department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number se t eo ra t tax_exempt_and_government_entities_division number release date date date uil legend transferor foundation recipient foundation recipient foundation ii recipient foundation ili recipient foundation iv w_i o o i m i m i i z i dear we have considered your ruling_request dated date concerning the federal income and excise_tax consequences under sec_507 sec_4941 sec_4942 sec_4944 and sec_4945 of the internal_revenue_code_of_1986 as amended hereafter code related to a proposed transfer of assets in the manner and for the purposes described below facts transferor foundation is a tax-exempt_organization recognized as a private_foundation under sec_501 and sec_509 of the code transferor foundation is managed by eight individuals a foundation’s mission has been to improve the city within which it is located and the quality of life of its citizens because of a’s advanced age a anticipates that her children if they succeed to the management of transferor foundation would have diverse charitable interests and objectives because of the differences in their geographic residences and backgrounds as such a’s children have formed recipient foundation i recipient foundation ii recipient foundation ill and recipient foundation iv hereafter referred to as recipient foundations’ to further their separate charitable interests and goals recipient foundations il ill and iv are all tax-exempt organizations recognized as private_foundations under sec_501 and sec_509 of the code recipient foundation is managed by b and two other directors who are not members of a’s family recipient foundation il is managed by c and two other directors who are not members of a’s family recipient foundation iii is managed by b d and e who are all members of a’s family recipient foundation iv is managed by e and d who are members of a’s family and a third director f who is not a member of a's family representations have been made that transferor foundation has approved a plan with recipient foundations whereby the assets of transferor foundation will be distributed percent to each of the recipient foundations to enable the children of a who manage the recipient foundations to pursue their own separate charitable goals through the charities they respectively manage representations have been further made that subsequent to the transfer transferor foundation and the recipient foundations will continue to operate and maintain their tax-exempt status as private_foundations under sec_501 and sec_509 of the code furthermore transferor foundation represents that it will ensure expenditure_responsibility you have requested the following rulings the distribution by transferor foundation of approximately percent of its assets to each of the recipient foundations will be a sufficient disposition of assets to one or more private_foundations as described in sec_1_507-3 of the regulations made pursuant to an adjustment or reorganization and will be a transfer of assets by a private_foundation to other private_foundations described in sec_507 of the code the distribution by transferor foundation of approximately percent of its assets to each of the recipient foundations will not result in the termination of transferor foundation’s private_foundation_status and will not result in transferor foundation being subject_to the tax imposed by sec_507 of the code in the year of the distributions pursuant to sec_1_507-3 of the regulations each recipient foundation will not be treated as a newly created organization pursuant to sec_1_507-3 of the regulations each of the recipient foundations will succeed to the aggregate tax benefits of transferor foundation in proportion to the net fair_market_value of the assets distributed to them pursuant to sec_1_507-3 of the regulations each of the recipient foundations will be treated as having received the distributed assets subject_to the proportionate amount of any liability transferor foundation may have incurred under chapter of the code to the extent not satisfied by transferor foundation the provisions of sec_1_507-3 through g of the regulations will apply to each of the recipient foundations with respect to the assets distributed to them from transferor foundation assuming each of the recipient foundations and transferor foundation are effectively controlled within the meaning of sec_1_482-1 of the regulations directly or indirectly by the same persons and because transferor foundation will have transferred approximately percent of its assets to each of the recipient foundations each recipient foundation will be treated under sec_1_507-3 of the regulations as if they were transferor foundation for purposes of chapter of the code and sec_507 through of the code each recipient foundation will be treated as if they were transferor foundation in the proportion which the fair_market_value of the assets less encumbrances transferred to the respective recipient foundation bears to the fair_market_value of the assets less encumbrances of transferor foundation immediately before the transfer following the distributions transferor foundation will be liable for the tax imposed by sec_4940 of the code on assets held until the date of the distributions after the distributions have occurred each of the recipient foundations and transferor foundation will be liable for the tax imposed under sec_4940 with respect to their respective shares of assets as of the date of the distributions the distribution of a portion of the assets of transferor foundation to a recipient foundation will not constitute an act of self-dealing under sec_4941 of the code pursuant to sec_1_507-3 of the regulations and revrul_78_387 each -recipient foundation may reduce the amount of the recipient foundation’s required_distribution under sec_4942 of the code by the amount of transferor foundation’s excess qualifying_distribution carryover for prior years in proportion to the net fair_market_value of the assets distributed to it the distribution of a portion of the assets of transferor foundation to a recipient foundation will not constitute a jeopardizing investment within the meaning of sec_4944 of the code the distribution of a portion of the assets of transferor foundation to a recipient foundation will constitute a grant as described in sec_4945 of the code and thus will not constitute a taxable_expenditure within the meaning of sec_4945 provided that transferor foundation exercises expenditures responsibility over the distributed assets as set forth in sec_53_4945-5 of the regulations for the year in which the proposed distribution of assets takes place and for the two succeeding taxable years only if to the transferor foundation that before the end of such second succeeding taxable_year neither the principal the income from the grant funds nor any equipment purchased with the grant funds has been used for any purpose which would result in liability for tax under sec_4945 the transferor foundation may then allow such reports to be discontinued after the second succeeding taxable_year otherwise the transferor foundation must continue to exercise expenditure_responsibility until the grant funds are fully expended or the grant is terminated it is reasonably apparent the distribution by transferor foundation of approximately percent of its assets to each of the recipient foundations will neither affect the status of transferor foundation as an organization described in sec_501 of the code nor will it affect the status of any of the recipient foundations as organizations described in sec_501 or as private_foundations described in sec_509 law sec_507 of the code states that except as provided in sec_507 an exempt_organization which is a private_foundation can terminate its private_foundation_status only if it notifies the service of its intent to terminate or if chapter and if it pays the termination_tax imposed by sec_507 or has the tax abated it commits acts or failures to act giving rise to tax under sec_507 of the code provides that in the case of a transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or the adjustment organization or reorganization the transferee foundation shall not be treated as a newly created organization sec_507 of the code imposes an excise_tax on each terminating private_foundation equal to the lower_of the aggregate tax_benefit resulting from such termination or the value of its net assets chapter of the code imposes excise_taxes on private_foundations for net_investment_income under sec_4940 acts of self-dealing under sec_4941 undistributed_income under sec_4942 excess_business_holdings under sec_4943 jeopardy investments under sec_4944 and taxable_expenditures under sec_4945 sec_4940 of the code provides for the imposition of a tax on the net_investment_income of private_foundations sec_4941 of the code provides for the imposition of tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 of the code states that the term self dealing means any direct or indirect transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4944 of the code imposes a tax on a private_foundation if it invests any amount in a manner as to jeopardize the carrying out of any of its exempt purposes sec_4945 of the code imposes a tax on the taxable_expenditures of a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an organization unless such organization is described in paragraph or of sec_509 or is an exempt_operating_foundation or the private_foundation exercises expenditure_responsibility with respect to such grant sec_4945 of the code provides that the term taxable_expenditure does not include amounts paid_or_incurred by a private_foundation as a grant to another organization for