internal_revenue_service number release date index number 468a ---------------------------- --------------------------------------- --------------------------- --------------------------------- 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 b6 plr-114566-09 date date re subsequent special transfer --------------------------------------------- legend taxpayer parent plant location date method commission a commission b commission c1 commission c2 fund director dear ------------- ------------------------------------- ein ---------------- ---------------------------------- ein ---------------- --------------------------------------------- -------------------------------- ----------------------- ----------- ------------------------------------------------ ------------------------------------------------------------- --------------------------------------------------------------------------------- ----------------------------------------------------- --------------------------------------------------------------- ------------------------------------------- --------------------------------------------------------------------------------- this letter responds to your request dated --------------------- for a schedule of deduction amounts for a subsequent special transfer pursuant to sec_468a of the internal_revenue_code and sec_1_468a-8t c of the temporary income_tax regulations and a mandatory review of a revised schedule of ruling amounts pursuant to sec_468a of the internal_revenue_code and sec_1_468a-3t f iii of the temporary income_tax regulations with regard to a qualified nuclear decommissioning reserve fund that the taxpayer has established for the plant and associated facilities taxpayer was previously granted schedules of ruling amounts and schedules of deduction amounts most recently on ------------------ taxpayer submitted supplemental plr-114566-09 information by letter on -----------------and ------------------ information was submitted pursuant to sec_1_468a-3t e taxpayer represents the facts and information relating to its request for a schedule of deduction amounts and a schedule of ruling amounts as follows taxpayer a subsidiary of parent is included in a consolidated_return filed by parent taxpayer is the sole owner and operator of the plant the plant is situated at location plant’s amended operating license is scheduled to expire on date the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method taxpayer is subject_to the jurisdiction of commission a commission b and commission c1 and commission c2 the jurisdictional percentages for these commissions are ----------- ----------- --------- and ----------- respectively none of the commissions have amended any aspects of taxpayer’s recovery_of decommissioning costs since the most recent schedule of ruling amounts based upon the assumptions used in taxpayer’s most recent schedule of ruling amounts as adopted by commission a commission b commission c1 and commission c2 it is estimated that fund assets will earn an after-tax rate of return of --- ---- percent the total cost of decommissioning plant is estimated to be dollar_figure------------------- ------- dollars this base cost of decommissioning plant is escalated at a -----percent yearly rate resulting in a total future cost to taxpayer of decommissioning plant of dollar_figure----- ------------------- ------- dollars under ratemaking assumptions used during the first proceeding before commission a the plant would no longer be included in rate base in ------- in the prior schedule of ruling amounts issued under sec_468a of the code as in effect prior to the estimated_useful_life of the plant is --- years --------------- and the estimated period for which the fund is to be in effect is --- years --------------- thus the percentage of the total estimated costs qualifying for deduction in the schedule of ruling amounts under prior_law was -------- percent sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount plr-114566-09 included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer to fund the plant’s post-1983 nuclear decommissioning costs determined as if decommissioning costs accrued ratably over the estimated_useful_life of the plant provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established sec_468a now allows a taxpayer to contribute to a nuclear decommissioning fund the entire cost of decommissioning the plant including both the pre-1984 amount that was denied under the law prior to the act as well as any amount attributable to any year after in which a taxpayer had not established a fund under sec_468a sec_468a provides that the deduction for the contribution of the previously-excluded amount is allowed ratably over the remaining useful_life of the nuclear plant sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1t a provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1t b of the regulations is a taxpayer that has a qualifying plr-114566-09 interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2t b provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- 2t b does not apply to any special transfer permitted under sec_1_468a-8t sec_1_468a-3t a provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3t a provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3t a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3t a provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the plr-114566-09 temporary regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3t a further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3t b provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3t c the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3t c provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3t c i a if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3t c i b provides that if the nuclear plant is not described in sec_1_468a-3t c i a the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3t c i c any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3t c i a sec_1_468a-3t d provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3t d provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3t e enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3t f provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3t e the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year plr-114566-09 sec_1_468a-8t a provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2005 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8t a defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer sec_1_468a-8t a provides that the taxpayer is not required to transfer the entire amount eligible for the special transfer in one year but must take any prior special transfers into account in calculating the pre-2005 qualifying percentage further pursuant to sec_1_468a-8t c a taxpayer making a special transfer in more than one year must request a new schedule of deduction amounts in connection with each special transfer sec_1_468a-8t b provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant under sec_1 468a- 8t b iii the deduction for property contributed in a special transfer is limited to the lesser_of the fair_market_value of the property or the taxpayer’s basis in the property under sec_1_468a-8t b the taxpayer recognizes no gain_or_loss on the special transfer of property the taxpayer’s basis in the fund is not increased by reason of the special transfer of property and the fund’s basis in the property transferred in the special transfer is the same as the transferee’s basis in that property immediately prior to the special transfer sec_1_468a-8t c provides that taxpayer may not make a special transfer to a qualified nuclear decommissioning fund unless the taxpayer requests from the irs a schedule of deduction amounts in connection with such transfer a request for a schedule of deduction amounts may be made in connection with a request for a schedule of ruling amounts but in such case the calculations for both the schedule of ruling amounts and the schedule of deduction amounts must be separately_stated as stated above prior to the changes made by the act deductible contributions were limited to the lesser_of the amount necessary to fund the plant’s post-1983 nuclear decommissioning costs or the amount necessary to fund the plant’s decommissioning costs for that portion of the plant’s estimated_useful_life for which a fund had been established under that prior_law taxpayer was allowed to contribute --- -------- percent of the amounts necessary to fully decommission its share of the plant sec_468a allows a taxpayer to contribute to the nuclear decommissioning fund the pre-1984 amount that was denied under the law prior to the act plr-114566-09 thus taxpayer is able to contribute the additional -------- percent of the amounts necessary to decommission its ownership share of plant the original special transfer occurred in ------- and relates back to the ------- tax_year the value of this special transfer is dollar_figure----------------- ------- dollars this amount represents -------- percent of the amounts necessary for taxpayer to decommission its ownership share of the plant as a result the taxpayer is now able to contribute -------- percent of the amounts necessary to decommission its ownership of the plant taxpayer may deduct the amount of the subsequent special transfer in ------- the value of the subsequent special transfer is dollar_figure--------------- ------- dollars the total future cost of decommissioning the plant as of the date of this request is dollar_figure----------------- ------- dollars the value of that amount as of the date of this request is dollar_figure----------------- ------ dollars we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we conclude that because the useful_life of the plant as defined by sec_1_468a-3t c ended in ------- taxpayer may make a subsequent special transfer of dollar_figure--------------- ------- dollars in ----- ------- as set forth below schedule of deduction amounts year ------- ------- deduction amount dollar_figure------------------ dollar_figure----------------- the subsequent special transfer amount stated above is the maximum amount permitted to be transferred to the fund under sec_468a if taxpayer transfers a lesser amount to the fund the taxpayer may deduct that lesser amount ratably over the period of years described above further in the event that taxpayer transfers a lesser amount for ------- in order to make an additional special transfer in a later year taxpayer must request a new schedule of deduction amounts and in that request must take the ------- transfer into account and recalculate the pre-2005 qualifying percentage in such request we note that if taxpayer elects to make a special transfer of property for all or a portion of this special transfer the amount of the deduction is the lesser_of the fair_market_value of the property transferred or the basis of the property in the hands of the taxpayer immediately prior to the transfer in either event the deduction of the taxpayer with respect to the property is limited to the taxpayer’s basis in the property we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations plr-114566-09 thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3t a taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1t b of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3t d of the regulations pursuant to sec_1_468a-3t a taxpayer has demonstrated that by following the assumptions approved by the commissions the proposed schedule of ruling amounts is consistent with the principles of sec_468a and the regulations thereunder and that such schedule is based on reasonable assumptions the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2t b of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts approved schedule of ruling amounts year each year ------------ comm a dollar_figure------------ comm b dollar_figure------------ comm c comm c-other dollar_figure---------- dollar_figure-------- total dollar_figure------------ if any of the events described in sec_1_468a-3t f occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above plr-114566-09 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office the original of this letter is being sent to the taxpayer’s authorized representative we are also sending a copy of this letter_ruling to the director and to the taxpayer pursuant to sec_1_468a-7t a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


department of the treasury internal_revenue_service washington d c date number release date cc tege eoeg et1 - cor-125565-01 uilc 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 - cor-125565-01 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 became 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 became an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business cc will e mcleod


internal_revenue_service number release date index number --------------------------------------------- ------------------------------------ -------------------------- --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-132042-09 date date legend legend x ------------------------------------- ----------------------------- state --------------- city ----------------------------- date1 ------------------------- date2 ---------------------- date3 ---------------------- date4 ---------------------- a -- b ----------- c ----------- d -------------- e ----------- dear ----------------- plr-132042-09 this responds to a letter dated date submitted on behalf of x by x’s authorized representative requesting a ruling that the rental income received by x from certain rental real_estate is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code the code the information submitted states that x was incorporated under the laws of state on date1 x intends to elect to be an s_corporation effective date2 x owns and operates a shopping center in city x derives income from the leasing of office and retail_space within the shopping center to various tenants x directly performs through its a part-time employees or hires contractors to perform certain services necessary for the operation of the shopping center including maintaining and repairing the real_property through the inspection of and repairs and maintenance to the roof external walls floors foundation guttering and downspouts plumbing parking lot and parking lot lighting sidewalks curbs and drainage ditches surrounding the parking area and air conditioning and heating units for tenants disposal of garbage and waste materials for tenants performance of safety inspections and pest control inspections and treatment providing emergency services as required landscaping and maintenance of the shopping center grounds and parking lots repairing storm and other_casualty damage to the shopping center including the maintenance and repair of problematic drainage areas maintaining large pylon signage handicapped fire lane and no parking signage providing and maintaining seasonal decorations and features negotiating and signing leases overseeing rental collections and communicating with tenants determining appropriate rental rates and showing space to prospective tenants investigating potential tenants for suitability marketing the shopping center through advertising and public relations activities and addressing tenant complaints responding to tenant requests and resolving disputes between tenants x also provides insurance coverage for the shopping center for the taxable_year ending date3 x collected approximately dollar_figureb in gross rents and incurred approximately dollar_figurec in relevant operating_expenses for the shopping center for the taxable_year ending date4 x collected approximately dollar_figured in gross rents and incurred approximately dollar_figuree in relevant operating_expenses for x’s rental real_estate properties x also represents that x has accumulated_earnings_and_profits except as provided in sec_1362 sec_1362 provides that 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 shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of three consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income plr-132042-09 except as otherwise provided in sec_1362 sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2b i of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in the active trade_or_business of renting property only if based on all of the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed are substantial costs are incurred in the rental business is determined based upon all of the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation based solely on the facts submitted and the representations made we conclude that the rental income x receives from its shopping center operations described above is not passive_investment_income under sec_1362 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 further the passive_investment_income rules of sec_1362 are independent of the passive_activity_loss rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-132042-09 in accordance with the power_of_attorney on file with this office copies of this letter are being sent to x’s authorized representatives sincerely bradford r poston senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc ita 06-plr-103475-01 date date do area ty legend former spouse taxpayer state a county a date a date b date c dollar_figurex dollar_figurey or payment dear this is in response to a private_letter_ruling request dated date submitted by your authorized representative on your behalf specifically you have requested a ruling that dollar_figurey payment to be paid to you by former spouse pursuant to a proposed stipulation is not alimony includible as income to you as taxpayer under sec_71 of the internal_revenue_code_of_1986 the following facts and representations are relevant the marriage of the taxpayer and former spouse was dissolved by judgment dated date a and entered by the superior court of state a for county a the superior court entered a further judgment on reserved issues on date b pursuant to the terms of this further judgment as modified by the court on date c former spouse is obligated to pay taxpayer spousal support payments equal to dollar_figurex per month until the death of taxpayer death of former spouse remarriage of taxpayer or further order of the court the current spousal support obligation taxpayer represents that the current spousal support obligation is modifiable taxpayer further represents that neither former spouse nor taxpayer have any claims against the other and that former spouse is current on the payment of the current spousal support obligation to taxpayer through the date of the submission that is there are no amounts in arrears at this time plr-103475-01 your submission provides that taxpayer and former spouse propose to modify the current spousal support obligation by executing the proposed stipulation for modification of spousal support and order thereon with the superior court of state a for county a once this proposed stipulation is approved by the superior court of state a for county a former spouse will pay the payment amount to taxpayer upon receipt of the payment by taxpayer all past present and future claims for spousal support from former spouse and all claims by taxpayer against former spouse for posting security for said support shall be deemed satisfied in full and terminated concerning the payment the proposed stipulation designates that the payment is not to be treated as alimony by former spouse or taxpayer and accordingly is not includible as income by taxpayer under sec_71 of the code or otherwise and is not deductible by former spouse under sec_215 of the code or otherwise specifically paragraph of the proposed stipulation states this payment pursuant to sec_215 or otherwise shall not be reported as a deductible item by former spouse and pursuant to sec_71 or otherwise shall not be reported as a taxable item by taxpayer taxpayer anticipates that the proposed stipulation will be executed by the court taxpayer and former spouse immediately upon receiving a favorable ruling from the national_office law and analysis sec_71 of the code includes amount received as alimony or separate_maintenance payments in gross_income under sec_71 the term alimony_or_separate_maintenance_payment means any payment in cash if a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse sec_71 defines divorce_or_separation_instrument as a a decree of divorce or separate_maintenance or a written instrument incident to such a decree b a written_separation_agreement or c a decree not described in subparagraph a requiring a spouse to make payments for the support or maintenance of the other spouse sec_1 b -1t a-8 of the temporary income_tax regulations provides that the spouses may designate that payments otherwise qualifying as alimony or separate_maintenance payments shall be nondeductible by the payor and excludible from gross_income by the payee by so providing in a divorce_or_separation_instrument as defined plr-103475-01 in sec_71 a copy of the instrument containing the designation of payments as not alimony or separate_maintenance payments must be attached to the payee’s first filed return of tax form_1040 for each year in which the designation applies your submission represents that the proposed stipulation qualifies as a divorce_or_separation_instrument for purposes of sec_71 of the code and sec_1 b -1t a-8 of the temporary regulations because it is a decree requiring one spouse to make payments for the support and maintenance of the other spouse with respect to the payment the quoted language in paragraph of the proposed stipulation states this payment pursuant to sec_215 or otherwise shall not be reported as a deductible item by former spouse and pursuant to sec_71 or otherwise shall not be reported as a taxable item by taxpayer accordingly we rule that this language constitutes a valid designation pursuant to sec_1 b -1t a-8 of the temporary regulations that the payment is not to be treated as alimony by taxpayer and therefore is not includible as income by taxpayer under sec_71 of the code the above ruling is contingent upon the proposed stipulation being executed by former spouse and being approved and executed by the superior court of state a for county a in addition a copy of the proposed stipulation once approved by the court must be attached to the taxpayer’s first filed return of tax form_1040 for each year in which the above designation applies in addition this ruling is limited solely to a determination of whether payment constitutes alimony or separate_maintenance for purposes of sec_71 and sec_215 of the code no determination is being made concerning whether payment is includible in gross_income or deductible from gross_income with respect to any other provision 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 transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed plr-103475-01 by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination s s j toomey enclosure copy for sec_6110 purposes sincerely associate chief_counsel income_tax and accounting by stephen j toomey assistant to the chief branch


internal_revenue_service index nos number release date cc ebeo 4-plr-112638-98 date taxpayer company plan a plan b plan c date a date b date c date d date e date f date g year year year plr-112638-98 h years i years j shares k l v w x dear this replies to a ruling_request submitted on your behalf by your authorized representative concerning the application of sec_83 and the gift and estate_tax provisions of the internal_revenue_code to the proposed transfer of certain stock_options by gift company has voting common_stock outstanding the stock is publicly traded company has three stock_option plans plan a plan b and plan c taxpayer an employee of company was born on date a and has been employed by company since year as of date b taxpayer owned j shares of company common_stock directly taxpayer was granted k nonqualified_stock_options on date c under plan a and was granted l nonqualified_stock_options on date d under plan b taxpayer and taxpayer’s family members do not own in the aggregate by vote or value fifty percent or more of company’s common_stock plan a and plan b are administered by a committee appointed by company’s board_of directors all of the committee members are non-employee directors appointed annually by the board under the plans option holders may purchase company common_stock at a specified price after various conditions are met the plans provide that the option_price per share is determined by the committee however the option_price may not be less than the fair_market_value of a share on the date the option is granted each option is plr-112638-98 granted for an option period fixed by the committee the option period however may not exceed ten years from the date the option is granted all of the stock_options received by taxpayer have a ten-year term the option received under plan a vests in installments of one-quarter per year on each of the first through fourth anniversary dates of the option grant in addition the stock received under plan a must meet certain price appreciation thresholds during the first h years of the option period before the option may be exercised further except as otherwise provided the optionee must be employed by company at the time of the exercise the option received under plan a vests and becomes exercisable in stages one-quarter of the option is exercisable after the one-year holding_period one-quarter of the option vests after a two-year holding_period and is exercisable when the underlying stock achieves a v increase one-quarter of the option vests after a three- year holding_period and is exercisable when the underlying stock achieves a w increase and one-quarter of the option vests after a four-year holding_period and is exercisable when the underlying stock achieves a x increase in the i years the option is fully exercisable regardless of stock price the option received under plan a expires ten years after the date of the option grant similarly the option received under plan b vests annually in four equal installments of one-quarter per year on each of the first through fourth anniversary dates of the option grant and except as otherwise provided the optionee must be employed by company at the time the option is exercised further the option received under plan b expires ten years after the date of the option grant the option received under plan b however is subject_to different price appreciation thresholds during the first h years of the option period before the option or a portion of the option may be exercised one-third of the option received under plan b is not subject_to any price appreciation threshold and is exercisable after the portion of the option is vested one- third of the option is exercisable when the underlying stock achieves a v price increase and the final one-third of the option is exercisable when the underlying stock achieves a w price increase in the i years the option is fully exercisable regardless of stock price in addition subject_to a one-year continuous employment rule and price appreciation requirements options received under plan a and plan b are exercisable if the optionee i attains age sixty while employed by company ii dies while employed by company iii retires from company on or after hi sec_65th birthday iv retires from company on or after hi sec_55th birthday after having completed ten years_of_service with company or v retires from company on or after the date the sum of the optionee’s age and years_of_service when rounded up to the next highest number equals at least and the optionee has completed ten years_of_service with company and plr-112638-98 employment terminates for any reason other than death resignation willful misconduct or activity deemed detrimental to the interest of company plan a and plan b agreements have been amended to provide that the options are transferable to members of the optionee’s immediate_family to trusts solely for the benefit of optionee’s immediate_family and to partnerships in which the only partners are the optionee’s immediate_family members and or trusts solely for the benefit of optionee’s immediate_family for this purpose immediate_family members means the optionee’s spouse parents children stepchildren grandchildren and legal dependents under plan a and plan b if an optionee retires from company the optionee’s stock_options expire at the end of the option period fixed by the committee if an optionee’s employment with company is terminated other than by retirement or death the optionee’s options expire three months after the termination of employment if an optionee dies while employed by company the stock_options expire at the end of the option period fixed by the committee if however the optionee dies within the period after retirement or other termination of employment the stock_options are exercisable until the later of twelve months after death or the date the options expire under the plans further if the optionee ceases to be employed by company due to disability the optionee is treated as remaining in the employ of company until the earlier of i cessation of payments under a disability plan of company ii the disabled optionee’s death or iii the disabled optionee’ sec_65th birthday taxpayer intends to make a donative transfer after date e and no later than date f of a portion of his stock_options granted during date g to a member of his immediate_family to a_trust solely for the benefit of such family_member or to a partnership in which such family_member and or trust are the only members taxpayer represents that he will transfer only options granted under plan a and plan b which are vested and exercisable after taxpayer transfers the stock_options he will have no power or right to determine when the stock_options are exercised or to otherwise affect the stock_options upon transfer taxpayer will have no beneficial_ownership interest in or control_over the stock_options taxpayer will have no power to require the transferee to exercise or to refrain from exercising the stock_options to revest the beneficial title to the stock_options in himself to name new beneficiaries of the gift or to change the beneficiaries of the gift sec_83 of the code provides that if in_connection_with_the_performance_of_services property is transferred to any person other than the person for whom the plr-112638-98 services are performed the excess of the fair_market_value of the property determined without regard to any restriction other than a restriction which by its terms will never lapse at the first time the rights of the person having a beneficial_interest in the property are transferable or are not subject_to a substantial_risk_of_forfeiture whichever occurs earlier over the amount if any paid for the property will be included in the gross_income of the person who performed the services in the first taxable_year in which the rights of the person having the beneficial_interest in the property are transferable or are not subject_to a substantial_risk_of_forfeiture whichever is applicable under sec_83 of the code sec_83 does not apply to the transfer of an option without a readily_ascertainable_fair_market_value pursuant to sec_83 of the code there is allowed a deduction under sec_162 of the code to the person for whom were performed the services in connection with which the property was transferred an amount equal to the amount included under sec_83 in the gross_income of the person who performed the services the deduction will be allowed for the taxable_year of such person in which or with which ends the taxable_year in which such amount is included in the gross_income of the person who performed the services sec_1_83-6 of the income_tax regulations provides an exception to the rule_of sec_83 concerning what taxable_year the service_recipient is allowed the deduction there it is provided that if property is substantially_vested upon transfer the deduction will be allowed in accordance with the service recipient’s method_of_accounting sec_1_83-7 of the regulations provides in part that if there is granted to an employee or independent_contractor or beneficiary thereof in_connection_with_the_performance_of_services an option to which sec_421 relating generally to certain qualified and other options does not apply sec_83 shall apply to the grant if the option has a readily_ascertainable_fair_market_value at the time the option is granted if sec_83 does not apply to the grant of the option because it does not have a readily_ascertainable_fair_market_value at the time of the grant sec_83 will apply at the time the option is exercised or otherwise_disposed_of even though the fair_market_value of the option may have become readily ascertainable before such time if the option is exercised sec_83 applies to the transfer of property pursuant to the exercise and the employee or independent_contractor realizes compensation upon the transfer at the time and in the amount determined under sec_83 if the option is sold or otherwise_disposed_of in an arm’s length transaction sec_83 applies to the transfer of money or other_property received in the same manner as sec_83 would apply to the transfer of property pursuant to the exercise of an option see sec_1_83-7 of the regulations for the tests to be applied in determining whether an option has a readily_ascertainable_fair_market_value plr-112638-98 sec_1_83-4 of the regulations provides in part that if property to which sec_83 applies is acquired by any person including a person who acquires such property in a subsequent transfer which is not at arm’s length while such property is still substantially nonvested such person’s basis in the property should reflect any amount_paid for the property and any amount includible in the gross_income of the person who performed the services in this case the options do not have a readily_ascertainable_fair_market_value at the date of grant also because the transfer of them to the family_member or trust will not be pursuant to an arm’s length transaction they will not be considered to be disposed of under sec_1_83-7 of the regulations accordingly sec_83 of the code will apply when the options are exercised and stock is transferred to the family_member or trust sec_2501 of the code imposes a tax for each calendar_year on the transfer of property by gift during the calendar_year by an individual sec_2511 of the code provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible under sec_2512 of the code if the gift is made in property the value of the property at the date of the gift shall be considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money or money’s worth the amount by which the value of the property exceeds the value of the consideration is deemed a gift sec_25_2511-2 of the gift_tax regulations provides that as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in him no power to change its disposition whether for his own benefit or for the benefit of another the gift is complete but if upon a transfer of property the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case revrul_98_21 1998_18_irb_7 considers the transfer of a nonstatutory stock_option by the optionee to a family_member for no consideration the facts in revrul_98_21 provide that company grants to a a nonstatutory stock_option conditioned on the performance of additional services by a if a fails to perform the services the option cannot be exercised because the option cannot be exercised if a fails to perform the services revrul_98_21 provides that before a performs the services the rights that a possesses in the stock_option have not acquired the character of enforceable property rights plr-112638-98 susceptible of transfer for federal gift_tax purposes a can make a gift of the stock_option to b one of a’s children for federal gift_tax purposes only after a has completed the additional required services because only upon completion of the services does the right to exercise the option become binding and enforceable in the event the option were to become exercisable in stages each portion of the option that becomes exercisable at a different time is treated as a separate option for the purpose of applying this analysis revrul_98_21 concludes that the transfer of a nonstatutory stock_option by a the optionee to b a family_member for no consideration is a completed_gift under sec_2511 on the later of i the date of the transfer or ii the time when the donee’s right to exercise the option is no longer conditioned on the performance of services by the transferor in the present case taxpayer an employee of company holds options to purchase company common_stock under both plan a and plan b taxpayer is under age fifty and has been employed by company for less than thirteen years at the time of this ruling the options received under plan a met all of the price appreciation thresholds required by plan a however only a portion of the options received under plan a satisfied the holding_period requirements for vesting further at the time of this ruling the options received under plan b had not met all of the price appreciation thresholds required by plan b and only a portion of the option received under plan b satisfied the holding_period requirements for vesting although all of the stock price appreciation requirements for the option issued to taxpayer under plan a have been met the option owned by taxpayer under plan a is not completely vested further the option owned by taxpayer under plan b has not met all of the stock appreciation thresholds nor is the option owned by taxpayer under plan b completely vested taxpayer proposes to transfer only the portions of the options granted under plan a and plan b that are both vested and exercisable after the proposed transfers taxpayer will have no power or right to determine when the transferred portion of the option is exercised because taxpayer proposes to transfer only portions of the plan a and plan b options that are vested and exercisable we conclude that his proposed transfers of the portions of his plan a and plan b options that are vested and exercisable to one or more of his children or to a_trust for the benefit of one or more of his children will constitute completed gifts on the date of transfer for purposes of sec_2511 provided that under the terms of the trust taxpayer will not retain any power that would render the gifts incomplete sec_2701 of the code provides special valuation rules to determine the amount of a gift when an individual transfers an equity_interest in a corporation or partnership to a member of the individual's family in order for sec_2701 to apply the transferor or an applicable_family_member must immediately_after_the_transfer hold an applicable_retained_interest sec_25_2701-1 of the regulations plr-112638-98 sec_2701 of the code and sec_25_2701-1 of the regulations provide that sec_2701 does not apply if the retained_interest is of the same class of equity as the transferred interest sec_25_2701-2 of the regulations provides that the term applicable_retained_interest means any equity_interest in a corporation or partnership with respect to which there is either an extraordinary_payment_right or in the case of a controlled_entity a distribution_right sec_25_2701-2 provides that with certain exceptions an extraordinary_payment_right is any put call or conversion_right any right to compel liquidation or any similar right the exercise or non-exercise of which affects the value of the transferred interest a call_right includes any warrant option or other right to acquire one or more equity interests sec_2703 of the code provides that for purposes of the estate gift and generation-skipping_transfer taxes the value of any property is determined without regard to any option agreement or other right to acquire or use the property at a price less than fair_market_value of the property without regard to such option agreement or right or any restriction on the right to sell or use such property sec_2703 of the code provides an exception to the application of sec_2703 in the case of a right or restriction where the right or restriction is a bona_fide business arrangement the right or restriction is not a device to transfer the property to the natural objects of the transferor’s bounty for less than adequate_and_full_consideration in money or money’s worth and at the time the right or restriction is created the terms of the right or restriction are comparable to similar arrangements entered into by persons in an arm’s length transaction sec_25_2703-1 of the regulations provides that a right or restriction is considered to meet each of the three requirements described in sec_2703 of the code if more than percent by value of the property subject_to the right or restriction is owned directly or indirectly within the meaning of sec_25_2701-6 of the regulations by individuals who are not members of the transferor’s family in order to meet this exception the property owned by those individuals must be subject_to the right or restriction to the same extent as the property owned by the transferor in the present case taxpayer holds common_stock and options to acquire common_stock under the option agreements the option holder has the right to acquire common_stock taxpayer proposes to transfer stock_options granted to him by his employer to one or more of his children or to a_trust for the benefit of one or more of his children the options must be exercised within a specified term set forth in the option agreement until the options are exercised the holder of the options has no right to receive dividends and no right to vote shares of the corporation the holder has only the right to purchase an equity_interest ie shares of stock in purchasing the plr-112638-98 shares of stock the holder would then obtain an equity_interest in which he would have these rights the holder of the options thus does not hold an equity_interest in the corporation and a transfer of the options is not subject_to sec_2701 of the code therefore the proposed transfers of the stock_options granted under plan a and plan b from taxpayer to one or more of his children or to a_trust for the benefit of one or more of his children will not be subject_to sec_2701 in addition we note that in this case the stock_options satisfy the requirements of sec_2703 therefore we conclude that the proposed transfers of the stock_options granted under plan a and plan b from taxpayer to one or more of his children or to a_trust for the benefit of one or more of his children will not be subject_to sec_2703 sec_2033 of the code provides for the inclusion in the gross_estate of any property_in_which_the_decedent_had_an_interest at the time of his death sec_2035 of the code provides for the inclusion in the gross_estate of property transferred within three years of the decedent’s death if the property would have been included under sec_2036 sec_2037 sec_2038 or sec_2042 if the decedent had retained the transferred property until death other transfers made within three years of death are not includible in the gross_estate sec_2036 sec_2037 and sec_2038 provide for the inclusion in the gross_estate of property of which the decedent has made a transfer and in which the decedent has either retained an interest in the property or a power over the property sec_2042 provides for the inclusion in the gross_estate of the proceeds of life_insurance over which the decedent has retained any incidents_of_ownership sec_2041 of the code provides that the gross_estate shall include any property with respect to which the decedent has at the time of his death a general_power_of_appointment or with respect to which the decedent has at any time released or exercised such power_of_appointment by a disposition which had the property been owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 through inclusive a general_power_of_appointment is a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate except where the decedent’s power is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent in the present case taxpayer proposes to transfer portions of options that he received as an employee of company to one or more of his children or to a_trust for the benefit of one or more of his children the portions of the options transferred will be vested and exercisable at the time of the transfer because the portions of the options transferred will be vested and exercisable at the time of the transfer exercise of the plr-112638-98 options will not be conditioned on continued future employment of taxpayer at the time of transfer the transferees may exercise the portions of the options transferred and purchase the stock at their discretion after the transfer after the transfers to the individuals or the trust taxpayer will retain no interest or reversion in the portion of the options transferred or the stock upon exercise and has no right to alter amend or revoke the transfer of the options or stock in addition taxpayer holds no general_power_of_appointment over the portions of the options transferred or the stock accordingly we conclude that after the proposed transfer of the portions of the options by taxpayer to one or more of his children or to a_trust for the benefit of one or more of his children neither the options nor the shares obtained upon the exercise of the options will be includible in taxpayer’s gross_estate based on the information submitted we rule as follows the transfer of the stock_options to the transferee will not cause the recognition of taxable_income or gain to taxpayer if the transferee subsequently exercises the stock_options taxpayer or if taxpayer is not then living taxpayer’s estate will be deemed to receive taxable compensation under sec_83 of the code and company will receive a corresponding deduction under sec_162 of the code if the transferee exercises the stock_options the transferee’s basis in the stock so acquired will be its fair_market_value on the date of exercise which consists of the consideration paid_by the transferee and income taxed to taxpayer or taxpayer’s estate under sec_83 of the code taxpayer’s transfers of his plan a options and plan b options to one or more of his children or to a_trust for the benefit of one or more of his children will constitute completed gifts on the date of transfer for purposes of sec_2511 of the code provided that under the terms of the trust taxpayer will not retain any power that would render the gift incomplete the proposed transfers of the stock_options granted under plan a and plan b from taxpayer to one or more of his children or to a_trust for the benefit of one or more of his children will not be subject_to sec_2701 and sec_2703 of the code after the transfer of the options by taxpayer to one or more of his children or to a_trust for the benefit of one or more of his children neither the options nor the plr-112638-98 shares obtained upon the exercise of the options will be includible in taxpayer’s gross_estate no opinion is expressed as to the federal tax consequences of the transaction described above under any other provisions of the code also no opinion is expressed on the value for gift_tax purposes of the options at the date of transfer this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours enclosure copy for sec_6110 purposes _______________________ robert b misner assistant chief branch office of the associate chief_counsel employee_benefits and exempt_organizations


id office uilc cca_2008082713405950 ---------------- number release date from --------------- sent wednesday date pm to --------------- cc --------------------------------------------------------------------- subject conservation_easement case ------------- no deduction is allowed under sec_170 for a qualified charitable_contribution including a qualified_conservation_contribution of dollar_figure or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization f a if an acknowledgment fails to contain the required information or the taxpayer fails to receive the acknowledgment within the required time sec_170 is clear that no deduction under sec_170 is allowed ie taxpayers may not cure the defect after the fact and receive a whole or partial deduction see eg 374_f3d_881 9th cir consequence of acknowledgment that did not contain required information is total denial of deduction partial deduction foreclosed by statute affg 118_tc_528 irc content of acknowledgment a contemporaneous written acknowledgment with respect to the contribution of a conservation_easement to a donee organization must include the following information a description but not necessarily the value of the property contributed whether the donee organization provided any goods or services in consideration in whole or in part for the contributed_property and if goods or services were provided in consideration for the contributed_property a good_faith estimate of the value of such goods or services sec_170 reg sec_1_170a-13 goods or services includes cash reg sec_1_170a-13 timing of acknowledgment the acknowledgment required under sec_170 is considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of-- the date on which the taxpayer files a return for the taxable_year in which the contribution wa sec_1 made or the due_date including extensions for filing such return sec_170 reg sec_1_170a-13 a writing that does not acknowledge a contribution of property but instead merely evidences a sale of the property regardless of the actual value of the property and does not include a statement of whether any goods or services have been provided for the contribution is not a contemporaneous written acknowledgment under sec_170 a writing that does contain the required information under sec_170 must be received by the taxpayer before the taxpayer files its original return for the taxable_year in which the contribution was made or the due_date including extensions for filing that return -- whichever is earlier --------------------------------------------------------------------- - --------------- --------- - - -------------------------------------------------------- ---------------- ----------------------------- --------------------------------------------- -------------------------------------------------- ---------------------------- --------------------- ---------------------


department of the treasury employer_identification_number contact person - id contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend t name of organization u name of scholarship program v educational_institution w learning network z financial assistance program x y grant amount grant amount dear we have considered your request for advance approval of a grant-making program under sec_4945 g of the internal_revenue_code dated date our records indicate that you t were recognized as exempt from federal_income_tax under section c of the code and are classified as a private_foundation as defined in sec_509 your request states that t will operate a grant-making program identified as u that will be awarding scholarships to eligible individuals to be used for enrollment at early childhood educational institutions providing care and education for economically disadvantaged children from birth to age five including v within the w the purpose of the scholarships shail be to provide financial assistance to eligible families who demonstrate financial need in order to allow children of such families to attend early childhood educational institutions the amount of each scholarship will be designed to cover all or a portion of the fees required for enrollment of the scholarship recipient at such early childhood educational_institution to ensure that qualified potential applicants receive information concerning the availability of the scholarships t intends to notify designated representatives at v and other early childhood educational institutions and deliver applications to such designated representatives for distribution to eligible applicants in order to initially be eligible for a scholarship the parents of the applicant must fall below federal poverty guidelines and or receive z and ii demonstrate strength of character and initiative in overcoming obstacles and hardships the applicants shall be evaluated and the scholarships awarded by the selection committee on an objective and non-discriminating basis in accordance with the following criteria fi fi financial need of the parents and personal background and interviews with applicant's parents in determining the financial needs of the applicant the selection committee will consider among other things evidence of such parent s ’ ability to meet the expenses of the selected educational_institution the selection committee may also consider the ability of relatives of the applicant to pay such educational expenses or such other sources of financing as the selection committee may consider appropriate the selection committee may request supplemental information or verification of the financial circumstances described in the application including without limitation a copy of the federai income_tax return for the applicant's parent s for the immediately preceding tax_year the selection committee shall initially be comprised of five members - two members of the board_of directors of t one staff member of t and two independent committee members in order to qualify to be on the selection committee the person must at a minimum have a college degree and demonstrate an interest in providing educational opportunities to disadvantaged individuals and a commitment to the selection of grant recipients on the basis of objective and nondiscriminatory criteria each of the five members of the selection committee was nominated by a member of the board_of directors of t nomination for a replacernent member will be sought from the members of the board_of directors of t and will be considered based upon these same factors no member of the selection committee shall derive any private benefit directly or indirectly if certain potential recipients are selected over others no relative of a member of the selection committee or relative of any officer director trustee or substantial_contributor as defined in sec_507 of the code shall be eligible for financial aid from t no scholarship will be awarded to any individual who is considered a disqualified person’ as defined in sec_4946 a1 a of the code if a vacancy arises in the selection committee the amount of the scholarships will be determined on an annual basis at the discretion of the selection committee t initially plans to award up to five scholarships in an amount ranging between x and y per year per recipient however these amounts may change in future years and are subject_to the discretion of the selection committee scholarship funds will be delivered directly to the early childhood educational_institution attended by the recipient such funds will be delivered after t receives a bill from the institution establishing that the scholarship recipient is attending the institution delivered directly to the parent s of the scholarship recipient such funds will be delivered only after the the parent s of the scholarship recipient provides in some cases the scholarship funds may be in most cases the evidence of enrollment a copy of the invoice s to be paid and all other information required from the recipient by the selection committee in order to be eligible to renew or extend an existing scholarship a scholarship recipient must continue to be enrolled in an early childhood educational_institution and must have furnished all required reports to t t shall maintain case histories describing scholarship recipients including each recipient's name address the purpose of the award to the recipient the amount of each grant the manner of selection and the recipients’ relationship if any to officers board members or donors to t in addition t will maintain records of all information related to each individual grant including information obtained to evaluate the qualifications of potential grantees and all reports received pursuant to supervision procedures the selection committee will require periodic reports at least annually confirming each scholarship recipient's attendance at the early childhood educational_institution and detailing his or her progress and performance at the institution if the selection committee determines in those cases where the scholarship funds are delivered directly to the parent s of the scholarship recipient if the selection committee receives information including the submitted reports described above or the failure to submit such reports that all or any part of the scholarship funds are not being used in the furtherance of the scholarship purposes the selection committee shall take reasonable steps to investigate such information during the course of this investigation the selection committee shall withhold all further payments to that recipient that any part of a scholarship has been used for improper purposes the selection committee shall take all reasonable steps either to recover the diverted financial aid funds or to ensure the restoration of the diverted funds and the dedication of other scholarship funds held by the recipient for the intended purposes of the scholarship and shall withhold any further payments to the recipient after the selection committee becomes aware that a diversion may have taken place until the recipient has assured the selection committee that further diversion will not occur and the selection committee has required the recipient to take extraordinary precautions to prevent further diversions from occurring sec_4945 and of the cade 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 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 and is to be used for study at an educational_organization described in sec_170 a i or other similar purposes by such individual 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 musical scientific teaching or other similar capacity skill or talent of the grantee literary artistic sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i ii its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to resuit in performance by grantees of the activities that the grants are intended to finance and the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide 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 excludable from the gross_income of the recipients subject_to the limitations provided by 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 award program procedures herein constitutes a one- time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award 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 case histories so that any or all award distributions can be substantiated upon request by the intemal 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 if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements


internal_revenue_service number release date index number ------------------------------------ ----------------------------- ----------------------------------------- ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-126337-07 date date ------------------------------------------------------------------------ --------------------------------------------- ------------------------- legend trust ----------------------------------------- a ------------------------------------------ b ------------------------ ------------------------------------------ court date date year year year year x ------------------- ------------------ ------- ------- ------- ------- ---- plr-126337-07 dear ----------------------------- this responds to a letter dated date submitted on behalf of trust requesting rulings under and of the internal_revenue_code concerning the qualification of trust as a charitable_remainder_unitrust crut the information submitted states that on date a and b created trust with the intention that trust qualify as a fixed percentage crut under sec_664 a is the trustee of trust a and b established trust with the assistance of an attorney however due to a drafting error trust was drafted inadvertently as a net_income makeup charitable_remainder_trust nimcrut rather than as a crut the introductory paragraph of trust describes a fixed percentage crut however trust provides that the unitrust_amount payable to a and b during their lifetimes is the lesser_of a the trust income for the taxable_year as defined in sec_643 and b x of the net fair_market_value of the trust assets valued as of the first day of each taxable_year of trust in order to correct the scrivener's error and because trust is irrevocable the trustee sought an order from court authorizing an amendment ab initio of trust no parties objected to the proposed reformation on date court issued an order reforming trust to a fixed percentage crut ab initio subject_to the service issuing a private_letter_ruling that the reformation of trust will not disqualify trust as a charitable_remainder_trust sec_664 provides that for purposes of ' a crut is a trustb a from which a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in ' c and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in ' d a and other than qualified gratuitous transfers described in ' d c may be paid to or for_the_use_of any person other than an organization described in ' c c following the termination of the payments described in ' d a the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in ' c or is to be retained by the trust for such a use or to the extent the remainder_interest is in qualified_employer_securities as defined in ' g all or part of such securities are to be transferred to an employee_stock_ownership_plan as defined in ' e in a qualified_gratuitous_transfer as defined ' g and d with respect to each contribution of property to the trust the value determined under ' of such remainder_interest in such plr-126337-07 property is at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust sec_664 provides that notwithstanding the provisions of sec_664 and b the trust instrument may provide that the trustee shall pay the income_beneficiary for any year a the amount of the trust income if such amount is less than the amount required to be distributed under sec_664 and b any amount of the trust income which is in excess of the amount required to be distributed under sec_664 to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of such required amounts sec_1_664-3 of the income_tax regulations provides that the trust may not be subject_to a power to invade alter amend or revoke for the beneficial use of a person other than an organization described in sec_170 sec_4941 imposes an excise_tax on disqualified persons for each act of sec_4941 defines self-dealing as including any direct or indirect self-dealing between a disqualified_person as defined in sec_4946 and a private_foundation transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4946 provides that the term disqualified_person with respect to a private_foundation includes a person who is a substantial_contributor to the foundation including the creator of a_trust a family_member of a substantial_contributor including children and a foundation_manager including a trustee not exempt from tax under sec_501 not all of the unexpired interests of which are devoted to charitable purposes and which has amounts in trust for which a charitable deduction was allowed sec_4941 and other provisions apply as if such trust were a private_foundation sec_4947 a provides in pertinent part that the provisions of sec_4947 do not apply with respect to the amounts payable under the terms of such split-interest trust to its income beneficiaries sec_53_4947-1 and sec_53_4947-1 example of the regulations indicate in pertinent part that the payments of income under the term of the trust by a charitable_remainder_unitrust to its individual income beneficiaries do not result in any_tax on self-dealing under sec_4941 sec_4947 provides in pertinent part that in the case of a_trust which is plr-126337-07 based solely on the information submitted and representations made we conclude that the judicial reformation of trust ab initio does not violate sec_664 furthermore assuming that the terms of the reformed trust are otherwise valid under sec_664 the reformed trust will be treated as a valid crut under sec_664 ab initio so long as the trustee files amended tax returns on behalf of trust for year year and year treating trust as a crut rather than as a nimcrut additionally in year the trustee must include the appropriate amounts that should have been distributed to a and b in all of the prior years under sec_662 in the distribution to a and b as a charitable_remainder_unitrust under sec_664 trust is a split-interest trust described in sec_4947 by being described in sec_4947 trust is subject_to the provision of sec_4941 and certain other provisions as if it were a private_foundation a private_foundation is subject_to sec_4941 which imposes an excise_tax on acts of self- dealing a and b are disqualified persons with respect to trust because they are substantial contributors to trust the judicial reformation of trust will result in additional payments from the trust to a and b as the non-charitable beneficiaries to make up for the deficit caused by the scrivener’s error under sec_4947 and sec_53_4947-1 example of the regulations a charitable_remainder unitrust’s payments to its income_beneficiary do not result in any_tax on self dealing under sec_4941 therefore the judicial reformation will not constitute an act of self dealing within the meaning of sec_4941 different payout amount from that of the incorrectly drafted original trust document is not an act of self-dealing in that judicial reformation is required to reflect the intent of a and b at the time of the execution of the trust document court accepting as true the allegations of the underlying petition the conclusion is also based upon the stated declarations of a and b and on a third party who has personal knowledge of some of the discussions leading to the adoption of the trust these declarations were submitted as a part of the petition filed with the court the conclusion that there is no self-dealing is also based in part on the order of additionally the judicial reformation of the trust document to provide for a except as specifically set forth above no opinion is expressed as to the federal tax consequences of the above described facts under any other provision of the code specifically no opinion is expressed concerning whether trust is or was a charitable_remainder_trust within the meaning of sec_664 this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent plr-126337-07 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to trust's authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes enclosures cc