internal_revenue_service number release date index number ------------------------- ------------------ ------------------------------------ re ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-123156-14 date december legend --------------------- ----------------------------------------------------------------------- testator trust ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------- ------------------------------------------------------------------------ corporate trustee a ----------------------------------------------------------- corporate trustee b ------------------------------ corporate trustee c -------------------------------------------- corporate trustee d ----------------------- child a ---------------------- child b --------------------------------- child c ------------------------------------------------------------------------ grandchild c --------------------------- grandchild a-1 ---------------------- grandchild a-2 ------------------------ individual trust a ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------- trust b ----------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------- plr-123156-14 --------------------------------------------------------- ------------------------------------------------------------------------ share ------------------------------------------------------------------------------------- share --------------------------------------------------------------------------------------------------- date date date year year year year state court state act --------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- cite cite cite cite ------------------- ------------------- ------------------- ------- ------- ------- ------- -------- --------------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------- ------------------------------------------------------------------------ dear ----------------- this responds to your authorized representatives’ letter dated date and subsequent correspondence requesting rulings concerning the income gift estate and generation-skipping gst tax consequences of a settlement agreement facts testator died testate on date prior to date a resident of state he was survived by two children child a and child b a third child child c predeceased testator child c was survived by her child grandchild c testator’s last will and testament will established a_trust trust for the benefit of his lineal_descendants article first paragraph a of trust provides that the trustees are to pay the net_income quarterly in equal shares to child a child b and grandchild c if any of them is not living on an income payment_date the trustees are to pay over his or her share of the income by right of representation to his or her issue then living article first paragraph b provides that trust is to end upon the death of the survivor of child a child b and grandchild c at which time the trustees are to distribute the trust principal by right of representation to testator’s then living issue article second provides in relevant part that corporate trustee a child a child b and grandchild c are to be the trustees plr-123156-14 child a died in year survived by two children grandchild a-1 and grandchild a-2 child b is living grandchild c is living_trust will terminate when the survivor of child b and grandchild c has died corporate trustee a and its successor_corporation served as a co-trustee until year at present one-third of the trust income is paid to grandchild a-1 and grandchild a-2 as successors to child a’s income_interest another third of the income is paid to child b the last third of the income is paid to grandchild c the current presumptive remainder beneficiaries are i grandchild a-1 and grandchild a-2 ii child b’s three children and iii grandchild c’s four children the trust assets consist primarily of investment_assets it is represented that no actual or constructive additions have been made to trust since its inception in year child b and grandchild c as co-trustees petitioned the court to appoint an institutional co-trustee to restore the trustee structure as originally constituted under the will by court order of date corporate trustee b was appointed co-trustee of trust corporate trustee b was subsequently acquired by corporate trustee c accordingly the current co-trustees are child b and grandchild c and corporate trustee c following the year court proceedings the trustees modified the written investment policy of trust to invest and manage the trust assets in accordance with the state act under the modification in part an independent fiduciary as a trustee may equitably adjust between principal and income by allocating an amount of income to principal or an amount of principal to income to the extent the independent fiduciary considers appropriate if the terms of the trust describe the amount that may or must be distributed to a beneficiary by referring to the trust’s income in deciding whether and to what extent to exercise this power the independent fiduciary is to consider certain factors such as the assets held in the trust the extent to which they consist of financial_assets interests in closely held enterprises tangible and intangible personal_property or real_property the extent to which an asset is used by a beneficiary and whether an asset was purchased by the trustee or received from the settlor pursuant to the modification corporate trustee c exercised its authority to equitably adjust trust receipts between income and principal thereafter child b expressed concern and objected to corporate trustee c’s actions in exercising its adjustment powers the disagreements over these actions have resulted in a rift in the family and a desire by some family members to have different trustees and separate trusts for some of the beneficiaries in year child b filed a petition with the court to divide trust and administer the divided trusts as separate trusts child b’s stated reasons for the division were that it would facilitate investment management and administrative decisions regarding the plr-123156-14 share for child b and his family that would be consistent with their investment philosophy child b’s petition was met with opposition from the other beneficiaries and corporate trustee c they were concerned that among other things the division of trust violated the testamentary intent of testator and violated a material purpose of trust they were also concerned that the division of trust into new smaller trusts would result in the loss of economic efficiencies enjoyed by the existing trust child b’s petition was answered by the other beneficiaries who raised a counterclaim they requested that the court construe the words by right of representation in the context of testator’s will they asserted that construction of the term could affect future distributions from trust whether or not trust was divided that is depending on the order of deaths and whether or not there were future births in the family there were three possible constructions that could produce substantially different distributions of income and principal of trust see cite cite and cite see also cite after an adversarial process before the court and extensive settlement negotiations the trustees and beneficiaries of trust agreed to a settlement settlement agreement under which trust will terminate and its assets will be divided into two trusts trust a and trust b_trust a equal in value to one-third of the value of trust will be held as a separate trust for child b and his descendants trust b equal in value to two-thirds of the value of trust will be held as a separate trust for grandchild c and her descendants and child a’s descendants to the extent it is administratively feasible the division of assets will be pro_rata in addition the parties agreed that the term by right of representation will be construed to require a per stirpes distribution of trust assets among the descendants of testator with the first division to be made at the child level ie at the level of child a child b and child c even if that generation has no living descendants on date the court issued an order approving and adopting the terms of the settlement agreement the order provides in part that beginning on the date of division and continuing until termination trust a and trust b i shall be treated as completely separate and distinct trusts for all purposes and ii shall be governed by the existing provisions of trust except to the extent modified by certain provisions as described below trust a child b will receive the trust a income quarterly for his life after child b’s death his children will receive the income in equal shares if any child should die that child’s children will receive the child’s share of the income in equal shares if child b and all of his issue die before the termination of trust a the assets of trust a will be added to trust b on the death of the survivor of child b and grandchild c trust a will terminate plr-123156-14 and the trust a assets will be distributed to the then-living descendants of child b by right of representation child b and his three children will be the individual co-trustees of trust a corporate trustee d will be appointed as a co-trustee by a document signed prior to the effective date of the trust division and effective upon the creation of trust a a corporate trustee will remain in service until trust a terminates the corporate trustee will have all the powers under state law to exercise the trustee’s powers to adjust between income and principal pursuant to the provisions of the state act trust b grandchild a-1 grandchild a-2 grandchild c and individual will be the co-trustees of trust b corporate trustee c will serve as the corporate trustee trust b will consist of two shares share and share the income of share will be distributed quarterly to grandchild c the income of share will be distributed quarterly in equal shares to grandchild a-1 and grandchild a-2 if any of those persons should die during the term of the trust his or her income share will be paid to his or her descendants by right of representation on the death of the survivor of child b and grandchild c trust b will terminate share will be distributed to the then-living descendants of grandchild c by right of representation and share will be distributed to the then-living descendants of child a by right of representation you have asked for the following rulings the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause a distribution from or the termination of any interest in trust trust a or trust b to be subject_to the generation-skipping_transfer_tax the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause any person to make a gift to any beneficiary of trust trust a or trust b the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause the assets held in trust trust a or trust b to be included in the gross_estate of a beneficiary who dies prior to the termination of such trust following the termination of trust and the resulting division of trust pursuant to the settlement agreement trust a and trust b will be treated as separate trusts plr-123156-14 the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause any party to the settlement agreement to realize income from the sale_or_exchange of any trust assets or interests law and analysis ruling sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date 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 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains 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 court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to the provisions of chapter if the settlement is the product of arm’s length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties’ assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes sec_26_2601-1 provides that a judicial construction of a governing instrument to resolve an ambiguity in the terms of the instrument or to correct a scrivener’s error will not cause an exempt trust to be subject_to the provisions of chapter if the plr-123156-14 judicial action involves a bona_fide issue and the construction is consistent with applicable state law that would be applied by the highest court of the state 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 example describes a situation where in grantor established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a’s issue and one for the benefit of b and b’s issue the trust for a and a’s issue provides that the trustee has the discretion to distribute trust income and principal to a and a’s issue in such amounts as the trustee deems appropriate on a’s death the trust principal is to be distributed equally to a’s issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b’s issue the trust for b and b’s issue is identical except for the beneficiaries and terminates at b’s death at which time the trust principal is to be distributed equally to b’s issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a’s issue the example concludes that the division of the trust into two trusts does not shift any 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 division in addition the division 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 two partitioned trusts resulting from the division will not be subject_to the provisions of chapter in this case trust was irrevocable on date it is represented that there have been no actual or constructive additions to the trust after date the settlement agreement and court order resolve bona_fide issues ie the construction of the words by right of representation as intended by testator and the administration of trust under the state act the settlement agreement is the product of arm's length negotiations and is within the range of reasonable outcomes under trust and state law finally the settlement agreement and court order construing the term plr-123156-14 by right of representation and dividing trust will not shift a beneficial_interest in trust to a lower generation beneficiary and will not extend the time for vesting of any beneficial_interest in trust accordingly based on the facts submitted and representations made we conclude that the terms of the settlement agreement including the trust division and construction of the phrase by right of representation will not cause distributions from or the termination of any interest in trust trust a or trust b to be subject_to the gst tax imposed by sec_2601 ruling sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 will apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax whether an agreement settling a dispute is effective for gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party’s claim if it is determined that each party has a valid claim the service must determine that the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated as discussed above the issues resolved by the settlement agreement and court order concerning the construction of trust and its administration are bona_fide issues based upon valid enforceable claims by the interested parties the settlement agreement resolves conflicts concerning distributions of income and principal and is reflective of the rights of the parties under applicable state law that would be applied by the highest court of state accordingly based on the facts submitted and representations made we conclude that the terms of the settlement agreement will not cause any person to make a gift to any beneficiary of trust trust a or trust b ruling plr-123156-14 sec_2001 provides that a tax is imposed on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time after date made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property but in the case of a transfer made before date only if such reversionary_interest arose by the express terms of the instrument of transfer and the value of such reversionary_interest immediately before the death of the decedent exceeds five percent of the value of such property sec_2038 provides that the value of the decedent’s gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the three-year period on the date of the decedent’s death sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 to plr-123156-14 sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent’s estate the decedent’s creditors or the creditors of the decedent’s estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment in this case no person made a transfer to trust other than testator at his death on date the income and terminating distributions from the divided trusts will follow the same pattern as they would have had trust not been divided the income beneficiaries will be entitled to distributions quarterly and the remaindermen will be entitled to receive the trust property only upon surviving termination of the respective trust the terms of the settlement agreement do not cause any transfers or create any general powers of appointment that would cause any of the trust property to be included in the estate of a beneficiary under sec_2036 sec_2038 or sec_2041 consequently the terms of the settlement agreement will not cause any beneficiary of trust trust a or trust b who dies prior to the termination of such trust to include trust assets in his or her taxable_estate other than i trust assets that have been distributed to him or her prior to death or ii such quarterly distributions of income that were past due and not paid in accordance with the trust terms during a beneficiary’s life and to which he or she has a legally enforceable claim at death ruling sec_643 provides that for purposes of subchapter_j of chapter of subtitle a under regulations prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of the tax_imposed_by_chapter_1 section b of the tax_reform_act_of_1986 provides that sec_643 shall apply to taxable years beginning after date except that in the case of a_trust that was irrevocable on date it shall apply only to that portion of the trust that is attributable to contributions of corpus after date the taxpayers represent that in this case trust a and trust b will have different beneficiaries the taxpayers also represent that no actual or constructive additions have been made to trust since its inception prior to date based on the facts submitted and the representations made we conclude that as long as trust a and trust b are separately managed and administered they will be treated as separate trusts for federal tax purposes ruling plr-123156-14 sec_61 and provides that gross_income includes gains derived from dealings in property and income from an interest in a_trust sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the amount_realized from the sale_or_other_disposition of property is the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a of the code the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property must be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained a partition of jointly owned property is not a sale_or_other_disposition of property if the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result thereof thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 conversion of a joint_tenancy in stock to a tenancy_in_common in order to eliminate the survivorship feature and the partition of a joint_tenancy in stock are not sales or exchanges similarly divisions of trusts are also not sales or exchanges of trust interests if each asset is divided pro_rata among the new trusts see revrul_69_486 1969_2_cb_159 pro_rata distribution of trust assets not a sale_or_exchange here the division of trust into trust a and trust b will not result in any shift in beneficial_interest in the assets of trust accordingly the division of trust as described will not result in the realization of gain_or_loss under sec_61 and sec_1001 in addition the agreement regarding construction of the term by right of representation will not result in the realization of gain_or_loss under sec_61 and sec_1001 except as expressly provided herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code these rulings are directed only to the taxpayers 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 sent to your authorized representatives plr-123156-14 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosure copy of letter for sec_6110 purposes


significant index number department of the treasury internal_revenue_service me washington d c tax exempt and government entities dec se tep pa az re plan no _ plan ein taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning bases’ as identified in your application submission established as of this extension applies to the eligible amortization charge the extension of the amortization periods of the unfunded liabilities of the pian was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ‘funding standard account charges under sec_431 or sec_431 of the code ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided in granting this ruling it is expected that the plan's assumptions and methods will be reviewed and updated as appropriate so that each prescribed assumption was applied in accordance with applicable law and regulations and each other assumption is reasonable taking into account the experience of the plan and reasonable expectations and such other assumptions in combination offer the best estimate of anticipated experience under the plan in addition we are not expressing any opinion as to the accuracy of any material submitted with your request we have sent a copy of this letter to the manager ep classification in baltimore maryland to the manager ep compliance unit in chicago illinois and to your authorized representative pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact id at sincerely yours david m ziegler manager ep actuarial group


t c memo united_states tax_court charles brumbaugh and c e holifield petitioners v commissioner of internal revenue respondent docket no filed date william marc weintraub for petitioners kris h an and jordan scott musen for respondent memorandum opinion lauber judge on date the internal_revenue_service irs or respondent filed a motion to dismiss and to strike partnership items respon- dent contends that petitioners’ claim of entitlement to additional flowthrough losses from panorama llc panorama a partnership for federal_income_tax purposes must be dismissed because the court lacks jurisdiction to consider them this question turns on whether panorama is subject_to the partnership procedural rules of the tax equity and fiscal responsibility act of tefra pub_l_no sec_402 stat pincite petitioners argue that panorama is not covered by tefra but is exempt because it is a small partner- ship see sec_6231 we disagree and accordingly will grant respon- dent’s motion to dismiss as to the partnership items discussed below background there is no dispute concerning the following facts which are derived from the parties’ pleadings and motion papers and the attached exhibits these facts are stated solely for the purpose of deciding this motion and not as findings_of_fact in this case see rule b fed r civ p a 115_tc_15 aff’d 269_f3d_854 7th cir on their joint federal_income_tax return for petitioners claimed on schedule c profit and loss from business an interest_deduction of dollar_figure in a timely issued notice_of_deficiency the irs disallowed dollar_figure of this interest_deduction for lack of substantiation the irs also determined that certain losses that petitioners deducted on schedule e supplemental income and loss were all statutory references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure we round all dollar amounts to the nearest dollar subject_to the passive loss limitation under sec_469 and asserted an accuracy-related_penalty under sec_6662 none of the adjustments set forth in the notice_of_deficiency relates to deductions claimed by panorama petitioners contend that they are entitled to deduct additional flowthrough losses from panorama beyond those originally reported to them on schedule_k-1 partner’s share of income deductions credits etc in particular petitioners contend that they erroneously claimed the disallowed interest_deduction of dollar_figure on their schedule c instead they say that this interest_deduction should have been reported by panorama and should have been claimed by them on schedule e as a part of a larger flowthrough loss from panorama in petitioner charles brumbaugh owned a membership inter- est in panorama the remaining membership interests in panorama were owned as follows by benjamin lingo and by lynx realty and management llc lynx a partnership for federal_income_tax purposes on date panorama filed form_1065 u s return of partnership income for pano- rama claimed no deduction for interest on this return petitioners now contend that panorama incurred interest_expenses of dollar_figure for the taxable_year and that of this amount or dollar_figure should have been deductible to petitioners as their distributive_share of panorama’s loss as a corollary of this position petitioners contend that the schedule_k-1 from panorama did not accurately represent the losses allocable to them petitioners now seek to claim in this deficiency case a deduction for the losses from panorama to which they believe they are actually entitled discussion panorama is a partnership within the meaning of sec_6231 it is thus subject_to the provisions of tefra concerning unified partnership proceedings see secs it appears that the irs did not commence partnership audit proceedings for this tefra partnership and did not issue a notice of final_partnership_administrative_adjustment fpaa with respect to panorama for likewise petitioners did not seek an administrative adjustment to panorama’s partnership items under sec_6227 and the time for doing so has now expired as a result the tax treatment of all partnership items with respect to the partnership is final in accordance with the tax_return filed by the partnership bedrosian v commissioner t c __ __ slip op pincite date a ny partnership items that were not adjusted are final and cannot be revisited in a collateral proceeding generally a partnership_item such as an interest_deduction is determined at the partnership level sec_6221 sec_6231 petitioners agree that if the tefra provisions apply to panorama then the parties would be bound by the partnership items including any mortgage interest reported on panorama’s return instead petitioners oppose respondent’s motion on the theory that panorama in substance met the requirements of the small_partnership_exception sec_6231 so that the tefra procedural rules do not apply to it if petitioners are correct there would be no fpaa and no partnership items see bedrosian v commissioner t c __ __ slip op pincite date and the tefra rules would not bar petitioners from asserting a claim to an additional interest_deduction the tefra provisions begin with the presumption that tefra applies to any entity that is required to file a partnership return sec_6231 but there is an exception for small partnerships a small_partnership is any partner- ship having or fewer partners each of whom is an individual other than a nonresident_alien a c_corporation or an estate of a deceased partner sec_6231 as is implicit in this exception a partnership will not be con- sidered to be a small_partnership if any partner during the taxable_year is a passthrough_partner see brennan v commissioner tcmemo_2012_187 aff’d sub nom 584_fedappx_573 9th cir sec_301_6231_a_1_-1 proced admin regs a passthrough_partner is a partnership estate_trust s_corporation nominee or other similar person through whom other persons hold an interest in the partnership and includes disregarded entities such as single-member llcs see sec_6231 ltd v commissioner tcmemo_2013_49 tigers eye trading llc v commissioner tcmemo_2009_121 panorama cannot satisfy the small_partnership_exception because it had during one passthrough_partner namely lynx on page two of its partner- ship return panorama answered yes to the question are any partners in this partnership also partnerships in response to the question what type of entity is this partner the schedule_k-1 for lynx states partnership petitioners admit that lynx is a partnership and that it held a partnership_interest in panorama during however they contend that lynx held such a nominal interest that in substance panorama satisfied the small part- nership exception but neither the internal_revenue_code nor the regulations pro- vide a de_minimis exception for passthrough partners and this court is not at liberty to create one either a partner is a passthrough_entity or it is not the court does not inquire into the entity’s ownership percentage or its upstream partners see bedrosian v commissioner t c at __ slip op pincite the presence of any passthrough_partner precludes the application of the small_partnership ex- ception of sec_6231 and renders the partnership subject_to tefra as a matter of law as the supreme court has observed a taxpayer is free to organize his affairs as he chooses but once having done so he must accept the tax consequences of his choice whether contemplated or not 417_us_134 because panorama had a passthrough_partner the small_partnership_exception does not apply and panorama remains a tefra partnership petitioners and respondent are both bound by panorama’s return petition- ers therefore cannot claim entitlement to additional passthrough losses from panorama on the theory that panorama should have claimed additional interest deductions although the result may seem harsh we must dismiss this portion of the case because we lack jurisdiction to decide partnership-level issues in this litigation see 94_tc_853 to reflect the foregoing an appropriate order will be issued


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-150781-01 date date legend a x date date year dear this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on date a x’s president and sole shareholder represents that a intended for x to be an s_corporation beginning on date a form_1120s u s income_tax return for an s_corporation was filed with the irs each taxable_year beginning in year however no timely completed form_2553 election by a small_business_corporation was filed on behalf of x for the year taxable_year sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours matthew lay senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------ ---------------------------- -------------------------------------- in re ------------------ -------------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-127664-05 date april legend husband wife son son daughter trust a b x foundation date state company company case case --------------------------------------------- -------------------------------------------- ------------------------ ----------------- ------------------------- ------------------------------------------------------------------- ----------------------- ----- ------- -- ------------------------------- -------------------------- ----------- ------------------------------- -------- -------------------------------------------------------------------- ---------------------- -------------------------------------------------------------------------- -------------- dear ----------- concerning the gift and income_tax consequences of husband’s and wife’s proposed this is in response to your date letter and other correspondence paragraph first of trust provides that in each taxable_year of trust the paragraph first provides that upon the death of the survivor of husband the facts and representations are summarized as follows husband established plr-127664-05 renunciation of their interests in trust and husband’s proposed irrevocable designation of the charitable_remainder beneficiary or beneficiaries in trust trust a charitable_remainder_unitrust crut on date trust was funded with a shares of company stock and b shares of company stock the trustees of trust are husband’s children son son and daughter trustees shall pay husband during his lifetime and after his death wife for such time as she survives a unitrust_amount equal to the lesser_of a_trust income for the taxable_year as defined in sec_643 and b c percent of the net fair_market_value of the assets of trust valued as of the first day of each taxable_year of trust the unitrust_amount for any year shall also include any amount of trust income for such year that is in excess of the amount required to be distributed under b above to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as c percent of the net fair_market_value of trust assets on the valuation dates and wife the trustees shall distribute all of the then principal and income of trust other than any amount due either of husband or wife or their estates to such one or more organizations described in sec_170 sec_2055 and sec_2522 in such proportions or amounts i as husband while living and legally competent and or ii if wife survives husband then as a majority of wife and husband’s children son daughter and son from time to time living and legally competent shall at any time and from time to time designate by written instrument duly executed and acknowledged and delivered to the trustees if more than one designation has been delivered to the trustees by husband and or wife and children then the last such designation so delivered shall govern if organization s named in the last designation delivered to the trustees is not an organization described in sec_170 sec_2055 and sec_2522 at the time when any principal or income of trust is to be distributed to it then the trustees shall distribute such principal and income to the remaining one or more organizations which are described in sec_170 sec_2055 and sec_2522 if any proportionately but if none of such organizations is an organization described in sec_170 sec_2055 and sec_2522 at the time when any principal or income of trust is to be distributed to it or if no such designation is made by either husband or wife and children then the trustees shall distribute such principal and income to foundation a state not-for-profit corporation if foundation is not an organization described in sec_170 sec_2055 and sec_2522 at the time when any principal or income of trust is to be distributed to it then the trustees shall distribute such principal and income to such one or more organizations described in sec_170 sec_2055 and sec_2522 as the trustees shall select in their sole discretion paragraph first provides that the operation of trust shall be governed by plr-127664-05 the laws of state intention to divide the unitrust and remainder interests as a method to avoid the partial interest rules in sec_170 it is represented that at the time trust was created husband and wife had no under state law if husband and wife renounce their interests in trust the husband wife and their children propose the following transaction first wife renunciation of their unitrust interests will accelerate the remainder_interest see case and case son son and daughter will each irrevocably release their contingent right to designate one or more charitable organizations described in sec_170 sec_2055 and sec_2522 as the remainder beneficiary or beneficiaries of trust irrevocable renunciation second wife will renounce her only other interest in trust ie her right to receive unitrust distributions from trust in the event that wife survives husband irrevocable renunciation third husband will renounce all of his remaining interests in trust ie his right to receive any future unitrust distributions from trust and his right to make any further charitable_beneficiary designations and then husband will irrevocably designate one or more specific charitable organizations described in sec_170 sec_2055 and sec_2522 as the remainder beneficiary or beneficiaries of trust irrevocable renunciation and designation the probate_court having jurisdiction over trust requesting that the court rule that they have the right to renounce their unitrust interests in trust and that as a result of the renunciation the remainder_interest will be accelerated and all principal and income remaining in trust at the time of husband’s renunciation other than the final prorated unitrust_amount that is due and payable to husband or wife will be immediately payable to the charitable_organization s irrevocably designated by husband as the remainder beneficiary or beneficiaries you have requested the following rulings husband and wife and their children as trustees of trust will file an action with husband will be entitled to a gift_tax deduction under sec_2522 for the value of his unitrust_interest and the remainder_interest in trust transferred as a result of his execution of the irrevocable renunciation and designation wife will be entitled to a gift_tax deduction under sec_2522 for the value of her unitrust_interest in trust transferred as a result of her execution of the irrevocable renunciation plr-127664-05 husband will be entitled to an income_tax deduction under sec_170 for the value of his unitrust_interest in trust transferred as a result of his execution of the irrevocable renunciation and designation wife will be entitled to an income_tax deduction under sec_170 for the value of her unitrust_interest in trust transferred as a result of her execution of the irrevocable renunciation sec_170 of the internal_revenue_code allows as an income_tax sec_170 provides that no charitable_contribution_deduction is allowed sec_170 provides that a contribution not made by a transfer in trust law and analysis deduction any contribution or gift to or for_the_use_of organizations described in sec_170 payment of which is made within the taxable_year for the value of any interest in property other than a remainder_interest transferred in trust unless the interest is in the form of a guaranteed annuity or a fixed percentage distributed annually of the fair_market_value of the trust property determined annually and the grantor is treated as the owner of the interest for purposes of applying sec_671 relating to grantor trusts of less than the taxpayer's entire_interest in property is not allowed as a charitable_contribution_deduction except to the extent that the value of the interest contributed would be allowable as a deduction had such interest been transferred in trust sec_1_170a-6 and sec_1_170a-7 of the income_tax regulations provide that a deduction is allowed for a contribution of a partial interest in property if such interest is the taxpayer's entire_interest in the property such as an income_interest or a remainder_interest if