purposes specified in sec_170 sec_4945 of the code provides that the expenditure_responsibility referred to in subsection d means that the private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and complete reports from the grantee on how the funds are spent and to make full and detailed reports with respect to such expenditures to the secretary sec_4946 of the code provides in part that the term disqualified_person shall not include any organization which is described in sec_501 other than an organization described in sec_509 sec_1_482-1a of the federal_income_tax regulations hereafter regulations’ defines control for purposes of sec_482 of the code as any kind of control direct or indirect whether legally enforceable or not and however exercisable or exercised sec_1_507-1 of the regulations provides that a transfer of all or part of a private foundation's assets to one or more private_foundations pursuant to a transfer described in sec_507 of the code and sec_1_507-3 such transferor foundation will not be deemed to have terminated its private_foundation_status under sec_507 sec_1_507-1 of the regulations provides that neither a transfer of all the assets of a private_foundation nor a significant disposition of assets by a private_foundation shall be deemed to result in a termination of the transferor private_foundation under sec_507 of the code unless the transferor private_foundation elects to terminate pursuant to sec_507 or sec_507 sec_1_507-3 of the regulations provides that for purposes of sec_507 of the code the terms other adjustment organization or reorganization shall include any partial_liquidation or any other significant disposition of assets to one or more private_foundations other than transfers for full and adequate_consideration or distributions out of current income sec_1_507-3 of the regulations provides that the term significant disposition of assets to one or more private_foundations shall include any disposition for a taxable_year where the aggregate of the dispositions to one or more private_foundations for the taxable_year is twenty-five percent or more of the fair_market_value of the net assets of the foundation at the beginning of the taxable_year sec_1_507-3 of the regulations provides that in the case of a significant disposition of assets to one or more private_foundations within the meaning of paragraph c of this section the transferee organization shall not be treated as a newly created organization a transferee organization to which this paragraph applies shall be treated as possessing those attributes and characteristics of the transferor organization sec_1_507-3 of the regulations provides that a transferee organization to which sec_507 of the code applies shall succeed to the aggregate tax_benefit of the transferor organization in an amount equal to the amount of the aggregate tax_benefit multiplied by a fraction of the numerator of which is the fair_market_value of the assets less encumbrances transferred to such transferee and the denominator of which is the fair market of the assets of the transferor less encumbrances immediately before the transfer fair_market_value shall be determined as of the time of the transfer sec_1_507-3 of the regulations provides that except as provided in subparagraph of sec_1_507-3 a private_foundation is required to meet the distribution_requirements of sec_4942 of the code for any taxable_year in which it makes a sec_507 transfer of all or part of its net assets to another private_foundation sec_1_507-3 of the regulations provides that the provisions enumerated in subparagraphs a through g of this subdivision shall apply to the transferee private_foundation with respect to the assets transferred to the same extent and in the same manner that they would have applied to the transferor private_foundation had the transfer described in sec_507 not been effected sec_1_507-3 of the regulations provides that if a private_foundation transfers all or part of its net assets to one or more private_foundations that are effectively controlled within the meaning of sec_1_482-1 directly or indirectly by the same persons who effectively control the transferor private_foundation for purposes of chapter and sections of the code such a transferee private_foundation shall be treated as if it were the transferor in the proportion which the fair_market_value of the assets less encumbrances transferred to the transferee foundation bears to the fair_market_value of the assets less encumbrances of the transferor foundation immediately before the transfer sec_1_507-3 of the regulations provides that unless a private_foundation gives notice pursuant to sec_507 of the code a transfer of assets described in sec_507 will not constitute a termination of the transferor's private_foundation_status under sec_507 sec_1_507-4 of the regulations provides that private_foundations that make transfers described in sec_507 or of the code are not subject_to the termination_tax imposed under sec_507 with respect to such transfers sec_53_4945-5 of the foundation and similar excise_tax regulations hereafter foundation regulations’ provides that if a private_foundation makes a grant described in sec_4945 of the code to a private_foundation which is exempt from taxation under sec_501 for endowment for the purchase of capital equipment or for other capital purposes the grantor foundation shall require reports from the grantee on the use of the principal and the income if any from the grant funds the grantee shall make such reports annually for its taxable_year in which the grant was made and the immediately succeeding taxable years only if it is reasonably apparent to the grantor that before the end of such second succeeding taxable_year neither the principal the income from the grant funds nor the equipment purchased with the grant funds has been used for any purpose which would result in liability for tax under sec_4945 the grantor may then allow such reports to be discontinued sec_53_4946-1 of the foundation regulations provides that for purposes of sec_4941 of the code the term disqualified_person does not include any organization described in sec_501 other than an organization described in sec_509 revrul_78_387 1978_2_cb_270 holds that when a transferee foundation is treated as the transferor under sec_1_507-3 of the regulations the transferee is entitled to reduce its distributable_amount under sec_4942 of the code by the amount of the transferor's excess qualifying_distribution carryover analysis ruling the issue of whether transferor foundation’s disposition to recipient foundations is a significant disposition of assets and thus not subject_to the termination_tax under sec_507 of the code is governed by sec_507 a sec_507 transfer includes a transfer by a private_foundation of all or part of its assets to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization see sec_507 for purposes of sec_507 the terms other adjustment organization or reorganization shall include any partial_liquidation or any other significant dispositions see sec_1_507-3 of the regulations the term significant dispositions means a distribution where the aggregate value transferred is percent or more of the fair_market_value of the net assets of the foundation see sec_1_507-3 here the recipient foundations and transferor foundation are all private_foundations through the proposed transaction transferor foundation intends to transfer to each of the four recipient foundations approximately percent of the fair_market_value of its net assets as the aggregate amount expected to be transferred exceeds twenty-five percent the distribution by transferor foundation qualifies as a transfer under sec_507 ruling regarding the termination of transferor foundation’s private_foundation_status sec_507 of the code provides that an exempt_organization which is a private_foundation can terminate its private_foundation_status only if it notifies the service of its intent to terminate or if it commits acts or failures to act giving rise to tax under chapter and if it pays the termination_tax imposed by sec_507 or has the tax abated as transferor foundation has represented that it has neither notified the service of any intent to terminate its private_foundation_status nor has it committed acts or failures to act giving rise to a tax under chapter its disposition of assets under sec_507 does not terminate its private_foundation_status and does not result in a termination_tax imposed by sec_507 ruling under sec_507 of the code and sec_1_507-3 of the regulations a transfer of assets by any private_foundation to another private_foundation pursuant to a sec_507 disposition will not result in the transferee foundation being treated as a newly created organization because the transferor foundation and recipient foundations are all private_foundations and the transfer qualifies under sec_507 recipient foundations will not be treated as newly created organizations ruling for recipient foundations to succeed to the aggregate tax benefits of transferor foundation in the property transferred sec_1_507-3 of the regulations require that the transferees are all effectively controlled within the meaning of sec_1_482-1 of the regulations now effectively retitled sec_1_482-1a directly or indirectly by the same person or persons who effectively control the transferor organization it is assumed for purposes of this ruling that recipient foundations are all effectively controlled under sec_1_482-1a by the same persons who effectively control transferor foundation therefore after the transfer of assets by transferor foundation to the recipient foundations the recipient foundations will succeed to the aggregate tax benefits of transferor foundation in proportion to the net fair_market_value of the assets distributed under sec_1_507-3 ruling under sec_1_507-3 of the regulations the recipient of a transfer under sec_507 of the code will be treated as receiving the transferred assets subject_to any outstanding tax_liability incurred by the transferor under chapter in proportion to the assets received and to the extent the liability had not been previously satisfied here recipient foundations are the recipients of a transfer under sec_507 therefore recipient foundations shall be treated as receiving the assets of transferor foundation subject_to any outstanding liability not previously satisfied by transferor foundation in proportion to the assets received ruling pursuant to sec_1_507-3 through g of the regulations each transferee of a sec_507 of the code transfer will succeed to the property attributes enumerated under subsections a through g therein with respect to the assets transferred and to the same extent and in the same manner that would have applied to the transferor had the transfer not occurred as enumerated under sec_1 a ii a of the regulations and as referenced to sec_4940 of the code transferees will succeed to the basis of the property transferred by transferor to the same extent and in the same manner that would have applied to the transferor had the transfer not occurred as the transfer of assets from transferor foundation to recipient foundations qualifies under sec_507 recipient foundations succeed to the basis under sec_4940 of the property transferred to the same extend as if the property was still held by transferor foundation under sec_1 a ii b of the regulations and as referenced to sec_4942 of the code transferees will succeed to the attributes related to the transferred property with respect to distributions of income to the same extent and in the same manner that would have applied to the transferor had the transfer not occurred as the transfer of assets from transferor foundation to recipient foundations qualifies as a sec_507 transfer recipient foundations succeed to the attributes related to the transferred property with respect to distributions of income as if the property was still held by transferor foundation under sec_1 a ii c of the regulations and as referenced to sec_101 of the tax reform act of as amended by sec_1301 and of the tax reform act of with respect to the provisions of sec_4941 of the code a qualifying transfer under sec_507 does not constitute a self-dealing transaction subject_to tax under sec_4941 because the transfer is not between disqualified persons under sec_53 a of the foundation regulations only for purposes of sec_4941 the term disqualified persons shall not include any organization described in sec_501 other than an organization described in sec_509 private_foundations are described under sec_501 and are therefore not disqualified persons for sec_4941 purpose therefore because transferor foundation and recipient foundations are private_foundations in a qualifying b transfer the transfer does not constitute a self-dealing transaction subject_to tax under sec_4941 under sec_1 a ii d of the regulations and as referenced to sec_101 of the tax reform act of with respect to the provisions of sec_4942 of the code transferees will succeed to the attributes related to the transferred property under sec_4942 to the same extent and in the same manner that would have applied to the transferor had the transfer not occurred provided that the transferor qualified for the application of this section immediately before the transfer and at least eight-five percent of the fair_market_value of the net assets of the transferee immediately_after_the_transfer were received pursuant to the transfer representations have been made by transferor foundation to the affect of its qualification for the application of this section and representations have been made by recipient foundations that at least eight-five percent of their net assets were received via the transfer therefore recipient foundations will succeed to the attributes related to the transferred property under sec_4942 to the same extent and in the same manner that would have applied to transferor foundation had the transfer not occurred under sec_1 a ii e of the regulations and as referenced to sec_101 through e of the tax reform act of with respect to the provisions of sec_4942 of the code the distribution from one private_foundation to another under a sec_507 transaction will be deemed a qualifying_distribution pursuant to sec_4942 as the transference of assets between transferor foundation and recipient foundations qualifies as a sec_507 transaction the transaction is a deemed qualifying_distribution under sec_4942 under sec_1 a ii f of the regulations and as referenced to sec_101 of the tax reform act of with respect to the provisions of sec_4945 of the code the distribution from one private_foundation to another under a sec_507 transaction will not be deemed a taxable_expenditure pursuant to sec_4945 as the transference of assets between transferor foundation and recipient foundations qualifies as a sec_507 transaction the transaction is not a taxable_expenditure under sec_4945 with sec_4945 applying to the recipient foundations with respect to the assets transferred to the same extent and in the same manner as applied to the transferor foundation under sec_1 a ii g of the regulations and as referenced to sec_101 of the tax reform act of with respect to the provisions of sec_508 of the code the distribution from one private_foundation to another under a sec_507 transference will subject the transferee to the same requirements of sec_508 therefore recipient foundations are subject_to the same requirements of sec_508 as it would apply to transferor foundation as if the transfer had not occurred ruling the issue of whether recipient foundations will also be treated as if they were transferor foundation with respect to chapter and sec_507 through of the code in proportion to the assets each foundation receives is governed by sec_1_507-3 of the regulations under sec_1_507-3 if a private_foundation transfers all or part of its net assets to one or more private_foundations that are effectively controlled within the meaning of sec_1_482-1 now effectively retitled sec_1_482-1a directly or indirectly by the same persons who effectively control the transferor private_foundation for purposes of chapter and sections such a transferee private_foundation shall be treated as if it were the transferor in proportion to which the fair_market_value of the assets less encumbrances transferred bears to the fair_market_value of the assets less encumbrances of the transferor immediately before the transfer assuming each recipient foundation is effectively controlled by transferor foundation because transferor foundation made a sec_507 transfer of percent of its net assets to each recipient foundation each recipient foundation will be treated as if they were transferor foundation for purposes of chapter and sec_507 through in proportion to the assets transferred ruling the degree of tax_liability imposed upon recipient foundations and transferor foundation in relation to the transferred assets held by each after the transference is governed under sec_1 a of the regulations and sec_4940 of the code because the recipient foundations will be treated as if they were transferor foundation in respect to chapter and under sec_1 a i described above the recipient foundations will be liable for the tax imposed under sec_4940 in proportion to their share of assets received as of the date of the sec_507 transfer ruling whether the distribution of a portion of the assets of transferor foundation to recipient foundations in a sec_507 of the code transaction will constitute an act of self-dealing is governed under sec_1_507-3 of the regulations and sec_4941 the excise_tax on self-dealing is imposed where a private_foundation and a disqualified_person engage in prohibited_transactions such as the sale_or_exchange of property under sec_4946 and sec_53_4946-1 of the foundation regulations a disqualified_person does not include an organization under sec_501 therefore the transfer of assets by transferor foundation to the recipient foundations is not an act of self-dealing because each foundation has received a determination_letter stating that it is a tax-exempt_organization under sec_501 ruling under sec_1_507-3 of the regulations and revrul_78_387 1978_2_cb_270 a transferee in a sec_507 of the code transaction may reduce their minimum distribution_requirements under sec_4942 by any carryover of excess qualifying distributions of the transferor to the extent that the transferee is treated as transferor under sec_1_507-3 because the transfer of assets herein from transferor foundation to recipient foundations qualifies as a sec_507 transaction and recipient foundations are treated as transferor foundation under sec_1 a in proportion to the assets transferred each recipient foundation may reduce their minimum distribution_requirements under sec_4942 by any carryover of excess qualifying distributions of the transferor to the extent of the assets received ruling sec_4944 of the code imposes a tax on investments by private_foundations which jeopardize their charitable purposes under sec_4944 a transfer pursuant to sec_507 is not considered an investment for purposes of sec_4944 if the transfer of assets was made for the purpose of accomplishing a charitable purpose because transferor foundation will distribute approximately percent of its assets to each of the four recipient foundations with the goal of enabling each recipient foundation to pursue separate charitable goals the transfer will not result