internal_revenue_service number release date index numbers --------------------------- ------------------------ ------------------------ -------------------------------- ----------------------- - 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-142012-05 date may -------------------------------------------------------------------------------- --------------------------------------------------------------- ----------------------------------------------------- -------------------------------------------------- ------------------------------------------------------------------ legend h w trust ----------------------------------------------------------- trust ----------------------------------------------------------- trust -------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- date date grandchild grandchild grandchild year year year year dear ----------------- ------------------- -------------------------- ------------------------ -------------------- ------------------------------ ------- ------- ------- ------- plr-142012-05 this is in response to your letter dated date submitted on your behalf by your authorized representative and other correspondence regarding the gift_tax and generation-skipping_transfer gst tax consequences of certain transfers to trusts the facts and representations submitted are summarized as follows on date h and w established two separate irrevocable trusts trust and trust for the benefit of grandchild and grandchild respectively on date h and w established a third irrevocable_trust trust for the benefit of grandchild the terms of trusts are substantially identical but for the identity of the grandchild for whom the trust was established the primary beneficiary under the terms of each trust the trustee may distribute any part or all of the income and principal of the trust to or for the benefit of the primary beneficiary during the primary beneficiary’s lifetime if the primary beneficiary is not living then to the extent the trust corpus is not appointed by the primary beneficiary as discussed below the trustee may distribute any part or all of the income and corpus to the primary beneficiary’s descendants or if none then to the primary beneficiary’s siblings and their descendants or if none then to other beneficiaries who may include non-skip persons as defined in sec_2613 each trust provides that the trustee is to make distributions as the trustee shall deem to be in the best interest of the beneficiary or beneficiaries grantor does not intend that such distributions be limited to the amounts necessary for maintenance education and support with respect to trust sec_1 and if the primary beneficiary dies prior to reaching age the corpus is to be distributed pursuant to the primary beneficiary’s exercise of a testamentary general power to appoint the accumulated income and corpus of trust to certain person’s and entities including the primary beneficiary’s estate with respect to trust if the primary beneficiary dies prior to reaching age the primary beneficiary may with the consent of a trustee who is not an adverse_party by written instrument delivered to the trustee appoint the accumulated income and corpus of trust to the primary beneficiary’s estate a trustee who is not an adverse_party is defined in trust as a trustee who is a person not having a substantial interest in the trust estate which is adverse to the exercise of the power in favor of the primary beneficiary if there is no such trustee then acting trust provides a procedure for designating such trustee upon reaching age the primary beneficiary has the right to terminate their respective trust if the primary beneficiary exercises this right the trust assets will be distributed to the primary beneficiary in fee simple and free of trust if the primary beneficiary does not exercise this right within days after receiving notice the right to terminate will lapse if the primary beneficiary does not exercise the termination power then each trust continues after the primary beneficiary reaches age the trustee’s authority to make discretionary distributions to the primary beneficiary continues as described plr-142012-05 above upon the primary beneficiary’s death the trust corpus is to be distributed pursuant to the primary beneficiary’s exercise of a testamentary special power to appoint trust income and corpus to h and w’s descendants after the primary beneficiary reaches age any person may make a contribution to the trust and grant to any of h’s and w’s descendants the right to withdraw property from the trust equal to the lesser_of the greater of dollar_figure or of the aggregate value of the trust principal or the beneficiary’s proportionate share of the contribution based on the number of beneficiaries with withdrawal rights this right will lapse if it is not exercised within days after the beneficiary receives notice of the contribution the trustee is directed to segregate any part of the trust property to which gst_exemption was allocated the exempt portion any exempt portion shall be held by the trustee as a separate trust with the same terms conditions and name as the trust from which it was segregated provided that the exempt portion shall have a zero inclusion_ratio as defined in sec_2642 all trusts created under the trust agreement will terminate on the day preceding the expiration of years from the death of the last survivor of the following persons living on the date of trust is executed h and w h’s and w’s children and other descendants of h and w and all persons who are mentioned by name in the trust agreement and all of their descendants upon termination the assets of trust will be delivered and distributed in fee simple and free of trust to the income beneficiaries at the time of termination it is represented that h and w made transfers of cash to trust sec_1 and in years and to trust in years in each case the transfer made in a calendar_year to each trust did not exceed the gift_tax annual exclusion for that year under sec_2503 grandchild and are all currently under the age of the following rulings have been requested each of trusts satisfies the requirements of sec_2503 from the date of its inception through the date the primary beneficiary reaches age the contribution period accordingly all contributions to trust sec_1 and in years and to trust in years were excluded from h’s and w’s total gifts for federal gift_tax purposes further all future contributions to each of trusts during the contribution period will be excluded from h’s and w’s total gifts for federal gift_tax purposes except to the extent any contributions exceed the amount described in sec_2503 each of trusts is a skip_person with respect to h and w within the meaning of sec_2613 during the contribution period accordingly all contributions by h and w to trusts in years and to trust in years were direct skips within plr-142012-05 the meaning of sec_2612 and any further contributions by h and w to trusts during this period will be direct skips h’s and w’s unused gst_exemption was automatically allocated to contributions by h and w to trust sec_1 and in years and trust in years to the extent necessary to make the inclusion_ratio for such property zero in accordance with sec_2632 sec_2501 imposes a tax on the transfer of property by gift during each calendar_year by any individual sec_2511 provides that the gift_tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible interests in property made to any person by the donor during the calendar_year the first dollar_figure adjusted for inflation as provided in sec_2503 of such gifts to such person shall not be included in the total_amount_of_gifts made during such year sec_2503 provides that in the case of gifts other than gifts of future sec_25_2503-3 of the gift_tax regulations provides that no part of the sec_2503 provides that no part of a gift to an individual who has not value of a gift of a future_interest may be excluded in determining the total_amount_of_gifts made during the calendar_period future_interest is a legal term and includes reversions remainders and other interests or estates whether vested or contingent and whether or not supported by a particular interest or estate which are limited to commence in use possession or enjoyment at some future date or time sec_25_2503-3 provides that an unrestricted right to the immediate use possession or enjoyment of property or the income from property such as a life_estate or term certain is a present_interest in property an exclusion is allowable with respect to a gift of such an interest attained the age of years on the date of the transfer shall be considered a gift of a future_interest in property for purposes of sec_2503 if the property and the income therefrom may be expended by or for the benefit of the donee before his attaining the age years and will to the extent not so expended pass to the donee on his attaining the age of years and in the event the donee dies before attaining the age of years be payable to the estate of the donee or as he may appoint under a general_power_of_appointment as defined in sec_2514 sec_2503 by reason of the mere fact that there is left to the discretion of a trustee the determination of the amounts if any of the income or property to be expended for the benefit of the minor and the purpose for which the expenditure is to be made sec_25_2503-4 provides in part that a transfer does not fail to satisfy plr-142012-05 provided there are no substantial restrictions under the terms of the trust instrument on the exercise of such discretion the donee upon reaching age has the right to extend the term of the trust or the governing instrument contains a disposition of the property or income not expended during the donee’s minority to persons other than the donee's estate in the event of the default of appointment by the donee revrul_74_43 1974_1_cb_285 holds that a gift in trust for the benefit of a minor beneficiary satisfies the requirements of sec_2503 where the trust provides that the beneficiary has upon reaching age either a continuing right to compel immediate distribution of the trust corpus by giving written notice to the trustee or to permit the trust to continue by its own terms or a right during a limited period to compel immediate distribution of the trust corpus to the beneficiary which if not exercised will permit the trust to continue by its own terms accordingly a transfer to the trust will constitute a gift of a present_interest qualifying for the annual exclusion under sec_2503 sec_2514 provides that the exercise or release of a general power of sec_2514 defines general_power_of_appointment as a power exercisable appointment created after date shall be deemed a transfer of property with respect to the individual possessing the power in favor of the individual possessing the power the individual’s estate or the creditors of either in general under sec_2514 a power exercisable by the possessor in conjunction with another person is a general_power_of_appointment if the person whose joinder is required does not have a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent sec_2514 provides that the lapse of a power_of_appointment created after date during the life of the individual possessing the power shall be considered a release of such power however this rule applies with respect to the lapse of powers during any calendar_year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeded in value at the time of such lapse the greater of the following amounts a dollar_figure or b percent of the aggregate value at the time of such lapse of the assets out of which or the proceeds of which the exercise of the lapsed powers could have been satisfied sec_2601 imposes a tax on every generation-skipping_transfer gst a gst sec_2612 provides that the term direct_skip means a transfer subject is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip to a tax imposed by chapter or of an interest in property to a skip_person sec_2613 provides that the term skip_person means a natural_person assigned to a generation which i sec_2 or more generations below the generation assignment of the transferor or a_trust if all interests in such trust are held by skip persons plr-142012-05 under sec_2652 and sec_26_2612-1 of the generation-skipping_transfer_tax regulations a person has an interest in a_trust if a person has a present right to receive trust principal or income is a permissible current recipient of trust principal or income and is not described in sec_2055 or is described in sec_2055 and the trust is a charitable_remainder_annuity_trust or unitrust as defined in sec_664 or a pooled_income_fund as defined in sec_642 be the value of the property received by the transferee sec_2623 provides that the taxable_amount in the case of a direct_skip shall sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction in which the numerator is the amount of gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator is the value of the property transferred to the trust or involved in the direct_skip sec_2654 provides that for purposes of gst tax the portions of a_trust attributable to transfers from different transferors shall be treated as separate trusts and substantially separate and independent shares of different beneficiaries in a_trust shall be treated as separate trusts sec_2631 as in effect for gst transfers before date provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor for gst transfers after date the gst_exemption amount is equal to the applicable_exclusion_amount under sec_2010 sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that if any individual makes a direct_skip during his lifetime any unused portion of such individual's gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the direct_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred sec_2632 plr-142012-05 provides that for purposes of sec_2632 the unused portion of an individual's gst_exemption is that portion of such exemption which has not previously been allocated by such individual or treated as allocated under sec_2632 or sec_2632 sec_2642 provides in part that if the allocation of the gst_exemption to any transfers of property is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 such allocation shall be effective on and after the date of such transfer in this case the terms of trusts provide that the trustee may make discretionary distributions of corpus and income to grandchild grandchild or grandchild respectively until the beneficiary reaches age if the grandchild dies before reaching age the corpus is to be distributed pursuant to the grandchild’s exercise of a general_power_of_appointment upon reaching age the respective grandchild has the right to terminate his or her trust and receive the accumulated income and corpus free of trust however if the grandchild does not terminate the trust then the trust continues for the benefit of the grandchild based upon the information submitted and the representations made we conclude as follows from the date of its inception through the date the primary beneficiary reaches age the contribution period each of trusts satisfies the requirements of sec_2503 accordingly h’s and w’s contributions to trust sec_1 and in years and to trust in years are excluded from the respective donor’s total gifts for federal gift_tax purposes further all of h’s and w’s future contributions to each of trusts during the contribution period will be excluded from the respective donor’s total gifts for federal gift_tax purposes except to the extent any contributions exceed the amount described in sec_2503 each of trusts is a skip_person with respect to h and w within the meaning of sec_2613 during the contribution period accordingly all contributions by h and w to trust sec_1 and in years and to trust in years were direct skips within the meaning of sec_2612 and any further contributions by h and w to trusts during this period will be direct skips in accordance with sec_2632 h’s and w’s unused gst_exemption was automatically allocated to contributions by h and w to trust sec_1 and in years and trust in years to the extent necessary to make the inclusion_ratio for such property zero except as specifically ruled herein we express or imply no opinion on the federal tax consequences of any aspect of any transaction or item discussed or referenced in plr-142012-05 this letter under the cited provisions or under any other provisions of the code no opinion is expressed or implied concerning the application of sec_2642 to trusts the rulings contained in this letter are based upon information and representations submitted by the taxpayers 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 s 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 sincerely letter is being sent to your authorized representative enclosures copy for sec_6110 purposes copy of this letter george l masnik branch chief branch passthroughs special industries 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 plr-105029-10 date date in re -------------------------------------------- --------------------------------------------------------- --------------------- legend ---------------------------- testator -------------------------------------- child a ----------------------------- child b --------------------------------------- child c -------------------------------- stock ------------------------------------------------------------------------------ stock trust ------------------------------------------------------------------------------ residuary_trust children’s agreement ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- state state a date date date date date date a b c d stock trust a residuary_trust a cite --------------------------------------------------------------------------------------------------- cite ------------------------------------------------------------------------------------------------------------------------ ------------------ ---------- -------------------- ------------------- -------------------------- ------------------------- ------------------------- ----------------------- ------ ------- ------ ------ ------------------------------------------------------------------------ --------------------------------------------------------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------------------------- plr-105029-10 ------------------------------------------------------------------------ ------------------------------------------------------ cite cite ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------- cite ------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ cite ------------------------------------------------------------------------ ------------------------------------------------------- cite cite ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- highest court highest court of state a state court state statute ------------------------------------------------------------------------------------------ state governing statute a --------------------------------------------- -------------------------------------------------- state governing statute b --------------------------------- state a statute ---- q r ---- ---- s ---- t u -------- -------- v -------- x ------ y z ------------ ------------------------------------------- ----------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------------------------- dear ------------------ this responds to the date letter from your authorized representative requesting rulings on the income gift estate and generation-skipping_transfer gst tax consequences of a proposed settlement agreement the facts and representations are as follows testator died a resident of state on date he was survived by three children child a child b and child c the children five grandchildren the five grandchildren were then living there were no great-grandchildren at the time under articles third and eighth of testator’s will the will his shares of stock were to be held in trust the stock trust trust income was to be divided equally among the children on a child’s death the child’s income share was to be divided equally plr-105029-10 among the child’s then living children testator’s grandchildren the stock trust was to terminate twenty-one years after the death of testator’s last surviving grandchild when the principal would be divided equally per capita among testator’s then living great-grandchildren and deceased great-grandchildren whose then living descendants would take by representation under article twenty-second of the will the residue of testator’s estate was to be held in another trust the residuary_trust the residuary_trust provisions were identical to those of the stock trust except that the residuary_trust was to terminate when testator’s youngest great-grandchild reached age twenty-one the rule_against_perpetuities under the state rule_against_perpetuities in effect at testator’s death a bequest of a future_interest was void if considered prospectively at the testator’s death there was a possibility that the interest would not vest by the end of twenty-one years after the death of a life or lives in being at the testator’s death the permissible period a bequest to a class was void if there was a possibility that all the members of the class would not be ascertained and take vested interests within the permissible period a void specific_bequest passed to the testator’s residuary_estate if the testator’s disposition of the residuary_estate was void as well the residuary_estate passed as a reversion by intestacy cite in this case at testator’s death it was possible for the children to have additional children so that there could be grandchildren whose lives were not then in being this was the pivotal factor in determining whether his bequests of stock trust and residuary_trust income and remainders to his grandchildren and great-grandchildren violated the rule_against_perpetuities testator’s bequest of lifetime income interests to the grandchildren was to all of his grandchildren as a class a grandchild born after testator’s death would be part of the grandchildren’s class and would receive stock trust income_for_life based on this it was considered possible that not all of the grandchildren’s income interests would vest during lives in being at testator’s death testator’s bequests of remainders to his great-grandchildren were to vest only after all of testator’s grandchildren died the life of a grandchild born after testator’s death would also be a measuring life therefore at testator’s death it was possible that the certain annuities were also created that have since terminated each trust considered herein ie stock trust and residuary_trust in the will and stock trust a and residuary_trust a under the children’s agreement provided for distribution of the remainder at the end of twenty-one years following the death of the last survivor of the persons whose lives measured the duration of that trust because the perpetuities issue in this case centers on the lives measuring a respective trust’s duration and not on the twenty-one year period following the death of the last survivor the twenty-one year period is hereafter assumed to be a part of each trust’s duration even though it is plr-105029-10 time for vesting of the great-grandchildren’s remainders would be based on a life not in being at testator’s death accordingly the validity of these bequests was in doubt the bequests in the stock trust if void passed to the residuary_trust at testator’s death the bequests in the residuary_trust if void passed to testator’s intestate estate as a reversionary_interest the children’s agreement the children were testator’s heirs at law they acquired his property passing by intestacy consequently on date shortly after testator died the children entered into an agreement the children’s agreement revising the time when the great-grandchildren’s remainders were to vest under the children’s agreement the trusts were to terminate and the great-grandchildren’s remainders were to take effect on the death of the survivor of the children and five grandchildren that is lives in being at testator’s death the children’s agreement also changed the will’s pro_rata distribution of the stock trust and residuary_trust remainder to a per stirpes distribution on termination trust principal would be divided into three equal parts and distributed per stirpes under this revision the great-grandchildren descended from child a would share one third of the principal per stirpes those descended from child b would share a second third per stirpes and those descended from child c would share the last third per stirpes in all other respects the terms of the revised stock trust stock trust a and residuary_trust residuary_trust a were the same as those provided in testator’s will on a date before date testator’s shares of stock were transferred to stock trust a residuary_trust a was not funded it is represented that no additions have been made since then the litigation over more than x decades the trust beneficiaries and others have instituted actions for state court determinations regarding testator’s will and the children’s agreement specifically in cite the highest court of state highest court considered testator’s bequests of income interests to the grandchildren the court reasoned that under testator’s will a grandchild’s income_interest would vest when his or her parent child a child b or child c died thus the grandchildren’s class would necessarily close at the death of the last survivor of the children who were in being at testator’s death highest court held that therefore the bequest of lifetime income interests to the grandchildren as a class did not violate the rule_against_perpetuities the court held the stock trust created in the will to be valid through the lives of the grandchildren not specifically stated testator’s bequest to the grandchildren though valid did not provide for distribution of a grandchild’s income share when the grandchild died before the trust ended on the death of the first grandchild to plr-105029-10 highest court then considered testator’s bequest of remainders to his great-grandchildren the court reasoned that the grandchildren’s life estates preceded the remainders and the grandchildren’s class was not limited to lives in being at testator’s death because the remainders would take effect only after all of those including afterborn grandchildren died it was possible that the remainders would not vest within lives in being at testator’s death therefore highest court held the stock trust remainders to be void and illegal as violating the rule_against_perpetuities cite state statute the wait and see rule nearly y decades after highest court rendered its decision in cite the state legislature enacted state statute state statute provides a wait and see rule in determining whether a future_interest satisfies the rule_against_perpetuities or is void under the wait and see rule a future_interest does not violate the rule_against_perpetuities if actual events demonstrate that the interest did in fact vest by the end of the permissible period state statute applies retroactively to all interests heretofore created following the enactment of state statute highest court considered the statute’s retroactivity cite in the case before the court the trust was created many decades before state statute was enacted at the time of creation certain interests were void as violating the rule_against_perpetuities however highest court applied state statute’s wait and see rule to conclude in retrospect that the interests were not void and did not violate the rule_against_perpetuities as a result the courts of state now apply the wait and see rule retroactively to conclude that a future_interest that was void when created many years before state statute was enacted is not void because in hindsight it vested before the permissible period ended accordingly such otherwise void interests are retroactively sustained as not violating the rule_against_perpetuities cite however highest court has not yet addressed due process issues that may be presented die on date the trustees petitioned the state court for instructions the state court held that based on testator’s intent a deceased grandchild’s children succeeded to the income share for the duration of the trust cite by inference highest court also considered testator’s bequest of the residuary_trust remainders highest court in effect confirmed that the stock trust remainder and residuary_trust remainder passed by intestacy to the children however the court did not rule on how the remainder would pass to the great-grandchildren in contrast the legislature of state a enacted state a statute which like state statute retroactively applies a wait and see rule to determine whether a future_interest that was void at the time it was plr-105029-10 the actualities in this case no additional grandchildren were born after testator’s death the lives of the children and the five grandchildren were all in being at testator’s death all of the children have died the last survivor of the five grandchildren died on date at the time there were z great-grandchildren of testator the trust will terminate twenty-one years after date which is date of testator’s z great-grandchildren a descended from child a b descended from child b and c descended from child c if the wait and see rule is applied to validate testator’s bequest of remainders to his great-grandchildren the principal would be divided into z equal shares and distributed under the will alternatively if testator’s disposition of the remainders is considered void the principal would be divided into three equal shares and distributed per stirpes under the children’s agreement the portion of a one-third share distributable to a great-grandchild would depend on the framework of the family line ie child a’s child b’s or child c’s to which that great-grandchild belongs great-grandchildren’s litigation there is a substantial difference between what a great-grandchild would receive in a per capita distribution and what he or she would receive in a per stirpes distribution on date the great-grandchildren benefitting from a per capita distribution the per capita parties instituted their action in state court for adjudication on the distribution of the stock trust remainder the great-grandchildren benefitting from a per stirpes distribution the per stirpes parties opposed the suit and also requested adjudication in addition an action was instituted concerning the distribution of income during the twenty-one year period state court combined the proceedings to consider the income and principal issues together cite over a d-year period guardians ad litem were appointed there was extensive discovery counsel filed three voluminous sets of briefs and the court heard two days of oral arguments the per capita parties argued that the wait and see test of state statute now applies under that test testator’s the will’s disposition of the stock trust remainder does not violate the rule_against_perpetuities therefore the stock trust principal is distributable per capita to testator’s living great-grandchildren and deceased great-grandchildren whose living descendants would take by representation created before the state a statute was enacted did in fact vest during the permissible period highest court of state a refused to apply the wait and see rule retroactively despite the relevant language in state a statute instead that court addressed issues of constitutionality and held that state a statute could not be applied retroactively to destroy vested or substantive rights created before state a statute was enacted cite plr-105029-10 the per stirpes parties argued that the highest court’s determinations were final and those rulings can not now be constitutionally impaired by a later-in-time state statute or judicial_ruling because highest court determined the remainders in the will to be void they passed as reversionary interests by intestacy to the children as such the remainders passed per stirpes under the children’s agreement some parties argued that trust income should be distributed per stirpes through the roots of the children for the duration of the stock trust others argued that the income is distributable per capita the court encouraged the parties to explore ways to resolve their differences through negotiation and compromise rather than through continued litigation among the potential outcomes regarding trust principal was a judicial_ruling that i ii iii principal is distributable per capita on date under the terms of the stock trust in the will or principal is distributable per stirpes on date under the terms of the children’s agreement or principal was distributable as of the last surviving grandchild’s death under the residuary_trust in the will which vested or will vest in the takers under the residuary_trust among the potential outcomes regarding trust income was a judicial_ruling that iv v vi income is distributable per stirpes from the death of the last surviving grandchild to date under either the will or the children’s agreement or income is distributable per capita from the death of the last surviving grandchild to date under the will or the children’s agreement or all rights to receive stock trust income terminated when the last surviving grandchild died at which time the stock trust principal was distributable under the residuary_trust of the will the great-grandchildren’s settlement agreement the parties negotiated extensively at the outset they agreed that the issues could be settled using a fractional difference settlement based on an assessment of the relative strengths of their adverse positions under the general framework of the compromise the great-grandchildren’s settlement plr-105029-10 agreement the ggc agreement provides for the stock trust principal to be divided into z separate shares based on the number of testator’s then living great-grandchildren and deceased great-grandchildren with then living children the share of a deceased great-grandchild will be divided per stirpes among that great-grandchild’s living descendants the stock trust assets will be divided in accordance with certain percentages the formula of the compromise provides for a q per stirpes r per capita fractional difference as to income and an s per stirpes t per capita fractional difference as to principal after the division into separate shares u of each great-grandchild’s share will be distributed outright to the great-grandchild if living or if the great-grandchild is deceased to his or her living descendants per stirpes the remaining v of each share will continue in trust for such great-grandchild or such descendants until the termination_date date each share will be a separate trust the respective great-grandchild or deceased great-grandchild’s descendants will be the sole beneficiary of the share for distributions of income and principal a sophisticated algorithm taken to thirteen decimal places will be used in the pro_rata division and outright distributions the division will take into account both the market_value and respective tax bases of the assets the ggc agreement was presented to state court for consideration the state court approved the settlement and ordered the division and distribution of the stock trust as set forth in the ggc agreement the ggc agreement is subject_to a favorable ruling from the internal_revenue_service you have asked for the following rulings the terms of the ggc agreement will not cause distributions from the stock trust or the continuing separate settlement trusts to become subject_to the generation-skipping_transfer_tax the terms of the ggc agreement will not cause any party to the agreement to make a gift to any other party to the ggc agreement the terms of the ggc agreement will not cause any party to the agreement to be required to include trust assets in his or her gross_estate unless such assets are distributable or have been distributed to such party prior to his or her death the terms of the ggc agreement will not cause any party to the agreement to realize income from the sale_or_exchange of any trust assets or interests for purposes of describing the ggc agreement the stock trust and stock trust a are considered to be the same trust plr-105029-10 ruling generation-skipping_transfer gst tax sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to chapter if the settlement is the product of arm's length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties' assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes in this case the stock trust was irrevocable on date further it is represented that there have been no actual or constructive additions to the stock trust after date accordingly the stock trust is exempt from gst tax under sec_26_2601-1 the terms of the ggc agreement including the proposed division of the stock trust into separate shares and partial distributions of principal are the result of a settlement of substantial issues between the per capita parties and the per stirpes parties these issues have been tenaciously litigated over more than x decades highest court rendered opinions regarding these trusts many years ago however state statute has since been enacted with retroactive effect and highest court has affirmed state statute’s retroactive application to a similarly-created trust in light of this that court’s plr-105029-10 earlier determinations of the issues in this case are now in question we conclude that the ggc agreement constitutes a settlement of bona_fide issues concerning the provisions of the stock trust and its administration we also conclude that the terms of the ggc agreement are the product of arm's length negotiations they represent a compromise between the positions of the parties and reflect the parties' assessments of the relative strengths of their positions we further conclude that the ggc agreement is within the range of reasonable outcomes under the governing instruments and the applicable state law addressing the issues resolved in the ggc agreement accordingly based upon the facts submitted and the representations made we rule that the division of the stock trust into the z separate great-grandchildren’s trusts and the distributions to the living great-grandchildren and the descendants by representation of a deceased great-grandchild made in accordance with the ggc agreement will not cause the stock trust the continuing separate stock trusts or the distributions as described above to be subject_to the generation-skipping_transfer_tax ruling gift_tax issue sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in him or her no power to change its disposition whether for his or her own benefit or for the benefit of another the gift is complete sec_25_2511-1 provides that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax whether an agreement settling a dispute is effective for gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party's claim if it is determined that each party has a valid claim the service must determine that the distribution under the settlement reflects the result that would apply under state law if there is a difference it is plr-105029-10 necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated the proposed settlement is a mediated settlement and is based on arm's length negotiations among all the parties all interested parties who hold or may hold an interest in the trusts including any minors and unborn heirs have been represented in the negotiations as discussed above the ggc agreement represents the resolution of a bona_fide controversy between the parties the terms of the ggc agreement are the product of arm's length negotiations and represent i a compromise between the positions of the per capita parties and the per stirpes parties and ii reflect the parties' assessments of the relative strengths of their positions we further conclude that the ggc agreement is within the range of reasonable outcomes under the governing instruments and applicable state law accordingly based on the facts submitted and representations made we conclude that the terms of the ggc agreement as described above will not cause any of the beneficiaries to have made a taxable gift_for purposes of the federal gift_tax under sec_2501 ruling estate_tax issue sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of death sec_2035 provides that if the decedent transferred an interest in property or relinquished a power with respect to any property during the 3-year period ending on the date of death and the value of the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the interest or power had been retained by the decedent on the date of death then the value of the gross_estate includes the value of the property or interest that would have been so included sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period that does not in fact end before his death possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income from the property plr-105029-10 sec_2037 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona fine sale for adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend or revoke or where the decedent relinquished any such power during the 3-year period ending on the date of the death sec_2041 provides that the value of the gross_estate shall include the value of all property with respect to which the decedent possessed a general_power_of_appointment at the time of death sec_2041 defines the term general_power_of_appointment as a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate in order for sec_2035 through to apply a decedent must have made a transfer of property or an interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth under which the decedent retained an interest in or power over the income or corpus of the transferred property as discussed above the ggc agreement represents the resolution of a bona_fide controversy between the parties it is a settlement of bona_fide issues and is the product of arm's length negotiations it reflects the parties' assessments of the relative strengths of their positions no great-grandchild or deceased great-grandchild’s descendants by representation has made a transfer to the stock trust or to any other great-grandchild by reason of the settlement agreement accordingly based upon the facts submitted and representations made we conclude that the terms of the ggc agreement will not cause any party to the agreement to have made a transfer within the meaning of sec_2035 through however once the ggc agreement becomes effective any trust property actually distributed or receivable by a beneficiary or his or her assignee would generally be included in the beneficiary’s federal transfer_tax base see eg sec_2033 sec_2041 sec_2501 plr-105029-10 ruling income_tax issue sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained 499_us_554 addresses the issue of whether a sale_or_exchange that has taken place results in the realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court in cottage savings u s pincite concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite in the present case state governing statute a allows the court for cause shown to authorize the division of a_trust into two separate trusts on such terms and conditions and with such notice as the court directs in addition state governing statute b gives trustees the power to distribute in cash or in_kind or partly in each and allocate particular assets in proportionate or disproportionate shares plr-105029-10 in this case the court order approving the ggc agreement orders the division and distribution of the stock trust as set forth in the ggc agreement accordingly the court approved the non-pro rata distributions called for in the ggc agreement and further authorized the trustees to make the necessary transfers and assignments of the unconverted investment securities t herein awarded in_kind accordingly the submission concludes that the distribution scheme in this case is authorized by state law we agree the stock trust will be divided into z trusts on a non pro-rata basis under the state statutes cited above the court has the authority to authorize the trustees to make this type of non pro-rata apportionment thus the proposed division and distribution of the stock trust assets among the z trusts will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries within the meaning of cottage savings accordingly based upon the facts submitted and representations made we conclude that the division of the stock trust into the z great-grandchildren’s trusts will not result in the recognition of gain_or_loss under sec_1001 by the stock trust any beneficiary of the stock trust or any separate great-grandchild’s trust the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours leslie h finlow acting senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosure copy for purposes


internal_revenue_service number release date index number -------------------------- ---------------------------------- -------------------------------------- in re ---------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------- id no ----------- ------------------ telephone number ---------------------- refer reply to cc psi b04 plr-103271-16 date june legend taxpayer trust date date dear ---------------- -------------------------- --------------------------- -------------------------- -------------------------- this letter responds to your authorized representative’s letter of date requesting an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to allocate generation-skipping_transfer gst_exemption to a transfer to a_trust the facts as represented are as follows on date a date before date taxpayer created trust an irrevocable_trust trust has gst tax potential on date also a date before date taxpayer made a gift to trust taxpayer retained tax professionals to prepare her form_709 united_states gift and generation-skipping_transfer_tax return to report the gift to trust in preparing the form_709 the tax professionals inadvertently failed to allocate taxpayer’s gst_exemption to trust taxpayer represents that she has gst_exemption available to allocate to the date transfer to trust taxpayer requests an extension of time to allocate gst_exemption to the date gift to trust and that such allocation be based on the value of the property transferred to trust on date 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 plr-103271-16 sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2631 in effect on the tax_year in question provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount of dollar_figure 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 any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such return is required to be filed sec_2641 defines the applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a gst is the excess if any of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph 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 gst_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 plr-103271-16 under the provisions of sec_301_9100-1 through sec_301 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 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 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_9100-3 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 in part 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 requirements of sec_301_9100-3 are satisfied therefore taxpayer is granted an extension of time of days from the date of this letter to allocate gst_exemption to the date gift to trust the allocation will be based upon the value of the property transferred to trust on date and effective as of date the allocation should be made on a supplemental form_709 for the year in which the date gift occurred and filed with the internal_revenue_service center cincinnati service_center - stop cincinnati oh for association with the form_709 you should attach a copy of this letter to the supplemental form_709 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 in accordance with the power_of_attorney on file with the office we have sent a copy of this letter to your authorized representatives plr-103271-16 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely melissa c liquerman melissa c liquerman chief branch associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------ ------------------------------------------------------------ --------------------------------------------- ----------------------------------------------------- ---------------------------------------- - department of the treasury washington dc person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 - plr-162381-03 date date trust ---------------------------------------------------------------------------------------------------- ------------------------ charity ---------------------------------------------------------------------------------------------------- d1 - ------------- year ------- year ------- year ------- a b --------- ----------- dear ------------ this is in reply to your letter dated date and subsequent correspondence submitted by you on behalf of the trust requesting that the service grant the trust an extension of time pursuant to ' of the procedure and administration regulations to make an election under ' c of the internal_revenue_code for its year taxable_year the information submitted states that the grantor of the trust died on d1 of year the trust provides that the remaining trust principal after the payment of taxes and plr-162381-03 other expenses should be distributed to charity no distributions to charity were made during year on the income_tax return for the year taxable_year the trust incorrectly claimed a charitable deduction under ' c for dollar_figurea which represented all of the trust’s gross_income for year in year the trust distributed all of its gross_income to charity and claimed a charitable deduction under sec_642 for the entire amount of dollar_figureb on its income_tax return for the year taxable_year the trust made final distributions to charity in year and terminated the service examined the trust’s year income_tax return and determined that a sec_642 deduction was not allowable because the trust was not a_trust eligible to take a set-aside deduction an amended year income_tax return was filed which included a sec_642 election to deduct amounts of trust gross_income paid to the charity in year the date to file an effective election under ' c for the year taxable_year allowing a deduction for amounts paid to charity in year had already passed therefore the trust requested an extension to file a ' c election for year under ' sec_642 provides that in the case of an estate_or_trust there shall be allowed as a deduction in computing its taxable_income any amount of the gross_income without limitation which pursuant to the terms of the governing instrument is during the taxable_year paid for a purpose specified in ' c if a charitable_contribution is paid after the close of such taxable_year and on or before the last day of the taxable_year following the close of such taxable_year then the trustee or administrator may elect to treat such contribution as paid during such taxable_year the election shall be made at such time and in such manner as the secretary prescribes by regulation sec_1_642_c_-1 of the income_tax regulations provides that the election under ' c shall be made not later than the time including extensions thereof prescribed by law for filing the federal_income_tax return for the succeeding taxable_year sec_1_642_c_-1 provides that the election shall be made by filing with the income_tax return or amended_return for the taxable_year in which the contribution is treated as paid a statement which i states the name and address of the fiduciary ii identifies the estate_or_trust for which the fiduciary is acting iii indicates that the fiduciary is making an election under ' c in respect of contributions treated as paid during such taxable_year iv gives the name and address of each organization to which any such contribution is paid and v states the amount of each contribution and date of actual payment or if applicable the total amount of contributions paid to each plr-162381-03 organization during the succeeding taxable_year to be treated as paid in the preceding_taxable_year under ' c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i requests for relief under ' will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' based on the information submitted and the representations made we conclude that the requirements of ' have been satisfied as a result the trust is granted an extension of time for days from the date of this letter to file an election under ' c for the trust s year taxable_year the election must be made on the amended_return for the trust s year taxable_year an amended year return must be filed which does not claim a sec_642 deduction for amounts of year gross_income paid to the charity in year the amended returns must be filed within the sixty day period with the service_center where the trust files its returns copies of the amended returns must be filed with the service office currently examining the trust s returns a copy of this letter should be attached to the amended returns copies are included for that purpose except as specifically set forth above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code plr-162381-03 this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent enclosures copy of this letter copy for ' purposes sincerely heather c maloy associate chief_counsel passthroughs special industries


department of the treasury internal_revenue_service washington d c date cc dom fs corp uilc number release date internal_revenue_service national_office field_service_advice memorandum for from assistant chief_counsel field service cc dom fs subject consents to extend statutes of limitation 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 cited as precedent legend corp a corp b corp c corp d taxable_year taxable_year taxable_year date a date b date c date d date e date f date g date h date i date j issues who is the proper party to execute form sec_2045 transferee agreement and consent to extend the time to assess liability at law or in equity for income gift and estate_tax against a transferee or fiduciary for the tax_liabilities of the corp a subsidiaries consolidated_group for its taxable_year sec_1 and who is the proper party to execute form sec_872 consent to extend the time to assess tax for the corp b subsidiaries consolidated_group for its taxable_year what is proper language to use on the forms and for the tax_liabilities of the corp a subsidiaries consolidated group’s taxable_year sec_1 and what is proper language to use on the form_872 for the corp b subsidiaries consolidated group’s taxable_year conclusion corp c is the proper party to execute form sec_2045 transferee agreement and consent to extend the time to assess liability at law or in equity for income gift and estate_tax against a transferee or fiduciary for the tax_liabilities of the corp a subsidiaries consolidated_group for its taxable_year sec_1 and corp d is the proper party to execute form sec_872 consent to extend the time to assess tax for the corp b subsidiaries consolidated_group for its taxable_year the proper language to use on the forms and for the tax_liabilities of the corp a subsidiaries consolidated group’s taxable_year sec_1 and is corp c e i n xx-xxxxxxx as transferee of corp a e i n xx-xxxxxxx the proper language to use on the form_872 for the corp b subsidiaries consolidated group’s taxable_year is corp d e i n xx-xxxxxxx as alternative agent for the corp b subsidiaries consolidated_return group pursuant to temp sec_1_1502-77t and as successor by merger of corp b e i n xx-xxxxxxx put an asterisk immediately thereafter as shown at the bottom of the page the following language should be added including the asterisk this is with respect to the consolidated_tax_liability of the corp b e i n xx-xxxxxxx subsidiaries consolidated_return group for the taxable_year facts corp a was a common parent of and filed consolidated_returns for the corp a subsidiaries consolidated_group for taxable_year sec_1 and sometime in or around date a corp b obtained the stock of corp a this transaction may have constituted a reverse_acquisition as a result of the transaction corp a became a member of the affiliated_group of which corp b was the common parent corp b filed consolidated_returns for the group for taxable_year in date f corp b and its first-tier subsidiary corp a simultaneously merged into corp d and corp c respectively corp d and corp c survived the mergers the service obtained several form sec_872 covering various periods a corp a subsidiaries’ taxable_year sec_1 and tax_liabilities - corp a executed form sec_872 with regard to the consolidated group’s taxable_year sec_1 and in date b extending the date to date d date c extending the date to date g and date e extending the date to date i on date i exam obtained a form_872 from corp d to extend the assessment_date to date j b corp b subsidiaries’ taxable_year tax_liabilities -- corp b executed a form_872 with regard to the consolidated group’s taxable_year in date f extending the assessment_date to date i in date h exam obtained a form_872 from corp d extending the assessment_date to date j law and analysis where the common parent remains in existence even if it no longer is the common parent it remains the agent for the group with regard to years in which it was the common parent of the group sec_1_1502-77 1502-77t a i here prior to its merger into corp c corp a was the common parent for the corp a subsidiaries consolidated group’s taxable_year sec_1 and and therefore was a proper party to sign an extension of the statute_of_limitations with regard to those years thus as a result of corp a’s merger into corp c the latter became a proper party to execute a form_872 regarding the corp a group’s taxable_year sec_1 and sec_1_1502-77t a ii at the same time there may also be another party that may properly execute a form_872 for the corp a group’s taxable_year sec_1 and a reverse_acquisition occurs under sec_1_1502-75 if i a corporation the first_corporation acquires stock of another corporation the second corporation and ii as a result the second corporation becomes or would become but for the assuming that is that sec_381 applies to this transaction and the transaction constituted a statutory merger application of sec_1_1502-75 a member of the group of which the first_corporation is a common parent iii in exchange in whole or in part for the stock of the first_corporation and iv the stockholders immediately before the acquisition of the second corporation as a result of owning stock of the second corporation own immediately after the acquisition more than percent of the fair_market_value of the outstanding_stock of the first_corporation if a reverse_acquisition occurs any group of which the first_corporation was the common parent immediately before the acquisition ceases to exist as of the date of the acquisition and any group of which the second corporation was the common parent immediately before the acquisition is treated as remaining in existence with the first group becoming the common parent of the group although we do not have all the relevant facts to make a definitive determination it appears that corp b’s acquisition of corp a’s stock may have constituted a reverse_acquisition if so the corp a group did not cease on the date of the acquisition but continued in existence with corp b as the common parent pursuant to sec_1_1502-75 as a result corp b became an alternative agent under sec_1_1502-77t a iv and also stepped into the shoes of the common parent for the corp a group’s taxable_year sec_1 and later upon the merger of corp b into corp d the latter became the successor to corp b ie the former common parent and therefore became an alternative agent for the corp b previously the corp a group see sec_1_1502-77t a ii under this analysis it inexorably follows that corp d became a proper party to execute the form_872 for the corp a’s taxable_year sec_1 and in short if corp b’s acquisition of the corp a stock constituted a reverse_acquisition an argument could be made that either corp a or corp b could properly execute a form_872 with respect to the corp a group’s taxable_year sec_1 and the tax_court approved such a result in 101_tc_130 then upon the subsequent mergers of corp a into corp c and corp b into corp d either corp c or corp d could be an alternative agent under sec_1_1502-77t a ii although we believe the foregoing analysis is sound we note that it has not been considered by a court accordingly out of an abundance of caution to obviate any possibility that the form_872 executed by corp d with respect to the corp a group’s taxable_year sec_1 and may be inoperative to extend the statute_of_limitations for those years you should secure form sec_2045 transferee agreement and a form_977 consent to extend the transferee statute_of_limitations from corp c under sec_6901 the service ha sec_1 year after the expiration of the period of limitations for assessment here date i within which to make assessment against the initial transferee here corp c thus the service has until date to assess transferee_liability against corp c or to obtain an extension of the statute_of_limitations under sec_6901 the transferee forms should read as follows corp c e i n xx-xxxxxxx as transferee of corp a e i n xx- xxxxxxx the forms should be signed by a current officer of corp c under the officer’s name you should type in his or her title and the name corp c corp b the common parent of corp b subsidiaries consolidated_group merged into corp d and ceased to exist assuming that the merger qualifies as a statutory merger and that corp d is a successor under state law corp d is now the proper party alternative agent to execute form sec_872 with respect to the taxable_year tax_liability of the corp b subsidiaries consolidated_group sec_1 77t a ii corp d properly executed the last form_872 with regard to the corp b subsidiaries consolidated group’s taxable_year tax_liability this extension agreement is valid and the service has until date j to either assess any unpaid tax or obtain another form_872 from corp d to extend the statute_of_limitations for extending the statute_of_limitations with regard to the corp b subsidiaries consolidated group’s taxable_year we recommend the following caption corp d e i n xx-xxxxxxx as alternative agent for the corp b subsidiaries consolidated_return group pursuant to temp sec_1_1502-77t and as successor by merger of corp b e i n xx- xxxxxxx put an asterisk immediately thereafter as shown at the bottom of the page the following language should be added including the asterisk this is with respect to the consolidated_tax_liability of the corp b e i n xx-xxxxxxx subsidiaries consolidated_return group for the taxable_year case development hazards and other considerations examination will need to check the merger agreement between corp c and corp a to make sure it states corp c assumes the liabilities of corp a see 84_tc_387 if you have any further questions please call deborah a butler assistant chief_counsel field service by gerald b fleming acting special counsel corporate cc assistant regional_counsel lc assistant regional_counsel tl