internal_revenue_service number release date index number ------------------------------------- ------------------------------------------------------- ---------------------------------- ------------------------------------------------------ legend 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-116295-14 date september x ------------------------------------------------- -------------------------------------------------------- country date date --------------------------- ------------------ -------------------------- dear ----------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed under the laws of country x represents that it is a foreign eligible_entity eligible to elect to be disregarded as a separate_entity for federal tax purposes x intended to elect to be treated as a disregarded_entity for federal tax purposes effective date however x inadvertently failed to timely file form_8832 entity classification election x represents that it acted in good_faith and reasonably further x represents that the interests of the government will not be prejudiced for all taxable years affected by the election including tax years up through date by granting the relief sought law and analysis plr-116295-14 sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise sec_301_7701-3 provides that an entity classification election or change in entity classification must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed sec_301_7701-3 states in part if an eligible_entity makes an election to change its classification the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election an election by a newly formed eligible_entity that is effective on the date of formation is not considered a change for purposes of this paragraph c iv sec_301_7701-3 provides that such an election must be signed by either a each member of the electing entity who is an owner at the time the election is filed or b any officer manager or member of the electing entity who is authorized under local law or the entity’s organization documents to make the election and who represents to having such authorization under penalties of perjury sec_301 c iii provides in part if an election is made to change the classification of an entity each person who was an owner on the date that any transactions under sec_301_7701-3 are deemed to occur and who is not an owner at the time the election is filed must also sign the election sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a plr-116295-14 request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the granting relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 entity classification election with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on the owner of x filing within days of this letter all required returns for all open years consistent with the requested relief being effective date these returns must include but are not limited to forms information_return of u s persons with respect to foreign disregarded entities a copy of this letter should be attached to any such returns except as specifically set forth above no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


internal_revenue_service number release date index number 45k ---------------------- -------------------------- --------------------------------------- -------------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc psi b06 plr-129686-07 date date legend taxpayer --------------------------------------------------- date ------------------ state ------------ member a ------------------------------------------------------- member b ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- parent subsidiary ----------------------------------------------------------------------------------------------------------------- year a b d e dear -------------- --------------------------------------------------- ------------------------------------------------------------------------ ------- ------ ------ ------------- ----------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of taxpayer parent and member b by the authorized representatives requesting rulings under sec_45k formerly sec_29 of the internal_revenue_code the facts as represented are as follows taxpayer received plr-200434003 prior ruling on date which ruled on the issues addressed by this letter member a and member b received substantially_similar rulings taxpayer seeks a confirmation of those rulings in light of the deemed plr-129686-07 termination of taxpayer under sec_708 parent and member b seek substantially identical rulings to those requested by taxpayer taxpayer is engaged in the production and sale of synthetic_fuel to unrelated subsidiary intends to elect under sec_301_7701-3 to change its entity member a is a state limited_liability_company wholly owned by subsidiary persons taxpayer is a state limited_liability_company treated as a partnership for federal_income_tax purposes member a owns a of the membership interests of taxpayer member b owns b of the membership interests of taxpayer subsidiary is a state limited_liability_company wholly owned by parent member a is disregarded as an entity separate from subsidiary for federal_income_tax purposes subsidiary currently has an election in place to be treated as an association_taxable_as_a_corporation for federal_income_tax purposes classification for federal_income_tax purposes from an association_taxable_as_a_corporation to an entity disregarded from its single owner parent the result of such an election is that subsidiary will be deemed to distribute all of its assets and liabilities which will include the membership interest in taxpayer to its single owner parent in liquidation of the corporation pursuant to sec_332 and sec_301_7701-3 as a result of the deemed transfer of subsidiary’s a membership interest in taxpayer taxpayer will be deemed to have been terminated and reconstituted under sec_708 in the request for prior ruling taxpayer represented that it will not operate the synthetic_fuel facility facility in excess of d tons in any_tax year and that the variable payments made with respect to the acquisition of interests in taxpayer by parent and member b do not exceed of the total purchase_price for the interests in taxpayer on a net present_value basis proposed increase in production is attributable to the mechanical availability of the facility as shown through actual operations compared to the mechanical availability that was estimated at the time of the request for prior ruling taxpayer represents that the increased level of production for year will not cause the variable payments to exceed of the total purchase_price either i based on the projections contained in the request for prior ruling or ii based on the actual payments already made to date and expected to be made for the balance of the year purposes to an entity disregarded from its single owner and the proposed increased level of production for year as described in the ruling_request and subsequent correspondence the material facts submitted in the application_for prior ruling have not changed except for subsidiary’s election to change its classification for federal_income_tax for year taxpayer proposes to increase the level of production by e tons the plr-129686-07 the rulings requested by taxpayer parent and member b are a termination of taxpayer under sec_708 will not preclude the reconstituted partnership from relying on the rulings in prior ruling and from claiming a federal_income_tax credit under sec_45k formerly sec_29 for the production and sale of synthetic_fuel to unrelated persons and the rulings in prior ruling will remain in full force and effect following the deemed liquidation of subsidiary and resulting termination and the increased level of production as described in the ruling_request and subsequent correspondence the only factual changes that have occurred since the issuance of prior ruling are subsidiary’s election to change its classification for federal_income_tax purposes to an entity disregarded from its single owner and the increased level of production for year the rulings issued in prior ruling are not affected by the changed facts as described in the ruling_request and subsequent correspondence sec_708 provides that a partnership shall be considered as terminated if within a twelve-month period there is a sale_or_exchange of percent or more of the total interest in partnership capital and profits sec_1_708-1 provides that if a partnership is terminated by a sale_or_exchange of an interest the following is deemed to occur the partnership contributes all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership and immediately thereafter the terminated partnership distributes interests in the new partnership to the purchasing partner and the other remaining partners in proportion to their respective interests in the terminated partnership in liquidation of the terminated partnership either for the continuation of the business by the new partnership or for its dissolution and winding up sec_1_708-1 applies to terminations of partnerships under sec_708 occurring on or after date sec_301_7701-3 provides that if an eligible_entity classified as an association elects under c i of this section to be disregarded as an entity separate from its owner the following is deemed to occur the association distributes all of its assets and liabilities to its single owner in liquidation of the association therefore as a result of its election subsidiary will be deemed to distribute all of its assets and liabilities including the a membership interest in taxpayer to parent in liquidation of the corporation under sec_301_7701-3 taxpayer accordingly will be deemed to terminate under sec_708 because there is an exchange of percent or more of the total interest in taxpayer’s capital and profits as a result of the termination taxpayer is deemed to contribute all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership and immediately thereafter the plr-129686-07 terminated partnership distributes interests in the new partnership to the purchasing partner and the other remaining partners in proportion to their respective interests in the terminated partnership pursuant to sec_1_708-1 the sec_45k credit has always been a time sensitive credit in that eligibility for the credit is determined when facilities or wells producing qualified_fuels are placed_in_service and when the qualifying fuels are produced and sold to unrelated persons for example the sec_44d credit as originally enacted in the crude_oil windfall profit tax act of was generally available for the production and sale of alternative fuels after date and before date from facilities placed_in_service after date and before date on property which first began production after date the sec_45k credit has been extended by congress four times the placed-in- service deadline and the period for claiming the sec_45k credit were extended in the technical_and_miscellaneous_revenue_act_of_1988 for placed_in_service omnibus budget reconciliation act of for placed_in_service and for the end of the credit_period energy policy act of for placed_in_service and for the end of the credit_period and small_business job protection act of date for placed_in_service to apply to facilities placed_in_service after and that the placed-in-service deadline in sec_45k and sec_45k must be read as applying to when the facility is first placed_in_service within the applicable dates the placed-in-service deadlines contained in sec_45k and sec_45k focus on the facility and not the owner of the facility the legislative_history of sec_44d clearly shows that congress wanted to encourage the production of new alternative fuels from facilities first placed_in_service after and not provide tax incentive for production capacity in service before it is clear from the legislative_history of sec_44d that congress intended the credit accordingly the determination of whether a facility has satisfied the placed-in- service deadline under sec_45k and sec_45k is made by reference to when the facility is first placed_in_service not when the facility is placed_in_service by a transferee taxpayer therefore we conclude that a termination of taxpayer under sec_708 will not preclude the reconstituted partnership from claiming the sec_45k credit on the production and sale of synthetic_fuel to unrelated persons we further conclude that the rulings in prior ruling will remain in full force and effect following the deemed liquidation of subsidiary and resulting termination of taxpayer and the increased level of production for year the conclusions drawn and rulings given in this letter are subject_to the requirements that taxpayer i maintain sampling and quality control procedures that conform to astm or other appropriate industry guidelines at the facilities that are the subject of this letter ii obtain regular reports from independent laboratories that have plr-129686-07 analyzed the fuel produced in such facilities to verify that the coal used to produce the fuel undergoes a significant chemical change and iii maintain records and data underlying the reports that taxpayer obtains from independent laboratories including raw ftir data and processed ftir data sufficient to document the selection of absorption peaks and integration points except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in this ruling see dollar_figure of revproc_2007_1 2007_1_irb_1 however when the criteria in dollar_figure of revproc_2007_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances 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 peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


t c summary opinion united_states tax_court fillmore l carr and darlene carr petitioners v commissioner of internal revenue respondent docket no 20898-10s filed date fillmore l carr pro_se matthew a williams for respondent summary opinion carluzzo special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case in a notice_of_deficiency dated date notice respondent determined a dollar_figure deficiency in and a dollar_figure sec_6662 accuracy-related_penalty with respect to petitioners’ federal_income_tax the issues for decision are whether an amount_paid to fillmore l carr petitioner during in settlement of a claim against his former employer is excludable from petitioners’ income and whether petitioners are liable for a sec_6662 accuracy-related_penalty background some of the facts have been stipulated and are so found at all times relevant petitioners were married to each other their self-prepared joint 1unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended in effect for the year in issue rule references are to the tax_court rules_of_practice and procedure 2darlene carr did not execute the stipulation of facts and did not appear at trial accordingly the court dismissed this action as to her for lack of prosecution on date nevertheless the decision entered with respect to her will reflect the resolution of the issues here under consideration see rule federal_income_tax return return was timely filed they were residents of california on the date that the petition was filed in petitioner a former revenue_agent for the internal_revenue_service irs filed an employment-based complaint against the irs the claim was resolved by a settlement during according to the terms of the settlement the irs agreed to pay to petitioner a lump sum of dollar_figure settlement payment subject according to the settlement agreement to all necessary and required withholdings taxes deductions offsets and adjustments for reasons not apparent from the record the settlement payment was not made until the year in issue meanwhile dollar_figure in interest had accrued the settlement payment plus interest minus federal_income_tax and other withholdings was paid to petitioner by a u s treasury check dated date for dollar_figure for the irs issued petitioner a form_w-2 wage and tax statement reflecting the settlement payment of dollar_figure and a form 1099-int interest_income reporting interest_paid of dollar_figure petitioners did not include any portion of the settlement payment or the accrued interest in the income reported on their return the income_tax refund claimed on their return however takes into account the federal_income_tax withheld from the settlement payment according to the notice both the settlement payment and the accrued interest are includable in petitioners’ income furthermore according to the notice because the underpayment_of_tax required to be shown on petitioners’ return is a substantial_understatement_of_income_tax petitioners are liable for a sec_6662 accuracy-related_penalty discussion generally determinations made in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a see 503_us_79 290_us_111 the term income as used in the internal_revenue_code means income from any source including any accretion to the taxpayer’s wealth see sec_61 348_us_426 certain accretions to a taxpayer’s wealth are by statute made excludable from the taxpayer’s income but those statutory exclusions are narrowly construed see eg o’gilvie v 3other adjustments made in the notice are computational and need not be discussed 4petitioners do not argue that the burden_of_proof should be placed upon resp519_us_79 515_us_323 according to the petition the form 1099-int and the form_w-2 are in error but no allegations of facts in support of these assignments of error are made in the petition petitioners’ inartful pleading their failure to submit a pretrial memorandum and petitioner’s vague presentation at trial make it difficult for us to understand the precise nature of their challenge to the deficiency here in dispute as best we can determine from what is included in the record it appears that petitioners challenge the deficiency upon the following grounds the settlement payment and the interest are specifically excludable from income pursuant to some provision of the internal_revenue_code and if the settlement payment and the interest that accrued on that settlement payment are includable in their income then the proper year of inclusion i sec_2002 the year the settlement agreement was entered into and not the year the payment was made whether the settlement payment or the interest is excludable from petitioners’ income the simple answer is no neither item is excludable from petitioners’ income at trial petitioner argued that sec_61 allowed for the exclusion of both items we have encountered that section countless times in the past and fail to see how its provisions in any way allow for the result that petitioner suggests the settlement payment a clear accretion to petitioners’ wealth constitutes income from any source and sec_61 includes a specific reference to interest see sec_61 petitioner is not an unsophisticated taxpayer as noted he is a former irs revenue_agent we would expect that if petitioners’ position was supported by one of the exclusions from income set forth in one of the sections included in subtitle a chapter subchapter_b part iii of the internal_revenue_code our attention would have been directed to that section nevertheless keeping in mind petitioners’ status as unrepresented litigants we consider without specific reference by petitioners whether any of the exclusions from income set forth in various sections of the internal_revenue_code applies here in so doing we note that only sec_104 need be mentioned and then only briefly and only with reference to the settlement payment sec_104 allows for the exclusion from a taxpayer’s income of the amount of any damages other than punitive_damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal physical injuries or physical sickness see e g 636_f3d_747 5th cir aff’g tcmemo_2010_53 sec_1_104-1 income_tax regs the settlement payment qualifies as an amount of damages received by agreement within the meaning of sec_104 but the record in this case would hardly support a finding that the settlement payment was made on account of personal physical injuries or physical sickness petitioner suffered as a result of any_action by his former employer sec_104 does not allow the settlement payment to be excluded from petitioners’ income otherwise we find no support in any other provision of the internal_revenue_code for petitioners’ position that the settlement payment and the interest received in are excludable from their income proper year of inclusion or according to petitioners if the settlement payment and interest are includable in their income then the proper year of inclusion i sec_2002 not nothing in the record suggests that any portion of the settlement payment or the interest was actually included in petitioners’ income for or any other year for that matter furthermore their position in this regard makes no sense with respect to the interest as of the close of the amount of interest reported on the form 1099-int would not yet have accrued on the settlement payment petitioners admit that their taxable_income and federal_income_tax liability for the year in issue are properly computed with reference to the cash_receipts_and_disbursements_method of accounting cash_basis that being so they are required to recognize income in the year they actually or constructively receive it see sec_451 sec_1_451-1 income_tax regs nothing in the record suggests that petitioner constructively received the settlement payment or interest before the year those items of income were actually received that being so the settlement payment and the interest on the settlement payment are includable in petitioners’ income as respondent determined accuracy-related_penalty sec_6662 imposes a accuracy-related_penalty on any underpayment of federal_income_tax attributable among other things to a substantial_understatement_of_income_tax as relevant here sec_6662 defines substantial_understatement_of_income_tax as an amount exceeding dollar_figure respondent bears the burden of production with regard to the imposition of this penalty see sec_7491 116_tc_438 in this case the underpayment_of_tax and the understatement of income_tax are equal to the deficiency see sec_6211 sec_6662 sec_6664 which exceeds dollar_figure that being so the underpayment_of_tax required to be shown on petitioners’ return is a substantial_understatement_of_income_tax and respondent has met his burden of production with respect to the imposition of the penalty on that ground according to petitioners however the penalty is not applicable because they relied upon substantial_authority acted in good_faith and had reasonable_cause for the exclusion of the settlement payment and interest from the income reported on their return the burden_of_proof in this regard rests with them see sec_6664 rule a higbee v commissioner t c pincite whether a taxpayer acted with reasonable_cause and in good_faith is decided on a case-by-case basis taking into account all of the pertinent facts and circumstances see sec_1_6664-4 income_tax regs circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances including the experience knowledge and education of the taxpayer id according to petitioners the settlement payment and the interest that accrued on that settlement payment are excludable from income pursuant to some provision of the internal_revenue_code they have not called our attention to any such provision and we have found none their claim that the disputed items of income if includable in income are includable for rather than is hardly compelling when considered against their acknowledgment of being cash_basis taxpayers petitioners have failed to establish that there was reasonable_cause and that they acted in good_faith with respect to the underpayment_of_tax or any portion of it required to be shown on their return accordingly respondent’s imposition of an accuracy-related_penalty is sustained to reflect the foregoing and to allow the parties the opportunity to resolve between themselves petitioners’ untimely suggestion that the income actually reported on their return is overstated decision will be entered under rule


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 b1 plr-130084-08 date date legend x -------------------------------------------------- ----------------------------------------------------- country date --------------------- ------------------------- dear -------------- this is in response to a letter dated date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an election to treat x as an entity disregarded as separate from its owner for federal tax purposes under sec_301_7701-3 facts x represents that as of date x was eligible to make an election under sec_301_7701-3 to be taxed as a disregarded_entity for federal tax purposes however the form_8832 entity classification election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner plr-130084-08 can elect either 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 guidance on the classification of a foreign eligible_entity for federal tax purposes generally unless the entity makes an election to be treated otherwise a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability if a foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 further provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish 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 conclusion based solely upon the information submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result an extension of days from the date of this letter is granted to elect to treat x as a disregarded_entity for federal tax purposes effective date the entity classification election should be made by filing 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 plr-130084-08 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely curtis g wilson 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 numbers -------------------- ------------------------------------ ---------------------------------- --------------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc corp b04 plr-105155-08 date date legend legend parent distributing distributing distributing distributing distributing ---------------------------------- ------------------------------- ------------------------ -------------------------------------------------------------- --------------------------------------------------------------- ------------------------------- ------------------------ ------------------------------------ ------------------------------- ------------------------ -------------------------------- ------------------------------- ------------------------ -------------------------------------------------------------- --------------------------------------------------------------- ------------------------------- ------------------------ --------------------------- ------------------------------- ------------------------ controlled ----------------------------------------------------------------------------------- -------------------------------------------- plr-105155-08 controlled llc1 llc2 partnership sub business a business b business c business d a ----------------------------------------------- ------------------------------- ------------------------ -------------------------------------------------- ------------------------------------------------ ------------------------ --------------------------- --------------------------------------------- ------------------------ -------------------------------- ------------------------------------------------ ----------------------- ------------------------------- -------------------------- ----------------------- ------------------------------------ -------------------------------------------------------------- --------------------- ------------------------------------ -------------------------------------------------------------- ------------------------ ---- dear ------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of a series of proposed transactions the information submitted in that letter and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by the appropriate party this office has not verified any of the materials submitted in plr-105155-08 support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether internal spin internal spin internal spin internal spin and internal spin all defined below i satisfy the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii are being used principally as a device for the distribution of the earnings_and_profits of any of the distributing or the controlled corporations or any combination thereof see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii are part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in any of the distributing or the controlled corporations see sec_355 and sec_1_355-7 summary of facts publicly traded parent is the common parent of an affiliated_group_of_corporations that files a federal consolidated_income_tax_return collectively the parent group parent wholly owns distributing and distributing distributing wholly owns distributing which wholly owns distributing which wholly owns distributing distributing currently conducts business a through wholly owned llc a disregarded_entity for federal_income_tax purposes distributing also wholly owns llc a disregarded_entity for federal_income_tax purposes which in turn owns a of partnership partnership conducts business b distributing wholly owns controlled and sub controlled conducts business c which is very similar to business a and sub conducts business d all of the above described entities are domestic controlled will be formed as a domestic_corporation in order to participate in the proposed transactions described below following its formation controlled will become a member of the parent group following the controlled contribution defined below controlled will conduct business a financial documentation and other information has been submitted which indicates that business a business b business c and business d each has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction pursuant to its fit and focus plan management of parent wishes to combine the business a and business c operations of the parent group hereinafter the combination management feels that the combination will result in various benefits and efficiencies for the parent group in order to effectuate the combination plr-105155-08 management has therefore proposed the following series of internal transactions collectively the proposed transaction i distributing will contribute llc2 to distributing ii distributing will contribute llc2 to distributing iii distributing will contribute llc2 to distributing iv distributing will contribute llc1 to controlled in exchange for all of controlled 1’s stock and the assumption by controlled of certain liabilities the controlled contribution v distributing will distribute the controlled stock to distributing internal spin vi distributing will distribute the controlled stock to distributing internal spin vii an intercompany obligation of llc1 held by distributing will be contributed to controlled the contribution viii distributing will distribute the controlled stock to distributing internal spin ix distributing will distribute the controlled stock to parent internal spin x distributing will distribute all of its controlled stock to parent internal spin xi controlled will merge into llc1 controlled the merger representations the taxpayer has made the following representations regarding the proposed transaction the controlled contribution and internal spin a any indebtedness that will exist between distributing and controlled after internal spin will not constitute stock_or_securities plr-105155-08 b no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation c the five years of financial information submitted on behalf of the separate_affiliated_group of distributing is representative of the corporations’ present operations and with regard to such corporations there have been no substantial operational changes since the date of the last financial statements submitted d the five years of financial information submitted on behalf of business a is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted e the five years of financial information submitted on behalf of business b is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted f following internal spin distributing and controlled will each continue independently and with its separate employees the active_conduct of its respective business g internal spin is being carried out for the following corporate business_purpose fit and focus internal spin is motivated in whole or in substantial part by this corporate business_purpose h internal spin is not being used principally as a device for the distribution of the earnings_and_profits of distributing controlled or both i the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing in the controlled contribution each equals or exceeds the sum of i the total liabilities assumed as determined under sec_357 by controlled and ii the total amount of money and other_property within the meaning of sec_361 received by distributing if any and transferred by it to its creditors and shareholders if any in connection with the plan_of_reorganization the liabilities assumed as determined under sec_357 in the transaction were incurred in the ordinary course of business and are associated with the assets being transferred j the total adjusted_basis and the fair_market_value of the assets transferred by distributing to controlled in the controlled contribution will equal or exceed the sum of a the amount of any liabilities assumed within the meaning of sec_357 by controlled in the controlled contribution b the amount of any liabilities owed to controlled by distributing if any that are discharged or extinguished in the plr-105155-08 controlled contribution and c the amount of any cash and the fair_market_value of any property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing from controlled in the controlled contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the controlled contribution k immediately before internal spin items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further distributing 1's excess_loss_account if any with respect to its controlled stock will be included in income immediately before internal spin to the extent required by applicable regulations see sec_1_1502-19 l payments made in connection with all continuing transactions between distributing and its subsidiaries on the one hand and controlled and its subsidiaries on the other will be for cost or for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length m no two parties to the transaction are investment companies as defined in sec_368 and iv n internal spin is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation o neither distributing nor controlled is a disqualified_investment_corporation as defined in sec_355 p for purposes of sec_355 immediately after internal spin no person determined after applying the aggregation rules of sec_355 will hold shares possessing or more of the total combined voting power of all classes of distributing 1’s shares entitled to vote or or more of the total value of all classes of distributing shares that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of internal spin q for purposes of sec_355 immediately after internal spin no person determined after applying the aggregation rules of sec_355 will hold stock i possessing or more of the total combined voting power of all classes of controlled stock entitled to vote or or more of the total value of shares of all classes of controlled stock that was acquired by purchase as defined in sec_355 and plr-105155-08 during the five year period determined after applying sec_355 ending on the date of internal spin or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in d and during the five-year period determined after applying d ending on the date of internal spin r no property will be transferred by distributing to controlled for which an investment_credit allowed under sec_47 has been or will be claimed s neither business a nor business b nor control of an entity conducting these businesses were acquired during the five-year period ending on the date of internal spin in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part t at the time of internal spin distributing will not have an excess_loss_account in the stock of controlled internal spin u no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation v the five years of financial information submitted on behalf of the separate_affiliated_group of distributing is representative of the corporations’ present operations and with regard to such corporations there have been no substantial operational changes since the date of the last financial statements submitted w the five years of financial information submitted on behalf of business a is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted x the five years of financial information submitted on behalf of business b is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted y following internal spin distributing and controlled will each continue independently and with its separate employees the active_conduct of its respective business z internal spin is being carried out for the following corporate business_purpose fit and focus internal spin is motivated in whole or in substantial part by this corporate business_purpose plr-105155-08 aa internal spin is not being used principally as a device for the distribution of the earnings_and_profits of distributing controlled or both bb no intercorporate debt will exist between distributing and controlled at the time of or subsequent to internal spin cc immediately before internal spin items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further distributing 2's excess_loss_account if any with respect to its controlled stock will be included in income immediately before internal spin to the extent required by applicable regulations see sec_1_1502-19 dd payments made in connection with all continuing transactions between distributing and its subsidiaries on the one hand and controlled and its subsidiaries on the other will be for cost or for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length ee no two parties to the transaction are investment companies as defined in sec_368 and iv ff internal spin is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation gg neither distributing nor controlled is a disqualified_investment_corporation as defined in sec_355 hh for purposes of sec_355 immediately after internal spin no person determined after applying the aggregation rules of sec_355 will hold shares possessing or more of the total combined voting power of all classes of distributing 2’s shares entitled to vote or or more of the total value of all classes of distributing shares that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of internal spin ii for purposes of sec_355 immediately after internal spin no person determined after applying the aggregation rules of sec_355 will hold stock i possessing or more of the total combined voting power of all classes of controlled stock entitled to vote or or more of the total value of shares of all classes of plr-105155-08 controlled stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of internal spin or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in d and during the five-year period determined after applying d ending on the date of internal spin jj neither business a nor business b nor control of an entity conducting these businesses were acquired during the five-year period ending on the date of internal spin in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part kk at the time of internal spin distributing will not have an excess_loss_account in the stock of controlled the contribution and internal spin ll no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation mm the five years of financial information submitted on behalf of the separate_affiliated_group of distributing is representative of the corporations’ present operations and with regard to such corporations there have been no substantial operational changes since the date of the last financial statements submitted nn the five years of financial information submitted on behalf of business a is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted oo the five years of financial information submitted on behalf of business b is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted pp following internal spin distributing and controlled will each continue independently and with its separate employees the active_conduct of its respective business qq internal spin is being carried out for the following corporate business_purpose fit and focus internal spin is motivated in whole or in substantial part by this corporate business_purpose plr-105155-08 rr internal spin is not being used principally as a device for the distribution of the earnings_and_profits of distributing controlled or both ss the total adjusted_basis and the fair_market_value of the asset transferred to controlled in the contribution each equals or exceeds the sum of i the total liabilities assumed as determined in sec_357 by controlled and ii the total amount of money and other_property within the meaning of sec_361 received by distributing if any and transferred by it to its creditors and shareholders if any in connection with the plan_of_reorganization the liabilities assumed as determined under sec_357 in the transaction were incurred in the ordinary course of business and are associated with the assets being transferred tt the total adjusted_basis and the fair_market_value of the asset transferred to controlled in the contribution will equal or exceed the sum of a the amount of any liabilities assumed within the meaning of sec_357 by controlled in the contribution b the amount of any liabilities owed to controlled by distributing if any that are discharged or extinguished in the contribution and c the amount of any cash and the fair_market_value of any property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing from controlled in the contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the contribution uu immediately before internal spin items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further distributing 3's excess_loss_account if any with respect to its controlled stock will be included in income immediately before internal spin to the extent required by applicable regulations see sec_1_1502-19 vv payments made in connection with all continuing transactions between distributing and its subsidiaries on the one hand and controlled and its subsidiaries on the other will be for cost or for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length ww no two parties to the transaction are investment companies as defined in sec_368 and iv xx internal spin is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation plr-105155-08 yy neither distributing nor controlled is a disqualified_investment_corporation as defined in sec_355 zz for purposes of sec_355 immediately after internal spin no person determined after applying the aggregation rules of sec_355 will hold shares possessing or more of the total combined voting power of all classes of distributing 3’s shares entitled to vote or or more of the total value of all classes of distributing shares that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of internal spin aaa for purposes of sec_355 immediately after internal spin no person determined after applying the aggregation rules of sec_355 will hold stock i possessing or more of the total combined voting power of all classes of controlled stock entitled to vote or or more of the total value of shares of all classes of controlled stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of internal spin or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in d and during the five-year period determined after applying d ending on the date of internal spin bbb no property will be transferred by distributing to controlled for which an investment_credit allowed under sec_47 has been or will be claimed ccc neither business a nor business b nor control of an entity conducting these businesses were acquired during the five-year period ending on the date of internal spin in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part ddd at the time of internal spin distributing will not have an excess_loss_account in the stock of controlled internal spin eee no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation fff the five years of financial information submitted on behalf of the separate_affiliated_group of distributing is representative of the corporations’ present operations and with regard to such corporations there have been no substantial operational changes since the date of the last financial statements submitted plr-105155-08 ggg the five years of financial information submitted on behalf of business a is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted hhh the five years of financial information submitted on behalf of business b is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted iii following internal spin distributing and controlled will each continue independently and with its separate employees the active_conduct of its respective business jjj internal spin is being carried out for the following corporate business_purpose fit and focus internal spin is motivated in whole or in substantial part by this corporate business_purpose kkk internal spin is not being used principally as a device for the distribution of the earnings_and_profits of distributing controlled or both lll immediately before internal spin items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further distributing 4's excess_loss_account if any with respect to its controlled stock will be included in income immediately before internal spin to the extent required by applicable regulations see sec_1_1502-19 mmm payments made in connection with all continuing transactions between distributing and its subsidiaries on the one hand and controlled and its subsidiaries on the other will be for cost or for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length nnn no two parties to the transaction are investment companies as defined in sec_368 and iv ooo internal spin is not part of a plan or a series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation plr-105155-08 ppp neither distributing nor controlled is a disqualified_investment_corporation as defined in sec_355 qqq for purposes of sec_355 immediately after internal spin no person determined after applying the aggregation rules of sec_355 will hold shares possessing or more of the total combined voting power of all classes of distributing 4’s shares entitled to vote or or more of the total value of all classes of distributing shares that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of internal spin rrr for purposes of sec_355 immediately after internal spin no person determined after applying the aggregation rules of sec_355 will hold stock i possessing or more of the total combined voting power of all classes of controlled stock entitled to vote or or more of the total value of shares of all classes of controlled stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of internal spin or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in d and during the five-year period determined after applying d ending on the date of internal spin sss neither business a nor business b nor control of an entity conducting these businesses were acquired during the five-year period ending on the date of internal spin in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part ttt at the time of internal spin distributing will not have an excess_loss_account in the stock of controlled internal spin uuu any indebtedness that will exist between distributing and controlled after internal spin will not constitute stock_or_securities vvv no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation www the five years of financial information submitted on behalf of the separate_affiliated_group of distributing is representative of the corporations’ present operations and with regard to such corporations there have been no substantial operational changes since the date of the last financial statements submitted plr-105155-08 xxx the five years of financial information submitted on behalf of business c is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted yyy the five years of financial information submitted on behalf of business d is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted zzz following internal spin distributing and controlled will each continue independently and with its separate employees the active_conduct of its respective business following the merger controlled will continue to conduct the business formerly conducted by controlled aaaa internal spin is being carried out for the following corporate business_purpose fit and focus internal spin is motivated in whole or in substantial part by this corporate business_purpose bbbb internal spin is not being used principally as a device for the distribution of the earnings_and_profits of distributing controlled or both cccc immediately before internal spin items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further distributing 5's excess_loss_account if any with respect to its controlled stock will be included in income immediately before internal spin to the extent required by applicable regulations see sec_1_1502-19 dddd payments made in connection with all continuing transactions between distributing and its subsidiaries on the one hand and controlled and controlled 2’s successor after the merger and its subsidiaries on the other will be for cost or for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length eeee no two parties to the transaction are investment companies as defined in sec_368 and iv ffff internal spin is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation plr-105155-08 gggg neither distributing nor controlled is a disqualified_investment_corporation as defined in sec_355 hhhh for purposes of sec_355 immediately after internal spin no person determined after applying the aggregation rules of sec_355 will hold shares possessing or more of the total combined voting power of all classes of distributing 5’s shares entitled to vote or or more of the total value of all classes of distributing shares that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of internal spin iiii for purposes of sec_355 immediately after internal spin no person determined after applying the aggregation rules of sec_355 will hold stock i possessing or more of the total combined voting power of all classes of controlled stock entitled to vote or or more of the total value of shares of all classes of controlled stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of internal spin or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in d and during the five-year period determined after applying d ending on the date of internal spin jjjj neither business c nor business d nor control of an entity conducting these businesses were acquired during the five-year period ending on the date of internal spin in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part kkkk at the time of internal spin distributing will not have an excess_loss_account in the stock of controlled rulings based solely on the information submitted and the representations set forth above we rule as follows regarding the proposed transaction the controlled contribution and internal spin the controlled contribution together with internal spin will qualify as a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing in the controlled contribution sec_361 and sec_357 plr-105155-08 no gain_or_loss will be recognized by controlled in the controlled contribution sec_1032 controlled 1's basis in each asset received from distributing in the controlled contribution will equal the basis of that asset in the hands of distributing immediately before its transfer sec_362 controlled 1's holding_period in each asset received from distributing in the controlled contribution will include the period during which distributing held the asset sec_1223 no gain_or_loss will be recognized by distributing in internal spin sec_361 no gain_or_loss will be recognized by distributing on its receipt of the controlled stock in internal spin sec_355 the aggregate basis of the controlled stock and the distributing stock in the hands of distributing immediately after internal spin will be the same as the aggregate basis of the distributing stock held by distributing immediately before internal spin allocated in proportion to the respective fair market values of the controlled stock and the distributing stock in accordance with sec_1_358-2 sec_358 b and c distributing 2’s holding_period in the controlled stock received in internal spin will include the holding_period of the distributing stock on which internal spin is being made provided that the distributing stock is held as a capital_asset on the date of internal spin sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 internal spin no gain_or_loss will be recognized by distributing in internal spin sec_355 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of distributing on its receipt of the controlled stock in internal spin sec_355 the aggregate basis of the distributing stock and the controlled stock held by distributing after internal spin will be the same as the aggregate basis of the distributing stock held by distributing immediately before internal spin allocated plr-105155-08 in proportion to the fair market values of the distributing and the controlled stock in accordance with sec_1_358-2 sec_358 b and c the holding_period of the controlled stock received by distributing will include the holding_period of the distributing stock with respect to which internal spin is being made provided that the distributing stock is held as a capital_asset on the date of internal spin sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 the contribution and internal spin the contribution together with internal spin will qualify as a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing in the contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled in the contribution sec_1032 no gain_or_loss will be recognized by distributing in internal spin sec_361 no gain_or_loss will be recognized by distributing on its receipt of the controlled stock in internal spin sec_355 the aggregate basis of the controlled stock and the distributing stock in the hands of distributing immediately after internal spin will be the same as the aggregate basis of the distributing stock held by distributing immediately before internal spin allocated in proportion to the respective fair market values of the controlled stock and the distributing stock in accordance with sec_1_358-2 sec_358 b and c distributing 4’s holding_period in the controlled stock received in internal spin will include the holding_period of the distributing stock on which internal spin is being made provided that the distributing stock is held as a capital_asset on the date of internal spin sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 plr-105155-08 internal spin no gain_or_loss will be recognized by distributing in internal spin sec_355 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of parent on its receipt of the controlled stock in internal spin sec_355 the aggregate basis of the distributing stock and the controlled stock held by parent immediately after internal spin will be the same as the aggregate basis of the distributing stock held by parent immediately before internal spin allocated in proportion to the fair market values of the distributing and the controlled stock in accordance with sec_1_358-2 sec_358 b and c the holding_period of the controlled stock received by parent will include the holding_period of the distributing stock with respect to which internal spin is being made provided that the distributing stock is held as a capital_asset on the date of internal spin sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 internal spin no gain_or_loss will be recognized by distributing in internal spin sec_355 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of parent on its receipt of the controlled stock in internal spin sec_355 the aggregate basis of the distributing stock and the controlled stock held by parent immediately after internal spin will be the same as the aggregate basis of the distributing stock held by parent immediately before internal spin allocated in proportion to the fair market values of the distributing and the controlled stock in accordance with sec_1_358-2 sec_358 b and c the holding_period of the controlled stock received by parent will include the holding_period of the distributing stock with respect to which internal spin is being made provided that the distributing stock is held as a capital_asset on the date of internal spin sec_1223 plr-105155-08 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 caveats we express no opinion about the tax treatment of the proposed transaction under other provisions of the code and regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular we express no opinion regarding i whether internal spin internal spin internal spin internal spin and internal spin will satisfy the business_purpose requirement of sec_1_355-2 ii whether internal spin internal spin internal spin internal spin and internal spin are being used principally as a device for the distribution of any of the earnings_and_profits of distributing distributing distributing distributing distributing controlled or controlled see sec_355 and sec_1_355-2 iii whether internal spin internal spin internal spin internal spin and internal spin are part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in any of distributing distributing distributing distributing distributing controlled or controlled see sec_355 and sec_1_355-7 iv the federal_income_tax consequences of the contributions described in steps i through iii above except as described herein v the federal_income_tax treatment of the merger and vi the potential application of sec_482 to any continuing transactions that may occur between the distributing corporations and their subsidiaries on the one hand and the controlled corporations and their subsidiaries on the other hand that are based upon the total costs incurred by the provider s of such services procedural matters this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively any taxpayer filing its return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter_ruling plr-105155-08 in accordance with a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely richard k passales________ richard k passales senior counsel branch office of associate chief_counsel corporate cc


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person telephone number identification_number employer_identification_number release number release date date date uniform issue list legend m p q r t x dear we have considered your ruling_request dated date requesting a ruling on whether the sale of certain items by a tax-exempt_organization results in taxable_income under sec_511 of the code facts m is a tax-exempt_organization under sec_501 and is classified as a publicly_supported_organization under sec_509 and sec_170 of the code m is also the central parent organization of x subordinate organizations affiliates all of which are also exempt from tax under sec_501 pursuant to a group_exemption_letter m is operated primarily for the purpose of supporting by making contributions and donations to any charitable educational scientific or medical organization which is primarily concerned with education research detection prevention and treatment or study of breast cancer as well as supporting education and research in breast cancer m’s exempt_purpose is to educate the general_public about breast cancer as a life-threatening disease by promoting the message that early detection of breast cancer saves lives m promotes the benefits of early detection through various means including its website p its helpline q community-based breast education screening and treatment programs and a variety of educational materials designed to meet the breast health and breast cancer information needs of the population the educational materials offered by m cover the topics of general breast health risk factors and prevention early detection diagnosis treatment after treatment support issues specific populations and resources the website offers a number of educational items many of which are free and in prepared in languages other than english in addition to the educational materials m also offers r merchandise via its website r is the universal symbol of breast cancer the color of r is also recognized as the universal color denoting breast cancer awareness the merchandise ranges from apparel jewelry and other items that can be worn to promote awareness and early detection of breast cancer the items fall into five product lines pins apparel home and office jewelry and special gifts all items held_for_sale by m are either the same color as r or display the r symbol each item of merchandise offered for sale through m undergoes an evaluation for its relevance and appropriateness to m’s mission and its quality and intrinsic value to potential purchasers purchasers of r merchandise receive a bookmark providing m’s recommended three-step approach to positive breast health purchases made through p includes an emailed confirmation statement recommending regular screening for breast cancer as well as the toll- free number and website in addition all items include m’s toll-free number and website either on the product package or as a package enclosure these enclosures and statements are part of m’s belief that constant reminders of the importance of early detection will reinforce good breast health practices among all women a select number of r merchandise is available year-round on the website p semiannually through m’s newsletter and at events sponsored by m or its affiliates including the t events m states that the sale of r merchandise at t events and at other affiliate fundraisers enriches and emotionally anchors the overall experience for participants by making a visible public statement by displaying or wearing r merchandise and creating opportunities to reinforce m’s message of awareness and early detection ruling requested you have requested a ruling on whether the sale of merchandise by m and its affiliates constitutes an unrelated_trade_or_business under sec_513 of the internal_revenue_code law sec_511 of the internal_revenue_code imposes an income_tax on the unrelated_business_taxable_income of an organization recognized as exempt under sec_501 sec_513 of the code defines the term 'unrelated trade or business' as meaning in the case of any organization subject_to the tax imposed by sec_511 any trade_or_business the conduct of which is not substantially related aside from the need of organization