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 b04 plr-109971-06 date june - - - - - - - - - re ----------------------------------------- re ----------------------------------------- legend grantor child a child b ba trust trust 2a ------- trust 2b ---------trust 3a ---------trust 3b ------- trust - ---------date - date - date - date - date - date - date - dollar_figurex - x - x1 - y - y1 - z - company a - company b - company c - company d - ------------------ ---------------------------------------------- ----------------------------------------------- --------------------------- --------------------------------------------------------------- ------------------------------------------------------ --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ----------------------- ---------------------------- ------------------------- ----------------------- ------------------------ ---------------- ----------------------- --------- ---------- ---------- ---------- -------- ------- ------------------------------------------------ -------------------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------- plr-109971-06 ----------------------------------------- bank buy-sell_agreement - ---------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- policy - --------------------------------------- policy - --------------------------------------- policy - --------------------------------------- policy - --------------------------------------- policy - --------------------------------------- policy - ------------------------------------------- policy - ------------------------------------------- state1 - -------- state2 - ----------- state - -------- dear ------------ this is in response to a letter dated date and prior correspondence submitted by your authorized representative requesting rulings under sec_2042 and sec_678 of the internal_revenue_code grantor died on date on date prior to his death grantor created and funded a revocable_trust trust under the terms of trust at the death of grantor the trustee is directed to distribute certain assets equally between two separate trusts for the benefit of grantor’s children child a and child b in addition on date grantor created and transferred dollar_figurex to each of two irrevocable trusts trust 2a and trust 2b for the respective benefit of child a and child b and their descendants no additional contributions have been made to either trust under trust 2a the trustee is authorized to distribute all or part of the trust income and principal to provide for child a’s support to the extent income is not distributed it is to be accumulated for future distributions for child a’s support the trustee may also make additional principal distributions for the support of child a’s spouse and descendants child a has the right to withdraw the full amount of each direct or indirect transfer to trust 2a that constitutes a completed_gift under sec_2511 this power lapses at the end of each year to the extent that the lapse would not constitute the release of a general_power_of_appointment under sec_2514 at child a’s death the trust corpus is to be distributed pursuant to child a’s exercise of a limited power to appoint the trust corpus to any person other than child a’s estate his creditors or the creditors of his estate_trust 2b contains substantially identical provisions except that child b is the primary beneficiary of that trust plr-109971-06 company a is an active business incorporated in state engaged in sales manufacturing and distribution company a owns a limited_partnership_interest in company c company c a limited_partnership operates company a’s business in state company b a limited_liability_company organized under the laws of state manages the state operations for company c currently the outstanding_stock of company a is owned as follows x percent of the outstanding_stock is owned by trust 3a a revocable_trust created by child a on date y percent of the outstanding_stock is owned by trust 3b a revocable_trust created by child b on date z percent of the outstanding_stock is owned by trust a revocable_trust created by ba an unrelated business_associate of child a and child b on date ba acquired these shares under the terms of an employment agreement the outstanding membership interests in company b are owned as follows trust 3a currently owns x1 percent of the outstanding membership interests in company b_trust 3b currently owns y1 percent of the outstanding membership interests trust owns the balance of the membership interests in addition child a child b and ba own life_insurance policies pursuant to the terms of a buy-sell_agreement covering company a and company b specifically child a currently owns policy insuring child b’s life and policy insuring ba’s life child b owns policy on child a’s life and policy on ba’s life trust ba’s revocable_trust owns policy a joint life policy payable on the death of the survivor of child a and child b in addition trust owns policy insuring the life of child a and policy insuring the life of child b on date child a child b and ba in their individual capacities and in their capacities as officers etc of company a and company b and as trustees respectively of trust 3a trust 3b and trust executed an amendment and restatement of the buy- sell agreement buy-sell_agreement covering company a and company b article of the buy-sell_agreement governs the purchase of the corporate stock sec_3_3 of the buy-sell_agreement applies in the event of the death of a shareholder under sec_3_3 generally on the death of a shareholder if one or more of policies are maintained on the shareholder’s life then the proceeds of the policy or policies must be used by the surviving shareholders to purchase the deceased shareholder’s stock in company a and his or her membership interest in company b to the extent the proceeds do not exceed the fair_market_value of those interests as that term is defined in the agreement under sec_3_7 - child a child b and ba may assign his or her rights and duties under article of buy-sell_agreement to certain trusts with respect to which the respective shareholder is a grantor sec_1 and sec_5 authorize the establishment of an insurance llc which is defined as a limited_liability_company or other entity designated to hold insurance on the life of one or more shareholders for the purpose of satisfying the plr-109971-06 obligation of one or more shareholders to purchase company a stock further sec_3_7 provides that the insurance llc will be the vehicle to secure use of life_insurance_proceeds under sec_3_3 each shareholder that is required to buy or sell stock under sec_3_3 is required to sign an agreement instructing the insurance llc manager to disburse the proceeds of the relevant policy or policies as provided in sec_3_3 in accordance with the terms of buy-sell_agreement child a child b and ba propose to organize company d a state limited_liability_company and to execute a company d operating_agreement operating_agreement under sec_2_1 child a child b and ba will each transfer to company d their respective ownership interests in policies company d will be designated as the owner and beneficiary of the policies under sec_2 b child a child b and ba may assign their respective membership rights and duties with respect to company d to certain trusts including for example trust sec_2a sec_2b sec_3a sec_3b and sec_4 under sec_2 the company will maintain a separate capital_account for each member in a manner that complies with sec_1_704-1 under sec_5 of the operating_agreement management of the company is vested in the managers and not in the members bank a national banking association is designated as the initial manger of company d under sec_5 and the members may remove or select a replacement manager by majority vote of the members any replacement must be a corporate trustee or an individual who is bonded and who is not a_related_or_subordinate_party as defined under sec_672 of the internal_revenue_code with respect to the members or their assignees sec_5 provides that subject_to the voting rights of the members the manager shall have the power on behalf of the company to do all things appropriate to carry out the business and affairs of the company section dollar_figure a provides that in no event may an individual whose life is insured under any of policies have any right to vote on company d’s exercise of incidents_of_ownership with respect to any of polices regardless of which member is insured under the policy under sec_2 b each member or his or her assignee is required to make contributions to the company d equal to the premium on the insurance policies contributed by the member the contribution will be allocated to the member’s capital_account further in accordance with sec_2 b of the operating_agreement on the death of an insured the proceeds of the insurance_policy or policies will be allocated to the capital_account of the member who contributed the policy or that member’s assignee under sec_4 b the company will distribute the proceeds of the policy to the members in proportion to their respective capital accounts maintained with respect to that policy however such distribution will be made only if the company plr-109971-06 manager determines that all obligations have been satisfied or are assured to be satisfied with respect to the policy under agreement ie the buy-sell_agreement sec_9_2 provides that company d will be dissolved on the occurrence of certain specified events one of which is the written consent of all the members on dissolution the manager is directed to distribute all insurance policies to the extent possible consistent with the intent of buy-sell_agreement you have requested the following rulings that neither child a child b or ba will possess incidents_of_ownership under sec_2042 of the internal_revenue_code with respect to policies owned by company d that under sec_678 trust 2a and 2b will be treated as grantor trusts ruling_request sec_2042 provides that the value of a decedent's gross_estate shall include the proceeds of all life_insurance policies on the decedent's life receivable by beneficiaries other than the executor of the decedent's_estate to the extent that the decedent possessed at his death any incidents_of_ownership exercisable either alone or in conjunction with any other person an incident_of_ownership includes a reversionary_interest arising by the express terms of the policy or other instrument or by operation of law only if the value of such reversionary_interest exceed sec_5 of the value of the policy immediately before the death of the decedent section c of the estate_tax regulations provides that the term incidents_of_ownership is not limited in its meaning to ownership of a policy in the technical legal sense generally speaking the term has reference to the right of the insured or his estate to the economic benefits of the policy thus it includes the power to change the beneficiary to surrender or cancel the policy to assign the policy to revoke an assignment to pledge the policy for a loan or to obtain from the insurer a loan against the surrender_value of the policy sec_20_2042-1 provides that a decedent is considered to have an incident_of_ownership in an insurance_policy on his life held in trust if under the terms of the policy the decedent either alone or in conjunction with another person or persons has the power as trustee or otherwise to change the beneficial_ownership of the policy or its proceeds or the time or manner of enjoyment thereof even though the decedent has no beneficial_interest in the trust sec_20_2042-1 provides that in the case of economic benefits of a life_insurance_policy on the decedent's life that are reserved to a corporation of which the decedent is the sole or controlling shareholder the corporation's incidents_of_ownership will not be attributed to the decedent through stock ownership to the extent the proceeds of the policy are payable to the corporation however if any part of the plr-109971-06 proceeds of the policy are not payable to or for the benefit of the corporation and thus are not taken into account in valuing the decedent's stock holdings in the corporation for purposes of sec_2031 any incidents_of_ownership held by the corporation as to that part of the proceeds will be attributed to the decedent through the stock ownership where the decedent is the sole or controlling shareholder in 25_tc_153 acq in result 1959_1_cb_4 aff'd on another issue 244_f2d_436 4th cir cert_denied 355_us_827 a partnership in which the decedent was a general_partner owned insurance policies on the decedent's life at his death the partnership paid the premiums on all of the policies and the insurance proceeds were payable to the partnership the court found that the partnership purchased the policies in the ordinary course of business and held that the decedent in his individual capacity had no incidents_of_ownership in the policies and therefore the policies were not includible in the decedent's gross_estate under the predecessor to sec_2042 revrul_83_147 1983_2_cb_158 considers whether incidents_of_ownership in an insurance_policy owned by a general_partnership would be attributed to the insured general_partner in the revenue_ruling a general_partnership obtained a whole_life_insurance policy on the life of one of its partners the partnership made the premium payments in partial satisfaction of the insured partner's_distributive_share of partnership income and the insured partner's child was designated as the beneficiary of the policy when the partner died the face_amount of the policy was paid to the child the revenue_ruling distinguishes estate of knipp supra on the basis that in estate of knipp the insurance proceeds were paid to the partnership and the inclusion of the proceeds in the gross_estate under sec_2042 would have resulted in unwarranted double_taxation of a substantial portion of the proceeds because the proceeds were reflected in the value of decedent's partnership_interest in contrast in the revenue_ruling the proceeds are payable to a third party for a purpose unrelated to the general_partnership business and thus would not be included in the value of the partnership_interest included in the gross_estate accordingly the ruling concludes that under these circumstances the incidents_of_ownership are treated as held by the insured general_partner in conjunction with the other partners the ruling further states that the irs does not agree with any implication in estate of knipp that incidents_of_ownership possessed by a partnership should not be attributed to an insured partner when the proceeds are payable other than to or for the benefit of the partnership in the present case the terms of the operating_agreement preclude child a child b and ba from exercising any control_over the management and investment decisions of company d or from taking part in the control of company d’s business to sign for or bind company d to participate in the day-to-day affairs and management of company d or to take part in or vote in the management and operations of company d further an individual member whose life is insured under a policy owned by company d can not vote on company d’s exercise of incidents_of_ownership with respect to any of policies if company d is dissolved the manger is directed to distribute the life_insurance polices consistent with the terms of the buy-sell_agreement plr-109971-06 prior to the transfer of the policies to company d child a did not have any incidents_of_ownership in the policies that insured his life that where owned by child b and trust similarly child b and ba did not have incidents_of_ownership in any policy that insured child b and ba respectively accordingly based solely on the facts submitted and representations made assuming the company d operating_agreement is not amended in any respect it is concluded that child a child b and ba will not possess any incidents_of_ownership under sec_2042 with respect to the policies contributed either outright or by trust to company d ruling_request sec_2 sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides in general that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income there from in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of sec_671 to inclusive subject a grantor of a_trust to treatment as the owner thereof based solely on the facts and representations submitted we conclude that except as specifically ruled herein we express or imply no opinion on the federal assuming no additional contributions are made to trust 2a and trust 2b child a will be treated as the owner of trust and child b will be treated as the owner of trust 2b for federal_income_tax purposes under sec_671 and sec_678 tax consequences of the transaction under the cited provisions or under any other provisions of the code we are specifically expressing no opinion regarding the transfer_tax consequences if either a b or ba assign their respective membership rights with respect to company d plr-109971-06 authorized representative pursuant to a power_of_attorney on file a copy of this letter is being sent to your this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely enclosures copy for sec_6110 purposes copy of this letter george masnik chief branch passthroughs and special industries


internal_revenue_service number release date index number ------------------------- ----------------------------- ----------------------------------------------------- -------------------------- ------------------------------ in re ---------------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number -------------------- refer reply to cc corp b01 plr-107140-15 date date taxpayer ----------------------------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------------- successor ------------------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------ taxable_year country x state y date -------------------------- ------------ ------------- -------------------------- company official -------------------------------------------------------------------------------------------- --------------------------------------------------- --------------- dear ---------------- this letter responds to a letter dated date submitted on behalf of successor as successor-in-interest to taxpayer requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular successor is requesting an extension of time to file an election under sec_1_337_d_-7 of the income_tax regulations the election that was required to be filed with taxpayer’s federal_income_tax return for taxable_year the information submitted is summarized below plr-107140-15 taxpayer was a country x investment_company regarded as a corporation for federal_income_tax purposes on date taxpayer transferred assets to successor a state y entity in a transaction treated as a reorganization under sec_368 taxpayer subsequently dissolved successor has elected to be a regulated_investment_company ric under sec_851 a deemed sale election under sec_1_337_d_-7 for taxpayer to recognize gain and loss on the transfer of assets to successor a ric was required to be attached to taxpayer's return for the taxable_year in which the deemed sale occurred however for various reasons the election was not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 of the code has not expired for taxpayer's taxable_year for which it desires to make the election or for any taxable years that would be affected by the election had it been timely filed sec_1_337_d_-7 provides in part that if property owned by a c_corporation becomes the property of a ric in a conversion_transaction as defined in sec_1_337_d_-7 then sec_1374 treatment will apply as described in sec_1_337_d_-7 unless the c_corporation elects deemed sale treatment with respect to the conversion_transaction sec_1_337_d_-7 defines a c_corporation as a corporation that is not an s_corporation a ric or a reit sec_1_337_d_-7 defines the term conversion_transaction as the qualification of a c_corporation as a ric or reit or the transfer of property owned by a c_corporation to a ric or a reit sec_1_337_d_-7 provides that a deemed sale election is made by a c_corporation by attaching a statement as described therein to its return for the taxable_year in which the deemed sale occurs under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when it is plr-107140-15 established 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 in this case the time for filing the election is fixed by the regulations ie sec_1_337_d_-7 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for successor on behalf of taxpayer to file the election provided successor establishes that successor and taxpayer acted reasonably and in good_faith that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and that granting relief will not prejudice the interests of the government information representations and an affidavit submitted by successor and company official explain the circumstances that resulted in the failure to timely file the election the information establishes that taxpayer and successor reasonably relied on a qualified_tax professional who failed to make or advise taxpayer or successor on behalf of taxpayer to make the election and that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavit submitted and the representations that have been made we conclude that successor has shown that successor and taxpayer acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for successor on behalf of taxpayer to file the election the above extension of time is conditioned on taxpayer's tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been made timely taking into account the time_value_of_money no opinion is expressed as to taxpayer's tax_liability for the years involved a determination thereof will be made by the director's office upon audit of the federal_income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling specifically no opinion is provided concerning taxpayer's federal tax_liability if any or successor’s qualification as a ric plr-107140-15 for purposes of granting relief under sec_301_9100-3 we relied on certain information and affidavit provided by successor and company official under penalties of perjury however the director should verify all essential facts moreover notwithstanding that the extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable still apply this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _____________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


internal_revenue_service number release date date uil no district_director assistant chief_counsel financial institutions products cc dom fi p b4 withdrawal of ruling_request plr-109833-99 in accordance with section b of revproc_99_1 1999_1_irb_6 we are providing you notification of a taxpayer withdrawal of a letter_ruling request two rulings were requested on the transaction described below the first was whether the transfer of annuity_contracts to a partnership in exchange for limited_partnership in exchange for limited_partnership interests qualified for nonrecognition under sec_721 nonrecognition_of_gain_or_loss on contribution the second is whether the annuity_contracts after the transfer to the partnership will be considered as held by a natural_person under sec_72 we reached a tentatively adverse conclusion only with regard to the second requested ruling dealing with sec_72 treatment of annuity_contracts not held by natural persons this document is not binding upon examination and is not to be cited as precedent legend parent a child a child b partnership grantor_trust life company x life company y x year year year issue whether an annuity_contract transferred to a partnership as partnership property may be considered as being held by a nonnatural person as an agent for natural persons within the meaning of sec_72 of the internal_revenue_code tentative conclusion under the facts and circumstances described below it is our tentative conclusion that an annuity_contract held as partnership property by a partnership may not be considered as held for natural persons within the meaning of sec_72 facts in year parent a an individual taxpayer through grantor_trust purchased a deferred_annuity_contract from life company x in year parent a again through grantor_trust purchase a second deferred_annuity_contract from life company y in year parent a organized partnership and transferred property to it in exchange for the transfer of property parent a received a one percent interest as a general_partner and a x percent interest as a limited_partner also in exchange for property transferred to partnership one percent limited_partnership_interest was received by a grantor_trust established by child a similarly for property transferred to partnership a one percent limited_partnership_interest was received by a grantor_trust established by child b parent a proposes to cause to be transferred to partnership the two annuity_contracts referred to above in exchange for limited_partnership interests equal to the fair_market_value of the annuities on the date of transfer parent’s principal purpose in doing so was to facilitate the making of gifts of limited_partnership interests from time to time law and analysis sec_72 provides that if an annuity_contract is held by a person who is not a natural_person then such contract shall not be treated as an annuity_contract for purposes of subtitle a other than subchapter_l and the income_on_the_contract for any taxable_year shall be treated as ordinary_income received or accrued by the owner during such taxable_year sec_72 further provides that if an annuity_contract is held by a_trust or other entity as an agent for a natural_person then sec_72 shall not apply sec_7701 provides that the term person shall be construed to mean and include an individual a_trust estate partnership_association company or corporation sec_72 contains a number of exceptions to the agency requirement of sec_72 for example sec_72 provides that the agency requirement of sec_72 will not apply to any annuity_contract which is acquired by the estate of a decedent by reason of the death of a decedent no such exception under sec_72 however was provided for partnerships even through partnerships are a commonly used business form under the present facts partnership is not a mere agent holding the deferred annuities for natural persons rather it is proposed that partnership actually receive and possess the deferred annuities as property of partnership thus subjecting this property to any possible claims of creditors against partnership by way of contrast the example set forth in the drafting history of sec_72 clearly demonstrates a that the agency exception was limited to a situation where a pure agency was created as the nonnatural person holding the property had no interest other than as agent s rept no 99th cong 2d sess group annuity held by a corporation as agent for natural persons who are the beneficial owners the contract is treated as an annuity see also joint_committee on taxation staff general explanation of the tax_reform_act_of_1986 99th cong 2d sess if an employer holds a group policy to satisfy state group policy requirements but has no right to any amounts contributed to the contract and all amounts are employee contributions the employer is merely the nominal holder of the contract and the contract is not treated as held by a nonnatural person if you have any questions concerning this memorandum please call -622-3970 assistant chief_counsel financial institutions products by s donald j drees senior technician reviewer branch


t c memo united_states tax_court kevin h love and ronda j love et al petitioners v commissioner of internal revenue respondent docket nos filed date held on the evidence before us ps’ acquisition of stock in an s_corporation did not occur for the principal purpose of evading or avoiding income_tax by obtaining the benefit of a deduction to which ps would not otherwise have been entitled see sec_269 1cases of the following petitioners are consolidated herewith g steven and carrie j neff docket no todd r and andrea pedersen docket no keith and melisa nellesen docket no bradley t and terri jensen docket no and mark mckay and christine a beck-mckay docket no an additional issue tried in docket nos and regarding split-dollar_life_insurance will be the subject of a separate opinion w waldan lloyd david r york and daniel s daines for petitioners charles b burnett and milan h kim for respondent memorandum findings_of_fact and opinion swift judge in these consolidated cases respondent determined deficiencies in petitioners’ joint federal income taxes plus accuracy-related_penalties under section as follows penalty petitioners deficiency sec_6662 mckays pedersens nellesens jensens neffs loves dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number the primary issue for decision is whether petitioners’ principal purpose in acquiring stock in their respective s_corporations was the evasion or avoidance of federal income taxes--namely to obtain the benefit of ordinary_loss deductions to which petitioners would not otherwise have been entitled 2unless otherwise indicated all section references are to the internal_revenue_code code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact in these consolidated cases background facts relating to the petitioners are different however all petitioners and respondent have stipulated that the relevant and controlling facts on the issues before us are essentially the same and that our factual findings and conclusions herein shall be applicable to each petitioner and to respondent some of the facts have been stipulated and are so found at the time of filing their petitions all petitioners resided in utah hereinafter unless otherwise noted references to petitioners are to petitioners mark mckay and christine a beck-mckay history and structure of business in the late 1970s petitioners began working as manager-trainees at mcdonald’s restaurants in the late 1980s petitioners purchased interests in several mcdonald’s restaurants in and around salt lake city utah and began operating and managing the restaurants initially petitioners owned the restaurants as partners with mcdonald’s after approximately two years petitioners bought out mcdonald’s ownership interests in the restaurants in petitioners restructured the operation and management of their mcdonald’s restaurants by forming two utah regular corporations--one referred to as the operating company the other as the management company the operating company mb food service inc operating company was responsible for operating the various mcdonald’s restaurants and for the food inventory and equipment in each restaurant and was obligated to pay the mcdonald’s franchise fees in exchange for fees paid to it by the operating company the management company mckay management inc management company employed and paid all of the employees working in the mcdonald’s restaurants the management company was responsible for among other things hiring training and firing the employees administering employee health care and maintaining liability insurance relating to operation of the mcdonald’s restaurants petitioners were equal owners of all of the stock in and the only officers and directors of the operating and management companies 3technical ownership of the mcdonald’s franchises as between petitioners and the operating and management companies is not clear from the record in addition to the many individuals who prepared food and took orders at each restaurant there apparently were one or two managers two supervisors and an equipment technician--all employees of the management company as owners and officers of the operating and management companies petitioners of course were ultimately responsible for overall management and operation of the various mcdonald’s restaurants petitioners often would consult key employees with regard to decisions that were made and operational problems that arose in petitioners formed a profit-sharing_plan psp for the benefit of the management company employees over the years the psp did not perform as well as petitioners and the employees had expected with low investment returns and high administrative costs in petitioners concluded that continuation of the psp was not viable and began investigating an alternative petitioners met with a representative from lincoln financial group who recommended that the management company establish an employee_stock_ownership_plan esop to replace the psp and to own the stock in the management company this representative explained that an esop could provide a more reliable source_of_income and benefits for management company employees and would provide an opportunity for management company employees to obtain ownership interests in the management company petitioners discussed and confirmed with their accounting and legal advisers the advantages of establishing an esop petitioners were advised that the esop- sponsoring management company should be an s_corporation and that petitioners could either convert the existing management company into an s_corporation or create a new s_corporation for that purpose in particular income of the management company would pass through to the esop as holder of the stock in the management company and would not be taxed because of the tax-exempt status of esops see sec_401 sec_501 petitioners’ advisers also suggested that a nonqualified_deferred_compensation_plan could be established within the management company to defer some of the compensation of petitioners and other senior employees of the management company on a tax-favored basis petitioners discussed with other key employees of the operating and management companies termination of the psp and replacement of the psp with an esop these individuals agreed with this course of action in date mb resource management inc was incorporated and it made an s_corporation_election to serve as the new management company for petitioners’ mcdonald’s restaurants hereinafter references to the management company refer to mb resource management inc concurrent with the creation of the new management company an esop was formed to which the stock in the new management company was issued and petitioners and approximately other employees of the former management company became participants in and beneficiaries of the esop the financial_assets of the psp were transferred into the esop and the psp was terminated in the spring of the management company also established and began sponsoring a nonqualified_deferred_compensation_plan nqdcp for the benefit of its senior officers and employees petitioners elected to participate in the nqdcp and in and early a total dollar_figure of petitioners’ management company salaries were deferred under the nqdcp in exchange for the management company’s commitment to pay petitioners the deferred_compensation in future years because of personal financial situations and the need for current funds no employees of the management company other than petitioners chose to participate in the nqdcp under this new structure the management company--the stock in which was now owned by the esop--continued to receive fees from the operating company relating to the management company employees working in the restaurants because of the large amounts of petitioners’ compensation that were deferred under the nqdcp significant portions of the management company’s income for and consisting of the fees it received from the operating company reflected the deferred_compensation and were not made available for distribution to the esop and to the rank-and-file employee-beneficiaries of the esop because the management company was taxed under subchapter_s of the code reported taxable_income of the management company flowed through to its sole shareholder--the esop as a tax-exempt_entity however the esop was not taxed on this income as a result of the management company’s commitment under the nqdcp to pay to petitioners large amounts of deferred_compensation the stock in the management company owned by the esop had little value and negatively affected the value of the rank-and-file employees’ beneficial interests in the esop as respondent notes instead of using the esop to transfer benefits to the rank-and-file employees of the management company the combined effect of the new management structure was to convert a significant portion of the income of the operating and management companies into amounts to be paid_by the management company to petitioners as deferred_compensation summary of relevant statutory and regulatory changes relating to esops an esop is a defined_contribution_plan designed to allow employees to own stock in corporate employers an esop may be formed as a stock_bonus_plan or as a stock bonus and a money purchase plan both of which are qualified as tax- exempt entities under sec_401 sec_4975 before esops were prohibited from owning stock in s_corporation employers however with the passage of the small_business job protection act of pub_l_no sec a stat pincite congress changed this rule and effective date esops were allowed to own stock in s_corporation employers in congress further amended the rules relating to esops by exempting esops from unrelated_business_income_tax see taxpayer_relief_act_of_1997 pub_l_no sec a stat pincite adding sec_512 the above relaxed rules relating to esops made available to small_business owners significant tax and other advantages and many small_business owners including petitioners established esop ownership of their s_corporations under these new rules four years later in responding to perceived abuses in the use of esops under the above statutory provisions congress enacted sec_409 which in general limits tax benefits available through esops that own s_corporations unless the esops actually provide meaningful benefits to rank-and-file employees see economic_growth_and_tax_relief_reconciliation_act_of_2001 pub_l_no sec stat pincite see also h_r rept no part pincite t ax deferral opportunities provided by an s_corporation_esop should be limited to those situations in which there is broad-based employee coverage under the esop and the esop benefits rank-and-file employees as well as highly compensated employees under new sec_409 through as enacted in if at any time during an esop’s plan_year all disqualified persons own at least of the deemed-owned_shares in the s_corporation a disqualified_person may not receive an allocation from the esop during the year often referred to as the nonallocation_year without significant negative tax consequences whether an individual is a disqualified_person depends on the amount of the individual’s deemed-owned_shares of stock in the s_corporation sec_409 an individual will be considered a disqualified_person if the total deemed-owned_shares of the individual and the members of the individual’s family is at least of the number of deemed-owned_shares of stock in the s_corporation or the individual is a deemed shareholder id for purposes of the above stock ownership tests congress included in the definition of deemed stock ownership under sec_409 certain indirect ownership interests in the s_corporation referred to as synthetic_equity see sec_409 c on date the commissioner issued temporary regulations under which for the first time the definition of synthetic_equity under sec_409 included employee balances under nonqualified_deferred_compensation_plans such as the nqdcp which petitioners had established within the management company see sec_1_409_p_-1t temporary income_tax regs fed reg date these regulations constitute legislative regulations see sec_409 where the deemed-stock ownership tests of sec_409 are violated there are significant consequences to the disqualified persons to the s_corporation and to the esop prohibited allocations in favor of disqualified persons are treated as currently taxable to the disqualified persons sec_409 and excise_taxes equal to of the total prohibited allocations are imposed on the s_corporation sec_4979a further the esop will not satisfy the requirements of sec_4975 and will cease to qualify as an esop the temporary regulations concerning nonqualified_deferred_compensation and synthetic_equity had an effective date of date see sec_1 p - 1t h temporary income_tax regs fed reg date as a result of the above temporary regulations and absent any payout of petitioners’ deferred_compensation after date petitioners’ dollar_figure balance in their nqdcp accounts with the management company would have been treated as synthetic_equity under sec_409 and c rendering petitioners disqualified persons and a nonallocation_year petitioners would have been required to include in their income their dollar_figure balance in the nqdcp an excise_tax equal to of the prohibited_allocation would have been imposed on the management company and the esop would have lost its tax-exempt status under the temporary regulations the dollar_figure balance in petitioners’ nqdcp accounts with the management company could avoid being treated as synthetic_equity only if the deferred_compensation was paid out on or before date petitioners’ response to the temporary regulations petitioners sought to avoid the above negative consequences on date petitioners’ attorneys sent petitioners a letter addressing the new temporary regulations regarding esops synthetic_equity and deferred_compensation this letter identified what it referred to as three options for petitioners in light of the temporary regulations before date pay out all of the nonqualified_deferred_compensation allocated to petitioners terminate the nqdcp and either a terminate the esop or b continue to use the esop for the benefit of the management company employees before date sell the management company stock to petitioners for fair_market_value have the management company pay to petitioners the dollar_figure deferred_compensation and terminate the esop before date pay to petitioners a sufficient amount of the nonqualified_deferred_compensation so petitioners would not be treated as disqualified persons and thereafter continue the esop arrangement in compliance with the temporary regulations with respect to option petitioners’ attorneys state in their january letter the simplest response to the temporary regulations would be to terminate your deferred_compensation plan and pay out all of the amounts deferred to date as one advantage to this option and to continuing use of the esop the letter further states management company and esop could continue and funds could be accumulated tax-free as retained earnings but if left as retained earnings such earnings would benefit all employees after conferring with their accounting and legal advisers and considering the above options petitioners concluded that compliance with the requirements of the temporary regulations would cause the administration of the management company and the esop to be more complicated and costly and less effective than they had anticipated also the high turnover rate of the employees at the mcdonald’s restaurants had required the esop to engage in frequent and costly buybacks from the employees of their beneficial interests in the esop accordingly petitioners decided to terminate the nqdcp and the esop and to return to a management- company-sponsored profit-sharing_plan similar to the psp petitioners had used from to believing that compliance with the temporary regulations would be difficult and expensive petitioners rejected option petitioners ultimately elected option over option on date an independent professional valuation firm appraised the stock in the management company at dollar_figure a value therefor which respondent does not dispute this low valuation reflected the management company’s total dollar_figure deferred_compensation payment obligation to petitioners on date petitioners for dollar_figure consistent with the above valuation purchased and acquired from the esop all of the s_corporation stock in the management company on date petitioners as new owners of the stock in the management company ceased benefit allocations to the esop established a profit-sharing_plan for the benefit of management company employees merged the assets of the esop into the new profit-sharing_plan and terminated the esop between july and the management company paid out to petitioners the dollar_figure it owed to them as deferred_compensation under the nqdcp petitioners were required to and did recognize the receipt of the dollar_figure as ordinary_income on their joint federal_income_tax return petitioners elected under sec_1377 to divide the management company’s taxable_year into two taxable periods--from january to date and from july to date during the january to date taxable_period the esop was the sole shareholder of the management company during the july to date taxable_period petitioners were the sole shareholders of the management company because the dollar_figure deferred_compensation was paid to petitioners during the second of the above two taxable periods and because petitioners reported the dollar_figure in their taxable_income the management company became entitled under sec_404 to a dollar_figure deduction with respect thereto at a time when petitioners were its sole shareholders as opposed to when the tax- exempt esop had been the sole shareholder largely as a result of the above dollar_figure deduction an approximate net_operating_loss of dollar_figure was realized and reported by the management company in its second taxable_period for because the management company was an s_corporation this dollar_figure ordinary_loss deduction flowed through to petitioners who claimed it on their joint federal_income_tax return as a result this dollar_figure loss deduction offset the tax effect of most of the dollar_figure deferred_compensation petitioners received and included in their income between july and date petitioners transferred dollar_figure to the management company as a capital_contribution petitioners’ capital_contribution had the effect of increasing their bases in their stock in the 4employees using the cash_receipts_and_disbursements_method of accounting are not taxed on deferred_compensation until the date on which they actually or constructively receive cash or other_benefits under the nqdcp see sec_451 the employer is entitled to a tax deduction for the nonqualified_deferred_compensation payment only when that amount is includible in the employees’ gross_income even if the employer uses the accrual_method of accounting see sec_404 management company petitioners also acknowledge aggressive tax planning in connection with this capital_contribution ie that their dollar_figure capital_contribution to the management company was made for the purpose of increasing their tax bases in the management company and thereby to take full advantage of the net_operating_loss_deduction discussed above on audit respondent determined that petitioners’ date purchase and acquisition from the esop of the stock in the management company occurred for the principal purpose of avoiding or evading taxes by obtaining a loss deduction to which petitioners would not otherwise have been entitled and respondent disallowed under sec_269 the approximate loss deduction of dollar_figure petitioners claimed respondent also determined that petitioners were liable for a sec_6662 accuracy-related_penalty 5when petitioners purchased the management company stock from the esop their tax bases therein equaled their stock purchase_price of dollar_figure see sec_1012 after the dollar_figure capital_contribution to the management company petitioners’ tax bases in their management company stock were approximately equal to the dollar_figure claimed loss deduction that arose from the management company’s payment of the deferred_compensation 6on audit respondent relied alternatively on sec_482 to reallocate the deferred_compensation deduction of dollar_figure to the tax-exempt esop and on sec_382 to limit to dollar_figure the claimed loss deduction respondent has abandoned these alternative theories and now argues solely for the application of sec_269 to disallow petitioners’ dollar_figure claimed loss deduction opinion sec_269 provides that if a taxpayer acquires control of the stock in a corporation and the principal purpose for the acquisition is the evasion or avoidance of income_tax by securing the benefit of a deduction credit or other allowance to which the taxpayer would not otherwise be entitled the commissioner may disallow the deduction credit or other allowance the term allowance refers to anything in the internal revenue laws that has the effect of diminishing tax_liability sec_1_269-1 income_tax regs sec_269 applies only if tax_evasion or avoidance is the principal purpose for the acquisition see 65_tc_162 plains petroleum co v commissioner tcmemo_1999_241 see also sec_1 a income_tax regs in the context of sec_269 principal purpose means that the evasion or avoidance purpose must exceed in importance any other purpose see capri inc v commissioner t c pincite sec_1_269-3 income_tax regs see also 405_f2d_61 ndollar_figure 10th cir aff’g tcmemo_1967_51 in considering what is the principal purpose it is appropriate to aggregate all tax_avoidance purposes and compare them with the aggregate business purposes for the acquisition u s shelter corp v united_states cl_ct citing 411_f2d_231 5th cir to prevail petitioners need prove only that the avoidance or evasion of tax was not the principal purpose for the acquisition see capri inc v commissioner t c pincite the determination of the principal purpose for acquiring control of a corporation is a question of fact that depends upon the intent of those who acquire control s dredging corp v commissioner 54_tc_705 the test we apply is one of subjective intent and the testimony of the taxpayers who acquire control is of particular importance see capri inc v commissioner t c pincite 63_tc_440 the purpose which is relevant under sec_269 is the purpose which existed at the time of the acquisition however facts occurring before and after the acquisition may be considered to the extent they tend to support or negate the proscribed purpose inductotherm indus inc v commissioner tcmemo_1984_281 citing 291_f2d_761 9th cir aff’d without published opinion 770_f2d_1071 3d cir see also house beautiful homes inc v commissioner f 2d pincite i t is only through an analysis of conduct that motivation can be inferred whether the conduct occurs immediately subsequent to the acquisition or some time thereafter it sheds light upon the original intention of the controlling shareholder the commissioner’s determination is presumptively correct and the burden is on the taxpayer to show that tax_avoidance_or_evasion was not the principal purpose of the acquisition see rule a 43_tc_500 respondent acknowledges that because s_corporations are passthrough entities for federal_income_tax purposes and do not keep their own deductions and losses ie s_corporation deductions and losses automatically pass through to the shareholders it is extremely rare that the commissioner would seek to make a sec_269 adjustment in the context of a taxpayer’s acquisition of an s_corporation petitioners go further and contend that sec_269 was never intended to apply to the acquisition of stock in s_corporations that the text of sec_269 is incompatible with its application to the acquisition of s_corporation stock and that the absence of relevant authority or precedence supports the conclusion that as a matter of law sec_269 does not apply to the acquisition of stock in an s_corporation petitioners of course also argue that the principal purpose for their date purchase and acquisition of the stock in the management company was to respond to the requirements of the temporary regulations relating to deferred_compensation and synthetic_equity and to fundamentally alter the management structure of their mcdonald’s restaurant business we agree with petitioners that on the facts before us respondent’s sec_269 adjustment is misplaced petitioners were entitled to arrange their affairs so as to minimize their tax_liability by means which the law permits see 293_us_465 282_f2d_623 10th cir clearly the structure of petitioners’ mcdonald’s restaurant business the operating company the s_corporation management company the esop and the nqdcp in place before date reflected aggressive tax planning respondent obviously does not like that structure but in these consolidated cases respondent has not and does not challenge that structure respondent however argues that in response to the temporary regulations under sec_409 petitioners’ purchase of the stock in the management company termination of the esop payout of the deferred_compensation capital_contribution and claim of the dollar_figure tax loss deduction went too far respondent emphasizes that petitioners’ purchase of the stock in the management company the election to split the management company’s taxable_year the payout of the deferred_compensation and petitioners’ contribution of capital were all integral steps in petitioners’ plan of acquisition of the stock in the management company respondent cites sec_1_269-3 income_tax regs which provides in part the determination of the purpose for which an acquisition was made requires a scrutiny of the entire circumstances in which the transaction or course of conduct occurred in connection with the tax result claimed to arise therefrom on the evidence before us we conclude that in date petitioners had legitimate nontax business reasons for purchasing and acquiring the stock in the management company also the commissioner’s temporary regulations relating to esops and deferred_compensation effectively required petitioners to take some action petitioners paid out the dollar_figure in deferred_compensation and thereby addressed or avoided the adverse tax consequences that would have been triggered under the temporary regulations by petitioners concluded that the existing management structure they had put in place in had become more complicated and costly and less effective than they had anticipated also petitioners regarded the temporary regulations as further complicating the management structure they had put in place the evidence is clear that for those reasons petitioners eliminated the esop ownership of the s_corporation management company acquired the stock therein terminated the nqdcp and reverted to the management structure they had used in earlier years petitioners’ purchase and acquisition of the stock in the management company was a key feature of that management restructuring and did not occur principally for tax_avoidance purposes further the payout of the dollar_figure in deferred_compensation was in direct response to the commissioner’s invitation under the temporary regulations for them and other taxpayers to make such a payout that payout to petitioners and petitioners’ tax treatment thereof as taxable_income in produced the tax loss deduction for the management company and represented a substantive economic event for both the management company and petitioners further petitioners’ split of the management company’s tax_year was appropriate in light of the change in ownership of the management company on date and was clearly authorized under sec_1377 lastly petitioners’ dollar_figure capital_contribution to the management company was a real economic outlay that under the tax law increased petitioners’ tax bases in their stock in the management company see sec_351 sec_358 sec_1012 no evidence indicates and no claim is made by respondent that petitioners’ dollar_figure contribution to the management company was temporary or a sham or anything other than a legitimate contribution of real money to the management company by its shareholders--petitioners herein the fact that the dollar_figure capital_contribution to the management company was made with the purpose and objective in mind of increasing petitioners’ stock bases in the management company in anticipation of the flowthrough of the dollar_figure loss deduction from the management company does not detract from the economic_substance of petitioners’ capital_contribution and respondent does not suggest that petitioners’ tax bases in their stock in the management company should not be increased by the full dollar_figure the above transactions and steps clearly were related and planned as part of an effort to avoid problems created for petitioners by the commissioner’s temporary regulations to restructure the management company and to terminate the esop but they represent valid and real transactions with economic_effect that require our recognition as legitimate business transactions see 72_tc_140 it was not the taxpayer’s acquisition of a corporation that resulted in the tax benefits challenged by the commissioner but a combination of other legitimate actions--namely use of the cash_method_of_accounting and filing of consolidated returns--that gave rise to those challenged tax benefits arwood corp v commissioner tcmemo_1971_2 it must be remembered that sec_269 addresses itself to a situation where the principal purpose of the acquisition is tax_avoidance in the present case only the method selected for effecting the acquisition was motivated to some extent by tax considerations on brief petitioners insightfully state-- by way of illustration only had petitioners not acquired the management company but instead formed a new s_corporation made a capital_contribution of dollar_figure million to the new s_corporation then paid out dollar_figure million salary the tax consequence would have been identical to the result respondent complains of namely petitioners would have received dollar_figure million in taxable salary offset by a dollar_figure million loss in the s_corporation passed through because of the dollar_figure million basis derived from the capital_contribution once petitioners’ tax bases in the management company stock were established or increased to approximately dollar_figure million the loss deduction that flowed through to them from the management company as a result of the management company’s deferred_compensation payout was automatic further petitioners’ claim of the dollar_figure loss deduction on their individual federal_income_tax return caused a reduction in their tax bases in the management company stock and will result in increased tax for petitioners if and when they sell their management company stock we fail to see how petitioners’ aggressive tax planning in establishing the structure for their mcdonald’s restaurant business and in responding to respondent’s temporary regulations under sec_409 taints under sec_269 the date acquisition by petitioners of the management company stock see plains petroleum co v commissioner tcmemo_1999_241 the dollar_figure loss deduction is based upon the real payout of dollar_figure which petitioners reported in income and on petitioners’ tax bases in their management company stock which bases reflected petitioners’ real capital_contribution of dollar_figure having decided the factual issue before us in favor of petitioners we need address neither the legal issue petitioners and respondent raise whether sec_269 ever may be applied to a taxpayer’s acquisition of the stock in an s_corporation nor the penalties determined by respondent for the reasons stated appropriate orders will be issued in docket nos and and decisions will be entered for petitioners in docket nos and


internal_revenue_service number release date index number ------------------------------------------------- ------------------------------- ----------------------------- in re ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- telephone number --------------------- refer reply to cc tege eb ec plr-153297-07 date date legend taxpayer date old parent -------------------------------------- -------------------------------------- ------------------------- dear ---------------- this letter responds to your letter dated date requesting a ruling under sec_162 of the internal_revenue_code the code taxpayer is a publicly-held corporation and a member_of_an_affiliated_group on date the affiliated_group underwent a series of transactions in order to divide its business interests into two separate publicly-held corporations these transactions were described in a private_letter_ruling issued date as part of this reorganization old parent the original parent of the affiliated_group created a holding_company subsidiary taxpayer and another corporation were created as subsidiaries of that holding_company at the conclusion of the reorganization the former shareholders of old parent owned taxpayer they also owned percent of the stock of one of old parent’s subsidiaries in the course of the reorganization old parent transferred a number of benefit arrangements to taxpayer including compensation arrangements that were previously disclosed to and subsequently approved by shareholders of old parent for purposes of sec_162 of the code the approved plans the approved plans have not been re- approved since being transferred to taxpayer taxpayer requests a ruling that the approved plans continue to meet the shareholder approval requirements of sec_162 except to the extent future approval is required by sec_1_162-27 of the income_tax regulations the regulations plr-153297-07 sec_162 of the code generally provides a limit of dollar_figure million on the deduction for applicable_employee_remuneration paid during any taxable_year for the chief_executive_officer and the other four highest compensated officers of any publicly_held_corporation sec_162 of the code excepts from this limitation performance- based compensation that in relevant part is payable solely on account of attaining one or more performance goals determined by a compensation committee of the board_of directors that is comprised solely of two or more outside directors and if the material terms under which the remuneration is to be paid are approved by a majority of the shareholders sec_1_162-27 of the income_tax regulations provides that qualified_performance-based_compensation must be based solely on account of the attainment of one or more preestablished objective performance goals a performance_goal is considered preestablished if it is established in writing by the compensation committee not later than days after the commencement of the period_of_service to which the performance_goal relates provided that the outcome is substantially uncertain at the time the compensation committee establishes the goal however in no event will a performance_goal be considered to be preestablished if it is established after percent of the period_of_service as scheduled in good_faith at the time the goal is established has elapsed sec_1_162-27 of the regulations provides that the material terms of the performance_goal under which the compensation is to be paid must be disclosed to and subsequently approved by the shareholders of the publicly_held_corporation before the compensation is paid this requirement is not satisfied if the compensation would be paid regardless of whether the material terms are approved by shareholders material terms include i the employees eligible to receive compensation ii a description of the business criteria on which the performance_goal is based and iii either the maximum amount of compensation that could be paid to any employee or the formula used to calculate the amount of compensation to be paid to the employee if the performance_goal is attained sec_1_162-27 of the regulations provides that once the material terms of a performance_goal are disclosed to and approved by the shareholders no additional disclosure or approval is required unless the compensation committee changes the material terms of the performance_goal if however the compensation committee has authority to change targets under a performance_goal after shareholder approval of the goal material terms of the performance_goal must be disclosed and reapproved by shareholders no later than the first shareholder meeting that occurs in the fifth year following the year in which shareholders previously approved the performance_goal plr-153297-07 based on the information submitted and taxpayer's representations referred to above we rule that following the reorganization that occurred on date the approved plans continue to meet the shareholder approval requirement set forth in sec_1 e i of the regulations except to the extent future shareholder approval is required by sec_1_162-27 except as specifically ruled on above no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent taxpayer should attach a copy of this ruling to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely yours ________________________________ kenneth m griffin senior technician reviewer executive compensation branch office of division counsel associate chief_counsel tax exempt and government entities