internal_revenue_service number release date index number ------------------- --------------------------------------------- ---------------------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number -------------------- refer reply to cc psi b03 plr-147241-08 date date legend x y ----------------------------------------------------------------------------------------------------- ----------------------- ------------------------------------------------ state ------------- date ---------------------- dear ------------- we received your letter dated date submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be treated as an association_taxable_as_a_corporation under sec_301_7701-3 this letter responds to your request facts x was formed on date as a state limited_liability_company x is wholly-owned by y y intended that x be treated as an association_taxable_as_a_corporation for federal tax purposes effective date however x inadvertently failed to timely file a form_8832 entity classification election law and analysis plr-147241-08 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with a single owner can elect to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed 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 a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides 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 subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion plr-147241-08 based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of sixty days from the date of this letter to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date the election should be made by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number -------------------------------- ----------------------------------------- ---------------------------------- --------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b09 plr-161408-04 date date ------------------- --------------------------------- ------- ------- ------- ------- --------- legend decedent trust year year year year dollar_figurea dear ---------------- this letter responds to the letter submitted by the estate’s representative dated date requesting an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to make allocations of decedent’s generation-skipping_transfer gst tax exemption facts the information submitted states that in year decedent established trust trust provides that distributions will be made to beneficiaries who are skip persons within the meaning of sec_2613 decedent transferred dollar_figurea to trust in each of year year and year decedent’s tax advisor inadvertently failed to advise decedent to file form sec_709 united_states gift and generation-skipping_transfer_tax returns for year and year in order to allocate decedent’s gst tax exemption to the transfers made to trust in those years decedent’s unused gst_exemption was automatically allocated to the transfer to trust in year under sec_2632 decedent died in year decedent’s estate now requests an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make allocations of decedent’s gst_exemption to the transfers to trust in year and year effective as of the dates of the original transfers plr-161408-04 law and analysis sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst tax exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption will be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero the term indirect_skip means any transfer of property other than a direct_skip subject_to gift_tax that is made to a gst_trust sec_2632 with certain exceptions a gst_trust is a_trust that could have a gst with respect to the transferor sec_2632 sec_2632 applies to transfers subject_to chapter or made after date sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst tax exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst tax exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 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 a regulatory election or a statutory election but no more than six months plr-161408-04 except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except in subtitles e g h and i sec_301_9100-3 provides that in general requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an election described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the 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 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or to advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore decedent’s estate is granted an extension of time of days from the date of this letter to allocate decedent’s gst_exemption to the transfers made to trust in year and year the allocations will be effective as of the dates of the transfers and the value of the transfers for gift_tax purposes will be used in determining the amount of gst tax exemption to be allocated the allocations of decedent’s gst_exemption should be made on form sec_709 and filed with the cincinnati service_center at internal_revenue_service cincinnati service_center - stop cincinnati oh copies of this letter should be attached to each form_709 copies are enclosed for this purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the authorized representatives listed below plr-161408-04 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely heather c maloy associate chief_counsel passthroughs special industries cc


department of the treasury internal_revenue_service washington d c uil date oct contact person id number telephone number employer_identification_number legend dear sir or madam this is in response to a letter from m’s authorized legal representatives who have requested certain rulings on m’s behalf these rulings concern the unrelated_business_income_tax treatment of certain activities including m’s acknowledgment in its publications and on its website of sponsoring organizations that provide benefits to m’s members and the provision of a link from m’s website to such sponsoring organizations’ websites m is an organization exempt from federal_income_tax under sec_501 of the internal_revenue_code_of_1986 code as an organization described in sec_501 mis committed to the advancement and prosperity of agriculture and is comprised of many members m conditions of those engaged in agricultural pursuits to improve the grade of their products to develop a higher degree of efficiency in the respective occupations of those engaged in agricultural pursuits and to promote agriculture is affiliated with a national organization n m’s purposes are to better the m engages in a wide variety of activities in furtherance of its exempt purposes including conducting meetings and conferences and providing educational information to members regarding agricultural issues promoting the sharing of information among members regarding common agricultural problems and concerns providing information regarding federal and state legislative and regulatory issues affecting agriculture and promoting youth activities that encourage future careers in agriculture as part of its exempt functions m regularly publishes news publications it accepts advertising in these publications and treats the advertising income as unrelated_business_taxable_income under sec_512 of the code m also operates a website through which it provides its members and the public with up-to-date information on its activities and programs as well as on current issues affecting agriculture m has arrangements with certain service providers that offer special or discounted benefits or services to m’s members examples of such member benefit programs include a rebate arrangement with a particular automobile dealer through which members receive a rebate on their purchase of certain trucks and vans an eyewear program through which members receive a discount on prescription eyewear purchased through certain suppliers discounts on industrial farm and ranch equipment discounts on amusement park and movie tickets and discounts on tires and batteries however more commonly an affiliate of m is the contracting party in some cases m enters into a contract with the member service provider m’s membership benefits also include access to life automobile and casualty insurance which are provided through two insurance_companies o and p m has entered into licensing agreements with o and p that permit those entities to use m’s name and logo in return for royalties the licensing agreements expressly provide that m is not required to provide any endorsement promotion or other services to those entities and m does not provide any such services m’s wholly-owned for-profit subsidiary q has entered into facilities and services agreements with o and p pursuant to which q provides o and p with office space furniture equipment and clerical services as well as shared department services the terms of these agreements provide that q is to be paid for such services on a cost-plus basis with an x percent mark-up above cost which is not less than the fair_market_value of the facilities and services provided m provides information in brochures and on its website about the companies that offer these special or discounted services and benefits to its members other than o and p cases m simply lists the member service provider on its web page and provides information about the service or benefit these listings are not promotional in nature and do not encourage members to use these products or services except in the case of r m does not provide a link to the member service provider's website in these m’s current policy is not to accept advertising from member service providers or other commercial entities on its website although it does accept advertising from member service providers other than o and p in its periodicals m charges such member service providers the same rates that it charges other third parties and it treats all advertising revenues as unrelated_business_income m also believes that it will be able to attract additional advertising in its periodicals if it offers to include web-based advertising for no additional consideration as part of its periodical advertising agreements some of the providers of m’s member benefit programs also sponsor activities eg exhibits breakfasts give-aways at m’s conventions and similar events and m reports revenue received from such sponsorship activities as qualified sponsorship payments in accordance with sec_513 of the code in the case of such sponsorship arrangements m would like to acknowledge the sponsors on its website and to include as part of its sponsor acknowledgments links to the main corporate page of the sponsors’ own websites sec_511 of the code imposes a tax on the unrelated_business_taxable_income of exempt_organizations described in sec_501 including those described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code excludes from the computation of unrelated_business_taxable_income royaities whether measured by production or by gross or taxable_income_from_the_property and all deductions directly connected with such income sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_513 of the code provides that the term unrelated_trade_or_business does not include the activity of soliciting and receiving qualified sponsorship payments sec_513 of the code defines the term qualified sponsorship payments as any payment made by any person engaged in a trade_or_business with respect to which there is no arrangement or expectation that such person will receive any substantial_return_benefit other than the use or acknowledgment of the name or logo or product lines of such person’s trade_or_business in connection with the activities of the organization that receives such payment such a use or acknowledgment does not include advertising such person’s products or services including messages containing qualitative or comparative language price information _ or other indications of savings or value an endorsement or an inducement to purchase sell or use such products or services sec_1_512_a_-1 of the income_tax regulations provides that in certain cases gross_income is derived from an unrelated_trade_or_business activity that exploits an exempt activity one example of such exploitation is the sale of advertising in a periodical of an exempt_organization that contains editorial material related to the accomplishment of the organization's exempt_purpose sec_1_512_a_-1 of the regulations provides that amounts realized by an exempt_organization from the sale of advertising in a periodical constitute gross_income from an unrelated_trade_or_business activity involving the exploitation of an exempt activity namely the circulation and readership of the periodical developed through the production and distribution of the readership content of the periodical sec_1_513-1 of the regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non- exempt_organizations sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved sec_1_513-4 of the regulations provides that the provisions in this section do not apply to income derived from the sale of advertising or acknowledgments in exempt_organization periodicals the regulation states that for this purpose the term periodical means regularly scheduled or printed material published by or on behalf of the exempt_organization that is not related to and primarily distributed in connection with a specific event conducted by the exempt_organization the regulation also provides that for this purpose printed material includes material that is published electronically sec_1_513-4 of the regulations provides that for purposes of this section the term advertising means any message or other programming material which is broadcast or otherwise transmitted published displayed or distributed and which promotes or markets any trade_or_business or any service facility or product sec_1_513-4 of the regulations contains examples that illustrate the provisions of this section in example an exempt_organization posts a list of sponsors on its website including the sponsor's name and internet address which appears as a hyperlink from the exempt organization's website to the sponsor's website the example concludes that posting the sponsor's website address constitutes an acknowledgment example describes an exempt_organization that maintains a website containing a hyperlink to a sponsor's website where an endorsement by the exempt_organization for the sponsor's product appears the exempt_organization approved the endorsement before it was posted on the sponsor's website the example concludes that the endorsement is advertising revrul_81_178 1981_2_cb_135 considers the application of sec_512 of the code to two situations in which payments are received by an exempt_organization the holding in situation is that payments for_the_use_of the organization's trademarks trade names and service marks are royalties under sec_512 however in situation the holding is that payments for personal appearances and interviews are not royalties but are compensation_for_personal_services in 86_f3d_1526 cir affg tcmemo_1993_ and rev'g 103_tc_307 the court stated that royalties in sec_512 of the code are defined as payments received for the right to use intangible_property rights and that such definition does not include payments for services with respect to income derived from the sierra club's rental of its mailing list the court held that such income was royalty income under sec_512 and not payment for services with respect to income derived from the sierra club's affinity credit card program the court remanded for findings_of_fact as to whether the amounts in question constitute royalties under sec_512 the tax_court f subsequently concluded that such amounts were royalties and therefore not taxable under sec_511 see tcmemo_1999_86 in oregon state university alumni association inc v commissioner and alumni association of the university of 193_f3d_1098 cir the court held that payments made by a bank to the alumni associations were not payments for promotional and management services associated with their mailing lists but were royalty payments excluded from unrelated_business_taxable_income under sec_512 of the code in 112_tc_332 the court found that with the exception of the list brokerage activities all the list rental transaction activities were royalty- related and therefore each rental payment constituted a royalty excluded from unrelated_business_taxable_income under sec_512 of the code the court found that the parties involved in the transaction engaged in activities to exploit and protect the mailing list and thus the activities were royalty-related the parties included the list manager the list owner petitioner the company that stored the rental list and the list brokers moreover the court found that the list broker's activities were provided solely to the mailers and solely for their convenience and that the list broker was not an agent of common cause see also planned parenthood federation of america inc v commissioner t c memo as noted previously organizations described in sec_501 of the code are subject_to tax on their unrelated_business_income under sec_511 in order for such an organization's income to be subject_to the unrelated_business_income_tax three requirements must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization's exempt_purpose or function see section dollar_figure a of the regulations if these three requirements are met it is then necessary to consider whether any of the special exceptions to unrelated_trade_or_business such as the exception for qualified sponsorship payments under sec_513 or any of the modifications such as the exception for royalties under sec_512 are applicable here m has arrangements with third-party service providers that offer special or discounted services and benefits to m's members m provides these programs in order to attract and retain members who are interested in and who support the purposes of m and to create a strong membership base that actively participates in m’s exempt_activities consistent with these goals m publicizes the availability of such services and benefits to its members and to potential members by describing the services and benefits and by providing the contact information for each service provider m does not currently charge service providers a fee for such listings and it does not intend to charge a fee for a link from its website to the websites of the service providers these services and benefits are only available to m’s members and not the general_public based on the foregoing information m’s listing of information about service providers in its publications and on its website and its providing of a link from its website to the websites of the service providers is not a trade_or_business within the meaning of sec_513 of the code and does not constitute an unrelated_trade_or_business under sec_51 a m receives from o and p licensing revenues which are treated as royalties under sec_512 of the code m proposes to list information about o and p on its publications and brochures and on its website and to provide links to their websites as part of the listings m states that the proposed listings and links will be a mechanism through which m will communicate the availability of these services and benefits to its members m represents that it does not provide personal or other services to o and p in connection with its licensing arrangements and q provides any such services on a fair_market_value basis under these circumstances the above-described listings and links will not cause any portion of m’s licensing revenues from o and p to be treated other than as royalties under sec_512 see revrul_81_178 supra and sierra club inc v commissioner et al supra m receives from the service providers licensing revenues which are treated as royalties under sec_512 of the code m states that the income it derives from the sale of periodical and banner advertising to the service providers at m’s customary rates is unrelated_business_taxable_income under sec_512 m has represented that the advertising arrangements with the service providers will be determined on a separate and independent basis from the licensing arrangements with service providers in the case of advertisers such as o and p that are also licensees of m the advertising and royalty arrangements will be governed by separate agreements and the amounts of the royalty and advertising payments will be determined on a separate and independent basis licensees will not be treated more or less favorably than other organizations wishing to purchase advertising space in m’s periodicals or on its website under these circumstances the sale of advertising will not adversely affect the treatment of licensing revenues as royalties under sec_512 see revrul_81_178 supra and sierra club inc v commissioner et al supra in deciding whether banner advertising on m's website is periodical advertising it is necessary to determine whether the website is a periodical for purposes of sec_1_512_a_-1 of the regulations this regulation provides special rules for computing the tax on unrelated_business_income in the case of an exempt organization's sale of advertising in a periodical sec_1_513-4 specifically provides that the corporate sponsorship regulations do not apply to advertising or acknowledgments in periodicals of exempt_organizations the term periodical is generally defined as regularly scheduled or printed material published by or on behalf of an exempt_organization here the periodical advertising regulations under sec_1_512_a_-1 would apply to m's sale of banner advertising on its website only where such advertising is part of a periodical that appears on-line if such advertising appears on m's website generally and not as part of an on-line periodical sec_1_512_a_-1 would not apply m has stated that it may offer to include advertising on its website for no additional consideration as part of periodical advertising arrangements although m may choose to charge those who advertise in its periodicals no additional consideration for advertisements appearing on its website such website advertising undoubtedly will have some separate value that may or may not have to be included in the computation of periodical advertising under sec_1_512_a_-1 of the regulations as noted above these regulations would apply to advertising on m's website only where such advertising is part of a periodical that appears on- line these regulations would not apply if the advertising appeared on m's website generally and not part of an on-line periodical under these circumstances if an advertiser pays man amount that is attributable only to periodical advertising including on-line periodical advertising sec_1_512_a_-1 would apply to the entire payment and no allocation between periodical and non-periodical advertising would be necessary on the other hand if an advertiser pays m an amount that is attributable to both periodical advertising and advertising that appears on m's website generally an allocation would have to be made between periodical and non-periodical advertising in defining a qualified_sponsorship_payment sec_513 of the code for purposes of the rules applicable to corporate distinguishes between an acknowledgment and advertising an acknowledgment of a sponsor's name and logo or product lines is consistent with treatment of a sponsor's payment as a qualified_sponsorship_payment while advertising falls outside the exception to unrelated_trade_or_business under sec_513 sponsorship advertising is defined in sec_1_513-4 of the regulations as any message or other programming material which is broadcast or otherwise transmitted published displayed or distributed and which promotes or markets any trade_or_business or any service facility or product sec_1_513-4 example addresses a situation in which a sponsor's name and internet address appear as a hyperlink from an exempt organization's website to the sponsor's website the example concludes that this constitutes an acknowledgment in the instant case m's provision of a link to a sponsor's website in connection with the acknowledgment of a sponsorship payment will not be treated as advertising but constitutes an acknowledgment under sec_513 based on the above facts we rule as follows m's listing of information about third-party providers of services to m's members in m's publications and brochures and on its website is not a trade_or_business within the meaning of sec_513 of the code and will not constitute an unrelated_trade_or_business under sec_513 m's providing of a link from its website to the websites of third-party providers of services to m's members as part of its listing of information about such service providers is not a trade_or_business within the meaning of sec_513 of the code and will not constitute an unrelated_trade_or_business under sec_51 a m's listing of information about o and p in m's publications and brochures and on its website and its providing of a link to o's and p's websites as part of the website listing will not cause any portion of m’s licensing revenues from those companies to be treated other than as royalties under sec_512 of the code m's income from the sale of periodical and banner advertising to third-party providers of services to m's members at its customary rates including to o and p on an exclusive basis constitutes unrelated_business_taxable_income under sec_512 of the code and the sale of such advertising will not cause any portion of m's licensing revenues from such service providers to be treated other than as royalties under sec_512 m's sale of banner advertising on its website is not periodical advertising within the meaning of sec_1_512_a_-1 of the regulations provided such advertising is not part of an on-line version of m’s periodicals no allocation between periodical and non-periodical advertising including on-line periodical advertising must be made where an advertiser pays m an amount that is attributable only to periodical advertising sec_1_512_a_-1 of the regulations would apply to the entire payment an allocation between periodical and non- periodical advertising must be made where an advertiser pays m an amount that is attributable to both periodical advertising and advertising that appears on m's website generally m's providing of a link to a sponsor's website in connection with an acknowledgment of a sponsorship payment will not be treated as advertising but constitutes an acknowledgment within the meaning of sec_513 of the code and will not constitute an unrelated_trade_or_business under sec_513 this ruling is based on the understanding that there will be no material changes in the facts upon which it is based except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transactions described above under any other provision of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to m's authorized representatives a copy of this letter should be kept in m’s permanent records this ruling is directed only to the organization that requested it sec_61 k of the code provides that it may not be used or cited by others as precedent if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed robert c harper tr robert c harper jr manager exempt_organizations technical group sneer nacseltihaanonamermeinimnnt in nace meee mestonest


internal_revenue_service number release date index number ---------------------- -------- ---------------------------------- ----------------------- -------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-124060-06 date date ---------------------- --------------------------- ------------------------------------------------ ------------------------ ------------------------ ------------------------------------------------------- ---------------------------------- ------------------------ legend x trust trust date date date date date state dear ----------------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts -------------------------- ----------------------- ---------------------- -------- plr-124060-06 according to the information submitted x was incorporated on date under the laws of state x elected to be treated as an s_corporation effective date on date stock in a was transferred to trust x represents that trust was qualified to elect to be a qualified_subchapter_s_trust qsst within the meaning of sec_1361 and that the income_beneficiary of trust intended to file an election under sec_1362 to treat trust as a qsst however the appropriate election inadvertently was not filed as a result of the failure_to_file the qsst election for trust x’s s_corporation_election terminated on date stock in x was transferred to trust on date x represents that trust was qualified to elect to be a qsst within the meaning of sec_1361 on date the income_beneficiary of trust filed a timely qsst election for trust however because of the termination of x’s s_corporation_election on date the qsst election for trust was ineffective x represents that the failure_to_file the qsst election for trust was not motivated by tax_avoidance or retroactive tax planning x further represents that x and all of its shareholders have consistently treated x as an s_corporation at all times since date and that x’s shareholders including the trusts have consistently included their distributive shares of x’s income on their respective federal_income_tax returns finally x and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of x as an s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that a qsst whose beneficiary makes an election under sec_1362 will be treated as a_trust described in sec_1361 and the qsst’s beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst’s s_corporation stock to which the election under sec_1362 applies under sec_1361 a beneficiary of a qsst may elect to have sec_1361 apply under sec_1361 this election will be effective up to days and two months before the date of the election plr-124060-06 sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current beneficiary in the trust shall terminate on the earlier of the beneficiary’s death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income with the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1362 provides that if an election under sec_1362 sec_1361 or sec_1361 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or sec_1361 or sec_1361 the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or a qualified_subchapter_s_subsidiary as the case may be or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make any adjustments consistent with the treatment of the corporation as an s_corporation or a qualified_subchapter_s_subsidiary as the case may be as may be required by the secretary with respect to the period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation or a qualified_subchapter_s_subsidiary as the case may be during the period specified by the secretary conclusion based solely on the information submitted and the representations made we conclude that x’s s election terminated on date because a qsst election was not filed for trust in addition we conclude that the termination was inadvertent within the meaning of sec_1362 therefore x will be treated as continuing to be an s_corporation from date and thereafter provided that the income beneficiaries of trust and trust file qsst elections with the appropriate service_center effective date for trust and date for trust within days of the date of this letter a copy of this letter should be attached to the qsst elections 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 concerning whether x is otherwise plr-124060-06 eligible to be treated as an s_corporation or whether trust and trust are eligible to be treated as qssts this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely dianna k miosi chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------- ------------------- ------------------------------------------------- ---------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ---------------- telephone number -------------------- refer reply to cc ita b05 plr-125308-14 date date ty ------- legend taxpayer exempt_organization shareholder shareholder partnership ------------------------------------------------- ----------------------- -------------------- ----------------------- -------------------------------- ------------------------------------------------ ------------------------------------------------------ ----------------------- ------ -------------- -------------- -------------- -------------- ------------ ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- --------------------------------------------- tax_year a percent b percent c percent d percent state affidavit ------------------------------------------------------------------------ affidavit related partnership dear ----------------- this letter is in response to a request for a private_letter_ruling dated date submitted on your behalf by your authorized representative specifically you have requested an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations for taxpayer a tax-exempt_controlled_entity under sec_168 of the internal_revenue_code to make an election under sec_168 to not be treated as a tax-exempt_controlled_entity plr-125308-14 facts taxpayer was formed in tax_year in state and is taxed as a c_corporation for federal_income_tax purposes taxpayer is a percent owned by shareholder b percent owned by exempt_organization and b percent owned by shareholder shareholder is owned c percent by exempt_organization and d percent owned by shareholder exempt_organization is a not-for-profit corporation exempt from taxation under sec_501 based on exempt organization’s majority ownership_interest in and control of shareholder which itself is the majority owner of taxpayer taxpayer is a tax-exempt_controlled_entity within the meaning of sec_168 taxpayer is the general_partner of partnership partnership’s real_property was placed_in_service in tax_year and taxpayer filed a timely federal_income_tax return for tax_year but failed to make the sec_168 election on that return taxpayer’s failure to make the required sec_168 election was discovered for the first time when evidence of such election was requested in the case of related partnership which is also owned by exempt_organization however from affidavit affidavit and the other materials submitted it is clear that taxpayer at all times intended to make the sec_168 election to not be treated as a tax-exempt_controlled_entity affidavit and affidavit further make it clear that taxpayer’s return preparer was unaware that an affirmative election statement was required to be attached to the taxpayer’s federal tax_return for tax_year upon discovering its failure taxpayer promptly sought an extension of time in which to file the sec_168 election taxpayer makes the following representations notwithstanding omitting the statement of the sec_168 from the tax_return for tax_year every tax_return prepared and filed by taxpayer reflects the same treatment as if the sec_168 election had been made taxpayer is not under audit nor is being considered by an appeals officer or federal court for any_tax year in which the sec_168 election should have been made or for any_tax year affected by that election taxpayer is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 taxpayer is not using hindsight in requesting the relief sought the requested relief will not result in a lower tax_liability in the aggregate for all tax years affected by the sec_168 election than the taxpayer would have had if the sec_168 election had been timely made finally although the period of limitations on assessment under sec_6501 for tax_year has expired the government is not prejudiced in this case and thus relief should be granted law sec_167 of the internal_revenue_code provides generally for a depreciation deduction for property used in a trade_or_business under sec_168 the alternative plr-125308-14 depreciation system must be used for any tax-exempt_use_property as defined in sec_168 sec_168 provides that for purposes of sec_168 if any property which but for this subparagraph is not tax-exempt_use_property is owned by a partnership having both a tax-exempt_entity and a nontax-exempt entity as partners and any allocation to the tax-exempt_entity is not a qualified_allocation then an amount equal to such tax- exempt entity’s proportionate share of such property is treated as tax-exempt_use_property sec_168 provides generally that any tax-exempt_controlled_entity is treated as a tax-exempt_entity for purposes of sec_168 under sec_168 a tax-exempt_controlled_entity means any corporation without regard to that subparagraph and sec_168 if percent or more in value of the corporation’s stock is held by one or more tax-exempt entities other than a foreign_person_or_entity sec_168 applies similar rules in the case of tiered partnerships and other entities under sec_168 a tax-exempt_controlled_entity can elect not to be treated as a tax-exempt_entity such an election is irrevocable and will bind all tax-exempt entities holding an interest in the tax-exempt_controlled_entity under sec_301_9100-7t of the procedure and administration regulations a sec_168 election must be made by the due_date of the tax_return for the first taxable_year for which the election is to be effective sec_301_9100-7t provides the manner in which the sec_168 election is made sec_301_9100-1 provides that the commissioner of internal revenue has discretion to grant a reasonable extension of time to make a regulatory election sec_301_9100-1 defines the term regulatory election as including any election the due_date for which is prescribed by a regulation because the due_date of the sec_168 election is prescribed in sec_301_9100-7t the sec_168 election is a regulatory election sec_301_9100-1 through provide the standards the service will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-3 provides that requests for extensions of time for regulatory elections other than automatic extensions of time covered in sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer - plr-125308-14 i requests relief before the failure to make the regulatory election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer’s control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer is considered to have not acted reasonably and in good_faith if the taxpayer - i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was fully informed of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief sec_301_9100-3 provides that the service will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief 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 taxable years affected by the election than the taxpayer would have had if the election had been timely made under sec_301_9100-3 the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years 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 this section analysis the information submitted indicate that taxpayer at all times intended from the outset to make the sec_168 election and that taxpayer’s failure to make the sec_168 election was inadvertent taxpayer represents that it has requested relief before the failure to make the sec_168 election was discovered by the service pursuant to an examination there is no evidence that taxpayer is using hindsight in requesting relief furthermore based on the facts presented and the representations made taxpayer will not have a lower tax_liability for all tax years plr-125308-14 affected by the sec_168 than it would have had if the sec_168 election had been timely made although the taxable_year in which the sec_168 election should have been made is closed under sec_6501 the above representations support our conclusion that taxpayer has acted reasonably and in good_faith therefore the interests of the government will not be prejudiced by the granting of relief conclusion based solely on the facts as represented and the applicable law we conclude that the requirements of sec_301_9100-3 have been met and the request for relief under sec_301_9100-3 is granted accordingly taxpayer is treated as if it had made the sec_168 election with the tax_return it filed for tax_year provided that taxpayer attaches a copy of this letter to the next tax_return it files taxpayer also must attach the aforementioned sec_168 election and the information set forth in sec_301_9100-7t to its next return if taxpayer files electronically it may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter_ruling in addition the letter_ruling or statement should be attached for all subsequent returns and amended returns for all taxable years to which this ruling is relevant pursuant to sec_301_9100-7t a copy of this letter and the sec_168 election statement also should be attached to the federal_income_tax returns of each of the tax-exempt shareholders or beneficiaries of taxpayer 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 further we express no opinion concerning the assessment of any interest additions to tax additional_amounts or penalties for failure_to_file a timely income_tax return with respect to any taxable_year the ruling in this letter is based upon the information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party although this office has not verified any of the material submitted in support of the request for the ruling it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent enclosed is a copy of the letter showing the deletions proposed to be made when it is disclosed under sec_6110 if you have any questions concerning this matter please contact the individual whose name and telephone number appear at the top of the letter plr-125308-14 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely seoyeon sharon park assistant to the branch chief branch office_of_chief_counsel income_tax accounting enclosure cc


internal_revenue_service number release date index number ---------------------------- ---------------------- --------------------------- in re -------------------------------------------- ------------------------------------------------------------- --------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-105032-10 date july legend ---------------------------- testator -------------------------------------- child a ----------------------------- child b --------------------------------------- child c ------------------------------- stock stock trust ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------- residuary_trust ------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------- children’s agreement ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- state state a date date date date date date a b c d stock trust a ----------------------------------------------------------------------------------------------------------------- ------------------ ---------- -------------------- ------------------- -------------------------- ------------------------- ------------------------- ----------------------- ------ ------- ------ ------ ------------------------------------------------------------------------ plr-105032-10 --------------------------------------------------------------------------------- residuary_trust a ----------------------------------------------------------------------------------------------------------------------- cite ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------- cite ------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------ cite cite ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------------------------------------ ----------------------------------------------------------------------------- ------------------------------------------- ----------------------------------- ------------------------------------------------------------------------ cite ---------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ cite ------------------------------------------------------------------------ ------------------------------------------------------- cite ------------------------------------------------------------------------ cite --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- highest court highest court of state a state court ---------------------------------------------------------------------------------------------------------------- state statute ------------------------------------------------------------------------------------------ --------------------------------------------- state governing statute a -------------------------------------------------- state governing statute b state a statute --------------------------------- ---- q ---- r ---- s t ---- -------- u -------- v x --------- ------ y z ------------ --------------------------------------------------------------------------------- dear ----------------- this responds to the date letter from your authorized representative requesting rulings on the income gift estate and generation-skipping_transfer gst tax consequences of a proposed settlement agreement plr-105032-10 the facts and representations are as follows testator died a resident of state on date he was survived by three children child a child b and child c the children five grandchildren the five grandchildren were then living there were no great-grandchildren at the time under articles third and eighth of testator’s will the will his shares of stock were to be held in trust the stock trust trust income was to be divided equally among the children on a child’s death the child’s income share was to be divided equally among the child’s then living children testator’s grandchildren the stock trust was to terminate twenty-one years after the death of testator’s last surviving grandchild when the principal would be divided equally per capita among testator’s then living great-grandchildren and deceased great-grandchildren whose then living descendants would take by representation under article twenty-second of the will the residue of testator’s estate was to be held in another trust the residuary_trust the residuary_trust provisions were identical to those of the stock trust except that the residuary_trust was to terminate when testator’s youngest great-grandchild reached age twenty-one the rule_against_perpetuities under the state rule_against_perpetuities in effect at testator’s death a bequest of a future_interest was void if considered prospectively at the testator’s death there was a possibility that the interest would not vest by the end of twenty-one years after the death of a life or lives in being at the testator’s death the permissible period a bequest to a class was void if there was a possibility that all the members of the class would not be ascertained and take vested interests within the permissible period a void specific_bequest passed to the testator’s residuary_estate if the testator’s disposition of the residuary_estate was void as well the residuary_estate passed as a reversion by intestacy cite in this case at testator’s death it was possible for the children to have additional children so that there could be grandchildren whose lives were not then in being this was the pivotal factor in determining whether his bequests of stock trust and residuary_trust income and remainders to his grandchildren and great-grandchildren violated the rule_against_perpetuities testator’s bequest of lifetime income interests to the grandchildren was to all of his grandchildren as a class a grandchild born after testator’s death would be part of the grandchildren’s class and would receive stock trust income_for_life based on this it was considered possible that not all of the grandchildren’s income interests would vest during lives in being at testator’s death certain annuities were also created that have since terminated plr-105032-10 testator’s bequests of remainders to his great-grandchildren were to vest only after all of testator’s grandchildren died the life of a grandchild born after testator’s death would also be a measuring life therefore at testator’s death it was possible that the time for vesting of the great-grandchildren’s remainders would be based on a life not in being at testator’s death accordingly the validity of these bequests was in doubt the bequests in the stock trust if void passed to the residuary_trust at testator’s death the bequests in the residuary_trust if void passed to testator’s intestate estate as a reversionary_interest the children’s agreement the children were testator’s heirs at law they acquired his property passing by intestacy consequently on date shortly after testator died the children entered into an agreement the children’s agreement revising the time when the great-grandchildren’s remainders were to vest under the children’s agreement the trusts were to terminate and the great-grandchildren’s remainders were to take effect on the death of the survivor of the children and five grandchildren that is lives in being at testator’s death the children’s agreement also changed the will’s pro_rata distribution of the stock trust and residuary_trust remainder to a per stirpes distribution on termination trust principal would be divided into three equal parts and distributed per stirpes under this revision the great-grandchildren descended from child a would share one third of the principal per stirpes those descended from child b would share a second third per stirpes and those descended from child c would share the last third per stirpes in all other respects the terms of the revised stock trust stock trust a and residuary_trust residuary_trust a were the same as those provided in testator’s will on a date before date testator’s shares of stock were transferred to stock trust a residuary_trust a was not funded it is represented that no additions have been made since then the litigation over more than x decades the trust beneficiaries and others have instituted actions for state court determinations regarding testator’s will and the children’s agreement each trust considered herein ie stock trust and residuary_trust in the will and stock trust a and residuary_trust a under the children’s agreement provided for distribution of the remainder at the end of twenty-one years following the death of the last survivor of the persons whose lives measured the duration of that trust because the perpetuities issue in this case centers on the lives measuring a respective trust’s duration and not on the twenty-one year period following the death of the last survivor the twenty-one year period is hereafter assumed to be a part of each trust’s duration even though it is not specifically stated plr-105032-10 specifically in cite the highest court of state highest court considered testator’s bequests of income interests to the grandchildren the court reasoned that under testator’s will a grandchild’s income_interest would vest when his or her parent child a child b or child c died thus the grandchildren’s class would necessarily close at the death of the last survivor of the children who were in being at testator’s death highest court held that therefore the bequest of lifetime income interests to the grandchildren as a class did not violate the rule_against_perpetuities the court held the stock trust created in the will to be valid through the lives of the grandchildren highest court then considered testator’s bequest of remainders to his great-grandchildren the court reasoned that the grandchildren’s life estates preceded the remainders and the grandchildren’s class was not limited to lives in being at testator’s death because the remainders would take effect only after all of those including afterborn grandchildren died it was possible that the remainders would not vest within lives in being at testator’s death therefore highest court held the stock trust remainders to be void and illegal as violating the rule_against_perpetuities cite state statute the wait and see rule nearly y decades after highest court rendered its decision in cite the state legislature enacted state statute state statute provides a wait and see rule in determining whether a future_interest satisfies the rule_against_perpetuities or is void under the wait and see rule a future_interest does not violate the rule_against_perpetuities if actual events demonstrate that the interest did in fact vest by the end of the permissible period state statute applies retroactively to all interests heretofore created following the enactment of state statute highest court considered the statute’s retroactivity cite in the case before the court the trust was created many decades before state statute was enacted at the time of creation certain interests were void as violating the rule_against_perpetuities however highest court applied state statute’ sec_3 testator’s bequest to the grandchildren though valid did not provide for distribution of a grandchild’s income share when the grandchild died before the trust ended on the death of the first grandchild to die on date the trustees petitioned the state court for instructions the state court held that based on testator’s intent a deceased grandchild’s children succeeded to the income share for the duration of the trust cite by inference highest court also considered testator’s bequest of the residuary_trust remainders highest court in effect confirmed that the stock trust remainder and residuary_trust remainder passed by intestacy to the children however the court did not rule on how the remainder would pass to the great-grandchildren plr-105032-10 wait and see rule to conclude in retrospect that the interests were not void and did not violate the rule_against_perpetuities as a result the courts of state now apply the wait and