internal_revenue_service number release date index number ------------------------------------------------------------ ------------------------------------------------ --------------------------------------- ------------------------------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b09 plr-133106-06 date date --------------------------- -------------------------------- ------- ------------------------- ------------------------- -------------------------- -------------------------------- ---------------------------- ------- -------------------- --------------------------------------------- ----------------------------------------- --------------------------------------- ------------------------ legend trustee trust year settlor son son daughter wife year trust company corporation bank bank bank dear ---------- this responds to a letter dated date submitted on behalf of trust in which rulings are requested on the estate gift and generation-skipping_transfer_tax consequences of the proposed modification to trust and the anticipated exercise of a limited testamentary_power_of_appointment provided under trust facts plr-133106-06 the facts and representations submitted are summarized as follows in year settlor established trust an irrevocable_trust for the benefit of his wife and descendants son son and daughter are the children of settlor and wife settlor and wife are currently deceased and son son and daughter are over the age of trust was created before date according to the provisions of paragraphs b c and d of article of trust upon the death of wife in year the trust corpus was divided into three shares one for each child of settlor and wife according to paragraph d of article the trustee of trust may distribute to each child from his or her respective separate share so much of the net_income as the trustee deems wise and prudent in the trustee’s absolute discretion for each child over the age of the trustee may distribute from his or her respective share so much of the principal and accumulated income of trust as such child shall from time to time request in writing paragraph d of article further provides that upon the death of a child of settlor and wife the trustee shall distribute the entire remaining principal and accumulated income of the child’s separate share of trust to or for the benefit of such of the descendants of the child as such child shall direct in his or her will son son and daughter anticipate exercising their respective limited testamentary power to appoint the principal and income of their respective trust as provided in trust the rules governing the appointment of successor trustees are provided in article of trust paragraph b provides that if after the death of settlor any trustee shall for any reason fail or cease to act as trustee the power to appoint a successor trustee may be exercised by the following persons in the following order by a majority of trustees of trust company if trust company shall cease to exist and no business_enterprise shall acquire the property comprising the trust estate of trust company by the board_of directors of corporation the board or any successor organization which shall acquire substantially_all of the assets and business of corporation and in the event of the nonexistence of all of the foregoing by a majority in interest in the income beneficiaries who shall be under no disability trust company has ceased to exist and the board currently has the power to appoint successor trustees in a meeting of the board after the death of wife the board resolved to appoint successor trustees of the trusts established under trust as follows if the current trustee or any successor trustee appointed hereunder ceases to act as trustee of any trust the board appoints as trustee of such trust such qualified bank or trust company as the beneficiary of such trust may appoint by signed written instrument delivered to the board no later than thirty days after such cessation to act if such beneficiary does not make an appointment the board appoints as trustee of such trust the first of the following that is then in existence is then a qualified bank or trust plr-133106-06 company and is then willing to act as trustee of such trust a bank b bank and c bank the board’s resolution defines qualified bank or trust company as a bank or trust company that is qualified to accept trusts that is not related or subordinate to any beneficiary of a_trust within the meaning of sec_672 of the code that has engaged in the trust business for at least ten years immediately prior to its appointment as trustee by the board and that has assets under management of at least one billion dollars the board further resolved that a bank or trust company ceases to act as trustee of a_trust upon the first to occur of its resignation its removal as trustee by thirty days written notice signed by the beneficiary of the trust and delivered to it and to the board and its cessation to exist or to be qualified to accept trusts the board’s resolution is only effective upon the receipt of a favorable ruling issued by the service confirming that the implementation of the resolution will not cause any trust to be subject_to the generation-skipping_transfer gst tax and will not cause any trust to be taxed in the estate of the beneficiary of that trust you request the following rulings a beneficiary’s power to appoint and remove a qualified bank or trust company as successor trustee of his or her respective trust will not be considered the creation of a general_power_of_appointment under sec_2041 or sec_2514 and the exercise of this power will not cause the assets of a beneficiary’s trust to be includible in his or her estate nor will the exercise of the power be considered a transfer for federal gift_tax purposes the exercise of a beneficiary’s testamentary special_power_of_appointment will not be considered an exercise of the beneficiary’s lifetime general_power_of_appointment the implementation and operation of the board’s resolution will not cause trust or the beneficiaries’ trusts created thereunder to lose their exempt status under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations and will not subject distributions from any of the trusts to the gst tax law and analysis ruling sec_1 and sec_2041 of the internal_revenue_code of provides that the value of the gross_estate shall include the value of all property with respect to which a general_power_of_appointment created on or before date is exercised by the decedent by will or by certain lifetime disposition the failure to exercise such a power or the plr-133106-06 complete release of such a power shall not be deemed an exercise thereof a general_power_of_appointment is defined by sec_2041 as a power exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_20_2041-1 of the estate_tax regulations provides in part that a donee may have a power_of_appointment if he has the power to remove or discharge a trustee and appoint himself for example if under the terms of the instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment sec_20_2041-1 provides that a decedent may have two powers under the same instrument one of which is a general_power_of_appointment and the other of which is not for example a beneficiary may have a power to withdraw trust corpus during his life and a testamentary power to appoint the corpus among his descendants the testamentary power is not a general_power_of_appointment sec_20_2041-2 provides that if a general_power_of_appointment created on or before date is exercised only as to a portion of the property subject_to the power sec_2041 is applicable only to the value of that portion sec_2514 provides that an exercise of a general_power_of_appointment created on or before date shall be deemed a transfer of property by the individual possessing such power but the failure to exercise such a power or the complete release of such a power shall not be deemed an exercise thereof sec_2514 provides that a general_power_of_appointment is a power that is exercisable in favor of the individual possessing the power the possessor his estate his creditors or the creditors of his estate sec_25_2514-1 of the gift_tax regulations provides in part that a donee may have a power_of_appointment if he has the power to remove or discharge a trustee and appoint himself for example if under the terms of the instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and a another person has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself a is considered as having a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and plr-133106-06 disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment sec_25_2514-1 provides that a beneficiary may have two powers under the same instrument one of which is a general_power_of_appointment and the other of which is not for example a beneficiary may have a general power to withdraw a limited portion of trust corpus during his life and a further power exercisable during his lifetime to appoint the corpus among his children the latter power is not a general_power_of_appointment sec_25_2514-2 provides that if a general_power_of_appointment created on or before date is exercised only as to a portion of the property subject_to the power the exercise is considered to be a transfer only as to the value of that portion revrul_95_58 1995_2_cb_191 holds that a decedent grantor's reservation of an unqualified power to remove a trustee and to appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee's discretionary powers of distribution over the property transferred by the decedent grantor to the trust accordingly the trust corpus is not included in the decedent's gross_estate under sec_2036 or sec_2038 the ruling notes that the eighth circuit in 973_f2d_1409 8th cir concluded that the decedent had not retained dominion and control_over assets transferred to a_trust by reason of his power to remove and replace the trustee with a party that was not related or subordinate to the decedent accordingly the court held that under sec_25 c the decedent made a completed_gift when he created the trust and transferred assets to it sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor’s spouse if living with the grantor or any one of the following the grantor’s father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in regard to the first ruling requested upon the resignation of the current trustee a bank or trust company that is appointed as successor trustee will have the sole discretionary authority to make distributions of income from each trust after the resignation of the current trustee son son and daughter will have an unqualified power to remove a trustee and to appoint a successor trustee the board’s resolution however restricts any appointment of a successor trustee to a qualified bank or trust company which is defined therein as a bank or trust company that is qualified to accept trusts that is not related or subordinate to any beneficiary of a_trust within the meaning of sec_672 of the plr-133106-06 code that has engaged in the trust business for at least ten years immediately prior to its appointment as trustee by the board and that has assets under management of at least one billion dollars the removal and appointment powers given to son son and daughter are not the equivalent of the power referred to in the examples in sec_20_2041-1 and sec_25_2514-1 where an individual may remove a trustee and appoint himself instead the proposed power given to son son and daughter is the equivalent of the power referenced in revrul_95_58 where a replacement trustee may not be a_related_or_subordinate_party within the meaning of sec_672 accordingly based on the facts submitted and the representations made we conclude that the board’s resolution will not cause son son or daughter to have a general_power_of_appointment under sec_2041 or sec_2514 thus the exercise of this power will not cause the assets of a beneficiary’s trust to be includible in his or her estate nor will the exercise of the power be considered a transfer for federal gift_tax purposes in regard to the second ruling requested we note that son son and daughter anticipate exercising their respective limited testamentary powers of appointment to appoint property of his or her respective trust to his or her descendants son son and daughter also have an inter_vivos general power to appoint as much principal and accumulated income from his or her respective trust as he or she requests in writing to the trustee as provided in sec_20_2041-1 and sec_25_2514-1 the same trust instrument as in this case may give a beneficiary two separate powers one of which is a general_power_of_appointment and one of which is not the exercise of a limited testamentary_power_of_appointment is not considered as an exercise of a lifetime general_power_of_appointment even though both powers are over the same trust assets if son son or daughter exercise only his or her respective limited testamentary_power_of_appointment and not his or her general_power_of_appointment the assets from each trust will not be included in his or her gross_estate under sec_2041 if son son or daughter exercises his or her lifetime general_power_of_appointment the exercise will be considered to be a transfer under sec_2514 to the extent of the value of property with respect to which the general_power_of_appointment is exercised ruling sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer gst which is defined under sec_2611 as a taxable_distribution a taxable_termination or 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 b i of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable plr-133106-06 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 gst 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 gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in a beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst or the creation of a new gst sec_26_2601-1 example provides as follows in grantor executed an irrevocable_trust for the benefit of grantor’s issue naming a bank and five other individuals as trustees in the appropriate local court approves a modification of the trust that decreases the number of trustees which results in lower administrative costs the modification pertains to the administration of the trust and does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust will not be subject_to the provisions of chapter in the present case trust was irrevocable on date it is represented that no additions actual or constructive have been made to trust after that date the change in the process for appointing and removing successor trustees as set forth in the board’s resolution is similar to the change described in sec_26_2601-1 example the board’s resolution will not result in a shift of any beneficial_interest to any beneficiary who occupies a generation lower than the persons holding the beneficial interests in the trusts prior to the board’s resolution and the board’s resolution will not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in trust plr-133106-06 accordingly based on the facts submitted and the representations made we conclude that the implementation and operation of the board’s resolution will not cause trust to lose its status under of the tax_reform_act_of_1986 as a_trust exempt from the application of the gst tax under chapter of the code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 melissa c liquerman branch chief branch passthroughs special industries


internal_revenue_service number release date index number ----------------------- ------------------------------------------------ ----------------------------- ------------------------- ------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc corp b03 plr-145621-05 date date -------------------------------------------- legend purchasing corp ---------------------------------------------------------------------------- --------------------------------------------------------------------- parent ------------------------------ ---------------------------------------------------------------------------- --------------------------------------------------------------------- electing sub ------------------------------------------------------------------------- ---------------------------------------------------------- state date loss years company official -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------- dear ----------- time under sec_301_9100-3 of the procedure and administration regulations to file an --------------------------------------------------------- ------------------------------- -------------------------- ----------------------- ------------- this letter responds to a letter dated date requesting an extension of for its tax_year ending on date parent was a state corporation and the plr-145621-05 election the extension is being requested in order to allow parent and electing sub to file an election to restore value under sec_1_382-8 of the income_tax regulations hereinafter referred to as the election additional information was received in subsequent correspondence dated november and date the material information is summarized below common parent of an affiliated_group which filed a consolidated federal_income_tax return during that same tax_year the electing sub was a component_member of parent's controlled_group within the meaning of sec_1_382-8 and electing sub was a controlled_foreign_corporation as defined in sec_957 and was not engaged in the conduct_of_a_trade_or_business in the united_states and did not file a united_states federal_income_tax return parent experienced a sec_382 ownership_change on date when a transitory subsidiary of purchasing corp merged into parent parent's consolidated_group generated a net_operating_loss nol during loss years sec_382 provides that the amount of the taxable_income of any new_loss_corporation for any post-change_year which may be offset by pre-change losses shall not exceed the sec_382 limitation for such year under sec_382 the sec_382 limitation is determined by multiplying the value of the old_loss_corporation by the applicable long term tax-exempt rate forth in sec_1_382-8 sec_1_382-8 requires the value of the stock of each component_member of the controlled_group be reduced by the value of the stock owned by that component_member in any other component_member for purposes of applying sec_1_382-8 a consolidated_group loss group or loss subgroup is treated as a single corporation pursuant to sec_1_382-8 component members of a controlled_group can elect under sec_1_382-8 to restore some or all of the value to another component_member the election to restore value is made by following the procedures set forth in sec_1_382-8 the election was required to be filed with parent's income_tax return for its tax_year ending date however for various reasons parent and electing sub failed to make the election in a timely manner extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i commissioner will use to determine whether to grant an extension of time to make a a special rule designed to prevent double counting by controlled groups is set under sec_301_9100-1 the commissioner has discretion to grant a reasonable sec_301_9100-1 through provide the standards the in this case the time for filing the election is fixed by the regulations ie based on the facts and information submitted including the representations plr-145621-05 regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 sec_1_382-8 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent and electing sub to file the election provided they show that they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the government information affidavits and representations submitted by parent and company official explain the circumstances that resulted in the failure to timely file the election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 made we conclude that parent and electing sub have shown that they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent and electing sub to file the election purchasing corp ’s and the members of its controlled group's tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' liability is lower sec_301_9100-3 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular we express no opinion with respect to whether an ownership_change occurred whether parent and electing sub were component members of a controlled_group the amount of value if any that may be restored or as to values or amounts of nols additionally no opinion is expressed as to the tax effects of the merger of purchasing corp ’s transitory subsidiary into parent lastly we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the code or regulations or as to the tax treatment except as expressly provided herein no opinion is expressed or implied the above extension of time is conditioned on the taxpayers' parent's for purposes of granting relief under sec_301_9100-3 we relied on certain in accordance with the power_of_attorney on file with this office a copy of this this ruling is directed only to the taxpayer requesting it sec_6110 of plr-145621-05 of any conditions existing at the time of or effects resulting from filing the election late that are not specifically set forth in the above ruling statements and representations made by parent and company official under penalties of perjury however the director should verify all essential facts moreover notwithstanding that the extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable still apply the code provides that it may not be used or cited as precedent letter is being sent to your authorized representative relevant cc ken cohen ________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate a copy of this letter must be attached to any income_tax return to which it is sincerely


department of the treasury internal_revenue_service washington d c may tax_exempt_and_government_entities_division xxxxxxxxxx xxxxxxxxxx xxxxxxxxkxx legend taxpayer a ira x company m dear kkk ik ik this is in response to your letter dated and supplemented by correspondence dated submitted on your behalf by your authorized representative in which you request a ruling as to whether a proposed method of calculating distributions from an individual_retirement_account ira owned by you will constitute a series of substantially_equal_periodic_payments and will not be subject_to the percent additional tax imposed on premature distributions under sec_72 of the internal_revenue_code code the following facts and representations were made in support of your ruling_request taxpayer a is years old taxpayer a maintains ira x a rollover ira he established with company m with a distribution he received from his former employer's retirement_plan company m is the custodian of ira x taxpayer a desires to commence receiving payments from ira x in a series of substantially_equal_periodic_payments the proposed annual distribution amount will be determined each year by dividing the ira x account balance as of december by an annuity factor which is equal to the cost of an annual dollar_figure per year life_annuity beginning at age taxpayer a’s age as of the date of the first distribution the annuity factor is derived using the mortality_table in appendix b of revrul_2002_62 and an interest rate equal to percent of the federal_mid-term_rate as of december the annual distribution will be recalculated each year in the same manner for example for each subsequent distribution year the calculation of the annuity factor which will be based on the same mortality_table will be based on taxpayer a’s age in that distribution year and an interest rate equal to percent of the federal_mid-term_rate as of december of the prior year taxpayer a will then calculate the annual payment by dividing the balance of ira x by the annuity factor even though taxpayer a proposes to recalculate the amount of the payment for each succeeding year the method by which the amount of the payment will be determined will remain the same from year to year page based on the foregoing you request a ruling that the proposed method of determining periodic_payments as described herein constitute a series of substantially_equal_periodic_payments under sec_72 of the code sec_408 of the code provides 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 of the code provides rules for determining how amounts received as annuities endowments or life_insurance contracts and distributions from qualified_plans are to be taxed sec_72 provides for the imposition of an additional percent tax on early distributions from qualified_plans including iras the additional tax is imposed on that portion of the distribution that is includible in gross_income sec_72 of the code provides that sec_72 shall not apply to distributions that 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 expectancies of such employee and his designated_beneficiary sec_72 of the code imposes the additional limitation on distributions excepted from the percent tax by sec_72 that if the series of payments is subsequently modified other than by reason of death or disability before the later of the employee's attainment of age then the taxpayer's tax for the first taxable_year in which such modification occurs shall be increased by an amount determined under regulations equal to the tax that would have been imposed except for the sec_72 exception plus interest for the deferral_period sec_1_401_a_9_-9 of the regulations provides tables that are to be used in connection with computations under sec_72 and the regulations thereunder included in this section are tables giving life expectancies for one life q a-1 and joint life and last survivor expectancies for two lives q a-3 notice_89_25 was published on date and provided guidance in the form of questions and answers on certain provisions of the tax_reform_act_of_1986 tra ’86 in the absence of regulations on sec_72 of the code this notice provides guidance with respect to the exception to the tax on premature distributions provided under sec_72 q a-12 of notice_89_25 provides three methods of determining substantially_equal_periodic_payments for purposes of sec_72 of the code revrul_2002_62 2002_42_irb_710 which was published on date modifies q a-12 of notice_89_25 revrul_2002_62 provides among other things that payments are considered to be substantially_equal_periodic_payments within page the meaning of sec_72 if they are made in accordance with the required_minimum_distribution method the fixed amortization_method or the fixed annuitization method the three methods described in q a-12 of notice the fixed annuitization method provides that the annual payment for each year is determined by dividing the account balance by an annuity factor that is the present_value of an annuity of one dollar dollar_figure per year beginning at the taxpayer’s age and continuing for the life of the taxpayer or the joint lives of the individual and beneficiary the annuity factor is derived using the mortality_table in appendix b of revrul_2002_62 and using the chosen interest rate under this method the account balance the annuity factor the chosen interest rate and the resulting annual payment are determined once for the first distribution year and the annual payment is the same amount in each succeeding year section dollar_figure of revrul_2002_62 contains rules that apply to each of the three methods of calculating a series of substantially_equal_periodic_payments section dollar_figure provides in general that payments will constitute a series of substantially_equal_periodic_payments if the payments are determined by using a the uniform lifetime table in appendix a of revrul_2002_62 the single life expectancy table in sec_1_401_a_9_-9 q a-1 of the regulations or the joint and last survivor table in sec_1_401_a_9_-9 q a-3 of the regulations b an interest rate that is not more than percent of the federal_mid-term_rate and c a reasonable manner of determining the account balance in this case taxpayer a proposes to determine the annual payments from ira x in accordance with the fixed annuitization method as described in sec_2 c of revrul_2002_62 except that rather than making a fixed annual payment taxpayer a proposes to recalculate the amount of the annual payment each year for subsequent years the annual distribution amount will be determined by dividing the ira x account balance as of the end of december of the prior year by an annuity factor which is equal to the cost of an annual dollar_figure per year life_annuity with such annuity factor based on taxpayer a’s age in that distribution year calculated using percent of the mid-term federal rate as of december of the prior year and the mortality_table in appendix b of revrul_2002_62 the mortality_table and interest rate used are such that they do not result in the circumvention of the requirements of sec_72 and sec_72 of the code through the use of an unreasonable high interest rate or an unreasonable mortality_table accordingly the proposed method as modified of determining periodic_payments results in substantially_equal_periodic_payments within the meaning of sec_72 of the code and such payments will not be subject_to the additional tax of sec_72 unless the requirements of sec_72 are not met this letter_ruling is directed only to the taxpayer that requested it sec_61 k of the code provides that it may not be used or cited by others as precedent page a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you have any questions please contact id number se t ep ra t2 at sincerely yours signed joyorb b floyd joyce e floyd manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


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-109165-16 date date internal_revenue_service number release date index number --------------------------------- ---------------------------- --------------------------------- re e re ------------------------------------ legend decedent ----------------------- ------------------------------------------------------------ spouse ------------------------- a ---------------------------- date ---------------------------- date ---------------------------------- dear ------------------- this letter responds to your representative’s letter of date and subsequent correspondence requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the portability election under sec_2010 of the internal_revenue_code code to allow a decedent's surviving_spouse to take into account that decedent's deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent's dsue amount to spouse decedent's_estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent's date of death or the last day of the period covered by an extension decedent's form_706 was due on date but the estate did not file a form_706 to make the portability election the failure to elect portability was discovered after the due_date for making the election plr-109165-16 a as the personal representative of decedent's_estate represents that the value of decedent's gross_estate is less than the basic exclusion amount in the year of decedent's death and that during his lifetime decedent made no taxable_gifts as personal representative a requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent's dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-109165-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may 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 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 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 that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return plr-109165-16 under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date as personal representative a represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-109165-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs and special industries leslie h finlow leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy of letter for sec_6110 purposes cc


internal_revenue_service national_office technical_advice_memorandum august third party communication none date of communication not applicable number release date index uil no case-mis no tam-104692-09 chief appeals_office ------------------------ taxpayer's name taxpayer's address taxpayer's identification no year s involved date of conference ---------------------------------------------- --------------------------- ---------------------------------- ---------------- ------------------------ ------------------- legend taxpayer state a issues ---------------------------------------------- ------------- may the taxpayer -------------------------------------- accrue and deduct in the taxable_year annual dividends on an insurance_policy that under the terms of the policy become payable during the first month of the succeeding taxable_year may the taxpayer accrue and deduct in the taxable_year the lesser_of the termination dividend that will be payable in the succeeding taxable_year if the policy is terminated or the annual dividend that will be payable in the succeeding taxable_year if the policy is not terminated if the taxpayer may properly accrue and deduct the dividends described in issue sec_1 or in the year prior to the year the dividends become payable under the terms of tam-104692-09 the policies did the taxpayer properly implement this change in its method_of_accounting conclusions the taxpayer may not accrue and deduct in the taxable_year annual dividends on an insurance_policy that under the terms of the policy become payable during the first month of the succeeding taxable_year the taxpayer may not accrue and deduct in the taxable_year the lesser_of the termination dividend or annual dividend that under the terms of the policy become payable in the succeeding taxable_year because we conclude that the taxpayer may not accrue and deduct in the year preceding payment the dividends described in issue sec_1 or above this issue is moot facts the taxpayer is --------------------------------------------organized and existing under the laws of state a the taxpayer uses an overall accrual_method of accounting for federal_income_tax purposes and computes its taxable_income on a calendar_year basis the taxpayer issues participating life_insurance policies that entitle policyholders to receive two types of dividends annual dividends and termination dividends an annual dividend is payable to each policyholder on the anniversary date of his or her policy and represents a share of the taxpayer’s divisible surplus earned from business operations during the preceding calendar_year a termination dividend is a one-time dividend payable to certain policyholders when the policy terminates due to the death of the insured or the maturity or surrender of the policy it is a dollar amount that is based on factors such as the age of the policyholder and the number of years the policy was in force a policyholder can receive both an annual dividend and a termination dividend in the year the policy terminates the taxpayer accrues and deducts on december 31st of each taxable_year the amount of the annual dividends that will become payable on policies with anniversary dates in january of the following year the taxpayer contends that this accrual is appropriate because the taxpayer posts or credits the amount of the annual dividend to policyholder accounts up to --- days prior to the anniversary date of the policy for policies with anniversary dates in january the taxpayer’s posting practice results in a posting of the dividend to policyholder accounts in december of the preceding year the taxpayer also accrues a deduction on december 31st of each taxable_year for certain policies that if terminated would be eligible for a termination dividend in the following year the amount of this deduction is the lesser_of the amount of the tam-104692-09 termination dividend payable if the policy terminates during the following year or the amount of the annual dividend payable on the anniversary date of the policy if the policy does not terminate in the following year the taxpayer contends that this accrual is appropriate because as of december 31st of the taxable_year the taxpayer has a fixed obligation to pay some minimum amount in the following taxable_year either an annual dividend if the policy remains in force until the anniversary date or a termination dividend if it does not declaration and payment of annual dividends each -------------- the taxpayer’s board_of directors reviews management’s estimate of the amount of divisible surplus for the taxable_year that is available for the payment of dividends the board sets aside these amounts for the payment of dividends and authorizes management to pay annual dividends on policies that are in full force on their anniversary dates in the following year provided that premiums on those policies have been paid in full to those anniversary dates the board also authorizes management to mail dividend notices to policyholders for dividends to be paid in the following year in ------------ of the following year the board ascertains the actual divisible surplus earned by the taxpayer through december 31st of the preceding year the board formally appropriates the surplus for the payment of annual dividends the insurance policies provide -------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- however the taxpayer’s practice during all relevant years is to post credit the dividend to the policyholder’s account on the later of the date the required premium to the next anniversary date is received or --- days before the anniversary date in the case of a paid-up policy with an anniversary date in january the taxpayer credits the policyholder with an annual dividend amount on or before the preceding december 31st under the taxpayer’s practice once an annual dividend has been credited to a policyholder’s account the status of the policy as of the anniversary date will not affect the policyholder’s entitlement to the dividend the taxpayer has procedures in place that ensure that the policy stays in force until the anniversary date in all cases if a policyholder requests a surrender of a policy the taxpayer delays processing the surrender for ----------- days and seeks to discourage the policyholder from terminating the policy after the expiration of the ------------day period the taxpayer further delays the processing of the surrender if the policy is within --- days of an anniversary date in this way the policy is kept in force long enough to receive the annual dividend amount on the january policy anniversary thus whether the policyholder surrenders the policy dies before the anniversary date or holds the policy until the anniversary date the taxpayer’s practice is to pay or credit the annual policy dividend amount to the policyholder tam-104692-09 it also is the taxpayer’s practice to pay posted annual dividends up to -------- days prior to the anniversary if the policyholder requests this early payment the taxpayer’s procedure manual explains how a policyholder may obtain an early payment of a dividend and this information is provided to the taxpayer’s insurance agents who can implement a policyholder request for an early payment of a dividend the taxpayer does not communicate this option to its policyholders directly declaration and payment of termination dividends in -------------- the taxpayer’s board_of directors authorizes management to pay termination dividends that become due in the following year the following ------------ the board appropriates an amount for the payment of termination dividends estimated to be due during the year the insurance policies themselves do not contain any reference to termination dividends however information regarding these dividends is available to agents through other sources such as the taxpayer’s web site these dividends are payable on the termination_date of certain legacy life and endowment policies that are in force at least ---- years where the policy holder is a minimum age for example on certain policies a --- year old policyholder will be eligible for a termination dividend after the policy is --- years in force while a --- year old policy holder may not be eligible for a termination dividend until the policy is --- years in force the amount of the termination dividend increases slowly increasing by as little as -----------per thousand face_amount per year as the policy ages and reaches a maximum amount around the ------year of the policy law and analysis statutory and regulatory framework sec_808 provides that the deduction for policyholder dividends for any taxable_year shall be an amount equal to the policyholder dividends_paid or accrued during the taxable_year life_insurance_companies are required to compute their income and deductions under an accrual_method of accounting sec_811 sec_1_461-1 of the income_tax regulations provides that under an accrual_method of accounting a liability as defined in sec_1_446-1 is incurred and generally is taken into account for federal_income_tax purposes in the taxable_year in which all the events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability tam-104692-09 sec_1_461-4 provides guidance with respect to certain liabilities for which payment is economic_performance ie payment liabilities sec_1_461-4 provides in part that in the case of liabilities described in paragraphs g through g of this section economic_performance occurs when and to the extent that payment is made to the person to which the liability is owed sec_1_461-4 provides that if the liability of a taxpayer is to pay a rebate refund or similar payment to another person whether paid in property money or as a reduction in the price of goods or services to be provided in the future by the taxpayer economic_performance occurs as payment is made to the person to which the liability is owed this paragraph applies to all rebates refunds and payments or transfers in the nature of a rebate or refund regardless of whether they are characterized as a deduction from gross_income an adjustment to gross_receipts or total sales or an adjustment or addition to cost_of_goods_sold sec_1_461-4 provides that in the case of a taxpayer’s liability for which economic_performance rules are not provided elsewhere economic_performance occurs as the taxpayer makes payments in satisfaction of the liability to the person to which the liability is owed sec_1_461-5 provides a recurring_item_exception to the economic_performance requirements except as otherwise provided in paragraph c of sec_1_461-5 a taxpayer using an accrual_method of accounting may adopt the recurring_item_exception as a method_of_accounting for one or more types of recurring items incurred by the taxpayer sec_1_461-5 provides that a liability is treated as incurred for a taxable_year if - i as of the end of that taxable_year all events have occurred that establish the fact of the liability and the amount of the liability can be determined with reasonable accuracy ii economic_performance with respect to the liability occurs on or before the earlier of a the date the taxpayer files a timely including extensions return for that taxable_year or b the 15th day of the 9th calendar month after the close of that taxable_year iii the liability is recurring in nature and tam-104692-09 iv either - a the amount of the liability is not material or b the accrual of the liability for that taxable_year results in a better matching of the liability with the income to which it relates than would result from accruing the liability for the taxable_year in which economic_performance occurs sec_1_461-5 provides that in the case of a liability described in sec_1_461-4 rebates and refunds the matching requirement of sec_1_461-5 b iv b is deemed satisfied sec_1_461-5 provides that a liability is recurring if it can generally be expected to be incurred from one taxable_year to the next however a taxpayer may treat such a liability as recurring in nature even if it is not incurred by the taxpayer in each taxable_year in addition a liability that has never previously been incurred by a taxpayer may be treated as recurring if it is reasonable to expect that the liability will be incurred on a recurring basis in the future sec_1_461-5 provides that the recurring_item_exception does not apply to any liability of a taxpayer described in paragraph e interest paragraph g workers compensation tort breach of contract and violation of law or paragraph g other liabilities of sec_1_461-4 the all_events_test a liability must be final and definite in amount must be fixed and absolute and must not be conditional to satisfy the all_events_test for federal_income_tax purposes 476_us_593 the all_events_test is based on the existence or nonexistence of legal rights or obligations at the close of a particular accounting_period not on the probability - or even absolute certainty - that such right or obligation will arise at some point in the future 481_us_239 291_us_193 it is fundamental to the all_events_test that although expenses may be deductible before they have become due and payable liability must first be firmly established general dynamics u s pincite see also revrul_2007_3 2007_1_cb_350 generally all events have occurred that establish the fact of the liability when the event fixing the liability whether that be the required performance or other event occurs or payment is unconditionally due revrul_2007_3 citing revrul_80_230 1980_2_cb_169 and revrul_79_410 1979_2_cb_213 issue annual dividends on policies with january anniversary dates tam-104692-09 the terms of a contract are relevant in determining the events that establish the fact of a taxpayer's liability revrul_2007_3 citing 47_tc_58 acq 1967_2_cb_2 as a rule in the absence of clear evidence that the parties agreed otherwise the terms bargained for by the parties to the contract control 264_f2d_305 2nd cir under the terms of the policies here annual dividends are payable on the anniversary date of the policy provided the policy is then in force and all premiums due have been paid to the anniversary date the requirement that the policy be paid up on its anniversary date is a condition_precedent to taxpayer’s liability to pay the annual dividend the last event fixing the taxpayer’s liability is the policy being in force on the anniversary the taxpayer states that its liability for policyholder dividends with anniversary dates in january should be treated as fixed in december because the taxpayer’s practice is to post or credit annual dividends up to ----days in advance of the anniversary date and to pay the dividends up to --- days prior to the anniversary date if the policyholder requests if a policyholder attempts to surrender the policy within this -- ---- day period it is the taxpayer’s practice to delay the processing of that request to keep the policy in force to the anniversary date at which time the annual dividend is paid in effect the taxpayer argues that its practice abrogates the terms of the policy we disagree the terms of the policy contract between the parties rather than the taxpayer’s informal practice should control a taxpayer cannot fix its own liability simply by making an internal adjustment to its accounts - in this case by crediting the january anniversary dividends by the end of december see 297_f2d_229 2nd cir citations omitted cert_denied 370_us_904 thus neither the resolution of respondent's board_of directors nor the entry on its books in themselves establish the proper accrual of the claimed liability in deduction could be claimed only when the liability to pay became certain 43_tc_8 the taxpayer also states that state a law mandates that if any annual dividends are paid in advance and some of the january annual dividends were occasionally paid in advance even in the prior december then all other policyholders in that class must receive the same amount and under the same terms the taxpayer argues that the operation of state law prevents it from changing its crediting practice and thus fixes the taxpayer’s liability we disagree the law of state a does not itself establish a liability for the taxpayer the liability is the result of the taxpayer’s contract with its policyholders all that the law of state a does is require similar treatment of similarly situated policyholders that requirement can be met even with a change in the taxpayer’s crediting practice the taxpayer’s crediting practice is composed of two individual practices paying annual dividends up to --- days early if the policy is still in force and already paid up to the anniversary date and delaying the processing of termination requests tam-104692-09 received within --- days of the anniversary date so that the policy remains in force on the anniversary date and the annual dividend can be paid on that date with respect to the first practice we do not dispute that once a policyholder with a january anniversary date has requested and received an annual dividend in december any other policyholder with a january anniversary must have the ability to request and receive the annual dividend up to ----days early that practice however does not fix the taxpayer’s liability for the annual dividends credited to policyholders with january anniversary dates the taxpayer is not liable for any of the early payments of annual dividends until a request for the early payment is made by a policyholder that request for early payment is itself a condition_precedent to its liability with respect to the second practice we believe the taxpayer is free on december 31st to change its practice of delaying the processing of termination requests received within ----days of the anniversary date the point of that practice is to actually pay the annual dividend on the anniversary date if for anniversary dates beginning on january 1st the taxpayer began enforcing the contractual requirement that the policy must be paid up and in force on the anniversary date to be eligible for the annual dividend all policyholders with january anniversary dates would be treated the same with regard to this practice no policyholder with a january anniversary date receives an annual dividend in december as a result of the taxpayer’s practice of delaying requested policy surrenders to the anniversary date thus there would be no prohibited discrimination between policyholders with january anniversary dates consequently we believe the taxpayer is free to change this practice at the end of the year and its liability for the january dividends is not fixed at that point our conclusion is supported by the statutory changes to sec_808 over the last years the deficit_reduction_act_of_1984 p l date dra of changed the method_of_accounting for policyholder dividends from a reserve_method to an accrual_method of accounting see sec_211 of dra of reprinted in c b vol et seq in the legislative_history to section of the tax_reform_act_of_1986 a provision further modifying sec_808 congress concluded that the liability for policyholder dividends is only fixed in the year the policy remains in force and the dividend is unconditionally due under the contract and must be paid s rep no 99th cong 2d sess reprinted in c b vol congress specifically considered insurance companies’ practice of accelerating dividend deductions by guaranteeing policy dividends on termination or by making policy dividends available upon declaration congress rejected this practice because they viewed it as the equivalent of the impermissible reserve_method congress described how the accrual_method applies to policyholder dividends like those of the taxpayer as follows the fresh_start was granted with respect to the accounting change for policyholder dividends on the assumption that the insurance tam-104692-09 companies would continue to follow their general business practice in declaring policy dividends at the end of the calendar_year to be payable on policy anniversaries during the following calendar_year only in the event the policy remained outstanding on such anniversary it was understood that given the general business practices the present law- change in policyholder dividends accounting had the effect of delaying the deduction for policyholder dividends to the taxable_year in which they were paid s rep no 99th cong 2d sess reprinted in c b vol emphasis added see also general explanation of the revenue provisions of the tax_reform_act_of_1984 blue_book prepared by the staff of the joint_committee on taxation clearly congress did not intend to permit taxpayers to accelerate the deduction of policy dividends to years prior to the year the dividend is payable under the terms of the policy issue accrual of the lesser_of next year’s termination dividend or annual dividend the taxpayer argues that at the end of the year it has a fixed obligation to pay either an annual dividend in the next year or a fixed obligation to pay a termination dividend in the next year in either case a minimum amount of dividend will be paid the taxpayer is aggregating two different liabilities to argue that it has a fixed amount at year end to be paid in the following year essentially the taxpayer wants to treat termination dividends as a subcomponent of annual dividends we do not agree that these separate potential obligations can be integrated into a single fixed obligation annual dividends are calculated based on a variety of factors including the business operations of the taxpayer experience-rated refunds excess_interest and premium adjustments annual dividends provided for in the contracts are to be paid if the contract is in force and fully paid up on the anniversary date a customer has election options in applying the annual dividend the annual dividend occurs regularly over the course of a policyholder’s contract in contrast a termination dividend is a one-time payment made only in the year that a policyholder terminates the contract unlike annual dividends that are paid under the terms of the contract termination dividends are not provided for in the contract with a policyholder termination dividends are a matter of informal company practice under the taxpayer’s published procedures but not in the policy contract a policyholder is eligible for a termination dividend only after holding the policy for ---- years and only if certain age requirements are met furthermore the termination dividend scale does not change annually -------------------------------------------- indicating the one-time component of termination dividends after the policyholder has held the tam-104692-09 policy for over ------ years the termination dividend ceases to increase from year to year and becomes a flat amount the obligation to pay annual dividends in the following year is based on whether the policy is in force on the anniversary date and whether the premiums are paid up until that date at the stroke of midnight at year end it is not yet known or knowable whether an annual dividend will be paid to a policyholder as it is not known or knowable whether the policyholder will maintain the policy as required until the anniversary date likewise it is not known or knowable whether any one policyholder will terminate prior to the anniversary date thus triggering the taxpayer’s obligation to pay a termination dividend at midnight at year end it is not known or knowable if a termination dividend will be required consequently the last event fixing the obligation to pay either an annual dividend or a termination dividend does not occur until after year end the last event is either the continuation of the policy until the anniversary date when payment is then required under the terms of the policy contract or the cancelling of the policy such that a termination dividend might be paid under the business practice of the taxpayer see brown v helvering u s pincite but no liability accrues during the taxable_year on account of cancellations which it is expected may occur in future years since the events necessary to create the liability do not occur during the taxable_year a single liability can have a minimum amount owed at year end even where a different and greater amount is owed in the following year hughes properties u s pincite such minimum amount if it satisfies the all-events test permits the liability to be fixed and the amount therefore deductible for example under a plan whereby the employer using the accrual_method of accounting is obligated to pay to its employees at least two percent but not more than three percent of the company's profits for a taxable_year as bonuses but under which the exact percentage cannot be determined until after the close of such year such bonuses are accruable and allowable as a deduction only to the extent of the fixed two percent of the company's profit for such year the portion of the bonuses paid in the following taxable_year in excess of the fixed two percent is deductible in that year revrul_61_127 1961_2_cb_36 cf 78_f3d_909 5th cir taxpayer argued it had two separate obligations regarding stock while the court found a single obligation because of the single obligation the taxpayer could not take a second deduction in a later year even assuming the liability here is fixed the taxpayer does not meet the economic_performance prong of the all_events_test the liability here is a payment_liability within the meaning of sec_1_461-4 economic_performance generally is met for a payment_liability when payment is made to the person to whom the liability is owed unless the taxpayer meets the recurring_item_exception because the taxpayer seeks tam-104692-09 to accrue the liability in the year preceding payment taxpayer’s ability to meet the economic_performance requirement hinges on whether the recurring_item_exception applies the recurring_item_exception generally applies to the specifically enumerated payment liabilities listed in sec_1_461-4 the exception does not apply to the non- enumerated other liabilities described in sec_1_461-4 see sec_1_461-5 in our view the dividend obligation here cannot properly be characterized as one of the specifically enumerated payment liabilities we conclude that it is an other liability described in sec_1_461-4 the taxpayer argues that the liability here is a rebate refund or similar payment specifically enumerated in sec_1_461-4 we do not agree nothing in the insurance policies characterizes either annual dividends or termination dividends as rebates refunds or anything similar an annual dividend is a participation in the earned surplus of the taxpayer termination dividends are not provided for by the policies and nothing the taxpayer has provided indicates that these dividends are rebates or refunds issue change in method_of_accounting based on our conclusions with respect to issue sec_1 and issue is moot caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service number release date index number ------------------------------ ------------------------------- --------------------------------------- re e 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-131270-15 date march legend decedent ---------------------------- ------------------------------------------------------------ spouse --------------------------------------- --------------------------------------------------- date ---------------------------- date ----------------------------- dear ------------------ this letter responds to your representative's letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the portability election under sec_2010 of the internal_revenue_code code to allow a decedent's surviving_spouse to take into account that decedent's deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent's dsue amount to spouse decedent's_estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is months after decedent's date of death or the last day of the period covered by an extension decedent's form_706 was due on date but the estate did not file a form_706 to make the portability election the failure to elect portability was discovered after the due_date for making the election plr-131270-15 spouse as the executrix of decedent's_estate represents that the value of decedent's gross_estate is less than the basic exclusion amount in the year of decedent's death and that during his lifetime decedent made no taxable_gifts as executrix spouse requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent's dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-131270-15 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may 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 taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 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 that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return plr-131270-15 under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date as executrix spouse represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void plr-131270-15 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs and special industries karlene lesho karlene lesho senior technician reviewer branch enclosure copy of letter for sec_6110 purposes


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 b05 plr-106532-14 date april taxpayer ------------------------------------------------------------------------------------------------- ------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------- ------------------- ------------------------------------------------------- address bin year dear ------------------- this letter responds to taxpayer’s authorized representative’s letter dated date and subsequent correspondence requesting an extension of time to make an election under sec_42 of the internal_revenue_code pursuant to sec_301_9100-1 of the procedure and administration regulations according to the information submitted taxpayer a partnership for federal_income_tax purposes placed building identified by bin in service in year the building is located at address taxpayer inadvertently failed to make a timely election under sec_42 to begin the credit_period for the building in year sec_42 defines the credit_period of any building as the period of taxable years beginning with the taxable_year in which the building is placed_in_service or at the taxpayer’s irrevocable election the succeeding taxable_year but in either case only if the building is a qualified_low-income_building at the close of the first year of the credit_period sec_301_9100-8 provides that the election under sec_42 generally must be made for the taxable_year in which the project is placed_in_service or the succeeding taxable_year if the sec_42 election is made to defer the start of the credit_period and plr-106532-14 must be made in the certification required to be filed pursuant to sec_42 and sec_301_9100-8 provides that the election under sec_42 is irrevocable specifically the election under sec_42 is made pursuant to the certification requirement of sec_42 which provides that following the close of the first taxable_year in the credit_period with respect to any qualified_low-income_building the taxpayer shall certify to the secretary at such time and in such form and in such manner as the secretary prescribes such other information as the secretary may require sec_1_42-1 of the income_tax regulations provides that a completed form_8609 low-income_housing_credit allocation and certification must be filed by the building owner with the irs the requirements for completing and filing form_8609 are addressed in the instructions to the form completion of the relevant portions of form_8609 satisfy the certification requirement of sec_42 and the instructions to form_8609 provide that the building owner must make a one- time submission of form_8609 to the low-income_housing_credit lihc unit at the irs philadelphia campus the building owner must file the original of the form_8609 with the lihc unit no later than the due_date including extensions of its first tax_return with which it is filing form 8609-a annual_statement for low-income_housing_credit sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin under sec_301_9100-1 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_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-106532-14 in the instant case based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been met accordingly taxpayer is granted an extension of time to make the election under sec_42 for the building identified by bin by filing within days from the date of this letter an amended form_8609 that includes the intended election the amended form_8609 along with a copy of this letter must be filed with the lihc unit at the following address provided in the instructions to form department of the treasury internal_revenue_service center philadelphia pa by making the election under sec_42 for the building identified by bin taxpayer is electing to begin the credit_period for the building identified by bin in year accordingly taxpayer must file its federal_income_tax returns including the form 8609-a and the schedules k-1 for year and all subsequent years as is necessary to reflect the proper amount of sec_42 credits no opinion is expressed or implied regarding the application of any other provisions of the code or regulations specifically we express no opinion on whether the building identified by bin otherwise qualifies for the low-income_housing_credit under sec_42 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending copies of this letter to taxpayer’s authorized representative sincerely associate chief_counsel passthroughs special industries by _______________________ christopher j wilson senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c feb 20142001' tax_exempt_and_government_entities_division uniform issue list legend taxpayer a irab financial_institution c financial_institution d irae amount dear this letter is in response to your request dated date as supplemented by correspondence dated date from your authorized representative in which you have request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts nd representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he took a distribution of amount from ira taxpayer a asserts that his failure to accomplish a rollover of amount within the 60-day period prescribed by code sec_408 was due to his medical_condition which impaired his ability to manage his financial affairs taxpayer a further represents that amount has not been used for any other purpose 201420021' taxpayer a maintained ira b an individual_retirement_account ira under sec_408 of the code taxpayer a represents that on date in order to consolidate his accounts and simplify his life he closed ira b by withdrawing amount taxpayer a intended to transfer amount to an ira at financial_institution d where he maintained his checking account several certificates of deposit and a safety deposit box on date after the 60-day rollover period taxpayer a completed the rollover by opening ira e at financial_institution d while accepting the rollover a manager at financial_institution d informed taxpayer a that his 60-day rollover deadline had expired taxpayer a represents that he has been diagnosed with bipolar disorder and receives social_security disability as a result of this diagnosis during the 60-day rollover period taxpayer a experienced depression which prevented him from properly managing his financial affairs the ruling_request is supported by a letter from his psychiatrist that explains taxpayer a's medical_condition and the medications he was taking during this period based on the above facts and representations you request that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 d 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_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 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 60th day after the day on which the individual receives the payment or distribution or ii 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 60th 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 d sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 a i 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 i 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 sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 a sec_408 d i of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity 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 december are eligible for the waiver under sec_408 i of the code revproc_2003_16 2003_4_irb_359 january provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 i 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 and the documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover of amount was due to his medical_condition which impaired his ability to manage his financial affairs therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira b provided all other requirements of sec_408 of the code except the 60-day requirement were met with respect to taxpayer's contribution of amount into ira d on date such contribution will be considered a rollover_contribution within the meaning of sec_408 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 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code this letter is directed only to the taxpayer who requested it sec_611 o k of the code provides that it may not be used or cited as precedent a copy of this letter_ruling has been sent to your authorized representative pursuant to a power_of_attorney on file in this office if you wish to inquire about this ruling please contact at sincerely yours 14_ tj manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice cc