internal_revenue_service number release date index number ----------------------------------------------- --------------------------------------- ---------------------------------- ------------------------------------- -------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- no ------------------- --------------------------------------------------- telephone number --------------------- refer reply to cc ita b04 plr-103728-08 date date ------------------------------------------------------------------------- ----------------------------------- taxpayer lx state x puc ------------------------------------------------------ state y puc -------------------------------------------------- parent buyer units year x ----------------------------------------- ---------------------------------------- ------------------------------------------------------------------------------ ------- date date date --------------------------- ---------------------------- ------------------ date date date ---------------------------- --------------------------- ------------------------ dear ----------------- this responds to your request for a private_letter_ruling dated date specifically you have asked us to rule that under sec_61 of the internal_revenue_code certain amounts in a segregated fund derived from a disposition of property are not includible in taxpayer’s gross_income facts a background taxpayer is organized as a state x public electric utility subject_to the regulatory jurisdiction of state x puc state y puc and the federal energy regulatory commission ferc taxpayer is a wholly-owned subsidiary of parent and joins in the consolidated federal_income_tax return filed for the affiliated_group of parent on a calendar_year basis taxpayer and parent use the accrual_method of accounting plr-103728-08 prior to the sale transaction discussed in this ruling_request taxpayer was the owner of lx lx consists of two units unit and unit and includes supporting facilities which serve each of the two units to an equal degree b the transaction on date taxpayer and buyer entered into an asset sale agreement asa whereby buyer agreed to purchase unit and unit of lx the asa was made subject_to the satisfaction of certain conditions and receipt of approvals by various governmental authorities including the approval of the aforementioned regulators taxpayer represents that it sold lx for the benefit of its customers state x puc approved the sale because it determined that buyer could operate lx more efficiently than taxpayer to assure that the sale benefited its customers taxpayer agreed with the regulatory commissions that any book gain the excess of the amount_paid by buyer for lx over taxpayer’s adjusted_basis in lx as determined for financial_accounting purposes on the sale of lx and the excess decommissioning proceed sec_1 would accrue to the benefit of its customers while the details of this agreement were not spelled out at the time the sale was negotiated the mandate that the customers rather than taxpayer would benefit from the book gain and the excess decommissioning proceeds was established prior to the commencement of any negotiations for the sale of lx and prior to the approval requests filed with the regulatory commissions state x puc and state y puc each issued their orders approving the sale of lx on date ferc issued its order approving the sale on date state x puc in its sale order granted approval for the sale in accordance with the terms of the asa as modified by certain conditions that it imposed however state x puc delayed making a decision as to the proper disposition of the book gain from the sale and the excess decommissioning proceeds subject_to its jurisdiction until a later state x puc proceeding the sale of lx closed on date at closing buyer transferred the sale proceeds to a segregated bank account the segregated fund the trustee of the nuclear decommissioning funds pertaining to lx similarly managed the sale of the assets in the decommissioning funds and deposited the portion of the funds that were not to be transferred to buyer in the segregated fund as authorized by the regulators the term excess decommissioning proceeds refers to the gain portion of taxpayer’s non-qualified decommissioning funds nqdf’s taxpayer’s nqdf’s were not transferred to buyer as part of the sale of lx rather those amounts were required by the regulators to be refunded to customer moreover to the extent the nqdf held investments in stock or other_securities the securities were required to be sold prior to the customer refunds taxpayer believes that the gain on such sales is not includible in gross_income on the same grounds that it asserts for not including book gain from the sale of lx prior to the sale taxpayer maintained two qualified decommissioning funds and four nonqualified decommissioning funds only a portion of the assets of the qualified decommissioning funds was plr-103728-08 taxpayer removed an amount from the segregated fund equal to its book basis in lx taxpayer’s adjusted_basis in lx as determined for financial_accounting purposes the proceeds that remained in the segregated fund the remaining segregated fund amount designated to be refunded to customers consist of a the book gain attributable to the sale of lx and b the decommissioning proceeds required to be refunded to customers less c the costs incurred by taxpayer in connection with the sale the transaction costs also all of the interest earned on the net_proceeds that accumulates in the segregated fund is for the benefit of customers on date state x puc issued an interim order regarding the remaining segregated fund amount allocable to taxpayer’s state x customers the interim order provided as follows the book gain from the sale of lx shall be segregated from the internal funds of the utility and not co-mingled with other utility funds taxpayer shall refund all of the remaining segregated fund amount and any interest relating to such amount to customers in accordance with a plan approved by the commission and the segregated fund shall remain under the oversight of the commission until the entirety of the fund is fully distributed to customers on date state x puc issued a final order regarding the remaining segregated fund amount allocable to state x customers the final order provided that such amount would be returned to taxpayer’s customers entirely though bill credits provided over a three-year period in addition state y puc ordered that the portion of the remaining segregated fund amount allocable to state y customers be refunded to customers as a bill credit over an 18-month period finally ferc ordered that the remaining segregated fund amount allocable to ferc customers be refunded in a one-time payment via either check or a bill credit in year x transferred to buyer in the sale and none of non-qualified funds were transferred to buyer all of the non- qualified decommissioning funds and a portion of the qualified decommissioning funds are being refunded to customers and are held in the segregated fund however taxpayer has asked for a ruling only with respect to the portion of such refund consisting of the gain derived from the sale of securities held by the non-qualified decommissioning funds the transaction costs include out-of-pocket expenses that were incurred in evaluating strategic options for lx the costs of conducting the auction process used in the sale such as fees and expenses of attorney and consultants who assisted in soliciting and evaluating bids negotiating the transaction drafting the documents and other activities directly associated with the sale transaction costs also included the cost of obtaining regulatory approvals terminating a relationship with the operator of lx and of transferring employees to the new owner of lx plr-103728-08 taxpayer has requested rulings that the portion of the remaining segregated fund amount consisting of the book gain from the sale of lx plus the gain portion of the decommissioning funds less the aforementioned transaction costs and the interest that accrues on the amounts in the segregated fund are not includible in taxpayer’s gross_income law and analysis sec_61 of the code defines gross_income as all income from whatever source derived sec_61 specifically refers to gains derived from dealings in property as an item_of_gross_income under sec_1_61-6 of the income_tax regulations gain realized on the sale_or_exchange of property is included in gross_income unless excluded by law sec_1001 provides that a taxpayer’s gain from a sale of property is the excess of the amount_realized on the sale over the adjusted_basis of the property sold under sec_1001 the amount_realized from a sale of property is the sum of money received plus the fair_market_value of the other_property received in general gain must be recognized in the year_of_sale unless a provision of the code provides otherwise in the present case the taxpayer has requested a ruling that the book gain is not taken into account in determining gain on the sale of lx and thus not included in taxpayer’s gross_income the taxpayer argues that the book gain while paid_by buyer was not received by taxpayer because the book gain was required to be placed in the segregated fund and the taxpayer was obligated to refund it with interest to its customers for the same reasons taxpayer also asks that we rule that the gain derived from decommissioning funds and the interest accruing on the amounts in the segregated fund are not required to be included in the taxpayer’s gross_income 286_us_417 holds that amounts received under a claim of right and without restriction as to their disposition constitute income in the year of receipt even though the taxpayer later might be required to restore an equivalent amount however where a taxpayer is obligated to dispose_of the money it receives in a certain way accruing no benefit to itself the funds are not includible in the taxpayer's gross_income see 51_f2d_939 8th cir accordingly for amounts to be included in gross_income the taxpayer must have both a claim of right to such amounts and they must be received without restriction the supreme court has consistently upheld the claim-of-right doctrine see eg 340_us_590 and 345_us_278 a similar analysis applies in determining whether a taxpayer received an amount for purposes of determining the taxpayer’s gain on a sale of property plr-103728-08 in the present case the book gain amount_paid by buyer from the sale of lx along with the gain derived from the decommissioning funds were not received under a claim of right or without restriction as to their disposition from the beginning when the regulators approved the sale of lx it was always understood by the regulators and taxpayer that all of these gains were the property of the customers and that only the customers would enjoy the economic benefit of those gains these amounts were set_aside and the taxpayer was always accountable to the regulator for the way in which they were administered and distributed in addition even the interest derived from these proceeds must be paid to the customers with respect to the excess decommissioning proceeds taxpayer was also required prior to the sales that generated the excess decommissioning proceeds to place such amounts in the segregated fund so it could be refunded with interest to customers consistent with the holding of north american oil consolidated the supreme court has also stated that economic benefits qualify as income if they are undeniable accessions to wealth clearly realized and over which the taxpayers have complete dominion 348_us_426 in the present case there is no evidence of the existence of any economic benefit derived by taxpayer in the book gain from the sale or the excess decommissioning proceeds the three characteristics of income mentioned in glenshaw glass are lacking because it is the customers who are entitled to the book gain from the sale of the lx units the excess decommissioning proceeds and the interest on such amounts earned in the segregated fund it can hardly be maintained that taxpayer has received an accession to wealth that was clearly realized under the rules set out by the regulators these amounts are those of the customers not of taxpayer also because of the regulators’ control_over the money while retained in the segregated account and their required remittance in the form of bill credits and by cash payments to customers taxpayer lacks complete dominion over these funds indianapolis power light 493_us_203 is an example of the application of the principle that an amount is not received by a taxpayer as its income unless the amount is an undeniable accession to wealth clearly realized and over which the taxpayer has complete dominion in indianapolis power an electric utility indianapolis power light or ipl required certain customers with suspect credit to make deposits to insure prompt payment of future utility bills the customer was entitled to a refund of the deposit after making timely payments for several months or satisfying a credit test the customer could choose to take the refund by cash or check or to apply the refund against future bills the deposits were commingled with other receipts and at all times were subject_to ipl's unfettered use and control the service argued the deposits were advance_payments immediately includable in income ipl argued they were analogous to loans and as such not taxable the court reasoned that the distinction between advance_payments and loans was one of degree rather than kind id pincite while both bestow economic benefits to the recipient economic benefits qualify as income plr-103728-08 only if they are undeniable accessions to wealth clearly realized and over which the taxpayers have complete dominion id pincite quoting commissioner v glenshaw glass co supra the key to determining whether a taxpayer enjoys complete dominion over a given sum is whether the taxpayer has some guarantee that he will be allowed to keep the money indianapolis power light pincite the proper focus is on the rights and obligations of the parties at the time the payment was made id pincite because ipl's customers controlled the ultimate disposition of the deposit and had not committed to purchasing any electricity at the time the deposit was made the court found that ipl had no guarantee that it would be allowed to keep the money and held that the deposit amount was not income many cases have applied the above principles discussed in indianapolis power in determining whether amounts received by a taxpayer are includible in gross_income at the time of receipt these cases have consistently held that funds received by a taxpayer with an unequivocal statutory or regulatory duty to repay them and without the taxpayer otherwise receiving any economic benefit are not includible in gross_income in 204_f2d_160 9th cir a telephone utility was authorized by its regulatory commission to collect additional funds from customers in and through increased rates in order to curtail demand the commission indicated that the additional funds were not being received as additional revenue or collected for the taxpayer's benefit also the amounts collected could not inure to the benefit of the taxpayer's shareholders rather the amounts were paid into a special account over which the commission held ultimate control until these additional funds were held to be not includible in the taxpayer's gross_income in and but includible when made available to the taxpayer in in 792_f2d_683 7th cir rate increases collected by the taxpayer utility pursuant to a state commerce commission's order to discourage consumption were not includible in gross_income in the years received because such increases were not intended to enrich nor be retained by the taxpayer the taxpayer was required to repay these extra amounts to customers in later years in the form of bill credits even though the customers obtaining the benefit of the repayments were not the same customers who had paid the increased rates this result was based on the rationale that the utility was only a custodian of these overcharges with no greater beneficial_interest in the revenues collected than a bank has in money deposited with it id pincite from the time that the overcharge was first ordered in it was clear to all parties that these amounts could not be retained by the taxpayer a number of cases address the tax consequences of fuel overrecoveries to the utilities collecting them in 125_f3d_1442 fed cir fuel cost overrecoveries received were excludable because the taxpayer had a statutory obligation to repay such amounts to customers thus the taxpayer did not have unrestricted dominion and control_over such amounts when plr-103728-08 received the court reasoned that it did not matter whether the amounts were refunded by check to customers or offset against customers' bills because either method had the same effect in 114_tc_587 overrecoveries of estimated fuel and energy conservation costs were excludable because the utility did not have complete dominion and control_over such amounts upon receipt regulatory authority required the taxpayer to return overrecoveries with interest to customers as in the present case with the book gain on the sale of lx the repayment mechanism afforded the utility no opportunity to benefit from overrecoveries and the utility was subject_to a fixed and certain liability to refund overrecoveries that were determinable when the funds were received similarly in cinergy corp v united_states fed cl the taxpayer was not required to recognize fuel cost overrecoveries as income when received because it was required to return overrecoveries to its customers and it lacked complete dominion over the funds as evidenced by the fact that the time and method of refund was controlled by the regulatory authorities and the taxpayer was required to make monthly reconciliation of these accounts to the regulators see also 210_f2d_367 4th cir cert_denied 347_us_1014 676_fsupp_151 w d mich electric energy inc v united_states cl_ct 16_tc_988 and 67_tc_333 these cases may be contrasted with 841_f2d_1108 fed cir cert_denied 488_us_952 in which surcharges paid_by customers to finance construction of a power plant were includible in the utility’s taxable_income the court so held even though the surcharges were to be unconditionally refunded as a matter of regulatory policy over a 30-year period to customers through rate reductions after the plant’s construction id pincite these amounts were income to the utility because the court identified no unequivocal contractual statutory or regulatory duty to repay the taxpayer had no duty to pay interests on the amounts collected the taxpayer was using the money so derived to fund plant construction and so was more than a mere custodian and the taxpayer obviously benefited from the transaction id pincite the facts of the present case bear greater similarity to those of mutual telephone co v illinois power co v commissioner and indianapolis power light than united_states to iowa southern utilities co the book gain derived from the sale of lx was reserved from the beginning in the regulatory orders approving the sale for the benefit of the in revrul_2003_39 2003_17_irb_811 the service accepted the holdings in houston industries florida progress and cinergy corp and concluded that fuel cost and energy conservation cost overrecoveries are not includible in gross_income in the year of the overrecovery in cases involving facts substantially_similar to those in these three cases plr-103728-08 customers and not taxpayer also the gain derived from the decommissioning funds and the interest in the segregated fund accrued to the benefit of the customers these amounts will be paid to the customers and not to taxpayer under these circumstances the book gain amounts the gain from the decommissioning funds and interest attributable to such amounts were not received under a claim of right nor were they undeniable accessions to wealth clearly realized and over which taxpayer had complete dominion ruling based on the facts submitted and the representations made we rule as follows the amounts in the segregated fund consisting of the book gain from the sale of lx and the gain from decommissioning funds are not taken into account in determining taxpayer’s gross_income under sec_61 in addition interest that accrues on such amounts while in the segregated fund is not includible in gross_income caveat s except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 plr-103728-08 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely michael j montemurro branch chief branch income_tax accounting enclosure s


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-134652-13 date date ------------------------------------------------- ----------------------------------------------------------------------------- grantor distribution committee -------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- trust state trustees ------------------------------------------- ---------- ------------------------------------------------------- dear ----- ---------- this responds to a letter dated date and subsequent correspondence requesting rulings under sec_671 sec_2501 and sec_2514 of the internal_revenue_code the information submitted states that grantor proposes to create an irrevocable_trust trust for the benefit of grantor’s self grantor’s parents siblings and issue which grantor intends to execute upon receipt of a favorable private_letter_ruling from the internal_revenue_service two independent trustees are the trustees trustees of trust during grantor’s lifetime the beneficiaries of trust are grantor and grantor’s siblings however if grantor’s siblings are not living the class of permissible beneficiaries will include grantor’s parents trustees must make distributions of income and principal as directed by distribution committee and or grantor as follows at any time trustees pursuant to the direction of a majority of distribution committee with the written consent of grantor shall distribute to grantor or the beneficiaries such amounts of the net_income or principal as directed by distribution committee grantor’s consent power plr-134652-13 at any time trustees pursuant to the direction of all distribution committee members other than grantor shall distribute to the beneficiaries such amounts of the net_income or principal as directed by distribution committee unanimous member power and at any time grantor in a nonfiduciary capacity may but shall not be required to distribute to any one or more of the beneficiaries other than herself such amounts of the principal including the whole thereof as grantor deems advisable to provide for the health maintenance support and education of grantor’s issue grantor’s sole power the distribution committee may direct that distributions be made equally or unequally and to or for the benefit of any one or more of the beneficiaries of trust to the exclusion of others any net_income not distributed by trustee will be accumulated and added to principal distribution committee will be initially composed of grantor grantor’s son grantor’s siblings and grantor’s nephew and will cease to exist upon grantor’s death trust provides that at all times the distribution committee must consist of at least two adults other than grantor either who are members of the class of persons eligible to receive distributions of income or principal under trust or if there are not two adult members of such class who are willing and able to serve who are the parent or guardian of a member of such class of eligible distributes eligible individuals if at any time fewer than two eligible individuals are members the distribution committee shall be deemed not to exist a vacancy on distribution committee must be filled in the following order the oldest of the grantor’s adult issue who willing to serve and is not already serving as a member of distribution committee the oldest of the adult issue of grantor’s parents who is willing to serve and who is not already serving as a member of distribution committee the legal guardian if any or the parent of the oldest of the grantor’s minor issue who is not already serving as a member of distribution committee the legal guardian if any or the parent of the oldest minor issue of grantor’s parents who is willing to serve and is not already serving as a member of distribution committee grantor’s father or grantor’s mother if at any time distribution committee does not include at least two members distribution committee shall be deemed not to exist the distribution committee will cease to exist upon grantor’s death upon grantor’s death the trustee will dispose_of the then-remaining principal and undistributed_income of trust as grantor directs by a will specifically referring to this power_of_appointment the testamentary power provided that no such appointment may be made to grantor’s estate grantor’s creditors or the creditors of grantor’s estate grantor’s power includes the power to appoint outright or in trust and to create new powers in default of the exercise of grantor’s testamentary power the balance of plr-134652-13 trust will be distributed per stirpes to grantor’s then living issue in further trust if none of grantor’s issue is then living but any descendant of grantor’s parents is then living trustees are to allocate income and principal per stirpes among grantor’s parents issue in further trust if no descendant of grantor’s parents is then living trustees are to distribute the remaining income and principal pursuant to state law as if grantor had died intestate and unmarried you have requested the following rulings during the period distribution committee is serving no portion of the items of income deductions and credits against tax of the trust will be included in computing the taxable_income deductions and credits of the grantor under sec_671 the contribution of property to trust by grantor will not be a completed_gift subject_to federal gift_tax any distribution_of_property by the distribution committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee any distribution_of_property by distribution committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee other than grantor ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides that for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or plr-134652-13 the income therefrom if as of the inception of that portion of the trust the value of such interest exceed sec_5 percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the power in sec_674 regardless of by whom held sec_674 describes a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard which is set forth in the trust instrument sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant to its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to re-vest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof plr-134652-13 based solely on the facts submitted and representations made we conclude an examination of trust reveals none of the circumstances that would cause grantor to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 or sec_677 because none of the other distribution committee members has a power exercisable solely by himself to vest trust income or corpus in himself none shall be treated as the owner of any portion of the trust under sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of grantor under sec_675 thus the circumstances attendant on the operation of trust will determine whether grantor will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition whether for the donor’s own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 also provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor’s descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to re-vest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name plr-134652-13 new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard sec_25_2511-2 provides that a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a coholder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer’s gift was complete in when he relinquished his right to change the beneficiaries of the trust a grantor’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantor retained the grantor’s consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial plr-134652-13 adverse_interest in the disposition of the transferred property or the income therefrom the distribution committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power the distribution committee ceases to exist upon the death of grantor under sec_25_2514-3 a co- holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case the distribution committee ceases to exist upon grantor’s death accordingly the distribution committee members do not have interests adverse to grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore grantor is considered as possessing the power to distribute income and principal to any beneficiary herself because she retained the grantor’s consent power the retention of this power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes grantor also retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries in this case grantor’s sole power gives grantor the power to change the interests of the beneficiaries accordingly the retention of the grantor’s sole power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further grantor retained grantor’s testamentary power to appoint the property in trust to anyone including trusts other than grantor’s estate grantor’s creditors or the creditors of grantor’s estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal gift_tax purposes finally the distribution committee possesses the unanimous member power over income and principal this power is not a condition_precedent to grantor’s powers grantor’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent grantor retains dominion and control_over the income and principal of trust until the distribution committee members exercise their unanimous member power accordingly this power does not cause the transfer of property to be complete for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax any distribution from trust to grantor is merely a return of grantor’s property therefore we conclude that any distribution_of_property by the distribution committee from trust to grantor will not be a completed_gift subject_to plr-134652-13 federal gift_tax by any member of the distribution committee further upon grantor’s death the fair_market_value of the property in trust is includible in grantor’s gross_estate for federal estate_tax purposes ruling sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor’s estate the possessor’s creditors or the creditors of the individual’s estate sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor’s estate or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor’s power sec_25_2514-3 provides in part that a co-holder of a power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have plr-134652-13 interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the powers held by the distribution committee members under the grantor’s consent power are powers that are exercisable only in conjunction with the creator grantor accordingly under sec_2514 the distribution committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the distribution committee members under the unanimous member powers are not general powers of appointment as in the example in sec_25_2514-3 the distribution committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than grantor pursuant to the exercise of these powers the grantor’s consent power and the unanimous member powers are not gifts by the distribution committee members instead such distributions are gifts by grantor based upon the facts submitted and representations made we conclude that any distribution_of_property by the distribution committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further we conclude that any distribution_of_property from trust to a beneficiary other than grantor will be a completed_gift by grantor except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on the trust provisions permitting trustee to distribute income or principal to trustees of other qualified trusts decanting plr-134652-13 this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b05-plr-154494-02 date date legend parent sub a sub b sub c sub d new parent holdings entity a entity b date date date plr-154494-02 state a state b state c a b c dear this letter responds to your date request for rulings on certain federal_income_tax consequences of a proposed transaction the information submitted in this request and in subsequent correspondence is summarized below the rulings in this letter are based on the facts and representations submitted under penalties of perjury in support of the request verification of that information may be required as part of the audit process parent is a nonprofit nonstock state a public benefit corporation that is subject_to tax under the internal_revenue_code parent is the common parent of an affiliated_group that files a consolidated_return parent uses the accrual_method of accounting with a calendar_year end as the basis for maintaining its books of accounts and filing federal_income_tax returns sub a a state b corporation was incorporated on date as a wholly-owned for-profit subsidiary of parent sub a wholly owns sub b and sub c which are state a corporations sub b wholly owns sub d a state c_corporation state a legislation passed date requires parent to dedicate a and b percent respectively of its value to entity a and entity b upon parent’s conversion from a nonprofit nonstock to a for-profit stock corporation the conversion accordingly entity a and entity b will be issued a and b percent respectively of the stock of the converted corporation the legislation requires that entity a operate as a sec_501 organization and that entity b irrevocably dedicate its value for public purposes for what are represented to be valid business reasons on date parent consummated the conversion to a state a for-profit stock corporation and completed the following other steps the transaction plr-154494-02 i ii iii iv v new parent was organized as a for-profit state b corporation new parent formed holdings as a state a corporation and owns percent of its outstanding_stock entity a and entity b transferred parent stock to holdings in exchange for a and b percent respectively of new parent stock sub a was liquidated and parent received sub a’s assets and liabilities sub b merged into parent with parent surviving and parent assuming sub b’s name vi parent transferred its assets liabilities and c to new parent vii upon state a’s approval new parent sold its stock in an initial_public_offering in connection with the conversion it has been represented that a b c d e f g the conversion occurred under a plan formulated finalized and approved before the transaction other than expenses of entity a and entity b that were paid_by parent new parent or were paid from the initial_public_offering proceeds each party to the conversion paid its own expenses if any in connection with the transaction following the conversion parent will continue in the same business it conducted prior to the conversion immediately after the conversion parent will continue to own the assets it held prior to the conversion except for the transfer of assets described in step vi above parent is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 of the internal_revenue_code the fair_market_value of the parent stock received by entity a and entity b is approximately equal to the fair_market_value of the beneficial_interest deemed surrendered in exchange therefor parent did not transfer sec_306 stock within the meaning of sec_306 to any person in connection with the conversion plr-154494-02 h i j k parent is a loss_corporation within the meaning of sec_382 for purposes of state a law parent is the same legal entity both before and after the conversion following step iii of the transaction new parent and holdings are includible corporations as defined by sec_1504 step iii of the transaction constitutes a reverse_acquisition as defined in sec_1_1502-75 of the income_tax regulations based solely on the information submitted and on the representations set forth above it is held as follows with respect to the conversion step vi and certain issues raised by step iii described above the conversion of parent from a nonstock nonprofit corporation to a for- profit stock corporation constitutes a reorganization within the meaning of sec_368 parent is a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss is recognized by parent parent’s basis in its assets its holding_period for its assets its earnings_and_profits its annual_accounting_period and its accounting methods are not affected by the conversion no gain_or_loss is recognized by entity a or entity b on its receipt of parent shares in connection with the conversion sec_354 the distribution of parent stock pursuant to the conversion does not result in an owner shift or an ownership_change with regard to parent within the meaning of sec_382 and sec_1_382-2t parent and its consolidated_group remain in existence following step iii of the transaction with new parent as the new common parent sec_1 d the transaction qualifies as a group structure change under sec_1 f and the earnings_and_profits of new parent will be adjusted immediately after new parent becomes the new common parent to reflect the earnings_and_profits of parent immediately before the parent ceases to be the common parent in the same manner as if sec_381 applied holdings’s basis in parent stock immediately after the group structure change is parent's new asset basis as determined under sec_1_1502-31 subject_to the adjustments described in sec_1_1502-31 plr-154494-02 the distributions from parent to holdings and from holdings to new parent as described in step vi above are governed by the principles of sec_301 and c and sec_1_1502-13 pursuant to sec_3 of revproc_2002_3 2002_1_irb_117 the service will not provide rulings for the transactions described in steps i ii iii except as noted iv v or vii no opinion was requested and no opinion is expressed or implied concerning whether this transaction involves a material_change in the taxpayer’s operation or its structure under sec_833 no opinion is expressed about the tax consequences of the transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal_income_tax returns of the taxpayer involved for the taxable_year in which the transaction covered by this ruling letter is consummated pursuant to the powers of attorney on file in this office copies of this letter have been sent to the taxpayer and the taxpayer’s representative sincerely yours marnie rapaport senior counsel branch office of associate chief_counsel corporate


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-102612-18 date date legend x trust trust trust state date date dear------------------ ----------------------------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------- ----------------------------------------------------------------------------------------------------- ---------------------------------------- ----------------------------------------------------------------------------------------------------- ---------------------------------------- -------------- ------------------------ --------------------------- this responds to a letter dated date and subsequent information submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts plr-102612-18 the information submitted states that x was incorporated under the laws of state and elected to be treated as an s_corporation effective date on date shares of x stock were transferred to trust trust and trust ineligible s_corporation shareholders x represents that trust trust and trust each meet the requirements to be treated as an electing small_business trusts esbt within the meaning of sec_1361 however no election was made under sec_1361 to treat trust trust and trust as esbts effective date x represents that x and its shareholders have treated x as an s_corporation at all relevant times x further represents that trust trust and trust have each filed their income_tax returns consistent with being an esbt x represents that the failure_to_file an esbt elections for trust trust and trust was inadvertent and was not motivated by tax_avoidance or retroactive tax planning further x represents that x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation that may be required by the secretary law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1361 provides that for purposes of sec_1361 an esbt may be an s_corporation shareholder sec_1361 provides that an esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that an esbt does not include i any qualified_subchapter_s_trust as defined in sec_1361 if an election under sec_1361 applies plr-102612-18 to any corporation the stock of which is held by such trust ii any trust exempt from tax under subtitle a and iii any charitable_remainder_annuity_trust or charitable_remainder_unitrust as defined in sec_664 sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1_1361-1 of the income_tax regulations provides that the trustee of an esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1_1361-1 provides that the trustee of an esbt must file the esbt election within the time requirements prescribed in sec_1_1361-1 for filing a qsst election generally within the 16-day-and-2-month period beginning on the day that the stock is transferred to the trust sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or 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 the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified under sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and representation made we conclude x’s s election terminated on date upon the failure to timely file esbt elections for trust trust and trust we further conclude that the termination was inadvertent within the meaning of sec_1362 accordingly under sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided that x’s s election is valid and not otherwise terminated under sec_1362 this letter_ruling is subject_to the condition that within days from the date of this letter an election to treat each trust trust and trust as an esbt effective date plr-102612-18 must be made with the appropriate service_center a copy of this letter should be attached to the esbt election if this condition is not met then this ruling is null and void except as specifically ruled above we express or imply no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code specifically we express or imply no opinion regarding whether x is otherwise eligible to be an s_corporation or whether trust trust or trust are eligible to be treated as esbts this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely laura c fields laura c fields senior technician reviewer branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index no department of the treasury washington dc person to contact amanda ehrlich no telephone number refer reply to plr-111921-00 cc intl b1 date date a date b date c country d dear this is in response to your letter dated date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a's loss of u s citizenship did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 a was born on date b and became a u s citizen at birth on the basis of her father being a citizen_of_the_united_states a is a citizen and a resident of country d for income_tax purposes a renounced her united_states citizenship on date c a was present in the united_states for no more than days during each year of the 10-year period ending on the date of expatriation on the date of a's expatriation her net_worth exceeded the net_worth required under sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes plr-111921-00 sec_2107 and sec_2501 a provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 a if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a b a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 a c under notice_98_34 1998_2_cb_29 an eligible former citizen will not be presumed to have a principal purpose of tax_avoidance if that former citizen submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling under sec_877 because a became at birth a citizen_of_the_united_states and a citizen of another country and continues to be a citizen of such other country see sec_877 a submitted all the information required by notice_98_34 including any additional information requested by the service accordingly based solely on the information submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 however we further conclude that a will nevertheless be treated under sec_877 as having as one of her principal purposes of expatriating the avoidance of u s taxes because the information submitted clearly established a principal purpose to avoid taxes under subtitle a or b of the code 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 in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to her loss of u s citizenship or for taxable periods after her loss of u s citizenship under sections of the code other than sec_877 sec_2107 and sec_2501 because a is treated under sec_877 as having as one of her principal plr-111921-00 purposes for expatriating the avoidance of u s taxes she must annually file a u s income_tax return form 1040nr with the information described in notice_97_19 section vii annual information reporting for each year in the 10-year period following expatriation if she is liable for u s tax under any provision of the code as modified by sec_877 for purposes of computing the tax due under sec_877 a must recognize the realized or unrealized gains as a result of any exchange described in sec_877 d e i or d e ii in the year of the exchange for further information a should refer to the instructions to form 1040nr u s nonresident income_tax return a copy of this letter must be attached to a's u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return and to any other return required to be filed during the ten-year period following the date of a’s expatriation this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a’s representative sincerely yours ________________ w edward williams senior technical reviewer branch office of the associate chief_counsel international cc assistant_commissioner international international district operations op in d chief examination_division


internal_revenue_service number release date index number ----------------------------------- ---------------------------- --------------------------------------------------- re ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-134368-16 date date legend decedent spouse date date ------------------------------------------------------ --------------------- -------------------- ---------------------- dear -------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during his lifetime plr-134368-16 you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-134368-16 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means 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_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 plr-134368-16 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-134368-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by lorraine e gardner ________________________________ lorraine e gardner senior counsel branch office of 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 b09 plr-124344-05 date date taxpayer date state date date the facts and representations are as follows taxpayer was born on date this is in response to your authorized representative’s letter of date ------------------------- --------------------- ---------- --------------------------- -------------------------- legend dear --- ------------ requesting a special actuarial factor to be used to value certain gifts made by taxpayer during his lifetime taxpayer owned life_estate interests in twenty parcels of real_property located in state on date taxpayer released all of his life_estate interests by deeding his life_estate interest in each of the twenty parcels of real_property to the owners of the remainder interests at the time taxpayer released his life_estate interests in the twenty parcels of real_property taxpayer had been medically diagnosed as suffering from metastatic cancer and his general overall health was failing taxpayer’s medical prognosis was that he was terminally ill and that there was at least a fifty percent probability that taxpayer would die within one year of date taxpayer died on date days after date the representatives of taxpayer’s estate now request a ruling pursuant to sec_25_2512-5 of the gift_tax regulations and sec_25_7520-3 of the procedure and administration regulations for the applicable actuarial factor to be used in valuing the date release of the life_estate interests sec_25_2512-5 and sec_25_7520-3 the fair_market_value of annuities unitrust interests sec_25_2512-5 provides that except as otherwise provided in sec_25_2512-5 provides that the present_value of annuities unitrust sec_25_2512-5 provides that if the valuation_date for the gift is after sec_25_2512-5 provides generally that if the interest to be valued is plr-124344-05 life estates terms of years remainders and reversions transferred by gift is the present_value of the interests determined under sec_25_2512-5 interests life estates terms of years remainders and reversions transferred by gift after date is determined under sec_25_2512-5 date the fair_market_value of annuities life estates terms of years remainders and reversions transferred after date is the present_value of such interest determined under sec_25_2512-5 and by use of standard or special sec_7520 actuarial factors the right of a person to receive the income of certain property or to use certain nonincome-producing property for a term of years or for the life of one individual the present_value of the interest is computed by multiplying the value of the property by the appropriate term-of-years or life interest actuarial factor that corresponds to the applicable sec_7520 interest rate and term-of-years or life interest period sec_25_2512-5 provides that if a special actuarial factor is required the service may furnish the factor to the donor upon a request for a ruling the request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life the date of the gift any other applicable facts and a copy of the will trust or other relevant documents section and sec_25_7520-3 relating to exceptions to the use of prescribed tables under certain circumstances in the case of gifts made after date the fair_market_value of annuities interests for life or for a term of years including unitrust interests remainders and reversions is their present_value determined under this section an interest rate component and a mortality component the mortality component prescribed under sec_7520 may not be used to determine the present_value of an annuity income_interest remainder_interest or reversionary_interest if an individual who is a measuring life dies or is terminally ill at the time the gift is completed for purposes of this paragraph an individual who is known to have an incurable illness or other deteriorating physical condition is considered terminally ill if there is at least a percent probability that the individual will die within year however if the individual survives for eighteen months or longer after the date the gift is completed that individual shall be presumed to have not been terminally ill at the date sec_25_7520-3 provides that except as provided in sec_25_7520-3 sec_25_7520-1 provides generally that valuation under sec_7520 consists of sec_25_7520-1 provides that except as otherwise provided in this plr-124344-05 the gift was completed unless the contrary is established by clear_and_convincing evidence in the present case taxpayer released life_estate interests in each of twenty parcels of real_property on date the releases constituted completed gifts to the owners of the remainder interests in the real_property at the time the gifts were made taxpayer had been diagnosed as being terminally ill with at least a fifty percent probability that he would die within one year of date taxpayer died on date because taxpayer was terminally ill within the meaning of sec_25_7520-3 at the time of the date gifts the mortality component prescribed under sec_7520 for ordinary life_estate interests may not be used to determine the present_value of the life_estate interests released by taxpayer on date thus an actuarial factor of must be used in valuing the gifts this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely melissa c liquerman branch chief branch passthroughs special industries enclosures copy for purposes