in the imposition of tax for a jeopardy investment under sec_4944 ruling the transfer of assets by transferor foundation to the recipient foundations does not result in the imposition of tax for a taxable_expenditure under sec_4945 of the code because transferor foundation will exercise its capital endowment grant expenditure_responsibility required by sec_4945 and sec_53_4945-5 of the foundation regulations ruling the distribution by transferor foundation of approximately percent of its assets to each of the recipient foundations will not affect the status of transferor foundation and the recipient foundations as tax-exempt organizations described in sec_501 of the code and as private_foundations described in sec_509 the tax-exempt status of these foundations is not adversely affected because the transfer qualifies under sec_507 and is made to a sec_501 organization accordingly based on the information submitted in your ruling_request we rule as follows the distribution by transferor foundation of approximately percent of its assets to each of the recipient foundations will be a sufficient disposition of assets to one or more private_foundations as described in sec_1_507-3 of the regulations made pursuant to an adjustment or reorganization and will be a transfer of assets by a private_foundation to other private_foundations described in sec_507 of the code the distribution by transferor foundation of approximately percent of its assets to each of the recipient foundations will not result in the termination of transferor foundation’s private_foundation_status and will not result in transferor foundation being subject_to the tax imposed by sec_507 of the code in the year of the distributions pursuant to sec_1_507-3 of the regulations each recipient foundation will not be treated as a newly created organization pursuant to sec_1_507-3 of the regulations each of the recipient foundations will succeed to the aggregate tax benefits of transferor foundation in proportion to the net fair_market_value of the assets distributed to them pursuant to sec_1_507-3 of the regulations each of the recipient foundations will be treated as having received the distributed assets subject_to the proportionate amount of any liability transferor foundation may have incurred under chapter of the code to the extent not satisfied by transferor foundation the provisions of sec_1_507-3 through g of the regulations will apply to each of the recipient foundations with respect to the assets distributed to them from transferor foundation assuming each of the recipient foundations and transferor foundation are effectively controlled within the meaning of sec_1_482-1 of the regulations directly or indirectly by the same persons and because transferor foundation will have transferred approximately percent of its assets to each of the recipient foundations each recipient foundation will be treated under sec_1_507-3 of the regulations as if they were transferor foundation for purposes of chapter of the code and sec_507 through of the code each recipient foundation will be treated as if they were transferor foundation in the proportion which the fair_market_value of the assets less encumbrances transferred to the respective recipient foundation bears to the fair_market_value of the assets less encumbrances of transferor foundation immediately before the transfer following the distributions transferor foundation will be liable for the tax imposed by sec_4940 of the code on assets held until the date of the distributions after the distributions have occurred each of the recipient foundations and transferor foundation will be liable for the tax imposed under sec_4940 with respect to their respective shares of assets as of the date of the distributions the distribution of a portion of the assets of transferor foundation to a recipient foundation will not constitute an act of self-dealing under sec_4941 of the code pursuant to sec_1_507-3 of the regulations and revrul_78_387 each recipient foundation may reduce the amount of the recipient foundation’s required_distribution under sec_4942 of the code by the amount of transferor foundation’s excess qualifying_distribution carryover for prior years in proportion to the net fair_market_value of the assets distributed to it the distribution of a portion of the assets of transferor foundation to a recipient foundation will not constitute a jeopardizing investment within the meaning of sec_4944 of the code the distribution of a portion of the assets of transferor foundation to a recipient foundation will constitute a grant as described in sec_4945 of the code and thus will not constitute a taxable_expenditure within the meaning of sec_4945 provided that transferor foundation exercises expenditures responsibility over the distributed assets as set forth in sec_53_4945-5 of the regulations for the year in which the proposed distribution of assets takes place and for the two succeeding taxable years only if it is reasonably apparent to the transferor foundation that before the end of such second succeeding taxable_year neither the principal the income from the grant funds nor any equipment purchased with the grant funds has been used for any purpose which would result in liability for tax under sec_4945 the transferor foundation may then allow such reports to be discontinued after the second succeeding taxable_year otherwise the transferor foundation must continue to exercise expenditure_responsibility until the grant funds are fully expended or the grant is terminated the distribution by transferor foundation of approximately percent of its assets to each of the recipient foundations will neither affect the status of transferor foundation as an organization described in sec_501 of the code nor will it affect the status of any of the recipient foundations as organizations described in sec_501 or as private_foundations described in sec_509 for purposes of this ruling we are presuming that recipient foundations are effectively controlled under sec_482 of the code all parts of this ruling that rely upon recipient foundations being effectively controlled will no longer apply should it be determined that recipient foundations are not all effectively controlled under sec_1_482-1a of the regulations by the same persons that effectively control transferor foundation this ruling will be made available for public inspection under sec_6110 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 this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolved questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


internal_revenue_service department of the treasury number release date index number in re washington dc person to contact telephone number refer reply to cc psi 9-plr-124729-03 date date legend grantor year year trust dollar_figurea foundation spouse accounting firm a accountant a accountant b accounting firm b plr-124729-03 dear this letter responds to your representative’s letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make a timely allocation of generation- skipping transfer gst_exemption with respect to a transfer made by grantor to an irrevocable_trust the facts and representations submitted are summarized as follows in year grantor created trust for the benefit of spouse and spouse’s descendants and transferred assets and cash valued at dollar_figurea to trust article iii a of trust provides that during spouse’s lifetime the trustees shall pay to such one or more of spouse and grantor’s living issue from time to time so much of the net_income and principal of the trust as the independent trustees in their discretion determine article iii a of trust provides that upon spouse’s death the trust shall terminate and the remaining principal shall be paid to grantor’s then living issue per stirpes subject_to lifetime trusts set forth in article iii b of trust article iii b of trust provides that any property payable to a descendant of spouse’s parents will be held in a_trust for such descendant the beneficiary from which the trustees shall pay to such one or more of the beneficiary and the beneficiary’s living issue from time to time so much of the net_income and principal as the independent trustees in their discretion determine article iii b of trust provides that upon the death of a beneficiary the trust will terminate and the remaining principal will be paid as that beneficiary appoints i by exercise of a special_power_of_appointment in favor of one or more of grantor’s issue if any issue of grantor is then living and otherwise in favor of any person except the beneficiary the beneficiary’s estate or the creditors of the beneficiary or the beneficiary’s estate and in favor of any charitable_organization described in sec_2055 of the internal_revenue_code or ii by exercise of a general testamentary_power_of_appointment if any has been conferred upon the beneficiary by the independent trustees of the trust article iii c of trust provides that notwithstanding anything in the trust agreement to the contrary each trust under article iii shall terminate upon the expiration of the longest period that property may be held in trust under the law of the jurisdiction governing such trust article iv of trust provides that if upon the termination of any trust the remaining principal is not effectively disposed of such principal shall be paid to spouse’s parents’ issue determined as though none of spouse’s parents’ children were then living subject_to the trust provisions of article iii b or if no such issue is then living to the plr-124729-03 then living issue of spouse’s parents other than spouse or if none to foundation if it is then a charitable_organization described in sec_2055 in year as well as in the four years previous to year grantor retained accounting firm a to prepare the income and gift_tax returns on behalf of grantor and spouse in the period prior to the due_date for filing the year form_709 the united_states gift and generation-skipping_transfer_tax return grantor advised accountant a at accounting firm a of his transfer to trust in year and of his intention to allocate a portion of his available gst_exemption to the amount of the transfer sometime thereafter grantor received a letter from accountant a advising that accountant b would be handling the account of grantor and spouse for year the letter states that accountant a and accountant b will review the tax file of grantor and spouse to ensure the transition is a smooth one accounting firm a did not prepare a year form_709 on behalf of grantor grantor relied on accounting firm a to prepare all necessary tax returns and was not aware of the failure_to_file a year form_709 grantor retained accounting firm b in year accounting firm b discovered that a year form_709 had not been filed the trustees of trust have not distributed any income or principal from trust to date grantor requests an extension of time under sec_301_9100-3 to allocate a portion of his gst_exemption to the amount of the transfer to trust sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides generally that the term taxable_termination means the termination by death lapse of time release of power or otherwise of an interest in property held in a_trust where the property passes to a skip_person with respect to the transferor of the property sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip sec_2612 provides that a direct_skip is a transfer subject_to federal estate or gift_tax made by a transferor to a skip_person sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under 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_2632 provides that any allocation by an individual of his gst plr-124729-03 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_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfer of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c -- a the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and b such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 under sec_301_9100-1 the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal plr-124729-03 revenue bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore grantor is granted an extension of time of sixty days from the date of this letter to make a retroactive_allocation of his available gst_exemption with respect to the transfer to trust in year the allocation will be effective as of the date of the transfer to the trust in year and the gift_tax value of the transfer will be used in determining the amount of gst_exemption to be allocated to the trust the allocation should be made on a form_709 filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the form_709 a copy is enclosed for this purpose 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 request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code in addition we express or imply no opinion regarding the value of the property transferred to the trust this ruling is directed only to the taxpayer requesting it sec_6110 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 is being sent to the taxpayer’s representative sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


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 fip b02 plr-147697-09 date date legend legend fund -------------------------------------------------- ------------------------------------------------------------------------------------------ fund ----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- --------------------------------------------------- ------------------------------------------------ fund --------------------------------------------------- ------------------------------------------------ ----------------------------------------------------------------------------------------- fund --------------------------------------------------- ------------------------------------------------ ----------------------------------------------------------------------------------------- fund ----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- --------------------------------------------------- ------------------------------------------------ fund --------------------------------------------------- ------------------------------------------------ ----------------------------------------------------------------------------------------- fund_manager trust -------------------------- --------------------------- plr-147697-09 ---------------------------- ------------- ---------------------- ----------------------------------------------------------------- -------------- -------------------------------------- ---- -- ---- trust state country index p q r s t dear -------------- this responds to your request dated date and supplemental correspondence dated date submitted by your authorized representative on behalf of fund fund fund fund fund and fund each a fund and collectively the funds funds request that the internal_revenue_service rule that income and gain arising from the commodities-linked notes described in this letter will constitute qualifying_income to the funds under sec_851 of the internal_revenue_code_of_1986 as amended the code and that income earned from the ownership of a wholly-owned subsidiary that is a controlled_foreign_corporation cfc constitutes qualifying_income to the funds under sec_851 facts funds are sponsored by fund_manager fund fund and fund are each a separate series of trust a state statutory trust fund fund and fund are each a separate series of trust a state statutory trust each fund either has elected or will elect to be taxable as a regulated_investment_company ric under subchapter_m of the code trust and trust are each a registered investment_company under the investment_company act of u s c 80a-1 et seq as amended the act and each trust currently qualifies as a ric under subchapter_m of the code each fund is or will be operated as an open-end management company pursuant to its investment objective or strategy each fund is permitted to invest in either certain structured notes or in a wholly-owned foreign_corporation that will in turn plr-147697-09 invest in commodity and financial futures swaps options contracts and also fixed income securities that would serve as collateral for those contracts the wholly-owned foreign_corporation may also invest in cash-settled non-deliverable forward contracts commodities-linked notes funds intend to pursue their investment objectives and strategies in part by investing in commodities-linked notes having the terms and conditions of the following note the note the note has a par_value of dollar_figurep its payout formula is determined with reference to the index its term is one year and one day the note will pay a monthly coupon with an interest rate equal to q fund as holder of the note will have the right to put the note to the issuer at the calculated redemption price based on the closing index level as of the end of the next business_day after notification to the issuer in addition if on any day the index falls to a level that is equal to or more than r below the beginning index level the note will knockout and automatically redeem based on the closing index level of the next business_day on which trading is generally conducted with respect to the components of the index the repayment obligation upon early redemption knockout or at maturity equals the face_amount of the note plus or minus the following adjustment in calculating the adjustment the face_amount of the note is multiplied by a a leverage factor of s and by b the percentage of the increase or decrease of the beginning index level compared to the ending index level for the applicable_period the total is then adjusted to account for a coupon amount calculated at a rate equal to q times the face_amount of the note and for an annual fee of t basis points of the notional value leveraged face_amount of the note and for the reversal of the interest factor included in the index each fund makes the following representations with respect to the note the issuer of the note will receive payment for the note substantially contemporaneously with the delivery of the note a fund while holding the note will not be required to make any additional payments to the issuer of the note in addition to the purchase_price paid for the note whether as margin settlement payment or otherwise during the life of the note or at maturity the issuer of the note is not subject by the terms of the note to mark-to- market margining requirements of the commodities exchange act u s c as amended the cea and the note is not marketed as a contract of sale of a commodity for future delivery or option on such a contract subject_to the cea plr-147697-09 controlled_foreign_corporation each fund intends to form a wholly-owned subsidiary each a subsidiary and collectively the subsidiaries each fund will own percent of the vote and value of their respective subsidiary each subsidiary will be wholly owned by its respective fund and as such the funds represent that the subsidiaries are expected to be classified as controlled_foreign_corporations cfcs as defined in sec_957 of the code each fund will include its subpart_f_income attributable to its subsidiary under the rules applicable to cfcs under the code each subsidiary will be incorporated as an exempted limited_company under the laws of country under the laws of country an exempted limited_company provides for limited_liability for all holders of shares a shareholder’s liability is limited to the amount if any unpaid with respect to the shares acquired by the shareholder each subsidiary will file an election on form_8832 entity classification election to be taxed as a corporation for federal_income_tax purposes pursuant to sec_301_7701-3 of the procedure and administration regulations the funds represent that although the subsidiaries will not be registered as investment companies under the act each subsidiary will comply with the requirements of section f of the act investment_company act release no and related sec guidance pertaining to asset coverage with respect to transactions in commodity index swap agreements and other transactions in derivatives each fund will invest a portion of its assets in its subsidiary subject_to the limitations set forth in sec_851 of the code a subsidiary may invest in one or more of the following types of instruments commodity and financial futures and options contracts and fixed income securities that serve as collateral for such contracts deliverable forward and cash settled non-deliverable forward contracts each of these contracts may be linked to the performance of one or multiple commodities including a commodity index a subsidiary may also invest in swaps on commodities or commodities indexes or in commodity-linked structured notes subsidiaries may also invest directly in commodities it is expected that all of subsidiaries’ income will be subpart_f_income as defined in sec_952 law and analysis sec_851 of the code provides that a corporation shall not be considered a ric for any taxable_year unless it meets an income test the qualifying_income requirement under this test at least percent of its gross_income must be derived from certain enumerated sources sec_851 defines qualifying_income in relevant part as- plr-147697-09 dividends interest payments_with_respect_to_securities_loans as defined in sec_512 and gains from the sale_or_other_disposition of stock_or_securities as defined in sec_2 of the act or foreign_currencies or other income including but not limited to gains from options futures or forward contracts derived with respect to the ric’s business of investing in such stock securities or currencies sec_2 of the act defines the term security as- any note stock treasury_stock security future bond debenture evidence_of_indebtedness certificate of interest or participation in any profit-sharing agreement collateral-trust certificate preorganization certificate or subscription transferable share investment contract voting-trust certificate certificate of deposit for a security fractional undivided_interest in oil gas or other mineral rights any put call straddle option or privilege on any security including a certificate of deposit or on any group or index of securities including any interest therein or based on the value thereof or any put call straddle option or privilege entered into on a national securities exchange relating to foreign_currency or in general any interest or instrument commonly known as a security or any certificate of interest or participation in temporary or interim certificate for receipt for guarantee of or warrant or right to subscribe to or purchase any of the foregoing sec_2 of the cea provides that the cea is not applicable to a hybrid instrument that is predominantly a security sec_2 of the cea provides that a hybrid instrument shall be considered to be predominantly a security if- a the issuer of the hybrid instrument receives payment in full of the purchase_price of the hybrid instrument substantially contemporaneously with the delivery of the hybrid instrument b the purchaser or holder of the hybrid instrument is not required to make any payment to the issuer in addition to the purchase_price paid under subparagraph a whether as margin settlement payment or otherwise during the life of the hybrid instrument or at maturity c the issuer of the hybrid instrument is not subject by the terms of the instrument to mark-to-market margining requirements and d the hybrid instrument is not marketed as a contract of sale of a commodity for future delivery or option on such a contract subject_to the cea sec_2 of the cea provides in part that for purposes of sec_2 of the cea mark-to market margining requirements do not include the obligation of an issuer of a secured debt_instrument to increase the amount of collateral held in pledge plr-147697-09 for the benefit of the purchaser of the secured debt_instrument to secure the repayment obligations of the issuer under the secured debt_instrument in addition the flush language of sec_851 of the code further provides that for purposes of sec_851 there shall be treated as dividends amounts included in gross_income under sec_951 or sec_1293 for the taxable_year to the extent that under sec_959 or sec_1293 as the case may be there is a distribution out of the earnings_and_profits of the taxable_year that are attributable to the amounts so included sec_957 of the code defines a controlled_foreign_corporation cfc as any foreign_corporation in which more than percent of the total combined voting power of all classes of stock entitled to vote or the total value of the stock is owned by united_states_shareholders on any day during the corporation’s taxable_year a united_states_shareholder is defined in sec_951 as a united_states_person who owns percent or more of the total combined voting power of all classes of stock of a foreign_corporation each fund represents that it is a united_states_person within the meaning of sec_957 and that it will satisfy the ownership requirements in sec_957 therefore each fund represents that its subsidiary will qualify as a cfc under these provisions sec_951 of the code provides in relevant part that if a foreign_corporation is a cfc for an uninterrupted period of days or more during any taxable_year every person who is a united_states_shareholder of this corporation and who owns stock in this corporation on the last day of the taxable_year in which the corporation is a cfc shall include in gross_income the shareholder’s pro_rata share of the cfc’s subpart_f_income for the taxable_year sec_952 of the code defines subpart_f_income to include foreign_base_company_income determined under sec_954 under sec_954 foreign_base_company_income includes foreign_personal_holding_company_income determined under sec_954 under sec_954 foreign_personal_holding_company_income includes among other things dividends interest royalties rents and annuities gains in excess of losses from transactions in commodities including futures forward and similar transactions but excluding certain hedging_transactions and certain active business gains and losses and subject_to certain exceptions net_income from notional_principal_contracts the subsidiaries’ investments in commodity and financial futures swaps cash- settled non-deliverable forward contracts option contracts fixed income securities and other_securities may generate foreign_personal_holding_company_income which is subpart_f_income under sec_954 of the code each fund will therefore include in income its pro_rata share of its subsidiary’s subpart_f_income for the taxable_year in accordance with sec_951 plr-147697-09 conclusion based on the facts as represented we rule that income and gain arising from the note constitutes qualifying_income to the funds under sec_851 of the code we further rule that the subpart_f_income of the subsidiaries attributable to the funds is income derived with respect to each fund’s business of investing in the stock of its subsidiary_corporation and thus constitutes qualifying_income under sec_851 no opinion is expressed as to whether each fund qualifies as a ric that is taxable under subchapter_m part i of the code this ruling is directed only to the taxpayers who requested it sec_6110 of the 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 is being sent to your authorized representative sincerely susan thompson baker____________ susan thompson baker senior technician reviewer branch office of the associate chief_counsel financial institutions products


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b05-plr-115708-00 date date re distributing controlled acquiring newco business b purchaser date date date x percent y percent plr-115708-00 we respond to your letter dated date requesting on behalf of the taxpayer a supplemental ruling to plr-64726-95 a ruling letter issued on date prior ruling letter regarding certain federal_income_tax consequences of a series of transactions which included the distribution of all of the outstanding capital stock of controlled owned by distributing pro_rata to distributing’s shareholders the prior ruling letter held in part that the distribution qualified as a tax-free distribution under sec_355 of the internal_revenue_code the spin off the spin off was effective on date on date we issued a supplemental letter plr-254004-96 to the prior ruling letter addressing issues unrelated to those in your current request the first supplemental letter the information submitted in your request and in subsequent correspondence is summarized below in your request you state that you wish to inform us of two recent developments the acquisition of controlled by acquiring and the proposed transfer by distributing of business b the business upon which distributing relied as an active trade_or_business in the spin off to a newly-formed wholly-owned subsidiary of distributing newco as a step toward a likely disposition of business b you ask whether both or either of these developments have an adverse effect on the prior ruling letter the first development on date acquiring and controlled announced that acquiring would acquire controlled through the merger of a new wholly-owned subsidiary of acquiring into controlled the merger was effective on date as a result controlled became a wholly-owned subsidiary of acquiring and as a result of the transaction the acquiring shareholders continued to hold approximately x percent of acquiring and the former controlled shareholders received approximately y percent of acquiring controlled received an opinion of counsel stating that the merger would qualify as a reorganization within the meaning of sec_368 of the code distributing makes the following representations in connection with the first development a b the transactions described in the prior ruling letter and the first supplemental letter were carried out in all material respects as described in the prior ruling letter the prior ruling letter request and the exhibits and supplements thereto representations v x and y in the prior ruling letter concerning inter alia the shareholders’ lack of intention to dispose_of their distributing or controlled stock and controlled's lack of intention to merge with another company were correct at the time of the spin off and prior thereto plr-115708-00 c distributing management became aware of the pending acquisition of controlled by acquiring from press reports and other published sources distributing was not consulted or informed about the acquisition prior to public announcement and did not play a role in the acquisition at the time of the spin off distributing did not have any negotiations underway with acquiring concerning any proposed acquisition of controlled the second development distributing plans to transfer all the assets and liabilities with the possible exception of some accounts_receivable and other financial_assets and liabilities of business b to newco in exchange for all of the stock of newco business b has undergone significant expansion and changes in focus since date these changes were in response to market conditions arising after the spin off further distributing has entered into active negotiations with purchaser for either the transfer by distributing of the stock of newco or a transfer by newco of the business b assets to purchaser in exchange for cash and a minority interest in the stock of purchaser distributing anticipates that this transaction would be fully taxable to distributing whether or not the negotiations with purchaser are successful distributing will transfer the assets of business b to newco as described above distributing makes the following representations in connection with the second development d e f the transactions described in the prior ruling letter and the first supplemental letter were carried out in all material respects as described in the prior ruling letter the prior ruling letter request and the exhibits and supplements thereto representation q in the prior ruling letter concerning inter alia the continuation of the active_conduct of business b by distributing was correct at the time of the spin off and prior thereto at the time of the spin off it was distributing’s intention to continue to operate business b as a division indefinitely business b has undergone significant changes since date the decision to transfer business b took place more than three years after the spin off and was made in response to expansion and changes in business b and in response to current market conditions that arose long after the spin off was complete g at the time of the spin off distributing had had no contact with purchaser the first such contact occurred during this year plr-115708-00 based on the information submitted and the representations set forth above we hold as follows the acquisition of controlled by acquiring and the potential disposition of all or a part of the stock or assets of newco will have no adverse effect on any of the rulings set forth in the prior ruling letter and those rulings will remain in full force and effect except as expressly provided herein we express no opinion about the tax treatment of the first and second developments under other provisions of the code or regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the first and second developments that are not specifically covered by the above ruling this supplemental ruling letter is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the transactions should attach a copy of this supplemental ruling letter together with the prior ruling letter to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transactions covered by the letters are consummated under a power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer sincerely yours associate chief_counsel corporate by chief branch


internal_revenue_service department of the treasury number release date index numbers in re washington dc person to contact telephone number refer reply to cc psi b09-plr-165140-02 date date legend trustee decedent date spouse son daughter grandchild grandchild grandchild trust date date date probate_court great grandchild plr-165140-02 great grandchild great grandchild date date dear this is in response to your letter dated date submitted on behalf of trustee requesting a ruling regarding the generation-skipping_transfer gst tax consequences of a proposed modification to a_trust the information submitted and representations made are summarized as follows decedent died testate on date several years prior to date survived by spouse son daughter grandchild grandchild and grandchild decedent’s will provided for a number of specific bequests a marital bequest and established a residuary_trust trust for the benefit of son daughter and their issue the trustee represents that there have been no actual or constructive additions to the trust after date item vii d of decedent’s will provides that decedent devises and bequeaths the residue of his estate to trustee to be held in trust until twenty-one years after the death of the last survivor among his children and grandchildren who are in being at the time of his death and upon termination the principal of trust shall be divided among its income beneficiaries per stirpes the trustee shall divide the residue into two separate and equal trusts to be designated fund a and fund b item vii d-1 provides that fund a shall be held by trustee for the benefit of daughter and her issue daughter shall receive two-thirds of the net_income so long as she may live in monthly or quarterly installments as she may direct the issue of daughter per stirpes shall receive one-third of the net_income so long as daughter shall live in monthly or quarterly installments as she may direct if all of daughter’s issue predecease her daughter shall thereafter receive the entire net_income so long as she shall live upon daughter’s death or upon decedent’s death if daughter should predecease decedent fund a shall be held for the benefit of the surviving issue of daughter per stirpes and daughter’s issue shall receive the entire net_income until the termination of this trust if any of daughter’s issue should die during the life of the trust the share of income of the deceased issue shall be paid to the then living issue of daughter per stirpes upon the death of daughter without issue surviving or upon the death of daughter’s last surviving issue prior to termination the assets of fund a shall be added to fund b item vii d-2 provides that fund b shall be held by trustee for the benefit of son and his issue son shall receive the entire net_income until he shall have issue in being thereafter he shall receive two-thirds of the net_income so long as he may live in plr-165140-02 monthly or quarterly installments as he may direct son’s issue per stirpes shall receive one-third of the net_income so long as son shall live in monthly or quarterly installments as he may direct upon son’s death or upon decedent’s death if son should predecease decedent fund b shall be held for the benefit of the surviving issue of son per stirpes and his issue shall receive the entire net_income until the termination of this trust if any issue of son should die during the life of the trust the share of income of the deceased issue shall be paid to the then living issue of son per stirpes upon the death of son without issue surviving or upon the death of his last surviving issue prior to termination the assets of fund b shall be added to fund a item ix provides the powers granted to the executor and also to the trustee subject_to the approval of the advisory committee item x provides for an advisory committee consisting of spouse son and daughter item x further provides that the fiduciaries shall consult with the advisory committee regarding all important matters affecting the trust and that the prior written consent and approval of two members of the advisory committee shall be deemed the consent of the committee after the death of two members of the advisory committee the surviving member shall constitute the advisory committee after the death of all members of the advisory committee the executors and trustees and their successors shall exercise their own powers and discretion for all actions taken in accordance with the directions or consent of the advisory committee the fiduciaries shall have full and complete acquittance no party dealing with the executor or trustee or their successors shall be required to ascertain whether the direction or consent of the committee shall have been obtained and all parties dealing with the fiduciaries may do so as though the fiduciaries were possessed of full complete and independent power and authority members of the advisory committee may receive from the executor or trustee or their successors reasonable_compensation for their services and reimbursement for their expenses incident to their services son died on date prior to the funding of the trust and without children spouse died on date due to the deaths of son and spouse daughter was the last surviving member of the advisory committee after daughter’s death the trust does not provide for the continuation of the advisory committee on date the probate_court issued an order pursuant to an agreement executed by trustee daughter grandchild grandchild and grandchild providing for the appointment of daughter’s children as successor advisory committee members upon daughter’s death and provisions for the continuation of the advisory committee for the remaining term of the trust the trustee represents that daughter grandchild grandchild grandchild and grandchild 1's children great grandchild great grandchild and great grandchild would like to make further modifications to the trust specifically they would like to enlarge the advisory committee by adding daughter’s three children grandchild grandchild and grandchild as equal voting members of the advisory plr-165140-02 committee along with daughter during daughter’s lifetime in addition they would like to convert the portion of the trust consisting of marketable_securities and reinvestments to a total return share on date daughter grandchild grandchild grandchild great grandchild great grandchild great grandchild and trustee executed an agreement that provides it shall only be effective upon an order of the probate_court the agreement provides in relevant part as follows grandchild grandchild and grandchild shall be added as equal voting members of the advisory committee of the trust with daughter during daughter’s lifetime with the same powers and authority conferred upon the advisory committee in the trust upon the death of grandchild during daughter’s lifetime grandchild 1's eldest then living child shall automatically succeed grandchild as a member of the advisory committee if grandchild 1's eldest child who is then serving as a member of the advisory committee shall fail or cease to serve grandchild 1's next eldest child shall automatically become a member of the advisory committee in place of such member upon the death of the last survivor of grandchild grandchild and grandchild during daughter’s lifetime each of grandchild 1's then living children shall be allowed to function and serve as a member of the advisory committee of the trust with daughter with the same powers and authority conferred upon the advisory committee in the trust the date probate_court order shall continue to remain in effect with respect to the trust upon daughter’s death the portion of the trust consisting of marketable_securities and reinvestments shall be converted to a total return share whereby trust distributions shall equal the greater of a the net_income of the total return share or b six percent of the net fair_market_value of the total return share assets valued as of the last business_day of the prior taxable_year not to exceed the amount of corpus appreciation of the total return share assets during the prior taxable_year on date daughter grandchild grandchild grandchild great grandchild great grandchild great grandchild and trustee filed a petition with the probate_court seeking approval of the date agreement trustee has requested a ruling that the proposed enlargement of the advisory committee and the conversion of a portion of the trust to a total return share will not violate b a of the tax_reform_act_of_1986 and thus the trust will continue to be exempt from the gst tax plr-165140-02 law and analysis sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 defines the term generation-skipping_transfer as a taxable_distribution a taxable_termination and a direct_skip under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax provisions do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date however this exemption does not apply if additions actual or constructive are made to the trust after date sec_26_2601-1 provides generally that any trust in existence on date will be considered an irrevocable_trust unless otherwise provided in sec_26_2601-1 or c relating to property includible in a grantor’s gross_estate under sec_2038 and sec_2042 in the present case the trust is considered to have been irrevocable on date because neither sec_2038 nor sec_2042 applies 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 generation-skipping_transfer_tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status the rules contained in sec_26_2601-1 are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law 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 sec_26_2601-1 provides that for purposes of this section 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 plr-165140-02 of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a 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 a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example illustrates the application of paragraph b as follows conversion of income_interest into unitrust_interest in grantor established an irrevocable_trust under the terms of which trust income is payable to a for life and upon a’s death the remainder is to pass to a’s issue per stirpes in the appropriate local court approves a modification to the trust that converts a’s income_interest into the right to receive the greater of the entire income of the trust or a fixed percentage of the trust assets valued annually unitrust_interest to be paid each year to a for life the modification does not result in a shift in beneficial_interest to a 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 in this case the modification can only operate to increase the amount distributable to a and decrease the amount distributable to a’s issue in addition 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 therefore the trust will not be subject_to the provisions of chapter of the internal_revenue_code sec_26_2601-1 example illustrates the application of paragraph b as follows administrative change to terms of a_trust in grantor executed an irrevocable_trust for the benefit of grantor’s issue naming a bank and five other individuals as trustees in the appropriate local court approves a modification of the trust that decreases the number of trustees which results in lower administrative costs the modification pertains to the administration of the trust and 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 in addition 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 therefore the trust will not be subject_to the provisions of chapter of the internal_revenue_code plr-165140-02 in the present case the trust was created and became irrevocable on date and there have been no additions made to the trust after date accordingly the trust is exempt from the gst tax under sec_26_2601-1 based on the facts submitted and the representations made the proposed appointment of grandchild grandchild and grandchild as equal voting members of the advisory committee along with daughter during daughter’s life effectuates an administrative change and will 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 see sec_26 b i e example the proposed conversion of a portion of the trust to a total return share will 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 see sec_26_2601-1 example in addition the proposed modifications do not extend the time for vesting of any beneficial_interest in the trust beyond the period provided in the original trust provided that the probate_court approves the proposed agreement the modification will not violate b a of the tax_reform_act_of_1986 and will not affect the gst exempt status of the trust 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 if there is a change in material fact or law local or federal before the transactions considered in this ruling take effect the ruling will have no force or effect 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 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 code 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 being sent to trustee sincerely yours melissa c liquerman branch chief branch office of the associate chief_counsel passthroughs and special industries enclosure 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-152128-05 date date ------------------ --------------------- ------------------------------ legend legend x -------------------------------------------------- country d dear --------------- correspondence written on behalf of x requesting an extension of time under ' and ' of the procedure and administration regulations to elect to be treated as a partnership for federal tax purposes this letter responds to the letter dated date and related facts the information submitted states that x was incorporated under the laws of country on d x intended to file a form_8832 entity classification election to be treated as a partnership for federal tax purposes effective d however the election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an plr-152128-05 eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under ' b by filing form_8832 with the appropriate service_center under ' c iii 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 under sec_301_9100-1 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 e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register 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 requests 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 sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of and and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as a partnership for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose plr-152128-05 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely enclosures heather c maloy associate chief_counsel passthroughs and special industries copy of this letter copy for ' purposes cc