see rule retroactively to conclude that a future_interest that was void when created many years before state statute was enacted is not void because in hindsight it vested before the permissible period ended accordingly such otherwise void interests are retroactively sustained as not violating the rule_against_perpetuities cite however highest court has not yet addressed due process issues that may be presented the actualities in this case no additional grandchildren were born after testator’s death the lives of the children and the five grandchildren were all in being at testator’s death all of the children have died the last survivor of the five grandchildren died on date at the time there were z great-grandchildren of testator the trust will terminate twenty-one years after date which is date of testator’s z great-grandchildren a descended from child a b descended from child b and c descended from child c if the wait and see rule is applied to validate testator’s bequest of remainders to his great-grandchildren the principal would be divided into z equal shares and distributed under the will alternatively if testator’s disposition of the remainders is considered void the principal would be divided into three equal shares and distributed per stirpes under the children’s agreement the portion of a one-third share distributable to a great-grandchild would depend on the framework of the family line ie child a’s child b’s or child c’s to which that great-grandchild belongs great-grandchildren’s litigation there is a substantial difference between what a great-grandchild would receive in a per capita distribution and what he or she would receive in a per stirpes distribution on date the great-grandchildren benefitting from a per capita distribution the per capita parties instituted their action in state court for adjudication on the distribution of the stock trust remainder the great-grandchildren benefitting from a per stirpes distribution the per stirpes parties opposed the suit and also requested adjudication in addition an action was instituted concerning the distribution of income during the in contrast the legislature of state a enacted state a statute which like state statute retroactively applies a wait and see rule to determine whether a future_interest that was void at the time it was created before the state a statute was enacted did in fact vest during the permissible period highest court of state a refused to apply the wait and see rule retroactively despite the relevant language in state a statute instead that court addressed issues of constitutionality and held that state a statute could not be applied retroactively to destroy vested or substantive rights created before state a statute was enacted cite plr-105032-10 twenty-one year period state court combined the proceedings to consider the income and principal issues together cite over a d-year period guardians ad litem were appointed there was extensive discovery counsel filed three voluminous sets of briefs and the court heard two days of oral arguments the per capita parties argued that the wait and see test of state statute now applies under that test testator’s the will’s disposition of the stock trust remainder does not violate the rule_against_perpetuities therefore the stock trust principal is distributable per capita to testator’s living great-grandchildren and deceased great-grandchildren whose living descendants would take by representation the per stirpes parties argued that the highest court’s determinations were final and those rulings can not now be constitutionally impaired by a later-in-time state statute or judicial_ruling because highest court determined the remainders in the will to be void they passed as reversionary interests by intestacy to the children as such the remainders passed per stirpes under the children’s agreement some parties argued that trust income should be distributed per stirpes through the roots of the children for the duration of the stock trust others argued that the income is distributable per capita the court encouraged the parties to explore ways to resolve their differences through negotiation and compromise rather than through continued litigation among the potential outcomes regarding trust principal was a judicial_ruling that i ii iii principal is distributable per capita on date under the terms of the stock trust in the will or principal is distributable per stirpes on date under the terms of the children’s agreement or principal was distributable as of the last surviving grandchild’s death under the residuary_trust in the will which vested or will vest in the takers under the residuary_trust among the potential outcomes regarding trust income was a judicial_ruling that iv v income is distributable per stirpes from the death of the last surviving grandchild to date under either the will or the children’s agreement or income is distributable per capita from the death of the last surviving grandchild to date under the will or the children’s agreement or plr-105032-10 vi all rights to receive stock trust income terminated when the last surviving grandchild died at which time the stock trust principal was distributable under the residuary_trust of the will the great-grandchildren’s settlement agreement the parties negotiated extensively at the outset they agreed that the issues could be settled using a fractional difference settlement based on an assessment of the relative strengths of their adverse positions under the general framework of the compromise the great-grandchildren’s settlement agreement the ggc agreement provides for the stock trust principal to be divided into z separate shares based on the number of testator’s then living great-grandchildren and deceased great-grandchildren with then living children the share of a deceased great-grandchild will be divided per stirpes among that great-grandchild’s living descendants the stock trust assets will be divided in accordance with certain percentages the formula of the compromise provides for a q per stirpes r per capita fractional difference as to income and an s per stirpes t per capita fractional difference as to principal after the division into separate shares u of each great-grandchild’s share will be distributed outright to the great-grandchild if living or if the great-grandchild is deceased to his or her living descendants per stirpes the remaining v of each share will continue in trust for such great-grandchild or such descendants until the termination_date date each share will be a separate trust the respective great-grandchild or deceased great-grandchild’s descendants will be the sole beneficiary of the share for distributions of income and principal a sophisticated algorithm taken to thirteen decimal places will be used in the pro_rata division and outright distributions the division will take into account both the market_value and respective tax bases of the assets the ggc agreement was presented to state court for consideration the state court approved the settlement and ordered the division and distribution of the stock trust as set forth in the ggc agreement the ggc agreement is subject_to a favorable ruling from the internal_revenue_service you have asked for the following rulings the terms of the ggc agreement will not cause distributions from the stock trust or the continuing separate settlement trusts to become subject_to the generation-skipping_transfer_tax for purposes of describing the ggc agreement the stock trust and stock trust a are considered to be the same trust plr-105032-10 the terms of the ggc agreement will not cause any party to the agreement to make a gift to any other party to the ggc agreement the terms of the ggc agreement will not cause any party to the agreement to be required to include trust assets in his or her gross_estate unless such assets are distributable or have been distributed to such party prior to his or her death the terms of the ggc agreement will not cause any party to the agreement to realize income from the sale_or_exchange of any trust assets or interests ruling generation-skipping_transfer gst tax sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to chapter if the settlement is the product of arm's length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties' assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes in this case the stock trust was irrevocable on date further it is plr-105032-10 represented that there have been no actual or constructive additions to the stock trust after date accordingly the stock trust is exempt from gst tax under sec_26_2601-1 the terms of the ggc agreement including the proposed division of the stock trust into separate shares and partial distributions of principal are the result of a settlement of substantial issues between the per capita parties and the per stirpes parties these issues have been tenaciously litigated over more than x decades highest court rendered opinions regarding these trusts many years ago however state statute has since been enacted with retroactive effect and highest court has affirmed state statute’s retroactive application to a similarly-created trust in light of this that court’s earlier determinations of the issues in this case are now in question we conclude that the ggc agreement constitutes a settlement of bona_fide issues concerning the provisions of the stock trust and its administration we also conclude that the terms of the ggc agreement are the product of arm's length negotiations they represent a compromise between the positions of the parties and reflect the parties' assessments of the relative strengths of their positions we further conclude that the ggc agreement is within the range of reasonable outcomes under the governing instruments and the applicable state law addressing the issues resolved in the ggc agreement accordingly based upon the facts submitted and the representations made we rule that the division of the stock trust into the z separate great-grandchildren’s trusts and the distributions to the living great-grandchildren and the descendants by representation of a deceased great-grandchild made in accordance with the ggc agreement will not cause the stock trust the continuing separate stock trusts or the distributions as described above to be subject_to the generation-skipping_transfer_tax ruling gift_tax issue sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in him or her no power to change its disposition whether for his or her own benefit or for the benefit of another the gift is complete sec_25_2511-1 provides that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device plr-105032-10 employed constitutes a gift subject_to tax whether an agreement settling a dispute is effective for gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party's claim if it is determined that each party has a valid claim the service must determine that the distribution under the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated the proposed settlement is a mediated settlement and is based on arm's length negotiations among all the parties all interested parties who hold or may hold an interest in the trusts including any minors and unborn heirs have been represented in the negotiations as discussed above the ggc agreement represents the resolution of a bona_fide controversy between the parties the terms of the ggc agreement are the product of arm's length negotiations and represent i a compromise between the positions of the per capita parties and the per stirpes parties and ii reflect the parties' assessments of the relative strengths of their positions we further conclude that the ggc agreement is within the range of reasonable outcomes under the governing instruments and applicable state law accordingly based on the facts submitted and representations made we conclude that the terms of the ggc agreement as described above will not cause any of the beneficiaries to have made a taxable gift_for purposes of the federal gift_tax under sec_2501 ruling estate_tax issue sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of death sec_2035 provides that if the decedent transferred an interest in property or relinquished a power with respect to any property during the 3-year period ending on the date of death and the value of the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the interest or power had been retained by the decedent on the date of death then the value of the gross_estate includes the value of the property or interest that would have been so included plr-105032-10 sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period that does not in fact end before his death possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income from the property sec_2037 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona fine sale for adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend or revoke or where the decedent relinquished any such power during the 3-year period ending on the date of the death sec_2041 provides that the value of the gross_estate shall include the value of all property with respect to which the decedent possessed a general_power_of_appointment at the time of death sec_2041 defines the term general_power_of_appointment as a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate in order for sec_2035 through to apply a decedent must have made a transfer of property or an interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth under which the decedent retained an interest in or power over the income or corpus of the transferred property as discussed above the ggc agreement represents the resolution of a bona_fide controversy between the parties it is a settlement of bona_fide issues and is the product of arm's length negotiations it reflects the parties' assessments of the relative strengths of their positions no great-grandchild or deceased great-grandchild’s plr-105032-10 descendants by representation has made a transfer to the stock trust or to any other great-grandchild by reason of the settlement agreement accordingly based upon the facts submitted and representations made we conclude that the terms of the ggc agreement will not cause any party to the agreement to have made a transfer within the meaning of sec_2035 through however once the ggc agreement becomes effective any trust property actually distributed or receivable by a beneficiary or his or her assignee would generally be included in the beneficiary’s federal transfer_tax base see eg sec_2033 sec_2041 sec_2501 ruling income_tax issue sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained 499_us_554 addresses the issue of whether a sale_or_exchange that has taken place results in the realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court in cottage savings u s pincite concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans plr-105032-10 made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite in the present case state governing statute a allows the court for cause shown to authorize the division of a_trust into two separate trusts on such terms and conditions and with such notice as the court directs in addition state governing statute b gives trustees the power to distribute in cash or in_kind or partly in each and allocate particular assets in proportionate or disproportionate shares in this case the court order approving the ggc agreement orders the division and distribution of the stock trust as set forth in the ggc agreement accordingly the court approved the non-pro rata distributions called for in the ggc agreement and further authorized the trustees to make the necessary transfers and assignments of the unconverted investment securities t herein awarded in_kind accordingly the submission concludes that the distribution scheme in this case is authorized by state law we agree the stock trust will be divided into z trusts on a non pro-rata basis under the state statutes cited above the court has the authority to authorize the trustees to make this type of non pro-rata apportionment thus the proposed division and distribution of the stock trust assets among the z trusts will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries within the meaning of cottage savings accordingly based upon the facts submitted and representations made we conclude that the division of the stock trust into the z great-grandchildren’s trusts will not result in the recognition of gain_or_loss under sec_1001 by the stock trust any beneficiary of the stock trust or any separate great-grandchild’s trust the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours leslie h finlow acting senior technician reviewer branch office of the associate chief_counsel passthroughs special industries plr-105032-10 enclosure copy for purposes


internal_revenue_service index no number release date cc dom p si - plr-107639-99 date x a d1 year year dear this responds to your letter dated date and subsequent correspondence submitted on x’s behalf requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year the unanimous consent of board_of directors of x reflects the intent of x to have x treated as an s_corporation as of x’s date of incorporation a x’s president represents that a relied on x’s lawyers to prepare the appropriate documents and to file x’s election to be an s_corporation however a form_2553 election by a small_business_corporation was not filed for x for the year and year tax years x filed its tax_return using form_1120s u s income_tax return for an s_corporation and the shareholders of x filed their returns consistent with x being an s_corporation sec_1362 of the code provides that if-- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days of the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours assistant to the chief h grace kim branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes