internal_revenue_service department of the treasury number release date index numbers in re washington dc person to contact telephone number refer reply to cc intl plr-107742-00 date date legend taxpayer date a date b date c date d cpa firm individual a dear this replies to a letter dated date requesting that taxpayer be granted an extension of time under sec_301_9100-3 to submit a ruling_request provided by sec_877 and notice_97_19 1997_1_cb_394 as modified by notice_98_34 1998_2_cb_29 the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by taxpayer this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process taxpayer obtained his green card on date a to work in the united_states for a united_states company about five months later during date b taxpayer’s employer transferred him overseas where he worked in various countries on date c taxpayer was en route to the united_states when immigration authorities confiscated taxpayer’s green card because taxpayer had not resided in the united_states for approximately plr-107742-00 twelve years individual a is an employee of cpa firm which was engaged to assist taxpayer with respect to the u s tax ramifications of his expatriation taxpayer should have requested an sec_877 ruling by date d on date d individual a was given a package which contained taxpayer’s sec_877 ruling_request to mail to the i r s individual a attempted to mail the package at two different u s post offices but discovered that both were closed however individual a was unaware that the package needed to be postmarked on date d the package was then mailed the day after date d sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the standards set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides standards for extensions of time for making regulatory elections when the deadline for making the election is other than a due_date prescribed by statute sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation notice_97_19 section iv fixes the time for an individual to submit a ruling_request for a determination as to whether such expatriation had for one of its principal purposes the avoidance of u s taxes therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to submit a ruling_request provided by notice_97_19 as modified by notice_98_34 as discussed with one of the taxpayer’s authorized representatives during a telephone call with a representative of this office no ruling is expressed as to the application of any other section of the code or regulations to the facts presented specifically no plr-107742-00 opinion is expressed as to the tax consequences under sec_877 a copy of this ruling letter should be associated with the ruling_request to be filed under sec_877 pursuant to notice_97_19 as modified by notice_98_34 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to taxpayer and the other representative sincerely s allen goldstein reviewer office of the associate chief_counsel international


internal_revenue_service number release date index number --------------------------- ------------------ ----------------------------- ------------------------------- department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 - plr-134367-09 date date legend ---------------------- ------------------------------------------------ ------------------------ ------------------------ ------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- --------------------------------------------------------------------- ----------- ---------------------------- -------------------- grandparent taxpayer grandchild grandchild grandchild trust trust trust c partnership accountant accounting firm ---------------------------------------------- attorney law firm date date date year year year ------------------------------------ --------------------------------- ------------------ -------------------------- ------------------------- ------- ------- ------- dear ---------------- this letter responds to a letter from your authorized representative dated date and other correspondence requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to allocate taxpayer’s gst_exemption to year transfers to trust sec_1 and plr-134367-09 the facts and representations submitted are summarized as follows on date grandparent executed and funded three substantially identical irrevocable trusts for the benefit of grandparent’s grandchildren and their issue trust for the benefit of grandchild and her descendants trust for the benefit of grandchild and his descendants and trust for the benefit of grandchild and his descendants grandparent died on date on date in year taxpayer grandparent’s child and the parent of grandchildren and transferred c units of partnership to each of trust sec_1 and date is prior to date for purposes of the automatic allocation rules under sec_2632 in year taxpayer engaged accountant of accounting firm to prepare taxpayer’s form_709 united_states gift and generation- skipping transfer_tax return to report the year gifts to trust sec_1 and and to allocate taxpayer’s gst_exemption to those gifts accountant reported the year gifts however she failed to allocate taxpayer’s gst_exemption to the transfers to the trusts in year taxpayer’s attorney at law firm reviewed taxpayer’s year form_709 and she immediately discovered the failure to allocate taxpayer’s gst_exemption to the transfers to the trusts sec_2601 imposes a tax on every generation-skipping_transfer a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the gst tax every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2642 provides in relevant part that if the allocation of the gst_exemption to any transfers of property is made on a timely filed gift_tax_return or is deemed to be made under sec_2632 or c the value of such property for purposes of determining the inclusion_ratio shall be its value as finally determined for gift_tax purposes and such allocation shall be effective on and after the date of such transfer plr-134367-09 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute sec_2654 provides that for purposes of this chapter the portions of a_trust attributable to transfers from different transferors shall be treated as separate trusts sec_26_2654-1 provides that with respect to a separate share treated as a separate trust under paragraph a or a of this section an individual’s gst_exemption is allocated to the separate trust notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers is to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than 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_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the plr-134367-09 taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied thus taxpayer is granted an extension of time of days from the date of this letter to allocate taxpayer’s available gst_exemption to the year transfers to trust sec_1 and based on the gift_tax values of those transfers on date the allocation should be made on a supplemental form_709 united_states gift and generation-skipping_transfer_tax return for the year in which the transfers were made and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to each supplemental form_709 a copy is enclosed for this purpose the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we are not ruling on whether the separate shares of trust sec_1 and for which taxpayer is the transferor for purposes of sec_2654 will have a zero inclusion_ratio as a result of the allocation of taxpayer’s gst_exemption to the date transfers to the trusts see sec_26_2654-1 and this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-134367-09 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curt g wilson associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


t c summary opinion united_states tax_court kevin a peck petitioner v commissioner of internal revenue respondent docket no 29144-13s filed date kevin a peck pro_se adam w dayton and ric d hulshoff for respondent summary opinion guy special_trial_judge this case was heard pursuant to the provisions of sec_7463 in effect when the petition was filed pursuant to sec_7463 sec_1 unless otherwise indicated all section references are to the internal_revenue_code as amended and in effect at all relevant times all monetary amounts are rounded to the nearest dollar 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 respondent issued petitioner a statutory_notice_of_deficiency for the taxable_year petitioner filed a timely petition for redetermination with the court pursuant to sec_6213 at the time the petition was filed petitioner resided outside of the united_states respondent concedes that petitioner is not liable for the deficiency or the additions to tax determined in the notice_of_deficiency although the parties agree that petitioner overpaid his federal_income_tax for they disagree in the first instance as to whether the court has jurisdiction to award petitioner a refund in this regard the primary issue for decision is whether petitioner was financially disabled within the meaning of sec_6511 so that the running of the period of limitations governing claims for refund was suspended and is not a bar to the court’s jurisdiction if we conclude that the court has jurisdiction to award a refund we must determine the amount of petitioner’s overpayment--a question that turns on whether he is entitled to a deduction for charitable_contributions in excess of the amount respondent allowed background some of the facts have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated herein by this reference i petitioner’s background a military service petitioner has had a long career in the u s army army and has been stationed at numerous military installations in the united_states and overseas after initially enlisting in petitioner left the army to attend shippensburg university where he earned a bachelor’s degree he resumed his career with the army as an officer in between and petitioner was stationed at fort campbell on the kentucky-tennessee border and later at a military base near san antonio texas petitioner was stationed in iraq in in the army selected petitioner to pursue graduate studies at baylor university where he earned two master’s degrees one in science information systems and the other in healthcare administration in petitioner returned to iraq for months after that tour of duty petitioner made a brief stop at fort belvoir virginia followed by a deployment to seoul south korea from to petitioner was responsible for managing medical information_technology systems for the army’s healthcare system in south korea while stationed in south korea petitioner moved multiple times he explained that paying rent in south korea was not a simple matter to pay his rent he first made a cash withdrawal at the bank in u s dollars converted the dollars to local currency and then delivered the cash to his landlord b rental properties in and petitioner purchased residences in clarksville tennessee and san antonio texas respectively he later converted the residences into rental properties petitioner hired a management company to take care of the tennessee property and with the help of neighbors he managed the san antonio property c charitable_contributions petitioner attended a local church while he was stationed in south korea although he made cash contributions to the church and participated in charitable events he was unable to produce records or any written acknowledgment of his cash contributions nor did he retain records related to his participation in charitable events d petitioner’s injuries in the late 1990s petitioner was injured at the joint rangers training school at fort campbell petitioner also suffered significant injuries while he was deployed in iraq as discussed below at the time of trial petitioner continued to receive medical treatment for some of his service-related injuries ii delinquent tax returns because of his frequent overseas deployments petitioner did not always receive his mail timely and he was delinquent in filing his federal_income_tax returns in late at the recommendation of friends petitioner hired letha rupert a certified_public_accountant in las vegas nevada to prepare his tax returns for through although petitioner provided ms rupert with all of the documents that he believed were necessary to prepare and file his tax returns he lost contact with her in in date an army legal assistance attorney wrote to ms rupert and informed her that petitioner had been contacted by the internal_revenue_service irs about his delinquent tax returns and urged her to contact petitioner to assist in resolving the matter it appears that sometime in ms rupert was seriously injured as the result of a physical assault on date the irs sent a letter to petitioner and sent a copy to ms rupert stating that because he had not filed a federal_income_tax return for the irs had prepared a substitute for return in accordance with the provisions of sec_6020 on date petitioner sent an email to ms rupert referring to payments that he had remitted to the irs in respect of his tax_liability for and his receipt of another assessment for the tax_year iii notice_of_deficiency and petition for redetermination on date respondent issued to petitioner a notice_of_deficiency and sent a copy to ms rupert determining a deficiency of dollar_figure in his federal_income_tax for and additions to tax under sec_6651 and on date petitioner with ms rupert’s assistance filed a timely petition for redetermination with the court challenging the notice iv postpetition developments ms rupert passed away suddenly in date in the meantime petitioner received a letter from the irs office of appeals inviting him to discuss his case with the aim of arriving at a basis for settlement in date petitioner submitted to the irs a form_1040 u s individual_income_tax_return for claiming that he was due a refund on an overpayment of dollar_figure he attached to the tax_return a schedule a itemized_deductions claiming in relevant part a deduction of dollar_figure for charitable_contributions including dollar_figure in cash that he had purportedly contributed to the church he attended in south korea with the exception of the dollar_figure of charitable cash contributions the irs accepted petitioner’s tax_return as submitted and concluded that he had an overpayment of dollar_figure for on date petitioner wrote to the irs and requested a refund for petitioner’s letter states in pertinent part i am asking that my credited tax_return funds for be released from the excess collections department and then paid out to me as i was deployed to iraq during and forward deployed to a hazardous duty armistice zone from aug 2008-aug followed by an assignment in hi from due to the continued deployments address changes and overseas assignments i was experiencing considerable challenges in collecting my tax documents in order to accurately file as such in late i secured a former senior irs agent to act on my behalf while i was deployed who began to build my file submit the appropriate extensions etc unfortunately however she did not file my taxes as she passed away from a massive heart attack prior to completing them after extensive efforts on my part and the assistance of the army’s judge advocate general i was able to secure my tax files and file my taxes upon returning to the continental us in in light of my back-to-back deployments and the unusual extenuating circumstances with my account please grant my account an exception for the tax_year by letter dated date the irs informed petitioner that his refund claim was denied because it was untimely petitioner subsequently submitted to the irs a letter signed by dr edward l baldwin jr dated date the letter describes in general terms petitioner’s service-related injuries following his deployments to iraq and states that petitioner’s medical evaluations began in that he had been under dr baldwin’s care since date and that he was expected to remain in treatment over the next year dr baldwin’s letter does not speak to petitioner’s ability to manage his personal financial affairs discussion the court’s jurisdiction to determine an overpayment_of_tax and to order the refund of that overpayment is prescribed in sec_6512 in the case of a deficiency proceeding initiated by a taxpayer under sec_6213 if the court determines that there is no deficiency and further finds that the taxpayer has made an overpayment of income_tax for the same taxable_period the court is vested with jurisdiction under sec_6512 to determine the amount of the overpayment and when the court’s decision becomes final the taxpayer is entitled to a credit or refund in the amount of the overpayment sec_6512 however restricts the amount of any refund that the court may allow to the portion of any_tax that was paid within the period which would be applicable under sec_6511 c or d if on the date of the mailing of the notice_of_deficiency a claim had been filed whether or not filed in sum sec_6512 incorporates the look-back provisions from section b and directs the tax_court to determine the applicable_period by inquiring into the timeliness of a hypothetical claim_for_refund filed ‘on the date of the mailing of the notice of deficiency’ 516_us_235 quoting sec_6512 there is no dispute that no portion of petitioner’s overpayment was paid within the applicable lookback period where as here the taxpayer has not filed a tax_return as of the date the irs mails a notice_of_deficiency and the notice_of_deficiency is mailed more than three years after the tax constituting the overpayment was paid the tax_court normally lacks jurisdiction to determine an overpayment see 120_tc_5 haller v commissioner tcmemo_2010_147 petitioner relies however on a narrow exception to the general rules governing the timeliness of refund claims specifically petitioner asserts that he was financially disabled within the meaning of sec_6511 and therefore the normal period for seeking a refund for was suspended sec_6511 provides in relevant part as follows sec_6511 running of periods of limitation suspended while taxpayer is unable to manage financial affairs due to disability -- in general --in the case of an individual the running of the periods specified in subsections a b and c shall be suspended during any period of such individual’s life that such individual is financially disabled financially disabled -- a in general --for purposes of paragraph an individual is financially disabled if such individual is petitioner’s overpayment is attributable to tax withheld from his wages and remitted to the department of the treasury for for purposes of sec_6511 petitioner is deemed to have paid that tax on date see sec_6513 the notice_of_deficiency was mailed to petitioner on date--more than three years after petitioner’s tax was deemed to have been paid there is no indication that petitioner requested or was granted any extension of time to file his tax_return for finally the tax in question was not paid during the two-year period before the notice_of_deficiency was mailed on date see eg haller v commissioner tcmemo_2010_147 unable to manage his financial affairs by reason of a medically determinable physical or mental impairment of the individual which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than months an individual shall not be considered to have such an impairment unless proof of the existence thereof is furnished in such form and manner as the secretary may require b exception where individual has guardian etc --an individual shall not be treated as financially disabled during any period that such individual’s spouse or any other person is authorized to act on behalf of such individual in financial matters the secretary has delineated the form and manner of proof necessary for a taxpayer to establish a qualifying physical or mental impairment under sec_6511 see revproc_99_21 1999_1_cb_960 specifically a taxpayer must present a physician’s written_statement setting forth a description of the taxpayer’s physical or mental impairment the physician’s medical opinion that the taxpayer’s physical or mental impairment prevented him from managing his financial affairs the physician’s medical opinion that the impairment was or could be expected to result in death or lasted or could be expected to last for a continuous period of not less than months and the specific period during which the taxpayer was prevented by such physical or mental impairment from managing his financial affairs id sec_4 c b pincite see brosi v commissioner t c pincite as previously mentioned the record includes a written_statement from dr baldwin petitioner’s treating physician at the time of trial dr baldwin’s letter describes in general terms petitioner’s service-related injuries and states that his medical evaluations began in that he had been under dr baldwin’s care since date and that he was expected to remain in treatment over the next year dr baldwin’s letter does not speak to petitioner’s ability to manage his personal financial affairs the court is certainly sympathetic to petitioner’s situation the record reflects that although he took reasonable steps to prepare and file his tax_return in time to claim a refund circumstances including his deployment to south korea and ms rupert’s difficulties conspired against him unfortunately we are unable to conclude that he qualifies for the specific relief prescribed in sec_6511 although we have no doubt that petitioner’s injuries may have been a factor in his decision to hire ms rupert we conclude after considering all the facts and we note that there is no evidence that any person was authorized to act on petitioner’s behalf in financial matters during the period in question see revproc_99_21 sec_4 1999_1_cb_960 circumstances that petitioner was not financially disabled during the period in question petitioner testified that he was capable of managing one of his rental properties and overseeing the management of another the record also indicates that petitioner was able to pay his bills and manage financial transactions such as paying his rent while he was stationed in south korea finally dr baldwin did not offer an opinion that petitioner’s condition prevented him from managing his personal financial affairs in sum we conclude that the court lacks jurisdiction under sec_6512 to determine an overpayment for the taxable_year consequently the question whether petitioner is entitled to a deduction for charitable_contributions in excess of the amount respondent allowed is moot to reflect the foregoing an appropriate decision will be entered


internal_revenue_service number release date index number ----------------------------------- ------------------------- ---------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc corp plr-148930-09 date date legend acquiror target -------------------------------------------------------------------------------------------- ------------------------------------------------------ ----------------------------------------- ---------------------------------------- ----------------------------------------- target parent -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------ --------------- acquiror parent ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------ --------------- country x country y state a state b ---------- ------------ ---------- ----------- busine sec_1 ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------ -------------- plr-148930-09 date date date dear ------------------ --------------------- ------------------------- ------------------ this letter responds to your date request for rulings on certain federal_income_tax consequences of a completed transaction the information submitted in that letter and in later correspondence is summarized below summary of facts acquiror parent a country x corporation owns all the stock of both target parent a country y corporation and acquiror a state a corporation prior to completion of the transaction target parent owned all the stock of target a state b corporation acquiror is engaged in busine sec_1 until date target also was engaged in busine sec_1 for what are represented to be valid business reasons acquiror parent combined the operations of target and acquiror in the manner described below the transaction i on date target transferred to acquiror all of its operating_assets in exchange for cash the transfer target retained certain non-operating assets including cash and accounts_receivable ii following the transfer target collected the retained accounts_receivable satisfied its obligations sold the illiquid retained assets and distributed excess cash to target parent target’s final wind-up distribution occurred on date iii after winding up its affairs target formally liquidated into target parent on date since the transfer acquiror has continued to operate the business formerly conducted by target in addition to acquiror’s existing business in connection with the transaction the following representations have been made representations plr-148930-09 a the fair_market_value of the acquiror stock and other consideration received or deemed received by target parent was approximately equal to the fair_market_value of the target stock surrendered in the exchange b there was no plan or intention for acquiror or any person related as defined in sec_1_368-1 to acquiror to acquire or redeem any acquiror stock issued or deemed issued in the transaction either directly or through any transaction agreement or other arrangement with any other person c there was no plan or intention by acquiror parent to sell exchange or otherwise dispose_of any shares of acquiror stock d acquiror acquired at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by target immediately prior to the transfer for purposes of this representation amounts used by target to pay its reorganization expenses and all redemptions and distributions except for regular normal dividends made by target immediately preceding the transfer were included as assets of target held immediately prior to the transfer e after the transaction acquiror parent was in control of acquiror within the meaning of sec_368 f acquiror had no plan or intention to sell or otherwise dispose_of any of the assets of target acquired in the transaction except for dispositions made in the ordinary course of business g the liabilities of target assumed by acquiror plus the liabilities if any to which the transferred assets were subject were incurred by target in the ordinary course of its business and were associated with the assets transferred h following the transfer acquiror has continued and will continue the historic_business of target or has used and will continue to use a significant portion of target's historic_business_assets in a business i at the time of the transaction acquiror did not have outstanding any warrants options convertible securities or any other type of right pursuant to which any person could acquire stock in acquiror that if exercised or converted would affect acquiror parent's acquisition or retention of control of acquiror as defined in sec_368 j acquiror target and target parent paid their respective expenses if any incurred in connection with the transaction plr-148930-09 k at the time of the transaction no intercorporate indebtedness existed between acquiror and target that was issued acquired or settled at a discount l at the time of the transaction no party to the transaction was an investment_company as defined in sec_368 and iv m the fair_market_value of the assets of target transferred to acquiror equaled or exceeded the sum of the liabilities assumed by acquiror plus the amount of the liabilities if any to which the transferred assets were subject n the total adjusted_basis of the assets of target transferred to acquiror equaled or exceeded the sum of the liabilities assumed by acquiror plus the amount of the liabilities if any to which the transferred assets were subject o at the time of the transaction target was not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 p after date target owned no operating_assets and conducted no business or operations other than what was necessary to wind up and liquidate q target has not at any time during the five-year period ending on the date of the transfer been a united_states_real_property_holding_corporation as defined under sec_897 and sec_1_897-2 rulings based solely upon the information submitted and the representations set forth above we rule as follows the transfer by target of substantially_all of its assets to acquiror in exchange for cash and a nominal share of acquiror stock and the assumption by acquiror of target liabilities followed by the distribution of cash and the deemed_distribution of the nominal share to target parent in a distribution subject_to sec_354 and sec_356 qualifies as a reorganization within the meaning of sec_368 acquiror and target each were a_party_to_a_reorganization within the meaning of sec_368 the nominal share is deemed to have been further transferred from target parent to acquiror parent to reflect the actual ownership of target and acquiror sec_1_368-2t l i no gain_or_loss was recognized by target upon the transfer of its assets to acquiror in exchange for cash and the nominal share and the assumption by acquiror of target liabilities sec_361 and sec_357 no gain_or_loss was recognized by target upon the distribution of cash and the deemed_distribution of the nominal share to target parent sec_361 plr-148930-09 no gain_or_loss was recognized by acquiror upon the receipt of target's assets in exchange for the nominal share sec_1032 the basis of the assets of target in the hands of acquiror immediately_after_the_transfer was the same as the basis of those assets in the hands of target immediately prior to the transfer sec_362 the holding_period of the assets of target in the hands of acquiror includes the period during which such assets were held by target immediately prior to the transfer sec_1223 target parent recognized no gain_or_loss upon the deemed exchange of target stock for the nominal share sec_354 target parent recognized gain if any upon the receipt of cash or other_property excluding acquiror stock from target in exchange for target stock but not in excess of the amount of cash or the fair_market_value of other_property received sec_356 if the exchange had the effect of the distribution of a dividend determined with the application of sec_318 then the amount of the gain recognized by target parent was treated as a dividend to the extent of the combined earnings_and_profits of target and acquiror and the remainder if any of the gain recognized was treated as gain from the sale_or_exchange of property sec_356 no loss was recognized on the exchange sec_356 the basis of the nominal share deemed received by target parent in the transaction was the same as target parent’s basis in the target stock deemed surrendered in exchange therefor decreased by the amount of cash or the fair_market_value of other_property received and increased by the amount of gain if any treated as a dividend and the amount of gain not including any part of the gain treated as a dividend recognized by target parent on the exchange sec_358 the holding_period of the nominal share deemed received by target parent in the transaction includes the period during which target parent held the target stock deemed surrendered in exchange therefor provided the target stock was held as a capital_asset by target parent on the date of the exchange sec_1223 target parent recognized gain if any but not loss on the deemed transfer of the nominal share to acquiror parent sec_311 acquiror parent’s basis in the nominal share was the fair_market_value thereof sec_301 acquiror succeeded to and took into account the items of target described in sec_381 sec_381 and sec_1_381_a_-1 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the treasury regulations thereunder the tax_year of target ended on the effective date of the transfer sec_381 and sec_1_381_b_-1 plr-148930-09 as provided in sec_381 and sec_1_381_c_2_-1 acquiror succeeded to and took into account the earnings_and_profits or deficit in earnings_and_profits of target as of date any deficit in the earnings_and_profits of acquiror or target could be used only to offset the earnings_and_profits accumulated after that time caveats and procedural statements the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination no opinion is expressed or implied about the tax treatment of the transaction under other provisions of the internal_revenue_code or treasury regulations or the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings the ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent each taxpayer involved in the transaction should attach a copy of this ruling letter to the taxpayer's federal_income_tax return for the taxable_year in which the transaction was completed alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely lisa a fuller senior counsel office of associate chief_counsel corporate


t c no united_states tax_court christine m hackl petitioner v commissioner of internal revenue respondent albert j hackl sr petitioner v commissioner of internal revenue respondent docket nos filed date in and ps a and c made gifts to their children and grandchildren of membership units in treeco llc a limited_liability_company treeco had previously been organized by a to hold and operate tree farming properties this timberland had been purchased by a to provide investment diversification in the form of long-term growth and future income treeco was governed by an operating_agreement which set forth the rights and duties conferred on members and the manager and which designated a as manager at the time of the gifts it was correctly anticipated that treeco and its successor entities would generate losses and make no distributions for a number of years held the gifts of treeco units made by ps fail to qualify for the annual_gift_tax_exclusion provided in sec_2503 i r c -- - barton t sprunger and mark j richards for petitioners russell d pinkerton for respondent opinion nims judge by separate statutory notices respondent determined a deficiency in the federal gift_tax liability of petitioner christine m hackl christine hackl in the amount of dollar_figure and in the federal gift_tax liability of albert j hackl sr a j hackl in the amount of dollar_figure petitioners each timely filed for redetermination by this court and due to an identity of issues the cases were consolidated for purposes of trial briefing and opinion in accordance with stipulations of partial settlement filed by the parties the sole matter remaining for decision is whether gifts made by petitioners of units in a limited_liability_company qualify for the annual exclusion provided by sec_2503 unless otherwise indicated all section references are to sections of the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure background these cases were submitted fully stipulated pursuant to rule and the facts stipulated are so found except as noted in footnote the stipulations of the parties with accompanying exhibits are incorporated herein by this reference at the time their respective petitions were filed petitioners resided in indianapolis indiana personal educational and occupational background petitioners are husband and wife and are the parents of eight children as of the date of the gifts at issue they were also the grandparents of minor grandchildren a j hackl was born on date and christine hackl was born on date since obtaining a bachelor of mechanical engineering degree from georgia institute of technology in a j hackl has pursued a successful career in business he was employed by the trane company from to during which time he became a licensed professional engineer and worked in several management positions he next accepted employment with worthington corporation serving in management and executive capacities within the company’s air conditioning division from to then from until his retirement in a j hackl served as chief_executive_officer of herff jones inc during that period herff jones grew from a small publicly held manufacturer of scholastic recognition and motivational awards with dollar_figure million in annual sales to a national company with a broad line of products and annual sales of dollar_figure million at the time of his retirement in a j hackl owned a significant amount of herff jones stock - - which he sold to the company’s employee_stock_ownership_plan he then remained as chairman of the board_of directors until initiation of tree farm investment in the mid-1990s in anticipation of the sale of his herff jones stock a j hackl began to research ways to diversify his financial net_worth into investments other than publicly traded u s marketable_securities of which he had already accumulated a substantial portfolio he concluded that an investment in real_estate would achieve his objective of diversification and after consideration of a wide range of real_estate ventures decided that tree farming presented an attractive business opportunity which would both include the acquisition of significant parcels of real_estate and also fulfill his interest of remaining personally active in business since his other investments were generating a considerable amount of current income a j hackl’s investment goal with respect to his tree farming_business was long-term growth he therefore chose to purchase land for use in the tree farming_business with little or no existing merchantable timber because such land was significantly cheaper and would provide a greater long-term return on investment than land with a substantial guantity of merchantable timber in a j hackl purchased two tree farms a big_number acre tract in putnam county florida putnam county farm and - - a dollar_figure acre tract in mcintosh county georgia mcintosh county farm the putnam county farm was purchased on date for dollar_figure and contained merchantable timber valued at dollar_figure as of the time of purchase the mcintosh county farm was purchased on date and contained no merchantable timber as of that date formation of treeco llc and gifting of interests therein a j hackl determined that the tree farming operations should be conducted by a separate business_entity to shield his assets not related to the tree farming_business from potential liability associated with that business to create a separate enterprise in which family members could participate and to facilitate the transfer of ownership interests in the tree farming_business to his children their spouses and his grandchildren accordingly a j hackl executed articles of organization creating treeco llc and on date such articles were filed with the office of the indiana secretary of state as a result treeco was duly and validly organized as a limited_liability_company llc under the indiana business flexibility act the llc format was selected by a j hackl to obtain liability protection for members to provide protection of assets inside the llc from members’ creditors to provide pass-- through income_tax treatment and to provide for centralized_management for the operation of the family tree farming_business -- - on date a j hackl contributed the putnam and mcintosh county farms to treeco thereafter on date petitioners each recorded a capital_contribution to treeco of dollar_figure in exchange for big_number voting and big_number nonvoting units in the llc thereby becoming the initial members of the entity and each holding 50-percent ownership they also on that date in their capacities as initial members executed an operating_agreement to govern the treeco enterprise the operating_agreement provided that management of the company’s business shall be exclusively vested in a manager and specified that such manager shall perform the manager’s duties as the manager in good_faith in a manner the manager reasonably believes to be in the best interests of the company and with such care as an ordinarily prudent person ina like position would use under similar circumstances the document designated a j hackl as the initial manager to serve for life or until resignation removal or incapacity and also conferred on him the authority to name a successor manager during his lifetime or by will as regards distributions the agreement stated that the manager may direct that the available cash if any be distributed to the members pro_rata in accordance with their respective percentage interests available cash was defined as cash funds on hand after payment of or provision for all - operating_expenses all outstanding and unpaid current obligations and a working_capital reserve in addition the agreement provided that prior to dissolution no member shall have the right to withdraw the member’s capital_contribution or to demand and receive property of the company or any distribution in return for the member’s capital_contribution except as may be approved by the manager members also in the agreement waived the right to have any company property partitioned concerning changes in members and disposition of membership interests the operating_agreement set forth specific terms with respect both to withdrawal of members and transfer of membership interests members could not withdraw from treeco without the prior consent of the manager however under the agreement a member desiring to withdraw may offer his units for sale to the company in the person of the manager who shall have exclusive authority on behalf of the company to accept or reject the offer and to negotiate terms pertaining to transfer of interests the document recited as follows no member shall be entitled to transfer assign convey sell encumber or in any way alienate all or any part of the member’s interest except with the prior written consent of the manager which consent may be given or withheld conditioned or delayed as the manager may determine in the manager’s sole discretion if a transfer was permitted in accordance with this provision the transferee would have the right to be admitted as a substitute member if a transfer was made in violation of the --- - foregoing procedure the transferee would be afforded no opportunity to participate in the business affairs of the entity or to become a member rather he or she would only be entitled to receive the share of profits or distributions which otherwise would have inured to the transferor among the rights afforded to members by the operating_agreement were the following voting members had the right to remove the manager and elect a successor by majority vote voting members had the right to amend the operating_agreement by an 80-percent majority vote voting and nonvoting members had the right to access the books_and_records of the company voting and nonvoting members had the right jointly to decide whether the company would be continued following an event of dissolution and after the tenure of a j hackl as manager voting members could dissolve the company by an 80-percent majority vote as set forth in the operating_agreement treeco was to be dissolved upon the first to occur of four enumerated circumstances while a j hackl is the manager by his written_determination that the company should be dissolved following the tenure of a j hackl as manager by a written_determination by voting members owning not less than eighty percent of the voting units of the company that the company should be dissolved --- - the occurrence of a dissolution event defined as the resignation expulsion bankruptcy death insanity retirement or dissolution of the manager if the company is not continued by a majority vote of the members within days of the event or iv at such earlier time as may be provided by applicable law upon dissolution distributions in liquidation were to be made first to creditors then to repay member loans and finally to members with positive capital_account balances in proportion thereto subsequent to completion of the foregoing formalities petitioners on date made further contributions to treeco on that date petitioners contributed cash in the amount of dollar_figure and publicly_traded_securities valued at dollar_figure the cash and securities were held by treeco to serve as working_capital and to finance additional purchases of tree farm property then on date petitioners commenced a program of gifting interests in treeco to family members petitioners transferred voting and nonvoting units in treeco to each of their eight children and to the spouse of each such child at that time each donee executed an acceptance of the treeco operating_agreement petitioners reported the gifts of treeco units on timely filed gift_tax returns and elected on those returns to treat the gifts as made one-half by each of the -- - petitioners pursuant to sec_2513 petitioners also treated the gifts as qualifying for the annual exclusion of sec_2053 respondent did not issue notices of deficiency to petitioners for on date treeco purchased a third property in flager county florida flager county farm using dollar_figure of the llc’s cash and securities the flager county farm consisted of big_number acres and contained merchantable timber valued at dollar_figure at the time of sale thereafter on date petitioners continued their program of gifting treeco units with the gifts that are at issue in this litigation petitioners once again each gave voting and nonvoting units in treeco to each of their eight children and to the spouses of such children also on that date a j hackl created the albert james hackl irrevocable_trust grandchildren’s trust for the benefit of petitioners’ minor grandchildren at that time petitioners each transferred big_number nonvoting units in treeco to the grandchildren’s trust representing big_number units for each of their minor grandchildren three of petitioners’ children were named as trustees of the grandchildren’s trust and in that capacity executed an acceptance of the treeco operating_agreement petitioners reported the gifts made in on timely filed gift_tax returns and elected on those returns to treat the gifts as made one-half by each of them pursuant to sec_2513 as previously annual exclusions were claimed under sec_2503 b with respect to the gifts respondent disallowed the exclusions by separate notices of deficiency dated date operations of treeco llc and successor entities on date a j hackl organized hacklco llc a georgia limited_liability_company and in treeco was dissolved and merged into hacklco llc similarly on date treesource lllp a georgia limited_liability limited_partnership was organized and hacklco was merged into this entity in these changes appear to have wrought no alteration in the nature and operation of the treeco enterprise and while enumerated for clarity do not affect our analysis of the gifted units petitioners continued making gifts of voting and nonvoting units of treeco’s successors in interest in and resulting in petitioners’ children and their spouses owning at all times subsequent to date percent of the voting power of treesource treeco and its successors have at all times actively engaged in tree farming since operations commenced in treeco and its successors have planted approximately to million trees on their lands a j hackl as manager of treeco and its successors devotes approximately to hours per year to the farming operations in addition georgia pacific corporation and f w forestry services inc were retained by treeco to provide consulting and management services for the tree farms contained in the record are a five-year timber operating budget for the mcintosh county farm prepared by f w forestry services and detailed forest management plans for the putnam and flager county farms prepared by georgia pacific these documents discuss among other things plantation thinning reforestation fertilization and capital improvements the f w forestry services budget projects losses through but characterizes the mcintosh tract as having great future income potential the georgia pacific plan describing the putnam property similarly states these recommendations if followed will provide you with a healthy fast growing forest which will lead to a steady stream of income in the future a j hackl meets on a regular basis with consultants from georgia pacific and f w forestry services regarding maintenance of the tree farms the parties have stipulated that he has always managed treeco and its successors with such care as an ordinarily prudent person ina like position would use under similar circumstances the primary business_purpose of all three of the above entities has been to acquire and manage plantation pine forests for long-term income and appreciation for petitioners and their heirs and not to produce immediate income petitioners anticipated that all three entities would operate at a loss for a - - number of years and therefore they did not expect that these entities would be making distributions to members during such years treeco reported losses in the amounts of dollar_figure dollar_figure and dollar_figure during and respectively hacklco reported losses of dollar_figure during treesource reported losses in the amounts of dollar_figure dollar_figure and dollar_figure in and respectively neither treeco nor its successors had at any time through date generated net profits or made distributions of cash or other_property to members discussion i settled and disputed issues the parties have previously filed a stipulation of partial settlement and a supplemental stipulation of partial settlement in which they agreed that the fair_market_value of both the voting and nonvoting units of treeco llc was dollar_figure per unit on the date of the gifts at issue in these cases accordingly the sole issue for determination by the court is whether petitioners’ gifts of units in treeco qualify for the annual exclusion provided by sec_2503 a dispute which turns on ' although the parties stipulated that treesource reported a loss of dollar_figure for treesource’s return in fact reflects a loss of dollar_figure see 93_tc_181 holding that stipulations are properly disregarded where clearly contrary to evidence contained in the record whether the transfers constitute gifts of a present_interest for purposes of the statute in this connection the parties have also stipulated that the grandchildren’s trust satisfies the requirements of sec_2503 such that the annual exclusion will be applicable for gifts thereto provided that the gifts are otherwise determined to be of a present_interest additionally to further clarify the issues the parties have stipulated that if the aforesaid question is decided in petitioners’ favor then in computing gift_tax liability for the amounts of prior period taxable_gifts reported on petitioners’ returns shall be accepted as filed conversely if the above question is decided in favor of respondent the amounts of prior period taxable_gifts reported on petitioners’ returns shall be increased to reflect the annual exclusions claimed by petitioners for gifts of treeco units in if statutory and requlatory law sec_2501 imposes a tax for each calendar_year on the transfer of property by gift by any taxpayer and sec_2511 further clarifies that such tax shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible the tax 1s computed based upon the statutorily defined taxable_gifts which term is explicated in section - - sec_2503 provides generally that taxable_gifts means the total_amount_of_gifts made during the calendar_year less specified deductions sec_2503 however excludes from taxable_gifts the first dollar_figure of gifts other than gifts of future interests in property made to any person by the donor during the calendar_year in other words the donor is entitled to an annual exclusion of dollar_figure per donee for present_interest gifts regulations promulgated under sec_2503 further elucidate this concept of present versus future_interest gifts as follows future interests in property -- a no part of the value of a gift of a future_interest may be excluded in determining the total_amount_of_gifts made during the calendar_period future_interest is a legal term and includes reversions remainders and other interests or estates whether vested or contingent and whether or not supported by a particular interest or estate which are limited to commence in use possession or enjoyment at some future date or time the term has no reference to such contractual rights as exist in a bond note though bearing no interest until maturity or in a policy of life_insurance the obligations of which are to be discharged by payments in the future but a future_interest or interests in such contractual obligations may be created by the limitations contained in a_trust or other instrument of transfer used in effecting a gift b an unrestricted right to the immediate use possession or enjoyment of property or the income from property such as a life_estate or term certain is a present_interest in property sec_25_2503-3 gift_tax regs itil caselaw development the foregoing statutory and regulatory pronouncements have been the subject of repeated interpretation by the federal courts much of the litigation has occurred in the factual context of gifts in trust including a series of seminal decisions by the supreme court in the 1940s 325_us_442 324_us_18 312_us_405 312_us_399 312_us_393 see also 85_tc_713 58_tc_1014 affd 478_f2d_226 5th cir additionally parallel to the developments in the trust area and incorporating many of the same principles a line of cases has addressed the related situation where transfers of property are made to an entity with preexisting interest--holders see eg 214_f3d_846 7th cir 393_f2d_972 in both scenarios the gift in question takes the form of an indirect gift of the underlying property to the beneficiaries of the trust or to those holding interests in the entity helvering v hutchings supra pincite chanin v united_states supra pincite blasdel v commissioner supra pincite furthermore it has become well settled that to gualify as a present_interest such a gift must confer on the donee not just vested rights but a substantial present economic benefit by reason of use possession or enjoyment of either the property itself or income from the property fondren v commissioner supra pincite estate of holland v commissioner tcmemo_1997_302 the cases have also established through oft-repeated directives that where the use possession or enjoyment is postponed to the happening of a contingent or uncertain future event such as where distributions of property or income will occur only at the discretion of a trustee or upon joint action of entity interest holders or where there is otherwise no showing from facts and circumstances of a steady flow of funds from the trust or entity the gift will fail to qualify for the sec_2503 exclusion commissioner v disston supra pincite ryerson v united_states supra pincite united_states v pelzer supra pincite chanin v united_states supra pincite calder v commissioner supra pincite -- - the taxpayer bears the burden of showing that the gift at issue is other than of a future_interest rule a commissioner v disston supra pincite stinson estate v united_states supra pincite iv contentions of the parties against the foregoing background we turn to the contentions of the parties before us petitioners contend their transfers of units in treeco are properly characterized as present_interest gifts petitioners emphasize that they made direct outright transfers of the treeco units which are personal_property separate and distinct under indiana law from treeco’s assets petitioners further maintain that the units had a substantial and stipulated value that petitioners’ transfers placed no restrictions on the donees’ interests in the units and that the donees upon transfer acquired all rights in and to the gifted units which rights were identical to those petitioners had in the units they retained hence according to petitioners their transfers involved no postponement of rights powers or privileges that would cause the gifts to constitute future interests cf sec_7491 which is effective for court proceedings that arise in connection with examinations commencing after date and which can operate to place the burden on the commissioner in enumerated circumstances petitioners here have not contended nor is there evidence that their examinations commenced after date or that sec_7491 applies in these cases petitioners also argue that the cases involving indirect transfers through trusts and corporations are inapplicable to the direct transfers at issue here petitioners allege when an equity_interest in a business or any property is transferred outright the donee receives all rights in and to the equity_interest or other_property upon transfer whatever those rights may be the lack of any postponement of the donee’s rights to enjoyment of the equity_interest or other_property is manifestly clear from the foregoing premise petitioners maintain that the standards referenced to analyze whether rights are postponed when interests in the subject property are held only indirectly through the conduit of a_trust or corporate entity have no place in the present situation conversely respondent argues that petitioners’ transfers of treeco units fail to qualify as gifts of present interests respondent avers that because of the restrictions contained in the treeco operating_agreement the transfers fell short of conferring on the donees the requisite immediate and unconditional rights to the use possession or enjoyment of property or the income from property unlike petitioners respondent finds the body of law regarding indirect transfers to constitute substantial analogous authority and the principles espoused therein to control the outcome of these cases specifically respondent emphasizes the requirement of present economic benefit and contends that the inability of the donees to - - freely transfer the units or to compel distributions from the entity prevented them from receiving any such benefit on account of the transfers thus in respondent’s view the gifts postponed any economic benefit and therefore were of future interests v analysis a applicable standards as framed by the parties’ contentions a threshold issue we must address is the extent to which the standards expressed in the decided cases interpreting sec_2503 are pertinent here as petitioners correctly note the property with which we are concerned in this matter is an ownership_interest in an entity itself rather than an indirect gift in property contributed to the entity treeco was duly organized and operating as an llc units of which under indiana law are personal_property separate and distinct from the llc’s assets see ind code ann secs west nonetheless while state law defines property rights it is federal_law which determines the appropriate tax treatment of those rights 472_us_713 115_tc_506 it thus is federal_law which controls whether the property rights granted to the donees as llc owners under state --- - law were sufficient to render the gifts of present interests within the meaning of sec_2503 see united_states v pelzer u s pincite moreover we conclude that the relevant body of federal authority encompasses the general interpretive principles developed through the extensive litigation involving indirect gifts to disregard longstanding directives that a present_interest gift exists only where a donee receives noncontingent independently exercisable rights of substantial economic benefit cannot be justified in the face of either the language used by the supreme court or the subsequent application of such language see fondren v commissioner u s pincite ryerson v united_states u s pincite united_states v pelzer supra pincite- for example in fondren v commissioner supra pincite the court explains the meaning of future versus present_interest in general terms stating it is not enough to bring the exclusion into force that the donee has vested rights in addition he must have the right presently to use possess or enjoy the property these terms are not words of art like fee in the law of seizin but connote the right to substantial present economic benefit the question is of time not when title vests but when enjoyment begins whatever puts the barrier of a substantial period between the will of the beneficiary or donee now to enjoy what has been given him and that enjoyment makes the gift one of a future_interest within the meaning of the regulation -- - the court thus says that the terms use possess or enjoy connote the right to substantial present economic benefit this phraseology is broad and is in no way limited to the factual context presented it defines the root words of the regulatory standard which no party disputes is a generally applicable and valid interpretation of sec_2503 see sec_25_2503-3 gift_tax regs we therefore would be hard pressed to construe use possession or enjoyment as meaning something different or less than substantial present economic benefit simply because of a shift in the factual scenario or form of gift to which the test is being applied accordingly we are satisfied that sec_2503 regardless of whether a gift is direct or indirect is concerned with and requires meaningful economic rather than merely paper rights furthermore this idea is buttressed by recognition that in an earlier case we quoted the very language from fondren v commissioner supra set forth above in a context that involved outright gifts in estate of holland v commissioner tcmemo_1997_302 we quoted the fondren text en route to concluding that outright gifts in the form of dollar_figure checks which had been properly endorsed and deposited were gifts of a present_interest in a similar vein previous caselaw from this court reveals that the principles established in united_states v pelzer supra - - pincite and ryerson v united_states supra pincite regarding contingency and joint action are not restricted in their applicability to indirect gift situations in 14_tc_523 affd 188_f2d_831 2d cir the taxpayer assigned outright all incidents_of_ownership in several insurance policies on his life to his five children jointly and continued to pay the premiums thereon given these facts we citing united_states v pelzer supra stated broadly that where the use possession or enjoyment of the donee is postponed to the happening of future uncertain events the interest of the donee is a future_interest within the meaning of the statute id pincite then relying on ryerson v united_states supra and in spite of the taxpayer’s argument that there was not a grant to trust as in the ryerson case we ruled that the taxpayer by making the assignments to his five children jointly had postponed the possession and enjoyment of the rights and interests in and to the policies or the proceeds thereof until his death or until such time as the children acting jointly might change or negative the action he had thus taken id pincite in sum we reject petitioners’ contention that when a gift takes the form of an outright transfer of an equity_interest ina business or property no further analysis is needed or justified to do so would be to sanction exclusions for gifts -- - based purely on conveyancing form without probing whether the donees in fact received rights differing in any meaningful way from those that would have flowed from a traditional trust arrangement petitioners’ advocated approach could also lead to situations where gift_tax consequences turned entirely upon distinctions in the ordering of transactions rather than in their substance for example while petitioners contributed_property to an llc and then gifted ownership units to their children and grandchildren a similar result could have been achieved by first transferring ownership units and then making contributions to the entity yet petitioners would apparently have us decide that the latter scenario falls within the rubric of established precedent while the former is independent thereof we decline to take such an artificial view we are equally unconvinced by petitioners’ attempts to avoid the principles discussed above with the assertion that the postponement question deals with rights to present use possession or enjoyment of the transferred property not the likelihood of the actual use possession or enjoyment of the property see 97_tc_74 397_f2d_82 9th cir 189_f2d_118 7th cir 213_f2d_520 6th cir bach of the above-cited cases involved trusts in which beneficiaries were given an absolute right to demand distributions and have not been interpreted to establish a rule - - inconsistent with those enunciated by the supreme court see 196_f2d_611 7th cir distinguishing kieckhefer v commissioner supra affg 17_tc_160 thus instead of adopting an approach which would undermine the purpose and integrity of the sec_2503 b exclusion we for the reasons explained above conclude that petitioners are not by virtue of making outright gifts relieved of showing that such gifts in actuality involved rights consistent with the standards for a present_interest set forth in regulations and existing caselaw to recapitulate then the referenced authorities require a taxpayer claiming an annual exclusion to establish that the transfer in dispute conferred on the donee an unrestricted and noncontingent right to the immediate use possession or enjoyment of property or of income from property both of which alternatives in turn demand that such immediate use possession or enjoyment be of a nature that substantial economic benefit is derived therefrom in other words petitioners must prove from all the facts and circumstances that in receiving the treeco units the donees thereby obtained use possession or enjoyment of the units or income from the units within the above- described meaning of sec_2503 - - b application to the gifted property beginning with the property itself we reiterate that the donees in these cases did receive at least in the sense of title outright possession of the treeco units nonetheless as previously explained the simple expedient of paper title does not in and of itself create a present_interest for purposes of sec_2503 unless all the facts and circumstances establish that such possession renders an economic benefit presently reachable by the donees it therefore is incumbent upon petitioners to show the present not postponed economic benefit imparted to the donees as a consequence of their receipt of the treeco units in considering this issue we first address the role of the treeco operating_agreement in our analysis petitioners state that each gifted treeco unit represented a significant bundle of legal rights in the venture rights which are defined by the operating_agreement treeco’s articles of organization and indiana statutory and common_law at the same time petitioners aver the postponement question is not concerned with contractual rights inherent in the transferred property but rather in whether in the transfer of the property the transferor imposed limitations or restrictions on the present enjoyment of the property they then go on to quote the language from sec_25_2503-3 gift_tax regs which -- p7 - references contractual rights in a bond note or insurance_policy that do not result ina future_interest characterization hence while petitioners seem to acknowledge that the operating_agreement in large part defines the nature of the property received by the donees they also apparently would have us ignore any provisions of the agreement which limited the ability of the donees to presently recognize economic value as akin to the contractual rights mentioned in the regulation however petitioners’ reliance on sec_25_2503-3 gift_tax regs is misplaced this court has previously taken a much narrower view of the cited regulatory language in estate of vose v commissioner tcmemo_1959_175 vacated and remanded on another issue 284_f2d_65 1st cir we opined that the regulations were designed to cover notes and bonds which although perhaps not containing all of the attributes of negotiable instruments are at least definitely enforceable legal obligations payable on a day certain and immediately disposable by the obligee llc units hardly fall within these parameters and we observe that the quoted reasoning is consistent with our focus on requiring some presently reachable economic benefit furthermore petitioners’ attempts to find in these regulations support for a distinction between limitations contractually inherent in the transferred property and restrictions imposed upon transfer are not well taken all facts - - and circumstances must be examined to determine whether a gift is of a present_interest within the meaning of sec_2503 and this will be true only where all involved rights and restrictions wherever contained reveal a presently reachable economic benefit since here the primary source of such rights and restrictions is the treeco operating_agreement its provisions in their cumulative entirety must largely dictate whether the units at issue conferred the requisite benefit accordingly we now turn to the operating_agreement to flesh out the nature of the property rights transferred to the donees at the time of their receipt of the treeco units and whether such rights rose to the level of a present_interest on account of either the units themselves considered in this section or the income therefrom considered in section iv c infra petitioners offer the following summary of the rights inuring to the donees upon their receipt of the llc units upon transfer the donees acquired membership rights and obligations in the gifted treeco units which were identical to those which petitioners had in the treeco units they retained including the rights under the treeco operating_agreement to have all net_income or capital_gains allocated all cash distributions made and net_loss allocated subject_to an allocation of losses to a j hackl for a period which was designed to ensure the current deductibility of treeco losses for federal_income_tax purposes based on the number of units held in relation to the total number of units the right to have capital accounts established and maintained on behalf of each member in the manner provided by sec_1_704-1 iv the right to offer units for sale to treeco or to sell their units to third parties subject_to manager approval - - the rights voting members to remove the manager amend treeco’s organizational documents dissolve treeco approve salaries or bonuses paid to any manager etc all of which rights are entitled to court enforcement at the outset we note that petitioners’ repeated assertions that the rights conferred on the donees were identical to those retained by the donors have little bearing on our analysis a similar fact did not dissuade us from finding only a future_interest in 58_tc_1014 and we are satisfied that it should be given no more weight here the taxpayers in blasdel v commissioner supra pincite- created a_trust named themselves a sec_2 of the trust’s beneficiaries and conveyed beneficial interests to other family members although we explicitly observed that the donees acquired their fractional beneficial interests subject_to the same terms and limitations as petitioners held theirs we nonetheless based our decision on the nature of those terms without regard to any identity of rights between donors and donees id pincite0 see also 553_f2d_1216 9th cir in addition given the authority granted here to a j hackl as manager we observe that the alleged equality when viewed from a practical standpoint is less than petitioners would have us believe concerning the specific rights granted in the operating_agreement we are unable to conclude that these afforded a -- - substantial economic benefit of the type necessary to qualify for the annual exclusion while we are aware of petitioners’ contentions and the parties’ rather conclusory stipulations that treeco was a legitimate operating business_entity and that restrictive provisions in the agreement are common in closely held enterprises and in the timber industry such circumstances whether or not true do not alter the criteria for a present_interest or excuse the failure here to meet those criteria as we consider potential benefits inuring to the donees from their receipt of the treeco units themselves we find that the terms of the treeco operating_agreement foreclosed the ability of the donees presently to access any substantial economic or financial benefit that might be represented by the ownership units for instance while an ability on the part of a donee unilaterally to withdraw his or her capital_account might weigh in favor of finding a present_interest here no such right existed according to the agreement capital contributions could not be demanded or received by a member without the manager’s consent similarly a member desiring to withdraw could only offer his or her units for sale to the company the manager was then given exclusive authority to accept or reject the offer and to negotiate terms hence some contingency stood between any individual member and his or her receipt from the company of economic value for units held either in the form of approval --- - from the current manager or perhaps in the form of removal of that manager by joint majority action followed by the appointment of and approval from a more compliant manager likewise while a dissolution could entitle members to liquidating distributions in proportion to positive capital_account balances no donee acting alone could effectuate a dissolution moreover in addition to preventing a donee from unilaterally obtaining the value of his or her units from the llc the operating_agreement also foreclosed the avenue of transfer or sale to third parties the agreement specified that no member shall be entitled to transfer assign convey sell encumber or in any way alienate all or any part of the member’s interest except with the prior written consent of the manager which consent may be given or withheld conditioned or delayed as the manager may determine in the manager’s sole discretion hence to the extent that marketability might be relevant in these circumstances as potentially distinguishable on this point from those in indirect gift cases such as chanin v united_states f 2d pincite and blasdel v commissioner supra pincite2 both dismissing marketability as insufficient to create a present_interest where the allegedly marketable property an entity or trust interest differed from the underlying gifted property the agreement for all practical - - purposes bars alienation as a means for presently reaching economic value transfers subject_to the contingency of manager approval cannot support a present_interest characterization and the possibility of making sales in violation thereof to a transferee who would then have no right to become a member or to participate in the business can hardly be seen as a sufficient source of substantial economic benefit we therefore conclude that receipt of the property itself the treeco units did not confer upon the donees use possession or enjoyment of property within the meaning of sec_2503 b c application to income from the gifted property turning then to whether the gifts of treeco units afforded to the donees the right to use possession or enjoyment of income therefrom we again answer this question in the negative as before broadly applicable standards and reasoning derived from both the trust cases and the cases involving gifts to a partnership or corporate entity call for this result in particular this court has distilled caselaw in these areas into a three-part test for ascertaining whether rights to income satisfy the criteria for a present_interest under sec_2503 calder v commissioner t c pincite the taxpayer must prove based on surrounding circumstances and the trust agreement that the trust will receive income that some portion of that income will flow steadily to the - - beneficiary and that the portion of income flowing out to the beneficiary can be ascertained id see also md natl bank v united_states 609_f2d_1078 4th cir here the parties stipulated that the primary business_purpose of treeco and its successors was to acquire and manage timberland for long-term income and appreciation and not to produce immediate income the parties further stipulated petitioners anticipated that all three entities would operate at a loss for a number of years and therefore they did not expect that these entities would be making distributions to members during such years the record then validates these assumptions by stipulating to losses negative cashflows and an absence of distributions from to april of hence even the first receipt of income prong has not been established on the facts before us furthermore even if petitioners had shown that treeco would generate income at or near the time of the gifts the record fails to establish that any ascertainable portion of such income would flow out to the donees members would receive income from treeco only in the event of a distribution however the operating_agreement states that distributions were to be made in the manager’s discretion this makes the timing and amount of distributions a matter of pure speculation and also raises again the specter of some form of joint action to oust a manager whose - -- distribution policy failed to satisfy members as a result the facts in this case convince us that any economic benefit the donees may ultimately obtain from their receipt of the treeco units is future not present in other words the economic benefit has been postponed in a manner contrary to the regulatory and judicial pronouncements establishing the meaning of a present_interest gift_for purposes of sec_2503 b additionally we note that the fact the parties have stipulated a value for the treeco units does not affect the foregoing analysis although petitioners mention this fact repeatedly it has long been established that the crucial thing is postponement of enjoyment not the fact that the beneficiary is specified and in esse or that the amount_of_the_gift is definite and certain fondren v commissioner u s pincite- entity interest values can be based as the facts and circumstances indicate is the case here on the worth of underlying assets and the future income potential they represent neither of which may be presently reachable we therefore hold that petitioners are not entitled to exclusions under sec_2503 for their gifts of treeco units to reflect the foregoing decisions will be entered under rule