date through date x issued interests in the class b units to various persons in date x amended its operating_agreement to eliminate the class a preferred distribution rights and to provide that the class b unit holders have distribution rights that are identical to the distribution rights that the class a unit holders have on date x made corrective distributions to eliminate the effect of the class a preferred distribution rights x represents that it was not aware that issuing new classes of stock with differing distribution rights to shareholders could terminate x's s_corporation_election x represents that any termination of its s_corporation_election was not motivated by tax_avoidance or retroactive tax planning x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as might be required by the secretary law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation 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 than an estate plr-106494-15 a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1_1361-1 provides in part that a corporation that has more than one class of stock does not qualify as a small_business_corporation except as provided in sec_1_1361-1 relating to instruments obligations or arrangements treated as a second class of stock a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds differences in voting rights among shares of stock of a corporation are disregarded in determining whether a corporation has more than one class of stock sec_1_1361-1 provides in part that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively the governing provisions a commercial contractual agreement such as a lease employment agreement or loan agreement is not a binding agreement relating to distribution and liquidation proceeds and thus is not a governing provision unless a principal purpose of the agreement is to circumvent the one class of stock requirement although a corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights any distributions including actual constructive or deemed distributions that differ in timing or amount are to be given appropriate tax effect in accordance with the facts and circumstances sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect to be an s_corporation sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides in part that if an election under sec_1362 by any corporation was terminated under sec_1362 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder in 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 plr-106494-15 in such termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and representations made we conclude that x's s_corporation_election terminated on date as a result of x issuing units in more than one class of stock we further conclude that the termination constituted an inadvertent termination within the meaning of sec_1362 therefore we determine that pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided that x's s_corporation_election was otherwise valid and has not otherwise been terminated under sec_1362 accordingly from date and thereafter the shareholders of x including any class b unit holders that were shareholders during the relevant year must include their pro_rata share of the separately_stated and non-separately stated computed items of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 if x and its shareholders fail to treat x as described above this ruling will be null and void 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 regarding x’s eligibility to be an s_corporation 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 a power_of_attorney on file with this office we will send a copy of this letter_ruling to x's authorized representative sincerely david r haglund david r haglund chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes