department of the treasury internal_revenue_service washington d c date cc dom fs fi p tl-n-1292-95 uilc number release date internal_revenue_service national_office field_service_advice memorandum for from deborah a butler assistant chief_counsel field service cc dom fs fi p subject this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend state fund year year year year year year year year year date date a b c d e f g h i j issues whether an entity created by a state to provide workers’ compensation insurance to employers is exempt from federal_income_tax as an integral part of the state a political_subdivision of the state or because it meets the requirements of sec_115 conclusion based on the information submitted the entity’s income is not exempt from federal_income_tax as an integral part of the state or as a political_subdivision of the state nor does it meet the requirements of sec_115 the facts do not support a finding that the entity is an integral part of the state either through the state’s control_over the entity or the state’s financial commitment to the entity further there is no indication that the entity possesses any of the sovereign powers necessary to a finding that it is a political_subdivision of the state finally sec_115 is inapplicable because the income from the entity accrues to private parties facts the facts as stated below are based solely on the information submitted and the representations in your memorandum state statute requires that all employers provide workers’ compensation coverage for their employees state created the fund in year for the stated purpose of guaranteeing the availability of workers’ compensation insurance at reasonable rates establishment of fund the operation and organization of the fund are governed primarily by provisions of state’s insurance code the fund was initially formed as a public revolving fund consisting of appropriations approved by state legislature all insurance premiums received and all investment properties and net_earnings therefrom in year the fund received an appropriation of dollar_figurea from the state legislature for initial working_capital in year the original appropriation of dollar_figurea plus interest was returned to state the insurance code provides that the fund shall be fairly competitive with other insurers and it is the intent of state legislature that the fund shall ultimately be neither more nor less than self-supporting in year pursuant to the state legislature’s mandate that the fund provide coverage the fund received a dollar_figureb loan from a state revolving fund the loan was repaid with interest in year in year the legislature reorganized the fund into a public enterprise fund in order to increase its autonomy and to accrue significant cost savings pursuant to this reorganization the fund was granted the authority to deposit and maintain its funds in financial institutions authorized by law to receive deposits of public moneys and to invest its funds subject only to the restrictions applicable to private insurers the fund may also with the approval of the state treasurer establish an account or fund in the state treasury in the name of the fund but moneys deposited with the state treasurer are not state moneys within the intent of state statute prior to the year reorganization the fund’s moneys were administered and maintained by the state treasurer in addition the fund was granted greater freedom in conducting its affairs by exempting it in most instances from the provisions of the state government code applicable to state agencies this action was purportedly for the purpose of enabling the fund to become more competitive with other worker’s compensation insurers as a result of the legislative changes the fund generally transacts workers’ compensation insurance to the same extent as any other insurer operation of the fund under state law the fund is governed by a board_of directors vested with full power and authority as the governing body of a private insurance carrier the board_of directors is composed of five members appointed by the governor one of whom shall be from organized labor in order to qualify for membership the board members other than the member from organized labor must be policyholders or employees of a policyholder in the fund for one year prior to appointment and must continue in such status while a member the governor of state shall appoint the chairperson who shall serve at the pleasure of the governor state’s director of industrial relations shall be an ex officio nonvoting sixth member of the board and shall not be counted as a member of the board for quorum purposes prior to date the director of industrial relations acted as chairman of the fund’s board_of directors however a year statute granted the director of industrial relations the power to impose fines and penalties on all workers’ compensation providers including the fund the resulting conflict of interest necessitated the board’s reorganization the board_of directors is authorized by statute to appoint and fix the salary of a manager for the fund the duties of the manager are to manage and conduct the business and affairs of the fund under the general direction of and subject_to the approval of the board_of directors the manager of the fund has full authority to run the daily operations of the fund including the authority to enter into contracts of workers’ compensation insurance sell annuities covering compensation benefits and decline to insure any risk which is beyond the safe carrying of the fund the manager is required to report quarterly to the governor on the business of the fund pursuant to statute the fund may declare policyholder dividends provided there exists a surplus of assets such cash dividend or credit is to be in an amount which the board_of directors in its discretion considers to be the employer’s proportion of divisible surplus in years and the fund paid or credited to private employer policyholders dividends in the amounts of dollar_figurec dollar_figured and dollar_figuree respectively employees of the fund are subject_to state’s civil service system state delegates certain personnel functions to the fund including approving appointments for officer positions and the hiring and firing of employees salaries for the fund’s employees are set by state’s office of personnel administration the fund’s employees receive the same benefits afforded to employees of state agencies salaries and benefits of the fund’s employees are paid from revenues generated from the fund’s insurance and investment_income the state department of insurance regulates all insurance_business in the state including the fund prior to year state mandated the minimum rates to be charged by the fund for workers’ compensation insurance due to an adverse effect on businesses the minimum rate law was repealed and an open rating system was implemented the department of insurance continues to establish rates charged by the fund however rates are fixed with consideration to the physical hazards of each industry occupation or employment other insurers are permitted to calculate their rates subject_to the approval of the department of insurance although the fund acts as the insurer of last resort premiums are commensurate with the calculated amount of risk involved and it can deny coverage if an employer fails to meet minimum standards under state statute the fund annually pays a tax computed on the same basis at the same rates and subject_to the same deductions as those applicable to private insurers within the state thus private insurers including the fund pay gross premium taxes and property taxes but not state income taxes state statute provides that all business and affairs of the fund shall be conducted in the name of the fund not as part of a governmental body state statute provides that state shall not be liable for any obligations of the fund beyond its assets the fund may also sue and be sued in all actions arising out of any act or omission in connection with its business or affairs the fund is also not immune from punitive_damages state requires fund to share in the cost of operating the state government for years and the fund’s share of such costs was dollar_figuref dollar_figureg and dollar_figureh respectively the fund is the largest writer of workers’ compensation insurance in state the fund provides workers’ compensation insurance to more than half of all employers in state including both public and private employers the fund also serves as a third-party administrator in the adjustment and disposition of claims for workers’ compensation_for any public employers electing to self-insure the fund has dollar_figurei in assets as of date fund’s capital and surplus were dollar_figurej state statute does not provide for distribution of fund’s assets upon dissolution law and analysi sec_1 integral part of a state income earned by a state an integral part of a state or political_subdivision of a state is generally not taxable in the absence of specific statutory authorization to tax such income see rev_rul 1987_1_cb_18 whether an enterprise is an integral part of a state depends upon all the facts and circumstances including the state's degree of control_over the enterprise and the extent of the state's financial commitment to the enterprise in 308_fsupp_761 d md rev'd on other grounds 400_us_4 the state of maryland formed a corporation to insure the customer accounts of state chartered savings and loan associations under mssic's charter the full faith and credit of the state were not pledged for mssic's obligations only three of the eleven directors were selected by state officials the district_court rejected mssic's claims of intergovernmental tax immunity and exemption under sec_115 of the code because the state made no financial contribution to mssic and had no present_interest in the income of mssic thus the imposition of an income_tax on mssic would not burden the state of maryland although the district_court was reversed on other grounds the supreme court agreed with the lower court's analysis of the tax exemption issues the supreme court rejected mssic's position that it is an instrumentality of the state and hence entitled to exemption from federal taxation under the doctrine_of intergovernmental immunity and under sec_115 mssic u s pincite n in revrul_87_2 the service addressed the question of whether an enterprise is an integral part of a state and therefore entitled to exemption from federal taxation in that ruling attorneys were required to deposit clients' funds of nominal amounts into a pooled interest bearing trust account fund the ruling held that interest_paid on the accounts which was disbursed for public purposes was not subject_to federal_income_tax the state supreme court's creation and administration of the trust account fund and the court's ability to select and remove the fund's governing body to control the fund's investments and expenditures to monitor the fund's daily operation and to abolish the fund indicated that the fund was not an independent entity but rather was an integral part of the state while the facts in the present case indicate that state maintains a certain degree of control_over the administration of fund it is unlikely that such control rises to the level necessary to establish that fund is exempt from taxation as an integral part of state where state may have arguably exercised greater control in the past legislative changes have reduced the state’s degree of control_over the fund purportedly with the objective of increasing its competitiveness with private insurers for example although it is a creation of the state legislature since date the fund has been controlled by a board_of directors the majority of which are private policyholders and though the fund's employees are subject_to state civil service requirements the manager of fund is appointed by and conducts the business and affairs of the fund under the direction and subject_to the approval of the privately dominated board in general the fund transacts business in workers’ compensation insurance to the same extent as any private insurer further the fund is generally not subject_to the provisions of the government code applicable to state agencies and apparently operates independently of the state treasurer the board_of directors may invest funds in excess of reserve requirements in the same manner as private insurance carriers the fund is authorized to deposit surplus cash in financial institutions authorized by law to receive deposits of public moneys the board_of directors may also establish an account or fund in the state treasury in the name of the fund however moneys deposited with the state treasurer are not state moneys within the intent of state statute while state’s department of insurance regulates the rates charged by the fund the minimum rate law was repealed and an open rating system was implemented calculating premiums at a level commensurate with the amount of risk present in each industry accordingly the facts suggest that the fund’s premiums are set at rates that are competitive with private insurers moreover despite the fund’s role as the insurer of last resort the manager of the fund may decline to insure any risk which is beyond the safe carrying of the fund most significant is state’s apparent lack of financial commitment to the fund the facts indicate that the fund’s primary sources of operating revenue are premiums and investment earnings in addition state statute specifically provides that the fund shall be self-supporting although state provided the initial contribution in year and an additional_amount in year such contributions were limited in both amount and duration the initial contribution was repaid with interest in year the contribution received in year was characterized as a loan and was also repaid with interest nor can it be argued that the fund receives a financial commitment from the state in the form of foregone taxes the facts indicate that state statute insures that fund pays the same tax as private insurers in addition the fund’s income benefits private parties rather than accruing to state the board_of directors may declare policyholder dividends if surplus funds exist such cash dividend or credit is to be in an amount which the board_of directors in its discretion considers to be the employer’s proportion of divisible surplus as discussed premiums were paid in years and in the amounts of dollar_figurec dollar_figured and dollar_figuree respectively while the fund is responsible for a portion of state’s operating costs such amounts are minimal when compared to the recent dividends that have been paid to the private policyholders finally the state is not responsible for any operational deficit of the fund or for any shortfall between the funds' assets and claimants' actual losses there is no provision for the termination of the fund or the distribution of its assets accordingly despite the state's involvement in certain aspects of the fund such as the regulation of insurance premiums the facts do not support a finding that the fund is an integral part of the state the mere fact that an entity is regulated does not result in tax exempt status income from the fund benefits private parties and the state lacks the level of control or the financial commitment necessary to treat the fund as an integral part of the state political_subdivision the term political_subdivision is not defined in the internal_revenue_code sec_1_103-1 however provides that the term political_subdivision denotes any division of any state_or_local_governmental_unit that is a municipal corporation or which has been delegated the right to exercise a portion of the sovereign power of the governmental_unit the three generally acknowledged sovereign powers are the police power the power to tax and the power of eminent_domain 3_tc_131 aff’d 144_f2d_998 2d cir cert_denied 323_us_79 while it is not necessary that all three of these powers be delegated to treat an entity as a political_subdivision possession of only an insubstantial amount of any or all sovereign powers is not sufficient an entity must possess and exercise a significant amount of sovereign powers see revrul_77_164 1977_1_cb_20 all of the facts and circumstances must be considered including the public purposes of the entity and the extent of control by a governmental_unit id from the facts provided there is no indication that the fund possessed any of the traditional sovereign powers the police power of a state encompasses regulations designed to promote public health or public safety while the fund’s purpose of providing workers’ compensation insurance arguably falls within the ambit of promoting public health or safety fund’s limited authority with respect to this power is tenuous at best and has been delegated to private organizations as well further engaging in an activity is distinguishable from regulating an activity or exercising the power of government see 666_f2d_834 3d cir cert_denied 457_us_1105 therefore based on the information provided the fund’s income would not be exempt from tax as a political_subdivision of state sec_115 sec_115 of the code provides that income is excluded from taxation if it is derived from the exercise of any essential_governmental_function and accrues to a state or any political_subdivision the accrual test is satisfied if upon dissolution assets of the entity are distributed to the state revrul_90_74 1990_2_cb_34 in revrul_77_261 1977_2_cb_45 a state and the participating political subdivisions had an unrestricted right to receive a proportionate share of the income earned by a joint investment fund the ruling states that sec_115 does not require that the income in question accrue only to a state or a single political_subdivision and concludes that the income accrues under sec_115 even though more than one governmental entity participated in the fund revrul_90_74 holds that the income of an organization formed operated and funded by political subdivisions to pool their casualty risks or other risks arising from their obligations concerning public liability workers'_compensation or employees' health is excluded from gross_income under sec_115 if private interests do not participate in the organization or benefit more than incidentally from the organization revrul_90_74 illustrates that sec_115 does not apply to an entity's income if there is more than an incidental private benefit connected with the income from the information submitted fund’s income accrues primarily to the private policyholders while state also receives a minimal financial benefit from the fund’s operations the benefit received by private parties is more than incidental moreover state statute does not provide for the termination of the fund or the distribution of its assets for the reasons discussed the facts do not warrant excluding the income of the fund under sec_115 case development hazards and other considerations as discussed a determination that an entity is not an integral part of a state a political_subdivision of a state or exempt from taxation under sec_115 is based on the facts and circumstances while it is our opinion that the facts presented support a determination that the fund’s income is not exempt from tax under any of the theories discussed as with any factual determination there are appreciable hazards to litigation furthermore the creation of the fund by state the appointment of board members by the governor state’s regulation of premiums and the fact that the fund’s employees are subject_to civil service requirements are several additional points to consider when assessing the hazards_of_litigation although it is our opinion that the available facts do not support a determination that the fund is state-controlled there are facts present from which a court may reach a contrary result with respect to the financial commitment element there is currently no precise test as to what constitutes an acceptable financial commitment for purposes of the integral_part_doctrine in the present case there appears to be a complete lack of financial commitment as the fund is self-supporting state is not responsible for any operational deficit of the fund and any contributions to the fund were repaid with interest due to the dearth of reported cases in this area however there is a slight risk that a court may conclude that the initial contribution and or the contribution in constitutes a financial commitment by state in addition to the above litigation hazards we also recommend that you consider the provisions of recently enacted sec_501 when determining how to proceed with this matter specifically sec_501 amended by the taxpayer_relief_act_of_1997 provides an exemption for any organization including a mutual_insurance_company if - - i such organization is created by state law and is organized and operated under state law exclusively to - - i provide workmen’s compensation insurance which is required by state law or with respect to which state law provides significant disincentives if such insurance is not purchased by an employer and ii provide related coverage which is incidental to workmen’s compensation insurance ii such organization must provide workmen’s compensation insurance to any employer in the state for employees in the state or temporarily assigned out-of-state which seeks such insurance and meets other reasonable requirements relating thereto iii i the state makes a financial commitment with respect to such organization either by extending the full faith and credit of the state to the initial debt of such organization or by providing the initial operating capital of such organization and ii in the case of periods after the date of enactment of this subparagraph the assets of such organization revert to the state upon dissolution or state law does not permit the dissolution of such organization and iv the majority of the board_of directors or oversight body of such organization are appointed by the chief_executive_officer or other executive branch official of the state by the state legislature or by both we express no opinion as to whether the fund qualifies for exempt status under sec_501 the cited provision is effective only for tax years beginning after date and is not applicable to the fund’s tax years under consideration further to benefit from the provisions of sec_501 the fund must apply for recognition of exempt status under the procedures enumerated in revproc_99_4 1999_1_irb_115 a determination as to whether the fund’s conduct in prior years was egregious must be based on the facts and circumstances generally however such a finding would be limited to those instances where the service can show that there were intentional and continuing violations of the provisions of the code for example if the fund continued to treat its income as tax-exempt despite a determination by the service that such income was taxable its conduct may be sufficiently egregious to preclude eligibility for a closing_agreement in addition attempts to mislead the service as to the nature of the fund’s income such as through false statements regarding the fund’s operations or the extent of state’s control or financial commitment may also constitute egregious behavior egregious conduct as contemplated above is unlikely to be found except in rare circumstances evidence establishing false or misleading statements would be difficult to obtain and would consist primarily of witness testimony or internal correspondence in the present case no information has been presented that would suggest egregious conduct on the part of the fund please call if you have any further questions by carol p nachman special counsel financial institutions and products cc


internal_revenue_service department of the treasury number release date index no 2601-dollar_figure p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi - plr-139677-01 date july in re legend settlor trust_beneficiary a date court state dear this responds to your letter dated date and subsequent correspondence requesting rulings regarding the generation-skipping_transfer gst tax consequences of the proposed modification of certain trusts facts the facts submitted and representations made are as follows on date settlor created separate irrevocable trusts for the benefit of each of his grandchildren and great-grandchildren the terms of all the trusts are substantially identical the trust at issue in this ruling_request trust is for the benefit of beneficiary a is currently serving as trustee in addition to settlor other family members made transfers to trust a portion of the transfers to trust were made prior to date with respect to transfers made after date some transfers were not completely plr-139677-01 covered by an allocation of the transferor’s generation-skipping_transfer_tax_exemption you represent that trust has an inclusion_ratio of greater than for purposes of the gst tax article five paragraph b of the trust instrument provides as follows the trustee shall accumulate the income of the trust estate and may pay to the beneficiary as much of the accumulated income and principal thereof as the trustee shall determine in the trustee’s discretion to be necessary and appropriate for the beneficiary’s support education care and maintenance in accordance with the beneficiary’s accustomed standard of living article five paragraph b provides upon the last to occur of i the attainment of age by the beneficiary or ii the death of all trustees identified in exhibit a hereto as the measuring lives this trust shall terminate and the trust estate shall be distributed free of trust to the beneficiary if the beneficiary dies before becoming entitled to distribution of the trust estate the trust estate shall be distributed free of trust to the beneficiary’s then living issue by right of representation or if there are no such then living issue to such of the issue of the trustees identified in exhibit a hereto as the measuring lives as are then living by right of representation however if any part of the trust would be distributed to a person for whose benefit a_trust is then being administered which is substantially identical to the trust created by this instrument that part shall instead be added to that trust and shall thereafter be administered according to its terms article six paragraph i of trust provides that any other provision of trust notwithstanding income and principal of the trust estate shall not be utilized to discharge the legal_obligation of any person to support a_trust beneficiary the parties desire to facilitate trust’s qualification as a qualified_subchapter_s_trust for purposes of sec_1361 of the internal_revenue_code therefore as permitted under the laws of state the parties propose to petition the court with jurisdiction over trust to obtain an order from the court approving the following proposed modification of article five paragraph b of the trust instrument to read as follows the trustee shall distribute all of the income within the meaning of sec_643 of the internal_revenue_code of the trust estate currently and may pay to the beneficiary as much of the principal thereof as the trustee shall determine in the trustee’s discretion to be necessary and appropriate for the beneficiary’s support education care and maintenance in accordance with the beneficiary’s accustomed standard of living plr-139677-01 we have been asked to rule that the proposed modification will not constitute an addition to corpus and will not alter the inclusion_ratio of trust for generation-skipping_transfer_tax purposes law and analysis sec_2601 imposes a tax on every generation-skipping_transfer within the meaning of subchapter_b under a of the tax_reform_act_of_1986 gst tax is generally applicable to generation-skipping transfers made after date however under b a of the tax reform act and sec_26_2601-1 of the generation- skipping transfer_tax regulations the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any generation-skipping_transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides that the inclusion_ratio is the excess if any of over the applicable_fraction determined for the trust from which the transfer is made or in the case of a direct_skip the applicable_fraction determined for the skip the applicable_fraction is a fraction in which the numerator is the generation-skipping_transfer_tax_exemption allocated to the trust or in the case of a direct_skip allocated to the property transferred and the denominator is the value of the property transferred to the trust or transferred in the direct_skip reduced by any federal estate_tax or state death_tax actually recovered from the trust attributable to the property and any charitable deduction allowed under sec_2055 and sec_2522 with respect to the property sec_2631 provides that for purposes of determining the inclusion_ratio with respect to generation-skipping transfers on or before date every individual is allowed a gst_exemption of dollar_figure adjusted for inflation as provided in sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2654 provides that the portions of a_trust attributable to transfers from different transferors shall be treated as separate trusts plr-139677-01 sec_26_2601-1 provides that if an addition is made after date to an irrevocable_trust that is excluded from chapter by reason of sec_26_2601-1 a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter if an addition is made the trust is thereafter deemed to consist of two portions a portion not subject_to chapter the non-chapter portion and a portion subject_to chapter the chapter portion each with a separate inclusion_ratio as defined in sec_2642 the non-chapter portion represents the value of the assets of the trust as it existed on date the applicable_fraction as defined in sec_2642 for the non-chapter portion is deemed to be and the inclusion_ratio for such portion is the chapter portion of the trust represents the value of all additions made to the trust after date the inclusion_ratio for the chapter portion is determined under sec_2642 sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer in the present case the non-chapter portion of trust will not lose its exempt status for gst tax purposes as a result of the proposed modification because the proposed modification will not result in a shift of any beneficial_interest to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the proposed modification and it will not extend the time for vesting of any beneficial_interest beyond the period provided for in the trust instrument further the proposed modification will not constitute an addition to trust within the meaning of b a of the tax_reform_act_of_1986 accordingly based on the facts submitted and the representations made we conclude that the proposed modification will not subject the non-chapter portion of trust to gst tax by reason of b a of the tax_reform_act_of_1986 and sec_26_2601-1 with regard to the chapter portion of trust no guidance has been issued regarding the gst tax consequences of a modification to a_trust to which contributions have been made after date however a modification that would not affect the gst tax status of a_trust that is exempt from tax under sec_26_2601-1 plr-139677-01 or should similarly not affect the gst tax status of a_trust to which contributions have been made after date accordingly we conclude that the proposed modification of trust will not affect the inclusion_ratio with respect to the chapter portion of trust except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours chief branch office of the associate chief_counsel passthroughs and special industries by_________________________ george l masnik enclosure copy for sec_6110 purposes cc


internal_revenue_service number release date index number 468a --------------------------------- ----------------------------- -------------------- ----------------------------------------- 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 b6 plr-113001-08 date date legend taxpayer ------------------------------------------ ----------------------- --------------------------- parent ----------------------------------------------------------- state plant location commission a commission b method settlement agmt advice letter a b c d e f g h i j k l m n o p q ------------- --------------------------------------------------------- ------------------------ -------------------------------------------------- ----------------------------------------------------- ---------------------------------------------------------- ----------------- ---------- ------------------------- --------------------------- -------------------------- ----------------- ----------------- ---- ------------- ------- ---------------------- ------------------- ------- ------- ------- ---------------------- -------------------------- ----------------------- -------------------------------------- plr-113001-08 r s t -- -------------- ----- dear --------------------- this letter responds to your request dated date for a schedule of ruling amounts pursuant to sec_468a of the internal_revenue_code and the temporary income_tax regulations thereunder taxpayer was previously granted schedules of ruling amounts on a b c and most recently on d information was submitted pursuant to ' 468a-3t e taxpayer represents the facts and information relating to its request for a schedule of ruling amounts as follows taxpayer a state utility company is the owner of t percent of plant plant located near location was declared commercially operable in e and initially had an expected service life of f years plant was shut down in g plant was included in taxpayer’s rate base from e through h and decommissioning costs were collected in rates for the latter portion of this period in h commission a ordered plant removed from rate base effective i on j taxpayer announced its decision to permanently shut down and decommission plant plant was temporarily placed in a safestor condition until decommissioning begins substantial decommissioning activities are expected to begin in k and are scheduled to be completed in l the method of decommissioning plant is the method the cost of which is based on a site-specific decommissioning study following a corporate_reorganization in m taxpayer is now owned by parent with whom it files a consolidated_return on a calendar_year basis using the accrual_method of accounting commission a and commission b establish the rates for electric energy sold by taxpayer taxpayer ceased collecting decommissioning costs from its customer in i since that date the projected cost of decommissioning the plant has increased and is expected to exceed the amount set_aside for that purpose accordingly taxpayer sought permission to include in cost of service an increase in the cost of decommissioning plant on n commission a issued order effective n which included an increased cost of service amount on o commission a issued order modifying order to permit additional_amounts to be contributed to the qualified nuclear plr-113001-08 decommissioning fund maintained by taxpayer with respect to plant however on p commission a adopted a final settlement agreement and the advice letter revising the settlement agreement’s revenue requirement based on the most recent year-end qualified_trust balance in determining the decommissioning costs for taxpayer’s interest in the plant commission a used an estimated base cost of q this base cost escalated annually based on a weighted average escalation factor resulting in a future decommissioning cost of r pursuant to the taxpayer’s previous election under the special transition rule_of sec_1_468a-8 the qualifying percentage is t the taxpayer represents that the ruling_request submitted for approval complies with the existing regulations and the requirements of sec_468a before amendments made by the energy policy act of energy act taxpayer is complying with the law in effect before those amendments prior_law because state has not yet conformed to the amendments made by the energy act current law if the taxpayer sought to contribute to the fund in ------- based on the higher schedule of ruling amounts permitted under current law the taxpayer would risk disqualifying the fund under state tax law for this reason the schedules of ruling amounts are sought by taxpayer under the limitations and restrictions imposed under prior_law sec_468a as amended by the energy act publaw_109_58 119_stat_954 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under ' 468a d as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate plr-113001-08 prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer to fund the plant’s post-1983 nuclear decommissioning costs determined as if decommissioning costs accrued ratably over the estimated_useful_life of the plant provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established sec_468a now allows a taxpayer to contribute to a nuclear decommissioning fund the entire cost of decommissioning the plant including both the pre-1984 amount that was denied under the law prior to the energy act as well as any amount attributable to any year after in which a taxpayer had not established a fund under sec_468a sec_468a provides that the deduction for the contribution of the previously-excluded amount is allowed ratably over the remaining useful_life of the nuclear plant sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1t a provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under ' 468a-1t b of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2t b provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- 2t b does not apply to any special transfer permitted under sec_1_468a-8t sec_1_468a-3t a provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3t a provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on plr-113001-08 reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under ' 468a-3t a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3t a provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the temporary regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3t a further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3t b provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under ' 468a-3t c the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3t c provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3t c i a if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3t c i b plr-113001-08 provides that if the nuclear plant is not described in sec_1_468a-3t c i a the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3t c i c any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3t c i a sec_1_468a-3t d provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3t d provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3t e enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3t f provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of ' 468a-3t e the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sec_1_468a-9t b provides that the internal_revenue_service will issue schedules of ruling amounts based on the regulations in effect prior to date if a taxpayer so requests and if the internal_revenue_service finds the request to be consistent with the principles and purposes of sec_468a we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in ' 468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions the taxpayer has demonstrated that its request to apply to regulations in effect prior to date is reasonable and consistent with the principles and purposes of sec_468a the taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1t b and -1 b prior_law of the regulations plr-113001-08 commission a has permitted the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations prior_law the taxpayer has calculated the total decommissioning costs under sec_1_468a-3t d and -3 d prior_law of the regulations the taxpayer has determined that s percent is the qualifying percentage as calculated under sec_1_468a-8 prior_law of the regulations based on the above determinations we conclude that the taxpayer’s proposed schedule of ruling amounts with regard to commission a in light of the state tax law satisfy the requirements of sec_468a of the code for taxable_year -------- approved schedule of ruling amounts tax_year commission a ------- through ------- year ------- --- each year amount dollar_figure------------- if any of the events described in ' 468a-3t f occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above plr-113001-08 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent we are sending a copy of this letter_ruling to the industry director pursuant to ' 468a-7t a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries -


internal_revenue_service number release date index number 468a ----------------------------- ---------------------------- --------------------- -------------------------------- ------------------------------ - department of the treasury washington dc person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b06 - plr-143192-05 date november legend taxpayer a buyer taxpayer b ---------------------------------- ----------------------- ------------------------------------------ ----------------------- ------------------------------- ---- --------------------- ----------------------------------- ------- seller ----------------------------------------------------------- state plant -------------------------------------------------- commission a commission b commission c commission d commission e -------------------------- --------------------------------------- ------------------------------------------- ---------------------------------------------- ------ ------------------------------------------ ------------------------------------------------------ plr-143192-05 a b x dear --------------- -------------------------- ------------------------ ---- this letter responds to your request for private_letter_ruling dated --------------------- ------- as well as information supplied subsequent to that date you requested that we rule on certain tax consequences under sec_468a of the internal_revenue_code to taxpayers a and b buyer and seller as well as the qualified nuclear decommissioning fund with respect to plant of the transaction discussed below facts taxpayers have represented the following facts and information relating to the ruling_request taxpayer a is the parent of an affiliated_group of subsidiary corporations including buyer an indirect wholly-owned subsidiary of taxpayer a through its various subsidiaries taxpayer a is engaged in the generation transmission distribution and sale of electric energy taxpayer b is the parent of an affiliated_group_of_corporations including seller a wholly-owned subsidiary of taxpayer b seller is a public_utility corporation regulated by commissions a b c d and e seller has a qualifying interest in plant as defined in sec_1_468a-1 of the treasury regulations of x percent as well as the concomitant obligation to decommission that portion of the plant seller has established a qualified nuclear decommissioning trust the qdt as well as a non-qualified decommissioning trust nqdt to fulfill its obligation to decommission plant seller’s qdt is a nuclear decommissioning reserve fund within the meaning of sec_468a and sec_1_468a-5 seller’s nqdt is a_trust organized under the laws of state and is classified as a grantor_trust under sec_671 for consideration seller proposes to transfer plant the obligation to decommission plant as well as the assets in the qdt established by seller to pay for that decommissioning to buyer the closing date for the transaction is intended to be date a but will be no later than date b buyer will establish a qualified nuclear decommissioning trust meeting the requirements of sec_468a and sec_1_468a-5 prior to the transfer and all the assets in seller’s qdt will be transferred directly to buyer’s qdt buyer will also establish a nonqualified nuclear decommissioning trust prior to the transfer and it is expected that all amounts in the seller’s nqdt will be transferred to the buyer’s nqdt buyer’s nqdt will qualify as a grantor_trust under sec_671 and buyer will be the grantor of that trust seller will make no contributions to seller’s qdt after all amounts in the nqdt may not be transferred depending on the value of the assets in the seller’s nqdt at the time of transfer plr-143192-05 the closing date of the transaction in addition buyer will not make any contributions to buyer’s qdt during buyer’s taxable_year ending on date a in addition taxpayer b has specifically represented that on seller’s u s federal_income_tax return for the taxable_year including the closing date of the transaction seller will recognize gain_or_loss on the sale of plant and related assets excluding the assets in seller’s qdt to buyer in an amount equal to the difference between seller’s tax basis in each asset and the amount_realized with respect to that asset taking into account the allocation of consideration pursuant to sec_1060 and the regulations thereunder seller will treat as the amount_realized from the sale of the purchased assets excluding seller’s qdt the cash received from buyer and liabilities and obligations assumed by buyer including the liability to decommission plant reduced by the amount of the decommissioning liability to by funded by the qdt to the extent such liabilities and obligations are taken into account as liabilities for federal_income_tax purposes on the seller’s u s federal_income_tax return for the taxable_year that includes the closing date of the transaction seller will claim a current deduction in an amount equal to the total of any amounts treated as realized by seller as a result of buyer’s assumption of the decommissioning liability for plant for u s federal_income_tax purposes seller will treat any net_operating_loss arising in the taxable_year including the closing date of the transaction which is attributable to the decommissioning obligations assumed by buyer as a specified_liability_loss under sec_172 finally taxpayer a has represented that on buyer’s u s federal_income_tax return for the taxable_year including the closing date of the transaction buyer will not include any gain in income or otherwise take any income into account by reason of the transfer of all or a portion of the assets of seller’s nqdt buyer will include distributions from buyer’s qdt in income in accordance with sec_1_468a-2 and sec_1_468a-5 including any amount buyer is required to repay to seller if the amounts transferred by seller for decommissioning purposes exceed the amounts ultimately necessary to decommission plant taxpayers have requested the following rulings requested ruling the transfer of assets from seller’s qdt to buyer’s qdt is a disposition that is treated as satisfying the requirements of sec_1_468a-6 pursuant to the service’s exercise of discretion under sec_1_468a-6 and accordingly buyer’s qdt will be treated as a qdt that satisfies the requirements of sec_468a and the regulations thereunder requested ruling neither buyer nor the buyer’s qdt will recognize any gain_or_loss or otherwise take any income_or_deduction into account as a result of the transfer of assets from seller’s qdt to buyer’s qdt and buyer’s qdt will plr-143192-05 have a tax basis in the assets that is the same as the tax basis that seller’s qdt had in those assets immediately prior to the proposed transaction requested ruling neither seller nor seller’s qdt will recognize any gain_or_loss or otherwise take any income_or_deduction into account as a result of the transfer of assets from seller’s qdt to buyer’s qdt law and analysis sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law sec_1_468a-5 provides that an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant if a nuclear power plant is subject_to the ratemaking jurisdiction of two or more public_utility commissions and any such public_utility commission requires a separate fund to be maintained for the benefit of ratepayers whose rates are established or approved by the public_utility commission the separate funds maintained for such plant whether or not established and maintained pursuant to a single trust agreement shall be considered a single nuclear decommissioning fund sec_1_468a-6 provides rules applicable to the transfer of an interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund where certain requirements are met specifically sec_1_468a-6 provides that sec_1_468a-6 applies if-- immediately before the disposition the transferor maintained a qualified nuclear decommissioning fund with respect to the interest disposed of and immediately after the disposition-- i the transferee maintains a qualified nuclear decommissioning fund with respect to the interest acquired ii the interest acquired is a qualifying interest of the transferee in the nuclear power plant iii either a proportionate amount which could include all of the assets of the transferor’s qualified nuclear decommissioning fund is transferred to a qualified nuclear decommissioning fund of the transferee or the transferor’s entire qualified nuclear decommissioning fund is transferred to the transferee provided in the latter case or if the transferee receives all of the assets in the transferor’s qualified nuclear decommissioning fund plr-143192-05 but not the transferor’s qualified nuclear decommissioning fund that the transferee acquires the transferor’s entire qualifying interest in the plant and iv the transferee continues to satisfy the requirements of sec_1_468a-5 which permits an electing taxpayer to maintain only one qualified nuclear decommissioning fund for each plant sec_1_468a-6 provides that a disposition that satisfies the requirements of sec_1_468a-6 will have the following tax consequences at the time it occurs neither the transferor nor the transferor’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear decommissioning fund to the transferee’s qualified nuclear decommissioning fund or by reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor’s qualified nuclear decommissioning fund will not be considered a distribution of assets by the transferor’s qualified nuclear decommissioning fund neither the transferee nor the transferee’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear decommissioning fund to the transferee’s qualified nuclear decommissioning fund or by reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor’s qualified nuclear decommissioning fund will not constitute a payment or a contribution of assets by the transferee to its qualified nuclear decommissioning fund transfers of assets of a qualified nuclear decommissioning fund to which this section applies do not affect basis thus the transferee’s qualified nuclear decommissioning fund will have a basis in the assets received from the transferor’s qualified nuclear decommissioning fund that is the same as the basis of those assets in the transferor’s qualified nuclear decommissioning fund immediately before the distribution under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a conclusions plr-143192-05 taxpayers we reach the following conclusions based on the information and specific factual representations submitted by the transfer of assets from seller’s qdt to buyer’s qdt qualifies as a disposition under the provisions of sec_1_468a-6 accordingly pursuant to sec_1_468a-6 and sec_1_468a-6 buyer buyer’s qdt seller and seller’s qdt will not recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from seller’s qdt to buyer’s qdt further pursuant to sec_1_468a-6 after the transaction buyer’s qdt will have a basis in the assets held equal to the basis of such assets in seller’s qdt immediately prior to the transaction while it owns interests in plant buyer is eligible to maintain the qualified nuclear decommissioning fund except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above this letter_ruling is directed only to the taxpayer that requested it sec_6110 provides that this ruling may not be used or cited as precedent in accordance with the power_of_attorney on file with this office the original of this letter is being sent to taxpayer’s authorized representative we are also sending a copy of this letter_ruling to taxpayer and to the industry director natural_resources lm nr sincerely cc peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


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 plr-138157-14 date date legend x y country date date -------------------------------------------------------------------------------------------- ---------------------------- -------------------------------------------------------------------------------------------- -------------------------------------- ------------- -------------------- ---------------------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts the information submitted states that x was formed under the laws of country on date y is the sole member of x x represents that as of date it was a foreign_entity eligible to elect to be disregarded as an entity separate from its owner however x failed to timely file a form_8832 entity classification election electing to treat x as a disregarded_entity for federal tax purposes effective date x represents that y consistently filed personal u s tax returns with the intent to treat x as a disregarded_entity x also represents that granting relief will not prejudice the interests of the government and that hindsight is not involved in seeking relief to file a late election x further represents that such relief will not lower x’s aggregate tax_liability for tax years affected by the election finally x represents that it acted reasonably and in good_faith plr-138157-14 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and no more than months after the date the election is filed sec_301_7701-3 provides that if an eligible_entity classified as an association elects to be disregarded as an entity separate from its owner the following is deemed to occur the association distributes all of its assets and liabilities to its single owner in liquidation of the association sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic_extension of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for the regulatory elections that do not meet the requirements of sec_301_9100-2 under plr-138157-14 sec_301_9100-3 a request for relief will be granted when a taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonable and in good_faith and granting relief will not prejudice the interests of the government conclusions based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of one hundred twenty days from the date of this letter to file form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter is attached for that purpose this ruling is contingent on the owner of x filing within days of this letter all required returns for all open years consistent with the requested relief these returns may include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations and ii forms information_return of u s persons with respect to foreign disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as expressly set forth herein no opinion is expressed or implied concerning the federal tax consequences any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by david r haglund david r haglund branch chief branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


z2vu1lvv0v department of the treasury internal_revenue_service washington d c ue ever z tax exempt and overnment entities division u i l nov xxxxxxxxxxxxxxxxxxxxxkxx xxxxxxxxxxxxkxaxkxkxaxxkxxkx xxxkxkxxxxxxkxkkakkxxxaxkxkxaxkx legend se tep alt e taxpayer a xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkakkk ira x - xxxxxxxxxxxaxxaxxxxxxxxxxxxxxxxxxxkxxkk amount d company e company f xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkaxkx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxaxxx xxxxxxxxxxxxxxxxxxxxxxxaxxxxxxxxxakkxaxxx custodian xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkxxkakk original fund xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxaxxxxxxkx new fund xxxxxxxxxxxxxxxxaxxxxxxxxxxxxaxxxxxax kkk company g xxxxxxxxxxxxxxxxxxxxxxxaxxxxaxxxxxxkxkk date h date k date l xxxxxxxxxxxxxxxxxxxxxxxxxxxxxkkakxxxxaax xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxaxkx xxxxxxxxxxxxxxxaxxxxaxxxxxxxxxxxxxxxaxkak dear xxxxxxxx this letter is in response to your letter dated date as supplemented by correspondence dated date and date submitted on your behalf by your authorized representative in which you request a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code the code’ under penalty of perjury you have submitted the following facts and representations you represent that you received a distribution of amount d from ira x you assert that your failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to a mistake made by company e and company f which led to amount d being placed into a non-ira account you further represent that amount d has not been used for any other purpose you maintained ira x invested in the original fund with custodian in consultation with company e you decided to liquidate ira x in order to invest through a new ira in the new fund an investment that ira x custodian was not able to hoid because investments of ira x was limited to investments in original fund on date h you authorized your ira x custodian to wire transfer the funds in ira x to the new fund maintained with company g on date k amount d was transferred from ira x directly to company g with the intent to invest amount d in taxpayer a’s rollover ira in the new fund you further assert that company e and company f did not identify the need for a new ira custodian and because of company e and company f errors amount d was not held in a qualified rollover ira nor was an ira opened taxpayer a has submitted affidavits of representatives of company e and f admitting their errors in processing taxpayer a’s rollover request further documentation submitted by you including statements from company e issued to you which reflected that your investment was being held in an ira demonstrates that at all times you believed your funds were validly invested in an ira it was not until date l that you learned that amount d was not held in an ira based on the foregoing facts and representations you request that the internal_revenue_service waive the day rollover requirement with respect to the distribution from ira x sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distribute as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual received the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed ihe portion of the amount received which is includible in gross_income determined without regard to sec_408 other than an ira for the benefit of sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending in the day of such receipt such individual received any other amount described in sec_408 from an ira which was not included in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity and good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability or hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by you is consistent with your assertion that your failure to accomplish a timely rollover was caused by mistakes made by company e and company f which led to amount d being placed into a non-ira account the information presented by you is consistent with your assertion that you attempted to rollover amount d therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such contribution amount d will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transactions described herein under the provisions of any other section of either the code or regulations which may be applicable thereto 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 if you have any questions concerning this ruling please contact xxxxxxxxxxxx se t ep ra t3 at xxxxxxxxxxxxxxxxxxx sincerely yours paneer v6 rances v eleanviiaannes employee_plans technical group enclosures deleted copy of letter_ruling notice


internal_revenue_service number release date index number -------------------- --------------------------------------------- ------------------------------------------------ -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-137101-08 date february legend x state d1 dear --------------- --------------------------------------------- ------- ---------------- -------------- ----------------------- this is in response to your letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as an association_taxable_as_a_corporation for federal tax purposes the information submitted states that x was formed in state on d1 as an entity eligible to make a classification election x's default status was a partnership for federal tax purposes x intended to be classified as an association_taxable_as_a_corporation for federal tax purposes effective d1 however a form_8832 entity classification election for x to elect to be treated as an association effective on d1 was not timely filed sec_301_7701-2 generally provides that a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code plr-137101-08 sec_301_7701-3 provides that so long as a business_entity is not classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 further provides that an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or as a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is a partnership if it has two or more members and at least one member does not have limited_liability except as provided in sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing a form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may 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 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of sixty days from the date of this letter to elect to be classified as an association_taxable_as_a_corporation for federal tax purposes effective d1 the election plr-137101-08 should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to x's authorized representative sincerely curt g wilson associate chief_counsel passthroughs special industries enclosure copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------------------------- ----------------------- --------------------- ------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number -------------------- refer reply to cc psi b01 plr-124764-13 date date legend x --------------------------------------------------- ------------------- ira ---------------------------------------------------------------- a ------------------------- ------------------------------------------------------ b --------------------------- ------------------------------------------------------ date date date date state ---------------------- --------------------------- -------------------- ------------------ --------------------- dear ----------------- plr-124764-13 this responds to a letter dated date submitted on behalf of x by its authorized representative requesting inadvertent termination relief under sec_1362 of the internal_revenue_code the code facts according to the information submitted and representations within x was incorporated and elected to be treated as an s_corporation on date under the laws of state on date a indirectly acquired x stock from b using a self-directed_ira an ineligible shareholder thus causing x’s s_corporation_election to terminate on date on date x’s tax professional discovered that the ira had purchased x stock and immediately notified x to take corrective action on date the ira distributed its x shares to a x requests inadvertent s_corporation termination relief under sec_1362 and that it be treated as an s_corporation at all times since date x represents that it has always intended to maintain its s_corporation status and that the termination of x’s s election was inadvertent and did not involve retroactive tax planning or tax_avoidance x further represents that x and its shareholders continued to consistently treat x as an s_corporation and that x and its shareholders agree to make any adjustments required as a condition of obtaining relief under the inadvertent_termination_rule of sec_1362 that may be required by the secretary law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 plr-124764-13 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder in such corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of such corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 provides in relevant part that the determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was not reasonably within the control of the corporation and in the case of a termination was not part of a plan to terminate the election or the fact that the terminating event or circumstance took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event or circumstance tends to establish that the termination of the election was inadvertent sec_1_1362-4 provides that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner conclusion based solely on the facts submitted and the representations made we conclude that x’s election to be treated as an s_corporation was terminated on date because the ira by purchasing and holding stock in x was an ineligible shareholder we also hold that the termination of x’s s_corporation_election was inadvertent within the meaning of sec_1362 therefore pursuant to sec_1362 x will be treated as an s_corporation from date and thereafter provided that x’s s_corporation_election is not otherwise terminated under sec_1362 accordingly x’s shareholders in determining their federal tax_liability must include their pro_rata share of the separately and non-separately computed items of x under sec_1366 make any adjustments to stock basis under sec_1367 and take into account any distributions made by x to shareholders under sec_1368 this ruling shall be null and void if the requirements of this paragraph are not met plr-124764-13 as a condition for this ruling for any_tax periods between date and date in which x reported a net_loss ira will be treated as the shareholder of the shares of stock at issue for any_tax periods between date and date in which x reported a net gain a will be treated as the shareholder of the shares of stock at issue except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the above-described facts under any other provision of the code specifically no opinion is expressed on whether x is otherwise eligible to be treated as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc