internal_revenue_service number release date index number -------------------------- --------------------------------------------------------- ----------------- ------------------------------ - department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b09 plr-160160-03 date july ------------------------ ------------------ ------------------------- ---------------------- ------------------ -------------------------- -------------------------- legend decedent date wife date date executor date accountant ---------------- dear ---- correspondence requesting rulings under sec_2044 sec_2056 sec_2519 sec_2652 and sec_2654 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations died testate on date survived by wife a son a daughter and three grandchildren wife died on date the generation-skipping_transfer gst tax may be divided in the trustee’s discretion into two separate trusts so that one trust will have an inclusion_ratio of zero and one trust will have an inclusion_ratio of one the trust estate shall be divided based on the fair_market_value of the trust assets at the time of the division the two separate trusts may be created upon initial funding or at a later date and shall have identical terms the facts and representations submitted are summarized as follows decedent sec_4 a of decedent’s will provides that any trust that may be subject_to this is in response to your letter dated date and subsequent section of decedent’s will provides that if wife survives decedent section of decedent’s will provides that the residue of decedent’s estate section of decedent’s will provides that during wife’s lifetime the trustee has plr-160160-03 decedent’s residuary_estate shall be divided into two separate parts each of which shall constitute a separate trust trust a credit_shelter_trust and trust a marital_deduction_trust section of decedent’s will provides that trust should be funded with an amount equal to the largest fractional share that can pass free of federal estate and gst taxes on decedent’s gross_estate except those taxes if any which cannot be reduced by the unified_credit marital_deduction or any other credits exemptions or deductions shall constitute trust and be administered as provided in article the discretion to distribute all or part of the net_income or principal of trust to wife section provides that after wife’s death the income of trust shall be divided equally between decedent’s children and paid at least quarterly sec_8_1 of decedent’s will provides that the net_income of trust shall be paid in quarterly or more frequent installments to or for the benefit of wife for wife’s lifetime principal may be distributed in the trustee’s discretion to or for the benefit of wife as necessary for wife’s health maintenance support and education to enable spouse to maintain the standard of living that she maintained during decedent’s lifetime generation-skipping_transfer_tax return estate_tax_return on behalf of decedent’s estate the marital_deduction was taken on schedule m with respect to the assets of both trust and trust schedule r was not included in the estate_tax_return as filed on date the estate received a closing letter on date estate accountant inadvertently failed to advise executor about the available tax elections relating to qtip trusts or of the possibility of splitting the qtip_trust into gst exempt and non-exempt shares the errors on decedent’s estate_tax_return were discovered during the administration of wife’s estate executor has requested the following rulings the qtip_election with respect to trust is void an extension of time to sever trust into trust 2a and trust 2b and an extension of time to make a reverse_qtip_election with respect to trust 2b law decedent who is a resident_of_the_united_states executor relied on accountant to prepare the estate_tax_return for decedent’s sec_2001 imposes a tax on the transfer of the taxable_estate of every on date executor filed a timely form_706 united_states estate and sec_2056 provides that a deduction is not allowed for terminable sec_2056 provides that the value of a decedent’s taxable_estate shall be plr-160160-03 determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse interests that pass to the spouse an interest is a terminable_interest if the interest passing to the surviving_spouse will terminate or fail on the lapse of time or on the occurrence of an event or contingency or on the failure of an event or contingency to occur and on termination an interest in the property passes to someone other than the surviving_spouse sec_2056 provides that qualified_terminable_interest_property shall be treated as passing to the surviving_spouse and no part of such property shall be treated as passing to any person other than the surviving_spouse thus the value of such property is deductible from the value of the gross_estate under sec_2056 and is not treated as a terminable_interest under sec_2056 qualified_terminable_interest_property is property that passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies respect to any property shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable date a taxable_distribution a taxable_termination and a direct_skip every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor 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 sec_2632 provides that in general any portion of an individual’s gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows - a first to property which is the subject of a sec_2611 provides that the term generation-skipping_transfer means sec_2601 imposes a tax on every generation-skipping_transfer made after sec_2631 provides that for purposes of determining the inclusion_ratio sec_2632 provides that any allocation by an individual of his gst sec_2056 provides that an election under sec_2056 with plr-160160-03 direct_skip occurring at such individual’s death and b second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or taxable_termination might occur at or after such individual’s death sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in relevant part that no automatic allocation of gst_exemption is made to a_trust that will have a new transferor with respect to the entire trust prior to the occurrence of any gst with respect to the new trust sec_2652 provides in relevant part that for purposes of chapter the term transferor means - a in the case of any property subject_to the tax imposed by chapter the decedent and b in the case of any property subject_to the tax imposed by chapter the donor an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides that in the case of - a any trust with respect to which a deduction is allowed to the decedent under sec_2056 by reason of subsection b thereof and b any trust with respect to which a deduction to the donor spouse is allowed under sec_2523 by reason of subsection f thereof the estate of the decedent or the donor spouse as the case may be may elect to treat all of the property in such trust for purposes of chapter as if the election to be treated as qualified_terminable_interest_property had not been made return on which the qtip_election is made trust attributable to transfers from different transferors shall be treated as separate trusts and substantially separate and independent shares of different beneficiaries in a_trust shall be treated as separate trusts except as provided in the preceding sentence nothing in chapter is to be construed as authorizing a single trust to be treated as two or more trusts the transferor’s gross_estate or created under the transferor’s will into two or more trusts is recognized for purposes of chapter if - i the trust is severed pursuant to a direction in the governing instrument providing that the trust is to be divided upon the death of the transferor or ii the governing instrument does not require or otherwise direct severance but the trust is severed pursuant to discretionary authority granted either under the governing instrument or under local law and a the terms of the new trust provide in the aggregate for the same succession of interests and beneficiaries as are provided in the original trust b the severance occurs or a reformation proceeding if required is commenced prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and c either - the new trusts are severed on a fractional basis if severed on a sec_2654 provides that for purposes of the gst tax - the portions of a sec_26_2654-1 provides that the severance of a_trust that is included in sec_26_2652-2 provides that a reverse_qtip_election is made on the requests for relief under sec_301_9100-3 will be granted when the taxpayer sec_301_9100-3 provides that in general requests for extensions of time plr-160160-03 fractional basis the separate trusts need not be funded with a pro_rata portion of each asset held by the undivided trust the trusts may be funded on a non pro_rata basis provided funding is based on either the fair_market_value on the date of funding or in a manner that fairly reflects the net appreciation or depreciation in the value of the assets