t c memo united_states tax_court charles c dockery donor petitioner v commissioner of internal revenue respondent docket no filed date philip cook michelle henkel and timothy j peaden for petitioner willie fortenberry for respondent memorandum findings_of_fact and opinion colvin judge respondent determined that petitioner has gift_tax deficiencies of dollar_figure for and dollar_figure for the issues for decision are whether the fair_market_value in of crossroads insurance inc 's stock that petitioner gave to his children was dollar_figure dollar_figure per share as respondent contends zero as petitioner contends or some other amount we hold that it was dollar_figure per share whether the fair_market_value in of crossroads insurance inc 's stock that petitioner gave to his children was dollar_figure dollar_figure per share as respondent contends dollar_figure dollar_figure per share as petitioner contends or some other amount we hold that it was dollar_figure per share unless otherwise specified section references are to the internal_revenue_code in effect for the years in issue rule references are to the tax_court rules_of_practice and procedure a petitioner i findings_of_fact petitioner is charles dockery petitioner's mailing address was lakeland florida when he filed the petition paula dockery is petitioner's wife mavis dockery is petitioner's former wife carl dockery is petitioner's son michele jones formerly michele renwald is petitioner's daughter b crossroads insurance inc petitioner incorporated crossroads insurance inc crossroads under the companies law of the cayman islands on date petitioner has been the majority shareholder and chairman of the board_of crossroads since at all times relevant to this case the outstanding shares of stock of crossroads consisted of big_number shares of common_stock and big_number shares of percent noncumulative redeemable preferred_stock and the members of crossroads' board_of directors were petitioner and four minority shareholders paula dockery mavis dockery carl dockery and michele jones crossroads is managed in georgetown grand cayman it has no office in the united_states it is a controlled_foreign_corporation under sec_957 crossroads' customers are all in the united_states crossroads is licensed to write insurance in florida and louisiana each year crossroads files annual statements with florida and louisiana reporting the financial condition of its operations the reinsurance industry crossroads is a reinsurer it is engaged in the business of providing aggregate stop loss workers'_compensation reinsurance2 to self-insurer pools also referred to as funds a reinsurer is an insurer who agrees to provide coverage of risks that a primary insurer has already assumed under an insurance_contract with another party couch on insurance 3d sec_1 pincite to reinsurance is an agreement between an insurer the ceding company and a second insurer the reinsurer under which the ceding company passes to the reinsurer some or all of the risks that the ceding company assumes through the direct underwriting continued an aggregate stop loss reinsurance agreement subjects crossroads to liability for workers'_compensation claims above a preestablished retention percentage the retention percentage is the point at which crossroads' liability on a reinsurance contract matures for example if a self-insurer fund collects dollar_figure million in premiums and crossroads' reinsurance agreement provides for an 80-percent retention point the primary carrier's losses would be limited to dollar_figure million and crossroads would pay all claims exceeding dollar_figure million self-insurer pools are formed under state law as an alternative to conventional insurance members of trade associations can form and pay premiums to pools owned by the members rather than to an insurance_company any profits are returned to the members unpaid claims commonly called reserves for unpaid_losses are an insurer's estimate of the amount expected to be paid in the future to settle claims reported and incurred workers'_compensation reinsurance is long-tail insurance coverage because of the length of time before a reinsurer's obligations mature crossroads may not know if it had losses for aggregate stop loss workers'_compensation reinsurance until to years after a policy year because it may take that long for continued of insurance policies see 106_tc_274 crossroads to review payments made by the primary carrier crossroads may not make reinsurance payments until to years after a policy year because it does not pay until the primary carrier's paid claims reach the retention point crossroads may be paying claims for to years after the policy period ends crossroads' reinsurance agreements with self-insurer funds from date to date crossroads wrote stop loss workers'_compensation reinsurance agreements for three self-insurer funds the oklahoma retail merchants group self- insurers association the oklahoma employers safety group self- insurers association and the florida foliage association self- insurers fund since date crossroads has written stop loss workers'_compensation reinsurance agreements for four self- insurer funds the florida retail federation self-insurers fund the employers self-insurers fund florida esif the louisiana retailers association self-insurers fund and the louisiana employers safety association self-insurers fund these agreements have each generally been for year these self- insurer funds were established by summit consulting inc summit consulting on date florida's treasurer and department of insurance issued a consent order restricting crossroads from reinsuring any florida fund other than the florida retail federation self-insurers fund and esif crossroads' retrocession agreements a reinsurance company can reinsure itself above an established retention point with another reinsurance or third- party insurance_company the third-party insurer assumes the risks for the retroceded policies ie those policies the reinsurer retrocedes to the third insurer this is a retrocession agreement beginning in crossroads retroceded percent of the risks of esif to u s employers insurance inc u s employers a company incorporated in the cayman islands and owned by esif petitioner has served on the board_of directors of u s employers since it was incorporated crossroads has also retroceded policies to lloyds of london as of date crossroads had retroceded percent of the risks of florida retail federation self-insurers fund louisiana retailers association self-insurers fund and louisiana employers safety association self-insurers fund to gulf insurance co ltd gulf a company incorporated in the cayman islands on see trans city life ins co v commissioner t c pincite date and owned by petitioner and crossroads' minority shareholders crossroads' annual statements crossroads reported on its and annual statements that it had surpluses of dollar_figure for and dollar_figure for a kpmg peat marwick's actuarial reports crossroads began using kpmg peat marwick as an actuary to prepare crossroads' loss_reserves around kpmg peat marwick also audited crossroads' financial statements a different office of kpmg peat marwick audited gulf's financial statements in analyzing crossroads' reserves kpmg peat marwick reviewed the following underlying claims data for each of the self-insurer funds i accident_year cumulative amount of paid and incurred losses at historical development points ii accident_year cumulative number of closed and reported claims at historical development points iii earned normal premium by accident_year iv recoveries from subrogation second injury funds and specific excess insurance by accident_year and v all reinsurance policies with loss exposure after reviewing the historical data kpmg peat marwick i applied standard actuarial loss development techniques including the bornheutter-ferguson method4 to project ultimate values by accident_year of each self-insurer fund ii determined frequency and severity components iii performed monte carlo simulation sec_5 of the underlying net losses to obtain the potential liability of each self-insurer fund at various confidence levels and iv compared simulation results to the policy retention points and claim payments kpmg peat marwick estimated that crossroads' reserves were dollar_figure as of date and dollar_figure as of date kpmg peat marwick's reserve estimates included losses for retroceded policies b crossroads' reserves for unpaid_losses crossroads' management established its reserves based on its analysis of the business environment and industry trends claims experience and the kpmg peat marwick actuarial reports crossroads recorded reserves in the amounts of dollar_figure as of date and dollar_figure as of date on its financial statements these reserves were net of losses for retroceded policies crossroads' financial statements were the bornheutter-ferguson method is an actuarial technique used to estimate the value of a company's reserves by subtracting its paid losses from its reserves using the monte carlo simulation technique kpmg peat marwick estimated crossroads' potential liability by performing simulations of crossroads' underlying net ultimate losses for each fund year and sorting the results of the simulations from lowest to highest to estimate confidence levels prepared according to generally_accepted_accounting_principles and statutory accounting principles c summit consulting inc petitioner organized summit consulting in and was its president and majority shareholder until when he sold it to alexander alexander services a worldwide brokerage firm as a condition of the sale petitioner continued as president until date summit consulting is a third-party administrator of group self-insurance funds in date petitioner hired william b bull bull to work for summit consulting from to bull served as assistant to the president vice president of operations and executive vice president bull became summit consulting's president and chief_executive_officer ceo on date as president and ceo bull was responsible for the profitability and management of the company bull's experience in the insurance industry had focused predominantly on workers'_compensation in the early 1990's bull was appointed to the governor's workers'_compensation task force in florida to help reform the workers'_compensation industry from to summit consulting established each of the four self-insurer funds reinsured by crossroads in and summit consulting was the third-party administrator of these funds in and summit consulting administered the self- insurer funds for which it received a fee of about percent of the insurance premiums it bought 1-year accident_year aggregate reinsurance policies from crossroads for each of the self-insurer funds except esif crossroads sold reinsurance policies to summit consulting for the florida retail federation self-insurers fund the louisiana retailers association self- insurers fund and the louisiana employers safety association self-insurers fund summit consulting paid the reinsurance premiums for these three funds out of the money that it received as the funds' third-party administrator crossroads sold reinsurance policies directly to esif petitioner was not part of summit consulting's management on date or date in date esif bought summit consulting d gulf insurance co gulf was incorporated under the companies law of the cayman islands on date gulf was owned by petitioner and paula dockery mavis dockery carl dockery and michele jones e crossroads' claims paid and reserves for unpaid_losses as of date crossroads' claims paid reserves and total expected losses for reinsurance policies written as of an accident_year policy covers accidents that occur from jan to dec date net of losses for retroceded policies were as follows taxable_year ending cumulative claims paid1 reserves for unpaid losse sec_2 total expected losse sec_3 date dollar_figure dollar_figure dollar_figure date big_number big_number big_number date big_number big_number big_number date big_number big_number big_number date big_number big_number big_number cumulative claims paid were obtained from part of schedule p of crossroads' annual statements filed with the departments of insurance for the states of florida and louisiana for to for each year cumulative claims paid is the net of column sec_5 and for policy years before policy years after are excluded to obtain the relevant information for reinsurance policies written as of date reserves for unpaid_losses were obtained from part of schedule p of crossroads' annual statements filed with the departments of insurance for the states of florida and louisiana for to for each year reserves for unpaid_losses are the total of column column for and reduced by reserves for policy years after policy years after are excluded to obtain the relevant information for reinsurance policies written as of date total expected losses are the sum of cumulative claims paid and reserves for unpaid_losses as of date crossroads' claims paid reserves and total expected losses for reinsurance policies written as of date net of retroceded policies were as follows taxable_year ending cumulative claims paid4 reserves for unpaid losse sec_5 total expected losses6 date dollar_figure dollar_figure dollar_figure date big_number big_number big_number date big_number big_number big_number date big_number big_number big_number cumulative claims paid were obtained from part of schedule p of crossroads' annual statements filed with the departments of insurance for the states of florida and louisiana for to for each year cumulative claims paid are the net of column sec_5 and for policy years before policy years after are excluded to obtain the relevant information for reinsurance policies written as of date reserves for unpaid_losses were obtained from part of schedule p of crossroads' annual statements filed with the departments of insurance for the states of florida and louisiana for to for each year reserves for unpaid_losses are the total of column column for reduced by reserves for policy years after policy years after are excluded to obtain the relevant information for reinsurance policies written as of date total expected losses are the sum of cumulative claims paid and reserves for unpaid_losses crossroads' shareholders are liable for tax on its income from selling reinsurance policies to self-insurer funds in the united_states sec_957 crossroads pays dividends to its shareholders partly to enable them to pay taxes on their crossroads' income f economic conditions in the workers'_compensation market in florida in and was chaotic insurance rates were rising about percent per year and claims exceeded premiums g petitioner's gifts of crossroads' stock on date petitioner owned big_number of the big_number shares of common_stock of crossroads and all of the big_number shares of preferred_stock of crossroads the remaining shares of the common_stock were owned equally by paula dockery mavis dockery carl dockery and michele jones on date and date petitioner gave the following number of shares of crossroads' stock to his children donee date of gift common shares carl dockery michele jones carl dockery michele jone sec_1 these shares represented a minority interest in crossroads h gift_tax returns and notice_of_deficiency based on a date appraisal by kpmg peat marwick petitioner reported on his and gift_tax returns that the fair_market_value of crossroads' stock was dollar_figure per share on date and date petitioner paid gift_tax of dollar_figure for respondent determined that the fair_market_value of crossroads' common_stock was dollar_figure per share on date and dollar_figure per share on date ii opinion the sole issue for decision is the fair_market_value of crossroads' stock that petitioner gave to his children on date and date a background sec_2501 imposes a tax on gifts of property by an individual gift_tax is based on the fair_market_value of the property on the date of the gift sec_2512 fair_market_value is the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts 411_us_546 sec_25_2512-1 gift_tax regs the fair_market_value of stock is a question of fact 325_f2d_934 8th cir affg tcmemo_1961_347 if selling prices for stock in a closely_held_corporation which is not listed on any exchange are not available then we decide its fair_market_value by considering factors such as the company's net_worth earning power dividend- paying capacity management goodwill position in the industry the economic outlook in its industry and the values of publicly traded stock of comparable corporations see sec_20_2031-2 estate_tax regs petitioner has the burden of proving that respondent's determinations in the notice_of_deficiency are erroneous rule a 290_us_111 we need not decide whether to shift the burden_of_proof to respondent or modify it as petitioner contends because we would reach the same result regardless of which party bears the burden_of_proof b fair_market_value of the gifts from petitioner to his children expert testimony petitioner called an expert witness to give his opinion about the value of the gifts of crossroads' stock petitioner made to his children in and we may accept or reject expert testimony according to our own judgment and we may be selective in deciding what parts of an expert's opinion if any we will accept 94_tc_193 86_tc_547 respondent did not call an expert to testify raymond t wise jr wise is an internal_revenue_service irs estate and gift_tax attorney who appraised crossroads' common_stock in this case his appraisal is the basis for respondent's trial position the opinions of petitioner's and respondent's appraisers and the positions of the parties are as follows petitioner's returns petition petitioner's expert gallagher deficiency_notice and answer wise date gift dollar_figure per share date gift per share per share dollar_figure per share dollar_figure per share big_number per share crossroads' projected reserves made by gallagher crossroads' management kpmg peat marwick and respondent were as follows crossroads' reserves as estimated by-- kpmg peat marwick including losses for retroceded policies crossroads' reserves net of losses for retroceded policies gallagher net of losses for retroceded policies respondent net of losses for retroceded policie sec_2 kpmg peat marwick as of as of dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number kpmg peat marwick annually reviewed the reinsurance policies and historical claims data for each of the self-insurer funds reinsured by crossroads to estimate the value of each fund for each year it used standard actuarial loss development methods to estimate the size of crossroads' reserves for and on date kpmg peat marwick appraised crossroads' common_stock the appraisal was based on the discounted_present_value of the future dividend stream available to a u s owner of its stock kpmg peat marwick used a discount rate based on the kpmg peat marwick's reserve estimates reflect all claims liabilities and are gross of retroceded policies on the gift dates then-current market hurdle rate9 for investments of comparable risk kpmg peat marwick made various assumptions including that crossroads' reserves should be restated to reflect the gross reserve estimate that is the reserve estimate gross of retroceded policies stated in kpmg peat marwick's review of reserve estimates kpmg peat marwick estimated that crossroads' stock was worth dollar_figure per share applied a 40-percent discount for minority interest and lack of marketability and concluded that the fair_market_value of the crossroads' common_stock that petitioner gave to his children in and was dollar_figure per share petitioner's trial expert thomas gallagher petitioner hired thomas l gallagher gallagher a property and casualty actuary with tillinghast-towers perrin to appraise crossroads' common_stock as of date and date in connection with the trial of this case gallagher has worked extensively in the workers'_compensation industry gallagher projected a reserve for each of the self-insurer funds reinsured by crossroads he reviewed the underlying claims data and extrapolated the historical results for the individual a hurdle rate is the minimum rate of return required by an investor for a proposed investment rosenberg dictionary of banking and financial services 2d ed funds he found that the average value of claims increased by percent per year from to gallagher analyzed crossroads' balance sheets as of date and date he projected crossroads' future distributable earnings from policies in effect on the gift dates by reviewing the policies' past results and analyzing crossroads' loss_reserves embedded value he also projected distributable earnings from policies he expected crossroads to write after the gift dates based on a review of crossroads' historical results and market expectations goodwill value gallagher assessed market conditions for crossroads and its competitors he concluded that crossroads had poor underwriting experience in most of the years since it began operations gallagher projected that crossroads' premiums would grow by percent per year for the years after the gift dates the loss ratio would be percent for the first year and would decrease over the next years and that underwriting expenses would be percent of earned premium for all years he discounted the distributable earnings by percent using risk-adjusted rates of return he estimated that crossroads had understated its reserves by dollar_figure on date and by dollar_figure on date using these amounts for crossroads' reserves he estimated that the fair_market_value of crossroads' common_stock was zero on date and dollar_figure dollar_figure per share on date respondent's appraiser raymond wise wise calculated the value of crossroads' stock using two methods the book_value method and the price earnings method he used crossroads' assets and liabilities from its date balance_sheet as a starting point to estimate the book_value he did not review any of the reinsurance policies or the underlying claims experience for the self-insurer funds wise concluded that crossroads' reserves for unpaid claims should be reduced by percent based on his review of crossroads' balance_sheet and what he said was an industry standard requiring a 50-percent ratio between claims paid and reserves thus he multiplied crossroads' unpaid claims by percent and recorded the product on his adjusted balance_sheet he added the adjusted unpaid claims to crossroads' other liabilities to get its total liabilities corrected he subtracted total liabilities corrected from crossroads' total assets and projected that the book_value of crossroads' stock was dollar_figure per share as of date and dollar_figure per share as of date wise estimated the price earnings value of crossroads' stock using revrul_59_60 1959_1_cb_237 which suggests using corporate financial statements for the year period before the date of each gift and the formulas described in estate of feldmar v commissioner tcmemo_1988_ he multiplied crossroads' pretax weighted average income by a price earnings capitalization rate of five to estimate the value for the stock wise calculated crossroads' average claim paid to show whether it had enough reserves to pay its historical claims he projected that the price earnings value of crossroads' stock using weighted average earnings was dollar_figure per share as of date and dollar_figure per share as of date he weighted the price earnings method percent and the book_value method percent to estimate the value of crossroads' stock on the gift dates he estimated that crossroads' stock was worth dollar_figure per share as of date and dollar_figure per share as of date he then applied a 35-percent discount and estimated that the stock was worth dollar_figure per share as of date and dollar_figure per share as of date c analysis we accept kpmg peat marwick's reserve estimate and appraisal of crossroads' common_stock instead of those of gallagher or wise kpmg peat marwick respondent points out that crossroads did not discount its and reserves for the time_value_of_money and contends that kpmg peat marwick erred in not recommending that crossroads discount its reserves for and for the time_value_of_money as it had recommended that crossroads do for and we disagree that kpmg peat marwick should have considered the time_value_of_money in estimating crossroads' reserves first respondent points out that as of date and without considering the time_value_of_money kpmg peat marwick's estimate of crossroads' reserves for and had been shown to be almost percent accurate compared to crossroads' known claim losses for those years second wise did not reduce crossroads' reserves based on time_value_of_money principles nor did we reduce the reserves in estate of feldmar v commissioner supra to account for the time_value_of_money third respondent's contention that sec_846 requires reinsurance companies to discount their unpaid_losses or reserves to take into account the time_value_of_money misses the mark we are not computing crossroads' reserve for unpaid_losses for income_tax purposes we are valuing the stock of crossroads respondent used kpmg peat marwick's reserve estimates and valuation method as a benchmark to discredit gallagher's report and made no convincing argument that we should not adopt kpmg peat marwick's conclusion we conclude that kpmg peat marwick's conclusions were reasonable we do not adopt gallagher's and wise's values for the following reasons gallagher gallagher greatly overestimated crossroads' reserves for and based on a calculation of reserves that was higher by percent for and percent for than crossroads' balance_sheet reserves he testified that his estimate of reserves was a major factor in his conclusion that crossroads had negative economic value as of date and a lower value as of date we believe his assumption that crossroads would have a 160-percent loss ratio for the first year of future business based on crossroads' experience loss ratios over the period did not give enough weight to the years immediately before the gifts during which crossroads showed a strong trend towards decreasing loss ratios also gallagher's assumed loss ratio of percent is higher than the average loss ratio from to which was about percent he testified that any closely held insurance_company the size of crossroads would experience or project a loss if it used an assumed loss ratio of percent we conclude that by using gallagher's inflated reserves and loss ratios crossroads was predisposed to have a negative or lower value gallagher's reserves and loss ratio assumptions skewed the projected values of crossroads' stock to make it appear much less valuable than we find that it was the value of crossroads' assets increased from about dollar_figure million in to nearly dollar_figure million in a tenfold increase crossroads' net_income increased from about dollar_figure in to dollar_figure million in with an average net_income of about dollar_figure million from to we find gallagher's assertion that crossroads' stock was worthless as of date to be unlikely in view of the fact that crossroads was highly profitable and had not showed a loss since wise wise's appraisal was based on assumptions that we believe were inaccurate wise reduced crossroads' reserves for unpaid_losses by percent he said he based this on an industry standard but he provided no source or other basis to justify this adjustment respondent argues that wise's reduction of crossroads' reserves was justified because crossroads did not discount its reserves for the time_value_of_money we disagree as discussed above at paragraph ii-c-1 wise did not reduce crossroads' reserves for the time_value_of_money thus respondent's theory is a belated attempt to bolster wise's arbitrary reduction of crossroads' reserves wise used the price earnings and book_value methods this court used in estate of feldmar v commissioner supra however wise misapplied the price earnings capitalization rate of five used in estate of feldmar to convert crossroads' weighted average earnings in that the court in estate of feldmar applied the capitalization rate to posttax earnings and wise applied it to pretax earnings the corporation in estate of feldmar sold life_insurance individual and family accident_and_health_insurance vehicle warranty service contracts and collateral protection services crossroads sells only workers'_compensation reinsurance unlike life_insurance workers'_compensation reinsurance is long-tail insurance because of the length of time before a reinsurer's obligations mature see s rept pincite 1986_3_cb_502 this makes the size of the reinsurer's reserve much more important because the reinsurer's liability can extend for longer periods id d discount petitioner argues that we should apply a 35-percent discount for minority interest and lack of marketability to gallagher's estimate of the value of crossroads' stock zero for date and dollar_figure per share for date and thus contends that the stock was worth zero on date and dollar_figure per share on date respondent agrees that petitioner is entitled to lack of marketability and minority interest discounts respondent applied a 35-percent discount to the fair_market_value of crossroads' common_stock on the gift dates in the notice_of_deficiency kpmg peat marwick applied a 40-percent discount because we found kpmg peat marwick's appraisal of crossroads' stock reliable we adopt kpmg peat marwick's contention that a percent discount should be applied to value the crossroads' stock petitioner gave to his children in and e conclusion we conclude that the fair_market_value per share of the stock of crossroads that petitioner gave to his children was dollar_figure per share on date and dollar_figure per share on date decision will be entered that there are no deficiencies due from petitioner and there is no overpayment due to petitioner


department of the treasury internal_revenue_service washington d c mar tax_exempt_and_government_entities_division uniform issue list tep lat legend taxpayer a ira b account c ira d financial institutionf financial_institution g financial_institution h amount dear this is in response to your request dated date as supplemented by correspondence dated date date and date in which you request through your authorized representative a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that in december of he received a distribution equal to amount from ira b an individual_retirement_account described in sec_408 of the code which was maintained by financial_institution f taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by d a was due to financial_institution error taxpayer a wanted to diversify his investments in ira b by dividing it into different iras with different financial institutions on date taxpayer a went to the local office of financial_institution f to request a rollover of amount from ira b to financial_institution g where he maintained a regular non-ira brokerage account account c taxpayer a understood from his conversation with a representative of financial_institution f that amount would be rolled over into an ira account with financial_institution g on date amount was wired from ira b to account c in january of taxpayer a had a conversation with a representative of financial_institution g and requested that his required_minimum_distribution be made from an account he believed to be his ira account taxpayer a even discussed with this representative of financial_institution g the correct uniform lifetime factor to be used for determining the required_minimum_distribution at this time however the representative from financial_institution g failed to inform taxpayer a that he was in fact requesting a required_minimum_distribution from a non-ira account taxpayer a submitted a copy of the check he received from financial_institution g dated date in an amount equal to his required_minimum_distribution amount in march of taxpayer a was preparing his income_tax return and noticed that the form 1099-r characterized the distribution of amount as a normal distribution rather than as a rollover he contacted financial_institution g and discovered that amount had been placed in a non-ira account pursuant to taxpayer a’s attorney's suggestion amount was transferred to ira d maintained by financial_institution h in march of based on the above facts and representations taxpayer a requests that the service waive the 60-day rollover requirement with respect to the distribution of amount from ira b sec_408 any amount_paid or distributed out of an ira shall be included in sec_408 of the code defines an ira to mean a in the united_states and requires that the trustee be a bank or an approved non- bank trustee sec_408 of the code provides that except as otherwise provided in trust created or organized gross_income by the payee or distributee as the case may be in the manner provided under sec_72 sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 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 or 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 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers 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 sec_408 of the code provides that the secretary_of_the_treasury may waive the 60-day requirement under sec_408 and sec_408 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 revproc_2003_16 2003_4_irb_359 provides that the service will issue a ruling waiving the 60-day rollover requirement in cases 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 taxpayer in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code 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 support taxpayer a's assertion that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to financial_institution error 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 except the 60-day requirement were met with respect to the contribution of amount to ira d in march of such contribution will be considered a rollover_contribution within the meaning of sec_408 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code 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 letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact at please address all correspondence to se t ep ra t1 sincerely yours cplben th milley carlton a watkins manager employee_plans technical group enclosures notice of intention to disclose deleted copy of this letter cc


internal_revenue_service number release date index number --------------------------------------- --------------- ---------------------------------- --------------------------------------- ------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-130795-09 date date legend x -------------------------------------------------- ------------------- y -------------------------------------------------- --------------------------------- ---------------- --------------------- ------------------------- ------------------------------- d1 d2 d3 country dear ------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country on d2 y purchased percent of stock of x x intended to be treated as a disregarded_entity for federal tax purposes effective d3 however x inadvertently failed plr-130795-09 to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an plr-130795-09 extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d3 x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form 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 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 x’s authorized representative sincerely curt g wilson curt g wilson associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division oct uniform issue list t' epr ra tu ereekeeeekkeeeeeee rerrereeeeeeerereeree harare ererererereereer legend taxpayer a ira x amount date date dear rankreerarrerk ens dsddndnkiniek rra arr a arras a rarair teer earth i trent ii hitia - tkknahed - tka eknrnrra ri - tktkkkheeek eee this is in response to your ruling_request dated date as supplemented by correspondence dated date and date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code taxpayer asserts that the failure to accomplish the rollover within the 60-day period described by sec_408 of the code was due to his medical_condition which impaired his ability to redeposit funds into ira x the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age’ represents that he withdrew amount on date from ira x taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code resulted from his illness and hospitalization during the day period taxpayer a represents that he was the owner of ira x a qualified_individual retirement arrangement ira established and maintained under the rules of sec_408 of the code taxpayer a represents that on date he withdrew a distribution of amount from ira x taxpayer a asserts that he intended to put the funds back into the ira within days using funds he expected to receive the next month during the 60-day period after the withdrawal he became very ill was hospitalized for a significant portion of the period and was treated for cancer taxpayer a deposited amount into ira x on date days after the 60-day period based on the above facts and representations taxpayer requests a ruling that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution from account a sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_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 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 day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers 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 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408i of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a’s authorized representative is consistent with taxpayer a’s assertion that his failure to accomplish a timely rollover was due to medical conditions which impaired his ability to re-deposit amount into ira x therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution from account a provided all other requirements of sec_408 of the code except the 60-day requirement were met with respect to taxpayer a’s deposit of amount into ira x on date such deposit will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power of attomey on file in this office if you wish to inquire about this ruling please contact government i d number at - please address all correspondence to se t ep ra t2 sincerely densegerattoh donzell employee_plans technical group fohn manager enclosures deleted copy of ruling letter notice of intention to disclose cc hrarrarachraerereruakkr ruararrkakheenrer ereeerererererererereere baker eee eeeeerereeeeeerer


internal_revenue_service number release date index number ---------------------------- ------------------------------------ ------------------------------ -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-104003-09 date date x trusts --------------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------ country --------------- date -------------------------- date --------------------------- dear--------------- this responds to a letter dated date and subsequent information submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be treated as a partnership the information submitted states x is an entity organized on date under the laws of country with limited_liability for each owner on date five trusts acquired an interest in x x intended to be treated as a partnership for federal tax purposes effective date however x did not timely file a form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-2 provides guidance on the classification of a foreign eligible plr-104003-09 entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301_7701-3 unless it elects otherwise a foreign eligible_entity is classified as an association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a partnership for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code plr-104003-09 as a condition for this late election relief x and its partners must file all federal_income_tax returns for x and its partners consistent with x having made a timely election to be a partnership effective date this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely curt g wilson deputy associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes