internal_revenue_service index no number release date department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom p si - plr-119572-98 date date re legend taxpayer company y charity z b w bank bank this is in response to a letter dated date and subsequent correspondence submitted on behalf of the taxpayer requesting the following rulings the annuity amount to be paid annually for charitable purposes from each charitable_lead_annuity_trust clat created under article vii of the proposed trust agreement will constitute a guaranteed_annuity_interest within the meaning of sec_2055 of the internal_revenue_code and sec_20_2055-2 of the estate_tax regulations therefore on the taxpayer’s death an estate_tax charitable deduction will be allowed under sec_2055 for the present_value of each guaranteed_annuity_interest determined in accordance with sec_20_2055-2 with respect to each clat an income_tax deduction will be allowed under sec_642 for the amount actually paid to the charitable_beneficiary in a calendar_year the unitrust_amount to be paid annually for charitable purposes from each charitable_lead_unitrust trust clut created under article viii of the proposed trust agreement will constitute a unitrust_interest within the meaning of sec_2055 and sec_20_2055-2 therefore on the taxpayer’s death an estate_tax charitable deduction will be allowed under sec_2055 for the present_value of each unitrust_interest determined in accordance with sec_20_2055-2 with respect to each clut an income_tax deduction will be allowed under sec_642 for the amount actually paid to the charitable_beneficiary in a calendar_year the initial funding of each clut will not constitute a direct_skip under sec_2612 and therefore generation-skipping_transfer_tax gstt will not be imposed upon the initial funding of each clut the initial funding of each clat will not constitute a direct_skip under sec_2612 a taxable_termination under sec_2612 will occur on the expiration of the charitable_lead_unitrust term of each clut each clat and each clut will be recognized as a separate trust for gstt purposes and taxpayer’s remaining available gst_exemption may be allocated separately to each of the cluts if interest is paid to a clut in accordance with sec_26_2654-1 then under sec_26_2642-2 the denominator of the applicable_fraction will be dollar_figureb the pecuniary amount passing to the clut and the denominator will not include the amount of the interest_paid for purposes of allocating taxpayer’s remaining available gst_exemption to each clut under sec_2642 the denominator of the applicable_fraction for each clut will be dollar_figureb the amount funding the clut minus the amount allowable as a charitable deduction under sec_2055 assuming an allocation to each clut of taxpayer’s remaining available gst_exemption in an amount equal to the denominator of the applicable_fraction with respect to the clut the inclusion_ratio with respect to the clut will be zero facts under paragraph eighth of taxpayer’s proposed will the estate residue passes to the trustees named under a proposed revocable_trust agreement paragraph tenth c of the will requires taxpayer’s personal representative first to allocate taxpayer’s available gst_exemption on any federal gift_tax_return with a due_date including extensions after death only to the extent of any transfer by taxpayer during life that qualifies as a direct_skip under sec_2612 the provision further requires the personal representative to next allocate taxpayer's remaining available gst_exemption equally among the cluts created under taxpayer's revocable_trust agreement in a manner such that those trusts will have an inclusion_ratio of zero or as close as possible to zero paragraph tenth c of the will defines available gst_exemption as the taxpayer’s unused gst_exemption available at the time of death ie exemption not previously allocated by taxpayer or by operation of law to property transferred by taxpayer before death the paragraph defines remaining available gst_exemption as the gst_exemption to which taxpayer's estate is entitled after the personal representative makes any allocation with respect to lifetime direct skips described above the property transferred to the trustees under the trust agreement during the taxpayer’s life and at death will include common_stock in company article iv of the trust agreement provides for the payment after taxpayer’s death in cooperation with taxpayer’s personal representative and to the extent taxpayer’s probate_estate is insufficient of taxpayer’s debts expenses estate and death taxes and specified bequests under the will article iv further provides that the amounts allocable to charitable_bequests under article vi the clats under article vii and the cluts under article viii will not be diminished by the payment of gift gst estate inheritance_tax or other death taxes article v provides for bequests to individuals and trusts for individuals and article vi provides for bequests to charities under article vii of the trust agreement after taxpayer’s death the trustee is to distribute dollar_figurey in cash or property valued as of the distribution date or dates to each of charitable_lead_annuity trusts clats in addition the trustee will pay interest to each clat on any unpaid balance of the dollar_figurey bequests interest will be payable from taxpayer’s date of death until the clat is fully funded and the interest rate will equal percent of the rate under sec_7520 for the month of taxpayer’s death compounded annually article vii provides that of the clats the a trusts will have a charitable term of years the other clats the b trusts will each have a charitable term of years article vii provides that one of each of the a trusts and one of each of the b trusts will be named for one of taxpayer’s named in the trust agreement under article vii at the end of the charitable term of each a and b_trust the trustee will distribute the trust remainder to the for whom the trust is named if then living or if not then living to a specified trust however the remainder interests in the a and b trusts named for one particular will be distributed to a named trust whether or not survives the charitable term of the trusts if any trust that is to receive a distribution at the end of a charitable term is not then in existence the distribution will lapse and become part of the residue under article x of the trust agreement under article vii each trust will pay a guaranteed annuity to charity if charity qualifies as a charitable_organization as defined in article xv discussed below at the time of payment if charity does not so qualify the annuity will be paid to one organization that qualifies as a charitable_organization as selected by the trustee the annuity amounts for the twelve trusts will be determined under the following formula provided in article vii for the respective charitable terms the trustee shall pay such annuity amount in each taxable_year of the trust to charity from each of the a trusts using a term of thirteen years and from each of the b trusts using a term of nineteen years that will produce a present_value under sec_7520 of the internal_revenue_code for the non-charitable remainder_interest related to each of the trusts equal to or as close as possible as equal to without exceeding dollar_figurez article vii further provides that for purposes of this formula the trustee is to apply under sec_7520 the lowest available interest rate from among three months the month of taxpayer’s death or the two months preceding taxpayer’s death and the annuity amount will be fixed as of the date of taxpayer’s death based upon the applicable_interest_rate article vii provides that if the initial net fair_market_value of the trust assets for any of the trusts is incorrectly determined for federal tax purposes the trustee will pay to the charitable income_beneficiary in the case of an underpayment or receive back from the beneficiary in the case of an overpayment an amount equal to the difference between the amount properly payable and the amount actually paid article vii provides that the obligation to pay the annuity amount from each trust commences with the date of taxpayer’s death but payment may be deferred to the end of the taxable_year in which the trust is completely funded within a reasonable period from that date the trustee shall pay to in the case of a delayed payment or underpayment or shall receive from the charitable income_beneficiary in the case of an overpayment the difference between any amounts actually paid to the charities and the amounts payable plus interest on both amounts article vii a provides that the annuity amount shall be distributed from each trust in equal quarterly installments by the last day of each calendar_quarter the annuity amount shall be paid from current income and to the extent current income shall be insufficient from accumulated income and to the extent accumulated income shall be insufficient from principal including capital_gains article vii b provides that any net_income of a_trust for a taxable_year in excess of the annuity amount shall be accumulated and may be added to principal from time to time at the discretion of the trustee under article vii e the trustee is prohibited from engaging in any act of self-dealing as defined in sec_4941 of the code from retaining any excess_business_holdings as defined in sec_4943 which would subject the trust to a tax under sec_4943 from making any investments which would subject the trust to tax under sec_4944 and from making any taxable_expenditures as defined in sec_4945 and to the extent required the trustee will distribute property of any of these trusts at such time and in such manner as not to subject any trust to tax under sec_4942 under article viii the trustee is to distribute dollar_figureb in cash or in_kind valued as of the distribution date or dates to each of charitable lead unitrusts the c trusts and to each of charitable lead unitrusts the d trusts in addition the trustee will pay interest to each clut on any unpaid balance of the dollar_figureb bequest interest will be paid from taxpayer’s date of death until the clut is fully funded and the interest rate will equal percent of the rate under sec_7520 for the month of taxpayer’s death compounded annually article viii provides that the c trusts will each have a charitable term of years and the d trusts will each have a charitable term of years commencing on taxpayer’s date of death article viii provides that one of each of the c trusts and one of each of the d trusts will be named for the children of one of taxpayer’s respectively under article viii at the end of the charitable term of each c and d trust the trustee will distribute the remainder of that trust to the children or their respective issue if they predecease for whom the trust is named if none of the issue of a particular named survive the term of a c or d trust then the share that the issue would otherwise have received will be divided equally among the remaining c or d trusts for which there are surviving issue of a if none of the c and d trusts have surviving remainder beneficiaries among the issue of any of the named the remainders will become part of the residue under article x under article viii each clut will pay a unitrust_amount to charity if charity qualifies as a charitable_organization at the time of payment if charity or any successor charity as selected by the trustee does not so qualify the unitrust_amount will be paid to one organization selected by the trustee that does qualify as a charitable_organization at the time of payment the unitrust amounts for each trust will be determined under the following formula provided in article viii for the respective charitable terms the trustee shall pay for each taxable_year of the trust to charity such percent of the net fair_market_value of the trust principal valued as of the first day of each taxable_year of the trust which percent remains unchanged throughout the charitable term and is a certain determined percent for the c trusts which trusts last twenty-nine years and a different percent for the d trusts which trusts last years as will produce a present_value under sec_7520 for the non-charitable remainder_interest related to each of the c trusts and d trusts that is the greater of an amount equal to or as close as possible as equal to but not exceeding of taxpayer’s remaining available gst tax exemption as is required to be allocated among the c trusts and d trusts in paragraph tenth c of taxpayer’s last will and testament or w article viii further provides that taxpayer intends that all of taxpayer’s remaining available gst_exemption at taxpayer’s death be applied equally to the cluts resulting in an inclusion_ratio of zero or as close as possible to zero with respect to each trust article viii states that for purposes of this formula in determining the amount of the unitrust payment the trustee is to apply the lowest available federal interest rate from among three months the month of taxpayer’s death or the two months preceding taxpayer’s death and the unitrust_amount will be fixed as of the date of taxpayer’s death based upon the applicable_interest_rate article viii b provides the manner for determining the unitrust_amount in the event additional property is contributed to a clut after the first day of a taxable_year under article viii c the trustee is prohibited from engaging in any act of self-dealing as defined in sec_4941 of the code from retaining any excess_business_holdings as defined in sec_4943 which would subject the trust to a tax under sec_4943 from making any investments which would subject the trust to tax under sec_4944 and from making any taxable_expenditures as defined in sec_4945 and to the extent required the trustee will distribute property of any of these trusts at such time and in such manner as not to subject any trust to tax under sec_4942 article viii provides that the obligation to pay the unitrust_amount from each trust commences with the date of taxpayer’s death but payment may be deferred to the end of the taxable_year in which the trust is completely funded within a reasonable period from that date the trustee shall pay to in the case of a delayed payment or underpayment or shall receive from the charitable income_beneficiary in the case of an overpayment the difference between any amounts actually paid to the charities and the amounts payable plus interest on both amounts within a reasonable period between the complete funding of each clut and the final_determination for federal estate_tax purposes of the value of the noncharitable remainder the trustee will pay to the charitable income_beneficiary in the case of an underpayment or receive back from it in the case of an overpayment any difference between the amount properly payable and the amount_paid plus interest on those amounts article viii a provides that the unitrust_amount shall be distributed in equal quarterly installments by the last day of each calendar_quarter the unitrust_amount shall be paid from current income and to the extent current income shall be insufficient from accumulated income and to the extent accumulated income shall be insufficient from principal including capital_gains article viii a provides that any net_income of a_trust for a taxable_year in excess of the annuity amount shall be accumulated and may be added to principal from time to time at the discretion of the trustee article ix provides for specific bequests of stock to taxpayer’s under article x the residue of the trust assets will be distributed to charity if it qualifies as a charitable_organization defined in article xvi or if it does not to one or more organizations selected by the trustee that do qualify as charitable organizations article xii provides that any powers granted the trustee under article xii are exercisable in the trustee’s discretion but never in a manner that would jeopardize the qualification of the charitable lead trusts under sec_2055 article xii a authorizes the trustee to retain indefinitely any company common_stock even though the trustee could not properly purchase the stock as a_trust investment and retention might violate principles of investment diversification under article xii bank is appointed as trustee of each of the clats and cluts and cannot be removed until three years have elapsed after the initial funding of the trusts thereafter persons specified in article xii are granted the power to remove and replace the trustee however if bank ceases to serve any successor trustee must be a bank or trust company that is not related or subordinate within the meaning of sec_672 to any beneficiary article xii provides for removal and replacement of the trustee for a specified trust or trusts subject_to article xii by a majority in number of the then legally competent remainder beneficiaries for the specified trust or trusts if no remainder beneficiary is then legally competent and the charitable term has expired then by a majority in number of beneficiaries to whom the trust may or must then be distributed or if the charitable term has not expired then by a majority in number of beneficiaries to whom the trust would be distributable if the term then expired article xiii provides that bank will serve as trustee followed by bank subject_to article xii and under article xvi charitable_organization is defined as any organization described in sec_170 sec_2055 and sec_2522 of the internal_revenue_code it is represented that under state law the trustee is not required to pay interest to the trustee of each trust between the date of taxpayer’s death and the date that each clat and clut is fully funded even in the case of a delay in funding law and analysis estate_tax charitable deduction sec_2055 provides that for purposes of the federal estate_tax the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the amount of all bequests legacies devises or transfers to a person or for_the_use_of any corporation organized and operated exclusively for religious charitable scientific literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private stockholder or individual under sec_20_2055-2 the amount passing to charity must be ascertainable and determinable as of the date of death similarly under sec_20_2055-2 if the trustee is empowered to divert the property or fund in whole or in part to a noncharitable purpose the deduction is limited to that portion if any of the property which is exempt from an exercise of the power under sec_2055 the estate_tax charitable deduction is not allowable where an interest in property other than an interest described in sec_170 passes or has passed_from_the_decedent to a person or for a use described in sec_2055 and an interest other than an interest which is extinguished upon the decedent's death in the same property passes or has passed for less than an adequate_and_full_consideration in money_or_money's_worth from the decedent to a person or for a use not described in sec_2055 unless-- a in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly under sec_20_2055-2 in the case of decedents dying after date where an interest in property passes from the decedent for charitable purposes and an interest in the same property passes from the decedent for private purposes no deduction is allowed under sec_2055 for the value of the interest passing for charitable purposes unless the interest is a deductible_interest under sec_20_2055-2 the term deductible_interest includes a guaranteed_annuity_interest a guaranteed_annuity_interest is a right to receive a guaranteed annuity a guaranteed annuity is an arrangement under which a determinable amount is paid periodically but not less often than annually for a specified term or for the life or lives of an individual or individuals each of whom must be living at the date of death of the decedent and can be ascertained at such date an amount is determinable if the exact amount which must be paid under the conditions specified in the instrument of transfer can be ascertained as of the appropriate valuation_date under sec_20_2055-2 a charitable interest is a guaranteed_annuity_interest only if it is a guaranteed_annuity_interest in every respect under sec_20_2055-2 where a guaranteed_annuity_interest is in trust the instrument may provide that income of the trust in excess of the amount required to pay the guaranteed_annuity_interest shall be paid to or for_the_use_of a charity nevertheless the amount of the deduction is limited to the fair_market_value of the guaranteed_annuity_interest under sec_20_2055-2 a deduction will be allowed under sec_2055 only for the minimum amount it is evident the charity will receive thus if the date of death value of the guaranteed_annuity_interest exceeds the date of death value of the trust assets the allowable deduction is limited to the date of death value of the trust assets under sec_20_2055-2 the term deductible_interest includes a unitrust_interest a unitrust_interest is a right to receive payment not less often than annually of a fixed percentage of the net fair_market_value determined annually of the property which funds the unitrust_interest the unitrust_interest may be paid for a specified term or the life or lives of named individuals each of whom must be living at the creation of the trust under sec_20_2055-2 a charitable interest is a unitrust_interest only if it is a unitrust_interest in every respect under sec_20_2055-2 where a unitrust_interest is in trust the instrument may provide that income of the trust in excess of the amount required to pay the unitrust_interest shall be paid to or for_the_use_of a charity nevertheless the amount of the deduction is limited to the fair_market_value of the unitrust_interest under f v the present_value of a unitrust_interest is determined by subtracting the present_value of all interests in the transferred property other than the unitrust_interest from the fair_market_value of the transferred property with respect to the a trusts and the b trusts the charitable_annuity will be determined pursuant to a specified formula the annuity amounts will be ascertainable and determinable as of taxpayer’s date of death because as of that date all variables in the formula contained in article vii for determining the charitable_annuity amounts will be fixed and determinable accordingly we conclude that the charitable interest in each clat created under article vii of the proposed trust agreement will constitute a guaranteed_annuity_interest within the meaning of sec_2055 and sec_20_2055-2 therefore on the taxpayer’s death an estate_tax charitable deduction will be allowed under sec_2055 for the present_value of each guaranteed_annuity_interest determined in accordance with sec_20_2055-2 the amount of the unitrust_interest payable with respect to the c trusts and the d trusts will be determined pursuant to a specified formula the unitrust_amount will be ascertainable and determinable as of taxpayer’s date of death because as of that date all variables in the formula contained in article viii for determining the charitable unitrust amounts will be fixed and determinable accordingly we conclude that the charitable interest in each clut created under article viii of the proposed trust agreement will constitute a unitrust_interest within the meaning of sec_2055 and sec_20_2055-2 therefore on the taxpayer’s death an estate_tax charitable deduction will be allowed under sec_2055 for the present_value of each unitrust_interest determined in accordance with sec_20_2055-2 income_tax charitable deduction sec_642 provides the general_rule that in computing its taxable_income a_trust is allowed a deduction for any amount of gross_income which pursuant to the terms of the governing instrument is paid during the taxable_year for a purpose specified in sec_170 determined without regard to sec_170 sec_642 provides that the deduction allowed for a_trust is subject_to sec_681 relating to unrelated_business_income sec_681 provides that no charitable deduction is allowable to a_trust under sec_642 for any amount allocable to the trust’s unrelated_business_income for the taxable_year the term unrelated_business_income means an amount under sec_512 f the trust were exempt from tax under sec_501 by reason of sec_501 that would be computed as its unrelated_business_taxable_income under sec_512 except to the extent that the clats and cluts created under the proposed trust agreement have unrelated_business_income under sec_681 and except to the extent that contributions are nondeductible under sec_508 or sec_4948 each clat and each clut will be allowed a deduction in accordance with sec_642 for amounts of gross_income paid to the charitable_beneficiary during that taxable_year or the close of the following taxable_year if the trustee makes an election under sec_1_642_c_-1 because the deduction under sec_642 is limited to amounts of gross_income no deduction will be allowed for a distribution of principal except to the extent that the amount distributed has been included in the gross_income of the trust and provided no deduction was allowed for any previous taxable_year for the amount distributed generation-skipping_transfer_tax sec_2601 imposes a tax on every generation-skipping_transfer gst made after date sec_2611 defines a generation-skipping_transfer as either a direct_skip a taxable_termination or a taxable_distribution sec_2612 provides that the term taxable_termination means the termination by death lapse of time release of power or otherwise of an interest_in_property_held_in_trust unless-- a immediately after the termination a non- skip_person has an interest in the property or b at no time after the termination may a distribution including distributions on termination be made from the trust to a skip_person sec_2612 provides that a taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip sec_2612 provides that the term direct_skip means a transfer subject_to a tax imposed by chapter or of an interest in property to a skip_person sec_2613 provides that the term skip_person means-- a natural_person assigned to a generation that i sec_2 or more generations below the generation assignment of the transferor or a trust-- a if all interests are held by skip persons or b if-- i there is no person holding an interest in the trust and ii at no time after the transfer may a distribution including distributions on termination be made from the trust to a non-skip_person sec_2613 provides that the term non-skip_person means any person who is not a skip_person sec_2631 provides for a gst_exemption of dollar_figure adjusted for inflation as provided in sec_2631 which may be allocated by the individual or the individual's executor to any property of which the individual is the transferor for gst tax purposes under sec_2652 under sec_2631 an allocation once made is irrevocable sec_2632 states that any allocation of an individual's gst_exemption may be made at any time on or before the date prescribed for filing the individual's estate_tax_return including extensions in general the generation-skipping_transfer_tax is computed by multiplying the taxable_amount by the applicable_rate the applicable_rate is the highest federal estate_tax rate multiplied by the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio is the excess if any of over the applicable_fraction determined for the trust from which such transfer is made the applicable_fraction is a fraction - a the numerator of which is the amount of the gst_exemption allocated to the trust and b the denominator of which is - i the value of the property transferred to the trust reduced by ii the sum of i the federal estate_tax or state death_tax actually recovered from the trust attributable to such property and ii any charitable deduction allowed under sec_2055 and sec_2522 with respect to the such property under sec_2642 any allocation of gst_exemption to property transferred as a result of the transferor’s death is effective as of the date of death sec_26_2642-2 of the generation-skipping_transfer_tax regulations provides that in determining the denominator of the applicable_fraction with respect to a pecuniary_bequest if a pecuniary payment is satisfied with cash the denominator is the pecuniary amount if property other than cash is used to satisfy a pecuniary payment the denominator of the applicable_fraction is the pecuniary amount only if payment must be made with property on the basis of the value of the property on -- a the date of distribution or b a date other than the date of distribution but only if the pecuniary payment must be satisfied on a basis that fairly reflects net appreciation and depreciation occurring between the valuation_date and date of distribution in all of the assets from which the distribution could have been made under sec_2651 any organization described in sec_511 any charitable_trust described in sec_511 and any governmental entity is assigned to the transferor’s generation under sec_2652 the term transferor means in the case of any property subject_to the estate_tax the decedent sec_2652 provides that for purposes of chapter a person has an interest in the property held in trust if at the time the determination is made the person-- a has a right other than a future right to receive income or corpus from the trust b is a permissible current recipient of income or corpus from the trust and is not described in sec_2055 or c is described in sec_2055 and the trust is -- i a charitable_remainder_annuity_trust ii a charitable_remainder_unitrust within the meaning of sec_664 or iii a pooled_income_fund within the meaning of sec_642 sec_2654 provides that for purposes of chapter the portions of a_trust attributable to transfers from different transferors are treated as separate trusts and substantially separate and independent shares of different beneficiaries in a_trust are treated as separate trusts except as provided above a single trust will not be treated a sec_2 or more trusts under sec_26_2654-1 if a person holds the current right to receive a mandatory nondiscretionary and noncontingent payment of a pecuniary amount at the death of the transferor from an inter_vivos_trust that is includible in the transferor’s gross_estate or a testamentary_trust the pecuniary amount is a separate and independent share if the trustee is required to pay appropriate interest under sec_26_2642-2 to the person and if payable in_kind the pecuniary amount is payable on the basis of the date of distribution value sec_26_2642-2 provides that appropriate interest means that interest must be payable from the date of death of the transferor to the date of payment at a rate a at least equal to the statutory rate of interest if any applicable to pecuniary bequests under the law of the state whose law governs the administration of the estate_or_trust or if no such rate is indicated under applicable state law percent of the rate that is applicable under sec_7520 at the transferor’s death and b not in excess of the greater of the statutory rate of interest if any applicable to pecuniary bequests under the law of the state whose law governs the administration of the estate_or_trust or percent of the rate that is applicable under sec_7520 at the transferor’s death at taxpayer’s death the trustee will fund each of the cluts with dollar_figureb a unitrust_interest will be paid to charity during the charitable term of the clut on termination of the charitable term the remainder will be distributed among of taxpayer if charity does not qualify as a charitable_organization under sec_170 sec_2055 and sec_2522 then the unitrust_amount will be paid to one other specified charity that does so qualify under sec_2651 charity is assigned to the same generation as the generation of the transferor and charity has an interest in each clut as defined in sec_2612 the cluts will not be skip persons under sec_2613 accordingly we conclude that the proposed pecuniary bequests to the cluts will not constitute direct skips and therefore no generation-skipping_transfer_tax will be imposed upon the transfer to the cluts under the terms of the trust for similar reasons we conclude that the proposed pecuniary bequests to the clats will not constitute direct skips under sec_2612 a taxable_termination occurs upon the termination of an interest_in_property_held_in_trust in the instant case charity will have an interest as defined in sec_2652 in each clut during the term of the charitable unitrust of the clut at the end of the charitable term charity’s interest will terminate and only skip persons taxpayer’s or their issue will have interests in or rights to distributions from each clut thus we rule that a taxable_termination under sec_2612 will occur on the expiration of the term of the charitable_lead_unitrust of each clut under article vii at taxpayer’s death each clat is to be funded with dollar_figurey a pecuniary amount under article viii at taxpayer’s death each clut is to be funded with dollar_figureb a pecuniary amount under article vii and article viii the pecuniary amount is payable in cash or in_kind based on date of distribution values further the trustee is required to pay interest to the respective clat or clut between the date of death and the date the trust is fully funded equal to percent of the sec_7520 interest rate for the month of taxpayer’s death it is represented that state law does not require the payment of interest between the date of death and date of funding the interest payable will be appropriate interest under sec_26 b i and the pecuniary amount_paid to each clat and each clut will be a separate and independent share under sec_26 a ii for gstt purposes consequently we conclude that each bequest to a clat and each bequest to a clut will be recognized as a separate share for gstt purposes so that taxpayer’s remaining available gst_exemption may be allocated separately to each of the cluts pursuant to article viii and as required under sec_26_2642-2 any payment in_kind in satisfaction of a pecuniary amount will be made based on the date of distribution value of the property accordingly we rule that under sec_26_2642-2 with respect to each clut if funded in cash or in_kind the denominator of the applicable_fraction will be dollar_figureb the pecuniary amount payable to the clut the denominator will not include the amount of the interest_paid if funded in cash finally we rule that for purposes of allocating taxpayer’s remaining available gst_exemption to each clut under sec_2642 the denominator of the applicable_fraction for each clut will be dollar_figureb the amount passing to each clut under the terms of the trust minus the amount allowable as a charitable deduction under sec_2055 with respect to the clut assuming an allocation to each clut of taxpayer’s remaining available gst_exemption in an amount equal to the denominator of the applicable_fraction for the clut the inclusion_ratio for the clut will be zero 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 in particular we express no opinion as to whether or not the charitable_beneficiary designated in the proposed trust agreement is described in sec_170 sec_170 sec_2055 and sec_2522 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 george l masnik chief branch enclosure copy for sec_6110 purposes


department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number ---------------------- refer reply to cc ita b04 plr-128523-16 date date internal_revenue_service number release date index number --------------------------- -------------------------------------------- ---------------------------- legend taxpayer --------------------------- tin ------------------ year ------- year ------- dollar_figurex -------------- dollar_figurey ------------ date ---------------------- date --------------------- dear --------------- this is in reference to an election that taxpayer made to reduce the basis of depreciable_property under sec_108 of the internal_revenue_code by the amount excluded from income under sec_108 taxpayer is requesting permission to revoke that election pursuant to sec_1_108-4 of the income_tax regulations taxpayer is a self-employed real_estate_professional in year taxpayer owned three residential apartment buildings taxpayer had dollar_figurex cancellation of indebtedness in -------- and had dollar_figurey net operating losses nols taxpayer represents that it was insolvent in year taxpayer filed an original year federal_income_tax return to reduce tax_attributes in the order under sec_108 upon the advice of an established mid-sized cpa firm taxpayer filed an amended ------- federal_income_tax return and elected to first reduce basis against depreciable_property under sec_108 to preserve its nols this amended_return was a request under sec_301_9100-2 of the procedure and administration regulations plr-128523-16 taxpayer sold one of its properties in year taxpayer’s current representative has informed this office that taxpayer sold this property at a gain taxpayer indicates in its supplemental submission that much of its income in year was a result of the sale of the property with the reduced basis as a result of the election under b law and analysis sec_61 provides that gross_income includes income_from_discharge_of_indebtedness sec_108 provides that gross_income does not include any amount that would be includible in gross_income by reason of the discharge_of_indebtedness of the taxpayer if the discharge occurs when the taxpayer is insolvent sec_108 provides that the amount excluded from gross_income shall be applied to reduce certain tax_attributes of the taxpayer sec_108 provides in general that the reduction shall be made to tax_attributes in the following order a net operating losses b general business credits c minimum_tax credits d net capital losses and capital_loss carryovers e basis_of_property f passive_activity_losses and g foreign_tax_credit carryovers sec_108 states that the taxpayer may elect to apply any portion of the amount excluded from income to the reduction under sec_1017 of the basis of the depreciable_property of the taxpayer sec_108 provides that the basis_reduction shall not exceed the aggregate bases of the depreciable_property held by the taxpayer as of the beginning of the taxable_year following the taxable_year of the discharge sec_108 provides that the tax_attributes under sec_108 are not reduced if a taxpayer makes an election under sec_108 sec_1017 provides in general that in the event of exclusion from income of discharge_of_indebtedness income by an insolvent taxpayer under sec_108 the reduction in basis_of_property shall not exceed the excess of the total bases of property held by the taxpayer immediately after the discharge over the taxpayer's total liabilities immediately after the discharge however this limitation does not apply to any reduction in basis by reason of an election under sec_108 in this situation there would be no basis_reduction limitation in the present case taxpayer engaged a qualified_tax professional to amend its year federal_income_tax return taxpayer submitted only one affidavit describing the engagement from the tax professional engaged to amend its year federal_income_tax return in that affidavit the tax professional states under penalties of perjury that he discussed the tax attribute reduction ordering rules under sec_108 and the election under sec_108 to first reduce basis against depreciable_property in the affidavit the tax professional further states that after numerous discussions the decision was made to utilize the election under sec_108 to preserve the nols plr-128523-16 taxpayer asserts that on date it became aware that it was not properly advised by the tax professional about the effect of making the election under sec_108 by an insolvent taxpayer some months later taxpayer requested permission to revoke that election pursuant to sec_1_108-4 on date based on the information submitted taxpayer is not granted permission to revoke its late sec_108 election made under sec_301_9100-2 of the procedure and administration regulations first the sole affidavit prepared by taxpayer’s tax preparer states under penalties of perjury that he and taxpayer had numerous conversations about the tax attribute reduction ordering rules under sec_108 and the sec_108 election and that taxpayer a real_estate_professional decided to make the election in order to preserve its nols taxpayer’s statements to the contrary do not overcome the statements made by the tax professional that taxpayer made a deliberate decision to preserve its nols second to allow taxpayer to revoke its sec_108 election would prejudice the interests of the government in that taxpayer would have a lower tax_liability for all tax years including by reducing or eliminating any gain on sale of property in year lastly taxpayer did not act diligently and in good_faith by waiting months to request permission to revoke the election therefore permission to revoke the election under sec_108 is not granted caveats except as expressly provided we express no opinion 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 taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayers and accompanied by a penalty of perjury statement executed by the taxpayers while this office has not verified any of the material submitted in support of the request for a ruling it is subject_to verification on examination sincerely donna welsh senior technician reviewer office of associate chief_counsel income_tax accounting


internal_revenue_service number release date index numbers ---------------------------- -------------------------------------- -------------------- ----------------------------------------------- attention ------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id --------------- telephone number --------------------- refer reply to cc ita plr-155794-07 date date ---------------------------- ein ---------------- --------------------------- ein ----------------- ------------------------------------------------------ ------------------------------------------ legend legend p s d1 year ------- d2 year ------- year ------- dear ---------------- this ruling is in reply to the letter submitted by p's authorized representative that requested an extension of time under sec_301_9100-1 of the procedure and administration regulations for p to file the two required form sec_970 application to use lifo inventory_method on behalf of its subsidiary s p’s request was made in accordance with sec_301_9100-3 p is the parent_corporation of an affiliated_group_of_corporations that files consolidated federal_income_tax returns on a calendar_year basis included in these returns are various subsidiaries including s page plr-155794-07 two divisions of s are pertinent to this ruling_request one division d1 was formed by s in year in that year d1 acquired inventory that it accounted for under the last- in first-out lifo inventory_method d1’s inventory was included in its own lifo_pool p failed to attach the required form_970 to its consolidated federal_income_tax return for that year subsequent to year this inventory has continually been valued on the lifo inventory_method similarly p failed to attach the required form_970 to its consolidated federal_income_tax return for inventory acquired by the other division of s pertinent to this ruling_request d2 s formed d2 in year and d2 first acquired inventory in year this inventory was accounted for under the lifo inventory_method and was included in its own lifo_pool the form_970 needed to properly adopt and use the lifo inventory_method was not filed by p subsequent to year the inventory has continually been valued on the lifo inventory_method p represents that it and not the internal_revenue_service discovered its failure_to_file the required form sec_970 specifically p states that it discovered that the form sec_970 were missing while it was preparing an application to change its accounting_method for inventories p also represents that the lifo conformity requirement of sec_1 e of the income_tax regulations is satisfied as it has continually used since year and year respectively the lifo inventory_method for the inventory of d1 and d2 for financial reporting purposes sec_472 of the internal_revenue_code provides that a taxpayer may use the lifo_method of inventorying goods specified in an application to use such method filed at such time and in such manner as the secretary may prescribe sec_1_472-3 provides that the lifo inventory_method may be adopted and used only if the taxpayer files with its income_tax return for the tax_year as of the close of which the method is first to be used a statement of its election to use such inventory_method the statement shall be made on form_970 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of the time to make a regulatory election under all subtitles of the code except subtitles e g h and i provided that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 also defines an election to include an application_for relief in respect to tax or a request to adopt change or retain an accounting_method or accounting_period page plr-155794-07 sec_301_9100-2 sets forth rules governing automatic extensions for regulatory elections if the provisions of sec_301_9100-2 do not apply to a taxpayer’s situation the provisions of sec_301_9100-3 may apply sec_301_9100-3 sets forth the standards that the commissioner will use in determining whether to grant an extension of time to make a regulatory election that does not meet the standards of sec_301_9100-2 it also sets forth information and representations that the taxpayer must furnished to enable the service to determine whether the taxpayer has satisfied these standards the applicable standards are whether the taxpayer acted reasonably and in good_faith and whether granting relief would prejudice the interests of the government under sec_301_9100-3 a taxpayer that applies for relief for failure to make an election before the failure is discovered by the service ordinarily will be deemed to have acted reasonably and in good_faith however the taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested additionally if the taxpayer was informed in all material respects of the required election and related tax consequences but chose not to file the election or uses hindsight in requesting relief the taxpayer ordinarily will not be considered to have acted reasonably and in good_faith sec_301_9100-3 sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all tax years affected by the regulatory election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money likewise when the tax consequences of more than one taxpayer are affected by the election the government’s interests are prejudiced if extending the time for making the election may result in the affected taxpayers in the aggregate having a lower tax_liability than if the election had been timely made further the interests of the government are ordinarily prejudiced if the tax_year in which the regulatory election should have been made or any_tax years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under sec_301_9100-3 sec_301_9100-3 the information and representations furnished by p establish that s has acted reasonably and in good_faith in this request furthermore granting an extension will not prejudice the interests of the government accordingly an extension of time is hereby granted under sec_301_9100-3 for p to file the necessary form sec_970 on behalf of both d1 and d2 two divisions of its subsidiary s specifically p may file a form_970 for the year sec_1 and for the inventory held by d1 and d2 respectively this extension page plr-155794-07 shall be for a period of days from the date of this ruling please attach a copy of this ruling to the form sec_970 when they are filed no opinion is expressed as to the application of any other provisions of the code or the regulations that may be applicable to the transaction specifically no opinion is expressed regarding the propriety of the lifo inventory methods used by any member of p's affiliated_group this ruling is directed only to p who had requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the terms of a power_of_attorney on file with this office a copy of this ruling is being sent via facsimile to each of p's two designated representatives sincerely roy hirschhorn senior technician reviewer branch office of associate chief_counsel income_tax accounting cc


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend x company name y name of scholarship program y number of employees dear we have considered your request for advance approval of your employer-related grant- making program under sec_4945 of the internal_revenue_code dated date our records indicate that you were recognized as exempt from federal_income_tax under sec_501 of the code and that it is classified as a private_foundation as defined in sec_509 your letter indicates that you will operate a grant-making program called y your purpose is to receive contributions donations and gifts to be used exclusively for the promotion encouragement and support of charitable scientific educational cultural and civic purposes the purpose of y is to grant scholarships to certain deserving applicants who are eligible to attend a post-graduate school at a college or university you indicate that applicants will be considered eligible to receive grants of scholarship under y only if all of the following conditions are satisfied on the dates specified in each case on the date application date the application is delivered to the selection committee committee a natural or adoptive parent stepparent or legal guardian of the applicant must be a full time employee of x with one or more years_of_service but the employee may not be a member of a collective bargaining unit representing employees of x unless x and such collective bargaining unit shall separately have agreed that applicants who are sons and daughters of such employees in such collective bargaining unit are eligible to compete for scholarships in y sons and daughters of officers of x are not eligible to receive grants of scholarship under y on the application date the applicant must be eligible for admission to the qualifying institution to which application has been made on the registration date at the qualifying institution at which the applicant has made application the applicant must be admitted thereto and must not have been awarded a post-graduate degree from a qualifying institution on the application date the applicant shall not be older than thirty years plus such number of years as he shall have spent in the military service of the united_states for the purpose of determining exceptions to the age eligibility conditions the committee in its discretion may accept other service involving significant personal and or monetary sacrifice in lieu of military service to the united_states applicants will complete an application form that includes a the applicant’s personal information such as name address and birth date b information about the parent step-parent or guardian employed by x c an explanation of the student’s academic objective’s and or career goals and d a description of other relevant matters the committee should consider such as community service and other extracurricular activities additional supporting documentation including a transcripts from the student’s undergraduate institution b documentation showing acceptance to a graduate program and c letters of recommendation will be requested y is calculated to identify and select the most exemplary applicants based on past academic performances extracurricular activities performances on ability and aptitude tests recommendations from instructors or other individuals not related to the applicant and considering good citizenship and character the process does not consider any particular individual or class of individuals the recipients are selected by an independent committee and children of x’s officers are not eligible also relatives of members of the selection committee or substantial contributors are not eligible for scholarships under y currently there are approximately y employees of x which allows for a potentially large pool of eligible applicant's the rules regarding selection of applicants are as follows applicants shall be eligible irrespective of sex race color religion or ethnic or national origin selection of applicants to receive scholarships under x shall be based solely upon standards which shall be objective insofar as practicable but which in any event shall be completely unrelated to any position held by the applicant’s parent with x criteria to be considered in selecting scholarship recipients shall include but not be limited to academic performance extracurricular activities performance on ability and aptitude tests recommendations from instructors or other individuals not related to the applicant and conclusions with respect to motivation and character drawn from personal interviews itis a specific purpose of y to enable scholarship recipients to pursue educational objectives of their own choosing and for their personal benefit without commitment or obligation to x of any kind present or future on the part of either the applicant or a parent and irrespective of whether the course of study which any applicant seeks to pursue will benefit x y may not be used to recruit employees or induce employees to continue in the employment of x or otherwise to take or not take any_action for or in respect of x scholarship grants under y may not be withdrawn nor may any renewable grant not be renewed for any reason relating to the employment or non-employment with x of the parent of a scholarship recipient subsequent to the application date also the number of scholarship recipients selected by the committee in any year shall not exceed a percent of the number of x employees’ children who are eligible are applicants for such scholarships and are considered by the committee in selecting the recipients of scholarships in that year or b percent of the number of employees’ children that can be shown to have been eligible for such scholarships irrespective of whether they submitted applications in that year the selection committee does not necessarily use a formal ranking procedure the members of the selection committee review all the applicant information discuss the relative merits of the various applicants considering the criteria noted above and jointly select the scholarship recipients the selection committee members use their experience and judgment to ensure a non-biased objective result the number of new scholarships to be granted in each year shall be determined by your trustees and the trustees shall inform the committee of the number and dollar amount of each the number and amount of grants is fixed each year by the trustees and the selection committee then makes binding recommendations for the fixed number of awardees grants will be awarded solely in the order recommended by the selection committee once the trustees have determined the number and amounts of the scholarships and the selection committee has made its recommendations of those to whom scholarships will be given that no one has the authority to increase the number of grants to be awarded your selection committee shall be made up of three members who shall be chosen by your trustees but no one shall be a member of the committee who shall a be your trustee b be a current or former director officer_or_employee of x or c own more than one percent of the outstanding voting_stock of x the committee may act by a majority of its members in attendance at a meeting duly called and noticed and a quorum at any such meeting shall be three members the committee shall have full discretion subject_to the terms and conditions of the instrument establishing y both to establish criteria for selecting applicants for new scholarships and to establish performance standards for renewing scholarships in successive years such discretion shall include the right to change such criteria and standards your trustees shall have the power from time to time to remove or replace the members of the committee or increase or decrease their number but no scholarship awarded by the committee shall be invalidated by such action the selection committee is composed of responsible community and business leaders who have some experience and interest in education each committee member is totally independent of you and x and is tasked with the responsibility to make independent unbiased decisions in the selection process only responsible men and women of high integrity and independence are chosen for the selection committee the committee members are approved by your trustees who are responsible for ensuring that the committee members act without bias in their selections procedures for the confirmation of the terms and conditions of the scholarship are applications are completed and submitted to you applications are reviewed for eligibility and completeness and submitted to the selection committee the selection committee has full discretion for selecting applicants to receive the scholarship the recipients are notified of their scholarship award and a check is issued by you to the scholarship recipient the scholarship recipient will be required to send you a copy of his her school transcript after the end of each semester to verify continued participation in a graduate school program and ensure eligibility for renewal of the scholarship the scholarship recipient is required to send you a copy of his her receipts for tuition books class fees if misuse of funds is discovered the scholarship recipient may be asked to refund etc the misused scholarship award and may no longer be eligible for future awards other then the verifications listed above there is no follow-up in the event the award recipient leaves or drops out the scholarship is not refunded to you but the recipient is no longer eligible for future scholarships under y in general each scholarship shall be renewable in an amount not smaller than the original amount unadjusted for inflation in each of the two consecutive succeeding years or until the recipient shall have received a graduate degree or otherwise achieved the educational objective specified in his original applications to the committee whichever shall first occur if certain criteria are met you agree to maintain records that include the following i ii information used to evaluate the qualification of potential grantees identification of the grantees including any relationship of any grantee to the private_foundation iii the amount and purpose of each grant and iv all grantee reports and other follow-up data obtained in administering the private foundation’s grant program sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i ii its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance revproc_76_47 1976_2_cb_670 sets forth guidelines to be used in determining whether a grant made by a private_foundation under an employer-related program to a child of an employee of the particular employer to which the program relates is a scholarship grant that meets the provisions of sec_117 of the code as that section read before the tax_reform_act_of_1986 if a private foundation's program satisfies the seven conditions set forth in sections dollar_figure through dollar_figure of revproc_76_47 and meets the percentage_test described in sec_4 the service will assume the grants meet the provisions of sec_117 as that section read before the tax_reform_act_of_1986 you have agreed that procedures in awarding grants under your program will be in compliance with sections dollar_figure through dollar_figure of revproc_76_47 without regard to the amendments to sec_117 made by the tax_reform_act_of_1986 in particular the selection of individual grant recipients will be made by a selection committee the members of which are totally independent and separate from the private_foundation the foundation’s creator and the relevant employer the grants will not be used as a means of inducement to recruit employees nor will a grant be terminated if the employee leaves the employer the recipient will not be restricted in a course of study that would be of particular benefit to the relevant employer or to the foundation section dollar_figure of rev_proc provides a percentage_test guideline case of a program that awards grants to children of employees of a particular employee the program meets the percentage_test if either of the following tests are met the number of grants awarded under that program in any year to such children do not it states in the exceed percent of the number of employees’ children who were eligible were applicants for such grants and were considered by the selection committee in selecting the recipients of grants in that year or the number of grants awarded under the program in any year to such children does not exceed percent of the number of employees’ children who can be shown to be eligible for grants whether or not they submitted an application in that year you have agreed that your program will meet the requirements of either the percent or percent percentage_test of section dollar_figure applicable to a program that awards grants to children of employees of a particular employer records should be maintained to show that you meet the applicable_percentage test of section dollar_figure this determination is issued with the understanding that in applying the percent test applicable to employees’ children set forth in revproc_76_47 you will include as eligible only those children who meet the eligibility standards described in revproc_85_51 1985_2_cb_717 this determination will remain in effect as long as the procedures in awarding grants under your program remain in compliance with sections dollar_figure through dollar_figure of rev_proc without regard to the amendments to sec_117 made by the tax_reform_act_of_1986 if you enter into any other program covering the same individuals the percentage_test of revproc_76_47 must be met in the aggregate based on the information submitted and assuming your award programs will be conducted as proposed with a view to providing objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are ‘scholarship or fellowship’ grants within the meaning of sec_117 of the code and are excludable from the gross_income of the recipients subject_to the limitations provided in sec_117 of the code including to the extent that such grants are used for qualified_tuition_and_related_expenses within the meaning of sec_117 of the ode this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your employer-related grant-making program is a one-time approval this determination only covers the grant programs described above thus approval shall apply to subsequent grant programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and histories so that any or all grant distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records lf you have any questions please contact the person whose name and telephone number are shown above sincerely yours lois g lerner director exempt_organizations enclosure notice redacted copy of letter


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 ita b01 plr-106976-16 date date taxpayer date1 date2 date3 a b c d e f g --------------------------------------------------------- --------------------- -------------------------- -------------------------- -------------------- ------------------ ----------------------------------------------------------------------------------------------- ------------------- -------------------------------------- ----- --------------- -------------------------- dear -------------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make the election described in sec_4 of revproc_2011_29 2011_18_irb_746 which includes attaching statements to taxpayer’s original federal_income_tax return for taxable_year ended date1 facts taxpayer is a corporation located in a that is engaged in the business of providing hospitals and healthcare systems throughout the b with information_technology services web products and other services that contribute to improving patient care while reducing healthcare costs taxpayer uses an accrual_method of accounting and has a march fiscal_year end taxpayer was owned by c on date2 pursuant to a plan of merger the transaction d acquired e of the stock of taxpayer from c plr-106976-16 in the process of investigating or otherwise pursuing the transaction taxpayer incurred certain transaction costs which included payments to certain professional advisors for legal accounting and consultative services some of those costs related to payments by taxpayer to a professional financial advisor due only upon successful closing of the transaction success-based fees taxpayer paid the professional financial advisor success-based fees in the amount of f upon closing of the transaction taxpayer engaged g a tax advisory and accounting firm to prepare taxpayer’s federal_income_tax return for the taxable_year ended date1 g determined that the success- based fee paid_by taxpayer to the professional financial advisor upon closing of the transaction satisfied the requirements of revproc_2011_29 and that the transaction qualified as a covered transaction under the requirements of sec_1_263_a_-5 of the income_tax regulations accordingly on taxpayer’s original federal_income_tax return for the taxable_year ended date1 prepared by g which was timely filed on date3 taxpayer capitalized under sec_263 of the sec_30 percent of the success-based fees related to the transaction and deducted the remaining percent consistent with taxpayer’s intent to make the election provided in revproc_2011_29 however in reliance on g taxpayer failed to attach the mandatory statements identifying the transactions and setting forth this allocation as required by sec_4 of revproc_2011_29 law sec_263 of the internal_revenue_code and sec_1_263_a_-2 of the income_tax regulations provide that no deduction shall be allowed for any amount_paid out for property having a useful_life substantially beyond the taxable_year in the case of an acquisition or reorganization of a business_entity costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized 503_us_79 112_sct_1039 117_led_226 397_us_572 90_sct_1302 25_led_577 under sec_1_263_a_-5 a taxpayer must capitalize an amount_paid to facilitate the business acquisition or reorganization transactions described in sec_1_263_a_-5 in general an amount is paid to facilitate a transaction described in sec_1_263_a_-5 if the amount is paid in the process of investigating or otherwise pursuing the transaction whether an amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all of the facts and circumstances see sec_1_263_a_-5 sec_1_263_a_-5 provides that an amount_paid that is contingent on the successful closing of a transaction described in sec_1 a - a ie a success-based_fee is presumed to facilitate the transaction a taxpayer may rebut this presumption by plr-106976-16 maintaining sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction section dollar_figure of revproc_2011_29 provides a safe_harbor election for taxpayers that pay or incur success-based fees for services performed in the process of investigating or otherwise pursuing a covered transaction described in sec_1_263_a_-5 in lieu of maintaining the documentation required by sec_1_263_a_-5 a taxpayer may elect to allocate a success-based_fee between activities that facilitate the transaction and activities that do not facilitate the transaction and by treating percent of the amount of the success-based_fee as an amount that does not facilitate the transaction and by capitalizing the remaining percent as an amount that does facilitate the transaction in addition the taxpayer must attach a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government see also sec_301_9100-3 and c conclusion based solely on the facts and representations submitted we conclude that taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government accordingly the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file its mandatory statements as required by section dollar_figure of revproc_2011_29 plr-106976-16 stating that it is electing the safe_harbor for success-based fees identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter including whether taxpayer properly included the correct costs as success- based fees subject_to the retroactive election or whether taxpayer’s transactions were within the scope of revproc_2011_29 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 ruling should be attached to taxpayer’s federal tax returns for the tax years affected 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 provisions of the power_of_attorney currently on file with this office a copy of this letter is being sent to your authorized representatives sincerely lewis k brickates lewis k brickates branch chief branch office of associate chief_counsel income_tax accounting


department of the treasury internal_revenue_service washington d c feb eoe to ree fanon edie jaber eee fei rik eek jono i tax_exempt_and_government_entities_division uil xiii foi orr eker eee eere k rarer irr iee erik attn sec_88 et ioe kerr ree rei k legend company a company b state r company c company d plan x dear krekekerkeekekre s this is in response to your request for a ruling dated date which was supplemented by correspondence dated date date and date submitted on your behalf by your authorized representative concerning the proposed distribution of assets from plan x under sec_402 of the internal_revenue_code code your ruling_request was revised in correspondence dated date which was submitted to the service under a letter dated date the following facts and representations have been submitted in support of your ruling_request company a is a privately held corporation in the telecommunications business located in state r company a is a wholly owned subsidiary of company b a state r corporation and the holding_company of company a peeneneeeeenss company a sponsors plan x plan x an employee_stock_ownership_plan esop was etablished effective date plan x is a non-contributory defined_contribution_plan that covers all non-union employees of company b and its affiliates company a and company d who have completed one year_of_service and attained age plan x was most recently amended and restated in date and received a favorable determination_letter dated date in pian x bought big_number shares the esop shares of company b stock at approximately dollar_figure per share to finance a portion of the purchase plan x borrowed dollar_figure million and pledged as collateral big_number of the esop shares the loan was intended to meet the requirements of sec_54_4975-7 of the income_tax regulations the esop shares were placed in a suspense_account in accordance with sec_54_4975-7 of the regulations to be released from the suspense_account and allocated to participants in plan x as the esop ioan was paid down on date company b merged with company c and in connection therewith the trustees of plan x exchanged all of the shares of company b stock held by plan x for cash consideration cash assets and an interest in an escrow fund pending resolution of certain matters as set forth in a certain escrow agreement the full payment of the assets held in the escrow fund cannot be completely distributed until the cash consideration attributable to shares of company b stock held in the suspense_account was applied to repay the esop_loan and the balance of the cash remains in the suspense_account to be allocated among participants in plan x as of the date of the merger therefore plan x now holds two assets cash which for purposes of this ruling is referred to as cash assets and a percent stake in the escrow fund company b and company c desire to terminate plan x and make a complete distribution of all of the assets held in plan x however the termination of plan x was delayed pending final resolution of certain plan defects under the voluntary compliance resolution program as these matters are in the final stages of resolution the trustees of plan x are now in a position to terminate plan x and make distributions to the plan x participants a complete distribution of the cash from the escrow fund cannot be made to the participants of plan x until therefore because company b and company c desire to terminate plan x as soon as possible company b and company c propose to distribute certificates to plan x participants which gives each participant an ownership right in the escrow fund plan x will distribute to each eligible_participant his or her interest in the cash assets held in plan x rereekkeerkeerek based on the foregoing the following ruling is requested the distribution to each plan x participant who elects to receive a single sum payment of such participant's entire plan x account balance in the form of the escrow certificates representing his or her interest in the escrow fund and the cash assets will constitute an eligible_rollover_distribution within the meaning of code sec_402 that is eligible for tax-deferred rollover treatment as described in code sec_402 code sec_402 provides in general that any amount actually distributed to any distributee by any employees’ trust described in code sec_401 which is exempt from tax under code sec_501 shall be taxable to the distributee in the taxable_year of the distributee in which distributed under sec_72 relating to annuities code sec_402 provides the rules applicable to rollovers from qualified trusts code sec_402 provides generaily that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not be included in gross_income for the taxable_year in which paid code sec_402 provides in general that in the case of any eligible_rollover_distribution the maximum amount transferred under paragraph shall not exceed the portion of such distribution which is includible in gross_income determined without regard to paragraph code sec_402 provides that sec_402 shall not apply to any transfer of a distribution made after the day following the day such distributee received the property distributed code sec_402 defines eligible_rollover_distribution as any distribution to an employee of all or a portion of the balance_to_the_credit of an employee in a qualified_trust except that the term shall not include -- a any distribution which is one of a series of substantially_equal_periodic_payments not less frequently than annually made -- i for the life or life expectancies or the joint life expectancies of the employee and the employee's designated_beneficiary or ii for a specified period of years or more sttetenteneunts b any distribution to the extent such distribution is required under sec_401 and c any distribution which is made upon the hardship of the employee code sec_402 defines eligible_retirement_plan as i ii iii iv v an individual_retirement_account described in sec_408 an individual_retirement_annuity described in sec_408 other fhan an endowment_contract a qualified_trust an annuity plan described in sec_403 an eligible_deferred_compensation_plan described in sec_457 which is maintained by an eligible_employer described in sec_457 and vi an annuity_contract described in code sec_403 in this case the trustees of plan x propose to make a distribution of the balance_to_the_credit of each participant who elects to receive a single sum distribution upon the termination of plan x the balance_to_the_credit of participants in plan x consists of a certificate representing each participant's ownership right in the escrow fund and cash from the cash assets thus each participant who elects to receive a single sum distribution under these facts will receive a distribution that constitutes their entire account balance in plan x and such distribution is eligible for favorable rollover treatment accordingly with respect to your ruling_request we conclude that the distribution to each participant in plan x who elects to receive a single sum payment of such participant's entire plan x account balance in the combination of the certificate representing his or her interest in the escrow fund and his or her interest in the cash assets will constitute an eligible_rollover_distribution within the meaning of code sec_402 that is eligible for tax-deferred rollover treatment as described in code sec_402 this ruling is based on the assumption that plan x meets the requirements for qualification under code sec_401 at the time of the proposed distributions no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or the regulations that may be applicable hereto steetenwnneues this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited by others as precedent a copy of this letter is being sent to your authorized representative in accordance with a power_of_attorney on file in this office if you have any questions concerning this ruling please contact teem se t ep ra t kkrekkekekekeeee ke sincerely yours signed joyce e floyd joyce e floyd manager employee_plans technical group enclosures deleted copy of this ruling notice


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 ------------------------------------------------- telephone number --------------------- refer reply to cc psi b04 plr-105013-09 date date legend mother father residence child child child trust trust date date date year modification a y z dear -- ------------ ---------------------------------------------------- ------------------------ ------------------------------------------------------------------------ ------------------ -------------------------------------------- ------------------------------------------------ -------------------------------------------------------- ----------------------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------- ------------------------- ----------------------- ---------------- ------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- --------- --------- ------- this responds to your date letter and other correspondence requesting a ruling under sec_2702 of the internal_revenue_code with respect to the proposed transfer of a residence to a_trust the facts submitted are as follows plr-105013-09 prior to date mother owned an undivided a interest in residence on date mother deeded her interest in residence to trust trust provided that mother would retain a term_interest to possess and occupy residence for y years article v section c of trust provides in relevant part that upon the expiration of the y year period if mother is still living mother's retained_interest is to expire and trust is to continue for the benefit of mother’s spouse father if still living and if not it is to be held for the benefit of mother's issue trust is to terminate and be distributed to mother’s issue in complete_liquidation of trust on the later to occur of mother's death or father’s death mother served as trustee of trust trust was intended to qualify as a qualified_personal_residence_trust qprt as described in sec_25_2702-5 mother reported the transfer of her a interest in residence to trust on a form_709 united_states gift and generation-skipping_transfer_tax return for year as of date y years after date mother's term_interest in residence expired and the remainder_interest in residence passed to her children children on date mother in her capacity as settlor and trustee of trust with the joinder and consent of children executed modification to modify article v section c of trust modification retains the terms of the original section b but adds a further provision that upon the expiration of the retained term mother's retained_interest and upon the direction of a majority of the current remainder beneficiaries the trustee may liquidate the trust or provide a gift to anyone the majority of the current remainder beneficiaries so chooses of a term_interest in any real_property of the trust estate that will be occupied by the term_interest holder as their principal_residence furthermore such directions may include the conveyance by gift or sale in trust or otherwise of a term_interest in any residence that is part of the trust estate children intend to create an irrevocable_trust trust to which they will transfer their interest in residence trust provides that children desire to transfer a z year term_interest to possess and occupy residence to mother or upon conversion to an annuity_trust to transfer the annual annuity amount for z year children will convey residence to trustee by warranty deed delivered to the trustee of trust from children contemporaneous with the execution of trust the date of delivery of the warranty deed to the trustee of trust will constitute the effective date of trust mother will serve as trustee of trust you have requested a ruling that sec_2702 and sec_2702 will not apply to the proposed transfer of residence from children to trust plr-105013-09 law and analysis sec_2702 provides that solely for purposes of determining whether a transfer of an interest in trust to or for the benefit of a member_of_the_transferor's_family is a gift and the value of such transfer the value of any interest in such trust retained by the transferor or any applicable_family_member as defined in sec_2701 shall be determined as provided in sec_2702 sec_2702 provides that the value of any retained_interest that is not a qualified_interest is treated as being zero the value of any retained_interest that is a qualified_interest is determined under sec_7520 sec_2702 provides that sec_2702 shall not apply to any transfer if such transfer involves the transfer of an interest in trust all the property in which consists of a residence to be used as a personal_residence by persons holding term interests in such trust sec_25_2702-5 of the gift_tax regulations provides in part that sec_2702 does not apply to a transfer in trust meeting the requirements of that section a transfer in trust meets the requirements of the section only if the trust is a personal_residence_trust as defined in sec_25_2702-5 a_trust meeting the requirements of a qualified_personal_residence_trust as defined in sec_25_2702-5 is treated as a personal_residence_trust sec_25_2702-5 provides that for purposes of sec_2702 a qualified_personal_residence_trust is a_trust meeting all the requirements of the section these requirements must be met by provisions in the governing instrument and these governing instrument provisions must by their terms continue in effect during the existence of any term_interest in the trust sec_25_2702-5 provides that in general except as otherwise provided in sec_25_2702-5 and sec_25_2702-5 the governing instrument of a qualified_personal_residence_trust must prohibit the trust from holding for the entire term of the trust any asset other than one residence to be used or held for use within the meaning of sec_25_2702-5 as a personal_residence of the term holder under sec_25 c ii the trust may hold certain assets listed in that section in addition to the personal_residence sec_25_2702-5 provides that a personal_residence of a term holder is either the principal_residence of the term holder within the meaning of sec_1034 one other residence of the term holder within the meaning of sec_280a but without regard to sec_280a or an undivided fractional interest in either sec_25_2702-5 provides that a personal_residence may include appurtenant_structures used by the term holder for residential purposes and adjacent plr-105013-09 land not in excess of that which is reasonably appropriate for residential purposes taking into account the residence's size and location sec_25_2702-5 provides that a residence is a personal_residence only if its primary use is as a residence of the term holder when occupied by the term holder a residence is not used primarily as a residence if it is used to provide transient lodging and substantial services are provided in connection with the provision of lodging eg a hotel or a bed and breakfast a residence is not a personal_residence if during any period not occupied by the term holder its primary use is other than as a residence sec_4 of revproc_2008_3 2008_1_irb_110 provides that rulings will not ordinarily be issued on whether a_trust with one term holder satisfies the requirements of sec_2702 and sec_25_2702-5 to be a qprt revproc_2003_42 2003_1_cb_993 provides sample trust provisions for qprts the service will recognize a_trust as meeting all of the requirements of sec_2702 and sec_25 c if the trust instrument is substantially_similar to the sample in sec_4 of revproc_2003_42 and the trust operates in a manner consistent with the terms of the trust instrument and is a valid trust under applicable local law accordingly based on the facts submitted and the representations made we conclude that sec_2702 and sec_2702 will not apply to the proposed transfer of residence from children to trust if the trust instrument is substantially_similar to the sample in sec_4 of revproc_2003_42 and the trust operates in a manner consistent with the terms of the trust instrument and is a valid trust under applicable local law and if residence qualifies as a personal_residence as defined in sec_25 c in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed or implied concerning whether the transfer of residence to trust would result in residence being included in the gross_estate of father under sec_2036 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 plr-105013-09 this ruling is directed only to the taxpayer requesting it sec_6110 of provides that it may not be used or cited as precedent sincerely _________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosure copy of letter for sec_6110 purposes cc