for income or funds or the use it makes of the profit derived to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 or in the case of an organization described in sec_511 to the exercise or performance of any purpose or function described in sec_501 sec_1_513-1 of the income_tax regulations provides that a trade_or_business is related to exempt purposes only where the conduct of the business activities has causal relationship to the achievement of exempt purposes other than through the production_of_income further it is substantially related for purposes of sec_513 only if the causal relationship is a substantial one for this relationship to exist the production or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes 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_513 of the code provides that an activity does not lose identity as a trade_or_business merely because it is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may or may not be related to the exempt purposes of the organization revrul_73_104 1973_1_cb_263 holds that the sale of greeting card reproductions of art works by an art museum exempt from tax under sec_501 of the code does not constitute unrelated_trade_or_business the art museum sold cards through a shop in the museum and through a catalogue which solicited mail orders the rationale of the ruling is that the card sales contribute importantly to the achievement of the museum's exempt educational_purposes by stimulating and enhancing public awareness interest and appreciation of art revrul_73_105 1973_1_cb_264 provides that the sales of a particular line of merchandise should be considered separately to determine their relatedness to the exempt_purpose the ruling holds that the sale by a museum of folk art of reproductions of works from the museum's own collection and reproductions of artistic works from the collections of other art museums as well as metal wood and ceramic copies of american folk art objects from its own collection and similar copies of art objects from other collections of art works do not constitute unrelated_trade_or_business the sale of these items contributed importantly to the achievement of the folk art museum's exempt educational_purposes by making works_of_art familiar to a broader segment of the public thereby enhancing the public's understanding and appreciation of art in contrast the ruling also holds that sales of scientific books and souvenir items relating to the city where the museum is located do constitute unrelated_trade_or_business analysis the term unrelated_trade_or_business essentially means any trade_or_business which is not substantially related aside from the need of organization for income or funds to an organization’s exempt_purpose the question whether the sale of the r items sold by m and its affiliates contributes importantly to the organization's exempt purposes depends on the facts and circumstances involved see sec_1_513-1 of the regulations m’s exempt_purpose is to eradicate breast cancer as a life-threatening disease by funding research educating the public and providing the funding necessary to support screening and treatment programs many items sold by m are inherently educational providing information on breast cancer related topics and resources in contrast pursuant to sec_513 of the code and revrul_73_105 the sale of each particular item of r merchandise must be considered separately to determine its relatedness to m’s exempt purposes m carries out its exempt_purpose primarily through communicating its message that early detection of breast cancer saves lives the r symbol is universally known as the symbol for breast cancer awareness it is essentially a reminder of practicing positive breast health and early detection each item available for sale by m and its affiliates includes the r symbol with the exception of two items which are the same color as r all items of merchandise sold include m’s toll-free number and website address either on the product package or as a package enclosure where the purchaser can obtain additional information on breast cancer the need for early detection and the practice of positive breast health in addition a bookmark is included with each order that lists the three-step approach for positive breast health the sale of r merchandise reminds and encourages those who wear display or see the images about breast cancer the sale of these items further enhances m’s message that early detection of breast cancer and positive breast health practice save lives and is accordingly related to the organization's exempt purposes accordingly we conclude that the sale of these items is related to the organization's exempt purposes and is not subject_to tax under sec_511 of the code conclusion the sale of the items described above is related to the organization's exempt purposes and does not constitute an unrelated_trade_or_business within the meaning of sec_513 of the code this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts because it could help resolved questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter enclosure notice debra j kawecki manager exempt_organizations technical group sincerely


internal_revenue_service number release date index number --------------------------------------------------- ---------------------- ---------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no --------------- ----------------- telephone number --------------------- refer reply to cc psi b03 plr-124807-18 date december legend x date date trust a b --------------------------------------- ----------------------- ---------------- --------------------------- --------------------------------------- ----------------------- ----------------------- -------------------- dear ------------------- this responds to a letter dated date submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the code facts effective date x elected to be treated as an s_corporation on date a and b transferred shares of x to trust an irrevocable_trust created by a and b it is represented that trust is eligible to be an electing_small_business_trust esbt under sec_1361 however the trustee of trust did not file a timely esbt election for trust and x’s s_corporation_election terminated on date plr-124807-18 x represents the failure_to_file the esbt election for trust was inadvertent and was not motivated by tax_avoidance or retroactive planning x has filed all returns consistent with x’s status as an s_corporation since date x and its shareholders agree to make any adjustments required as a condition of obtaining relief under the inadvertent_termination_rule as provided in sec_1362 of the code law and analysis sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not 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 sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states is an eligible shareholder sec_1361 provides that a_trust which was described in sec_1361 immediately before the death of the deemed owner and which continues in existence after such death is an eligible shareholder but only for the 2-year period beginning on the day of the deemed owner’s death sec_1361 provides that an esbt is an eligible shareholder sec_1361 provides that except as provided in sec_1362 an esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1_1361-1 provides that the trustee of the esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to plr-124807-18 sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the 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 b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts and representations submitted we conclude that x’s s_corporation_election was terminated on date because trustee of trust failed to file an esbt election for trust and that this termination was inadvertent within the meaning of sec_1362 we hold that pursuant to the provisions of sec_1362 x will be treated as an s_corporation from date and thereafter provided x was otherwise eligible to make an s_corporation_election and provided that any such election would not have otherwise been terminated under sec_1361 trust will be treated as an esbt effective date the shareholders of x must include their pro-rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 if x or its shareholders fail to treat themselves as described above this ruling is null and void this ruling is conditioned upon the trustee of trust filing an appropriately completed esbt election for trust effective date and upon trust and its beneficiaries filing timely amended federal_income_tax returns consistent with the treatment of trust as an esbt effective date the election must be made and the amended returns must be timely filed within days following the date of this letter and a copy of this letter should be attached to the election and the returns except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent plr-124807-18 pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely richard t probst senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes