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 b03 plr-115195-18 date date x ------------------------------------------------------------------------------------------------ ------------------- legend country --------------- date --------------------- y individual ------------------------------------------------------------------------------------------------ ------------------------- ------------------------------------------------------------------------------------------------ ----------------------------- dear ------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative 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 treat x as a disregarded_entity for federal tax purposes facts x was formed under the laws of country on date x is wholly owned by y a foreign_entity that is wholly owned by individual individual is a u s citizen x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes however x failed to timely file form_8832 entity plr-115195-18 classification election to be treated as a disregarded_entity for federal tax purposes effective date law and analysis 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 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 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 that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that 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 in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that 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 code except subtitles e g h and i sec_301_9100-1 defines a regulatory election as 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 plr-115195-18 sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 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 conclusion based solely on the information submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result x is granted an extension of time of days from the date of this letter to file a properly executed form_8832 with the appropriate service_center electing to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on x and its owner filing accurately and completely within days from the date of this letter all required federal_income_tax and information returns including amended returns for all years consistent with the requested relief these returns must include but are not limited to form_8858 return of u s persons with respect to foreign disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election further we express no opinion concerning the assessment of any interest additions to tax additional_amounts or penalties for failure_to_file a timely income_tax or information_return with respect to any taxable_year that may be affected by this ruling for example we express no opinion as to whether a taxpayer is entitled to relief from any penalty on the basis that the taxpayer had reasonable_cause for failure_to_file timely any income_tax or information returns plr-115195-18 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 pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by ___________________________________ james a quinn senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c date number info release date uilc cc tege eoeg et1 genin-141544-02 memorandum for director internal_revenue_service center kansas city mo attn entity control from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - genin-141544-02 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business ceased to be an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that ceased to be an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business will e mcleod cc


office_of_chief_counsel department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c date uil number info release date conex-114408-06 the honorable john duncan member u s house of representatives market street suite knoxville tennessee dear congressman duncan this is in response to your inquiry dated ------------------------ on behalf of the employees of the --------------------------------- the employees raised several questions concerning the taxation of employer contributions to internal_revenue_code code sec_401 plans and code sec_457 deferred_compensation arrangements the employees are specifically concerned that unlike k ’s and other retirement plans our b plan must withhold social_security and medicare taxes on the employer’s contribution a deferred_compensation arrangement is any plan program or agreement under which an employer promises to pay an amount to an employee at some future date for his past present or in some cases further services a deferred_compensation arrangement can be either qualified or nonqualified as a general_rule a plan must contain numerous specific statutorily mandated provisions in order to be treated as a qualified_plan under code sec_401 including funding nondiscrimination employee coverage distribution and other requirements deferred_compensation arrangements have the basic advantage of deferring income_tax on amounts contributed by the employer to the plan until they are distributed to the employee however contributions to deferred_compensation arrangements may or may not be subject_to taxes under the federal_insurance_contributions_act fica at the time they are made depending on the type of arrangement fica_taxes are imposed on wages paid with respect to employment code sec_3101 generally all remuneration an employer pays for services an employee performs is subject_to fica_taxes unless the law specifically excepts the remuneration from the term wages or excepts the services from the term employment code sec_3101 sec_3111 and sec_3121 the law specifically excepts from wages contributions an employer makes on behalf of an employee to a tax qualified_plan that satisfies all the requirements of code sec_401 code sec_3121 in contrast the law provides that an employer_contribution under a qualified_cash_or_deferred_arrangement under code sec_401 is included in wages and subject_to fica tax code sec_3121 a qualified_cash_or_deferred_arrangement is one that allows an employee to elect to have the employer’s contribution made to the plan on the employee’s behalf or directly to the employee in the form of cash or some other taxable benefit similarly amounts deferred under a sec_457 plan are includable in wages and subject_to fica_taxes as of the later of when the services are performed or when there is no substantial_risk_of_forfeiture of the rights to such amount code sec_3121 this generally means that the amounts are subject_to fica tax at the time of deferral sec_457 provides rules for nonqualified_deferred_compensation_plans established by eligible employers state and local governments and tax-exempt organizations are eligible employers an eligible_state_deferred_compensation_plan is one that meets the requirements of code sec_457 the letter asserts that the fica taxation of amounts deferred under a code sec_457 plan discourages rather than encourages savings and this taxation discriminates against employees covered by a b plan when contributions to other plans are exempt from fica taxation it was not the intent of congress to discourage participants in b plans and similar arrangements from saving for retirement rather the purpose of congress in enacting the provision of sec_3121 was to protect the social_security_wage_base code sec_3121 was enacted as part of the social_security act amendments of public law in senate report no date the senate committee on finance provides insight into the reasons congress enacted sec_3121 generally if an employee receives cash and then chooses too use these funds for personal savings or benefits the amount of cash received in subject_to fica this is true for example for contributions to an individual_retirement_account ira even if the employer transmits the funds directly to the ira account under cash or deferred arrangements certain tax-sheltered annuities certain cafeteria plans and eligible_state_deferred_compensation_plans the employer contributes funds which are set_aside by individual employees for individual savings arrangements and thus the committee believes that such employer contributions should be included in the fica base as is the case for ira macro form rev department of the treasury - internal_revenue_service contributions otherwise individuals could in effect control which portion of their compensation was to be included in the social_security_wage_base this would make the system partially elective and would undermine the fica tax_base i hope this information is helpful please contact me at -------------------- or ------ --- ---------------------------------------if you need further assistance sincerely catherine e livingston assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities macro form rev department of the treasury - internal_revenue_service


tax_exempt_and_government_entities_division uics department of the treasury internal_revenue_service washington d c noy t set rikat attn trustee legend taxpayer a taxpayer b taxpayer c taxpayer d taxpayer e company a company b ira x ira y trust t trustee w subtrust a subtrust b state u amount percentage percentage date date date date date date date month dear a this is in response to the letter submitted on your behalf by your authorized representative s as supplemented by two pieces of correspondence dated in which they on your behalf request a series of letter rulings under sec_401 and sec_408 of the internal_revenue_code code the following facts and representations support your ruling_request taxpayer a whose date of birth was date died on date a resident of state u without having attained age taxpayer a was married at his death and was survived by his spouse taxpayer b taxpayer b’s date of birth was date at his death taxpayer a maintained ira x an individual_retirement_account represented to be qualified within the meaning of code sec_408 with company a during month ira x was transferred by means of a trustee-to-trustee transfer to ra y maintained with company b on or about date taxpayer a executed trust t on or about date it has been taxpayer a amended and restated trust t trustee w is the trustee of trust t represented that at all times relevant to this request for letter_ruling trust t and subtrust b created under its terms was is valid under the laws of state u it has also been represented that pursuant to page article four sec_1 d trust t became irrevocable at the death of taxpayer a finally it has been represented that the documentation described in sec_1_401_a_9_-4 question and answer- of the final income_tax regulations was provided to the administrator custodian of ira x now ira y prior to date on or about date taxpayer a named subtrust b as the beneficiary of his ira x as of date the value of ira x ira y was approximately amount at the death of taxpayer a pursuant to article eight trust t was divided into subtrust a and subtrust b designation ira x has been allocated in its entirety to subtrust b it has been represented that pursuant to taxpayer a’s date beneficiary in general article ten sec_1 and of trust t give the trustee thereof the absolute discretion to distribute to taxpayer b and taxpayer a’s descendants as much of both the net_income and the principal of subtrust b as the trustee deems necessary or advisable for their health education and maintenance article ten sec_1 further provides that any net_income of subtrust b which is not distributed by my trustee shall be accumulated and added to the principal of subtrust b article ten sec_5 a of trust t provides that my trustee shall at all times give primary consideration to the health education and maintenance of my spouse and only thereafter to my descendants article ten section of trust t gives taxpayer b taxpayer a’s surviving_spouse a limited testamentary_power_of_appointment over the principal and accrued and undistributed_net_income of subtrust b remaining at taxpayer b’s death in favor of taxpayer a’s descendants article ten section and article eleven of trust t when read in combination provides that if taxpayer b fails to exercise her limited_power_of_appointment the remaining principal of subtrust b shall be paid to the following individuals in the percentages indicated taxpayer c taxpayer a’s son percentage taxpayer d taxpayer a’s daughter percentage taxpayer e taxpayer a’s granddaughter percentage taxpayer b is older than either taxpayer c taxpayer d or taxpayer e taxpayers b c d and e were alive as of the date of taxpayer a’s death and remain alive as of the date of this ruling_request in relevant part article sixteen section of trust t gives trustee w as independent_trustee of trust t the right to amend restate and modify the terms of any trust created under the trust in order to qualify the trust as a designated_beneficiary under internal_revenue_code sec_401 and the final regulations promulgated thereunder article sixteen sec_15 of trust t governs distributions for retirement assets including ira x payable to trust t including those assets payable to subtrust b page z20u60703 on date pursuant to the authority granted him by taxpayer a in article sixteen section of trust t trustee w as independent_trustee of trust t amended various sections of trust t retroactively effective to date the date of taxpayer a’s death as amended article five sec_2 b of trust t reads notwithstanding anything herein to the contrary i direct that such retirement_plan benefits may not be used or applied on or after september of the year following my death for payment of my debts taxes expenses of administration or other claims of my estate nor for payment of estate inheritance or similar transfer_tax due at my death as amended article eighteen sec_1 of trust t reads as follows for purposes of this agreement the term retirement_plan or qualified_retirement_plan shall include without limitation a qualified_pension plan profit sharing plan k keogh individual_retirement_account including a sep deductible nondeductible education and roth_ira or any other retirement_plan as amended article sixteen sec_15 of trust t reads as follows notwithstanding anything to the contrary and in addition to any dispositive provisions of any trust created under this agreement with regard to any qualified_retirement_plan that is payable to any trust under this agreement beginning in the year following my death my trustee shall withdraw from such qualified_retirement_plan the minimum_required_distribution as defined under sec_401 of the code and the proposed and final regulations promulgated thereunder additionally the trustee may withdraw from any retirement asset payable to the trust so much of net_income and corpus as the trustee shall determine to be necessary or advisable for the benefit of a beneficiary as the trustee shall determine to be necessary for such beneficiary’s health education maintenance or support in such beneficiary’s accustomed manner of living notwithstanding anything to the contrary any and all amounts withdrawn from any retirement asset payable to this trust shall be distributed to the beneficiary of such trust not less frequently than annually free of trust the intent of this section is to the extent necessary to qualify any trust under this agreement as a designated_beneficiary under sec_401 of the code and the proposed and final regulations promulgated thereunder any trust receiving a required_minimum_distribution from a qualified_retirement_plan shall be considered a conduit trust’ it has been represented on your behalf that distributions from ira x now ira y intended to comply with the requirements of code sec_401 will commence no later than date and will be based on the life expectancy of taxpayer b page based on the above facts and representations you through your authorized representative request the following letter rulings that trust t as amended is a qualified see-through trust within the meaning of sec_1_401_a_9_-4 of the final income_tax regulations question and answer-5 that code sec_401 minimum required distributions from ira x now ira y may be calculated based upon the life expectancy of taxpayer b the oldest possible beneficiary using the single life table found in the final regulations that the transfer of ira x maintained with company a to ira y maintained with company b by means of a trustee-to-trustee transfer did not constitute a distribution within the meaning of code sec_408 and also did not constitute a rollover within the meaning of code sec_408 with respect to your ruling requests code sec_401 provides in general that a_trust will not be considered qualified unless the plan provides that the entire_interest of each employee -- i will be distributed to such employee not later than the required_beginning_date or ii will be distributed beginning not later than the required_beginning_date over the life of such employee or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary sec_401 of the code provides in relevant part that for purposes of this paragraph the term required_beginning_date means april of the calendar_year following the calendar_year in which the ira holder attains age code sec_401 provides in general that if a plan participant ira holder dies before the distribution of his interest has begun in accordance with subparagraph a ii prior to his required_beginning_date then his entire_interest must be distributed within years of his death code sec_401 ii1 provides an exception to the 5-year rule above in general pursuant to the exception if any portion of the interest of a deceased plan participant ira holder is payable to or for the benefit of a designated_beneficiary such portion will be distributed beginning not later than year after the date of the deceased’s death or a later date as prescribed by page the secretary under regulations in accordance with regulations over the life of the designated_beneficiary or a period not extending beyond the life expectancy of the beneficiary code sec_401 defines designated_beneficiary as any individual designated as a beneficiary by the employee ira holder code sec_408 provides that under regulations prescribed by the secretary rules similar to the rules of sec_401 and the incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit an ira trust is maintained with further respect to your ruling requests final income_tax regulations under code sec_401 and sec_408 were published in the federal_register pincite federal_register date and in the internal_revenue_bulletin pincite lr b date the preamble to the final regulations in relevant part provide that the regulations apply for determining required minimum distributions for calendar years beginning after date in addition the final regulations have been modified in part see 2004_26_irb_1082 date the modification to the final regulations may also be relied upon with respect to required distributions for the and subsequent calendar years sec_1_401_a_9_-3 of the final regulations q a-3 a provides in general that with respect to the life expectancy exception to the 5-year rule described in code sec_401 and in a-1 distributions are required to begin to a non-spouse beneficiary on or before the end of the calendar_year immediately following the calendar_year in which the employee died this rule also applies if another individual is a designated_beneficiary in addition to the employee’s ira holder’s surviving_spouse sec_1_401_a_9_-3 of the final regulations q a-4 a provides in relevant part that in the absence of a plan provision to the contrary with respect to an individual who dies prior to reaching his required_beginning_date if said individual has designated a beneficiary distributions from his plan or ira are to be made in accordance with the life_expectancy_rule of code sec_401 and iv sec_1_401_a_9_-5 of the final regulations q a-5 b provides in general that if an employee dies before his required_beginning_date in order to satisfy the requirements of code sec_401 or iv and the life_expectancy_rule described in a-1 of sec_1 a - the applicable distribution period for distribution calendar years after the distribution calendar_year containing the employee’s date of death is determined in accordance with paragraph c of this a-5 sec_1_401_a_9_-5 of the final regulations q a-5 c provides in general that with respect to a non-spouse beneficiary the applicable distribution period measured by the beneficiary’s remaining life expectancy is determined using the beneficiary’s age as of the page beneficiary’s birthday in the calendar_year immediately following the calendar_year of the employee’s death for each calendar_year that has elapsed after the calendar_year immediately following the calendar_year of the employee’s death in subsequent calendar years the applicable distribution period is reduced by one _ sec_1_401_a_9_-4 of the final regulations q a-1 provides in relevant part that a designated_beneficiary is an individual who is designated as a beneficiary under a plan either by the terms of the plan or by an affirmative election by the employee a beneficiary designated under the plan is an individual who is entitled to a portion of an employee’s benefit contingent on the employee’s death or another specified event a designated_beneficiary need not be specified by name in the plan or by the employee to the plan in order to be a designated_beneficiary so long as the individual who is to be the beneficiary is identifiable under the plan q a-1 further provides that a person who takes under a will or otherwise under applicable state law will not be a designated_beneficiary unless that individual also takes under a plan sec_1_401_a_9_-5 of the final regulations q a-7 a provides in summary that except as otherwise provided in paragraph c of this a-7 not pertinent to this ruling_request if more than one individual is designated as a beneficiary with respect to an employee as of the applicable_date for determining the designated_beneficiary the named beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining the applicable distribution period sec_1_401_a_9_-4 of the final regulations q a-4 provides in relevant part that in order to be a designated_beneficiary an individual must be a beneficiary as of the date of the employee's or ira holder's death generally an employee's designated_beneficiary will be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of september of the calendar_year following the calendar_year of death consequently any person who was a beneficiary as of the date of the employee’s death but is not a beneficiary as of that september eg because the person receives the entire benefit to which the person is entitled before that september is not taken into account in determining the employee’s designated_beneficiary for purposes of determining the distribution period for required minimum distributions after the employee’s death accordingly if a person disclaims entitlement to the employee’s benefit pursuant to a disclaimer that satisfies sec_2518 by that september thereby allowing other beneficiaries to receive the benefits in lieu of that person the disclaiming person is not taken into account in determining the employee’s designated_beneficiary sec_1_401_a_9_-5 of the final regulations q a-7 b provides in short that except as provided in paragraph c of this a-7 if a beneficiary’s entitled to an employee’s benefit after the employee’s death is a contingent right such contingent beneficiary is nevertheless considered to be a beneficiary for purposes of determining who if anyone is the employee’s designated_beneficiary sec_1_401_a_9_-5 of the final regulations q a-7 c provides in relevant part that a person who has any right including a contingent nght to an employee’s benefit beyond being a mere potential successor in the interest of one of the employee’s beneficiaries upon that page beneficiaries death must be considered for purposes of determining who if anyone is the employee’s designated_beneficiary q a-7 c provides an example pursuant to which a principal remainderman of an income_beneficiary of an employee’s interest must be considered for purposes of determining who if anyone is the employee’s designated_beneficiary sec_1_401_a_9_-4 of the final regulations q a-3 provides that only individuals may be designated beneficiaries for purposes of sec_401 a person who is not an individual such as the employee's estate may not be a designated_beneficiary however q a-5 of sec_1_401_a_9_-4 provides that beneficiaries of a_trust with respect to the trust's interest in an employee's benefit may be treated as designated beneficiaries if the following requirements are met the trust is valid under state law or would be but for the fact there is no corpus the trust is irrevocable or will by its terms become irrevocable upon the death of the employee the beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit are identifiable within the meaning of a-1 of this section from the trust instrument relevant documentation has been timely provided to the plan_administrator sec_1_401_a_9_-4 of the final regulations q a-6 b provides in relevant summary that at a minimum documentation sufficient to enable an ira custodian to identify beneficiaries of an ira must be provided by a trustee to the custodian by october of the calendar_year immediately following the calendar_year in which the ira owner died sec_1_401_a_9_-9 of the final regulations q a-1 sets forth the single life table to be used to determine the life expectancy of an individual the single life table indicates that the life expectancy of a 67-year old is years code sec_408 provides the rules governing iras code sec_408 provides that except as otherwise provided in this subsection any amount_paid or distributed out of an individual_retirement_plan shall be included in gross_income by the payee or distribute as the case may be in the manner provided under sec_72 revrul_78_406 1978_2_cb_157 provides that the direct transfer of funds from one ira trustee to another ira trustee even if at the behest of the ira holder does not constitute a payment or distribution to a participant payee or distributee as those terms are used in code sec_408 furthermore such a transfer does not constitute a rollover_distribution finally revrul_78_406 is applicable if the trustee to trustee transfer is directed by the beneficiary of an ira after the death of the ira owner as long as the transferee ira is set up and maintained in the name of the deceased ira owner for the benefit of the beneficiary the page beneficiary accomplishing such a post-death trustee to trustee need not be the surviving_spouse of a deceased ira holder with specific reference to your first ruling_request it has been represented that trust t and the sub-trusts created under its terms are valid under the laws of state u and became irrevocable at the death of taxpayer a furthermore it has been represented that a copy of the documentation required under the final regulations promulgated under code sec_401 was timely given to the administrator s of ira x now ira y finally the identities of the beneficiaries of trust t may be determined by perusing its terms thus in response to your initial ruling_request we conclude as follows that trust t as amended is a qualified see-through trust within the meaning of sec_1_401_a_9_-4 of the final income_tax regulations question and answer-s with respect to your second and third ruling requests since trust t and its sub-trusts constitute a valid see-through trust’ it is necessary to determine who if anyone is the designated_beneficiary within the meaning of code sec_401 and sec_408 of taxpayer a’s ira x now ira y in this regard we note that ira x was allocated to subtrust b pursuant to taxpayer a’s date beneficiary designation and that trustee w trust t’s trustee did not have the discretion to allocate ira x now ira y to subtrust a in short it has been represented and documentation attached to this ruling_request support the representation that the allocation of ira x now ira y to subtrust b was required pursuant to the direction of taxpayer a as noted above taxpayers b c d and e are beneficiaries of subtrust b as amended and modified the terms of trust t and subtrust b require that all distributions made from ira x now ira y during a calendar_year be paid to the appropriate distribute payee during’said calendar_year said requirement precludes the accumulation of any portion of said distributed amounts for the benefit of other subtrust b beneficiaries after the end of the year with respect to which said distribution was made as a result taxpayers b c d and e are the only beneficiaries who will receive the distributed amounts and the only beneficiaries who must be considered for purposes of determining who is the designated_beneficiary within the meaning of code sec_401 of ira x now ira y as noted previously taxpayer b is older than either taxpayer c taxpayer d or taxpayer e thus with respect to your second ruling_request based on the above we conclude as follows that code sec_401 minimum required distributions from ira x now ira y may be calculated based upon the life expectancy of taxpayer b the eldest of taxpayers b c d and e using the single life table found at sec_1_401_a_9_-9 of the final regulations page with respect to your third letter_ruling request as noted above during month ira x was transferred by means of a trustee-to-trustee transfer to ira y code sec_408 provides generally that amounts from an inherited ira cannot be rolled over into another ira however as noted above revrul_78_406 1978_2_cb_157 by its terms provides that the direct transfer of funds from one ira trustee to another ira trustee even if at the behest of the ira holder does not constitute a distribution to a participant payee or distributee as those terms are used in code sec_408 additionally revrul_78_406 is applicable if the trustee to trustee transfer is directed by the beneficiary of an ira after the death of the ira owner as long as the transferee ira is set up and maintained in the name of the deceased ira owner for the benefit of the beneficiary in this case the ruling submission and attached documentation support the assertion that the month transaction was a trustee-to-trustee transfer thus with respect to your third ruling_request we conclude as follows that the transfer of ira x maintained with company a to ira y maintained with company b by means of a trustee-to-trustee transfer did not constitute a distribution within the meaning of code sec_408 and also did not constitute a rollover within the meaning of code sec_408 this ruling letter is based on the assumption that ira x now ira y meets the requirements of code sec_408 at all times relevant thereto furthermore this ruling letter rests on the assumption that trust t and its related sub-trusts are valid under the laws of state u as represented it also assumes the correctness of all facts and representations contained therein a copy of this letter has been sent to your authorized representatives in accordance with a power_of_attorney on file in this office page if you have any questions concerning this letter_ruling please contact esquire id fax who may be reached at not a toll-free number or sincerely yours o thiaevttha j i rances v sloan manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend b foundation c llc d grant program e religion f dollar amount g dollar amount h dollar amount j dollar amount k dollar amount m dollar amount dear you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request b a foundation and the sole member of c operates an educational grant program called d the purpose of d is to deepen and enrich the e educational learning opportunities of students and where relevant or desired their families by offering grants to organizations for use in such programs while b will primarily fund d b may request that other donors enter into their original grant agreement with the recipient in providing additional funding you plan on operating in connection with b to become an additional donor party to the grant agreement in doing so you will provide grants to the original recipient and funds would be administered and monitored under the procedures established by b described below the duration and amounts of the grants awarded to educational organizations will vary but most are expected to be in the form of three year grants in amounts ranging between f and g dollars per annum you will fund each grantee's program in the first year thereafter grantee organizations are expected to obtain increasing amounts of donor commitments to cover the costs of their programs you expect to mail informational materials to individual educators who are working at organizations that provide e educational programming to students in grades kindergarten through twelfth grade and college the educators who have received or will receive the solicitation materials and application package have been or will be pre-selected by nominators engaged by you to identify and recruit potential applicant organizations with outstanding educators at their organizations since you do not have educational staff with e educational experience you developed relationships with individual consultants who have experience with formal and informal programming to help identify an appropriate applicant pool and to ensure high quality among the applicant pool you have engaged individuals to serve as nominators in connection with d you requested that the nominators identify a group of outstanding innovative educators working with educational organizations who you could invite to apply for funding nominators were asked to identify individuals with a reputation for implementing high quality programming and a proven track record for achieving educational results additionally you requested that nominators identify educators who the nominators believe can propose new programs that could be implemented by the educational organizations where such educators are employed that would deepen and enrich the knowledge and identity of the students of such organizations and educators and if relevant the families of these students while the objective is to have innovative educators design d programs you will also consider the nature of the organization where the educator is employed as the organization will be responsible for supporting sustaining and implementing the educational programming if the organization is awarded ad grant the class of eligible grantees is limited to educational organizations at which educators identified by the nominators are employed although the invitations are intended to be non-transferable and personal to the identified educators you are committed to building educational programming at the grantee organization under the supervision of either the nominated educator or another qualified educator at the organization that is selected by the grantee organization in making their initial nominations the nominators will take into account the experience of the organization in implementing high quality educational programming letter catalog number 58222y you will review the submitted applications based upon a number of criteria including experience and track record of the applicant organization in executing effective e educational programming the clarity of the plan and budget readiness of the organization to implement the proposed project and goals of the proposal and the probability of the organization achieving the stated goals of the proposal you expect to commit funds to din its first year sufficient to enable between ten to twenty grantee organizations to begin developing programs with the nominated educators thereafter the extent to which you will commit to funding programs and new grantees will be determined after an assessment regarding the success of the first grantees' programs and available_resources each grantee may request a different amount for each of the three years as it builds its program in the first year grantees may request between f and g dollars in the second year grantees may request between f and h dollars in the third year grantees may request between f and j dollars in years two and three the grantee organization is expected to also raise program funds from other sources during the third year of the grant you will evaluate the impact of the program and effectiveness of grantee organizations for achieving proposal objectives based upon implementation feedback such as increases in the program participants or quantity of time participants spend engaged in programming supported by d or increased depth or measure of learning as determined by valid educational measures you will invite a number of grantees to apply for an additional two years of grant funding if awarded an extension grant each grantee organization would be eligible to receive a maximum of k dollars in year four and m dollars in year five as with the standard three year grants such extension grant will be made with the expectation that the grantees secure increasing amounts of donor commitments to offset program_costs you will fund each grant in installments with an initial payment up front to fund the first eight months of programming in year one thereafter each grantee organization would submit a report to you every six months upon receipt of a report which evidences the satisfactory continued implementation of the program supervised by an adequately qualified educator whether the initial nominated educator or a replacement selected by the educational_organization you will fund the subsequent payments in years one two and three and if extended years four and five if the nominated educator leaves the educational_organization after you enter into the grant agreement the educational_organization would be responsible for selecting an adequately qualified educator to continue implementing the program grantees will submit written reports to you every six months reports will include a narrative description of the implementation of the educational programming and will be accompanied by a financial report on the use of granted funds compared against the budget a program coordinator or other c representative will regularly communicate with each recipient organization to receive feedback on the funded program and how the grant monies are being spent in connection to such programming letter catalog number 58222y each grant recipient must keep and maintain such financial records and in such a manner so as to adequately reflect and account for_the_use_of the organization grant funds and to furnish originals or authentic copies to the program coordinator upon request c in its sole discretion may take any and all such reasonable and appropriate steps including possibly legal action to compel compliance of use of funds for their intended purpose including requiring the return of all or any portion of funds remitted and the withholding of funds not previously remitted the awarding of d is a multi-faceted process which begins with the initial identification of educational organizations at which nominated educators are then employed nominated educators are then sent informational materials and grant applications which they are encouraged to complete with the appropriate stakeholders at their respective educational organizations applications must be submitted by educational organizations completed applications submitted by those educational organizations are then received by you and evaluated by your selection committee each completed application will be reviewed by one or more members of your staff and a nominator other than the nominator who originally nominated the educator who was the architect for the related proposal each member will rate the application in connection with following parameters the internal logic educational strength and process of implementing the educational proposal described in the application the evidence and probability that the proposed educational programming will significantly deepen and enrich the educational growth of the program participants the track record of the organization in implementing educational programming and in successfully implementing new educational programming the readiness of the organization and commitment of the organization to expand and offer the new programming the level of involvement and supervision which the selected educator will assume in guiding the project the selection committee will also be responsible for identifying any relationships between potential grant applicants and disqualified persons and ensure that organizations with any such relationship s are not awarded grants your selection committee consists of one or more members of your staff and a nominator other than the nominator who originally nominated the educator who was the architect for the related proposal if any member of the senior staff or management of a potential grant recipient is either related to whether by blood or through marriage or has any direct or indirect affiliation with the d program coordinator or any director officer_or_employee of you or c they will be ineligible to participate in the program letter catalog number 58222y no director officer_or_employee of you or c or any other person who is involved in the process of selecting applicants for the program will be in a position to derive a private benefit directly or indirectly if certain potential grantees are selected over others basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - a scholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or - a prize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or - to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at letter catalog number 58222y internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 b you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have any questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58222y


internal_revenue_service number release date index number ------------------------ -------------------------- --------------------- -------------------------------------- --------------------------------------- ---------------------------- - ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc ita plr-124498-03 date date ------------ ------------- ------------------------------------- legend corporation --------------------- ------------------------------------------------- foundation ------------------------------------------------- state1 state2 dear ----------------- this letter responds to a ruling_request jointly submitted by corporation and the foundation by a letter dated date as supplemented by letters dated date date date and date corporation and the foundation requested identical letter rulings on the issues listed below corporation and the foundation have executed forms tax information authorizations allowing each to receive the other’s confidential tax information related to the joint ruling_request both corporation and the foundation have the same authorized representatives previously corporation and the foundation jointly submitted a ruling_request based on an earlier version of the draft stock_option pledge agreement corporation received plr date this ruling letter is based on a later version of the draft stock_option pledge agreement and encompasses the factual scenarios arising plr-124498-03 under plr this letter as of its effective date supercedes plr issue sec_1 whether the pledge of the options by corporation constitutes an act of self-dealing between the foundation and a disqualified_person under the provisions of sec_4941 of the internal_revenue_code whether the exercise of the options by the foundation pursuant to the net exercise procedure will constitute an act of self-dealing between the foundation and a disqualified_person under sec_4941 of the code whether the exercise of the options by an unrelated charity will constitute an act of self-dealing between the foundation and a disqualified_person under sec_4941 of the code whether any proceeds that the foundation receives upon the transfer of options to the unrelated charities will be excluded from the computation of the foundation's net_investment_income under sec_4940 of the code whether the gain on the foundation's exercise of the options through the net exercise procedure or sale of the options to an unrelated charity will not be subject_to tax on unrelated_business_taxable_income imposed by sec_511 of the code a if the foundation transfers the options to an unrelated charitable_organization and that charitable_organization engages in a cash exercise of the options whether corporation will be entitled to a charitable_contribution_deduction under sec_170 of the code upon the exercise of the options by the unrelated charitable_organization and whether such deduction will be for an amount equal to the difference between the exercise price and the fair_market_value of the corporation stock transferred upon the exercise plus cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 b if the foundation engages in a net exercise of the options whether corporation will be entitled to a charitable_contribution_deduction at the time of the net exercise and whether such deduction will be for an amount equal to the fair_market_value of the corporation stock transferred to the foundation upon the net exercise plus cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 plr-124498-03 c if the foundation transfers the options to an unrelated charitable_organization and that charitable_organization engages in a net exercise of the options whether corporation will be entitled to a charitable_contribution_deduction at the time of the net exercise and whether such deduction will be for an amount equal to the fair_market_value of the corporation stock transferred to the charitable_organization upon the net exercise plus cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 facts corporation is a for-profit state1 corporation its publicly held stock is listed on the new york stock exchange it is the common parent of an affiliated_group_of_corporations filing consolidated federal_income_tax returns the foundation was established as a state2 trust pursuant to a declaration of trust to provide a vehicle for corporation's charitable giving pursuant to a letter_ruling issued by the irs the foundation is recognized as exempt from tax under sec_501 and is a private_foundation within the meaning of sec_509 the foundation was organized for the purpose of making distributions to or for_the_use_of organizations described in sec_170 and or corporation is a substantial_contributor to the foundation and as such is a disqualified_person with respect to the foundation within the meaning of sec_4946 each of the foundation's trustees is an officer of corporation corporation proposes to pledge to the foundation stock_options for the purchase of shares of common_stock of corporation corporation stock pursuant to a stock_option pledge agreement corporation will not receive any consideration for its pledge of the options the business_purpose of the pledge of the options is to further the charitable purposes of the foundation and other charitable organizations the options will be exercisable at a price specified in the stock_option pledge agreement the exercise price may be equal to or greater than or less than the closing price of corporation stock on the new york stock exchange on the date that the option pledge agreement between corporation and the foundation is executed the option pledge agreement may provide for a cap on the maximum value that may be realized upon exercise of the option regardless of how high the trading price of corporation stock rises the options may be exercisable in whole or in part at any time and from time to time beginning on a date specified in the option pledge agreement which may be the date the option pledge agreement is executed or a later date and ending on a specified plr-124498-03 date or the options may be exercisable only on one date as specified in the option pledge agreement the option pledge agreement may provide that the options will automatically be exercised if corporation stock reaches a certain trading price the foundation will not directly exercise the options because payment of the purchase_price to corporation could constitute self-dealing within the meaning of sec_4941 instead it is anticipated that the foundation will either transfer the options to an unrelated charitable_organization or engage in a net exercise with corporation through a procedure more fully described below under the option pledge agreement the foundation will have the power to transfer the options or any portion thereof to one or more unrelated charitable organizations i described in sec_170 and sec_501 and ii that are not private_foundations under sec_509 or organizations described in sec_509 the option agreement will define an unrelated charitable_organization as a charitable_organization that is i not controlled by the foundation and ii not controlled by any person or entity that is a disqualified_person as defined in sec_4946 with respect to the foundation generally the options will be exercisable in whole or in part and depending on the terms of the option may be exercisable from time to time by a written notice of exercise delivered to corporation upon the exercise of the options the certificate or certificates for shares of corporation stock as to which the options will have been exercised or other evidence of ownership will be delivered to the person or persons exercising the options or to such other party as the exercising person may designate in addition the option pledge agreement will provide a cash-less exercise net exercise procedure in which the holder of the options makes no cash payment to corporation the foundation will have this power and an unrelated charitable_organization to which the options are transferred may have this power under the net exercise procedure the holder would elect to receive shares of corporation stock equal to the net value of the options being exercised on the date of exercise subject_to a cap on the maximum value that may be received if the option pledge agreement includes such a provision the net value of the options is calculated by subtracting the exercise price for the number of options being exercised from the value of the shares that the holder would have received upon a direct exercise which would reflect the cap amount if the option pledge agreement includes such a provision if the holder were to elect the net exercise procedure the holder would notify corporation of the number of options being exercised along with written notice of its election to use the net exercise procedure and corporation would issue to the holder the number of shares of corporation stock computed using the formula specified in the option pledge agreement whenever any of the calculations would result in the delivery of a fractional share upon exercise the number of shares to be delivered shall be rounded down to the nearest plr-124498-03 whole number and in lieu of a fractional share corporation shall make a cash payment equal to the value thereof based on fair_market_value there are two ways that the foundation will be able to obtain value from the option pledge from corporation it will either i use the net exercise procedure to effect a transfer of corporation stock from corporation in satisfaction of its pledge obligation or ii transfer the options to one or more unrelated charities the foundation may transfer the options to an unrelated charity for consideration which may be a price negotiated at arm's length less an agreed-upon discount the fair_market_value of the option would be affected by the terms in the option pledge agreement alternatively the foundation might choose to transfer options to an unrelated charity without consideration the unrelated charity would be expected to exercise the options prior to their expiration corporation will comply with the record keeping and return requirements of sec_1_170a-13 to the extent applicable law and analysis - issues law sec_4941 of the code provides that the term self-dealing includes any lending of money or other extension of credit between a private_foundation and a disqualified_person sec_53_4941_d_-2 of the foundation and similar excise_taxes regulations provides that the making of a promise pledge or similar arrangement to a private_foundation by a disqualified_person whether evidenced by an oral or written_agreement a promissory note or other instrument of indebtedness to the extent motivated by charitable intent and unsupported by consideration is not an extension of credit within the meaning of this paragraph before the date of maturity sec_53_4941_d_-1 of the regulations provides that the term indirect self- dealing includes any transaction between a disqualified_person and an organization controlled by a private_foundation within the meaning of sec_53_4941_d_-1 sec_53_4941_d_-1 of the regulations provides for purposes relative to acts of indirect self-dealing under sec_4941 of the code two basic tests for determining whether an organization is controlled by a private_foundation there is control if the foundation or one of its foundation managers acting only in such capacity may only by aggregating their votes or positions of authority require the organization to engage in a transaction which if engaged in with the private_foundation would constitute self-dealing or in the case of a transaction between the organization and a disqualified_person if such disqualified_person together with one or more persons who are disqualified persons by reason of such a person's relationship within the meaning of sec_4946 through g to such disqualified_person may only by plr-124498-03 aggregating their votes or positions of authority with that of the private_foundation require the organization to engage in such a transaction the regulation also provides that an organization will be considered to be controlled by a private_foundation or by a private_foundation and disqualified persons if such persons are able in fact to control the organization even if their aggregate voting power is less than percent of the total voting power of the organization's governing body or if one or more of such persons has the right to exercise veto power over the actions of such organization relevant to any potential acts of self-dealing sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 of the code sec_512 of the code defines unrelated_business_taxable_income as the gross_income earned by an organization from an unrelated_trade_or_business which is regularly carried on less applicable deductions sec_512 of the code excludes from unrelated_business_taxable_income gains or losses from the sale exchange or other_disposition of property other than a stock_in_trade or other_property of a kind which would properly be includible in inventory if on hand at the close of the taxable_year or b property_held_primarily_for_sale to customers in the ordinary course of the trade_or_business in 755_f2d_404 5th cir the court held that gain from the sale of timberland was excluded from the computation of an organization's capital_gain_net_income the court stated that property that produces capital_gain through appreciation is not an independent category of property whose disposition will be taxable and that the regulations to the extent that they imply it is are invalid because they exceed the scope of the code provisions analysis because the pledge of the option was given without any consideration for the purpose of furthering the charitable purposes of the foundation and other unrelated charitable organizations the pledge of the stock_options by corporation to the foundation does not constitute an act of self-dealing between corporation and the foundation sec_53_4941_d_-2 of the regulations such pledges are not extensions of credit pursuant to sec_53_4941_d_-2 of the regulations corporation pledged the stock_options and will satisfy the options with common_stock equal in value to the pledged options because the pledged stock_options were given gratuitously the substitution of common_stock in satisfaction of the pledged stock_options before the expiration date will not result in a self-dealing sale_or_exchange of property between corporation and the foundation thus the foundation's use of the net exercise provisions to collect corporation's pledge plr-124498-03 obligation will not result in a self-dealing sale_or_exchange of property between corporation and the foundation the transfer of the option by the foundation to an unrelated charity will not be an act of self-dealing since the cancellation of the enforceable pledge will be for consideration paid_by a non-disqualified person or an entity not controlled by a disqualified_person the consideration will be an amount negotiated at arm’s length - equal to the difference between the fair_market_value of the stock subject_to the option on the date of the transfer less an agreed upon discount or the black-scholes value of the option since a representation has been made that the unrelated charity will not be controlled by the foundation as defined in sec_53_4941_d_-1 of the regulations the exercise of the stock_option by the unrelated charity will not constitute an act of self- dealing between the foundation and a disqualified_person as concluded in zemurray foundation v united_states cited above the tax on capital_gain through appreciation applies only to non-charitable assets susceptible to use to produce interest dividends rents and royalties stock_options are not such assets accordingly the foundation's proceeds from the sale of the stock_options to an unrelated charity would be excluded from the computation of the foundation's net_investment_income under sec_4940 of the code because the foundation will not hold the stock_options either as stock_in_trade inventory or for sale in the ordinary course of business the gain on the sale of the stock_options will be excluded from the computation of unrelated_business_taxable_income under sec_512 of the code gain on the sale of the stock_options by the foundation to an unrelated charity will not produce any unrelated_business_taxable_income because the sale comes within the exclusion under sec_512 of the code the exceptions to the exclusion do not apply because the foundation does not resemble a merchant who acquires or produces property to sell to customers furthermore the foundation's receipt of common_stock pursuant to the net exercise of the stock_options is simply the collection of a pledge obligation that will not create unrelated_business_income under sec_512 of the code conclusions - issues the pledge of the options by corporation will not constitute an act of self-dealing between the foundation and a disqualified_person under the provisions of sec_4941 of the code the exercise of the options by the foundation pursuant to the net exercise procedure will not constitute an act of self-dealing between the foundation and a disqualified_person under sec_4941 of the code plr-124498-03 the exercise of the options by an unrelated charity will not constitute an act of self- dealing between the foundation and a disqualified_person under sec_4941 of the code any proceeds that the foundation receives upon the transfer of options to an unrelated charity will be excluded from the computation of the foundation's net_investment_income under sec_4940 of the code gain on the foundation's exercise of the options through the net exercise procedure or sale of the stock_options to an unrelated charity will not be subject_to tax on unrelated_business_taxable_income imposed by sec_511 of the code this letter does not address the treatment of the foundation's ownership of stock_options in the minimum_investment_return under sec_4942 of the code law and analysis - issue sec_170 of the code provides the general_rule that subject_to certain limitations there shall be allowed as a deduction any charitable_contribution as defined in sec_170 payment of which is made within the taxable_year a charitable_contribution shall be allowable as a deduction only if verified under regulations prescribed by the secretary see also sec_1_170a-1 of the income_tax regulations sec_1_170a-1 provides that any charitable_contribution as defined in sec_170 actually paid during the taxable_year is allowable as a deduction in computing taxable_income irrespective of the method_of_accounting employed or of the date on which the contribution is pledged see also sec_1_461-1 however charitable_contributions by corporations may under certain circumstances be deductible even though not paid during the taxable_year as provided in sec_170 and sec_1_170a-11 sec_1_170a-1 provides that ordinarily a contribution is made at the time delivery is effected sec_1_170a-1 provides that if a charitable_contribution is made in property other than money the amount of the contribution is the fair_market_value of the property at the time of the contribution reduced as provided in sec_170 and sec_1_170a-4 or sec_170 and sec_1_170a-4a sec_1_170a-1 provides that the 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 sell and both having reasonable knowledge of relevant facts revrul_68_174 1968_1_cb_81 provides that a debenture bond or a promissory note issued and delivered by the obligor to a charitable_organization described in section plr-124498-03 c represents a mere promise to pay at some future date and is not a payment for purposes of deducting a contribution under sec_170 cf revrul_78_38 1978_1_cb_67 revrul_75_348 1975_2_cb_75 holds that a corporation that pledges to sell shares of its common_stock at a specified price to a charitable_organization described in sec_170 is entitled to a charitable_contribution_deduction in the taxable_year in which the pledge is exercised the amount of the contribution is the excess of the fair_market_value of the shares on the date the pledge is exercised over the exercise price also because of the provisions of sec_1032 no gain will be recognized by the corporation as a result of the exercise of the pledge agreement revrul_82_197 1982_2_cb_72 concludes that an individual who grants an option on real_property to a charitable_organization described in sec_170 is allowed a charitable_contribution_deduction for the year in which the organization exercises the option the amount of the contribution is the excess of the fair_market_value of the property on the date the option is exercised over the exercise price conclusion - issue a if the foundation transfers the options to an unrelated charitable_organization and that charitable_organization engages in a cash exercise of the options corporation will be entitled to a charitable_contribution_deduction under sec_170 of the code only upon the exercise of the options by the unrelated charitable_organization and such deduction will be for an amount equal to the difference between the exercise price and the fair_market_value of the corporation stock transferred upon the exercise plus cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 b if the foundation engages in a net exercise of the options corporation will be entitled to a charitable_contribution_deduction only at the time of the net exercise and such deduction will be for an amount equal to the fair_market_value of the corporation stock transferred to the foundation upon the net exercise plus cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 c if the foundation transfers the options to an unrelated charitable_organization and that charitable_organization engages in a net exercise of the options corporation will be entitled to a charitable_contribution_deduction only at the time of the net exercise and such deduction will be for an amount equal to the fair_market_value of the corporation stock transferred to the charitable_organization upon the net exercise plus plr-124498-03 cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 if the stock that corporation transfers is subject_to restrictions that may materially affect the fair_market_value of the stock compare sec_1_170a-13 a copy of this letter must be attached to any income_tax return to which it is relevant we have enclosed a copy of the letter for this purpose also enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 of the internal_revenue_code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any 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 copies of this letter are being sent to your authorized representatives in accordance with the power_of_attorney on file with this office as modified by the submission dated date sincerely christopher f kane chief branch office of associate chief_counsel income_tax accounting copy of this letter copy for sec_6110 purposes enclosures 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-130017-09 date date legend x --------------------------------------------------- ---------------------------------------------------------- state d1 d2 ------------- ---------------------- ---------------------- dear -------------- this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated under state law in d1 x’s shareholders intended for x to be an s_corporation as of d2 however x’s form_2553 election by a small_business_corporation was not timely filed plr-130017-09 x requests a ruling that it will be recognized as an s_corporation effective d2 law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year at any time during the preceding_taxable_year or at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b such election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then such election shall be treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply x did not file a timely election to be treated as an s_corporation under sec_1362 effective d2 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d2 within days from the date of this letter x must submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x otherwise qualifies as an s_corporation for federal tax purposes plr-130017-09 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 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 faith p colson faith p colson senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes cc


internal_revenue_service p o box cincinnati oh number release date date date legend d grant name e business x dollar amount dear department of the treasury employer_identification_number contact person - 1d number contact telephone number uil we have considered your request for advance approval of your employer-related grant- making program under sec_4945 of the internal_revenue_code dated date our records indicate that you are recognized as exempt from federal_income_tax under sec_501 of the code and that you are classified as a private_foundation as defined in sec_509 you will operate a grant-making program called d the purpose of d is to provide a scholarship to individuals who are current and future employees of e and their dependents for full or part-time undergraduate study at a two or four year accredited educational_organization described in sec_170 no more than one scholarship award will be awarded to any one eligible_employee and all of such employee’s eligible dependents in any one year all active full and part-time employees of e who have been employees continuously for at least one year on the date the scholarship applications are required to be submitted and who are in good standing on such date will be eligible to participate in d in addition a dependent of an eligible_employee other than a dependent of an employee with a position of vice president or above will be eligible to participate in the program if he or she i sec_25 years old or under is the biological child step-child or legally adopted_child or legal ward of the eligible_employee is living in the eligible employees household is a high school senior high school graduate or current or former undergraduate student has a grade point average of or above for the last year of formal education and will enroll or is already enrolled in an accredited two or four year college university vocational school or technical school by september ‘1st of the grant year information to apply for d is publicized on the human resource page or web portal of e’s internal employee internet site and through an internal employee newsletter an application may be obtained online on the human resource page or web portal of e’s internal intranet site applications must be completed by the eligible_employee and in the case of dependent applicants by the eligible dependant as well all complete applications submitted by the application deadline shall be considered by the selection committee incomplete applications will not be considered your selection committee will consist of individuals who are totally independent except for participation on this committee and separate from you and e the selection committee will consist of three educational professionals chosen from the career development office or the admissions team of local colleges and community colleges who have experience evaluating the educational qualifications of the applicants the selection committee will review the applications submitted to ensure that each application has been fully completed that all applicants are eligible employees or eligible dependents and that each applicant meets all of the eligibility requirements the selection committee will select applicants from the applicant pool by conducting a random drawing selected applicants will be notified by june 'of each year and will be required to return a scholarship acknowledgement form to you by august of the award year applicants receiving a scholarship will be required to notify their educational_institution of the grant of the award each scholarship awarded will be worth x dollars and will be paid in a single installment by check made out to the scholarship recipient’s educational_institution you estimate awarding ten or less scholarships annually you may reduce but not increase the number of grants to be awarded from the number recommended by the selection committee award checks will be mailed on or about august of each year checks will be mailed to the applicant who will be required to deliver the check to his or her educational_institution awards may only be applied to tuition and fees scholarship awards will not be transferable and may not be automatically renewed although a successful scholarship recipient may apply for a new scholarship award in a subsequent year if the applicant continues to meet the eligibility requirements relatives of members of the selection committee will not be eligible to apply for d members of your governing body including your board_of directors and their relatives will not be eligible to apply for d d will not be used by you or e to recruit employees or to induce employees to continue their employment or otherwise follow a course of action sought by e any public announcement of scholarship awards will be made by you or the selection committee and not by e grants will be awarded solely in the order recommended by the selection committee no person will be considered eligible who would not reasonably be expected to attend the educational_organization for which the scholarship is sought even if they meet such minimum standards eligibility to receive an award will not be related to any other employment related factors such as an employee’s position services or duties no grant will be terminated because the recipient or the recipient’s parent terminates employment with e after the awarding of the grant regardless of the reason for such termination of employment an award recipient will not be considered ineligible to receive additional grants simply because that individual or the individual’s parent is no longer employed by e when a grant is awarded there will be no requirement condition or suggestion express or implied that the recipient or parent is expected to render future employment services for you or e or be available for such future employment the course of study for which grants are available will not be limited to those that would be of particular benefit to your organization or e awards will not be conditioned on the recipient choosing a course of study that would be of particular benefit to you or e either a the number of grants awarded in any year to employees and children of the employees of e will not exceed twenty- five percent of the number of such persons who are eligible applicants considered by the scholarship selection committee in that year or b the number of grants awarded in any year to employees and children of employees of e will not exceed ten percent of the number of such persons who are eligible in that year you will maintain records to show grants meet the applicable_percentage test you will maintain records showing the name and address of each scholarship recipient the amount distributed to each recipient the purpose for which the assistance was given the manner in which the recipient was selected and the relationship if any between the recipient and your officers directors and substantial contributors as well as their family members and any corporation controlled by any substantial_contributor in addition you will maintain records of the information used to determine the eligibility of scholarship applicants included in the pool from which grantees are selected and copies of all reports received from grantees or the grantees’ educational institutions as well as all reports of investigations of the use of grants funds you will limit scholarship awards to students enrolled at educational organizations that normally maintain a regular faculty and curriculum and that normally have a regularly enrolled body of students in attendance where educational activities occur you will also not condition the award of scholarship grants on the performance of teaching research or other services you will require scholarship grantees to report the courses they have taken and the grades they have received and require the report to be verified by the grantee’s educational_institution grantees will also be required to notify you of any change_of address change in school enrollment or other relevant change_of status you reserve the right to modify or terminate the scholarship program at any time if your have information indicating any part of a scholarship award may not have been used as intended you will investigate the situation you will not make any additional grants to the grantee until the investigation is completed if the investigation reveals that any part of the award was not in fact used as intended that grantee will not be eligible for additional grants in addition you will take reasonable steps including if appropriate legal action to ensure that any grant funds used for improper purposes are recovered or restored to proper uses and require the grantee to take extraordinary precautions to ensure that any grant funds are used only for proper purposes sec_4945 and b of the code impose certain excise_taxes on taxable expenditures’ made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 as in effect on the day before the date of the enactment of the tax_reform_act_of_1986 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i its grant procedure includes an objective and nondiscriminatory selection process ii such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance revproc_76_47 1976_2_cb_670 sets forth guidelines to be used in determining whether a grant made by a private_foundation under an employer-related program to a child of an employee of the particular employer to which the program relates is a scholarship grant that meets the provisions of sec_117 of the code as that section read before the tax_reform_act_of_1986 if a private foundation’s program satisfies the seven conditions set forth in sections dollar_figure through dollar_figure of revproc_76_47 and meets the percentage_test described in - sec_4 the service will assume the grants meet the provisions of sec_117 as that section read before the tax_reform_act_of_1986 you have agreed that procedures in awarding grants under your program will be in compliance with sections dollar_figure through dollar_figure of revproc_76_47 without regard to the amendments to sec_117 made by the tax_reform_act_of_1986 in particular the selection of individual grant recipients will be made by a selection committee the members of which are totally independent and separate from the private_foundation the foundation’s creator and the relevant employer the grants will not be used as a means of inducement to recruit employees nor will a grant be terminated if the employee leaves the employer the recipient will not be restricted in a course of study that would be of particular benefit to the relevant employer or to the foundation section dollar_figure of rev_proc provides a percentage_test guideline it states in the case of a program that awards grants to children of employees of a particular employee the program meets the percentage_test if either of the following tests are met the number of grants awarded under that program in any year to such children do not exceed percent of the number of employees’ children who were eligible were applicants for such grants and were considered by the selection committee in selecting the recipients of grants in that year or the number of grants awarded under the program in any year to such children does not exceed percent of the number of employees’ children who can be shown to be eligible for grants whether or not they submitted an application in that year you have agreed that your program will meet the requirements of either the percent or percent percentage_test of section dollar_figure applicable to a program that awards grants to children of employees of a particular employer records should be maintained to show that you meet the applicable_percentage test of section dollar_figure this determination is issued with the understanding that in applying the percent test applicable to employees’ children set forth in revproc_76_47 you will include as eligible only those children who meet the eligibility standards described in revproc_85_51 1985_2_cb_717 this determination will remain in effect as long as the procedures in awarding grants under your program remain in compliance with sections dollar_figure through dollar_figure of rev_proc without regard to the amendments to sec_117 made by the tax_reform_act_of_1986 if you enter into any other program covering the same individuals the percentage_test of revproc_76_47 must be met in the aggregate based on the information submitted and assuming your award programs will be conducted as proposed with a view to providing objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are ‘scholarship or fellowship’ grants within the meaning of sec_117 of the code and are excludable from the gross_income of the recipients subject_to the limitations provided in sec_117 of the code including to the extent that such grants are used for qualified_tuition_and_related_expenses within the meaning of sec_117 of the code this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your employer-related grant-making program is a one-time approval this determination only covers the grant programs described above thus approval shall apply to subsequent grant programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and histories so that any or all grant distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney lf you have any questions please contact the person whose name and telephone number are shown above sincerely yours enclosures notice a copy of the redacted letter lois g lerner director exempt_organizations