measured from the valuation_date to the date of funding or if the severance is required by the terms of the governing instrument to be made on the basis of a pecuniary amount the pecuniary payment is satisfied in a manner that would meet the requirements of sec_26_2654-1 if it were paid to an individual 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 six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 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 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 to advise the taxpayer to make the election ruling a qtip_election has transfer_tax consequences for the surviving_spouse sec_2044 and b provide generally that the value of the gross_estate includes the value of any property in which the decedent has a qualifying_income_interest_for_life and with respect to which a deduction was allowed for the transfer of the property to the decedent under sec_2056 under sec_2519 and b any disposition of all or part of a qualifying_income_interest_for_life in any property with respect to which a deduction was allowed under sec_2056 is treated as a transfer of all interests in the property other than the qualifying_income interest further the surviving_spouse will in the absence of a reverse_qtip_election under sec_2652 be treated as the transferor of the property for gst purposes under sec_2652 applies the service will disregard a qtip_election made under sec_2056 and treat it as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 rev_proc in the case of a qtip_election to which revproc_2001_38 2001_1_cb_1335 sec_301_9100-3 provides that a taxpayer is deemed to have acted in this case the election under sec_2056 to treat the assets in trust as qtip plr-160160-03 applies to qtip elections under sec_2056 where the election was not necessary to reduce the estate_tax liability to zero based on values as finally determined for federal estate_tax purposes one example of an unnecessary qtip_election described in the revenue_procedure is one that is made for both a credit_shelter_trust and a marital trust the qtip_election for the credit_shelter_trust is not necessary because no estate_tax is imposed on a credit_shelter_trust funded with an amount that does not exceed the applicable_exclusion_amount under sec_2010 revproc_2001_38 does not apply in situations where a partial_qtip_election was required with respect to a_trust to reduce the estate_tax liability and the executor made the election with respect to more property than was necessary to reduce the estate_tax liability to zero nor does it apply to elections that are stated in terms of a formula designed to reduce the estate_tax to zero was not necessary to reduce the estate_tax to zero because no estate_tax would have been imposed on the assets in trust whether or not the election was made because trust is a credit_shelter_trust that was funded with an amount not exceeding the sec_2010 exclusion amount if relief under revproc_2001_38 is granted the estate’s federal estate_tax liability will remain at zero after applying the unified_credit amount under sec_2010 because the qtip_election in this case was not necessary to reduce the estate_tax liability to zero revproc_2001_38 applies and the service will disregard the qtip_election and treat it as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 the property for which the election is disregarded will not be includible in wife’s gross_estate under sec_2044 ruling sec_2 and in this case because a qtip_election was made on decedent’s estate_tax_return the assets of the qtip_trust are includible in wife’s gross_estate pursuant to sec_2044 in addition wife is considered the transferor of such property for gst tax purposes thereby initially precluding the allocation of decedent’s unused gst_exemption to trust however if decedent’s estate is allowed to make a reverse_qtip_election under sec_2652 with respect to the assets of trust decedent will be treated as the transferor of those assets for gst tax purposes based on the facts submitted and the representations made we conclude that the requirements of sec_26_2654-1 and sec_301_9100-3 have been satisfied therefore an extension of time is granted until days from the date of this letter i to sever trust into trust 2a and trust 2b and ii to make a reverse_qtip_election under sec_2652 with respect to the assets of trust 2b as a result of the severance of trust and the reverse_qtip_election with respect to the resulting trust 2b decedent’s remaining gst_exemption is allocated in accordance with the rules provided in sec_2632 plr-160160-03 except as expressly provided herein no opinion is expressed or implied a supplemental form_706 should be filed on behalf of decedent’s estate with the internal_revenue_service center cincinnati ohio the supplemental form_706 should list trust 2a and trust 2b on schedule m in addition the reverse_qtip_election for trust 2b should be made on schedule r trust should not be listed on schedule m or schedule r a copy of this letter should be attached to the supplemental return a copy is enclosed for this purpose concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 being sent to the taxpayer’s representative provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer requesting it sec_6110 the rulings contained in this letter are based upon information and sincerely heather c maloy associate chief_counsel passthroughs special industries enclosure cc copy of letter for sec_6110 purposes copy of letter


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person telephone number identification_number number release date se t eo ra t date date uil no employer_identification_number dear ------------------ sec_501 of the internal_revenue_code of a new program to provide individual grants to hospital patients entering hospice care facts you are a public charity affiliated with a hospital exempt from federal_income_tax under sec_501 of the code the hospital previously operated a hospice program donors made contributions to you to support the hospice program although the donors understood that you did not guarantee that such contributions would exclusively support the hospice program although the donations were not held in a restricted_fund you have identified approximately dollar_figure in unspent donations intended to support the hospice program because the hospital has ceased to operate the hospice program your board_of directors explored alternative uses for the donations that would further the general purpose of the donors enter hospice programs elsewhere your officers and directors would appoint a committee to review and oversee disbursement of the grants based on individual need and financial hardship the committee will cause records to be kept including the name and address of recipients the amount distributed to each recipient the purpose of the grants and the relationship if any between the recipient and you or your committee members officers or trustees properly filed with your state you have submitted amended articles of incorporation and evidence that they have been we have considered your ruling_request regarding the federal tax consequences under the board proposed to establish a grant program for patients of the hospital who must sec_1_501_c_3_-1 of the regulations states that an organization is not sec_501 of the internal_revenue_code provides for exemption from federal the hospice relief grant program and grants made pursuant thereto will not jeopardize sec_1_501_c_3_-1 of the income_tax regulations states in part that an organization ruling requested your status as an organization exempt from federal_income_tax under sec_501 of the code law income_tax for certain organizations organized and operated exclusively for religious charitable or scientific purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual and which does not participate in proscribed political activities will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes s pecified in sec_501 organized or operated exclusively for one or more of the purposes specified unless it serves a public rather than a private interest such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests its generally accepted legal sense and includes the relief of the poor and distressed requirements for exemption may make distributions to individuals provided they further the purposes for which they were organized the organizations should keep records of names and addresses of recipients the amounts given the purpose for which it was given the manner in which the recipient was chosen and relationship between the recipient and the members officers or trustees or substantial_contributor to the organization and a corporation controlled by a grantor or substantial_contributor hospice which operates on both an inpatient and outpatient basis to assist persons who have been advised by a physician that they are terminally ill to cope with the distress arising from their conditions it utilizes and coordinates the professional skills of professionals such as physicians nurses therapists social workers clergy counselors and lawyers in a planned effort to alleviate the physical and mental distress of dying persons this revenue_ruling concludes that by alleviating the mental and physical distress of persons terminally ill the organization relieves the distressed within the meaning of sec_1_501_c_3_-1 of the regulations and thus is operated exclusively for charitable purposes sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in revrul_79_17 1979_1_cb_193 concerns an organization commonly referred to as a revrul_56_304 1956_2_cb_306 held that organizations that otherwise meet the analysis the hospice relief grant program and grants made pursuant thereto will not jeopardize this ruling will be made available for public inspection under sec_6110 of the code your board has amended your articles of incorporation to specifically authorize individual an organization that provides hospice services for the terminally ill is operated exclusively for charitable purposes rev_rul supra because you can no longer support a hospice program at your affiliated hospital your board has found an alternative manner in which to pursue this purpose by giving grants to individuals to pay for hospice services elsewhere exempt_organizations may carry out exempt_activities through grants to individuals provided they meet certain recordkeeping requirements rev_rul supra grants you have represented that you will make decisions based upon individual need and financial hardship and keep the records required by revrul_56_304 ruling your status as an organization exempt from federal_income_tax under sec_501 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice code provides that it may not be used or cited by others as precedent telephone number are shown in the heading of this letter enclosure this ruling is directed only to the organization that requested it sec_6110 of the if you have any questions about this ruling please contact the person whose name and steven grodnitzky manager exempt_organizations technical group notice sincerely


t c no united_states tax_court the limited inc and consolidated subsidiaries petitioner v commissioner of internal revenue respondent docket no filed date p’s subsidiary d a domestic_corporation is a credit card bank issuing private label credit cards to customers of p fl is a controlled_foreign_corporation with respect to p f2 is a foreign_subsidiary of fl fl funded f2 which purchased certificates of deposit cds from d held the cds are u s property within the meaning of sec_956 i r c and not deposits with persons carrying on the banking business within the meaning of sec_956 a i r c held further the cds are attributed to fl pursuant to sec_1_956-1t temporary income_tax regs fed reg date held further p must include the increase of investment in u s property in gross_income pursuant to sec_951 b i r c joel v williamson roger j jones frederic l hahn daniel a dumezich russel r young neil b posner james p fuller kenneth b clark ronald b schrotenboer william f colgin jr and patricia a yurchak for petitioner christine a roth james fe kagy donald k rogers and john budde for respondent halpern judge petitioner is the common parent_corporation of an affiliated_group_of_corporations making a consolidated_return of income the affiliated_group by notice_of_deficiency dated date the notice respondent determined deficiencies in federal_income_tax for the affiliated_group for its taxable years ended date and date and respectively in the amounts of dollar_figure and dollar_figure respectively many of the adjustments giving rise to the deficiencies determined in the notice have been settled and this report addresses only whether certain transfers during were investments in u s property for purposes of those provisions of the internal_revenue_code dealing with controlled_foreign_corporations unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue findings_of_fact introduction some of the facts have been stipulated and are so found the stipulations of facts filed by the parties with accompanying exhibits are incorporated herein by this reference petitioner has its principal_place_of_business in columbus ohio business of petitioner petitioner is one of the largest specialty retailers in the united_states during the years at issue it sold its merchandise both in its own stores and by catalog among the well-known stores owned by petitioner the stores were the limited lane bryant lerner new york victoria’s secret and abercrombie fitch petitioner earned its income primarily from the sale of garments a foreign_subsidiary of petitioner manufactured many of those garments or contracted with others for their manufacture payments by customers merchandise sold by petitioner is paid for with cash by check or by credit card petitioner accepts two types of credit cards petitioner’s private-label credit card which is in the stipulations the parties have adopted the convention of referring to the affiliated_group as petitioner hereafter we will use the term petitioner to refer both to the affiliated_group and to any member so long as specific identification of that member is unnecessary honored only in one or more of petitioner's stores and a credit card issued by a third-party bank or other financial_institution and honored by many merchants petitioner’s private-label credit cards prior to petitioner issued no credit cards in petitioner acquired two retailers of women’s clothing that had preexisting open-end credit plans e credit plans providing for repeated extensions of credit with no fixed dates for repayment petitioner organized two new subsidiary corporations to take over the operation of those credit plans those two corporations were limited credit services inc limited credit a delaware corporation and world financial network inc wfn also a delaware corporation limited credit administered petitioner's open-end credit operations wfn funded the consumer credit associated with the open-end credit systems through a receivables financing facility eventually limited credit and wfn came to operate credit plans for some of petitioner's other stores the credit plans operated by limited credit were established under the retail installment_sales acts enacted in each of the states the district of columbia and puerto rico limited credit was required to comply on a state-by-state basis with varying limitations on interest rates minimum finance_charges delinquency charges uncollectible check fees and methods for calculating the average daily balance of accounts organization of world financial network national bank in ralph e spurgin spurgin joined petitioner’s organization and became president of limited credit spurgin believed that petitioner could increase the profitability of its credit card operations if it could avoid the various states' retail installment_sales acts in particular he believed that if petitioner could avoid setting interest rates on a state-by- state basis and charge a uniform rate it could earn an additional dollar_figure million dollars in revenue spurgin believed that a way to avoid the states’ retail installment_sales acts was in some manner to employ a national bank to extend credit to customers of the stores a bank that would not be subject_to the various states' retail installment_sales acts a national banking association is permitted to charge interest for any extension of credit at the rate permitted by the state in which it is located or alternatively a rate percent greater than the 90-day discount rate in effect in the federal reserve district in which the national banking association is located whichever is higher u s c sec_85 c f_r sec 439_us_299 prior to the decision in marquette the majority of analysts assumed that a national bank was not permitted to export the interest rate permitted by the state in which it was located but rather was subject_to the usury restrictions imposed by each of the states in which its credit card customers resided the bank_holding_company act of bhca ch 70_stat_133 currently codified pincite u s c secs concerns the ownership of banks in general bhca prohibits companies that own banks from engaging in any business other than banking or a business closely related to banking see u s c sec in in part to deal with the problem of nonbank banks institutions regulated as banks but exempt from key provisions of bhca because of their failure to meet the definition of a bank under bhca congress amended bhca see the competitive equality banking act of ceba publaw_100_86 sec b 101_stat_552 ceba broadened the s rept accompanied s 100th cong 1st sess which substantially as passed by the senate became publaw_100_86 101_stat_552 competitive equality banking act of ceba see h conf rept immediately prior to ceba the bank_holding_company act of bhca ch 70_stat_133 currently codified pincite u s c secs defined a bank as an institution that both accepted demand deposits and made commercial loans u s c c and the senate comm on banking housing and urban affairs the committee believed that that definition created a loophole the nonbank loophole for a bank that refrained from one of those two activities and thus was not considered a bank for purposes of bhca for instance the committee believed that a nonbank bank could offer interest bearing now accounts rather than demand deposits and escape regulation under bhca s rept supra pincite the committee found the impetus for nonbank banks stems primarily from large diversified companies wanting to invade the banking business while avoiding the regulatory restraints of the bank_holding_company act thus some of the nation’s largest retailing securities and continued definition of a bank for purposes of bhca but excluded from that definition institutions engaging only in credit card transactions credit card banks thus a company like petitioner which was engaged in neither banking nor a banking related business could own a credit card bank without violating bhca ceba cleared the continued insurance_companies have been able to enter the banking business through the nonbank loophole while banks are prevented from entering those businesses by the bank_holding_company act id pincite the committee believed that a failure to close the nonbank loophole would cause a number of problems in the banking system including creating new competitive inequalities for bank holding_companies whose activities under bhca must be closely related to banking id pincite to close the nonbank loophole congress expanded the definition of the term bank in bhca to include any bank whose deposits are insured by the federal deposit insurance corp as well as any institution that accepts demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties and engages in the business of making commercial loans see u s c sec c as amended by ceba sec_101 sec_101 stat congress maintained certain express exclusions from the definition of the term bank and provided certain additional limited exceptions for among other institutions credit card banks see u s c sec c s rept supra pincite an institution qualifies as a credit card bank if it engages only in credit card operations does not accept demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others does not accept any savings or time deposits of less than dollar_figure except for certain deposits held as collateral maintains only one office that accepts deposits and does not engage in the business of making commercial loans u s c sec c f see supra note way for petitioner to own a bank that could charge a uniform rate of interest on credit card sales as of date world financial network national bank wfnnb was organized under the national bank act see u s c sec_24 on date the comptroller of the currency issued a charter certificate to wfnnb authorizing it to commence the business of banking as a national banking association the articles of association of wfnnb the articles state that the association is organized to carry on the business of banking under the laws of the united_states the articles incorporate in full the ceba credit card institution restrictions see supra note in pertinent part article third provides the association will engage only in credit card operations will not accept demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others will not accept any savings or time deposit of less than dollar_figure iv will maintain no more than one office that accepts deposits v will not engage in the business of making commercial loans petitioner subscribed to big_number shares of the common_stock of wfnnb par_value dollar_figure million in consideration of receipt of those shares petitioner contributed all of the stock of limited in ralph e spurgin believed that the comptroller of the currency had put a moratorium on the organization of nonbank banks that would issue credit cards credit and wfn to wefnnb which corporations were thereafter liguidated and dissolved wfnnb is a wholly owned subsidiary_corporation of petitioner credit operations of world financial network national bank upon receipt of its charter wfnnb entered into agreements the merchant agreements with the stores the merchant agreements concerned credit cards to be issued by wfnnb to customers of the stores and embodied the contractual relationship between wfnnb and the stores with respect thereto among other things the merchant agreements entitled wfnnb to issue credit cards bearing the name and logo of each store to customers of that store also upon receipt of its charter wfnnb sent notices change_of terms notices to holders of the credit cards previously issued under the credit plans operated by limited credit and wen the change_of terms notices among other things informed such credit card holders that wfnnb would be the extender of credit on their account and for credit card holders in certain states there would be an increase in the interest rate on their accounts as of date wennb had opened million credit card accounts and it had outstanding credit card loans in excess of dollar_figure million wennb capitalization and liguidity needs wfnnb had cash liquidity needs that could not be met without borrowing limited service corp limited service another member of the affiliated_group performed the treasury function for wfnnb that function included assisting wfnnb in meeting its liquidity needs limited service had access to funds generated by petitioner’s sale of its commercial paper initially wfnnb’s liguidity needs were met from within the affiliated_group on date limited service granted wennb a line of credit in the amount of dollar_figure million on date limited service increased to dollar_figure billion the line of credit it granted to wfnnb at various times wfnnb obtained funds from limited service pursuant to various other long- and short-term loan agreements wfnnb also borrowed money from and was granted lines of credit by various unrelated outside lenders on date wfnnb was granted a dollar_figure million line of credit by a syndicate of banks wfnnb never drew on that line of credit because it could obtain funds less expensively from limited service certificates of deposit wfnnb first issued sold a certificate of deposit cd on date that cd was sold to limited service for dollar_figure the minimum acceptable time deposit pursuant to the ceba restrictions incorporated in the articles on date by letter agreement the letter agreement wfnnb appointed merrill lynch pierce fenner smith inc merrill lynch as its agent for its customers who desired to purchase cds the letter agreement provided that the cds would be sold in denominations of dollar_figure or integral multiples thereof during date and date wfnnb acting through its agent merrill lynch sold cds receiving dollar_figure million those cds comprised transferable individual time deposit accounts of dollar_figure each each of those accounts was insured by the federal deposit insurance corp mfe netherlands antilles n v mfe n v is a netherlands antilles corporation on date mfe n v purchased eight cds from wfnnb in the total amount of dollar_figure million the mfe n v cds each mfe n v cd was for a term of year showed an annual interest rate of percent annual yield of dollar_figure percent and provided that it was a non-negotiable and non-transferable time deposit each also provided this time deposit shall renew automatically for a like term unless and until notice of withdrawal is presented at the bank within seven calendar days after the maturity_date reduction of indebtedness to limited service on date wfnnb transferred the dollar_figure million received from mfe n v on the sale of the cds to limited service to reduce the balance outstanding under the line of credit extended to wfnnb by limited service petitioner’s indirect ownership of mfe n v mfe n v is a fourth tier subsidiary of petitioner the relationship of mfe n v to petitioner as well as the relationship of wfnnb limited service and the stores to petitioner is shown in the following diagram simplified corporation organizational structure date the limited inc us world financial mast limited services store divisions network national holding corporation us many bank us corporation wre oy limited service us wennb us mast industries far east ltd hong kong mfe lf mfe netherlands antilles n v netherlands antilles ‘ mfe n v organization and operation of mfe and mfe n v in mast industries inc mii organized mast industries far east ltd mfe as a hong kong corporation at all times here pertinent mfe had its headquarters and principal_place_of_business in hong kong mfe is a controlled_foreign_corporation of petitioner within the meaning of sec_957 a mfe is a contract manufacturer for petitioner it operates throughout asia manufacturing or contracting for the manufacture of garments to be sold by petitioner's stores mfe declared no significant dividends from the early 1980s through resulting in accumulated_earnings_and_profits in excess of dollar_figure million at the end of on date the directors of mfe resolved to organize and capitalize mfe n v among the stated purposes were engaging in group financing activities and providing for a means of investing and reinvesting liguid assets and funds the directors of mfe further resolved to make a capital_contribution to mfe n v of dollar_figure million mfe n v had no employees during date on date mfe transferred dollar_figure million by wire to mfe n v that dollar_figure million was used to purchase the mfe n v cds opinion i introduction world financial network national bank wfnnb a national banking association is a wholly owned subsidiary of petitioner in wfnnb was organized and today operates as a credit card bank to issue credit cards to customers of petitioner’s stores mast industries far east ltd mfe a hong kong corporation also is a wholly owned subsidiary of petitioner mfe is a controlled_foreign_corporation within the meaning of sec_957 and with respect to mfe petitioner is a u s shareholder within the meaning of sec_951 mfe netherlands antilles n v mfe n v a netherlands antilles corporation is a wholly owned subsidiary of mfe on date mfe n v purchased eight certificates of deposit cds from wfnnb in the total amount of dollar_figure million the mfe n v cds we must determine whether as a result of those purchases petitioner must include dollar_figure in gross_income under sec_951 b on account of the investment by mfe of its earnings in u s property see sec_956 the record does not explain the discrepancy between the dollar_figure million purchase_price and the dollar_figure adjustment_to_gross_income ii internal_revenue_code and regulations the principal provisions of the internal_revenue_code at issue are sec_951 and sec_956 sec_951 and sec_956 are found in subpart_f of part iii subchapter_n chapter of the internal_revenue_code subpart_f subpart_f concerns itself with controlled_foreign_corporations the term controlled_foreign_corporation is defined in sec_957 ’ sec_951 provides that each u s shareholder of a controlled_foreign_corporation shall include in gross_income certain amounts including his pro_rata share determined under sec_956 of the corporation’s increase_in_earnings_invested_in_united_states_property in pertinent part sec_956 provides a general rules ---for purposes of this subpart---- amount of investment the amount of earnings_of a controlled_foreign_corporation sec_957 provides general_rule --for purposes of this subpart the term controlled_foreign_corporation means any foreign_corporation if more than percent of-- the total combined voting power of all classes of stock of such corporation entitled to vote or the total value of the stock of such corporation is owned within the meaning of sec_958 or is considered as owned by applying the rules of ownership of sec_958 by united_states_shareholders on any day during the taxable_year of such foreign_corporation invested in united_states_property at the close of any taxable_year is the aggregate amount of such property held directly or indirectly by the controlled_foreign_corporation at the close of the taxable_year to the extent such amount would have constituted a dividend determined after the application of sec_955 if it had been distributed pro_rata share of increase for year xk b united_states_property defined --- in general --for purposes of subsection a the term united_states_property means any property acquired after date which is-- a tangible_property located in the united_states b stock of a domestic_corporation c an obligation of a united_states_person or d any right to the use in the united_states of-- a patent or copyright an invention model or design whether or not patented a secret formula or process or iv any other similar right which 1s acquired or developed by the controlled_foreign_corporation for use in the united_states exceptions --for purposes of subsection a the term united_states_property does not include-- -- - a obligations of the united_states money or deposits with persons carrying on the banking business b property located in the united_states which is purchased in the united_states for export to or use in foreign countries c any obligation of a united_states_person arising in connection with the sale or processing of property if the amount of such obligation outstanding at no time during the taxable_year exceeds the amount which would be ordinary and necessary to carry on the trade_or_business of both the other party to the sale or processing transaction and the united_states_person had the sale or processing transaction been made between unrelated persons d any aircraft railroad rolling_stock vessel motor_vehicle or container used in the transportation of persons or property in foreign_commerce and used predominantly outside the united_states eb an amount of assets of an insurance_company equivalent to the unearned premiums or reserves ordinary and necessary for the proper conduct of its insurance_business attributable to contracts which are not contracts described in sec_953 f the stock or obligations of a domestic_corporation which is neither a united_states_shareholder as defined in sec_951 of the controlled_foreign_corporation nor a domestic_corporation percent or more of the total combined voting power of which immediately after the acquisition of any stock in such domestic_corporation by the controlled_foreign_corporation is owned or is considered as being owned by such united_states_shareholders in the aggregate g any movable property other than a vessel_or_aircraft which is used for the purpose of exploring for developing removing or transporting resources from ocean waters or under such waters when used on the continental shelf of the united_states emphasis added in pertinent part sec_1_956-1t temporary income_tax regs fed reg date provides treatment of certain investments of earnings in united_states_property special rule for purposes of b of the regulations which as pertinent paraphrases sec_956 a controlled_foreign_corporation will be considered to hold indirectly at the discretion of the district_director investments in u s property acquired by any other foreign_corporation that is controlled by the controlled_foreign_corporation if one of the principal purposes for creating organizing or funding through capital contributions or debt such other foreign_corporation is to avoid the application of sec_956 with respect to the controlled_foreign_corporation tit summary of arguments of the parties a respondent’s arguments mfe controls mfe n v and respondent argues that a principal purpose for creating organizing or funding mfe n v was to avoid the application of sec_956 thus respondent would exercise his discretion to consider mfe as owning indirectly any investment in u s property acquired by mfe n v see sec_1_956-1t temporary income_tax regs respondent considers the mfe n v cds to be u s property within the meaning of sec_956 c u s property thus respondent concludes that mfe a controlled_foreign_corporation increased its earnings invested in u s property and petitioner the sole u s shareholder of mfe must include dollar_figure in gross_income pursuant to sec_951 b respondent has numerous arguments why the mfe n v cds are not deposits with persons carrying on the banking business within the meaning of sec_956 a sometimes sec_956 deposits principally respondent argues that to be in the banking business for purposes of sec_956 a an institution must first be a bank within the meaning of sec_581 definition of bank for purposes of rules of general application to banking institutions and since wfnnb does no more than operate a private label credit card business its activities are too narrow to put it into the banking business respondent also argues that the mfe n v cds did not constitute deposits as that term is used in sec_956 a alternatively respondent argues that because in substance the mfe nv cds are the repatriation of earnings_of a controlled_foreign_corporation they should be treated as such no matter what steps petitioner took to color them as something else b petitioner’s arguments petitioner denies that mfe n v was created organized or funded to avoid the application of sec_956 moreover petitioner argues that the mfe n v cds do not constitute u s property since they gualify for an exception to that term as deposits with persons carrying on the banking business pursuant to sec_956 a petitioner argues that the term the banking business has no special meaning and that wfnnb was organized as a bank is operated as a bank is regulated as a bank and is considered a bank by various experts in banking finance and economics petitioner likewise argues that the term deposits has no special meaning and the mfe n v cds are deposits both in form and substance iv discussion a introduction as will be explained below the provisions of subpart_f here in question were enacted to tax as dividends the repatriated earnings_of controlled_foreign_corporations an exception was made for deposits with persons carrying on the banking business given the limited purpose of wfnnb to issue credit cards to customers of the stores we find that the mfe n v cds are not deposits with persons carrying on the banking business as congress used those words in sec_956 a we independently reach the same conclusion based on the relationships between and among petitioner wfnnb mfe and mfe n v therefore we find that the dollar_figure in question was invested in u s property the details of our reasoning are as follows b deposits with persons carrying on the banking business in arguing whether the mfe n v cds constitute sec_956 deposits the parties expend considerable effort addressing whether wfnnb is a bank respondent would have us define the term bank as it is defined in sec_581 and argues that wfnnb cannot qualify under that definition since taking deposits from unrelated parties does not constitute a substantial part of its business petitioner’s argument is somewhat more elaborate petitioner argues that since banks are in the business of banking and wfnnb is a bank wfnnb must be in the business of banking petitioner supports itss minor premise wfnnb is a bank by showing that wfnnb was organized to carry on the business of banking is authorized by the comptroller of the currency to do business as a national banking association and derives its authority from and is governed by the national bank act currently codified in title u s c petitioner points out that wfnnb may not legally engage in any activity but the business of banking petitioner concludes the language enacted by congress is unambiguous wfnnb is a bank it is therefore a priori engaged in the banking business as a matter of law it can do nothing else we do not accept either party’s argument that we can determine whether wfnnb is in the banking business simply by determining whether wfnnb is a bank the question is not whether wfnnb is a bank congress did not provide an exception for deposits with banks it provided an exception for deposits with persons carrying on the banking business congress did not define the term banking business and although petitioner presented expert testimony with respect to banks and banking none of petitioner’s experts claim that the term banking business is a term of art or has a well-defined meaning indeed petitioner’s expert robert l clarke comptroller of the currency from date through date testified during the time i served as comptroller of the currency the issues of what it means to be a ‘bank’ and exactly what constitutes the ‘banking business’ regularly confronted the office of the comptroller of the currency occ congress and the court system including the supreme court we conclude that the term deposits with persons carrying on the banking business is ambiguous cf nationsbank n a v variable_annuity life ins the parties dispute not only the meaning of the term deposits with persons carrying on the banking business but also the meanings of the subordinate terms deposits and banking business we conclude that the subordinate term banking business is ambiguous that is sufficient for us to conclude that the superior term deposits with persons carrying on the banking business is ambiguous -- - co 513_us_251 n determining that comptroller of the currency may determine what is an incidental powe r necessary to carry on the business of banking for purposes of u s c sec_24 we expressly hold the ‘business of banking’ is not limited to the enumerated powers in sec_24 seventh and that the comptroller therefore has discretion to authorize activities beyond those specifically enumerated cc court’s function in interpreting the internal_revenue_code this court's function in interpreting the internal_revenue_code is to construe the statutory language to effectuate the intent of congress see 310_us_534 109_tc_463 94_tc_863 affd 954_f2d_653 11th cir 88_tc_177 affd 865_f2d_750 6th cir both a textual analysis of the statute and a consideration of congress’ purpose in enacting subpart_f are warranted and appropriate to determine whether deposits with wennb whose activities were predominantly limited to credit card transactions and which is a wholly owned subsidiary of petitioner are sec_956 deposits see 491_us_440 we begin by considering congress' purpose in enacting subpart_f - - d tax reform acts of and subpart_f was added to the internal_revenue_code of by sec_12 of the revenue act of publaw_87_834 76_stat_960 h_r 87th cong 2d sess h_r is the bill that when enacted became the revenue act of the committee reports accompanying h_r both in the house of representatives the house and in the senate discuss the impetus for subpart_f to wit to end the tax_deferral resulting from the failure of our income_tax system to tax the foreign_source_income of american controlled_foreign_corporations until such income is distributed to the corporation’s american shareholders as dividends h rept 87th cong 2d sess 1962_3_cb_405 s rept 87th cong 2d sess 1962_3_cb_707 the committees did not attempt to eliminate such tax_deferral completely but they did address certain tax_haven devices see s rept supra c b pincite with respect to that portion of subpart_f dealing with investments in u s property the repatriation provision the committee on finance said generally earnings brought back to the united_states are taxed to the shareholders on the grounds that this is substantially the equivalent of a dividend being paid to them s rept supra c b pincite accord h rept supra c b pincite with respect to the exceptions to u s property for sec_956 deposits which both - - tax writing committees referred to as bank accounts and the other items contained in sec_956 the committee on finance explained the exceptions however are believed to be normal commercial transactions without intention to permit the funds to remain in the united_states indefinitely except in the case of the last category where full u s corporate tax is being paid s rept supra c b pincite accord h rept supra c b pincite because u s property was defined to include in general all tangible and intangible_property located in the united_states the scope of the repatriation provision proved too broad for congress which in limited it see tax reform act of publaw_94_455 90_stat_1525 adding sec_956 f and g h_r 94th cong 2d sess is the bill that when enacted became the tax reform act of the committee reports accompanying h_r both in the house and the senate state the committees’ views that the scope of the repatriation provision is too broad h rept as originally enacted sec_956 contained only the exceptions set out as sec_956 a through e plus an exception for assets of the controlled_foreign_corporation equal to certain accumulated_earnings_and_profits already subject_to income_taxation in the united_states ie the last category referred to in the quoted language from the report of the committee on finance the exception set out as sec_956 f was added by the tax reform act of publaw_94_ sec_1021 90_stat_1520 1976_3_cb_701 s rept 1976_3_cb_57 both reports state that the repatriation provision may have encouraged foreign_corporations to invest their profits abroad with a detrimental effect upon the u s balance of trade for example a controlled_foreign_corporation looking for a temporary investment for its working_capital is by this provision induced to purchase foreign rather than u s obligations h rept supra c b vol pincite s rept supra c b vol pincite the committee on finance explained in the committee’s view a provision which acts to encourage rather than prevent the accumulation of funds offshore should be altered to minimize any harmful balance of payments impact while not permitting the u s shareholders to use the earnings_of controlled_foreign_corporations without payment of tax in the committee’s view since the investment by a controlled_foreign_corporation in the stock or debt obligations of a related u_s_person or its domestic affiliates makes funds available for use by the u s shareholders it constitutes an effective repatriation of earnings which should be taxed the classification of other investments in stock or debt of domestic corporations as the equivalent of dividends is in the committee’s view detrimental to the promotion of investments in the united_states accordingly the committee’s amendment provides that an investment in u s property does not result when the controlled_foreign_corporation invests in the stock or obligations of unrelated u s persons s rept supra c b vol pincite see also h rept supra c b vol pincite by the tax reform act of congress added subparagraph f to sec_956 subparagraph f of sec_956 provides that u s property does not include stock or debt of a domestic_corporation unless the corporation is itself a u s shareholder of the foreign controlled_corporation if the u s shareholders of the controlled_foreign_corporation have less than 25-percent control of the_domestic_corporation eb analysi sec_1 the banking business the repatriation provision was enacted in on the theory that the repatriation of previously untaxed by the united_states_earnings by a controlled_foreign_corporation was substantially the equivalent of a dividend being paid to the u s shareholders of that corporation dividend egquivalency theory excepted were a group of transactions that the tax writing committees believed were normal commercial transactions without intention to permit funds to remain in the united_states indefinitely s rept supra c b pincite accord h rept supra c b pincite one such exception is for deposits with persons carrying on the banking business the phrase carrying on the banking business is a phrase congress also added subparagraph g to sec_956 which deals with certain oil drilling rigs used on the u s continental shelf and is not relevant to our discussion modifying and thus describing or limiting the noun persons the phrase expresses an action required of such persons that action is to carry on the banking business congress' use of the definite article the to modify the subordinate term panking business indicates a purpose to particularize the activity or activities required of such persons such persons must do something in particular they must carry on ée conduct a business not any business but the banking business not a banking business which would suggest a variety of businesses that would qualify but the banking business our textual analysis convinces us that congress did not intend that the term persons carrying on the banking business apply to every person that is conducting one or more of the activities that are considered to be part of a banking business by any statute agency or industry therefore it is not sufficient for petitioner to prove that the activities and business that wfnnb carried on were a banking business rather the issue is whether wfennb was carrying on the banking business as those terms are used in sec_956 a emphasis added from the context of the term the banking business we infer that congress meant a group of activities carried on to aid the domestic business activities of controlled_foreign_corporations for example sec_956 b and c except from the definition of u s property property that is purchased for export and loans to u s sellers or processors of the controlled foreign corporation's property we believe that a person carrying on the banking business for purposes of sec_956 b a must at the very least provide banking services useful to a controlled_corporation engaging in business activities in the united_states our conclusion that congress had a group of business-facilitating activities in mind is bolstered by the tax writing committees’ stated belief that the exceptions to the definition of u s property were for normal commercial transactions without intent to permit the funds to remain in the united_states indefinitely both tax writing committees used the term bank accounts to describe the deposits exception a dictionary definition of the term bank account is an account with a bank created by the deposit of money or its eguivalent and subject_to withdrawal of money as by check or passbook webster' sec_3d new international dictionary similar in second edition while not dispositive of congressional intent the use of the term bank accounts as defined in the dictionary for many years is yet another indication that the deposit exception was meant to encompass banking functions eg the ability to write checks that would facilitate the controlled foreign corporation’s business in h rept the committee on ways and means reported certain exceptions to the house's definition of u s property are made but these apply only where the property located within the united_states is ordinary and necessary to the active_conduct of the foreign corporation's business or substantially the same trade_or_business h rept supra c b pincite emphasis added h_r as passed by the house the house bill dealt more strictly with a controlled foreign corporation’s investment of its earnings than did the provision substituted by the senate which substitute was accepted by the house to escape tax the house bill would have required earnings invested outside of the united_states and the few exceptions for domestic investments to be invested in money or property ordinary and necessary for the active_conduct of a qualified_trade_or_business the active_conduct restriction h_r 87th cong 2d sess sec a the senate eliminated that restriction it retained virtually unchanged however the language of the house bill describing the few permitted domestic investments since the house undoubtedly understood that language to describe investments satisfying the active_conduct restriction it can be inferred by the senate's nearly verbatim adoption of the same language that it also understood that language to describe investments satisfying the active_conduct restriction notwithstanding its elimination of that restriction with respect to all foreign investments and u s investments of earnings that had been subjected to u s taxation we are mindful that the exceptions to the definition of u s property provided in sec_956 a include an exception for obligations of the united_states which of course could include a long-term investment such as a 30-year treasury bond this fact does not alter our conclusion that congress intended to limit sec_956 a in general and the sec_956 deposit exception in particular to business facilitating activities it was only natural for congress to encourage any form of deposit of offshore earnings with the u s government given our conclusion as to the meaning of the term the banking business we are satisfied that the activities of wfnnb do not satisfy it wfnnb's articles of association significantly limit its banking activities the association will engage only in credit card operations will not accept demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others will not accept any savings or time deposit of less than dollar_figure iv will maintain no more than one office that accepts deposits v will not engage in the business of making commercial loans wfnnb is a special purpose institution that is not of much use to a foreign business customer seeking banking services to - - aid its domestic business activities except as the issuer of a private-label credit card or as the recipient of large deposits of funds that are not needed immediately those are insufficient services for us to conclude that wfnnb was carrying on the banking business as congress used that phrase in sec_956 b a dividend_equivalence as originally enacted in the repatriation provision classified as u s property virtually all investments by a controlled_foreign_corporation of its earnings in the united_states there was little if any reason for congress to include a related-party restriction in the exception for sec_956 deposits by however the tax writing committees of from the enactment of the bank_holding_company act of bhca publaw_91_607 ch 70_stat_133 currently codified pincite u s c secs until its amendment by the bank_holding_company act amendments of bhca amendments publaw_91_607 84_stat_1760 a bank_holding_company was defined as a company having control_over two or more banks the bhca would thus not have impeded a nonbanking company such as petitioner from owning a single bank nevertheless petitioner has failed to show us that in when subpart_f was enacted that possibility was any more than theoretical see s rept u s c c a n p accompanying h_r which was enacted as bhca amendments and describing the theoretical freedom of a one-bank holding_company to engage in any business or acquire anything it desires subject_to antitrust laws conf rept u s c c a n p also accompanying h_r and stating that i n the late 1960's nonbank corporations began acquiring one bank thus mixing banking and nonbanking in complete contravention of the purpose of both continued congress had recognized that the repatriation provisions had discouraged investments that would be favorable to the u s balance of payments congress addressed that problem by adding two additional exceptions to the definition of u s property subparagraphs f certain stock or debt investments and g certain oil drilling rigs the subparagraph f exception is limited to stock or debt of unrelated domestic corporations the committee on finance cautioned that it did not wish the law to be changed to permit the u s shareholders of a controlled_foreign_corporation to use the earnings_of the corporation without payment of tax h rept supra s rept supra congress did not amend the sec_956 deposit exception to except only deposits with unrelated persons that is understandable however since bhca prohibited nonbank holding_companies from owning banks petitioner has offered no policy reason why congress would permit deposits particularly deposits for an indefinite period with a related bank but prohibit investments ina related corporation in response to mh’ continued federal banking laws going back to the 1930's and the bank_holding_company act of undoubtedly congress believed that it had foreclosed that possibility in when it enacted bhca amendments see supra note by nonbank companies had found a loophole the nonbank loophole in bhca which congress enacted ceba to close see supra note commercial firms however did not begin to exploit the nonbank loophole until the early 1980s -- - petitioner's argument that the phrase deposits with persons carrying on the banking business has a plain meaning an argument we reject we note that when the adherence to the plain meaning of a statute produces an unreasonable result plainly at variance with the policy of the legislation as a whole it is proper to follow that purpose rather than the literal words 310_us_534 internal quotation omitted see also 489_us_235 further w le may then look to the reason of the enactment and inguire into its antecedent history and give it effect in accordance with its decision and purpose sacrificing if necessary the literal meaning in order that the purpose may not fail u s padding corp v commissioner t c pincite quoting ozawa v united_states 260_us_178 we believe that a related_party prohibition is implicit in the exception for sec_956 deposits such a prohibition is necessary to give effect to the dividend_equivalence theory that underlies the repatriation provision if we find that the petitioner argues that a limitation of the sec_956 deposits exception to unrelated-party deposits would render that exception superfluous in light of sec_956 f according to petitioner because sec_956 f permits a controlled foreign corporation's earnings to escape u s taxation when invested in the obligations of an unrelated u s_corporation it would serve no purpose to interpret the sec_956 deposits continued purchase of the mfe n v cds amounts to the use of the earnings_of a controlled_corporation by a u s shareholder we believe that such purchase must be regarded as an increase of earnings invested in u s property and not a sec_956 deposit on date mfe n v purchased the eight mfe n v cds from wfnnb for dollar_figure million each cd was for a term of year showed an annual interest rate of percent and provided that it was a nonnegotiable and nontransferable time deposit each also provided this time deposit shall renew automatically for a like term unless and until notice of withdrawal is presented at the bank within seven calendar days after the maturity_date on date wfnnb continued exception as accomplishing the same result with respect to obligations in the form of deposits with a domestic_corporation carrying on the banking business the sec_956 a exception however applies to deposits with persons carrying on the banking business whereas the sec_956 f exception applies to obligations of a domestic_corporation a person carrying on the banking business need not be a corporation see eg mass gen laws ann ch sec_1 defining bank to include any individuals association partnership or corporation doing a banking business in the commonwealth see also n d cent code sec defining the terms banking association and state banking association to include limited_liability companies partnerships firms or associations whose business in whole or in part consists of the taking of money on deposit although our interpretation of the sec_956 deposits exception narrows its scope we conclude that it cannot be interpreted to permit deposits by controlled_foreign_corporations with a related_person carrying on the banking business to go untaxed and still remain consistent with the clear overall legislative intent to tax investments in related u s persons -- - transferred the dollar_figure million received from mfe n v to limited services to reduce the balance outstanding under a line of credit extended to wfnnb by limited services wfnnb is a wholly owned subsidiary of petitioner and therefore the reduction of wfnnb’s line of credit balance to limited service directly benefited petitioner as we shall explain in the next section of this report we find that respondent did not abuse his discretion in attributing the mfe n v cds to mfe we therefore view the purchase of the mfe n v cds as a repatriation of the earnings_of mfe because that repatriation made the earnings_of mfe a controlled_foreign_corporation available for use by its only u s shareholder petitioner we find that the repatriation was substantially the equivalent of a dividend being paid_by mfe to petitioner the purchase of the mfe n v cds was an investment in u s property the exception for sec_956 deposits is unavailable f sec_1_956-1t temporary income_tax regs sec_1_956-1t temporary income_tax regs fed reg date empowers respondent to attribute to mfe the mfe n v cds if one of the principal purposes for creating organizing or funding mfe n v was to avoid the application of sec_956 with respect to mfe petitioner argues that the purpose of organizing mfe n v was to inject an additional corporate layer between mfe and the deposits to wfnnb to improve the efficacy of the deposits as protection against expropriation by the people’s republic of china which was scheduled to take over hong kong in that was the testimony of kenneth b gilman petitioner’s executive vice president--finance and chief financial officer when asked however why that was the case mr gilman replied that he was not exactly sure timothy b lyons is and during the years in issue was petitioner’s vice president-tax his responsibilities include compliance tax planning and administration of the tax function at petitioner he is intimately familiar with the business activity of mfe like mr gilman he also testified that the purpose of forming mfe n v was to protect against expropriation indeed he testified that it was the sole purpose for organizing mfe n v on cross-examination mr lyon was asked why no consideration had been given to forming a domestic united_states subsidiary of mfe to protect against expropriation he responded it didn’t really accomplish anything from the asset protection side but there is no question it would have been deemed a dividend or something at wia4 that point further petitioner decided to invest mfe’s funds im it is possible that mr lyon's concern related to sec_956 b b pursuant to which mfe's increase in earnings invested in the stock of a domestic_corporation would have resulted in subpart_f_income to petitioner to the extent of such increase in wfnnb before mfe n v was organized whether mfe n v was organized for asset protection purposes we need not say we do believe however that that was not the sole purpose of organizing mfe n v we believe that a principal purpose of organizing and funding mfe n v was to avoid having the dollar_figure million capital_contribution result in subpart_f_income pursuant to sec_956 further we believe that another principal purpose was to limit any subpart_f_income imposed pursuant to sec_956 to mfe n v 's earnings_and_profits which were negligible thus we find that a principal purpose for creating organizing and funding mfe n v to purchase the mfe n v cds rather than using a domestic_corporation or having mfe purchase the cds directly was to avoid the application of sec_956 mr lyon's testimony supports that conclusion accordingly the mfe n v cds are attributed to mfe pursuant to sec_1 1t b temporary income_tax regs supra g conclusions at the close of mfe held the mfe n v cds the mfe n v cds were u s property and not sec_956 deposits v conclusion to the extent respondent determined a deficiency in tax on the basis that petitioner must include dollar_figure in gross -- - income under sec_951 that deficiency in tax is sustained an appropriate order will be issued


significant index no v0 u department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division wecos 2a0 te porat ar re company this letter constitutes notice that your request for a waiver of the minimum_funding_standard for the above-named plan for the plan_year ending date has been denied the company is involved in hardship was brought about by the loss of two major depleted the company’s working_capital and resulted in a loss of bonding which forced the company to enter a different the current financial which oe - yau were notified in a letter dated octcber that your requesi nad been tentatively denied a conference of right was held on date at the time a decision was made to obtain a revised actuarial valuation using an acceptable funding method and actuarial assumptions then to await your review of the 5-year financial projection that was earlier submitted and your submission of a monthly payment schedule that would fund the plan ongoing assuming the waiver was to be granted in a letter dated date you stated that based on your current financial condition the company would be filing for a distress termination of this plan because it is unreasonable to assume that the plan will continue only if a funding waiver is __ granted your request for a waiver of the minimum_funding_standard for the-plan year ending date has been denied you should note that excise_taxes under sec_4971 of the internal_revenue_code are currently due on the accumulated funding deficiencies in the plan for the plan years ending date and date you should file a form_5330 as soon as possible to report and pay the taxes this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the manager ep classification in to the manager ep compliance unit in if you require further assistance in this matter please contact sincerely yours none m reste by ctnthow wloslawg- donna m prestia employee_plans actuarial group manager