- significant index number - é on government entities division department of the treasury internal_revenue_service washington d c nov tep ra a re taxpayer dear this letter constitutes notice that approval has been granted for your request for a year automatic_extension for amortizing the unfunded liabilities described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa the extension of the amortization periods of the unfunded liabilities of the plan has been granted in accordance with sec_431 of the code this extension is effective for the plan_year beginning date and applies to the eligible outstanding amortization charge bases as of that date sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information including a certification from the plan’s actuary that i absent the extension under subparagraph d a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iit the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph d a has been provided we have sent a copy of this letter to the ‘andtothe letter should be sent to the enrolled_actuary for the plan a copy of this this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you have any questions regarding this matter please contact sincerely david m ziegler manager employee_plans actuarial group


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 b07 plr-142756-05 date date legend legend ----------------------- p ----------------------- date --------------------------- date ---------------------- ------------------ t ------------------------ date -------------------- ------------------------ date u ------------------ -------------------- date v ------------------ ------------------------- date ------------------ w ------------------ site --------------- ------------------------ site x --- ------------------------- a y --- ------------------------- b -- z ------------------------- c -- ------------------------- d --- ------------------------- e a -- b --------------------------- f c ---------------------------------------------- prior ruling ------------------------ dear ---- this letter responds to the letter dated date submitted on behalf of v by its authorized representatives requesting rulings under sec_45k formerly sec_29 of the internal_revenue_code the facts as represented by p and p’s authorized representatives are as follows facts plr-142756-05 p received a prior ruling on date which ruled on the issues addressed by this letter p seeks a confirmation of the rulings in light of the sale of membership interests in p to x w and v and the relocation of the facility on date w sold a interest in p to x following the closing of the sale x y formed a limited_liability_company p to purchase a synthetic_fuel facility the facility that produces a solid synthetic_fuel from coal the product from a p has elected to be treated as a partnership for federal_income_tax purposes the partners of p are v w and z z is a wholly owned subsidiary of w which is a wholly owned subsidiary of y which in turn is a wholly owned subsidiary of u w y and z file a consolidated federal_income_tax return with u which is the parent of the affiliated_group z has control of the day-to-day management of p y has extensive experience in energy coal and related businesses owned a w owned b and z owned c of p in exchange for a interest in p x paid to w an amount of cash at closing and x is obligated to make certain fixed and variable payments to w p provided projections based on expected operations that the net present_value of the contingent payments to be made to w under the agreement for purchase of membership interest are less than fifty percent of the total payments made to w certain adjustments repairs and improvements have been made to the facility material preparation handling and sampling systems and the site p has provided an expert report which states that many of these adjustments repairs and improvements are not part of the facility necessary to produce synthetic_fuel the expert report concludes that the remaining adjustments repairs and improvements to the facility necessary to produce synthetic_fuel do not affect the production capacity of the facility on date the facility was relocated from site to site in connection with the relocation of the facility most major components of the facility directly necessary to produce a qualified_fuel owned by b and c and made available to p under an easement and services agreement were relocated to site certain equipment included in the original construction including the drying oven and chemical reagent application system were not relocated a new chemical reagent application system was installed in the facility at site in connection with the relocation p also installed certain equipment such as a maintenance building a building to house the facility and certain coal preparation and material handling equipment which are not directly necessary for the production of qualified_fuel following the relocation the fair_market_value of the original property included in the facility was more than of the facility’s total value the cost of the new equipment included in the facility plus the value of the original property p has entered into a synthetic_fuel and coal supply agreement with b under which b will purchase the product from p plr-142756-05 on date x sold an a membership interest in p to v pursuant to an agreement for purchase of membership interest following the closing of the sale v owned a z owned c and w owned b of the membership interests in p in exchange for the membership interests in p v paid to x an amount of cash at closing and v is obligated to make certain fixed and variable payments to x p has provided projections based on expected operations that the net present_value of the contingent payments to be made to x under the agreement for purchase of membership interest will be less than fifty percent of the total payments made to x in connection with the sale p entered into an operation and maintenance agreement with t a wholly-owned subsidiary of y for the operation and maintenance of the facility z continues to control day-to-day management of p on date z agreed to sell a d membership interest in p to w the closing of this sale is conditioned upon the receipt of this private_letter_ruling and the sale will result in a technical_termination of p under sec_708 following the closing of the sale w will own e z will own f and v will own a of the membership interests in p as members of p v w and z have made and are expected to continue to make periodic capital contributions to p to enable it to pay its operating costs and other obligations a proforma attached to the ruling_request demonstrates that project expenses are expected to exceed revenues the service recently completed an audit of p in connection with the audit the service requested and reviewed information and various documents regarding the placed-in-service facts of the facility including changes made to the facility p received signed forms 870-pt from the service which closed the audit and concluded that p’s facility was placed-in-service prior to date pursuant to a binding written contract in effect before date p has supplied a detailed description of the process employed at the facility as described the facility and the process implemented in the facility including the alternative chemical reagents meet the requirements of revproc_2001_34 2001_22_irb_1293 a recognized expert in combustion coal and chemical analysis has performed numerous tests on the coal used at the facility and the product produced at the facility and has submitted reports in which the expert concludes that significant chemical changes take place with the application of the process to the coal including the alternative chemical reagents p with use of the process expects to maintain a level of chemical change in the production of the product that is determined through similar analysis by experts to be a significant chemical change the remaining facts are the same as stated in the prior ruling the prior rulings that you wish to be reconfirmed in this private_letter_ruling are as follows p with use of the enumerated process and the specified chemical reagents will produce a qualified_fuel within the meaning of sec_29 of the code the construction_contract constitutes a binding written contract in effect plr-142756-05 before date within the meaning of sec_29 of the code the facility is placed_in_service for the purposes of sec_29 on the date that the facility was first placed in a condition or state of readiness and availability to produce qualified_fuel the sec_29 credit attributable to p may be allocated to the members of p in a termination of p under sec_708 will not preclude the reconstituted the production of qualified_fuel from the facility will be attributable solely to p within the meaning of sec_29 of the code and p will be entitled to the sec_29 credit for qualified_fuel from the facility that is sold to unrelated persons accordance with the members' interests in p when the credit arises for the allocation of the sec_29 credit a member's interest in p is determined based on a valid allocation of p’s income that arises from the receipts from the sale of the sec_29 qualified_fuel partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons because the service has determined taking into account any relocation or replacement of parts prior to date that the facility was placed_in_service prior to date within the meaning of sec_29 relocation of the facility to a different location after date or replacement of parts of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of the facility's total fair_market_value at the time of relocation or replacement the only factual changes that have occurred since the issuance of the prior ruling are the sale of membership interests in p to x w and v and the relocation of the facility as described in the ruling_request the above rulings are not affected by the sale of membership interests in p to x w and v or the relocation of the facility as described in the ruling_request ruling_request consistent with its private_letter_ruling practice that began in the mid 1990's the service in revproc_2001_30 provided that taxpayers must satisfy certain conditions in order to obtain a letter_ruling that a solid fuel other than coke produced from coal is a qualified_fuel under sec_29 revproc_2001_30 as modified by revproc_2001_34 2001_1_cb_1293 the revenue_procedure requires taxpayers to present evidence that all or substantially_all of the coal used as feedstock undergoes a significant chemical change to meet this requirement and obtain favorable private plr-142756-05 letter rulings taxpayers provided expert reports asserting that their processes resulted in a significant chemical change in announcement 2003_30_irb_222 the service announced that it was reviewing the scientific validity of test procedures and results presented of significant chemical change in expert reports in announcement 2003_46_irb_1090 the service announced that it had determined that the test procedures and results used by taxpayers were scientifically valid if the procedures were applied in a consistent and unbiased manner however the service concluded that the processes approved under its long standing ruling practice and as set forth in revproc_2001_30 did not produce the level of chemical change required by sec_29 nevertheless the service announced that it recognized that many taxpayers and their investors have relied on its long-standing ruling practice to make investments therefore the service announced that it would continue to issue rulings on significant chemical change but only under the guidelines set forth in revproc_2001_30 as modified by revproc_2001_34 this ruling is provided to p consistent with announcement and the service's long-standing ruling practice accordingly based on the expert test results submitted by p and its members we conclude that the synthetic_fuel produced at the facility using the described process and specified chemical reagents is a solid synthetic_fuel produced from coal constituting a qualified_fuel within the meaning of sec_29 because p owns the facility and operates and maintains the facility through its agent we conclude that p will be entitled to the sec_29 credit for the production of the qualified_fuel from the facility that is sold to an unrelated_person ruling_request to qualify for the sec_29 credit the facility must be placed-in-service before date pursuant to a binding written contract in effect before date although sec_29 does not define placed-in-service the term has been defined for the purposes of the deduction for depreciation and the investment_tax_credit for these purposes property is deemed to have been placed-in-service in the taxable_year that the property is placed in a condition or state of readiness and availability for a specifically assigned function sec_1_167_a_-11 and sec_1_46-3 of the income_tax regulations accordingly p’s facility will be deemed to have been placed-in-service for purposes of sec_29 on the date that the facility was first placed in a condition or state of readiness and availability to produce a qualified_fuel as discussed above the issue regarding when the facility was placed-in-service was subject_to examination the service determined without mutual concessions that p’s facility was placed-in- service prior to date pursuant to a binding written contract in effect before date it is the policy of the service that such determinations are not plr-142756-05 reconsidered absent extraordinary circumstances for example fraud or misrepresentation see irc c ruling_request sec_708 provides that a partnership shall be considered as terminated if within a twelve-month period there is a sale_or_exchange of percent or more of the total interest in partnership capital and profits sec_1_708-1 provides that if a partnership is terminated by a sale_or_exchange of an interest the following is deemed to occur the partnership contributes all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership and immediately thereafter the terminated partnership distributes interests in the new partnership to the purchasing partner and the other remaining partners in proportion to their respective interests in the terminated partnership in liquidation of the terminated partnership either for the continuation of the business by the new partnership or for its dissolution and winding up sec_1_708-1 applies to terminations of partnerships under sec_708 occurring on or after date as discussed above the placed_in_service deadline in sec_29 and sec_29 must be read as applying to when the facility is first placed_in_service within the applicable dates the placed_in_service deadlines contained in sec_29 and sec_29 focus on the facility and not the taxpayer owning the facility accordingly the placed_in_service deadline under sec_29 and sec_29 is determined by reference to when the facility is first placed_in_service therefore because the facility was placed_in_service prior to date within the meaning of sec_29 the sale of the facility after date will not result in a new placed_in_service_date for the facility for purposes of sec_29 for the new owner further a termination of p under sec_708 will not preclude the reconstituted partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons ruling_request revrul_94_31 1994_1_cb_16 concerns sec_45 which provides a credit for electricity produced from certain renewable resources including wind the credit is based on the amount of electricity produced_by_the_taxpayer at a qualified_facility during the 10-year period beginning on the date the facility was originally placed_in_service and sold by the taxpayer to an unrelated_person during the taxable_year revrul_94_31 holds that for purposes of sec_45 a facility qualifies as originally placed_in_service even though it contains some used_property provided the fair_market_value of the used_property is not more than percent of the facility's total value the cost of the new property plus the value of the used_property revrul_94_31 concerns a factual context similar to the present situation consistent with the holding in revrul_94_31 because the facility was placed_in_service prior to date within the meaning of sec_29 relocation of the facility plr-142756-05 after date or replacement of parts of the facility after that date will not result in a new placed_in_service_date for the facility or otherwise prevent the facility from continuing to be treated as originally placed_in_service prior to date if the fair_market_value of the property used at the original facility is more than percent of the facility’s total market_value immediately following the relocation or replacement the cost of the new equipment included in the facility plus the value of the property used at the original facility revrul_94_31 describes a windfarm that consists of an array of wind turbines towers pads transformers roadways fencing on-site power collection systems and monitoring and meteorological equipment notwithstanding that the windfarm consisted of all of these items the ruling concludes that the facility for purposes of sec_45 is confined to the property on the windfarm necessary for the production of electricity from wind_energy emphasis added the present situation is similar to revrul_94_31 thus for purposes of determining the facility's total fair_market_value at the time of relocation or replacement a facility consists of the process equipment directly necessary for the production of the qualified_fuel starting at the immediate input of the coal and chemical reagents to the pug mills or mixers including any coal hoppers and reagent tanks directly feeding the pug mills or mixers through the output from the briquetters or other forming equipment including output hoppers if any hence the facility's total fair_market_value includes the process equipment such as pugmills or mixers the briquetters or other forming equipment the equipment necessary to interconnect such equipment the electrical instrumentation control systems and auxiliaries related to such equipment including the structures that house such electrical instrumentation and control systems the foundation platform s for the above- referenced equipment and an appropriate allocation of the engineering project management overhead and other costs assignable to the relocation of such equipment and construction the facility's total fair_market_value does not include costs associated with the purchase and installation of equipment that supports the operation of the facility but is not directly necessary for the production of the qualified_fuel such as coal beneficiation or preparation equipment eg crushers screens dryers or scales other material handling or conveying equipment eg stacking tubes transfer towers storage bunkers mobile equipment or conveyors certain site improvements eg fencing lighting earthwork paving separate office and bathhouse trailers for facility personnel and buildings if a building for purposes of sec_168 of the code and other administrative assets sampling and quality control are necessary for operational control of a production facility however a particular type of sampling equipment generally is not necessary for the production of qualified_fuel thus the costs of sampling equipment are excluded from the facility's total fair_market_value unless the particular sampling equipment is necessary for operational control of the facility consistent with the holding in revrul_94_31 because the service has determined on examination taking into account any relocation or replacement of parts plr-142756-05 prior to date that p’s facility was placed_in_service prior to date within the meaning of sec_29 relocation of the facility to a different location after date or replacement of part of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than of the facility's total fair_market_value at the time of relocation or replacement the cost of the new equipment included in the facility plus the value of the used_property conclusions accordingly based on the representations of p and p's authorized representatives we reissue the prior rulings p with use of the enumerated process and the specified chemical reagents the construction_contract constitutes a binding written contract in effect will produce a qualified_fuel within the meaning of sec_29 of the code before date within the meaning of sec_29 of the code the facility is placed_in_service for the purposes of sec_29 on the date that the facility was first placed in a condition or state of readiness and availability to produce qualified_fuel the sec_29 credit attributable to p may be allocated to the members of p in the production of qualified_fuel from the facility will be attributable solely to p within the meaning of sec_29 of the code and p will be entitled to the sec_29 credit for qualified_fuel from the facility that is sold to unrelated persons accordance with the members' interests in p when the credit arises for the allocation of the sec_29 credit a member's interest in p is determined based on a valid allocation of p’s income that arises from the receipts from the sale of the sec_29 qualified_fuel partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons a termination of p under sec_708 will not preclude the reconstituted because the service has determined taking into account any relocation or replacement of parts prior to date that the facility was placed_in_service prior to date within the meaning of sec_29 relocation of the facility to a different location after date or replacement of parts of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of the facility's total fair_market_value at the time of relocation or replacement plr-142756-05 the conclusions drawn and rulings given in this letter are subject_to the requirements that the taxpayer i maintain sampling and quality control procedures that conform to astm or other appropriate industry guidelines at the facility that is the subject of this letter ii obtain regular reports from independent laboratories that have analyzed the fuel produced in such facility to verify that the coal used to produce the fuel undergoes a significant chemical change and iii maintain records and data underlying the reports that the taxpayer obtains from independent laboratories including raw ftir data and processed ftir data sufficient to document the selection of absorption peaks and integration points except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in this ruling see dollar_figure of revproc_2005_1 i r b however when the criteria in dollar_figure of revproc_2005_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely s joseph h makurath senior technician reviewer branch passthroughs special industries


t c memo united_states tax_court zhengnan shi petitioner v commissioner of internal revenue respondent docket no filed date zhengnan shi pro_se george w bezold for respondent memorandum opinion cohen judge respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax for the issues for decision are whether petitioner is liable for tax on unreported interest_income and if so at what tax_rate unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules of practice and procedure additionally all article references are to the agreement between the government of the united_states of america and the government of the people’s republic of china for the avoidance of double_taxation and the prevention of tax_evasion with respect to taxes on income date t i a s no big_number china treaty unless otherwise stated petitioner could not appear for trial in the united_states he initially proposed that the parties submit the case under rule but respondent was not willing to do so at the court’s urging respondent prepared a stipulation that could be the basis for submission without trial under rule but petitioner declined to execute that stipulation each party submitted a pretrial memorandum that was treated as an offer of proof for purposes of deciding the legal issues presented see rule a d background as no facts were stipulated undisputed facts were discerned from the filings of the parties which included documents that were contemporary to the relevant events of this case petitioner resided in wisconsin at the time his petition was filed petitioner a citizen of the people’s republic of china china first entered the united_states on date on an f-1 visa the f-1 visa allowed petitioner to attend u s universities where he obtained his master’s degree and doctorate in computer science in petitioner worked as a professor at a new york state university and earned wages of dollar_figure petitioner had his federal tax_return prepared by h and r block eastern enterprises on his form_1040 u s individual_income_tax_return petitioner excluded dollar_figure for personal services performed while a student in an attached treaty benefit statement petitioner stated because taxpayer has been in the u s since august on a valid and renewed f1 visa for education and training he now must file on form_1040 but is still allowed a dollar_figure income deduction under u s - china tax_treaty article c petitioner signed the tax_return which reported a refund due of dollar_figure he received the refund in date from date through date petitioner had an h-1b visa which permitted him to work as an assistant professor for the university of wisconsin-whitewater uw-whitewater during some or all of this period petitioner maintained an apartment and an office in whitewater wisconsin on or around date petitioner prepared form 1040x amended u s individual_income_tax_return for his tax_year on an attached form treaty-based return position disclosure under sec_6114 or sec_7701 petitioner explained his treaty-based return position stating that u nder the residency rules of sec_7701 the taxpayer passed the substantial_presence_test in and his residency_starting_date was date this means that for the taxpayer is a resident_alien for tax purposes and is filling sic form_1040 for as a resident_alien petitioner further stated that even though the taxpayer has become a resident_alien under the substantial_presence_test of sec_7701 he may still claim the benefit of article of the usa-china income_tax treaty the taxpayer has elected to do this and is claiming an exclusion_from_gross_income for of dollar_figure in professor wages petitioner echoed these statements in his self-made return notes under the title treaty benefit statement which he attached to his signed amended_return as a result petitioner excluded gross_income of dollar_figure and reported another refund due for on or around date petitioner received a refund of dollar_figure with respect to the amended_return petitioner also received from the government dollar_figure of interest in relation to this refund petitioner had his federal tax_return prepared by a certified_public_accountant from wellnitz tax and accounting in whitewater wisconsin on form_1040 and schedule b interest and ordinary dividends petitioner did not report the dollar_figure of refund interest as income received in petitioner did report his dollar_figure of wages from uw-whitewater but did not claim any treaty exemptions on his tax_return petitioner’s address shown on his return was in whitewater wisconsin the irs sent to petitioner a notice_of_deficiency dated date explaining that he had failed to report the interest_income petitioner timely filed a petition with this court after the spring semester uw-whitewater did not renew petitioner’s employment contract without a job petitioner applied for a b-2 visa as a temporary visitor but the visa was not granted petitioner voluntarily left the united_states in the latter part of petitioner filed the petition in this case on date petitioner’s only address shown on the petition was in whitewater wisconsin there is no record of petitioner’s having left the united_states from his arrival in date up to the latter part of petitioner’s passport shows no official markings other than a stamp displaying in part chinese characters and a stamp from the american embassy in beijing with the date date and a u s immigration stamp shown above petitioner’s u s visa indicating that petitioner was admitted into the united_states on date discussion respondent argues that petitioner was required to report the dollar_figure of interest_income that he received in on his federal tax_return for that year over the course of these proceedings petitioner has contended that if the irs had processed his tax_return correctly then he would have received any interest due from the refund in a tax_year that would have absorbed the interest_income with no taxable result the interest is exempt_income because it arose from exempt_income namely the second tax_refund which derived from a treaty exemption claimed on petitioner’s amended tax_return and in the alternative petitioner reasons that if the interest_income is required to be reported then article of the china treaty limits the tax_rate to petitioner asserts that this treaty limitation applies whether or not he was a resident_of_the_united_states and maintains that he was a resident of china in generally the taxpayer bears the burden of proving that the commissioner’s determination is incorrect rule a 290_us_111 this court has recognized an exception to these rules in cases involving unreported income where the commissioner introduces no substantive evidence but relies solely on the presumption of correctness 73_tc_394 here however petitioner admits to having received the interest_income and thus respondent’s burden is satisfied nevertheless petitioner has repeatedly asserted that the burden_of_proof lies with respondent the burden_of_proof with respect to a factual issue may be placed on the commissioner under sec_7491 if the taxpayer introduces credible_evidence regarding that issue and establishes that the taxpayer complied with the requirements to substantiate items maintain records and fully cooperate with the commissioner’s reasonable requests sec_7491 and b petitioner however has failed to establish that he complied with the requirements of sec_7491 as a result the burden of showing the interest to be nontaxable or to be taxable at a reduced_rate remains with petitioner in any event this case is decided on the preponderance of the undisputed evidence petitioner’s first contention that if he had received the interest_income in then there would be no issue is groundless the irs processed his original return in accordance with his reporting petitioner did not claim the bulk of the treaty exemptions until he filed a amended_return in his expectation that the irs should have known what he meant to report when even he and his tax_return preparation service apparently did not is an untenable position petitioner’s second contention is that the interest is exempt_income because it arose from exempt_income ie the tax_refund that derived from the treaty exemption claimed on the amended_return in the case of an overpayment_of_tax the government may credit the amount of such overpayment including any interest allowed thereon and refund any balance sec_6402 it is well-established law that interest is generally taxable as income to the recipient including interest resulting from a tax_refund see sec_61 sec_861 sec_871 sec_1 a income_tax regs see also eg muir v commissioner b t a m p-h para pincite t he interest upon the over-payment for did constitute taxable_income and such interest which was received by the petitioner should be included in the amount of his gross_income citation omitted exclusions from income are to be narrowly construed 515_us_323 petitioner failed to cite any authority for his contention that interest takes on the character of exempt_income if it is tangentially based upon exempt_income because petitioner failed to show an exclusion for interest_income deriving from a tax_refund the interest is includable in income petitioner’s alternative argument is that the interest_income is taxable but only at a rate pursuant to article while declaring himself to have been a resident solely of china in petitioner nevertheless argues that the tax_rate of article applies whether he is a resident_of_the_united_states china or both when a treaty is interpreted its words are construed according to their ordinary meaning 90_tc_802 see 457_us_176 where the internal_revenue_code provides for the taxation of income w hatever basis there may be for relieving such tax must be found in the words or implications of the treaty 373_us_49 while neither a treaty nor u s revenue laws have preferential status internal_revenue_code provisions nonetheless are to be applied with due regard to germane tax_treaty provisions sec_894 sec_7852 see amaral v commissioner t c pincite the china treaty contains the following provisions article provides that t his agreement shall apply to persons who are residents of one or both of the contracting states article c defines contracting state as meaning either china or the united_states as the context requires article provides that the term ‘resident of a contracting state’ means any person who under the laws of that contracting state is liable to tax therein by reason of his domicile residence place of head office place of incorporation or any other criterion of a similar nature article essentially provides that interest arising in a contracting state in this case the united_states and paid to a resident of the other contracting state china may be taxed in the other contracting state china however the interest may also be taxed in the contracting state united_states according to its laws--but if the recipient is the beneficial_owner of the interest the tax shall not exceed of the gross amount of the interest article thus for petitioner to benefit from the china treaty he must be considered a resident of china as defined by the china treaty petitioner argues that article residency is determined primarily by where an individual has his permanent home petitioner states that his permanent home in was in beijing china and provides as offers of proof his unsworn foreign declaration and various exhibits conversely petitioner implies that he could not have been a resident_of_the_united_states in because he never owned a permanent home there he concludes that he was a resident of china in as determined by the text of the china treaty article indicates that to be a resident of china for purposes of the china treaty petitioner must show that under chinese tax statutes and laws he was liable for taxation in because he resided or was domiciled or something to that effect in china resident domicile and other such terms as used in law have various degrees of meaning from temporary physical presence to permanent abode and the meaning of these words in a statute depends upon the context and the purpose of the statute in which they occur 44_tc_820 the court there explained the rule relating to establishing a matter of foreign law is that judicial_notice by a court cannot be taken of foreign law as opposed to local law the laws of the united_states and general matters of domestic law to which the concept of judicial_notice extends under article vi clause of the constitution treaties are laws of the united_states so that we may take judicial_notice of the tax_treaty but where in the context of a treaty the meaning of a treaty term depends upon a law of the foreign_country we may not ascertain the question of foreign law by resorting to judicial_notice a question of foreign law is a question of fact to be proved by the party having the burden_of_proof id pincite citation omitted petitioner introduced no chinese tax law as an offer of proof or otherwise and therefore did not meet this burden_of_proof the provisions of article do not apply to him because he has not shown that he was subject_to tax in china whether or not he was considered a resident_of_the_united_states in petitioner’s status as a resident_of_the_united_states in however affects the applicable_rate of tax an alien individual officially residing within the united_states ie a resident_alien is generally subject_to federal taxation in the same manner as a u s citizen and thus would file form_1040 u s individual_income_tax_return see eg 85_tc_376 explaining that the united_states taxes its citizens and ergo its residents on their worldwide income sec_1_1-1 and b income_tax regs see amaral v commissioner t c pincite a nonresident_alien_individual on the other hand is usually subject_to taxation only on u s source income and would report such income on form 1040nr u s nonresident_alien income_tax return sec_871 see eg 134_tc_190 n discussing how a nonresident_alien should use form 1040nr because among other reasons nonresident_aliens are usually ineligible for certain deductions and credits available through form_1040 generally the tax_rate imposed on nonresident_alien individuals receiving u s interest_income i sec_30 sec_871 thus for tax purposes the distinction between resident_alien and nonresident_alien could be significant an alien individual is deemed a nonresident_alien if she or he is neither a citizen_of_the_united_states nor considered a resident_of_the_united_states sec_7701 an alien individual is treated as a resident_of_the_united_states with respect to any calendar_year if such individual is a lawful permanent resident_of_the_united_states at any time during the calendar_year meets a substantial_presence_test or makes a first-year election to be treated as a resident_of_the_united_states sec_7701 there is no evidence that petitioner was lawfully admitted for permanent residence in the united_states at any time in or that he made an election to be treated as a u s resident accordingly petitioner will be treated as a resident_alien only if he meets the substantial_presence_test provided in sec_7701 the substantial_presence_test is an objective test a n individual meets the substantial_presence_test if such individual was present in the united_states on at least days during the calendar_year and for at least days during the calendar_year and the two preceding calendar years calculated pursuant to a weighted formula sec_7701 see luján v commissioner tcmemo_2000_365 slip op pincite sec_301_7701_b_-1 proced admin regs an individual is treated as present in the united_states on any day that the individual is physically present in the united_states at any time during the day sec_7701 while an individual may be treated as not being in the united_states for any day where the individual is considered exempt such as a teacher who is temporarily present in the united_states pursuant to a j or q visa such an exception does not apply here where petitioner held an h-1b visa in see sec_7701 a ii c respondent argues that petitioner was physically present in the united_states during all of the and academic years because he was employed as a professor at uw-whitewater respondent asserts therefore that petitioner was in the united_states for more than days in alone and met the substantial_presence_test rather than directly deny respondent’s allegations petitioner hypothetically poses that professors at the university of wisconsin frequently take posts in international exchanges being employed as a professor at the university of wisconsin-whitewater is no proof and does not imply that shi was physically present in the united_states that is even if shi was employed as a professor at the university of wisconsin- whitewater during all of the and academic years it does not guarantee that shi was physically present in the united_states at all during all of the and academic years petitioner states that he was unable to discover documents held by uw- whitewater that would have shown direct evidence supporting his position petitioner concludes that without convincing evidence the supposition that he met the substantial_presence_test is no more than an arbitrary statement the preponderance of evidence offered is that petitioner was present in the united_states from date to sometime in petitioner’s speculations to the contrary are weak and suspect in addition petitioner had previously attested in his tax returns that he met the substantial_presence_test in an earlier year and his actions reflect that he considered himself a resident_alien in on his federal tax_return petitioner included a note stating that because he had been in the united_states since date he had to file form_1040 a similar but more exact statement was made on his form 1040x under the residency rules of sec_7701 the taxpayer passed the substantial_presence_test in and his residency_starting_date was date this means that for the taxpayer is a resident_alien and is filling form_1040 for as a resident_alien thus petitioner a well-educated man determined through the substantial_presence_test that he was a resident_alien in and as a result remained a resident_alien in on both his tax_return and amended_return petitioner signed the jurat declaring to the best of his knowledge that the statements made within the returns were true correct and complete sec_1_871-5 income_tax regs provides loss of residence by an alien --an alien who has acquired residence in the united_states retains his status as a resident until he abandons the same and actually departs from the united_states an intention to change his residence does not change his status as a resident_alien to that of a nonresident_alien thus an alien who has acquired a residence in the united_states is taxable as a resident for the remainder of his stay in the united_states see also sec_7701 the significance of his declarations in his tax returns with respect to the tax_year in issue is that once petitioner became a resident_of_the_united_states he remained a resident until he actually departed from the united_states in petitioner’s actions--having filed form_1040 instead of form 1040nr for his and tax years--showed his understanding that he retained his resident status established in here where the facts regarding petitioner’s actual presence in the united_states in are less direct reliance in part on sec_1_871-5 income_tax regs is warranted cf 79_tc_252 finding that it was unnecessary to decide whether the taxpayer acquired residence in the united_states at some time before the year in issue because the facts were sufficient to determine whether the taxpayer was a resident during the year in issue aff’d without published opinion 755_f2d_181 d c cir there is an exception that permits individuals to avoid resident status even if they meet the substantial_presence_test sec_7701 provides for this exception in cases where an individual was present in the united_states less than one-half of the year in issue maintains a tax_home in a foreign_country and has a closer connection to the foreign_country than to the united_states petitioner failed to show that this exception applied to him in because petitioner apparently never left the united_states from date to late and had previously determined himself to be a resident_alien under the substantial_presence_test we conclude that he was a resident_alien for accordingly the interest_income was ordinary_income in and taxable under the appropriate graduated_tax rate we now briefly address petitioner’s concern as to not being able to perform discovery on uw-whitewater and others the rules of this court do not allow for third-party discovery except for depositions through subpoena rule see generally rules such depositions are extraordinary and would not have been feasible in petitioner’s absence nor appropriate in this case respondent made informal requests to various parties and those requests were honored petitioner requested information from sources with which he had disputes and followed with angry accusations that discouraged cooperation the court has no authority to order the remedies that petitioner sought by his various repetitious motions we have considered the other arguments of the parties but they are irrelevant unsupported by the record or by authority or without merit to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court affiliated foods inc a corporation petitioner v commissioner of internal revenue respondent docket no filed date william a hoy for petitioner george eb gasper for respondent this opinion is on remand of 154_f3d_527 5th cir affg in part in part and remanding tcmemo_1996_505 supplemental memorandum opinion parr judge the dispute herein involves the rule computation on remand from the opinion of the court_of_appeals for the fifth circuit on date respondent filed a computation for entry of decision for petitioner's tax years ended date and on date petitioner filed an amended computation for and that differs from respondent's computation the findings_of_fact are set forth in our previous opinion affiliated foods inc v commissioner tcmemo_1996_505 affd in part revd in part and remanded 154_f3d_527 5th cir and are incorporated herein by this reference we repeat only those facts necessary to an understanding of the instant issues petitioner is a wholesale food purchasing cooperative that supplies food and other consumer products to retail grocery stores owned by its shareholders member stores petitioner also conducts a small amount of business with stores not owned by shareholders ‘all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the taxable years in issue unless otherwise indicated member stores purchase food and other consumer products from petitioner petitioner purchases these goods from manufacturers and suppliers petitioner purchases directly from sales representatives of some manufacturers and it purchases other manufacturers' products from independent brokers brokers typically represent a variety of manufacturers or distributors unless otherwise specified we use the term vendor to refer to manufacturers' sales representatives and brokers during the years at issue manufacturers provided vendors with promotional funds these promotional funds were to be used by the vendors to increase retail sales many vendors deposited their promotional funds with petitioner in our original opinion we concluded that these funds deposited with petitioner were properly taxable to petitioner see affiliated foods inc v commissioner supra the court_of_appeals for the fifth circuit reasoned that under the circumstances of this case the promotional account funds were not taxable to petitioner see affiliated foods inc v commissioner f 3d pincite petitioner also conducted annual food shows representatives of member stores would attend these shows and place orders for various products from the vendors each vendor entered into an agreement with petitioner governing the vendor's participation in the food shows one of the conditions of participation was that the vendor would offer approved special promotions allowances and or special buys on products with the condition that all offers must be a real show special generally the product promotional allowance was paid in cash at the food show when the order was placed in our original opinion we held that the amount of currency distributed by the vendors to the member stores at the food shows was taxable to petitioner see affiliated foods inc v commissioner tcmemo_1996_505 the court_of_appeals for the fifth circuit affirmed our reasoning on this issue and stated that these cash rebates distributed at the food shows were properly characterized as disguised patronage_dividends see affiliated foods inc v commissioner f 3d pincite one of the sources for the cash used by the vendors to make payments at the food shows was the funds deposited with petitioner in the promotional accounts in the present rule computation respondent seeks to include in petitioner's taxable_income the funds withdrawn from the promotional accounts and distributed at the food shows by the vendors petitioner maintains that this inclusion is inconsistent with the decision of the court_of_appeals for the fifth circuit that the funds held with appropriate substantiation petitioner could have deducted these amounts after reporting them as income see sec_1382 and b petitioner however destroyed all documentation regarding the cash rebates distributed at the food shows except for those involving western family foods inc in the promotional accounts are not the income or property of petitioner we agree with respondent petitioner's analysis recognizes that the funds in the promotional accounts expended for advertising are not taxable to petitioner however it fails to take into account that the food show rebates are the court_of_appeals for the fifth circuit recognized that some of the food show rebates came from the promotional accounts when it stated vendors use the funds in their promotional accounts as a means of supplying vendor representatives with the necessary rebate cash see affiliated foods inc v commissioner f 3d pincite accordingly the funds withdrawn from the promotional accounts and distributed at the food shows are taxable to petitioner in addition petitioner received dollar_figure and dollar_figure from western family foods inc for distribution at the food shows in and respectively at trial petitioner acknowledged that these funds constituted income to petitioner at the time of receipt petitioner was able to substantiate that dollar_figure and dollar_figure of these funds were distributed to member stores at the food shows in and respectively thus we held that petitioner was entitled to deductions in these amounts in the original rule computation petitioner's income was increased by the difference between the amount of the funds given to petitioner by western family foods inc for use at the food shows and the amount of such funds actually distributed at the food shows thus petitioner's taxable_income was increased by dollar_figure for and dollar_figure for respectively it was discovered later that petitioner had in fact already reported these amounts the original rule computation results in a double inclusion of these amounts in income accordingly petitioner's income should be reduced by dollar_figure and dollar_figure for and respectively for the foregoing reasons decision will be entered under rule


internal_revenue_service department of the treasury index number u i l no washington dc number release date legend person to contact telephone number refer reply to cc dom p si plr-120310-98 date date company state shareholders a dear this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has two shareholders shareholders it is represented that company has intended to be an s_corporation since its incorporation believing itself to be an s_corporation company has operated accordingly after the end of its first taxable_year however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on a sec_1362 provides that a small_business_corporation may elect to be an s plr-120310-98 corporation sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours jeff erickson assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


cca-01220247-16 id uilc number release date from ---------------------- sent friday date pm to -------------------- cc --------------------------- subject application of mitigation to refund claim posts-134863-15 uil code you requested our views regarding the application of the mitigation provisions sections to a refund claim being considered by the irs examination function an estate has submitted amended form sec_1041 that are untimely unless the mitigation provisions can be properly invoked as further explained below we do not believe the mitigation provisions are properly invoked therefore we recommend the claims be denied as untimely facts the value of an asset reported on a form_706 for estate_tax purposes was challenged and litigated by the irs the same valuation listed on the form_706 was used on subsequent years’ form sec_1041 income_tax returns for purposes of reporting gain on transactions involving the asset the litigation involving the value on the form_706 was resolved based on a settlement on the issue of that asset’s value the litigation then concluded with a stipulated decision document signed by the parties and entered by the tax_court analysis in order for the mitigation provisions to apply the first requirement is that there be a determination as defined by sec_1313 the decision of the tax_court in the estate_tax form_706 case is what the estate is relying on as the determination while this may appear to meet the definition of sec_1313 it is our position that it does not for the mitigation provisions to apply a determination must involve a substantive decision on the merits which establishes that the inconsistent_position in the closed_year is erroneous see eg 72_f3d_1338 7th cir affg tcmemo_1994_492 simply because the taxpayers have met the requirements in form regarding what constitutes a determination does not mean that they have met the substantive requirements for example even though under sec_1_1313_a_-1 a decision by the tax_court or other court is a determination for mitigation purposes that decision may not have the proper substance to demonstrate that there was an inconsistent_position and that the circumstances of adjustment were described in sec_1312 see eg fong v commissioner t c memo additionally general administrative settlement agreements are not regarded as constituting determinations under sec_1313 see eg fruit of the loom supra 811_f2d_949 5th cir a settlement agreement does not indicate that the parties agreed on the particular value of the asset instead it indicates the parties reached a result both sides felt warranted conclusion of the litigation due to an acceptable result based on our review of the hearing transcript and documents filed in the case we do not believe there is a determination as defined by sec_1313 if that were the case then the question would for purposes of a complete analysis we will assume the tax_court decision is a determination under sec_1313 be whether a circumstance of adjustment in sec_1312 applies paragraph of sec_1312 requires a determination that determines basis in property which is what the estate is arguing the tax_court decision does it does reflect an agreement regarding the value or basis the same taxpayer estate and that there was an erroneous inclusion in gross_income on the form_1041 due to the incorrect valuation however because the tax_court decision is a stipulated decision neither of these circumstances is actually shown in the decision the determination does not establish the basis nor does it include in income the amount related to the basis as explained in the cases cited regarding the definition of a determination the estate will not be able to show a circumstance of adjustment applies we note that the requirements of sec_1311 are satisfied here that provision requires in a case such as this one where the adjustment would be in the taxpayer’s favor and the circumstance of adjustment is paragraph of sec_1312 that the determination tax_court decision adopt the position of the irs that is the case here where the issue was raised in the deficiency_notice and defended against by the estate as the regulations explain the estate would fail this element only if the irs did not propose the adjustment and the estate had instead raised the issue itself in order to pay the tax to later ask for a refund of the related_income tax because the value of the asset was determined through settlement negotiations that did not result in agreement on the merits but instead resulted in a general agreement on the appropriateness of settlement in order to resolve the case the mitigation provisions do not apply and the refund claim should be denied as untimely


department of the treasury internal_revenue_service washington d c sep uniform issue list sib fi a ye ty legend city a state b plan x state b statute resolution n resolution o payroll authorization form p dear this is in response to a ruling_request submitted by your authorized representative dated the federal_income_tax treatment of certain contributions to plan x under sec_414 of the internal_revenue_code code as supplemented by your letter of with respect to the following facts and representations have been submitted on your behalf page plan x was created by the state b legislature to provide retirement benefits for certain employees of city a and the employees of plan x who are government employees pursuant to state b statute plan x is a contributory retirement_system established for employees of city a and plan x plan x is administered by a board_of trustees pension board created by the state b legislature you represent that plan x is qualified under sec_401 of the code and that plan x received its most recent favorable determination_letter on plan x contains three separate benefit formulas depending on how a participant is classified a participant is classified as either a group a group b or group c member an employee may not receive service as a group a member group b member or group c member for any period in which he or she is also receiving service as a member of any other group or as a member of any other pension_plan maintained by city a however as described below a member of one group may sometimes move to another group and transfer service earned as a member of the former group to the new group a group b member may make an irrevocable election to change membership from group b to group a for future service only or for both past and future service if the member changes to group a for future service purposes only the member may later elect to convert all the prior group b service to group a service however a member who elects to convert group b service to group a service must pay the contributions that would have been paid if the member had been a group a member for the period_of_service plus interest thereon a group a member may obtain service to which he or she would be entitled except that no contributions were made by the member for the service again the member must pay the contributions that would otherwise have been required to receive the service plus interest thereon similarly a group c member who has not received all the group c service to which he or she was entitled merely because required member contributions were not made may obtain the group c service by paying the required contributions and interest lf a member's employment is terminated for other than a service disability before the member completes five years_of_service the member is not eligible to receive a pension but is entitled to a refund of an amount equal to any picked-up contributions or other authorized contributions without interest if that member returns to employment with an employer that contributes to plan x service for the pre-termination employment may be repurchased by repaying the refunded contributions with interest as described above a member who terminated employment and received a lump sum payment of the actuarial present_value of the member's benefit may if the member is reemployed and has at least two years of continuous credited service after reemployment reinstate the service for which the member received the lump sum payment by repaying the amount of the lump sum payment with interest page a member who has reemployment_rights under the uniformed_services employment and reemployment act act is entitled to obtain service in accordance with the requirements of the act by making the member contributions if any that would have been required by the act a member who has active military service for a period for which there are no rights under the act may still subject_to limitations obtain service under plan x for at least a part of the period of military service by paying to plan x the actuarially determined cost including the employer contributions of the service plus administrative costs plan x has passed resolution n to pick-up certain contributions that its employees have been required to make in order to receive additional benefits in addition city a has passed resolution o to pick up certain contributions that its employees have been required to make in order to receive additional benefits from plan x prior to the adoption of resolution n and resolution o both city a and plan x allowed members to purchase service they were entitled to purchase under the provisions of the state b statute through payment of a lump sum to plan x or by after-tax installment payments made pursuant to a written_agreement ' to pick-up the contributions plan x adopted resolution n on otherwise required by employees to purchase service they are entitled to purchase by reason of their membership in group a or group c including the repayment of refunded contributions and military service under resolution n an employee who wishes to redeposit amounts withdrawn under the state b statute or a predecessor statute or to purchase service_credit he or she is entitled to purchase under the state b statute or a predecessor statute makes the purchases with either a lump sum payment or a series of installments if a series of installment payments is to be made the employee must agree to have the installments payable by payroll deduction and execute a binding irrevocable payroll deduction authorization form payroll authorization form p that will result in these installment contributions being picked up by the employer all contributions made pursuant to payroll authorization form p to have such contributions paid in installments shall be picked up by the employer for the purpose of purchasing service under the state b statute or a predecessor statute and or redepositing amounts withdrawn under the state b statute or a predecessor statute even though such contributions may be treated differently for state law purposes and shall be paid_by the employer to plan x in lieu of the contributions by the employee also under resolution n the employer shall pay the picked-up contribution to the pension system from the same source of funds that is used in paying earnings to the employees and such payments shall be in lieu of contributions by the employees the pick-up may be made by a corresponding reduction in the cash salary of the employees by an offset against future salary increases or by any combination of salary reduction and offset against future salary increases and the employees who enter into the page irrevocable agreement shall not have the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to plan x resolution n further provides that any payroll deduction authorizations executed prior to that are in effect as of the effective date of resolution n may be converted at the option of the employee after the effective date of resolution n to authorize the service purchase or redeposit of withdrawn amounts on an installment basis in accordance with the irrevocable procedures specified in resolution n under resolution n the effective date of the pick-up of the employee’s contributions by the employer is the first day of the employee’s first pay_period beginning after the latest of the following a the date of the adoption of resolution n b c the date of the execution of payroll authorization form p or the pick up under resolution n does not apply to any contributions made before the effective date and shall not be made from compensation earned for services performed before the effective date to pick-up the contributions otherwise required by its city a has approved resolution o employees to purchase service they are entitled to purchase by reason of their membership in group a or group c including the repayment of refunded contributions and military service under resolution o an employee who wishes to redeposit amounts withdrawn under the state b statute or a predecessor statute or to purchase service_credit he or she is entitled to purchase under the state b statute or a predecessor statute may make the purchases with either a lump sum payment or a series of installments if a series of installments is to be made the employee must agree to have the installments paid_by the employer and execute a binding irrevocable authorization form that will result in these installment contributions being picked up the employer all employee contributions made pursuant to such a binding irrevocable agreement to have such contributions paid in installments shall be picked up by the employer for the purpose of purchasing service under the state b statute or a predecessor statute even though such contributions may be treated differently for state law purposes and shall be paid_by the employer to plan x in lieu of the contributions by the employee also under resolution o the employer shall pay the picked-up contributions to plan x from the same source of funds that is used in paying earnings to the employees and such payments shall be lieu of contributions by the employees the pick-up may be made by a corresponding reduction in the cash salary of the employees by an offset against future salary increases or by any combination of salary reduction and offset against future salary increases and the employees who enter into the irrevocable agreement shall not have the option to choosing to receive the contributed amounts directly instead of having them paid_by the employer to plan x page resolution o further provides that any payroll deduction authorizations executed prior to that are in effect as of the effective date of resolution o may be converted at the option of the employee after the effective date of resolution o to authorize the service purchase or redeposit withdrawn amounts on an installment basis in accordance with the irrevocable agreement procedures specified in resolution o under resolution o the effective date of the pick-up of the employee's contributions by the employer is the later of the following a the date of the adoption of resolution o b the execution of payroll authorization form p the pick up under resolution o does not apply to any contributions made before the effective date of resolution o and shall not be made from compensation earned for services performed before the effective date after the effective date of resolution n and resolution o whichever is applicable the only way members may provide for the installment purchase of service is pursuant to payroll authorization form p under the irrevocable agreement the member agrees to have the employer make the contributions the member would otherwise have made to purchase or restore service once the member enters into this agreement it may not be changed or revoked payments will stop only when all payments subject_to the agreement have been made or the member has terminated employment based on the above facts and representations plan x requests the following rulings the installment contributions made by plan x after the effective date of resolution n and pursuant to payroll authorization form p on behalf of its employees to restore service which the employees are entitled to restore under the terms of the state b statute will be treated as picked up in accordance with sec_414 of the code and are not taxable to the employee at the time such contributions are picked up the installment contributions made by city a after the effective date of resolution o and pursuant to payroll authorization form p on behalf of its employees to restore service which its employees are entitled to restore under the terms of the state b statute will be treated as picked up in accordance with sec_414 of the code and are not taxable to the employee at the time such contributions are picked up the installment contributions made by plan x after the effective date of resolution n and pursuant to payroll authorization form p on behalf of its employees to purchase service which the employees are entitled to purchase under the terms of the state b statute will be treated as picked up in accordance with sec_414 of the code and are not taxable to the employee at the time such contributions are picked up page the installment contributions made by city a after the effective date of resolution o and pursuant to payroll authorization form p on behalf of its employees to purchase service which the employees are entitled to purchase under the terms of the state b statute will be treated as picked up in accordance with sec_414 of the code and are not taxable to the employee at the time such contributions are picked up contributions made pursuant to the irrevocable agreements described in ruling_request sec_1 through above are not wages for purposes of the collection of income_tax at source on wages sec_414 of the code provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to a plan described in sec_401 of the code established by a state government or political_subdivision thereof and are picked up by the employing unit the federal_income_tax treatment to be accorded contributions that are picked up by the employer within the meaning of sec_414 of the code is specified in revrul_77_462 1977_2_cb_358 in that revenue_ruling the employer school district agreed to assume and pay the amounts employees were required by state law to contribute to a state pension_plan revrul_77_462 concluded that the school district's picked-up contributions to the plan are excluded from the employees’ gross_income until such time as they are distributed to the employees the revenue_ruling held further that under the provisions of sec_3401 of the code the school district’s contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages and that therefore no withholding is required from the employees’ salaries with respect to such picked-up contributions the issue of whether contributions have been picked up by an employer within the meaning of sec_414 of the code is addressed in revrul_81_35 1981_1_cb_255 and revrul_81_36 1981_1_cb_255 these revenue rulings established that the following two criteria must be met the employer must specify that the contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and the employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan furthermore it is immaterial for purposes of the applicability of sec_414 whether an employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both revrul_87_10 1987_1_cb_136 provides that in order to satisfy revenue rulings and the required specification of designated employee contributions must be completed before the period to which such contributions relate thus employees may not exclude from current gross_income designated employee page contributions to a qualified_plan that relate to compensation earned for services prior to the date of the last governmental action necessary to effect the employer pick up in this case with respect to the contributions to plan x on behalf of employees who have made elections pursuant to payroll authorization form p resolution n and resolution o adopted by the employers satisfy the criteria of revenue rulings and the binding irrevocable payroll deduction authorization form payroll authorization form p specifies that the contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee in addition an employee who has completed payroll authorization form p is not given the option of choosing to receive the contributed amounts directly in lieu of having them paid to plan x furthermore an employee must complete payroll authorization form p before the period to which the contributions relate also revrul_77_462 provides that picked-up contributions are exempt from federal_income_tax withholding accordingly assuming the proposed pick ups are implemented as proposed we conclude that the installment contributions made by plan x after the effective date of resolution n and pursuant to payroll authorization form p on behalf of its employees to restore service which the employees are entitled to restore under the terms of the state b statute will be treated as picked up in accordance with sec_414 of the code and are not taxable to the employee at the time such contributions are picked up the installment contributions made by city a after the effective date of resolution o and pursuant to payroll authorization form p on behalf of its employees to restore service which its employees are entitled to restore under the terms of the state b statute will be treated as picked up in accordance with sec_414 of the code and are not taxable to the employee at the time such contributions are picked up the installment contributions made by plan x after the effective date of resolution n and pursuant to payroll authorization form p on behalf of its employees to purchase service which the employees are entitled to purchase under the terms of the state b statute will be treated as picked up in accordance with sec_414 of the code and are not taxable to the employee at the time such contributions are picked up the installment contributions made by city a after the effective date of resolution o and pursuant to payroll authorization form p on behalf of its employees to purchase service which the employees are entitled to purchase under the terms of the state b statute will be treated as picked up in accordance with sec_414 of the code and are not taxable to the employee at the time such contributions are picked up page contributions made pursuant to the irrevocable agreements described in ruling_request sec_1 through above are not wages for purposes of the collection of income_tax at source on wages no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations that may be applicable thereto these rulings are based on the assumption that plan x is qualified under sec_401 of the code at the time of the proposed contributions and distributions this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office you are receiving a copy of this letter_ruling and your representative is receiving the original letter_ruling if you wish to inquire about this ruling please contact sincerely yours c pipkin alan manager technical group employee_plans _ enclosures deleted copy of ruling letter notice of intention to disclose cc internal_revenue_service ep area manager page cc