however the property in which such partial interest exists was divided in order to create such interest and thus avoid sec_170 and f a the deduction is not allowed property other than money the amount of the contribution is generally the fair_market_value of the property at the time of the contribution charitable purposes is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible sec_1_170a-1 provides that if a charitable_contribution is made in sec_1_170a-1 provides that if as of the date of the gift a transfer for sec_2511 provides that the tax imposed by sec_2501 shall apply sec_2501 imposes a tax for each calendar_year on the transfer of property plr-127664-05 by gift during such calendar_year by any individual whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides in part that a gift is incomplete if and to the extent a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard thus a gift would be incomplete to the extent the donor retains the power to designate the beneficiaries of the gift even if the power retained is limited to designating charitable beneficiaries see eg revrul_77_275 1977_2_cb_346 sec_25_2511-2 provides in part that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by the death of the donor the statute being confined to transfers by living donors is regarded as the event which completes the gift and causes the tax to apply sec_2522 provides that in computing taxable_gifts for the calendar_year there shall be allowed as a deduction the amount of all gifts made during such year to or for_the_use_of a corporation or trust or community chest fund or foundation organized and operated exclusively for religious charitable scientific literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_2522 provides that where a donor transfers an interest in property other than an interest described in sec_170 to a person or for a use described in sec_2522 or b and an interest in the same property is retained by the donor or is transferred or has been transferred for less than an adequate_and_full_consideration in money_or_money's_worth from the donor to a person or for a use not described in sec_2522 or b no deduction shall be allowed under this section for the interest which is or has been transferred unless-- a in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly situation of revrul_86_60 1986_1_cb_302 considers whether a transfer to charity by the grantor a of a charitable_remainder_annuity_trust of a’s entire retained annuity interest qualifies for the gift_tax_charitable_deduction following the transfer a did not retain any interest in the trust and neither at that time nor at any prior time did a situation of revrul_86_60 1986_1_cb_302 considers whether a transfer to plr-127664-05 make a transfer from the trust for private purposes although the transfer of the remainder_interest to charity divided a’s prior interest that transfer was for charitable not private purposes consequently a’s transfer of the annuity interest to charity was not required to be in a form described in sec_2522 and sec_25_2522_c_-3 in order to qualify for the charitable deduction accordingly a’s transfer of a’s annuity interest to charity qualifies for a deduction under sec_2522 further a’s transfer qualifies for an income_tax charitable deduction under sec_170 because although a had previously divided the interest a held in the property the division was not to avoid sec_170 thus under sec_1_170a-7 a’s transfer of a’s entire life_annuity interest qualifies for an income_tax deduction under sec_170 charity by a secondary life annuitant b of a charitable_remainder_annuity_trust of b’s entire contingent life_annuity interest in the trust qualifies for the gift_tax_charitable_deduction following the transfer b did not retain any interest in the trust and at no time had b made a transfer of an interest in the trust for a private purposes consequently there is no requirement that the transfer to charity be in a form described in sec_25_2522_c_-3 and b’s transfer of b’s annuity interest to charity qualifies for a deduction under sec_2522 further b’s transfer qualifies for an income_tax charitable deduction under sec_170 the secondary life_annuity interest was the only interest in the trust that b owned at the time of the transfer therefore under sec_1_170a-7 b’s transfer of b’s entire secondary life_annuity interest qualifies for an income_tax deduction under sec_170 unitrust husband is the beneficiary of the first life unitrust_interest and wife is the beneficiary of the second life unitrust_interest because husband wife son son and daughter retained the right to designate the charitable_remainder beneficiary or beneficiaries of trust husband did not make a completed_gift to charity of the remainder_interest for gift_tax purposes at the time trust was created in the instant case on date husband established trust a charitable_remainder under the proposed transaction wife son son and daughter will each irrevocably release their contingent right to designate one or more charitable organizations as the remainder beneficiary or beneficiaries of trust wife will renounce her unitrust_interest in trust and as in situation of revrul_86_60 wife’s transfer will qualify for the gift_tax_charitable_deduction under sec_2522 subsequently husband will renounce his unitrust_interest in trust under state law the remainder_interest in trust will accelerate and will become payable outright to the remainder beneficiary or beneficiaries then husband will irrevocably designate a charity or charities as the remainder beneficiary or beneficiaries when husband designates the charitable_remainder beneficiary or beneficiaries husband’s gift will become complete for gift_tax purposes and the charity or charities designated will receive the entire_interest in trust outright as in situation of revrul_86_60 plr-127664-05 husband will donate his entire_interest in trust to charity and following the transfer husband will not retain any interest in trust accordingly we rule that husband will be entitled to a gift_tax_charitable_deduction under sec_2522 for the value for his unitrust_interest and the remainder_interest in trust that passes to the charity or charities and wife will be entitled to a gift_tax_charitable_deduction under sec_2522 for the value of her unitrust_interest passing to charity further we rule that husband will be entitled to an income_tax deduction under sec_170 for the value of his unitrust_interest and wife will be entitled to an income_tax deduction under sec_170 for the value of her unitrust_interest in accordance with the power_of_attorney on file with this office a copy of this except as expressly provided herein no opinion is expressed or implied the rulings contained in this letter are based upon information and letter is being sent to your authorized representatives concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer requesting it sec_6110 sincerely _________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosure copy of letter for sec_6110 purposes cc


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date cc intl postn-161369-01 uilc internal_revenue_service national_office field_service_advice memorandum for jerry payne lmsb dallas appeals lm dal ap jdp from jeffrey dorfman chief cc intl subject this chief_counsel_advice responds to your memorandum date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend taxpayer sub a country a investment bank date a date b date c date d date e dollar_figurex hc issue whether the date a deconsolidation of sub a through the termination of its sec_1504 election results in a transfer by sub a’s country a qualified_business_unit hereinafter qbu to sub a that triggers a foreign_currency_loss under sec_1_985-3 conclusion postn-161369-01 under the facts presented all potential currency gain_or_loss is recognized under sec_1_985-3 with respect to the short taxable_year ending on the date the sec_1504 election was terminated there is no built-in currency loss to trigger assuming termination of the sec_1504 election constituted a transfer or deemed remittance under sec_1_985-3 further termination of the sec_1504 election does not constitute a transfer or deemed remittance under sec_1_985-3 facts taxpayer incorporated sub a under the laws of country a on date b beginning with taxpayer’s date c taxable_year taxpayer elected under sec_1504 to treat sub a as a domestic_corporation included on taxpayer’s consolidated federal tax_return that conducted activities in country a these activities are referred to as the sub a qbu for the taxable years date c through date d the sub a qbu used the net_worth_method to determine its taxable_income for post-date d taxable years taxpayer elected under sec_1_985-2 to use the dollar_approximate_separate_transactions_method dastm to determine the qbu’s taxable_income sec_1504 requires the domestic parent_corporation to own of the stock of its foreign_subsidiary for the subsidiary’s eligibility for inclusion on the parent corporation’s consolidated_return on date a sub a issued million shares of preferred_stock to investment bank taxpayer represents that the sale of the preferred shares resulted in the sec_1504 election to terminate causing the deconsolidation of sub a1 taxpayer took the position that the deconsolidation of sub a triggered the recognition of what it claimed to be built-in foreign_currency exchange losses associated with the hyperinflationary local currency the hc equity reflected in the basis of the sub a qbu’s assets and claimed a dollar_figurex foreign_currency_loss taxpayer now argues that the deconsolidation of sub a operated as a termination of its branch equivalent to a deemed inbound remittance of the sub a branch’s net assets to the u s home_office taxpayer characterized its deemed inbound remittance as a transfer for purposes of sec_1_985-3 and computed a foreign_currency_loss under sec_1_985-3 by translating sub a’s assets from hc into dollars on date a the date taxpayer issued the preferred_stock to terminate the d election law and analysi sec_1 you have not asked us to analyze whether taxpayer’s issuance of the preferred shares in sub a caused a valid termination of the sec_1504 election and we express no opinion regarding this issue postn-161369-01 i differences between the sec_1_985-3 dastm_method and the proposed sec_987 regulations method taxpayer equates the dastm regulations of sec_1_985-3 with proposed_regulations under sec_987 to suggest that in addition to the adjustments for changes in exchange rates allowed annually in computing the income of sub a under sec_1_985-3 taxpayer may deduct currency losses it views as resulting from the termination of sub a’s sec_1504 election taxpayer’s position is without merit for post-date d years taxpayer elected to use the u s dollar as the functional_currency of the sub a qbu under sec_1_985-2 and to use the dastm_method as prescribed in sec_1_985-3 sec_1_985-2 thus in contrast to the situation addressed under sec_987 where a qualified_business_unit has a functional_currency different from that of the home_office the sub a qbu and sub a have the same functional_currency the sec_1_985-3 dastm regulations use a net_worth_method of accounting to adjust the qbu’s income and expenses for distortions caused by hyperinflation sec_1_985-3 three of the principal features of the dastm_method are the basis of the assets of an entity operating in a hyperinflationary_currency is in dollars sec_1_985-3 and financial_assets and liabilities are translated at the exchange rate for the last translation_period for each year resulting in an annual realization of gain_or_loss hereafter referred to as an annual mark due to movements in exchange rates sec_1_985-3 and assets that are not financial_assets do not generate gain_or_loss due to movements in exchange rates sec_1_985-3 and v under the interpretation of sec_987 set forth in proposed sec_1_987-1 through the methodology for determining exchange gain_or_loss with respect to a qualified_business_unit that has a different functional_currency from that of the home_office is significantly different from the sec_1_985-3 dastm regulations significant differences include the proposed sec_987 regulations use a profit and loss method as opposed to a net_worth_method of determining income and foreign_currency_gain_or_loss prop_reg sec_1_987-1 under the approach of the proposed sec_987 regulations currency gain_or_loss is determined as the difference between a qualified_business unit’s basis and equity pools with the result that all assets not just financial_assets potentially give rise to currency gain_or_loss prop_reg sec_1_987-2 and currency gain_or_loss is taken into account upon a remittance as opposed to an annual mark under the sec_1_985-3 dastm regulations from a qualified_business_unit to the home_office prop_reg sec_1_987-2 at the core of taxpayer’s arguments is the attempt to engraft significant aspects of the proposed sec_987 regulations eg the notion that all assets potentially generate foreign_currency_gain_or_loss on to the dastm methodology of sec_1_985-3 as more fully set forth below we believe this is inappropriate given the substantial differences between the proposed sec_987 regulations and the sec_1_985-3 dastm regulations moreover we note that the sec_987 regulations are postn-161369-01 proposed and that notice_2000_20 2000_1_cb_851 indicates that treasury and the service plan to review and possibly replace such regulations there is no built-in currency loss in the sub a qbu’s assets at the time of the termination of the sec_1504 election taxpayer argues that there is a built-in currency loss resident in the assets making up the equity of the sub a qbu as indicated previously not all assets give rise to currency gain_or_loss under sec_1_985-3 generally it is financial_assets and liabilities that give rise to currency gain_or_loss under sec_1_985-3 see sec_1_985-3 thus any argument premised on the notion that fixed assets included in the equity of the sub a qbu generate currency gain_or_loss under sec_1_985-3 is fundamentally incorrect when taxpayer terminates the sec_1504 election for sub a there is a constructive reorganization and transfer of property from sub a to foreign sub a sec_1_367_a_-1t at that time the taxable_year of sub a ends sec_1_381_b_-1 and its income is determined under sec_1_985-3 accordingly all currency gain_or_loss determined to exist under sec_1_985-3 in the assets and liabilities of sub a is recognized under sec_1_985-3 and dollar basis adjustments are taken into account on the balance_sheet of the sub a qbu that the profit and loss method articulated in the proposed sec_987 regulations would determine a different amount of currency gain_or_loss is irrelevant since the profit and loss method is not the methodology adopted under sec_1_985-3 we note again that treasury and the service plan to review and possibly replace such regulations taxpayer argues that under sec_1_985-3 that termination of the sec_1504 election gives rise to a deemed remittance of all of the sub a qbu’s equity to the home_office and that such amount is translated into dollars at the spot exchange rate on the date of the deemed remittance giving rise to an exchange loss under sec_1_985-3 this is not correct even if we believed that termination of the sec_1504 election gave rise to a deemed remittance which we do not under these facts the assets of the sub a qbu already have a dollar basis and there is nothing to translate that is given the short taxable_year and the section ii-a of notice_2000_20 indicates that treasury and the service are reevaluating whether it is appropriate under sec_987 to recognize currency gain_or_loss on the capital of a qbu_branch see also sec_1_367_a_-1t only items that would be translated at the exchange rate for the last translation_period of the taxable_year under sec_1_985-3 are subject_to re-translation at the spot_rate on the date the amount is paid under sec_1_985-3 this is because those items are the items that generate currency gain_or_loss under the dastm_method of sec_1_985-3 and re-translation at the spot_rate on the date the amount is paid captures such gain_or_loss for the period during the taxable_year that the asset is held assets that are translated at a historic exchange rate maintain a constant dollar basis subject_to depreciation and do postn-161369-01 determination of income under sec_1_985-3 all currency gain_or_loss that should be recognized under sec_1_985-3 has been recognized and there are no built-in currency gains or losses termination of the sec_1504 election does not give rise to a remittance of the sub a qbu’s equity to the home_office as stated previously when taxpayer terminates the sec_1504 election for sub a there is a constructive reorganization and transfer of property from sub a to foreign sub a sec_1_367_a_-1t at that time the taxable_year of sub a ends sec_1_381_b_-1 and its income is determined under sec_1_985-3 taking into account proper recognition of currency gain of loss as set forth in sec_1_985-3 under sec_1_985-3 this currency gain_or_loss is recognized under an annual mark not upon a remittance thus taxpayer’s argument that termination of the sec_1504 election results in a deemed remittance has no place in a system that does not look to remittances to trigger currency gain_or_loss there is no transfer for purposes of sec_1_985-3 as both the sub a qbu and sub a have the dollar as their functional_currency and it is not appropriate under sec_1_985-3 to trigger currency gain_or_loss on a deemed remittance from a dollar qbu to a dollar home_office since currency gain_or_loss is recognized under an annual mark not upon a remittance proper treatment of the termination of the sec_1504 election when taxpayer terminates the sec_1504 election for sub a there is a constructive reorganization and transfer of property from sub a to a foreign_corporation sec_1_367_a_-1t at that time the taxable_year of sub a ends sec_1_381_b_-1 and its income is determined under sec_1_985-3 accordingly all currency gain_or_loss determined to exist under sec_1_985-3 in the assets and liabilities of sub a is recognized under sec_1_985-3 and dollar basis adjustments are taken into account on the balance_sheet of the sub a qbu under sec_362 the foreign_corporation to which the sub a qbu assets are deemed to be transferred to in the constructive reorganization will take a transferred dollar basis subject_to any not require re-translation we note that the positive adjustments described in sec_1_985-3 generally refer to items that decrease the net_worth of a qbu during the taxable_year no such decrease occurred in this case when there is a constructive reorganization involving the transfer of property by a u_s_person to a foreign_corporation in connection with an exchange described in sec_332 sec_351 sec_354 sec_355 sec_356 or sec_361 to the extent provided in sec_367 and the regulations thereunder gain is recognized but no loss is recognized we are not aware as to whether the taxpayer reported the transfer of property from sub a to foreign sub a as required under sec_6038b and the regulations thereunder and recognized the appropriate amount of gain if any as required by sec_367 and the regulations thereunder postn-161369-01 adjustments that may be required under sec_367 as a result of the reorganization case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call if you have any further questions jeffrey dorfman chief branch office of associate chief_counsel international


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uniform issue list nov tt ep 2a uk legend taxpayer a ira x amount d company b company c date date date dear this is in response to your letter dated date submitted by your authorized quuzu8u zbl page representative for a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested _ represents that on date he initiated a trustee-to-trustee transfer of taxpayer a age the corpus of ira x from company b to company c into ira y taxpayer a further represents that prior to the trustee-to-trustee transfer he had been receiving substantially_equal_periodic_payments from ira x after the trustee-to-trustee transfer he continued to receive substantially_equal_periodic_payments from ira y however on date company c made an extra payment to taxpayer a from ira y of amount d which was automatically deposited into a non-ira checking account taxpayer a asserts that he failed to accomplish a timely rollover of amount d within the 60-day period prescribed by sec_408 of the code due to an error made by company c in distributing amount d from ira y company c in a letter dated date admitted that it mistakenly processed a second distribution from ira y on date this error was neither detected by the trustee of ira y or taxpayer a until date taxpayer a further represents that amount d has not been used for any other purpose based on the above facts and representations you request that the service waive the 60-day rollover requirement with respect to the distribution of amount d sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_72 provides that if an employee or ira owner receives any amount from a qualified_retirement_plan before attaining age the employee’s or ira owner's income_tax is increased by an amount equal to 10-percent of the amount that is includible in gross_income unless one of the exceptions in sec_72 applies sec_72 provides in part that if distributions are part of a series of substantially_equal_periodic_payments not less frequently than annually made for the life or life expectancy of the employee or joint lives or joint life expectancy of the employee and beneficiary the tax described in sec_72 will not be applicable pursuant to sec_72 in the case of distributions from an ira the ira owner is substituted for the employee for purposes of applying this exception 2uu8u380 page sec_72 provides that if the series of substantially_equal_periodic_payments that is otherwise excepted from the percent tax is subsequently modified other than by reason of death or disability within a 5-year period beginning on the date of the first payment or if later age the exception to the 10-percent tax does not apply and the taxpayer's tax for the year of modification shall increase by an amount which but for the exception would have been imposed plus interest for the deferral_period sec_2 e of revrul_2002_62 2002_42_irb_710 provides in part that a modification to the series of payments will occur if after such date there is i any addition to the account balance other than gains and losses ii any nontaxable transfer of a portion of the account balance to another retirement_plan or iii a rollover by the taxpayer of the amount received resulting in such amount not being taxable sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers page sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented demonstrates that taxpayer a failed to accomplish a timely rollover of amount d because he was not aware that an error had been made by company c and an extra payment of amount d had been made from ira y therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount d back into ira y provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount d will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling is limited to a request for a waiver of the 60-day rollover period no opinion is expressed as to whether the payments from ira x and ira y to taxpayer a constitute substantially_equal_periodic_payments within the meaning of code sec_72 a iv further no opinion is expressed as whether the trustee-to-trustee transfer from company b of amount d to company c the extra payment by company c to taxpayer a or the exercise of this waiver of the 60-day rollover period by taxpayer a would cause a modification of substantially_equal_periodic_payments within the meaning of code sec_72 finally no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto page this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power of attomey on file in this office if you wish to inquire about this ruling please contact at sincerely yours ‘ c- jd on pp ee manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


t c memo united_states tax_court bantam domestic_trust prudent man trustee company trustee petitioner v commissioner of internal revenue respondent docket no filed date jimmy c chisum for petitioner richard a rappazzo for respondent memorandum opinion chiechi judge this case is before the court on respon- dent's motion to dismiss for lack of jurisdiction respondent’s motion and petitioner’s motion to substitute party and to change caption petitioner’s motion we shall grant respondent’s motion and deny petitioner’s motion background for purposes of respondent’s motion and petitioner’s motion the parties do not dispute the following factual allegations that are part of the record during its taxable_year petitioner was a_trust engaged in business in the state of indiana peti- tioner filed a federal_income_tax return for estates and trusts form_1041 return for that taxable_year which was signed by jimmy c chisum as agent for the prudent man trustee co upon commencement of the examination of the return filed by petitioner respondent requested petitioner to provide respondent with complete copies of the trust documents relating to it petitioner refused to provide respondent with the trust documents or any other type of documentary_evidence regarding who was the first appointed trustee of petitioner the notice_of_deficiency issued to petitioner was sent to the following two addresses bantam domestic_trust bantam domestic_trust aka snyder poultry processing aka snyder poultry processing prudent man trustee company prudent man trustee company trustee trustee post office box post office box harlan indiana snyder nebraska petitioner filed a petition in this court which was signed on its behalf by jimmy c chisum as agent for trustee prudent man trustee company the purported trustee for petitioner respondent’s motion contends in pertinent part in summary mr chisum lacks the capacity to bring the instant suit directly on behalf of the trust because he is not the trustee additionally mr chisum lacks the capacity to represent the trustee or any other person in this proceeding because he is not an attorney and is not otherwise admitted to practice before this court since the petition in this case was not brought by a party with proper capacity as required by the tax_court rules_of_practice and procedure this case should be dis- missed for lack of jurisdiction petitioner filed an objection to respondent’s motion in which it asks the court to deny that motion petitioner’s objection to respondent’s motion asserts in pertinent part as there is a change in fiduciary simultaneous with this objection and the change in fiduciary answers the objection raised by the respondent in the motion to dismiss this court cannot dismiss as set forth in rule a rules_of_practice and proce- dure united_states tax_court any further objections by the respondent must be done either by an answer to the petition or by other motions as set forth in rule rules_of_practice and procedure united_states tax_court the court had the document submitted by petitioner that purported to be a change in fiduciary filed as petitioner’s motion to substitute party and to change caption petitioner’s motion alleges in pertinent part notice is hereby given that john p wilde has been appointed as co-trustee of bantam domestic_trust along with jimmy c chisum and prudent man trustee co has resigned john p wilde will be proceeding in his capacity as a co-trustee of an expressed sic trust attached to petitioner’s motion are two documents one of which is entitled appointment of successor trustee and the second of which is entitled minute of trustee resignation the document entitled appointment of successor truster states the prudent man trustee co does hereby appoint j c chisum john wilde as the successor trustees for bantam trust the appointment takes effect immediately and asks that the successor waive all time and notice require- ments in the appointment and resignation executed thi sec_21 ' day of january in the year of our lord the prudent man trustee co trustee by s donna chisum f a for trustee acceptance of appointment as successor trustee the prudent man trustee co does hereby accept the appointment of successor trustees and the resigna- tion of j c chisum john wilde the above resignation and waiver of time is accepted and with the accepting of successor trustees j c chisum john wilde assume the duties and responsibilities as trustee for bantam trust executed thi sec_21 ' day of january in the year of our lord j c chisum trustee by s j c chisum trustee john wilde by s john wilde trustee the document entitled minute of trustee resignation states the prudent man trustee co does hereby resign the position as trustee for bantam trust by special arrangement with the successors j c chisum john wilde all the time clauses in this act are waived the resignation is immediate final and irrevocable this resignation takes effect immediately upon the signing and endorsement by the successor trustee this is intended to release the prudent man trustee co from all responsibility associated with the trust executed thi sec_21 ' day of january in the year of our lord the prudent man trustee co trustee by s donna chisum f a for trustee ratified accepted acknowledged thi sec_21 day of january in the year of our lord j c chisum by s j c chisum trustee john wilde by s respondent filed an objection to petitioner’s motion re- spondent’s objection that objection asserts in pertinent part in response to respondent’s motion to dismiss for lack of jurisdiction petitioner provided to this court copies of documents alleging that prudent man trustee co was removed as trustee and that jimmy c chisum and john p wilde have been appointed successor trustees of the petitioner trust there is absolutely no evidence from which the court can adduce that the documents referred to in paragraph above create a legal assignment of either mr chisum and or mr wilde as successor trust- ees the documents petitioner submitted appear to be self-serving and created solely in response to respon- dent’s original motion to dismiss for lack of jurisdic-- tion petitioner has provided no evidence that said assignments are valid or authorized under the terms of the trust_indenture assuming one exists if the initial trustee or any successor trust- ees thereafter were in fact an entity called prudent man trustee co petitioner should be required to produce credible_evidence establishing the legal exis-- tence and validity of that entity without the evidence described above in para- graph petitioner has failed to demonstrate that either mr chisum and or mr wilde were legally appointed as subsequent trustees authorized to act on behalf of the trusts sic and bring the instant case before this court see t c rule c the capacity of mr chisum and or mr wilde to bring the instant suit in this court has not been established the court held a hearing on respondent’s motion and peti- tioner’s motion hearing at which mr chisum appeared on behalf of petitioner ’ at that hearing respondent introduced into the record a document signed by the secretary of state of nebraska ’ that document stated in pertinent part i scott moore secretary of state of nebraska do hereby certify that after a thorough search of all records i do not find a record of a corporation by the name prudent man trustee co ever having filed articles of incorporation or issued a certificate of authority to transact business as a foreign_corporation in the state of nebraska discussion rule provides in pertinent part a petitioner deficiency or liability actions a case shall be brought by and in the name of the person against whom the commissioner determined the deficiency in the case of a notice_of_deficiency or by and with the full descriptive name of the fiduciary entitled to institute a case on behalf of such person see rule a a case timely brought shall not be dismissed on the ground that it is not properly brought on behalf of a party until a reason- able time has been allowed after objection for ratifi- cation by such party of the bringing of the case and ‘at the hearing the court informed mr chisum that its allowing him to appear at the hearing as the alleged trustee of petitioner did not mean that the court agreed that he in fact was a duly appointed and authorized trustee of petitioner presumably respondent proffered the document in question at the hearing on respondent’s motion and petitioner’s motion because one of the addresses to which respondent sent the notice issued to petitioner was in nebraska 7al1l rule references are to the tax_court rules_of_practice and procedure such ratification shall have the same effect as if the case had been properly brought by such party c capacity the capacity of a fiduciary or other representative to litigate in the court shall be determined in accordance with the law of the juris-- diction from which such person's authority is derived the record is unclear as to whether petitioner was organized as a_trust under the laws of arizona or some other state al- though the parties do not dispute that petitioner was carrying on business during its taxable_year in the state of arizona at the hearing mr chisum asserted that the administration of the trust 1s governed by the laws of the state of arizona and that the sole jurisdiction or exclusive jurisdiction in determining the validity of the contract for trust and determin-- ing the validity of the trustee party is in superior court of state of arizona assuming arguendo as petitioner claims that it is a_trust the administration of which is subject_to the laws of the state of arizona under arizona law see rule c a trustee has the power to commence litigation on behalf of a_trust see ariz rev stat ann sec c west in the instant assuming arguendo as respondent claims upon information and belief that petitioner is a_trust the administration of which is subject_to the laws of the state of indiana under indiana law see rule c a trustee has the power to commence litigation on behalf of a_trust see ind code ann sec a michie case petitioner has the burden of proving that this court has jurisdiction see 65_tc_346 27_tc_837 by establishing affirmatively all facts giving rise to our jurisdiction see 35_tc_177 15_bta_645 in order to meet that burden petitioner must provide evidence establishing that mr wilde and mr chisum have authority to act on its behalf see national comm to secure justice in the rosenberg case v commissioner supra pincite 22_bta_686 we reject petitioner’s position that the validity of the purported appointment of mr wilde and mr chisum as trustees of petitioner falls within the exclusive jurisdiction of the supe- rior court of the state of arizona -petitioner no longer contends that mr chisum is authorized to act on its behalf in this proceeding as the agent of prudent man trustee co and we conclude that it has abandoned any such argument even if it had not abandoned such an argument on the record before us we find that petitioner has not shown that mr chisum was properly employed by the trustee of petitioner in accordance with the laws of either the state of arizona see ariz rev stat ann sec c west or the state of indiana see ind code ann sec a michie we further find that unless mr chisum is a duly ap- pointed and authorized trustee of petitioner mr chisum is not authorized to represent or act in this proceeding on behalf of either petitioner or the trustee of petitioner see rules - lo - we are not persuaded by the document relating to petitioner entitled appointment of successor trustee and minute of trustee resignation that mr wilde and mr chisum are duly appointed and authorized trustees of petitioner on the record before us we find that petitioner has failed to establish that mr wilde and mr chisum are authorized to act on its behalf to reflect the foregoing an order denying petitioner’s motion and an order of dismissal for lack of jurisdiction granting respondent’s motion will be entered ‘we have considered all of the contentions and arguments of petitioner that are not discussed herein and we find them to be without merit and or irrelevant


internal_revenue_service number release date index number - -------------------------- ---------- ----------------------------------- ----------------------------- --------------- ---------------------- department of the treasury washington dc person to contact ------------------------------- --------- ------------ -------- telephone number -------------------- refer reply to cc psi plr-140484-06 date date --------- --------------------------- ----------------------------------- legend x country d1 dear ----------------- correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be treated as a disregarded_entity country was acquired by a single owner with limited_liability on d1 x intended to be treated as a disregarded_entity for federal tax purposes effective d1 however x did not timely file a form_8832 entity classification election according to the information submitted x an entity formed under the laws of this letter responds to a letter dated date and subsequent sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 plr-140484-06 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301 b unless it elects otherwise a foreign eligible_entity is classified as an association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a sec_301_7701-3 provides that an election under sec_301_7701-3 member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for sec_301_9100-3 sets forth the standards the commissioner will use to making certain elections determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 and elect to be treated as a disregarded_entity for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 the federal tax consequences of the transaction described above under any other provision of the code except as specifically set forth above no opinion is expressed or implied as to based on the facts submitted and representations made we conclude that the plr-140484-06 sec_6110 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer on whose behalf it was requested in accordance with the power_of_attorney on file with this office a copy of this sincerely letter is being sent to x’s authorized representatives enclosures william p o’shea associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes