internal_revenue_service number release date index number --------------------------- ------------------------------------ -------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------------ telephone number ---------------------- refer reply to cc ita b04 plr-101724-19 date date legend taxpayer individual purchaser date date date date year year dollar_figureu dollar_figurev dollar_figurew dollar_figurex certified_public_accountant accounting firm return preparer representative dear ------------------- ----------------------------------------------------- ------------------------------------------------ ------------------------- ----------------- --------------------- ----------------------- ---------------------------- ------- ------- ------------------- -------------- ------------ -------------- --------------------------- ---------------------- ------------------------------ ------------------------------ this is in reply to a letter dated date submitted by your authorized representative requesting a ruling on taxpayer’s behalf under sec_453 of the internal_revenue_code that it did not elect out of the installment_method pursuant to sec_15a d of the temporary income_tax regulations facts taxpayer is an s_corporation wholly owned by individual that uses an accrual_method of accounting and whose taxable_year is a calendar_year on date taxpayer entered plr-101724-19 into an asset purchase agreement agreement to sell all of its assets to purchaser an unrelated third party the selling_price for the assets was dollar_figureu payable to taxpayer as follows dollar_figurev due at closing and the balance in equal quarterly payments of dollar_figurew commencing on date in year and concluding in year taxpayer received the sum of dollar_figurev at closing however the purchaser defaulted on the agreement and has not made any of the quarterly payments to date on date taxpayer and individual commenced a legal action against purchaser for the unpaid amounts as of the date of this letter this legal action is still pending taxpayer engaged certified_public_accountant who retained return preparer to prepare form_1120s for the tax_year prior to the year_of_sale certified_public_accountant died prior to filing taxpayer’s final return form_1120s for year the year_of_sale taxpayer retained return preparer to prepare its final return form_1120s for year which was filed on date when it came time to prepare individual’s year form_1040 return preparer could not be located and individual retained accounting firm to prepare the return accounting firm noticed that there were errors on taxpayer’s final return form_1120s for year and on the related form k-1 taxpayer’s form_1120s did not properly report the installment_sale on form_6252 however return preparer did not report the full amount_realized of dollar_figureu nor the full face_amount of the installment_obligation reporting only dollar_figurex on the tax_return for year additionally there were posting errors incidental to the reporting of the installment_sale taxpayer and individual are concerned that the errors on the form_1120s could be misconstrued as an election out of the installment_method on form_1040 for year individual attached form_8275 disclosure statement informing the internal_revenue_service of the reporting and computational errors on form_1120s and individual’s use of the installment_method on form_1040 individual represents that she intended to report the gain realized from the sale using the installment_method under sec_453 return preparer has represented that there was no intention to elect out of the installment_method under sec_453 and that he was under the impression that he reported only the proceeds received in year on the form_1120s shortly after individual was informed of the reporting errors individual hired representative to submit this request that taxpayer had not elected out of the installment_method for its sale in year law and analysis sec_453 of the code provides that a taxpayer shall report income from an installment_sale under the installment_method sec_453 defines an installment_sale as a disposition of property for which at least one payment is to be received after the close of the taxable_year of the disposition plr-101724-19 sec_453 provides that for the purposes of sec_453 the term installment_method means a method under which the income recognized for any taxable_year from a disposition is that proportion of the payments received in that year which the gross_profit realized or to be realized when payment is completed bears to the total_contract_price sec_453 provides however that the installment_method will not apply to a disposition if the taxpayer elects to not have the installment_method apply to such disposition under sec_453 except as otherwise provided by regulations an election out of the installment_method with respect to a disposition may be made only on or before the due_date prescribed by law including extensions for filing the taxpayer's return of tax for the taxable_year in which the disposition occurs sec_15a_453-1 of the regulations provides that an election out of the installment_method must be made in the manner prescribed by the appropriate forms for the taxpayer's return for the taxable_year of the sale a taxpayer who reports an amount_realized equal to the selling_price including the full face_amount of any installment_obligation on the tax_return filed for the taxable_year in which an installment_sale occurs will be considered to have made an effective election out of the installment_method of accounting in this case individual and return preparer represent that they did not intend to elect out of the installment_method and taxpayer did not report an amount_realized equal to the selling_price including the full face_amount of the installment_obligation on the tax_return filed for year soon after individual was informed of return preparer’s error individual submitted this request for a ruling that taxpayer did not elect out of the installment_method in addition as of the date of this letter the periods of limitation applicable to taxpayer's and individual’s year returns has not closed conclusion based on the information submitted and the representations made taxpayer did not elect out of the installment_method with respect to its sale of assets in year accordingly based on the information submitted and the representations made taxpayer and possibly individual must file amended federal_income_tax returns for year to properly report the gain from the installment_method if the ruling granted in this letter would have any effect on any amounts reported on taxpayer's previously filed federal_income_tax return or individual’s previously filed federal_income_tax return taxpayer and individual must file amended returns for such years to reflect the effect of this ruling within days after the date of this letter if any amended returns are required a copy of this letter_ruling must be attached to each of the amended returns plr-101724-19 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter including the allocation of the selling_price among the assets sold and the computation of gain to be reported under the installment_method thus we do not express any opinions except that taxpayer has not elected out of the installment_method for year we further express no opinion regarding whether and to what extent the gain resulting from the sale is eligible for the installment_method under sec_453 we do not express any opinion on the amount of gain reportable under sec_453 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant 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 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to representative sincerely angella l warren branch chief branch office of associate chief_counsel income_tax accounting cc


internal_revenue_service number release date index number ------------------------------- ------------------------------------------- ------------------ -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-151241-08 date date legend x y z state state date date date date dear -------------- ------------------------------------------------ ----------------------- ------------------------------------------------ ----------------------- -------------------------- ------------------------- ------------- --------- ------- -------------------- ------------------------- ---------------------- this responds to letter dated date submitted on behalf of x requesting relief under sec_1362 for an inadvertently ineffective qualified_subchapter_s_subsidiary qsub election plr-151241-08 the information submitted states that x was incorporated under the laws of state as of date on date y was incorporated under the laws of state between date and date y filed returns as a corporation for federal tax purposes x filed a timely election under sec_1362 to be treated as an s_corporation effective beginning on date x had intended to elect to treat y as a qsub effective as of date however the qsub election was ineffective due to procedural defects in addition the qsub election was also ineffective because z was a shareholder of y at the time of election after having discovered that z was a shareholder in y all parties involved took corrective action to restore y’s status as an eligible qsub x y and z have agreed to make any adjustments that the commissioner may require consistent with the treatment of y as a qsub sec_1362 provides in part that if an election under sec_1362 or sec_1361 by any corporation was terminated under sec_1362 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation or a qsub and the corporation for which the termination occurred and each person who was a shareholder in such corporation at any time during the period specified pursuant to sec_1362 agrees to make adjustments consistent with the treatment of the corporation as an s_corporation or a qsub as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination such corporation shall be treated as an s_corporation or a qsub during the period specified by the secretary pursuant to the provisions of sec_1362 y will be treated as a qsub from date and thereafter provided that its election is not otherwise terminated accordingly y must within sixty days from the date of this letter elect to be treated as a qsub for federal tax purposes effective date the election should be made by filing form_8869 qualified_subchapter_s_subsidiary election with the appropriate service_center a copy of this letter should be attached to the election 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-151241-08 pursuant to a power_of_attorney on file a copy of this letter is being sent to x sincerely bradford r poston senior counsel branch passthroughs special industries enclosures copies of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c date uil number release date memorandum for district_director district cc dom p si cam-104962-97 attn chief examination_division from subject senior technician reviewer branch cc dom p si withdrawal of application_for change in accounting_method in accordance with section a of revproc_99_1 1999_1_irb_6 this memorandum advises you that a taxpayer within your district has withdrawn a form_3115 application_for change in accounting_method this document is not to be cited as precedent legend a b c this memorandum advises you that a form_3115 submitted on behalf of a is withdrawn a did not give any reason for the withdrawal a filed the form_3115 to change the method of computing depreciation for certain depreciable_property as a result of reclassifying most of those assets from nonresidential_real_property or various asset classes under revproc_87_56 1987_2_cb_674 to asset cla sec_80 theme and amusement parks as a result the depreciation method recovery_period and convention for the property would have been changed this method change would have been effective beginning cam-104962-97 with the taxable_year beginning b and would have resulted in a negative sec_481 adjustment decrease in taxable_income of dollar_figurec at the time of the withdrawal we had formed a tentatively adverse position on a’s proposed change in computing depreciation we had tentatively concluded that a’s trade_or_business of operating a ski resort is described in asset cla sec_79 recreation of revproc_87_56 consequently a’s depreciable_property is included in asset cla sec_79 except for property described in asset classes dollar_figure through of revproc_87_56 and for any other sec_1250 property accordingly we are tentatively adverse to a’s proposed change in computing depreciation if you have any questions on this matter do not hesitate to call at sincerely yours kathleen reed kathleen reed senior technician reviewer branch office of assistant chief_counsel passthroughs and special industries cc changes in methods_of_accounting industry specialist


department of the treasury washington dc person to contact ------------------------ id no ------------------- ---------------------------------------------------- telephone number --------------------- refer reply to cc fip b01 plr-114123-12 date date internal_revenue_service number release date index number ---------------- --------------------------------------- ----------------------------- ------------------------ ------------------------------- legend taxpayer --------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ operating partnership state a state b year year dear ------------- ----------------------------------------------------- ------------- ------------- ------- ------- this is in response to your letter dated date and supplemental submissions dated date date and date requesting rulings that pursuant to sec_856 of the internal_revenue_code_of_1986 as amended the code certain inclusions under sec_951 sec_1291 and sec_1293 of the code will be considered gross_income qualifying under sec_856 facts taxpayer a self-administered and self-managed publicly traded state a corporation has elected to be treated as a real_estate_investment_trust reit for federal_income_tax purposes taxpayer is structured as an umbrella partnership reit plr-114123-12 whereby it conducts substantially_all of its business through operating partnership a state b limited_partnership taxpayer owns either directly or indirectly through disregarded entities or u s or foreign_partnerships stock of several foreign subsidiaries that are classified as associations pursuant to sec_301_7701-3 of the procedure and administration regulations and for which to the extent required elections have been made to be treated as taxable reit subsidiaries trs pursuant to sec_856 of the code such foreign subsidiaries are either controlled_foreign_corporations under sec_957 cfcs with respect to which taxpayer is a united_states_shareholder under sec_951 united_states_shareholder or passive foreign investment companies under sec_1297 pfics with respect to some of which taxpayer has made an election under sec_1295 to treat as qualified electing funds qefs as a result of being a united_states_shareholder with respect to cfcs taxpayer is required by sec_951 to include in its gross_income its pro_rata share of the subpart_f_income as defined in sec_952 of any such cfcs taxpayer represents that to date the income from the pfics has been passive within the meaning of sec_1297 taxpayer expects that in the future a majority of the pfics’ income will be passive_income taxpayer has made a taxable_reit_subsidiary election with respect to the pfics as a result of being a shareholder in pfics for which taxpayer has made qef elections taxpayer is required under sec_1293 to include in its gross_income its pro_rata share of the ordinary_earnings and net_capital_gain income of each such qef as a result of being a shareholder in pfics for which taxpayer has not made qef elections taxpayer is required to include amounts in its gross_income as ordinary_income pursuant to sec_1291 taxpayer is required to include in its gross_income the sec_951 inclusions as defined below sec_956 inclusions as defined below and pfic inclusions as defined below for purposes of its gross_income tests under sec_856 and these amounts have not exceeded percent of taxpayer’s gross_income for year or earlier years taxpayer is concerned that income which does not qualify under sec_856 in combination with these amounts may exceed percent of its gross_income in year and subsequent years potentially resulting in taxpayer losing its qualification as a reit for its year tax_year and subsequent years taxpayer expects to report sec_951 inclusion attributable to one or more cfc’s foreign_personal_holding_company_income net of allocable expenses which is passive rental income_interest dividends and gain from the sale of property that gives rise to income such as dividends interest and rental income the subpart_f inclusions sec_1293 ordinary_income inclusions attributable to passive_income from numerous pfics for which qef elections have been made the qef plr-114123-12 inclusions and sec_1291 ordinary_income inclusions attributable to passive_income for pfics for which qef elections have not been made together with qef inclusions the pfic inclusions law and analysis sec_856 of the code requires that at least percent of a reit’s gross_income excluding gross_income from prohibited_transactions be derived from dividends interest rents_from_real_property gain from the sale_or_other_disposition of stock securities and real_property including interests_in_real_property and interests in mortgages on real_property which is not property described in sec_1221 and certain other sources sec_856 provides in relevant part that to the extent necessary to carry out the purposes of part ii of subchapter_m of the code the secretary is authorized to determine solely for purposes of such part whether any item_of_income or gain which otherwise constitutes gross_income not qualifying under sec_856 or may be considered as gross_income which qualifies under sec_856 or the legislative_history underlying the tax treatment of reits indicates that a central concern behind the gross_income restrictions is that a reit’s gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business subpart_f inclusions sec_957 of the code defines a cfc as a foreign_corporation in which more than percent of the total combined voting power of all classes of stock entitled to vote or the total value of the stock is owned by united_states_shareholders on any day during the corporation’s taxable_year a united_states_shareholder is defined in sec_951 as a united_states_person who owns percent or more of the total voting power of the foreign_corporation taxpayer represents that it is a united_states_shareholder within the meaning of sec_951 with respect to certain subsidiaries that are cfcs sec_951 generally provides that if a foreign_corporation is a cfc for an uninterrupted period of days or more during a taxable_year every person who is a united_states_shareholder of the corporation and who owns stock in the corporation on the last day of the taxable_year in which the corporation is a cfc shall include in income the shareholder’s pro_rata share of the cfc’s subpart_f_income for the taxable_year plr-114123-12 sec_952 defines subpart_f_income to include foreign_base_company_income as determined under sec_954 under sec_954 foreign_base_company_income includes foreign_personal_holding_company_income fphci as determined under sec_954 sec_954 defines fphci income to include among other things dividends interest royalties rents and annuities sec_954 also includes gain from the sale_or_exchange of property which among other things gives rise to income described in sec_954 after application of paragraph a other than property which gives rise to income not treated as fphci by reason of sec_954 or i for the taxable_year taxpayer has represented that it is a united_states_shareholder within the meaning of sec_951 with respect to certain of its subsidiaries that are cfcs as taxpayer’s cfcs earn subpart_f_income attributable to foreign_base_company_income that is fphci and such income is generally passive_income treatment of the sec_951 inclusion attributable to such passive_income as qualifying_income for purposes of sec_856 does not interfere with or impede the policy objectives of congress in enacting the income test under sec_856 accordingly we rule that subpart_f inclusions attributable to the fphci earned by taxpayer’s cfcs are qualifying_income for purposes of sec_856 as provided in sec_856 pfic inclusions sec_1297 of the code defines a pfic as a foreign_corporation where either percent or more of the gross_income of such corporation for the taxable_year is passive_income or the average percentage of assets as determined in accordance with sec_1297 held by such corporation during the taxable_year which produce passive_income or which are held for the production of passive_income is at least percent sec_1297 defines the term passive_income as income of a kind that would be fphci under sec_954 subject_to certain exceptions sec_1291 provides that if a united_states_person receives an excess_distribution as defined in sec_1291 in respect of stock in a pfic then - a the amount of the excess_distribution shall be allocated ratably to each day in the shareholder’s holding_period for the stock b with respect to such excess_distribution the shareholder’s gross_income for the current_year shall include as ordinary_income only the amounts allocated under sec_1291 to - i the current_year or ii any period in the shareholder’s holding_period before the 1st day of the 1st taxable_year of the company which begins after date and for which it was a pfic and c the tax imposed by this chapter for the current_year shall be increased by the deferred_tax_amount determined under sec_1291 plr-114123-12 sec_1295 provides that a pfic will be treated as a qef with respect to a shareholder if an election by the shareholder under sec_1295 applies to such pfic for the taxable_year and the pfic complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company sec_1293 provides that every united_states_person who owns or is treated under sec_1298 as owning stock of a qef at any time during the taxable_year of such fund shall include in gross_income - a as ordinary_income such shareholder’s pro_rata share of the ordinary_earnings of such fund for such year and b as long-term_capital_gain such shareholder’s pro_rata share of the net_capital_gain of such fund for such year taxpayer has represented that it is a shareholder of certain subsidiaries that are pfics and that it has made qef elections with respect to certain of these pfics as taxpayer’s pfics earn income that is fphci and such income is generally passive_income treatment of such pfic inclusions as qualifying_income for purposes of sec_856 does not interfere with or impede the policy objectives of congress in enacting the income test under sec_856 accordingly we rule taxpayer’s pfic inclusions are qualifying_income for purposes of sec_856 as provided in sec_856 conclusion based on the facts as represented we rule that pursuant to sec_856 of the code taxpayer’s subpart_f inclusions and pfic inclusions constitute qualifying_income under sec_856 no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and regulations or about the tax treatment of conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings additionally we express no opinion as to whether any of taxpayer’s assets qualify as real_estate_assets under sec_856 of the code in particular no opinion is expressed concerning whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code this ruling is directed only to the taxpayer who requested it and is limited to the facts as represented by the taxpayer sec_6110 provides that this letter may not be used or cited as precedent a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant plr-114123-12 in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely diana imhotlz diana imholtz branch chief branch office of associate chief_counsel financial institutions products


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi plr-117984-00 date date number release date index number legend partnership llc state company b c x d1 country n dear this letter responds to a letter dated date and additional correspondence written on behalf of company and x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election under sec_301_7701-3 to be treated as a disregarded_entity effective d1 facts according to the information submitted on d1 partnership a state limited_partnership acquired through llc its disregarded state limited_liability_company b percent of the common_stock and c percent of the preferred_stock of company a private limited_company formed under the laws of country an election was made under sec_301_7701-3 to treat company as a partnership for federal tax purposes plr-117984-00 company owns n subsidiaries including x all of which are private limited companies formed under the laws of country x is an entity that is eligible to elect under sec_301_7701-3 to be disregarded as an entity separate from its owner however the form_8832 entity classification election was not timely filed so as to treat x as a disregarded_entity effective d1 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 sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is classified as an association if all its members have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified as other than its default classification in sec_301_7701-3 by filing form_8832 with the appropriate service_center sec_301_7701-3 provides that the effective date of an entity classification election can not be more than days prior to the date the election is filed and can not be more than months after the date on which the election is filed under sec_301_7701-3 an election will not be accepted unless all of the information required by the form and instructions including the taxpayer identifying number of the entity is provided on form_8832 see sec_301_6109-1 for rules on applying for and displaying employer identification numbers sec_301_7701-3 provides generally that 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 sec_301_7701-3 provides that a foreign eligible entity’s classification is relevant when its classification affects the liability of any person for federal tax or information purposes sec_301_7701-3 provides that if an eligible_entity classified as an association elects 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 sec_301_7701-3 provides that when elections for a series of tiered entities are effective on the same date the eligible entities may specify the order of the elections on form_8832 if no order is specified for the elections any transactions that are deemed to occur as a result of the classification change will be treated as occurring plr-117984-00 first for the highest tier entity’s classification change then for the next highest tier entity’s classification change and so forth down the chain of entities until all the transactions have occurred the provisions of sec_301_7701-3 apply to elections filed on or after date taxpayers may apply the provisions of sec_301_7701-3 retroactively to elections filed before date if all taxpayers affected by the deemed transactions file consistently with the provisions of sec_301_7701-3 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 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 a regulatory 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 conclusions based solely on the facts submitted and the representations made we conclude that good cause has been shown and the other requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently x is granted an extension of time for making the sec_301_7701-3 election effective d1 until days following the date of this letter the election should be made by following the procedure set forth in form_8832 a copy of this letter should be attached to the election a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed about the tax consequences of making an election for x to be treated as an entity that is disregarded plr-117984-00 as separate from its owner further no opinion is expressed regarding the election made to treat company as a partnership for federal tax purposes this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office this letter is being sent to you as the taxpayer’s authorized representative a copy of this letter will also be sent to the taxpayer sincerely yours paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp - plr-129693-00 date date legend purchaser target seller date a date b date c date d company officials this letter responds to your letter dated date requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election purchaser and seller are requesting an extension to file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax regulations with respect to purchaser’s acquisition of the stock of target sometimes hereinafter referred to as the election on date b all citations in this letter to regulations under sec_338 are to regulations in effect on date b additional information was received in a letter dated date the material information is summarized below purchaser is a subchapter_c_corporation that has a calendar taxable_year and uses the accrual_method of accounting prior to the acquisition described below purchaser did not join in the filing of a consolidated_return target is a subchapter_c_corporation all the stock of which was owned by seller target did not have any subsidiaries prior to the acquisition described below target was a member of seller’s consolidated_group on date a purchaser and seller entered into a purchase agreement for purchaser to acquire all of the target stock from seller on date b purchaser plr-129693-00 acquired all of the stock of target from seller in exchange for cash pursuant to the purchase agreement following the acquisition new target was included in purchaser’s consolidated_group as a subchapter_c_corporation it is represented that purchaser was not related to seller within the meaning of sec_338 and purchaser’s acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 purchaser and seller intended to file the election the election was due on date c but for various reasons a valid election was not filed on date d which is after the due_date for the election company officials discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessments under sec_6501 has not expired for purchaser’s target’s or seller’s taxable years in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase sec_338 defines a qualified_stock_purchase as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of one corporation is acquired by another corporation by purchase during the 12-month_acquisition_period sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or ii under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 other than paragraph thereof be attributed to the person acquiring such stock sec_338 permits the purchasing and selling corporations to elect jointly to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation the sale of stock included in the qualified_stock_purchase generally is ignored a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 gain_or_loss on the deemed sale is included in the consolidated_return of the selling group unless the target_corporation is a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 provides that a sec_338 election may be made for the target_corporation if the purchasing_corporation makes a qualified_stock plr-129693-00 purchase of the target_corporation stock sec_1_338_h_10_-1 provides that if a sec_338 election is made for the target_corporation it is irrevocable sec_1_338_h_10_-1 provides that a sec_338 election is jointly made by a purchaser and the selling_consolidated_group or the selling affiliate or the s_corporation shareholders on form_8023 in accordance with the instructions to the form the regulations further provide that the election must be made not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs the instructions to form_8023 provide that a sec_338 election must be made jointly by the purchasing_corporation and the common parent of the selling_consolidated_group or selling affiliate or s_corporation shareholders the instructions provide that the form must be signed by a person authorized to act on behalf of each corporation and if made for an s_corporation it must be signed by each s_corporation shareholder who sells target stock in the qualified_stock_purchase the instructions further provide that the signatures dates and titles if applicable of those persons must be provided in a signature attachment and they provide specific details as to the preparation of the signature attachment and its attachment to form_8023 under sec_301_9100-1 the commissioner has discretion to 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections 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 in this case the time for filing the election is fixed by the regulations ie sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and seller to file the election provided purchaser and seller show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser target seller and company officials explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the service has not discovered that the election has not been filed and the taxpayers have taken a reporting position that is consistent with making the election the information also plr-129693-00 establishes that a competent tax professional was responsible for the election and was aware of all relevant facts that purchaser and seller relied on the tax professional to make the election and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that purchaser and seller have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for purchaser and seller to file the election with respect to the acquisition of the stock of target as described above the above extension of time is conditioned on the filing within days of the issuance of this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' purchaser's seller’s and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 purchaser and seller must file the election in accordance with sec_1_338_h_10_-1 that is a new election on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions to the form a copy of this letter must be attached to the election form purchaser and seller having filed their returns as though a valid election was made must amend their returns to attach to the returns a copy of this letter and a copy of the election we express no opinion as to whether the acquisition sale of the target stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target stock qualifies for sec_338 treatment or if sec_338 is applicable the amount and character of gain_or_loss if any recognized on target’s deemed asset sales and deemed liquidation in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the plr-129693-00 election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours associate chief_counsel corporate by ken cohen senior technician reviewer branch


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-113426-98 date date company subsidiaries partnerships properties plr-113426-98 plr-113426-98 affiliate manager a manager b state a b c d e f dear this letter responds to a letter from your authorized representative dated date and subsequent correspondence submitted on behalf of company requesting a ruling that the rental income received by company from the properties will not be passive_investment_income within the meaning of sec_1362 company represents the following facts company was incorporated in state on a and intends to elect under sec_1362 to be an s_corporation company also intends to elect under sec_1361 to treat subsidiaries as plr-113426-98 qualified subchapter_s subsidiaries qssss see sec_1361 for the effect of a qsss election company acquires manages leases operates and sells commercial real_estate the properties and creates and invests in other entities the partnerships which engage in these same activities company or its subsidiaries serve as the managing general_partner of the partnerships a diagram of partnership investments in affiliated partnerships is attached as appendix a under the partnership agreements the general_partner is vested with the exclusive right and power to manage operate and control all business and partnership affairs company receives management fees from the partnerships company's duties are carried out by selected officers and directors of company company contracts with manager a a division of affiliate to perform the organizational and management functions manager a employs b persons in managing the properties and the affiliated partnerships its chief_executive_officer and its president also are officers of company manager a receives management fees from company a list of the common shareholders of company and affiliate is attached as appendix b manager a contracts with manager b another division of affiliate to provide most of the physical maintenance of the properties manager b employs c persons in performing these functions for which it receives fees from manager a through managers a and b as well as through various third- party contractors company provides various services in the real_estate leasing and management business these services include but are not limited to building common area maintenance parking lot and sidewalk maintenance and repair roof and other building structural_component repair retaining wall maintenance lighting studies and upgrades landscaping snow removal and painting in addition to the services provided to tenants company is responsible for the usual marketing leasing and administrative functions involved in leasing and managing real_estate company received or accrued approximately d in rents and paid_or_incurred approximately e in relevant expenses for f except as provided in regulations sec_1361 provides that i a corporation that is a qsss as defined by sec_1361 shall not be treated as a separate corporation plr-113426-98 and ii all assets liabilities and items of income deduction and credit of a qsss shall be treated as assets liabilities and such items as the case may be of the s_corporation except as provided in sec_1362 sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income except as otherwise provided in subparagraph c sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation based solely on the facts presented in this ruling_request and the applicable law and regulations and assuming company is a valid s_corporation and its subsidiaries are valid qssss we concluded that the rents company receives from the properties either directly or as part of its distributive_share of partnership income will not be passive_investment_income under sec_1362 plr-113426-98 except for the specific rulings above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed under sec_1361 regarding company's eligibility to be an s_corporation or subsidiaries' eligibility to be qualified subchapter_s subsidiaries further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely donna m young senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries encl copy for sec_6110 purposes plr-113426-98 rrgpfkz cid cid cid cid cid cid cid cid cid cid cid cid cid cid cid cid cid plr-113426-98 rrgpfkz cid dollar_figure


tcmemo_2008_14 united_states tax_court douglas bynum jr and shirley a bynum petitioners v commissioner of internal revenue respondent docket no filed date douglas bynum and shirley a bynum pro sese susan m fenner for respondent memorandum findings_of_fact and opinion foley judge the issues for decision are whether petitioners are entitled to the business_bad_debt deductions claimed on their and joint tax returns and whether petitioners are liable for sec_6651 additions to tax for failing to timely file their and joint tax returns findings_of_fact in petitioner douglas bynum started as a sole_proprietorship an engineering consulting business in he incorporated the business as starfire engineering inc sei sei issued both mr bynum and shirley bynum shares at dollar_figure per share mr bynum routinely paid cash for various sei business_expenses when sei’s business revenues increased mr bynum used these funds to pay startup costs for seven other businesses operated under sei ie two secretarial services businesses created in and two tax preparation services businesses created in and two beauty shops created in and and a steel fabrication business created in between and mr bynum either ceased operation of or sold the seven businesses mr bynum did not demand or receive repayment for any of the expenses he paid on behalf of sei in mr bynum dissolved sei petitioners deducted as business bad_debts on their and joint tax returns the expenses mr bynum had paid on behalf of sei unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and all rule references are to the tax_court rules_of_practice and procedure pursuant to extensions of time to file petitioners’ joint tax_return was due_date petitioners filed their joint tax_return relating to on date and their joint tax_return relating to on date respondent disallowed petitioners’ business_bad_debt deductions and determined additions to tax pursuant to sec_6651 relating to and petitioners filed their petition with the court on date while residing in montgomery texas opinion we must determine whether the expenses mr bynum paid on behalf of sei are deductible business bad_debts a taxpayer is entitled to deduct bona_fide debts that become worthless within the taxable_year sec_166 bona_fide debts must arise from debtor-creditor relationships based upon valid and enforceable obligations to pay fixed or determinable amounts of money sec_1_166-1 income_tax regs a contribution_to_capital does not qualify as bona_fide debt for purposes of sec_166 95_tc_257 the ultimate question is ‘whether the investment analyzed in terms of its economic reality constitutes risk capital entirely subject_to the fortunes of the corporate venture or represents a strict debtor-creditor relationship’ see calumet indus inc v commissioner supra pincite quoting 398_f2d_694 3d cir the names given to documents evidencing the indebtedness the presence or absence of a fixed maturity_date the source of repayments the right to enforce repayment of the advance the intent of the parties the failure of the corporation to repay on the due_date and other factors are considered to determine whether a payment is a contribution_to_capital or bona_fide debt see tex farm bureau v united_states 725_f2d_307 5th cir am offshore inc v commissioner 97_tc_579 no one factor is controlling and the determination of whether there is a loan or a contribution_to_capital is a question of fact which must be decided on the basis of all the relevant facts and circumstances calumet indus inc v commissioner supra pincite the expenses paid on behalf of sei were not bona_fide loans mr bynum and sei did not have a debtor-creditor relationship mr bynum certainly paid and substantiated a wide array of business_expenses but these payments were not loans to pursuant to sec_7491 petitioners have the burden_of_proof unless they introduce credible_evidence relating to the issue that would shift the burden to respondent see rule a our conclusions however are based on a preponderance_of_the_evidence and thus the allocation of the burden_of_proof is immaterial see 110_tc_189 ndollar_figure sei first there was no valid and enforceable obligation to pay a fixed or determinable amount of money second there was no oral or written_agreement establishing a debtor-creditor relationship third mr bynum did not demand or receive any payments from sei relating to the alleged loans finally the expenditures were not structured as or intended to be loans to keep his business afloat mr bynum routinely paid a myriad of typical business_expenses he was concerned about the survival of the business not repayment for the expenses in sum mr bynum’s payments were contributions to capital and not bona_fide indebtedness even if the expenditures were bona_fide loans petitioners would not be entitled to sec_166 bad_debt deductions sei was dissolved in petitioners claimed deductions for the alleged bad_debts in and yet there is no evidence that the alleged loans became worthless in those years accordingly we sustain respondent’s determination we must also determine whether petitioners are liable for the sec_6651 additions to tax sec_6651 provides that a taxpayer shall be subject_to an addition_to_tax for failure_to_file a timely return unless it is shown that such failure was due to reasonable_cause and not willful neglect respondent bears and has met the burden of production relating to the sec_6651 additions to tax and has established that petitioners failed to file their and returns on time sec_7491 116_tc_438 petitioners filed their return which was due_date on date and their return which was due on date on date the untimely filing was not due to reasonable_cause but was the result of willful neglect petitioners assert that they were unable to file timely returns because of health problems petitioners indeed had some health problems but we are not convinced that the severity of those problems prevented them from filing timely tax returns relating to and accordingly we sustain respondent’s determination contentions we have not addressed are irrelevant moot or meritless decision will be entered for respondent


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc intl plr-100611-99 date date legend index number number release date in re taxpayer drcs corporation x year one year two date a date b dear this replies to a letter dated date in which taxpayer requests an extension of time under sec_301_9100-3 to file the agreement described in sec_1_1503-2 and required under sec_1_1503-2 with respect to dual consolidated losses_incurred in tax years ended year one and year two additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations in re plr-100611-99 submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party 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 for the tax years ended year one and year two each of the dual resident corporations drcs were direct or indirect wholly owned subsidiaries of taxpayer and joined together with taxpayer and its other subsidiaries in the filing of a consolidated federal_income_tax return as members of the corporation x consolidated_group corporation x is the common parent of an affiliated_group_of_corporations the corporation x group that included taxpayer and its drcs for tax years that included the period between date a and date b during this period corporation x owned all of the stock of taxpayer the drcs incurred dual consolidated losses dcls for the tax years ended year one and year two and these dcls were used to offset income of other profitable companies in the corporation x group’s consolidated_income_tax_return for the tax years ended year one and year two as a result of a non-taxable transaction occurring on the close of business on year two taxpayer and the drcs were transferred outside the corporation x group as a result of the transfer outside the corporation x group taxpayer became the parent of a new affiliated_group taxpayer group that began to file a consolidated federal_income_tax return the taxpayer group included the drcs this transfer constituted a triggering event as described in sec_1_1503-2 however taxpayer failed to timely file the agreement described in sec_1_1503-2 and required under sec_1 g iv b iii in order for this transfer not to constitute a triggering event taxpayer’s failure to timely file the agreement has not been discovered by the internal_revenue_service 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 treas reg provides standards for extensions of time for making in re plr-100611-99 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 sec_1_1503-2 fixes the time to file the agreement 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 file the agreement described in sec_1_1503-2 and required under sec_1_1503-2 with respect to the dcls incurred in tax years ended year one and year two no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented a copy of this ruling letter should be associated with the agreement 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 the other authorized representative sincerely s allen goldstein allen goldstein reviewer office of the associate chief_counsel international


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b02 ------------- presp-137398-06 uilc third party communication none date of communication not applicable_date january to ------------------------ -------------------------------------- small_business self-employed from donna m crisalli senior technician reviewer branch income_tax accounting subject sec_162 this chief_counsel_advice responds to your request for assistance dated date this advice may not be used or cited as precedent legend state x year year issues ------------- ------- ------- is a legislature in session for purposes of sec_162 of the internal_revenue_code on days on which the legislature is convened but is not sitting in an organized capacity for the transaction of legislative business or capable of transacting legislative business does the term legislative_day under sec_162 include a day that falls between two days on which the legislature is in session presp-137398-06 conclusions a legislature is in session on days on which the legislature is sitting in an organized capacity for the transaction of legislative business and is capable of transacting legislative business a day that falls between two days on which the legislature is in session is a legislative_day for an individual only when i the two legislative_days are separated by four or fewer days on which the legislature is not in session or ii the physical presence of the individual is formally recorded at a meeting of a committee of the legislature facts according to the legislative calendar of the state legislature of state x the legislature during year the legislature convened on january and recessed on june during this time the legislature was scheduled to transact legislative business on certain mondays tuesdays wednesdays and thursdays the number of these days per week varied from one day to four days for example in january the legislature was scheduled to transact legislative business on january and we assume that the legislature was in fact in session for purposes of sec_162 on these days in addition to the days indicated on the legislative calendar the legislature was convened for various reasons on certain other days during the period from june of year through january of year for example the legislature might be convened to avoid the expiration of pending legislation or to prevent the governor from making interim judicial appointments only one legislator was required to be present for the legislature to be convened for these purposes and other legislators were not expected to be in attendance to transact legislative business on these days therefore a quorum generally was not present to transact legislative business as required by state x’s constitution law and analysis sec_162 provides that a taxpayer generally is allowed a deduction for ordinary and necessary business_expenses including unreimbursed traveling expenses while away from home sec_162 provides that an individual who is a state legislator and who makes an election under sec_162 is deemed to be away from home in the pursuit of a trade_or_business on each legislative_day furthermore the individual is deemed to have expended on such a day the greater of the unreimbursed amount generally allowable for the day i to employees of the legislator’s state for per_diem while away from home to the extent the amount does not exceed percent of the amount described in ii or ii to employees of the executive branch of the federal government for per_diem while traveling away from home in the united_states sec_162 does not apply with presp-137398-06 respect to any legislator whose place of residence within the legislative district represented i sec_50 or fewer miles from the state capitol building sec_162 defines a legislative_day as any day on which a the legislature was in session including any day in which the legislature was not in session for a period of consecutive days or less or b the legislature was not in session but the physical presence of an individual legislator was formally recorded at a meeting of a committee of the legislature an individual who makes the election under sec_162 is deemed to be away from home in the pursuit of a trade_or_business on each legislative_day therefore whether the legislator is in fact away from home on the legislative_day is not relevant neither sec_162 nor the legislative_history define the term in session however in okanogan tribe of washington v united_states 279_us_655 pocket veto case the supreme court interpreted the term house in the united_states constitution to mean the house of representatives in session that is sitting in an organized capacity for the transaction of business the constitutional quorum assembled for the transaction of business and capable of transacting business id pincite for purposes of sec_162 a legislature is in session only when it is sitting in an organized capacity for the transaction of legislative business and is capable of transacting legislative business thus a legislature is in session on a day when members ordinarily would be expected to be present at the legislature for example on a day on which bills are debated or voted upon a legislature is not in session merely because it is convened pro forma such as in a session comprised of no more than a call to order an opening prayer and the reading of pending bills by a clerk if a quorum is necessary to conduct legislative business the legislature is not in session if no quorum is present issue accordingly the legislature in state x was not in session for purposes of sec_162 on days on which no quorum was present and no legislative business could be transacted these days are not legislative_days with respect to an individual legislator unless the legislature is not in session for a period of four consecutive days or less or the physical presence of that individual was formally recorded at a meeting of a committee of the legislature under sec_162 issue under sec_162 the term legislative_day includes any day on which the legislature is not in session for a period of four consecutive days or less days that fall between two days on which the legislature is in session are legislative_days if the period presp-137398-06 between the two days in session does not exceed four consecutive days only days that the legislature is in session for purposes of sec_162 are taken into account in applying sec_162 under this rule in addition to the days described on the state x legislative calendar the following days are legislative_days for the legislators of state x during the month of january in year january and all other dates in january are not legislative_days with respect to an individual legislator unless the legislature was in session or the physical presence of the legislator was formally recorded at a meeting of a committee of the legislature please call -------------------- at --------------------- if you have any further questions


internal_revenue_service national_office technical_advice_memorandum date tam-163386-03 cc psi b01 number release date third party contact index uil no case-mis no district_director taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference legend --------------------------------------------------------------- ---------------- -------------------------------- ------------------------------- ---------------- ---------- ----------------------- ---------------------------------------------- -------------------------------------------------------- z x y dollar_figurea ------------- ------------------------------------------------------------ ----------------------------------------------------------- ---------------- ---------------- ---------------- ---------------- ---------------- -------------- dollar_figured dollar_figurec dollar_figureb dollar_figuree dollar_figuref tam-163386-03 a dollar_figureg ---------------- ------------------ issue can a gross_income allocation to x be a significant item of partnership income or gain which has substantial economic_effect for purposes of sec_1_752-3 allowing x to be allocated percent of the excess nonrecourse liabilities conclusion the allocation to x of percent of the third tier allocations of excess nonrecourse liabilities under sec_1_752-3 is inappropriate the regulations under sec_1_752-3 contemplate that the parties will allocate the excess nonrecourse liabilities in a manner that is consistent with the way they share a significant item of partnership income or gain which has substantial economic_effect the regulation looks to how the partners share a class of partnership income or gain rather than a gross_income allocation within a class of income facts based on the submissions and representations made within the relevant facts are as follows x was in the process of acquiring an interest in another company in order to obtain cash for the acquisition x decided to restructure and leverage its z assets to accomplish the desired result x organized y a limited_liability_company classified as a partnership for federal tax purposes with other parties and conveyed to y its z assets with a fair_market_value of dollar_figurea y subsequently borrowed dollar_figured against the assets that were contributed by x and other members of y y then simultaneously made a distribution to x totaling dollar_figureb and issued a senior preferred interest worth dollar_figuree and junior preferred and junior common interests worth approximately dollar_figuref while also assuming debt and issuing preferred and common interests to the other members x owns percent of the senior preferred interest which has an a preferred_return payable from gross_income pursuant to the partnership_agreement x is allocated percent of the gross_income every quarter up to the amount of the preference on the senior preferred interest the amended and restated limited_liability_company agreement allocates dollar_figureb of the nonrecourse liabilities to x and the remaining dollar_figureg is allocated to another member of y the partnership_agreement specifically provided that x’s profits interest is to be determined with reference to the allocations under the senior preferred interest for purposes of determining x’s share of excess nonrecourse liabilities tam-163386-03 law and analysis sec_1_707-5 provides that if a partner transfers property to a partnership and the partnership incurs a liability and all or a portion of the proceeds of that liability are allocable under sec_1_163-8t to a transfer of money or other consideration within days of incurring the liability the transfer of money or other consideration to the partner is taken into account only to the extent that the amount of money or the fair_market_value of the other consideration transferred exceeds that partner’s allocable share of the partnership_liability to determine a partner’s allocable share of partnership_liability for purposes of sec_1_707-5 the following formula is used to calculate the amount that is excluded from sec_707 disguised sale amounts under this set of facts the taxpayer’s share of liability is determined with reference to sec_1_707-5 since this a nonrecourse_liability the regulations require the application of the same percentage used to determine the partner’s share of excess_nonrecourse_liability under sec_1_752-3 third tier allocation regulations to be used as the partner’s share of liability in the sec_1_707-5 calculation portion of liability allocable to the money or other_property transferred to the partner total amount of the liability partner’s share of liability x thus in order to determine whether or not the partner’s share of liability number used in the sec_1_707-5 calculation is correct it is necessary to determine if the allocation percentage is correct under sec_1_752-3 sec_1_752-3 provides for the allocation of excess nonrecourse liabilities or the so called third tier allocations the regulation sanctions four methods for the allocation of excess nonrecourse liabilities first the regulation provides that a partner’s share of the excess nonrecourse liabilities defined as those not allocated under paragraphs a and a of this section of the partnership as determined in accordance with the partner’s share of partnership profits in order to determine the partner’s share of partnerships profits all facts and circumstances relating to the economic arrangement of the partners are taken into account the regulation goes on to provide a second approved method for the allocation of excess nonrecourse liabilities the second sanctioned method provides that the partnership_agreement may specify the partner’s interest in the partnership profits for purposes of allocating the excess nonrecourse liabilities provided the interests so specified are reasonably consistent with allocations of some other significant item of partnership income or gain that has substantial economic_effect under sec_704 it is this second method that is at the center of the taxpayer’s argument though not implicated under the facts of this case the regulations also provide for two other methods of allocating excess nonrecourse liabilities bringing the total to four sanctioned methods the regulations sanction the allocation of excess nonrecourse liabilities among the partners in accordance with the manner in which it is reasonably expected that the deductions attributable to those nonrecourse liabilities will be allocated finally the regulations also provide that the excess nonrecourse liabilities may first be allocated to a partner up to the amount of built-in_gain that is allocable to the partner on sec_704 property x’s position is that the allocation should be respected for purposes of tam-163386-03 sec_1_752-3 and sec_1 b the taxpayer argues that the allocation of percent of the gross_income up to the amount of the senior preferred_return is a significant item of partnership income or gain x relies on the allocation rules located in sec_1_752-3 to claim that its share of nonrecourse_liability exceeds the amount of money transferred to and thus any proceeds received by x in the distribution are excluded from consideration as proceeds of a disguised sale under sec_1_707-5 the taxpayer contends that the purpose of the second sanctioned method of allocating excess nonrecourse liabilities was to provide taxpayers a degree of certainty with regard to the amount of allocations as opposed to the uncertainty that is imbedded in the first method of third tier allocation allocated according to the partner’s share of partnership profits the taxpayer contends that because the regulations require that the government take into account all relevant facts and circumstances when determining a partner’s share of the partnership profits a taxpayer can never know with certainty what the correct percentage is for the allocation because they can never with certainty know their share of the partnership profits however we believe that the regulations reference to a significant item of partnership income or gain refers to a significant class of partnership income or gain the point of the third-tier allocation is to match the excess nonrecourse_deductions up with the manner in which the partners share a significant economic item of partnership income or gain to simply consider a single gross_income allocation in isolation does not encompass this sharing concept while it is true that the taxpayer in this case is getting percent of a specific gross_income allocation the allocation does not truly reflect overall the economic relationship between the parties with respect to that item of partnership income thus it cannot be what was intended by the third-tier allocation permitted in the regulation in other words we do not agree that the regulation’s reference to a significant item of partnership income or gain refers to a traunch of bottom-line gross or net_income rather it refers to partnership income of a certain character or type such as gain from the sale of property or tax-exempt_income this is evidenced by the use of the phrase items of income in the sec_704 regulations for example sec_1_704-1 provides that sec_704 and sec_1_704-1 apply to allocations of income gain loss deduction and credit allocations of specific items of income gain or property for which reverse sec_704 allocations are applicable where such property is subject_to the nonrecourse_liability to the extent that such built-in_gain exceeds the gain described in sec_1_752-3 it should be noted that the preferred_return of gross_income could be characterized as a guaranteed_payment see revrul_81_300 1981_2_cb_143 however that is not the issue before us under consideration and we will confine ourselves to the question posed by the field specifically the second allocation method sanctioned by sec_1_752-3 providing that the excess nonrecourse allocations will be respected if they are allocated in a manner that is consistent with the manner in which another item of significant partnership income or gain which has substantial economic_effect is allocated among the partners tam-163386-03 loss deduction and credit and allocations of partnership net or ‘bottom line’ taxable_income and loss an allocation to a partner of a share of partnership net or bottom line taxable_income or loss shall be treated as an allocation to such partner of the same share of each item_of_income gain loss and deduction that is taken into account in computing such net or ‘bottom line’ taxable_income or loss as can be seen the sec_704 regulation distinguishes between allocations of items of income and allocations of partnership net or bottom-line income more significantly the sec_704 regulation provides that an allocation of a share of partnership net_income is treated as an allocation of the same share of each item_of_income under this regulation an allocation of a percent share or traunch of partnership gross or net_income is not treated as the allocation of percent of a single item_of_income it is treated as an allocation of a percent share of each item_of_income given the interdependence between the sec_752 regulations and the sec_704 regulations we believe that it is appropriate to interpret item_of_income for purposes of the sec_752 regulations consistently with its interpretation for purposes of the sec_704 regulations thus the more appropriate view of what constitutes a significant item of partnership income or gain that has substantial economic_effect is to examine the manner in which the partners share items of economic significance and determine if the allocation is consistent with the manner in which the partners share the item for example suppose a partnership agrees to allocate the first dollar_figurex of gross_income an item_of_income or gain to partner and the remaining gross_income to partner assume further that the partnership_agreement provides that for purposes of sec_1_752-3 third-tier allocations the allocations will be made in accordance with the manner in which the partners share the first dollar_figurex of gross_income applying the taxpayer’s argument this allocation would entitle partner to of the third-tier allocations assuming that the sec_704 requirement is satisfied however assuming that total amount of gross_income that the partnership was expected to make in that same year is dollar_figurex partner is only being allocated one-fifth of the total gross_income that the partnership earns given this it is not appropriate for partner to be allocated of the third-tier allocations since it does not truly reflect the underlying economic relations of the partners therefore it is consistent with the purpose of the third-tier allocation regulations for partner to be allocated of the excess nonrecourse allocations if gross_income is the item taxpayer chooses to follow therefore the taxpayer’s argument fails to persuade us that the taxpayer is entitled to percent of the third-tier allocations under sec_1_752-3 to meet the requirements of the second method of allocating excess nonrecourse allocations sanctioned under sec_1_752-3 the allocation_ratio must reflect how the partners are sharing a significant item of partnership income or gain which has substantial economic_effect tam-163386-03 caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


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 b02 plr-128759-04 date date -------------------------------- legend x --------------------------------- a ----------------------------------- d1 dear -------------- --------------------- --------------------- this responds to a letter dated date and subsequent the information submitted states that x was incorporated on d1 a the sole sec_1362 provides that if -- a an election under sec_1362 is made for correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code shareholder of x represents that x was intended to be an s_corporation however no form_2553 election by a small_business_corporation was timely filed for x any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x plr-128759-04 has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d1 within days following the date of this letter then such election will be treated as timely made for d1 a copy of this letter should be attached to the form_2553 federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 provides that it may not be used or cited as precedent being forwarded to x pursuant to a power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer who requested it sec_6110 except as specifically set forth above no opinion is expressed concerning the sincerely audrey w ellis reviewer branch associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------ -------------------------- ----------------------------- ----------------------- --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-100974-05 date march ----------------------------------- -------------- --------------------- legend x -------------------------------------------------- sh ---------------------------------------------------- state d1 d2 d3 d4 d5 d6 d7 dollar_figurea ------------------------- ---------------------- ---------------------- ---------------------- --------------- -------------------------- -------------------------- -------------------------- plr-100974-05 dear ------------ representative requesting inadvertent termination relief under sec_1362 of the internal_revenue_code this responds to a letter dated date sent by your authorized facts on or around d7 x discovered that it had inadvertently terminated its s according to the information submitted x was incorporated on d1 pursuant to the laws of state sh x’s sole shareholder elected for x to be treated as an s_corporation effective d2 in the consecutive taxable years ending d3 d4 and d5 x received passive_investment_income within the meaning of sec_1362 in excess of of its gross_receipts furthermore x had accumulated_earnings_and_profits ae p remaining in each of these three years as a result x’s s election terminated effective on d6 corporation status x requested this ruling shortly thereafter and distributed dollar_figurea a figure which represents the entire amount of ae p held by x x and sh represent that each will file an amended_return for the taxable_year ending d3 to reflect the additional tax owed pursuant to sec_1375 in addition x represents that it paid the tax imposed by sec_1375 for the taxable years ending d4 and d5 result of tax_avoidance or retroactive tax planning x and its sole shareholder sh have consistently treated x as an s_corporation and agree to make any adjustments consistent with the treatment of x as an s_corporation that may be required by the secretary x represents that the termination of its s election was inadvertent and not the law and analysis sec_1362 provides that an election under sec_1362 shall be sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of three consecutive taxable years and has gross_receipts for each of the taxable years more than of which are passive_investment_income the termination is effective on and after the first date of the first taxable_year beginning after the third consecutive taxable_year referred to in sec_1362 sec_1362 the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities except as otherwise provided in sec_1362 sec_1362 provides that sec_1362 provides that if an election under sec_1362 by any plr-100974-05 corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consent or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken - a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection 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 such termination such corporation shall be treated as an s_corporation during the period specified by the secretary determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was not reasonably within the control of the corporation and was not part of a plan to terminate the election or the fact that the event took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event tends to establish that the termination was inadvertent adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner accumulated_earnings_and_profits at the close of a taxable_year and that has gross_receipts more than of which are passive_investment_income within the meaning of sec_1362 sec_1375 imposes a tax on the income of an s_corporation that has sec_1_1362-4 provides that the commissioner may require any sec_1_1362-4 of the income_tax regulations provides that the conclusion based solely upon the representations made and the information submitted we conclude that x’s s election terminated effective d6 because x had ae p at the close of each of three consecutive tax years and had gross_receipts for each of those tax years more than percent of which were passive_investment_income termination within the meaning of sec_1362 pursuant to the provisions of sec_1362 x we further conclude that the termination of x’s s election was an inadvertent except as specifically ruled upon above no opinion is expressed concerning the plr-100974-05 will be treated as continuing to be an s_corporation on and after d6 unless x’s s election is otherwise terminated under sec_1362 based upon the particular facts of this case no adjustments are required under sec_1362 federal_income_tax consequences of the above-described facts under any other provision of the code provides that it may not be used or cited as precedent letter is being sent to x’s authorized representative s dianna k miosi this ruling is directed only to the taxpayer s requesting it sec_6110 in accordance with the power_of_attorney on file with this office a copy of this sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes