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 b04 plr-106722-19 date date in re -------------------- legend date taxpayer wife date trust year year accountant dear -------------- ------------------- -------------------- ------------------------- trust ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ trust ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------- ------------------------ ------------------------------------------------------------------------------ ---------------------------- ------------------------ ---------------- ------------------------- ----------------------- --------------------------------------------------------------- ----------------------- ------------------------ ------- ------- ---------------------- this letter responds to your personal representative’s letter of date and subsequent correspondence requesting an extension of time under sec_2642 of plr-106722-19 the internal_revenue_code code and sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to elect out of the generation-skipping_transfer gst_exemption automatic allocation rules with respect to certain transfers to trusts the facts and representations submitted are as follows on date a date before date taxpayer created trust an irrevocable_trust for the benefit of his children trust has gst potential also on date taxpayer created trust an irrevocable_trust for the benefit of wife and their children trust has gst potential on date a date before date taxpayer and wife created trust an irrevocable_trust for the benefit of their children trust has gst potential from year to year years after date taxpayer transferred property to trust trust and trust taxpayer did not intend for gst_exemption to be allocated to any of the transfers to trust trust or trust taxpayer retained accountant to provide advice with respect to the tax consequences of the year through year transfers to trust trust and trust and to file any necessary tax returns accountant failed to advise taxpayer of the rules under sec_2632 regarding the automatic allocation of gst_exemption and the ability to elect out of the automatic allocation of gst_exemption by making an election under sec_2632 as a result taxpayer did not file form sec_709 united_states gift and generation-skipping_transfer_tax return for year through year and did not elect to opt_out of the automatic allocation of gst_exemption for the transfers to trust trust and trust gst_exemption was automatically allocated to transfers made by taxpayer to trust trust and trust in year and in subsequent years through year in which transfers were made as a result of taxpayer’s failure to elect out of the gst_exemption automatic allocation rules for the transfers to trust trust and trust taxpayer requests an extension of time under sec_2642 sec_301_9100-1 and sec_301_9100-3 to elect out of automatic allocation of gst_exemption for all transfers to trust trust and trust under sec_2632 law and analysis sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio plr-106722-19 every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption is treated as allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred under sec_2632 the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust as defined in sec_2632 under sec_2632 a gst_trust is a_trust that could have gst potential with respect to the transferor unless the trust satisfies any of the exceptions listed in sec_2632 i - vi sec_2632 provides that an individual may elect to have sec_2632 not apply to any and all transfers made to a particular trust sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in relevant part that a transferor may prevent the automatic allocation of gst_exemption elect out with respect to one or more or all current-year transfers made by the transferor to a specified trust or trusts and the automatic allocation of gst_exemption elect out with respect to all future transfers made by the transferor to a specified trust or trusts sec_26_2632-1 provides that to elect out the transferor must attach an election out statement to a form_709 filed within the time period provided in sec_26_2632-1 in general the election out statement must identify the trust and specifically must provide that the transferor is electing out of the automatic allocation of gst_exemption with respect to the described transfer or transfers under sec_26_2632-1 to elect out the form_709 with the attached election out statement must be filed on or before the due_date for timely filing the form_709 for the calendar_year in which for a transfer subject_to sec_2642 the etip closes or for all other elections out the first transfer to be covered by the election out was made sec_26_2632-1 provides in part that an election out does not affect the automatic allocation of gst_exemption to any transfer not covered by the election out statement an election out does not prevent the transferor from allocating the transferor's available gst_exemption to any transfer covered by the election out plr-106722-19 either on a timely filed form_709 reporting the transfer or at a later date in accordance with the provisions of paragraph b of this section sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c sec_2642 provides that in determining whether to grant relief under sec_2642 the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_transfer_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides an automatic_extension of time for making certain elections sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 a taxpayer may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-3 provides in part that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and representations made we conclude that the plr-106722-19 requirements of sec_301_9100-3 have been satisfied accordingly taxpayer is granted an extension of time of days from the date of this letter to elect out of the automatic allocation rules with respect to all transfers taxpayer made to trust trust and trust each election should be made on an amended form_709 and filed with the kansas city service_center at the following address department of the treasury internal_revenue_service center kansas city mo a copy of this letter should be attached to the form_709 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 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 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 representatives sincerely associate chief_counsel passthroughs and special industries by leslie h finlow leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number ---------------------------- ------------- -------------------- ------------------------------------ ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc corp plr-107892-09 date june legend distributing -------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ ---------------------- controlled -------------------------------------------------------------------------------------------------------------- ------------------------------------ state x date date -------------------- -------------------------- ---------------------- group a shareholders ------------------------------------------------------------------------------- ------------------------------ ------------------------------------------------------------------------------- ----------------------------- ------------------------------- ------------------------ group b shareholders ------------------------------------------------------------------------------- ----------------------------- ----------------------- ------------------------------------------------------------------------------- x ---- plr-107892-09 y busine sec_1 dear ----------------- ---- --------------------------------------------------- this letter responds to your representative’s letter dated date requesting rulings as to the federal_income_tax consequences of a proposed transaction additional information was submitted by letters dated date date and date the material information submitted for consideration is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent or greater interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 summary of facts distributing was organized as a subchapter_c_corporation in state x on date effective date distributing elected to become an s_corporation distributing is owned by two shareholder groups the group a shareholders together own x and the group b shareholders together own y of the stock of distributing distributing is engaged in busine sec_1 distributing has submitted financial information which indicates that busine sec_1 has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction plr-107892-09 for what are represented as valid business reasons distributing proposes the following transactions the proposed transaction i ii iii controlled will be incorporated in state x controlled will have one class of common_stock outstanding all of which will be owned by distributing distributing will transfer assets and liabilities related to the conduct of busine sec_1 to controlled in exchange for all of the controlled stock the contribution immediately after the contribution distributing will distribute all of the controlled stock to the group b shareholders in exchange for all of their distributing stock the distribution thereafter the group a shareholders will own all of the distributing stock and the group b shareholders will own all of the controlled stock representations the taxpayer has made the following representations concerning the proposed transaction a b c d e f the fair_market_value of the controlled stock to be received by the group b shareholders will be approximately equal to the fair_market_value of the distributing stock surrendered by the group b shareholders in the exchange no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a distributing shareholder the five years of financial information submitted on behalf of distributing concerning busine sec_1 represents its present operations and there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of the business contributed to controlled is representative of the business’s present operation and there have been no substantial operational changes since the date of the last financial statements submitted following the transaction distributing and controlled will each continue the active_conduct of its business independently and with its separate employees neither busine sec_1 nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the distribution in plr-107892-09 a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part g h i j k the distribution is carried out for the following corporate business purposes to resolve deadlock among the management of distributing which threatens the continued operation of its business and exposes it to the risk of lost profits foreclosure financial consequences the distribution of the stock or stock and securities of controlled is motivated in whole or substantial part by this corporate business_purpose loss of customers and various other severe the the transaction is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both the total adjusted bases of the assets to be transferred to controlled by distributing in the transaction will equal or exceed the sum of the total liabilities assumed within the meaning of sec_357 by controlled the liabilities assumed within the meaning of sec_357 by the controlled_corporation in the contribution were incurred in the ordinary course of business and are associated with the assets being transferred the total fair_market_value of the assets transferred to controlled in the transaction will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 controlled in the exchange and ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange l distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction m no income items including accounts_receivable or any item resulting from a sale exchange or disposition of property that would have resulted in income to the distributing_corporation and no items of expense will be transferred to the controlled_corporation if the distributing_corporation has earned the right to receive the income or could claim a deduction for the expense under the accrual or similar method_of_accounting n no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution plr-107892-09 o p q r s t u v for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length no two parties to the transaction are investment companies as defined in sec_368 and iv the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation immediately after the transaction as defined in sec_355 neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 effective date distributing made an election under sec_1362 to be an s_corporation within the meaning of sec_1361 and distributing has continued to be an s_corporation since date within the meaning of sec_1361 immediately after the transaction controlled will be eligible to elect s_corporation status pursuant to sec_1362 effective immediately after the transaction plr-107892-09 w controlled will elect to be treated as an s_corporation effective immediately after the distribution see sec_1_1361-3 x y none of the persons holding stock membership interests or any equity_interest in either distributing or controlled is a nonresident_alien_individual a foreign_corporation or a_trust except for trusts meeting the requirements of sec_1361 there is no plan or intention to revoke or otherwise terminate the s_corporation_election of either distributing or controlled rulings based solely on information submitted and the representations set forth above we rule as follows the contribution followed by the distribution will constitute a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing upon the contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the contribution sec_1032 the basis of each asset received by controlled in the contribution will equal the basis of that asset in the hands of distributing immediately prior to its transfer sec_362 the holding_period for each asset received by controlled from distributing will include the period during which distributing held the asset sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the group b shareholders upon their receipt of controlled stock in exchange for their distributing stock sec_355 the basis of the controlled stock in the hands of the group b shareholders after the distribution will in each instance equal the basis of the respective distributive stock surrendered by the shareholder in exchange therefore sec_358 plr-107892-09 the holding_period of the controlled stock received by group b shareholders will in each instance include the holding_period of the distributing stock held by each respective shareholder provided that each respective shareholder held the distributing stock as a capital_asset on the date of the distribution sec_1223 proper allocation of distributing's earnings_and_profits will be made under sec_312 and sec_1_312-10 controlled will be subject_to sec_1374 with respect to any asset transferred in the contribution to the same extent that distributing is subject_to sec_1374 with respect to such asset for purposes of sec_1374 controlled’s recognition_period will be reduced by the portion of distributing’s recognition_period that expires prior to the contribution sec_1374 and ann i r b distributing’s momentary ownership of the stock of controlled as part of the reorganization under sec_368 will not cause controlled to have an ineligible shareholder taxable_year under sec_1361 if controlled otherwise meets the requirements of a small_business_corporation under sec_1361 controlled will be eligible to elect to be a subchapter_s_corporation under sec_1362 for its first taxable_year for any portion of first its caveats no opinion is expressed about the tax treatment of the proposed transaction described above under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the proposed transaction satisfies the business_purpose requirement of sec_1_355-2 ii whether the proposed transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 and iii whether the proposed transaction is part of a plan or series of related transactions under sec_355 procedural statements this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling plr-107892-09 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 ____________________ lisa a fuller senior counsel branch office of associate chief_counsel corporate


internal_revenue_service department of significant index no washington dc contact person telephone number in reference to t ep ra t a2 date sep in re company d company t i l u t this letter constitutes notice that a conditional waiver of the minimum_funding_standard has been granted for the plan_year ending date in our letter dated date in which a conditional waiver of the minimum_funding_standard for the plan_year ending december this letter also modifies condition was granted condition to read as follows of our letter of date is modified the company will make all required quarterly contributions in a timely manner for the plan years ending date and date this conditional waiver has been granted in accordance with sec_412 of the internal_revenue_code and sec_303 of the employee retirement and income security act of erisa the amount of the conditional waiver is the contribution which would otherwise be required to reduce the balance in the funding_standard_account to zero as of the end of the plan_year for which the waiver has been granted company d manufactures equipment and replacement machines parts for these and other owned subsidiary of company t located in southeast asia acquisition by company t of company d in was to have opened up new markets for both companies and provided company d with an opportunity to grow however the value of the currency in the country in which company t is located dropped dramatically in july ors company d is a fully- the and the country went into economic crisis leaving company t unable to fund company d’s operation the controlled_group experienced negative net_income and negative working_capital for the nine months ended date and in order to effect recovery both company d and company t have reduced personnel and overhead expenses expected as the united_states markets continue their current course economic condition improves assuming the on a consolidated basis recovery is the above-named defined_benefit_plan maintained by company d company ceased benefit accruals upon the plant closing effective date value of accrued_benefits as of january percent previously granted with respect to the years minimum_funding waivers for the plan were the ratio of plan assets to the present is approximately and plan this waiver has been granted subject_to the following conditions the company will contribute not less than the sum of the amortization payments required for the plan_year for the date and minimum_funding waivers by the company will meet the minimum_funding requirement for the plan_year ending date by september that is there will be no accumulated_funding_deficiency in the plan's funding_standard_account for the plan_year you have agreed to these conditions conditions will cause this waiver to be retroactively null and void failure to comply with these your attention is called to sec_412 of the code which describes the consequences which could result in the event the plan is amended to increase benefits to change the rate_of_accrual of benefits or to change the rate of vesting while any portion of a waived_funding_deficiency for the plan remains unamortized this ruling is directed only to the organization that requested it not be used or cited by others as precedent sec_6110 of the code provides that it may when filing form_5500 for the plan_year ending date the date of this letter should be entered on the schedule b actuarial information a copy of this letter is being sent to the your authorized representative form office in and to sincerely yours aclin lefperd martin l pippins manager employee_plans actuarial branch tax_exempt_and_government_entities_division of97


department of the treasury internal_revenue_service washington d c date tl-n-7304-98 uilc number release date memorandum for from internal_revenue_service national_office field_service_advice district_counsel kansas-missouri district st louis jeffrey l dorfman ------------------------------ branch chief cc intl br5 subject this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent legend p date a country a issues whether the accounts_receivable described below are appropriately treated as assets producing general_limitation_income pursuant to step of the dastm computation under ' e iii how is dastm gain in excess of interest on related_person indebtedness allocated among the sec_904 baskets conclusion the classification of assets is based on the type of income such assets actually produce based on the facts presented the accounts_receivable are in substance single category assets that generate general_limitation_income at most the accounts_receivable are multiple category assets resulting in a marginal allocation of dastm loss to the passive basket dastm gain on related_party liabilities is allocated to passive foreign_personal_holding_company_income facts p is the parent of a group of affiliated corporations with which it files a consolidated_return based on a fiscal tax_year ended date a for the years at issue p owned of several controlled_foreign_corporations cfcs which operated in countries with hyperinflationary currencies accordingly the cfcs were required to use the dollar as their functional_currency and the dollar approximate separate_transaction_method of accounting dastm for purposes of computing earnings_and_profits ' b ii during the year at issue several of p s cfcs athe cfcs had trade account receivables denominated in the local hyperinflationary_currency which produced a loss under dastm for purposes of allocating dastm loss as fully explained below p treated the receivables of the cfcs as an asset that generated income described in sec_904 passive_income p contends that this treatment is appropriate on the basis that the accounts_receivable generated interest_income on review by the field however it was found that the amount of interest_income generated by these receivables was de minimus and not designed to offset the effects of the hyperinflation rather it appears that the p s receivables were indexed for inflation in addition one cfc was the issuer of related_party liabilities which produced a dastm gain in excess of related_party interest under ' e vi for purposes of properly characterizing such gain under sec_904 p treated the amount of gain that exceeded related_party interest_expense as a contra-expense in arriving at net_income or earnings_and_profits law and analysis issue sec_1_985-3 provides that dastm_gain_or_loss is allocated to the sec_904 baskets under the 9-step method prescribed in ' e sec_1_985-3 provides that assets are characterized according to the source and type of income they generate by applying the principles of ' 861-9t g sec_1_985-3 contains an anti-abuse rule which provides that if a purpose of a taxpayer s business practice is to manipulate asset characterization the district_director may require that none of the dastm_gain_or_loss be allocated to those assets the regulation gives as an example the case of a taxpayer that begins to charge interest on account receivables to manipulate asset characterization sec_1_861-9t provides that assets are characterized according to the source and type of income they generate assets are divided into classes single category assets multiple category assets and assets without directly identifiable yield for purposes of step p has treated the accounts_receivable of the cfc at issue as an asset that generated exclusively sec_904 passive_income p contends that this treatment is appropriate because the accounts_receivable generate interest_income as a result p contends the dastm loss attributable to the accounts_receivable reduces p s passive rather than general basket income p argues that rampant inflation and rapidly devaluing currency in country a during the period under examination caused customers to delay paying their bills p states that as a result the cfc would include an interest factor in the price of the product ranging from big_number to depending on the customer and the fiscal_year in question the affiliates would record the invoices as sales revenues for that portion of the price relating to the product and as interest_income for that portion of the price representing the interest factor however an analysis by the field of the interest_income of the cfc demonstrates that none of them reported interest_income related to the receivables that exceeded of gross_sales in any year the range of interest with respect to the receivables as a percentage of gross_sales for the more active cfcs for the period is from to assuming this analysis to be correct such marginal amounts of interest were not an economic offset to anticipated hyperinflation and should not be used to characterize the entire dastm loss related to the receivable given the de minimus amount of interest the receivables are in substance a single category asset and any dastm loss attributable to the receivable should be allocated exclusively to the category of income derived from the receivable ie the general basket at most the interest bearing receivables could be considered multiple category assets for purposes of ' thus a marginal percentage of the dastm loss computed with respect to the receivables could be attributed to the interest_income determined under the principles of ' 861-9t g and allocated to the sec_904 passive basket we also note that the facts presented raise the possibility that the ' e iii anti- abuse rule may be applicable application of this rule however would require additional factual development issue sec_1_985-3 step 7b provides that generally the amount of dastm gain on interest-bearing liabilities that generate related_person interest_expense is allocated in the same manner that the related_person interest_expense of that debt is required to be allocated under the rules of sec_954 and ' c under ' c related_person interest_income is treated as income in a separate category to the extent it is allocable to income of the payor controlled_foreign_corporation in that category under sec_954 related_party interest_expense is allocated to and reduces but not below zero the payor s passive foreign_personal_holding_company_income fphci accordingly dastm gain on related_party liabilities should be allocated to the passive fphci in normal circumstances a dastm gain on a liability should not exceed interest_expense produced by that liability accordingly we suggest that further factual development be considered to determine if the amount of interest charged was determined at arm s length consistent with sec_482 case development hazards and other considerations with respect to issue the interpretation set forth above is consistent with the literal language of the regulations however the regulation was drafted under the assumption that a dastm gain would not exceed interest_expense since an arm s length transaction would require a real rate of return thus ' e vii instructs taxpayers to allocate gain by using a method used to allocate interest the method used to allocate interest instructs taxpayers to allocate interest and reduce certain items of income but not below zero when allocating an item_of_gross_income it is not possible to allocate in the same manner since an item_of_income cannot reduce another item_of_income without more specific guidance regarding how to allocate the gain p may argue that regulations allocating interest_expense cannot be used to allocate income and therefore any reasonable method should be accepted if you have any further questions please call the branch telephone number jeffrey l dorfman branch chief


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 ita b05 plr-128219-07 date date taxpayer ------------------------------------------------ ------------------------ year ------- dear --------- this ruling is in reference to the taxpayer’s request that its form_1128 application to adopt change or retain a tax_year be considered timely filed under the authority in sec_301_9100-3 of the income_tax regulations on procedures and administration taxpayer filed a late form_1128 to change its accounting_period for federal_income_tax purposes from a taxable_year ending october to a taxable_year ending december effective december year revproc_2002_37 2002_1_cb_1030 provides procedures for certain corporations to obtain automatic approval to change their annual_accounting_period under sec_442 of the internal_revenue_code a corporation complying with all the applicable provisions of this revenue_procedure will be deemed to have obtained the approval of the commissioner of the internal_revenue_service to change its annual_accounting_period section of revproc_2002_37 provides that a form_1128 filed pursuant to the revenue_procedure will be considered timely filed for purposes of sec_1_442-1 only if it is filed on or before the time including extensions for filing the return for the short_period required to effect such change the information furnished indicates that the taxpayer filed an income_tax return for the short_period but failed to attach the form_1128 to the form_1120 however the --------- -------service center accepted the taxpayer income_tax return sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 request for plr-128219-07 relief subject_to 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 the granting of relief will not prejudice the interest of the government based on the facts and information submitted and the representations made we conclude that taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interest of the government accordingly taxpayer has satisfied the requirements of the regulations for the granting of relief and taxpayer’s late filed form_1128 requesting to change to december effective december year is considered timely filed because a change in period under revproc_2002_37 is under the jurisdiction of the director internal_revenue_service center where the taxpayer’s returns are filed we have forwarded the application to the director ------------------service center any further communication regarding this matter should be directed to the service_center this ruling is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling however as part of an examination process the service may verify the factual information representations and other data submitted this ruling addresses the granting of sec_301_9100-3 relief only we express no opinion regarding the tax treatment of the instant transaction under the provisions of any other section of the code or the regulations that may be applicable or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically we express no opinion as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the form_1128 or whether the change may be effected under revproc_2002_37 this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent enclosed is a copy of the letter_ruling showing the deletions proposed to be made when it is disclosed under sec_6110 plr-128219-07 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely yours george f wright senior technician reviewer branch income_tax accounting office_of_chief_counsel