t c memo united_states tax_court unilever superannuation trustees limited petitioner v commissioner of internal revenue respondent docket no filed date k peter schmidt for petitioner gary d kallevang for respondent memorandum opinion laro judge petitioner moves for summary_judgment asserting that sec_6501 does not allow respondent to assess tax for the years in issue respondent moves for partial summary_judgment asserting primarily that the notices of deficiency are timely under sec_6501 respondent issued the notices of deficiency to petitioner on date after determining deficiencies in the and income_tax of unilever superannuation fund fund following respondent's concession that the fund does not have a deficiency for we must decide whether the notices of deficiency are timely as to and we hold they are unless otherwise indicated section references are to the internal_revenue_code in effect for the subject years dollar amounts are rounded to the nearest dollar background the fund is a_trust with its principal office in london united kingdom petitioner is the fund's trustee the fund does not engage in a trade_or_business in the united_states it does not have income effectively connected with a u s trade_or_business and it does not have income attributable to a permanent_establishment in the united_states during and the fund received dividends on stock it owned in certain domestic corporations these dividends were subject_to federal_income_tax withholding in the amounts of dollar_figure for and dollar_figure for the withholding agents withheld the required amounts of tax and remitted the withheld amounts to respondent the agents and certain financial intermediaries involved in these transactions filed with respondent and form sec_1042 annual withholding_tax returns for u s source income of foreign persons and and form sec_1042s foreign person's u s source income subject_to_withholding the agents and financial intermediaries had previously issued the fund copies of the form sec_1042s these forms were not required to and did not list the taxpayer_identification_number of either the fund or petitioner these forms also were not signed by either of these two form sec_1042 and sec_1042s make no provision for signature by the persons from whom taxes are withheld on date petitioner submitted to respondent a form 990-t exempt_organization business income_tax return claiming a refund of dollar_figure in income taxes petitioner's claim was based on its assertion that the fund was a tax-exempt_organization under sec_501 the information listed on the form 990-t included petitioner's name address and employer_identification_number and its claim that it was entitled to a dollar_figure refund for erroneous withholding on or about date respondent refunded to petitioner the dollar_figure amount that had been withheld for on date petitioner submitted to respondent a form 990-t claiming a refund of dollar_figure in income taxes petitioner's claim was based on its assertion that the fund was a tax-exempt_organization under sec_501 the information listed on the form 990-t included petitioner's name address and employer_identification_number and its claim that it was entitled to a dollar_figure refund for erroneous withholding on or about date respondent refunded to petitioner the dollar_figure amount that had been withheld for the fund did not file a or federal_income_tax return ’ for those years the fund did not have any u s source income subject_to tax other than the dividends mentioned above petitioner concedes that the fund was not a tax-exempt_entity during the subject years discussion the facts of this case are virtually identical with the facts of ici pension fund v commissioner 1t c an opinion filed today counsel in this case is the same counsel who appeared in ici pension fund in the instant case petitioner's counsel has made the same arguments as he made in ici pension fund we considered all these arguments in ici pension fund and we rejected them for the reasons stated therein we held in ici pension fund that the commissioner issued the deficiency notices to the taxpayer within the limitation period set forth in sec_6501 we hold the same here to reflect this holding ' although the fund did file claims for refunds for both years on form 990-t the parties agree that these claims are not returns for purposes of sec_6501 see 123_f3d_1460 fed cir an order will be issued granting respondent's motion for partial summary_judgment and denying petitioner's motion for summary_judgment


t c memo united_states tax_court jeffrey m guerrero and genedine r guerrero petitioners v commissioner of internal revenue respondent alan g bone and kathleen a bone petitioners v commissioner of internal revenue respondent docket nos filed date james l mcdonald sr for petitioners larry d anderson for respondent memorandum findings_of_fact and opinion gerber judge in separate notices of deficiency respondent determined deficiencies in petitioners’ income taxes and penalties as follows penalty docket no year deficiency sec_6662 a dollar_figure dollar_figure big_number big_number these cases have been consolidated for purposes of trial briefing and opinion the issues for our consideration are whether petitioners jeffrey guerrero mr guerrero and alan bone mr bone had sufficient bases in to deduct dollar_figure and dollar_figure respectively as their shares of the operating loss from a subchapter_s_corporation olympic concrete pumping inc olympic whether olympic’s income was understated by dollar_figure as the result of an error in converting book income to taxable_income and whether petitioners are liable for the penalties under sec_6662' for negligence findings_of_fact we incorporate by this reference our findings_of_fact in a j concrete pumping inc v commissioner tcmemo_2001_42 and bone v commissioner tcmemo_2001_43 petitioners jeffrey and genedine guerrero resided pincite osprey pointe woodstock georgia on the date they filed their petition in this case petitioners alan and kathleen bone resided pincite north lake drive canton georgia unless otherwise indicated all section references are to the internal_revenue_code in effect for the periods under consideration - on date messrs guerrero and bone formed olympic a subchapter_s_corporation olympic was formed to handle a concrete project in washington state messrs bone and guerrero each contributed dollar_figure in exchange for olympic’s stock a j concrete pumping inc a j concrete was a corporation in the business of pumping concrete mr bone owned percent of its stock and mr guerrero owned percent of its stock messrs bone and guerrero arranged for olympic to lease concrete and pumping trucks and to borrow capital from a j concrete olympic borrowed funds from a j concrete during olympic’s existence olympic discontinued operations in olympic kept its books_and_records on an accrual basis and converted to cash for tax purposes it reported for federal tax purposes on a calendar_year basis olympic reported a dollar_figure loss in a dollar_figure loss in and a dollar_figure loss in on olympic’s schedules l balance_sheet attached to its and tax returns olympic did not list any loan obligations to its shareholders mr bone claimed no loss from olympic for because he was not listed as a shareholder he claimed a dollar_figure loss for and carried forward a dollar_figure loss because of a basis limitation in mr bone claimed his olympic carryover loss of dollar_figure plus his 49-percent share of olympic’s loss for a total of dollar_figure q4e- mr guerrero reported a dollar_figure loss for he claimed a dollar_figure loss for and carried forward a dollar_figure loss because of a basis limitation for mr guerrero claimed his olympic carryover loss of dollar_figure plus an additional loss for a total of dollar_figure respondent determined that petitioners did not have sufficient bases to claim the losses from olympic that adjustment resulted in determinations of income_tax deficiencies for petitioners respondent also determined that petitioners were liable for accuracy-related_penalties under sec_6662 opinion i shareholder’s basis under sec_1366 an s_corporation shareholder may deduct his pro_rata share of losses deductions of the s_corporation the losses however are limited to the sum of the adjusted_basis of the shareholder’s stock in the corporation and the adjusted_basis of any indebtedness of the corporation to the shareholder see sec_1366 a and b in order to increase the basis in the indebtedness of an s_corporation there must be an economic outlay on the part of the shareholder see 875_f2d_420 4th cir affg 90_tc_206 706_f2d_755 6th cir affg tcmemo_1981_608 the economic outlay required under section - - d b must leave ‘the taxpayer poorer in a material sense’ after the transaction than when the transaction began 54_tc_1293 quoting 5_tc_250 affd per order aftr 2d ustc par 8th cir although a bona_fide loan from a shareholder to an s_corporation will increase the shareholder’s basis the shareholder must make an actual economic outlay and directly incur the indebtedness see 63_tc_468 affd 535_f2d_309 5th cir respondent contends that petitioners have insufficient bases to claim losses because they failed to establish that they made additional capital contributions or extended additional loans in petitioners argue that they wrote checks and made direct loans to olympic at trial petitioners presented an unorganized collection of checks and financial records they had previously presented these same documents to respondent during the audit examination even though the records were not in order and were difficult to understand neither petitioners nor their return preparer attempted to explain the records in any detail moreover olympic’s corporate records do not reflect that petitioners made any loans to olympic during or olympic’s and schedules l do not list any loans from -- - its shareholders thus while petitioners have introduced copies of checks they wrote to olympic they have failed to establish that those checks were considered or intended to be capital infusions or loans to olympic the checks could represent repayments of loans from olympic to petitioners or payments for expenditures that olympic made on behalf of petitioners without adequate explanation of the evidence by petitioners or their return preparer petitioners have not shown that the payments were capital in nature or that they constituted loans furthermore even assuming that the checks were evidence of direct loans from petitioners there is no evidence that the loans were outstanding on date or that the amounts had not already been used in claiming or flowthrough losses petitioners’ tax returns indicate that their bases at the end of were zero therefore as a threshold matter petitioners would have had to show that they made additional direct contributions or loans to olympic in and petitioners have simply failed to do that petitioners also argue that they pledged personal assets to secure olympic’s corporate debt despite petitioners’ argument to the contrary their pledges of personal assets to secure olympic’s debt might indicate that they were guarantors however even if petitioners were guarantors 778_f2d_769 11th cir does not apply because - there is no indication that the loans were originally made to the shareholder and the record does not indicate that the creditor looked primarily to the shareholder for repayment of the loan ’ petitioners also argue that they received a dollar_figure management fee from a j concrete in which they did not actually accept but instead constructively contributed to olympic olympic’s return however does not support petitioners’ argument there is no indication on olympic’s return that it received a capital infusion or loan from petitioners of dollar_figure moreover a j concrete’s tax returns do not list any loans to olympic after date petitioners have simply failed to show that this was the case accordingly respondent’s determination that petitioners had insufficient bases in olympic for is sustained il understated income respondent determined that olympic’s income was understated by dollar_figure as the result of an error in converting book income to taxable_income petitioners did not present any evidence on this issue and failed to address it in their post- the court_of_appeals for the eleventh circuit has also distinguished its holding in selfe v united_states f 2d lith cir see eg 187_f3d_1352 11th cir affg tcmemo_1997_530 110_tc_62 affd 194_f3d_1324 llth cir --- - trial briefs accordingly respondent’s determination that olympic understated its income by dollar_figure is sustained tit sec_6662 a respondent determined accuracy-related_penalties under sec_6662 that section imposes a penalty in the amount of percent of any portion of the underpayment attributable to negligence or disregard of rules or regulations negligence is the lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under the circumstances see 85_tc_934 the negligence_penalty will apply if among other things the taxpayer fails to maintain adequate books_and_records with regard to the items in guestion see 92_tc_899 respondent determined that petitioners are liable for the penalties on the understatements petitioners failed to address the accuracy-related_penalties in their briefs and presented no evidence at trial as to why the resulting understatements or deficiencies were reasonable petitioners did state that many records were either lost or destroyed and or not available which very likely would have substantiated further losses not income from the failed olympic concrete pumping company but did not provide any explanation for the lost or destroyed records petitioners’ returns show their awareness that losses claimed from s_corporations are limited to basis in --- - however they claimed their carryover losses from even though they had not made any capital contributions or loans in to increase their bases petitioners provided no explanation for their actions and accordingly have failed to show that their actions were reasonable and not careless or made with intentional disregard of rules or regulations petitioners are liable for the sec_6662 penalties for the tax_year we have considered all other arguments of the parties and to the extent not addressed herein we find them to be either moot without merit or irrelevant to reflect the foregoing decisions will be entered for respondent


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi br 6-plr-159539-01 date date legend buyer seller a seller b seller c seller d plant one plant two seller a’s parent seller b’s parent seller c’s parent seller d’s parent commission a commission b buyer’s parent division holding_company a b c d e f g plr-159539-01 h i j dear this letter responds to the request dated date and subsequent communications submitted by your authorized representative for a private_letter_ruling concerning the tax consequences of the sale to buyer of the interests previously held by seller a seller b seller c and seller d collectively the sellers in plant one and plant two collectively the plants and associated assets and liabilities including assets and liabilities associated with decommissioning the plants specifically you have requested rulings regarding the tax consequences under sec_468a of the internal_revenue_code to the sellers’ qualified nuclear decommissioning funds as well as rulings regarding the proper realization and recognition of gain and loss on the sale of the plants and associated assets and the proper allocation_of_basis among the assets received by buyer the sellers and buyer in a jointly-filed ruling_request have represented the following facts and information relating to the ruling_request buyer a limited_liability_company treated as a disregarded_entity for federal_income_tax purposes is a wholly-owned subsidiary of buyer’s parent buyer’s parent is wholly owned by division division a limited_liability_company treated as a disregarded_entity for federal_income_tax purposes is a wholly-owned subsidiary of holding_company a public_utility holding_company buyer is a member of holding company’s consolidated_group and joins holding_company in filing a consolidated_return on a calendar_year basis using the accrual_method of accounting buyer buyer’s parent division and holding_company are under the audit jurisdiction of the industry director natural_resources and construction lm nrc seller a a public_utility company is wholly-owned by seller a’s parent seller a owns a a percent interest in plant one and a b percent interest in plant two and has maintained two separate decommissioning funds each solely for the purpose decommissioning seller a’s respective interests in plant one and plant two the taxpayers represent that these funds satisfy the requirements necessary to be treated as qualified nuclear decommissioning funds within the meaning of sec_468a seller a also has maintained another nuclear decommissioning fund with respect to both plants that does not meet the requirements of sec_468a and represents that these funds qualify as grantor trusts under sec_671 plr-159539-01 seller b a public_utility company is wholly-owned by seller b’s parent seller b owns a c percent interest in plant two and has maintained a decommissioning fund solely for the purpose decommissioning its interest in plant two the taxpayers represent that this fund satisfies the requirements necessary to be treated as a qualified nuclear decommissioning fund within the meaning of sec_468a seller b has not maintained any other nuclear decommissioning funds with respect to plant two seller c a public_utility company is wholly-owned by seller c’s parent seller c owns a d percent interest in plant two and has maintained a decommissioning fund solely for the purpose decommissioning its interest in plant two the taxpayers represent that this fund satisfies the requirements necessary to be treated as a qualified nuclear decommissioning fund within the meaning of sec_468a seller c has not maintained any other nuclear decommissioning funds with respect to plant two seller d a public_utility company is wholly-owned by seller d’s parent seller d owns a e percent interest in plant two and maintains a decommissioning fund solely for the purpose decommissioning its interest in plant two the taxpayers represent that this fund satisfies the requirements necessary to be treated as a qualified nuclear decommissioning fund within the meaning of sec_468a seller d has not maintained any other nuclear decommissioning funds with respect to plant two each of the sellers joins its parent company in filing a consolidated_return on a calendar_year basis using the accrual_method of accounting in addition each of the sellers is subject_to the regulatory jurisdiction of commission a and commission b and is under the audit jurisdiction of the industry director natural_resources and construction lm nrc on f division entered into an asset purchase agreement with seller a to purchase seller a’s entire a percent interest in plant one division subsequently transferred it rights and obligations under the agreement to buyer the agreement contemplates that buyer will assume all decommissioning liabilities associated with plant one in addition to other plant-related liabilities seller a is obligated under the asset purchase agreement to continue to make contributions to the decommissioning funds it maintains with respect to plant one until the closing of the transaction so that the fair_market_value of the assets in the decommissioning funds at closing equals the amounts specified in the agreement the agreement requires that prior to the closing of the transaction buyer will execute a master_trust agreement that will establish a qualified nuclear decommissioning fund and a non-qualified nuclear decommissioning fund with respect to plant one at the closing of the transaction seller a will transfer all assets of seller a’s qualified nuclear decommissioning fund to buyer’s qualified nuclear decommissioning fund and all assets of seller a’s non-qualified nuclear decommissioning fund to buyer’s non-qualified nuclear decommissioning fund in addition under a separate power purchase agreement seller a has agreed to purchase power from buyer from the date of closing through g plr-159539-01 also on f division entered into an asset purchase agreement with seller a seller b seller c and seller d to purchase the sellers’ combined h percent interest in plant two division subsequently transferred it rights and obligations under the agreement to buyer the agreement contemplates that buyer will assume all decommissioning liabilities associated with plant two in addition to other plant-related liabilities the sellers are obligated under the asset purchase agreement to continue to make contributions to the decommissioning funds they each maintain with respect to plant two until the closing of the transaction so that the fair_market_value of the assets in the decommissioning funds at closing equals the amounts specified in the agreement the agreement requires that prior to the closing of the transaction buyer will execute a master_trust agreement that will establish a qualified nuclear decommissioning fund and a non-qualified nuclear decommissioning fund with respect to plant two at the closing of the transaction the sellers will transfer all assets of each seller’s qualified nuclear decommissioning fund to buyer’s qualified nuclear decommissioning fund and all assets of seller a’s non-qualified nuclear decommissioning fund to buyer’s non-qualified nuclear decommissioning fund in addition under a separate power purchase agreement the sellers have agreed to purchase power from buyer for a period of i years following the date of closing the agreement specifies that the corpus and income of buyer’s non-qualified nuclear decommissioning funds will be held for decommissioning the plants any assets remaining in buyer’s non-qualified nuclear decommissioning funds after the plants are fully decommissioned will be distributed to buyer or as directed by buyer the taxpayer represents that for federal_income_tax purposes it will treat the proposed sale including the acquisition by buyer of the assets of seller a’s non-qualified nuclear decommissioning funds as an asset purchase subject_to sec_1060 the transfer of the plants and associated assets and liabilities took place on j requested ruling buyer’s qualified nuclear decommissioning trust established to hold the assets in seller a’s qualified nuclear decommissioning fund with respect to plant one will be treated as a qualified nuclear decommissioning fund satisfying the requirements of sec_468a requested ruling buyer’s qualified nuclear decommissioning trust established to hold the assets in the sellers’ qualified nuclear decommissioning funds with respect to plant two will be treated as a qualified nuclear decommissioning fund satisfying the requirements of sec_468a sec_468a provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund the qualified_fund sec_468a limits the annual deduction of the electing taxpayer to the lesser_of the ruling_amount or the plr-159539-01 amount of decommissioning costs included in the electing taxpayer’s cost of service for ratemaking purposes for the taxable_year sec_468a provides that the ruling_amount means the amount determined by the service to be necessary to a fund that portion of the nuclear decommissioning cost with respect to the nuclear power plant that bears the same ratio to the total nuclear decommissioning costs with respect to such nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the nuclear power plant and b prevent any excessive funding of such costs or the funding of such costs at a rate more rapid than level_funding sec_468a provides that the rate_of_tax on the income of a qualified_fund is percent sec_468a provides in pertinent part that the assets in a qualified_fund shall be used exclusively for satisfying the liability of any taxpayer contributing to the qualified_fund sec_1_468a-1 of the federal_income_tax regulations provides that an eligible_taxpayer is a taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 provides that a qualifying interest is a direct ownership_interest or a leasehold interest meeting certain additional requirements sec_1_468a-1 provides in part that a nuclear power plant is any nuclear power reactor that is used predominantly in the trade_or_business of the furnishing or sale of electric energy if the rates for such furnishing or sale have been established or approved by a public_utility commission sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified_fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law an electing taxpayer can establish and maintain only one qualified_fund for each nuclear power plant sec_1_468a-5 provides that if at any time during the taxable_year a nuclear decommissioning fund does not satisfy the requirements of sec_1_468a-5 the service may disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements sec_1_468a-5 provides that if a qualified_fund is disqualified the fair_market_value with certain adjustments of the assets in the fund is deemed to be distributed to the electing taxpayer and included in that taxpayer’s gross_income for the taxable_year sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund where the transferee is an eligible_taxpayer after the transfer in addition under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a plr-159539-01 under the specific facts herein the service will exercise its discretion under sec_1_468a-6 to treat this transaction as a disposition qualifying under the general provisions of sec_1_468a-6 thus under sec_1_468a-6 the qualified nuclear decommissioning fund maintained by seller a with respect to plant one and the qualified nuclear decommissioning funds maintained by the sellers with respect to plant two will not be disqualified upon the transfer of the assets to buyer’s respective qualified nuclear decommissioning funds and both of buyer’s qualified nuclear decommissioning funds after receiving the transferred assets will be treated as qualified nuclear decommissioning funds for purposes of sec_468a requested ruling neither buyer nor buyer’s qualified nuclear decommissioning fund with respect to plant one will recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets of seller a’s qualified nuclear decommissioning fund for plant one to buyer’s qualified nuclear decommissioning fund for plant one and buyer’s qualified nuclear decommissioning fund for plant one will have a carryover_basis in the assets received from seller a’s qualified nuclear decommissioning fund for plant one requested ruling neither buyer nor buyer’s qualified nuclear decommissioning fund with respect to plant two will recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets of the sellers’ qualified nuclear decommissioning funds for plant two to buyer’s qualified nuclear decommissioning fund for plant two and buyer’s qualified nuclear decommissioning fund for plant two will have a carryover_basis in the assets received from the sellers’ qualified nuclear decommissioning fund for plant two for a transaction qualifying under sec_1_468a-6 sec_1_468a-6 provides that neither a transferee nor its fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from a transferor’s qualified_fund to a transferee’s qualified_fund thus neither buyer nor its qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets of seller a's qualified nuclear decommissioning fund with respect to plant one or by reason of the transfer of the assets of the sellers’ qualified nuclear decommissioning funds with respect to plant two to buyer’s qualified nuclear decommissioning fund sec_1_468a-6 provides that transfers of assets of a qualified_fund to which sec_1_468a-6 applies do not affect basis accordingly under sec_1_468a-6 buyer’s qualified nuclear decommissioning fund with respect to plant one will have a basis in the assets received that is the same as the basis of those assets in the qualified nuclear decommissioning fund of seller a with respect to plant one immediately before the transfer similarly buyer’s qualified nuclear decommissioning fund with respect to plant two will have a basis in the assets plr-159539-01 received that is the same as the basis of those assets in the qualified nuclear decommissioning fund of the sellers with respect to plant two immediately before the transfer requested ruling neither seller a nor seller a’s qualified nuclear decommissioning fund will recognize any gain_or_loss or otherwise take any income_or_deduction into account upon the transfer of the assets of seller a’s qualified nuclear decommissioning fund for plant one to buyer’s qualified nuclear decommissioning fund for plant one requested ruling neither the sellers nor the sellers’ qualified nuclear decommissioning funds will recognize any gain_or_loss or otherwise take any income_or_deduction into account upon the transfer of the assets of the sellers’ qualified nuclear decommissioning funds for plant two to buyer’s qualified nuclear decommissioning fund for plant two sec_1_468a-6 provides that neither a transferor nor its fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from a transferor’s qualified_fund to a transferee’s qualified_fund in a transaction to which sec_1_468a-6 applies thus neither seller a nor the qualified nuclear decommissioning fund maintained by seller a with respect to plant one will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the qualified nuclear decommissioning fund assets to buyer’s qualified nuclear decommissioning fund for plant one similarly neither the sellers nor the qualified nuclear decommissioning funds maintained by the sellers with respect to plant two will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the qualified nuclear decommissioning fund assets to buyer’s qualified nuclear decommissioning fund for plant two requested ruling seller a will determine its gain_or_loss on the sale of plant one assets by taking the difference between its tax basis in the plant one assets other than the qualified nuclear decommissioning fund for plant one and the amount_realized which will include the purchase_price and the amount of the assumed_liabilities and obligations for plant one reduced by the amount of the decommissioning liabilities for plant one to be funded by the qualified nuclear decommissioning fund maintained with respect to that unit to the extent such liabilities and obligations are taken into account as liabilities for federal_income_tax purposes requested ruling each of the sellers will determine its respective gain_or_loss on the sale of plant two assets by taking the difference between its tax basis in the plant two assets other than the qualified nuclear decommissioning fund for plant two and the amount_realized by each seller which will include the purchase_price and the plr-159539-01 amount of the assumed_liabilities and obligations for plant two reduced by the amount of the decommissioning liabilities for plant two to be funded by the qualified nuclear decommissioning fund maintained with respect to that unit to the extent such liabilities and obligations are taken into account as liabilities for federal_income_tax purposes because the transfer to buyer of the assets of the existing qualified nuclear decommissioning funds with respect to the plants will not be taxable transfers the amount of the liabilities assumed by buyer that are included in the amounts realized by seller a and the sellers respectively will not include the portion of the decommissioning liability attributable to the respective qualified nuclear decommissioning funds on the date of the transfer sec_1001 provides that gain from the sale of property shall be the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and that loss from the sale of property shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 provides that a seller’s amount_realized from the sale of property is the sum of any money received plus the fair_market_value of the property other than money received sec_1_1001-2 provides that a seller’s amount_realized from the sale of property includes the amount of liabilities from which the seller is discharged as a result of the sale this may include debt and non-debt liabilities see 84_tc_1319 assumption of lessee’s repair liability was part of amount_realized on sale of leasehold the decommissioning liability from which seller a will be relieved with respect to plant one and the decommissioning liability from which the sellers will be relieved with respect to plant two are fixed and determinable as owners and operators of nuclear plants seller a and the sellers are required_by_law to provide for eventual decommissioning of their respective interests in plant one and plant two see c f_r sec_50 sec_1060 provides that in the case of any applicable_asset_acquisition for purposes of determining the transferee’s basis and the gain_or_loss of the transferor the consideration received for the assets shall be allocated in the same manner as amounts are allocated under sec_338 see sec_1_1060-1t under sec_1060 an applicable_asset_acquisition means any transfer of assets which constitute a trade_or_business and with respect to which the transferee’s basis is determined wholly by reference to the consideration paid for such assets accordingly on the sale of seller a’s interest in plant one and of the sellers’ interests in plant two and the respective interests in the assets of the decommissioning trust funds other than those assets in the qualified funds their respective gain_or_loss on each transferred asset will be the difference between the basis of the asset and the amount_realized with respect to that asset taking into account the allocation of plr-159539-01 consideration pursuant to sec_1060 and the corresponding regulations the amount_realized from the sale of the plants and the assets in the decommissioning trust funds will include the cash received from buyer and the liabilities assumed by buyer to the extent these liabilities are taken into account for federal_income_tax purposes this would include the amount of the decommissioning liability assumed by buyer with respect to the plants not including the portion of the liability to decommission the plants attributable to the respective qualified nuclear decommissioning funds on the date of the transfer requested ruling seller a shall be entitled to a current deduction in determining its taxable_income for its taxable_year that includes the closing date of the sale of the plants in an amount equal to the total of any amounts treated as realized by seller a as a result of buyer’s assumption of the decommissioning liabilities for plant one requested ruling each of the sellers shall be entitled to a current deduction in determining its taxable_income for its taxable_year that includes the closing date of the sale of the plants in an amount equal to the total of any amounts treated as realized by each seller as a result of buyer’s assumption of the decommissioning liabilities for plant two sec_1_446-1 provides that under an accrual_method of accounting a liability is incurred and generally taken into account for federal_income_tax purposes in the year in which all the events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability sec_461 makes clear that generally the all_events_test is not treated as having been met any earlier than the taxable_year in which economic_performance has occurred with respect to a liability see also sec_1 a sec_461 provides that in the case of a liability that requires the taxpayer to provide services economic_performance occurs as the taxpayer provides the services sec_1_461-4 provides that economic_performance occurs with respect to such service liabilities as the taxpayer incurs costs in connection with the satisfaction of the liability sec_1_461-4 provides an exception to the general economic_performance rule for services where the taxpayer sells a trade_or_business where the purchaser expressly assumes a liability arising out of the taxpayer’s trade_or_business that the taxpayer but for the economic_performance requirement would have been entitled to incur as of the date of the sale economic_performance with respect to the liability occurs as the amount of the liability is properly included in the amount_realized on the sale by the taxpayer plr-159539-01 the first prong of the all_events_test requires that the fact of the liability be established at the time of the deduction this prong of the all_events_test is satisfied in the instant case here seller a clearly has the obligation to decommission plant one and each of the sellers clearly have an obligation to decommission plant two the fact of the obligation arose many years ago at the time they obtained their respective licenses to operate the plants see c f_r dollar_figure and sec_72 requiring the operator of a nuclear power plant to decommission it moreover congress recognized the existence of the decommissioning liability when in it enacted sec_461 and sec_468a noting that g enerally under federal and state laws utilities that operate nuclear power plants are obligated to decommission the plants at the end of their useful lives h_r conf_rep no see also s prt no vol 98th cong 2d sess the second prong of the all_events_test requires the amount of the liability to be reasonably determinable see sec_1_461-1 this prong is also satisfied in the instant case because the amount of seller a’s decommissioning liability with respect to plant one and the amount of each sellers’ decommissioning liability with respect to plant two has been calculated by independent evaluators in the nuclear decommissioning industry these calculations have been reviewed and accepted by both the nuclear regulatory commission and commission a in addition there is also support in the code for finding that the amount of the decommissioning liability is reasonably determinable at the time of sale sec_468a generally permits a current deduction for a ruling_amount based on estimated future decommissioning expenses to the extent the decommissioning costs are sufficiently determinable to entitle the utility to a deduction under sec_468a it is reasonable to conclude that the costs must also be sufficiently determinable to satisfy the second prong of the all_events_test given that the two prongs of the all_events_test are satisfied economic_performance with respect to the decommissioning liability occurs with respect to plant one as of the date of the sale to the extent the liability is included in seller a’s amount_realized at that time seller a will be entitled to a deduction for the amount of its decommissioning liability associated with plant one expressly assumed by the buyer and included in seller a’s amount_realized similarly economic_performance with respect to the decommissioning liability occurs with respect to plant two as of the date of the sale to the extent the liability is included in the each of the sellers’ amount_realized at that time the each of the sellers will be entitled to a deduction for the amount of its decommissioning liability associated with plant two expressly assumed by the buyer and included in each sellers’ amount_realized requested ruling in the taxable_year of the closing buyer will not recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the plr-159539-01 transfer of the assets of seller a’s non-qualified nuclear decommissioning fund for plant one to buyer’s non-qualified nuclear decommissioning fund for plant one at the closing requested ruling in the taxable_year of the closing buyer will not recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets of seller a’s non-qualified nuclear decommissioning fund for plant two to buyer’s non-qualified nuclear decommissioning fund for plant two at the closing in general a taxpayer does not realize income upon its purchase of a business’ assets even where those assets include cash or marketable_securities and in connection with the purchase the taxpayer assumes liabilities of the seller see 194_f2d_190 2d cir revrul_55_675 1955_2_cb_567 in this case buyer cannot acquire an interest in the plants without assuming the decommissioning liabilities which are inextricably associated with the ownership and operation of the plants there is no indication that the transaction is other than a bona_fide purchase of the business and its associated assets and liabilities the exception to the general_rule set forth in revrul_71_450 1971_2_cb_78 does not apply in revrul_71_450 unlike the present situation the purchaser agreed to assume the prepaid subscription liability in return for a separate cash payment and the liability was not reflected in the sales_price of the business accordingly buyer will not realize income from its acquisition of the plants or of the interests in the assets in the non-qualified fund except to the extent that under the rules of sec_1060 the amount of cash and other class_i_assets received by buyer not including the assets in the qualified_fund exceeds the amount of consideration provided by buyer and taken into account in the year of the acquisition further to the extent that buyer is entitled to take into account other consideration paid buyer will make appropriate adjustments to reflect any income previously recognized by virtue of having acquired class_i_assets in excess of the consideration taken into account in the year of the acquisition see sec_1 1t c 338-6t b and -7t b requested ruling for purposes of determining buyer’s tax basis in any specific asset included in the plant one assets excluding the qualified nuclear decommissioning fund for plant one immediately after the closing buyer’s total basis will be allocated among the plant one assets excluding the qualified nuclear decommissioning fund for plant one pursuant to the residual_method required by sec_1060 and described in sec_1_338-6 and sec_1_338-7 plr-159539-01 requested ruling for purposes of determining buyer’s tax basis in any specific asset included in the plant two assets excluding the qualified nuclear decommissioning fund for plant two immediately after the closing buyer’s total basis will be allocated among the plant two assets excluding the qualified nuclear decommissioning fund for plant two pursuant to the residual_method required by sec_1060 and described in sec_1_338-6 and sec_1_338-7 sec_1060 provides that in the case of an applicable_asset_acquisition the consideration received for such assets shall be allocated among the acquired assets in the same manner as amounts are allocated to assets under sec_338 sec_1_1060-1 provides that in the case of an applicable_asset_acquisition sellers and purchasers must allocate the consideration under the residual_method as described in sec_1_338-6 and sec_1_338-7 in order to determine respectively the amount_realized from and the basis in each of the transferred assets sec_1060 defines the term applicable_asset_acquisition as the transfer of assets constituting a trade_or_business if the acquirer’s basis is determined wholly by reference to the consideration paid for such assets sec_1_1060-1 defines a seller’s consideration as the amount in the aggregate realized from selling the assets in the applicable_asset_acquisition under sec_1001 sec_1060 provides no independent basis for determining the amount a taxpayer realizes on the sale of assets or the time such amount may be taken into account the amount_realized and the time such amount is taken into account are determined solely under generally applicable tax_accounting principles see sec_1001 and sec_461 sec_1_1060-1 defines a purchaser’s consideration as the amount in the aggregate of its cost of purchasing the assets in the applicable_asset_acquisition that is properly taken into account in basis sec_1060 provides no independent basis for determining a taxpayer’s cost of acquired assets cost is determined solely under generally applicable rules of tax_accounting the residual_method is based on a division of assets into seven classes class i generally consisting of cash and general deposit accounts held in banks savings and loan association and other depository institutions class ii generally consisting of actively_traded personal_property such as u s government securities and publicly traded stock but also including certificates of deposit and foreign_currency even if they are not actively_traded personal_property class iii accounts_receivable mortgages and credit card receivables from customers which arise in the ordinary course of business class iv stock_in_trade of the taxpayer or other_property of a kind which would properly be included in the inventory of taxpayer if on hand at the close of the taxable_year or property held by the taxpayer primarily_for_sale_to_customers in the ordinary course of its trade_or_business class v all assets other than class i ii iii iv vi and vii assets class vi all sec_197 intangibles as defined in sec_197 plr-159539-01 except goodwill and going_concern_value and class vii goodwill and going_concern_value whether or not they qualify as sec_197 intangibles consideration is first reduced by the amount of class_i_assets transferred by the seller the remaining consideration is then allocated among the class_ii_assets pro_rata to the extent of their fair_market_value then among the class_iii_assets pro_rata to the extent of their fair_market_value then among the class_iv_assets pro_rata to the extent of their fair_market_value then among the class_v_assets pro_rata to the extent of their fair_market_value then among the class_vi_assets pro_rata to the extent of their fair_market_value and finally any remaining consideration is allocated among the class_vii_assets pro_rata according to their fair_market_value see sections c b and b if under general tax principles there is a subsequent adjustment to the consideration eg if it is later determined that the actual amount of the liability assumed differs from the value that the parties assigned to such liability on the date of the applicable_asset_acquisition that amount is allocated in a manner that produces the same allocation that would have been made at the time of the acquisition had such amount been paid_or_incurred on the acquisition_date see sections a c and each of the plants together with its related equipment operating_assets and non-qualified fund assets constitute a trade_or_business in its seller’s hands and the gain_or_loss recognized by each seller with respect to those assets will be determined wholly by reference to each seller’s amount_realized thus seller a’s transfer of plant one its equipment operating_assets and non-qualified fund assets to buyer in exchange for cash a note and the assumption of the decommissioning liability except to the extent funded by the qualified_fund is an applicable_asset_acquisition as defined in sec_1060 and the regulations thereunder likewise the sellers’ transfer of their h percent undivided interests in plant two together with its equipment operating_assets and non-qualified fund assets to buyer in exchange for cash a note and the assumption of the decommissioning liability except to the extent funded by the qualified_fund is an applicable_asset_acquisition as defined in sec_1060 as such the federal tax treatment of each plant’s acquisition is determined under sec_1060 and the regulations thereunder the following example illustrates the operation of sec_1060 for a seller on date an applicable_asset_acquisition is made the assets sold consist of class_i_assets in the amount of dollar_figure class_ii_assets with a fair_market_value of dollar_figure and a basis in the hands of the seller of dollar_figure class_iii_assets with a fair_market_value of dollar_figure and a basis of dollar_figure class_iv_assets with a fair_market_value of dollar_figure and a basis of dollar_figure class_v_assets half of which are sec_1231 assets with a fair_market_value of dollar_figure and a basis of dollar_figure and the other half of which are not sec_1231 assets with a fair_market_value of dollar_figure and a basis of dollar_figure and class_vi_assets which are sec_1231 plr-159539-01 assets with a fair_market_value of dollar_figure and a basis of dollar_figure the consideration consists of dollar_figure cash and an assumed liability of dollar_figure that under applicable tax_accounting principles is taken into account at the time of the applicable_asset_acquisition the dollar_figure consideration will be first reduced by dollar_figure the amount of class_i_assets the remaining consideration will be allocated as follows dollar_figure to class_ii_assets pro_rata according to fair_market_value resulting in a dollar_figure gain dollar_figure to the class_iii_assets pro_rata according to fair_market_value resulting in no gain_or_loss dollar_figure to the class_iv_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain dollar_figure to the class_v_assets pro_rata according to the fair_market_value resulting in a dollar_figure loss on the sec_1231 assets and a dollar_figure loss on the non sec_1231 assets dollar_figure to the class_vi_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain and the remaining dollar_figure to the class_vii_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain therefore we conclude that on the sale of its interest in plant one seller a’s gain_or_loss on each of the purchased assets excluding the assets of seller a’s qualified funds will be the difference between seller a’s basis in the asset and the amount_realized with respect to that asset taking into account the allocation of consideration pursuant to sec_1060 and the regulations thereunder similarly on the sale of each seller’s interest in plant two each seller’s gain_or_loss on each of the purchased assets excluding the assets of the each seller’s qualified funds will be the difference between its proportionate basis in the asset and the proportionate amount_realized by such seller with respect to that asset taking into account the allocation of consideration pursuant to sec_1060 and the regulations thereunder with respect to the acquisition of the plants equipment operating_assets and the assets of the non-qualified funds buyer will not recognize income except to the extent the class_i_assets as defined in sec_1_338-6 it receives exceed its total cost determined under sec_1012 which will be the sum of its cash consideration if any and the fair_market_value of any other consideration buyer provides to seller s that is taken into account under applicable tax principles on the date of the applicable_asset_acquisition if buyer is thus required to take an amount into account as income and is subsequently permitted under general principles of tax law to take additional consideration into account eg when buyer satisfies the economic_performance requirement with respect to the decommissioning liability assumed buyer will be entitled to deduct and will not be required to capitalize such amount 344_us_6 therefore we conclude that in the taxable_year of closing buyer will not recognize any gain or otherwise currently take any income into account by reason of plr-159539-01 the transfer of seller a’s plant one assets to buyer provided the class_i_assets buyer receives do not exceed its total cost for plant one similarly in the taxable_year of closing buyer will not recognize any gain or otherwise currently take any income into account by reason of the transfer of any seller’s plant two assets to buyer provided the class_i_assets buyer receives do not exceed its total cost for plant two because the transfer of each plant is an applicable_asset_acquisition on the acquisition_date buyer’s basis in the assets acquired must be determined by allocating its costs ie the consideration provided by buyer on the acquisition_date which includes cash but not the assumption of the decommissioning liability among the acquired assets in accordance with the provisions of sec_1060 and the regulations thereunder the following example illustrates the operation of sec_1060 for a purchaser on date an applicable acquisition is made the assets acquired consist of class_i_assets in the amount of dollar_figure class_ii_assets with a fair_market_value of dollar_figure class_iii_assets with a fair_market_value of dollar_figure class iv asserts with a fair_market_value of dollar_figure and class_v_assets with a fair_market_value of dollar_figure there are no class vi or vii assets the consideration paid consists of dollar_figure cash and an assumed liability for which economic_performance has not occurred on date the purchaser has provided dollar_figure of consideration that may be allocated as basis it will be first reduced by dollar_figure the amount of class_i_assets the remaining dollar_figure will be allocated to class_ii_assets pro_rata according to fair_market_value nothing is allocated to class iii or below on date2 economic_performance occurs with respect to the liability to the extent of dollar_figure at that time the purchaser has an additional dollar_figure of basis that may be taken into account of that amount dollar_figure is allocated to class_ii_assets which will then have been allocated their full dollar_figure fair market value-as determined on the acquisition_date and the remaining dollar_figure is allocated to the class_iii_assets pro_rata according to fair market value-as determined on the acquisition_date on date3 economic_performance occurs to the extent of an additional dollar_figure which is then taken into account as basis of that amount dollar_figure will be allocated to the class_iii_assets which will then have been allocated their full dollar_figure fair market value-as determined on the acquisition_date dollar_figure will be allocated to the class_iv_assets which will then have been allocated their full dollar_figure fair market value-as determined on the acquisition_date dollar_figure will be allocated to the class_v_assets which will then have been allocated their full dollar_figure fair market value-as determined on the acquisition_date and the remaining dollar_figure will be allocated to the class_vii_assets as goodwill the last amount is allocated to goodwill even though goodwill was not identified as a separate asset having value on date1 if on date3 instead of an addition to purchaser’s consideration there is a dollar_figure decrease in consideration the consideration previously allocated to the class_iii_assets would be reduced to zero and the consideration plr-159539-01 previously allocated to the class_ii_assets would be reduced by the remaining dollar_figure pro_rata according to fair_market_value accordingly with respect to each plant buyer will first reduce the consideration paid_by the amount of the class_i_assets it receives in the transaction including any class_i_assets held in the non-qualified fund to the extent the class_i_assets received exceed the consideration buyer provides buyer will recognize income to the extent buyer’s consideration paid exceeds the class_i_assets it receives such excess will be allocated to the class_ii_assets pro_rata according to the fair_market_value of those assets up to their total fair_market_value any excess remaining after allocation to class_ii_assets will be allocated to class iii iv v vi and vii assets in accordance with sec_1_1060-1 and sec_1_338-6 when and to the extent additional_amounts are paid_or_incurred for the assets acquired in the applicable assets acquisition eg when and to the extent the non-qualified fund pays or incurs decommissioning expenses such amounts will be taken into account as increases to buyer’s consideration paid and allocated in the same manner and subject_to the same conditions as though they were paid_or_incurred on the acquisition_date see sec_1_1060-1 sec_1_1060-1 sec_1_338-6 and sec_1_338-7 therefore we conclude that buyer’s total consideration will be allocated among the purchased assets of plant one excluding the qualified funds for purposes of determining buyer’s tax basis in any specific asset included in the purchased assets determined immediately after the closing and excluding the qualified funds pursuant to the residual_method as required by sec_1060 and the regulations thereunder further buyer’s total consideration will be allocated among the purchased assets of plant two excluding the qualified funds for purposes of determining buyer’s tax basis in any specific asset included in the purchased assets determined immediately after the closing and excluding the qualified funds pursuant to the residual_method as required by sec_1060 and the regulations thereunder requested ruling the post-closing non-qualified nuclear decommissioning fund established for plant one under buyer’s post-closing decommissioning trust to hold the assets from seller a’s non-qualified nuclear decommissioning fund for plant one shall be considered a grantor_trust under sec_671 and buyer will be treated as the grantor of the trust requested ruling the post-closing non-qualified nuclear decommissioning fund established for plant two under buyer’s post-closing decommissioning trust to hold the assets from seller a’s non-qualified nuclear decommissioning fund for plant two shall be considered a grantor_trust under sec_671 and buyer will be treated as the grantor of the trust plr-159539-01 sec_671 provides that where it is specified in sec_673 through that the grantor or another person shall be treated as the owner of any portion of a_trust there shall be included in computing the taxable_income and credits of that person those items of income deduction 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 in computing taxable_income or credits against the tax of an individual sec_1_671-2 provides that for purposes of part i of subchapter_j chapter of the code a grantor includes any person to the extent such person either creates a_trust or directly or indirectly makes a gratuitous transfer within the meaning of sec_1_671-2 of property to a_trust for purposes of sec_1_671-2 the term property includes cash sec_1_671-2 provides that a gratuitous transfer is any transfer other than a transfer for fair_market_value sec_1_671-2 provides that for purposes of sec_1_671-2 a transfer is for fair_market_value only to the extent of the value of property received from the trust services rendered by the trust or the right to use property of the trust sec_677 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such 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 held or accumulated for future distribution to the grantor sec_1_677_a_-1 provides that under sec_677 a grantor is in general treated as the owner of a portion of a_trust whose income is or in the discretion of the grantor or a nonadverse_party or both may be applied in discharge of a legal_obligation of the grantor because buyer is treated as purchasing the assets of seller a’s non-qualified nuclear decommissioning funds for federal_income_tax purposes buyer is treated as contributing those assets as grantor to buyer’s non-qualified nuclear decommissioning funds under the terms of the nuclear decommissioning master_trust agreement all income as well as principal of buyer’s non-qualified nuclear decommissioning funds is held to satisfy buyer’s legal_obligation to decommission the plants and upon completion of the decommissioning any remaining assets will be distributed to buyer or as directed by buyer accordingly buyer is treated as the owner of each of buyer’s non-qualified nuclear decommissioning funds under sec_677 and sec_1 a - d buyer shall include in computing its taxable_income and credits all items of income deduction and credits against tax of buyer’s non-qualified nuclear decommissioning funds to the extent that such items would be taken into account in computing taxable_income or credits against the tax of buyer plr-159539-01 except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayers who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney you submitted with the request we are sending a copy of this ruling to your authorized representative we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc sincerely peter c friedman peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number -------------------------------- ------------------------------ ------------------------------------------------ -------------------------------- re ------------------------------------------------- ----------------------------------------------- department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 - plr-107919-11 date july -------------------------- ------------------------- -------------------------- legend decedent wife date date marital trust law firm ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ ---------------------------------------- dear ----------------- this letter responds to a letter from your authorized representative dated date and other correspondence requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make a reverse qualified_terminable_interest_property qtip_election under sec_2652 of the internal_revenue_code and to make an election to treat a marital trust as two separate trusts under sec_26_2652-2 of the generation-skipping_transfer_tax regulations the facts and representations submitted are summarized as follows on date decedent died survived by his descendants and wife marital trust was the only trust established under the terms of decedent’s will decedent’s estate relied on law firm to prepare the form_706 united_states estate and generation-skipping_transfer_tax return for the estate on schedule m of the form_706 an election was made under sec_2056 to treat marital trust as qualified_terminable_interest_property a schedule r was not attached to the form_706 thus the estate did not make a reverse_qtip_election and did not affirmatively allocate decedent's generation-skipping_transfer gst plr-107919-11 exemption it is represented that decedent’s full gst_exemption was available at his death and that no direct skips or other transfers to which his exemption_amount could be allocated occurred at his death in a date letter to the estate the internal_revenue_service accepted the form_706 as filed taxpayer requests extensions of time under sec_301_9100-1 and sec_301_9100-3 to make the reverse_qtip_election under sec_2652 with respect to marital trust and to make an election to treat marital trust as two separate trusts pursuant to sec_26_2652-2 so that one trust has an inclusion_ratio of zero and the other trust has an inclusion_ratio of one for gst tax purposes the reverse_qtip_election would be treated as applying only to the trust with the zero inclusion_ratio sec_2601 imposes a tax on every generation-skipping_transfer a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 in effect at the time of decedent’s death provided that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed under sec_2632 in effect at the time of decedent’s death a decedent's unused gst_exemption is automatically allocated on the due_date for filing the estate_tax_return for such individual's estate to the extent not otherwise allocated by the decedent's executor on or before that date the automatic allocation is irrevocable sec_2652 states that with respect to any trust for which a deduction is allowed under sec_2056 regarding qualified_terminable_interest_property the estate of the decedent may elect to treat all of the property in such trust for purposes of the gst tax provisions as if the qtip_election had not been made this election is referred to as the reverse_qtip_election the consequence of a reverse_qtip_election is that plr-107919-11 the decedent remains for gst tax purposes the transferor of the qtip_trust for which the election is made as a result the decedent's gst_exemption may be allocated to that qtip_trust sec_26_2652-2 provides that a reverse_qtip_election is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies sec_26_2652-2 provides that if a reverse_qtip_election is made with respect to a_trust prior to date and the gst_exemption has been allocated to that trust the transferor or the transferor's executor may elect to treat the trust as two separate trusts one of which has a zero inclusion_ratio by reason of the transferor's gst_exemption previously allocated to the trust the separate trust with the zero inclusion_ratio consists of that fractional share of the value of the entire trust equal to the value of the nontax_portion of the trust under sec_26_2642-4 the reverse_qtip_election is treated as applying only to the trust with the zero inclusion_ratio an election under this section is made by attaching a statement to a copy of the return on which the reverse_qtip_election was made under sec_2652 the statement is to be filed before date sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the 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 plr-107919-11 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer is granted an extension of time of days from the date of this letter to make a reverse_qtip_election pursuant to sec_2652 effective as of the date of decedent’s death with respect to marital trust the automatic allocation of decedent’s gst_exemption will be effective as of the date of decedent's death with respect to marital trust taxpayer is also granted an extension of time of days from the date of this letter to make the election under sec_26_2652-2 to treat marital trust as two separate trusts one of which has a zero inclusion_ratio by reason of decedent's gst_exemption allocated to marital trust the other of which has an inclusion_ratio of one the reverse_qtip_election will be treated as applying only to the trust with the zero inclusion_ratio and decedent will be considered the transferor of this portion of marital trust the reverse_qtip_election should be made on a supplemental form_706 a copy of this letter should be attached to the supplemental form_706 the election under sec_26_2652-2 should be made by completing the statement required in sec_26_2652-2 and submitting the election and a copy of the original form_706 filed by decedent’s estate along with the supplemental form_706 on which the reverse_qtip_election is made under sec_2652 to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy is enclosed for this purpose the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-107919-11 except as specifically ruled herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we are not ruling on whether trust will have a zero inclusion_ratio as a result of taxpayers’ allocations of their gst exemptions to the year transfers to the trust this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs and special industries by ____________________________ leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter