o f f i c e o f t h e c h i e f c o u n s e l 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 w a s h i n g t o n d c date cc tege eb ec conex-122098-16 number release date uil the honorable patty murray united_states senator jackson federal building second avenue seattle wa attention ------------------ ---------------------- dear senator murray i apologize for the delay in responding to your inquiry dated date on behalf of your constituent wrote that her former employer previously reported her retirement payments on a form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc but recently began reporting them on a form_w-2 wage and tax statement and withholding income and federal_insurance_contributions_act fica_taxes ---------------- questioned whether the reporting on form_w-2 and the withholding of income_tax and fica tax are correct and whether the amounts are properly characterized as deferred_compensation ------------- as a member of my staff and you discussed on date this area of the law is complex and we believe a phone call with would be the best way to address her concerns in the meantime i am providing the following general information on the federal income and employment_tax provisions that apply to the type of retirement payments is receiving i hope the information is helpful ------------- ------------- in general pensions and retirement payments including payments from a nonqualified ineligible plan are wages subject_to income_tax_withholding internal_revenue_code code sec_3401 and reported on a form_w-2 for federal tax purposes deferred_compensation is compensation that an individual earns or has a legally binding right to in one year and is paid in a later year a payment of deferred_compensation is not limited to a payment under a written plan that states that its objective is to defer compensation_for retirement instead a payment of conex-122098-16 deferred_compensation may be made under any program method employment agreement or other arrangement that results in a deferral of compensation an election to defer compensation is not a prerequisite for an amount to be considered deferred_compensation thus if as part of her or his employment a taxpayer received a legally binding right to monthly retirement payments in future years from a former employer these payments are deferred_compensation for federal tax purposes in general there are two types of deferred_compensation qualified and nonqualified nqdc plans a plan_administrator trustee or custodian instead of the employer_generally makes payments under qualified_plans in broad terms qualified_plans must comply with vesting contributions trustee minimum coverage and employee participation requirements these requirements do not apply to nqdc plans sec_457 of the code sets forth the tax rules for nqdc plans sponsored by eligible employers the constituent identified the former employer as an entity that would be an eligible_employer under sec_457 eligible employers may maintain two types of nqdc eligible plans under sec_457 eligible plans and ineligible plans under sec_457 ineligible plans sec_457 of the code provides different tax rules for eligible and ineligible plans participants in eligible plans may defer a limited amount of compensation on an annual basis dollar_figure for without having to include the amounts in gross_income until the amounts are paid or made available to them sec_457 furthermore eligible plans must be in writing and contain certain mandatory provisions for plan qualification in contrast no limits apply to the amount of compensation participants in ineligible plans may defer however participants in ineligible plans must include the value of the deferred_compensation benefit in gross_income for the first taxable_year in which the compensation is no longer subject_to a substantial_risk_of_forfeiture regardless of when the benefit is paid sec_457 a benefit is subject_to a substantial_risk_of_forfeiture if substantial future services must be performed to receive the benefit sec_457 the value of the benefits not subject_to a substantial_risk_of_forfeiture is includible in gross_income as wages and reported on a form_w-2 payments made from an ineligible plan are included in income as determined under sec_72 of the code and unpaid amounts taxed in one year are not again taxed when paid in a later year furthermore if for any reason benefits are not included in income when they are no longer subject_to a substantial_risk_of_forfeiture the benefits must be included in income when they are paid see sec_1_457-11 fica_taxes are imposed on wages as defined in sec_3121 of the code the term wages is defined in sec_3121 as all remuneration for employment including remuneration for employment paid on account of or upon retirement social_security conex-122098-16 amendments of public law pursuant to the social_security amendments of retirement pay under eligible and ineligible plans is subject_to fica taxation the social_security amendments of added sec_3121 of the code which provides for special fica taxation rules for amounts deferred under nqdc plans these rules are somewhat complex and an explanation may be helpful for fica tax purposes the law defines a nqdc plan in general as any plan or other arrangement--established by an employer for one or more employees that provides for the deferral of compensation--that is not a qualified_plan thus if outside of the qualified_plan context a promise to make retirement payments is legally binding the payments would be part of nqdc subject_to fica for fica purposes ineligible plans are generally included in the definition of nqdc plan regardless of whether benefits are paid pursuant to a participant’s election see sec_31_3121_v_2_-1 for further information on the fica tax treatment of nqdc for purposes of the fica nqdc plans are account balance plans or nonaccount balance plans an arrangement not based on a balance in an individual_account but that is for example based on a formula or a specified amount is a nonaccount balance plan generally amounts deferred under a nqdc plan are taken into account and subject_to fica_taxes as of the later of when the services are performed or when no substantial_risk_of_forfeiture of the rights to such amounts exists this is referred to in the fica regulations as the special timing rule under which fica is generally imposed on amounts deferred before those amounts are distributed for a nonaccount balance plan the amount deferred for a period equals the present_value of the additional future payment or payments to which the employee has obtained a legally binding right under the plan during that period an amount deferred under a nonaccount balance plan is not required to be taken into account as wages for fica tax purposes under the special timing rule until the first date on which all of the amount deferred is reasonably ascertainable resolution date an amount deferred is considered to be reasonably ascertainable on the first date on which the amount form and commencement_date of the benefit payments attributable to the amount deferred are known and the only actuarial or other assumptions regarding future events or circumstances needed to determine the amount deferred are interest and mortality fica_taxes include the old-age_survivors_and_disability_insurance_tax social_security_taxes and hospital insurance taxes medicare taxes social_security_taxes are imposed by sec_3101 employee’s portion and a employer’s portion of the code medicare taxes are imposed by sec_3101 employee’s portion and b employer’s portion of the code conex-122098-16 once an amount deferred is taken into account under the special timing rule for fica tax purposes then neither the amount taken into account nor the income attributable to the amount taken into account is treated as wages for fica tax purposes thereafter this is referred to as the nonduplication rule however if an amount is not taken into account for fica tax purposes and appropriate fica tax was not paid under the special timing rule for the period when the amount was deferred then the nonduplication rule does not apply and the general timing rule applies and the nqdc is subject_to fica tax when actually or constructively paid for example if an amount must be taken into account in a particular year and the employer fails to withhold and pay the resulting additional fica tax then the amount deferred and the income attributable to the amount is included as wages when the benefits are paid thus if a legally binding promise to make retirement payments is not subject_to a substantial_risk_of_forfeiture and the value of the payments is not taken into account for fica tax purposes upon retirement then the payments are wages subject_to fica when they are actually paid and reportable on a form_w-2 if however rights to benefits are not legally binding then retirement payments would not be part of a nqdc nevertheless the payments would still be subject_to fica_taxes income_tax_withholding and reporting on form_w-2 because they are payments for employment that is retirement payments i have enclosed additional information that discusses the taxation and reporting of retirement payments publication pension and annuity income and publication taxable and nontaxable income again we would be happy to have tax laws apply to her situation if you have questions please call me at or contact us so that we can explain how the -------------------- ---------------------------- -------------------- ----------------- ------------- or at sincerely victoria a judson associate chief_counsel tege associate chief_counsel enclosures


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 tege eb hw plr-138960-15 date date legend taxpayer ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ city airport port ----------------------------- -------------------------------------------------- ----------------------------------------- charter ------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- statute plan a ------------------------------------------------- ------------------------------- plan b ----------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- ---------------------------------- plan c ------------------------------------------------ supplemental benefit a --------------------- supplemental benefit b ----------------------- plr-138960-15 dear --------------- this is in reply to your private_letter_ruling request dated date and subsequent correspondence concerning the tax treatment of certain disability and death payments made by taxpayer under sec_104 of the internal_revenue_code the code taxpayer administers death disability and retirement benefits that are paid to eligible individuals who are members of plan a plan b or plan c the plans and pursuant to the charter and statute it is represented that the plans are governmental pension plans each plan has received a favorable determination_letter from the internal_revenue_service membership in the plans is limited to eligible employees and covered individuals who work for the city airport or the port membership in plan a plan b or plan c is mandatory and a condition_of_employment for eligible employees and covered individuals the plans provide for different categories of members - for example general member or executive member - based on an eligible employee’s date of hire and job classification industrial disability the charter and statute provide for a disability benefit to be paid to all eligible members who incur an industrial disability for members hired after -------------------------- and before ----------------- the general standard for whether an individual has incurred an industrial disability is the same for all the plans generally a member is treated as incurring an industrial disability if the member is permanently incapacitated from the performance of duty the permanent incapacity is the result of injury or disease arising out of the course of employment and the permanent incapacity renders the member’s retirement necessary the determination of an individual’s industrial disability is made by an independent agent of taxpayer members of the plans who are hired after -------------------------- will not be treated as incurring an industrial disability for any injury or incapacitation that is the result of a pre- existing medical_condition or nervous or mental disorder in addition to the general standard for whether a member has incurred an industrial disability certain members of plan a who are employed by city as of ----------------- are treated as incurring an industrial disability if the member is a victim of a violent attack using deadly force that occurs in the performance of his or her duties and that causes great bodily harm or a nervous or mental disorder a member who is determined to have incurred an industrial disability becomes entitled to an industrial disability retirement_plan a members may elect to receive a maximum monthly benefit or a modified retirement allowance pursuant to ------------ through ----- ------------ of the statute as authorized by the charter plan b and plan c provide the plr-138960-15 same maximum monthly benefit and options for a modified retirement allowance plan b ----------- and ------- through ------- and plan c ----------- and ------- through - ------- when a retired member who is receiving an industrial disability benefit dies ------------ of the statute provides that plan a will provide a benefit equal to of the member’s monthly retirement allowance to the member’s surviving_spouse so long as the surviving_spouse was married to the member on the date of retirement and the surviving_spouse does not qualify for and receive the industrial death_benefit plan b and plan c provide the same terms for the monthly retirement allowance paid to the member’s surviving_spouse or domestic partner plan b ------- and plan c ------- section ------------ of the statute provides that plan a will provide industrial death_benefits to survivors of a member who dies from industrial causes as determined by the workers’ compensation appeals board the industrial death_benefit is either a lump sum payment or the sum of a monthly allowance equal to one-half of the member’s final compensation paid to the member’s surviving_spouse for life plus a monthly annuity that is equal to the member’s accumulated additional contributions on the date the member died plan b and plan c similarly provide that the industrial death_benefit is either a lump sum payment or a monthly allowance equal to one-half of the member’s final average salary paid to the member’s surviving_spouse or domestic partner for life final average salary means the monthly average base compensation used to calculate the amount provided to each member upon retirement based on a specific formula plan b ------- and plan c ------- industrial disability retirement allowance - plan a under ------------ and ------------ of the statute a plan a member who has been determined to have incurred an industrial disability shall be entitled to receive an industrial disability retirement allowance paid in equal monthly installments the industrial disability retirement allowance shall equal of the member’s final compensation plus an annuity purchased with accumulated additional contributions if any in the case of a plan a member who is eligible for a service retirement the industrial disability retirement allowance shall be the greater of the member’s industrial retirement allowance or the service retirement allowance reduced by an annuity purchased with accumulated additional contributions under plan a a member’s final compensation means the member’s highest one-year period of base compensation_for the relevant period the average of the member’s three highest years of base compensation_for the relevant period or the average of a member’s three highest years of base compensation_for the relevant period plr-138960-15 section ------------ of the statute defines accumulated additional contributions to mean the sum of a member’s post-tax contributions and interest section --------------- provides that any workers compensation amount that may be awarded to a member shall be offset against any industrial disability retirement pension payments and the offset does not apply to the annuity of any industrial disability retirement allowance awarded industrial disability retirement allowance - plan b under plan b ------- a plan b member who has been determined to have incurred an industrial disability shall be entitled to receive an industrial disability retirement allowance paid in equal monthly installments the industrial disability retirement allowance shall equal to of the member’s final compensation plus an annuity that is the actuarial equivalent of the member’s accumulated cost of living annuity contributions and if applicable an annuity based on the plan b member’s accumulated surviving_spouse or domestic partner contributions credited to the member’s account at retirement in the case of a plan b member who is eligible for a service retirement and the member’s service retirement allowance would be greater than the member’s industrial disability retirement allowance the member will receive a disability retirement allowance equal to of the member’s final compensation paid in monthly installments plus an additional allowance equal to the difference between the industrial disability retirement allowance and the service retirement allowance the member has earned an industrial disability retirement allowance is derived from an annuity based on that member’s accumulated normal contributions plus an annuity which is the actuarial equivalent of the plan b member’s accumulated cost of living annuity contributions and if applicable an annuity based on the member’s accumulated surviving_spouse or domestic partner contributions credited to the member’s account at retirement and a disability retirement pension derived from contributions of the airport plan b ------- defines accumulated cost of living annuity contributions to mean all cost of living contributions credited to a plan b member’s account and interest under plan b a member’s final compensation means the member’s highest one-year period of base compensation_for the relevant period or the member’s highest three-year period base compensation earned for the consecutive months preceding his or her retirement for the relevant period industrial disability retirement allowance - plan c under plan c ------- certain plan c members who are determined to have incurred an industrial disability shall be entitled to receive an industrial disability retirement allowance paid in equal monthly installments the industrial disability retirement allowance shall equal of the member’s final compensation in the case of a plan c member who is eligible for a service retirement and the member’s service retirement allowance would be greater than the member’s industrial disability retirement plr-138960-15 the member will receive a disability retirement allowance equal to of the member’s final compensation paid in monthly installments plus an additional allowance equal to the difference between the industrial disability retirement allowance and the service retirement allowance the member has earned for other plan c members the provisions are the same except that the industrial disability retirement allowance is equal to of final compensation plan c ------- and ------- plan c ------- further provides that the industrial disability retirement allowance is derived from an annuity based on a member’s accumulated normal contributions and a disability retirement pension derived from contributions of the port plan c ------- defines accumulated normal contributions to mean the sum of all normal contributions credited to a plan c member’s account plus and interest under plan c a member’s final compensation means the member’s highest one-year period base compensation_for the relevant period or the member’s highest three-year period base compensation_for the relevant period cost_of_living_adjustments and supplemental benefits - plan a section ------------ of the statute provides for general cost_of_living_adjustments general colas to the plan a industrial disability retirement allowances under ------------ ----- ------------ ------------ of the statute the industrial disability survivor allowances under - ------------ through ------------ of the statute and the industrial death_benefits under ------ ----------- of the statute the retirement allowance payable to members or their survivors who retired prior to ----------------- are also increased for a supplemental cost of living adjustment supplemental cola a member’s benefit that includes the supplemental cola is the benefit that is further adjusted by the general cola plan a members who have started to receive plan a benefits may be paid an additional supplemental benefit based on a special formula according to --------------- of the statute the additional supplement benefit if any shall include supplemental benefit a section -------------- of the statute provides that the additional supplemental benefit if any that is paid shall include a specified annual increase of the member’s benefit determined without regard to any other supplement or additional benefits cost_of_living_adjustments and supplemental benefits - plan b plan b members who have started to receive plan b benefits may be paid an additional supplemental benefit based on a special formula the additional supplemental benefit if any shall include supplemental benefit b supplemental benefit b allows a covered_member to choose at the time of the member’s retirement to have the member’s basic service retirement allowance calculated based on certain alternatives that can increase the service retirement allowance for purposes of plan b plr-138960-15 plan b ------- provides for general colas to the plan b industrial disability allowances under ------- the industrial disability survivor allowances under ------- through ------ ------- and the industrial death_benefits under ------- plan b has a limit on the cola adjustment to a maximum of in any one year pursuant to plan b ------- cost_of_living_adjustments and supplemental benefits - plan c plan c members who have started to receive plan c benefits may be paid an additional supplemental benefit based on a special formula the additional supplemental benefit if any shall include supplemental benefit b supplemental benefit b allows a covered_member to choose at the time of the member’s retirement to have the member’s basic service retirement allowance calculated based on certain alternatives that can increase the service retirement allowance for purposes of plan c plan c ------- provides for general colas to the plan c industrial disability allowances under ------- ------- ------- and the industrial disability survivor allowances under ------- through ------- and the industrial death_benefits under ------ ------- as well as a supplemental cola annuity for plan c plan c has a limit on the cola adjustment to a maximum of in any one year pursuant to ------- rulings requested industrial disability retirement allowances paid under plan a plan b and plan c to members who incur a disability through the performance of duty will not be considered gross_income to the recipient under sec_104 of the code to the extent such benefits are not based on the member’s age length of service or prior contributions survivor benefits paid under plan a plan b and plan c to a survivor of an industrial disability retirement retiree will not be considered gross_income to the recipient under sec_104 of the code to the extent such benefits are not based on the member’s age length of service or prior contributions industrial death_benefits paid under plan a plan b and plan c to survivors of members who die as a result of the performance of duty will not be considered gross_income to the recipient under sec_104 of the code cola benefits supplemental cola benefits and supplemental benefit a allowances paid to a member who is receiving industrial disability allowances under plan a or a survivor of a member receiving industrial survivor or death_benefits under plan a will not be considered gross_income to the recipient under sec_104 of the code cola benefits supplemental cola benefits and supplemental benefit b allowances paid to a member who is receiving industrial disability allowances under plan b or plan c or a survivor of a member receiving industrial survivor or death plr-138960-15 benefits under plan b or plan c will not be considered gross_income to the recipient under sec_104 of the code industrial disability retirement allowances paid under a domestic_relations_order dro as applicable to government plans will not be considered gross_income to the recipient under the dro to the same extent that the underlying industrial disability retirement allowance is not considered gross_income to the member sec_61 provides that except as otherwise provided gross_income includes all income from whatever source derived including compensation_for services sec_72 of the code provides that except as otherwise provided by law gross_income includes any amount_received_as_an_annuity whether for a period certain or during one or more lives under an annuity endowment or life_insurance_contract sec_104 of the code provides that gross_income does not include amounts received under workmen’s compensation acts as compensation_for personal injuries or sickness sec_1_104-1 of the income_tax regulations states that sec_104 of the code excludes from gross_income amounts received by an employee under a workmen’s compensation act or under a statute in the nature of a workmen’s compensation act that provides compensation to the employee for personal_injury_or_sickness incurred in the course of employment however sec_104 does not apply to a retirement pension or annuity to the extent that it is determined by reference to the employee’s age or length of service or the employee’s prior contributions even though the employee’s retirement is occasioned by an occupational injury or sickness sec_1_104-1 of the regulations also states that sec_104 applies to compensation which is paid under a workmen’s compensation act to the survivor or survivors of a deceased employee in revrul_80_44 1980-c b a statute in the nature of a workmen’s compensation act provided for an allowance of the greater of a percent of the individual’s average final compensation or b the amount to which the individual would be entitled under the normal years_of_service retirement_plan the ruling concluded that the benefits under the statute were excludable under sec_104 of the code to the extent that they did not exceed percent of the final_average_compensation any excess over percent of final_average_compensation was attributable to length of service and therefore not excludible from gross_income revrul_80_44 also holds that benefits of the surviving_spouse which are a continuation of the employee’s benefits are excludible under sec_104 of the code in the same percentage as the employee’s benefits were excludible plr-138960-15 revrul_80_84 1980_1_cb_35 considered sec_183 of a los angeles california statute that provided benefits to survivors when any member of the fire or police department shall die after retirement or while eligible for retirement from such department on account of years_of_service the ruling concluded that benefits paid to employees’ survivors may qualify as paid under a statute in the nature of a workmen’s compensation act where those benefits are a mere continuation of employees’ sec_104 benefits in revrul_85_104 1985_2_cb_52 the service considered a statute under which the participants who were disabled due to work-related injury or sickness receive the greater of a fixed percentage of base salary or an amount computed on the basis of years_of_service the service concluded that an amount up to the percentage of base salary specified by the statute would be excludible from the participant’s gross incomes under sec_104 of the code but that any excess computed on the basis of length of service would not be excludible under sec_104 sec_104 is strictly construed to conform to the general purview of sec_61 that all income is taxable unless explicitly excluded the industrial disability retirement benefits are specifically paid to city employees for their work-related injury or sickness and not the work-related injury or sickness of the former spouses moreover sec_1_104-1 of the regulations explicitly limits the exclusion from income to employees and their survivors similarly no such exclusion is available for domestic partners neither the code nor the regulations provide an exclusion from income for amounts paid to former spouses pursuant to a domestic_relations_order see 138_tc_378 benefits paid under the statute for industrial disability benefits are paid only for work- related disabilities and those benefits are paid without regard to an employee’s age or length of service and are thus in the nature of a workmen’s compensation act based on the representations made and authorities cited above we conclude as follows industrial disability benefits paid under ------------ and ------------ of the statute will not be gross_income to the plan a recipient to the extent the benefits do not exceed of the member’s final compensation industrial disability benefits paid pursuant to ------------- ------- will not be gross_income to the plan b recipient to the extent that the benefits do not exceed of the member’s final compensation industrial disability benefits paid pursuant to plan c ------- will not be gross_income to the plan c recipient to the extent that benefits do not exceed of the member’s final compensation the portion of the benefit that exceeds that amount not included in gross_income in each of the three plans will be gross_income to the recipient under sec_72 of the code plr-138960-15 industrial disability benefits paid to a survivor of a member pursuant to --------- ----------- through ------------ of the statute by plan a plan b ------- and ------- - ------- and plan c ------- and ------- - ------- to a survivor of a member determined to have an industrial disability will not be gross_income to the recipient to the same extent the allowance was payable to the member industrial death_benefits paid under ------------ of the statute by plan a plan b ------- and plan c ------- to survivors of members who die as a result of the performance of duty will not be considered gross_income to the recipient under sec_104 of the code cola benefits paid under ------------ and ------------ and supplemental cola benefit a paid under ---------------of the statute to i a plan a member who is determined to have an industrial disability or ii a survivor of a plan a member under subsection i receiving benefits under ------------ - ------------ or industrial death_benefits under ------------ will not be considered gross_income to the recipient to the same extent as the industrial disability allowance or survivor benefit is not considered gross_income to the recipient cola benefits paid under plan b ------- and cola benefits paid under plan c ------- and ------- including the supplemental cola benefit b will also not be considered gross_income to the recipient to the same extent as the industrial disability allowance or survivor benefit is not considered gross_income to the recipient industrial disability retirement allowances paid under a dro will be considered gross_income to the recipient under the dro no opinion is expressed as to the federal tax consequences of payments not expressly covered in the requested rulings or the transaction under any other section of the code or statute other than those specifically stated above 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 r lisa mojiri-azad assistant branch chief health welfare branch office of associate chief_counsel tax exempt and government entities


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-111540-11 date date re revised schedule of ruling amounts --------------------------------------------------------------- --------------------------------------------------------------------------------- legend taxpayer ------------------------------------------------------------------------------------------------------------ -------------------------------------------------- parent --------------------------------------------------------------- plant ----------------------------------------------- location ----------------------------------------------- commission ------------------------------------------------------ decision independent study --------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- method estimate costs date amount year a year b year c year d ba fv x y ----------- --------------------------------------------------- -------------------------------------------------------- ------------------------ --------------- ------- ------ ------- ------- ------------------ --------------------- -------- -------- -------- ------------------------------------------ --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- plr-111540-11 p fund director dear --------------- this letter responds to your request dated date for a revised schedule of ruling amounts under sec_468a of the internal_revenue_code and sec_1 468a f of the income_tax regulations taxpayer represents the facts and information relating to its request for rulings as follows taxpayer a corporation is a subsidiary of parent taxpayer owns a p percent interest in plant the plant is at location and the amended operating license is scheduled to expire on date the proposed method of decommissioning the plant is method with respect to nuclear decommissioning costs that are included in the taxpayer’s cost of service for ratemaking purposes taxpayer is subject_to regulation by commission in decision commission changed the amounts authorized to be included in the taxpayer’s cost of service for ratemaking purposes for nuclear decommissioning costs during the period from year a through year b independent study was submitted to and accepted by commission in connection with decision taxpayer is relying primarily on the decision and the change to the amounts authorized to be included in the taxpayer’s cost of service for ratemaking purposes for nuclear decommissioning costs in making this request the estimated cost of dollar_figureba year c dollars was used as a base cost for decommissioning the plant the estimated cost of decommissioning the plant in future dollars is dollar_figurefv it is estimated that substantial decommissioning costs will first be incurred in year b and that decommissioning will be substantially complete at the end of year d the methodology used to convert the year c dollars to future dollars was accepted by commission and was calculated by escalating the estimated costs using estimate to the year of estimated expenditure as well as a weighted average escalation rate for costs the assumed after-tax rates of return to be earned by the amount collected for decommissioning are between x and y 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-111540-11 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 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-1 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-1 of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2 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- b does not apply to any special transfer permitted under sec_1_468a-8 plr-111540-11 sec_1_468a-3 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-3 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-3 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-3 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 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-3 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-3 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-3 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 plr-111540-11 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-3 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-3 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-3 provides the rules regarding the manner of requesting a schedule of ruling amounts sec_1_468a-3 provides that the service will not provide or revise a ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment_date as defined in sec_1_468a-2 for such taxable_year sec_1_468a-3 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-3 provides that the service may prescribe administrative procedures that supplement the provisions of sec_1_468a-3 and in addition that section provides that the service may in its discretion waive the requirements of sec_1_468a-3 and under appropriate circumstances sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts may request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 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 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 reach the following conclusions pursuant to sec_1_468a-3 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-1 of the regulations plr-111540-11 taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations the proposed schedule of ruling amounts was derived by following the decision issued by commission thus taxpayer has demonstrated pursuant to sec_1_468a-3 that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder 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-2 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 the mandatory review date for this matter is determined under sec_1 468a f i approved schedule of ruling amounts year each year year a-year b ruling_amount dollar_figureamount if any of the events described in sec_1_468a-3 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 specifically no determination is made whether the independent decommissioning study conforms to industry standards and practices 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 a copy of this letter is being sent to your authorized representatives we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7 a copy of this letter must be attached with the plr-111540-11 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


t c memo united_states tax_court harold levinson associates inc petitioner v commissioner of internal revenue respondent docket no filed date richard m gabor for petitioner gary w bornholdt for respondent memorandum opinion raum judge the commissioner determined deficiencies in petitioner's federal income taxes for the taxable years ending date and date in the amounts of dollar_figure and dollar_figure respectively the remaining issue for consideration is whether an amount_paid to settle a lawsuit is a deductible business_expense under sec_162 a or a nondeductible capital_expenditure pursuant to sec_263 this case was submitted on the basis of a stipulation of facts petitioner harold levinson associates inc petitioner is a new york state corporation whose principal_place_of_business when the petition in this case was filed was plainview new york during and throughout the fiscal_year ended date edward berro and rita berro each owned percent of petitioner's common_stock together they owned all of the common_stock in petitioner during and throughout the taxable_year ended date the relationship of edward and rita berro is not disclosed in the record in or about date petitioner edward berro and rita berro entered into an option agreement with mark goldman and barry feldman the optionees whereby each of the optionees was granted an option to purchase percent of the common_stock of petitioner at an agreed upon exercise price in return the optionees made efforts to cause petitioner to become an authorized cigarette stamping agent new york stamp tax agent or the equivalent thereof for the sale of cigarettes in the state of new york once acquired a new york stamp tax agent license unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure lasts indefinitely neither mark goldman nor barry feldman was ever employed by petitioner pursuant to the terms of the option agreement the exercise price for the option to purchase the 5-percent interest in petitioner was to be determined by the tangible net_worth of petitioner on the exercise date of the option the optionees had the right to exercise the option for a period of days after the date on which petitioner became a new york stamp tax agent the options granted pursuant to the option agreement were to expire in or about date subject_to extension for two additional 3-month periods on or about date mark goldman exercised his rights under the option agreement to extend for two additional 3-month periods the terms of the option agreement on or about date petitioner was granted a license as a new york stamp tax agent petitioner's acquisition of a new york stamp tax agent license has resulted in a substantial increase to petitioner's gross_sales as evidenced by petitioner's forms u s_corporation income_tax return for the taxable years ended date and date on or about date mark goldman notified petitioner edward berro and rita berro of his intent to exercise his rights under the option agreement on or about date goldman's request to exercise the option was rejected in or about date goldman filed a verified complaint in the supreme court of the state of new york initiating litigation the litigation against petitioner edward berro and rita berro the complaint alleged that petitioner and the berros failed to honor the terms of the option agreement goldman sought specific performance under the terms of the option agreement requesting that petitioner and the berros be ordered to deliver the 5-percent equity_interest in petitioner at the agreed upon exercise price he also sought monetary damages in excess of dollar_figure million on or about date petitioner edward berro rita berro and mark goldman entered into an agreement settling the litigation as stated in the settlement agreement petitioner concluded that it was impracticable and hazardous to the continued viability of petitioner to permit goldman to exercise his option and become a shareholder in petitioner pursuant to the terms of the settlement agreement mark goldman is required to release petitioner and the berros from any claims asserted in connection with the litigation petitioner is required to pay mark goldman the sum of dollar_figure million in annual payments of dollar_figure in satisfaction of all claims asserted in connection with the litigation in connection with the settlement of the litigation petitioner claimed a lawsuit settlement deduction in the amount of dollar_figure on its form_1120 u s_corporation income_tax return filed for the taxable_year ended date the dollar_figure deduction claimed for that year represented the net present_value of the dollar_figure million lawsuit settlement on date respondent issued petitioner a statutory_notice_of_deficiency asserting deficiencies in income_tax for the taxable years ended date and date the deficiency for the taxable_year ended date is based upon the disallowance of the dollar_figure lawsuit settlement deduction claimed on petitioner's return for that year the according to the stipulation of facts the berros collectively owned percent of the stock in petitioner during and throughout the taxable_year ended date yet the option agreement provides that the optionees have the option to purchase the stock from the company moreover petitioner rather than the berros deducted the settlement amount on its return thus there is confusion in the record as to whether the berros or petitioner was to be the seller of the stock under the option agreement further what we have here is a troubling obvious contradiction particularly in view of provisions in the option agreement contemplating a change in the number of shares outstanding in order that each optionee gloldman and feldman upon exercise of his option shall be entitled to purchase that number of shares of common_stock necessary to acquire a equity_interest in petitioner and the confusion is further compounded by the fact that there are strong indications in the record that there was actually a change in the number of shares outstanding because of the situation concerning feldman the other optionee indeed the record shows that feldman actually acquired shares representing a 5-percent equity_interest in petitioner since respondent's present theory for disallowing the settlement deduction was raised in the amendment to answer to amended petition respondent bears the burden_of_proof with respect to that theory rule a however the point was not continued deficiency for the taxable_year ended date is based upon the disallowance of a dollar_figure insurance deduction claimed on petitioner's return for that year petitioner concedes the deficiency determination for the taxable_year ended date in the amount of dollar_figure sec_162 allows as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business but sec_263 prohibits deductions for any amount_paid out for permanent improvements or betterments made to increase the value of any property or estate sec_1_263_a_-2 income_tax regs provides examples of capital expenditures including the cost of defending or perfecting title to property in 372_us_39 the supreme court held that whether litigation expenses are business or personal is determined by looking to the origin and character of the claim with respect to which an expense is incurred id pincite this doctrine was amplified in 427_f2d_429 7th cir cert_denied 401_us_908 taxpayer argues that gilmore is inapplicable because we are asked here to determine whether a settlement constitutes an ordinary and necessary business_expense continued argued on brief and nothing appears to turn on the burden_of_proof in this factually fully stipulated case or a capital outlay and not whether a payment is a deductible business_expense we disagree although the two questions are admittedly different substantially the same problems arise in each determination thus in both cases the court must determine the tax consequences of monetary outlays made in connection with contesting a claim on the taxpayer's assets to determine the origin of the claim the court must consider the issues involved the nature and objectives of the litigation the defenses asserted the purpose for which the claimed deductions were expended the background of the litigation and all facts pertaining to the controversy 59_tc_708 saltzman v commissioner tcmemo_1994_641 311_f2d_60 5th cir is instructive here the taxpayer owned controlling stock interests in corporations he first entered into negotiations to sell the stock to an individual named cage but upon learning mistakenly that cage had lost interest the taxpayer entered into a sales agreement with ainsworth id pincite after signing the latter contract the taxpayer discovered that cage was still interested in purchasing the stock the taxpayer also feared that ainsworth would probably 'bleed' the corporate assets dry to prevent that the taxpayer refused to sell his stock ainsworth sued alleging breach of contract and requesting specific performance id pincite the taxpayer paid roughly dollar_figure to settle the litigation id pincite the fifth circuit determined that the origin of the proposed deduction was the suit for specific performance which revolved around the title to the stock id pincite the court concluded that the settlement payments the taxpayer made were capital expenditures id pincite see 76_tc_831 the origin of the claim in the present case was the dispute over title to percent of petitioner's stock mark goldman agreed to use his best efforts to cause petitioner to become a new york stamp tax agent in exchange he was granted an option to purchase percent of petitioner's stock petitioner acquired a stamp tax agent license in date in a timely manner mark goldman gave notice that he intended to exercise his option his request was rejected in response goldman filed suit in the supreme court of the state of new york in his verified complaint he alleged plaintiff goldman is ready willing and able to tender the purchase_price for the common shares of stock as set forth in the option agreement pursuant to paragraph thereof the shares of stock in the company are unique in that they represent an interest in a company possessing a new york stamp tax agents sic license goldman sought specific performance requesting that petitioner and the berros be required to deliver the 5-percent equity_interest in petitioner at the agreed upon exercise price he also sought monetary damages in excess of dollar_figure million petitioner the berros and goldman reached a settlement in date goldman agreed to release all claims against petitioner and the berros and dismiss the litigation with prejudice in return petitioner was required to pay goldman dollar_figure million in annual installments of dollar_figure the issue involved in the goldman litigation was the ownership of the stock for which goldman was willing to pay the litigation was a suit for specific performance for title to the stock the damages were based on the injury goldman suffered because he was denied access to the stock petitioner and the berros protected their ownership of the stock by removing goldman's claim through the dollar_figure million settlement as a whole it is clear that the initial litigation was a dispute over title to percent of petitioner's stock since the settlement amount was paid to defend and perfect title to stock it is a capital_expenditure and thus nondeductible as indicated in supra note we are troubled by the question as to whose stock petitioner's or the berros' is involved in light of the possible contradictory state of the record but in view of the explicit statement in the option agreement that the optionees would have the right to purchase stock from the company and the fact that no issue has been raised by either party in that connection we address the issue as though the stock of petitioner is involved just as the parties themselves have done petitioner contends that the settlement amount represents lost compensation deductible under sec_162 according to petitioner goldman saw the stock as a symbol of the accompanying employment contract and compensation it entailed petitioner asserts that since petitioner is a closely-held corporation and does not pay dividends goldman wanted the stock only to the extent it would provide compensation correspondingly petitioner argues petitioner would have been entitled to a compensation deduction for any amounts paid to goldman petitioner characterizes goldman in its brief as an employee seeking lost compensation analogous to back pay the flaw in this argument is its assumption that goldman was an employee of petitioner petitioner stipulated that goldman was never employed by petitioner the record does not articulate goldman's intentions it seems a reasonable inference that goldman pursued the stock sale because the stock represented not only future earnings as petitioner alleges but also control had he been able to purchase the stock goldman would have owned a significant minority of the corporation such control arguably may have been his goal whatever his intentions it is clear that the stock and not simply money was what he desired and pursued the cases petitioner relies on which involve amounts received upon cancellation of employment contracts do not apply to the current situation petitioner also contends that the outcome is controlled by sec_83 sec_83 provides a general_rule --if in_connection_with_the_performance_of_services property is transferred to any person other than the person for whom such services are performed the excess of-- the fair_market_value of such property at the first time the rights of the person having the beneficial_interest in such property are transferable or are not subject_to a substantial_risk_of_forfeiture whichever occurs earlier over the amount if any paid for such property shall be included in the gross_income of the person who performed such services sec_83 gives a corresponding deduction under sec_162 to the person for whom were performed the services in connection with which such property was transferred sec_83 is not applicable here first sec_1 a income_tax regs provides that the deduction under sec_83 does not apply to capital expenditures we held above that the origin of the claim for which the settlement amount was paid was capital in nature thus sec_83 is inapplicable second sec_83 does not apply to the transfer of an option without a readily_ascertainable_fair_market_value sec_83 sec_1_83-7 income_tax regs provides that where an option is not actively_traded on an established market the option does not have a readily_ascertainable_fair_market_value unless the taxpayer can demonstrate all of the following i the option is transferable by the optionee ii the option is exercisable immediately in full by the optionee iii the option or the property subject_to the option is not subject_to any restriction or condition which has a significant effect upon the fair_market_value of the option and iv the fair_market_value of the option_privilege is readily ascertainable in accordance with paragraph b of this section the option in this case fails the first two conditions the option agreement states that the options are not transferable and are exercisable only by the optionee during his lifetime the option was also not exercisable immediately in full by goldman the option agreement provides that the optionees can exercise the options for days but only after the date on which company has become a new york tax stamp agent in view of petitioner's obvious failure to satisfy the first two conditions we need not even consider whether the third or fourth conditions have been met petitioner paid the settlement amount to protect or retain title to it sec_24 percent of petitioner's stock that payment was a capital_expenditure the commissioner's disallowance of the business_expense deduction claimed by petitioner is sustained decision will be entered under rule


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc dom p si plr-119729-99 date date number release date company state a dear this letter responds to a letter from your authorized representative dated date submitted on behalf of company requesting rulings under sec_1362 and sec_1375 of the internal_revenue_code company represents the following facts company incorporated under the laws of state is contemplating an election under sec_1362 to be an s_corporation effective a it has accumulated_earnings_and_profits company develops and leases commercial real_estate to diversify its business holdings company wants to invest in entities that operate in industries different from its own to that end company has identified several publicly traded limited_partnerships ptps engaged in the business of purchasing gathering transporting trading storage and resale of crude_oil refined petroleum and other chemical products company represents that the ptps in which it is seeking to invest meet either the qualifying_income exception of sec_7704 or the electing_1987_partnership exception of sec_7704 and thus are taxed as partnerships for federal tax purposes company also represents that these ptps are not electing large partnerships as defined by sec_775 and thus the normal flowthrough provisions of subchapter_k apply to their partners 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 terminates plr-119729-99 whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income 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_1375 provides that a tax is imposed on the income of an s_corporation for any_tax year in which the corporation has accumulated_earnings_and_profits at the close of that year and gross_receipts more than percent of which are passive_investment_income sec_702 provides that in determining income_tax_liability each partner shall take into account separately his distributive_share of the partnership's items of income gain loss deduction and credit to the extent provided by regulations sec_1_702-1 provides that each partner must take into account separately his distributive_share of any partnership_item that would result in an income_tax_liability for that partner different from that which would result if that partner did not take the item into account separately sec_702 provides that the character of any item_of_income gain loss deduction or credit included in a partner's_distributive_share under sec_702 through shall be determined as if the item were realized directly from the source from which realized by the partnership or incurred in the same manner as incurred by the partnership except as provided in sec_7704 sec_7704 provides that a ptp shall be treated as a corporation for federal_income_tax purposes sec_7704 provides that the term ptp means any partnership if interests in that partnership are traded on an established_securities_market or are readily_tradable on a secondary market or the substantial equivalent thereof sec_7704 provides that sec_7704 shall not apply to a ptp for any_tax year if the partnership meets the gross_income requirements of sec_7704 for that year and each preceding tax_year beginning after date during which the partnership or any predecessor was in existence sec_7704 provides that a partnership meets the gross_income requirement for any_tax year if at least percent of the partnership's gross_income for that year consists of qualifying_income plr-119729-99 sec_7704 provides that income and gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or marketing of any mineral_or_natural_resource including fertilizer geothermal_energy and timber is qualifying_income for purposes of this section mineral_or_natural_resource means any product of a character with respect to which a deduction for depletion is allowable under sec_611 but is not a product described in sec_613 or b sec_7704 provides that sec_7704 shall not apply to an electing_1987_partnership sec_7704 provides that for purposes of this subsection the term electing_1987_partnership means any publicly_traded_partnership if a the partnership is an existing partnership as defined in c of the revenue reconciliation act of b sec_7704 has not applied and without regard to sec_7704 would not have applied to the partnership for all prior tax years beginning after date and before date and c the partnership elects the application of sec_7704 and consents to the application of the tax imposed by sec_7704 for its first tax_year beginning after date a partnership that but for this sentence would be treated as an electing_1987_partnership shall cease to be so treated and the election under sec_7704 shall cease to be in effect as of the 1st day after date on which there has been an addition of a substantial_new_line_of_business with respect to the partnership revrul_71_455 1971_2_cb_318 deals with an s_corporation that operates a business in a joint_venture with another corporation in the tax_year at issue the total business_expenses exceeded gross_receipts the revenue_ruling holds that in applying the passive_investment_income limitations the s_corporation should include its distributive_share of the joint venture’s gross_receipts and not its share of the venture’s loss in accordance with sec_702 the character of these gross_receipts were not converted into passive_investment_income upon their allocation to the s_corporation company’s distributive shares of gross_receipts from the ptps if separately taken into account might affect its federal_income_tax liability under sec_1362 the status of company as an s_corporation could depend upon the character of its distributive shares of gross_receipts from the ptps thus pursuant to sec_1_702-1 company must take into account separately its distributive shares of the gross_receipts from the ptps the character of these partnership receipts for company will be the same as the character of the partnership receipts for the ptps in accordance with sec_702 based solely on the facts as represented we rule that- company’s distributive shares of the gross_receipts of the ptps in which it plr-119729-99 intends to invest will be included in its gross_receipts for purposes of sec_1362 and sec_1375 company’s distributive shares of the ptps’ gross_receipts attributable to the purchasing gathering transporting trading storage and resale of crude_oil refined petroleum and other chemical products will not constitute passive_investment_income as defined by sec_1362 except for the specific rulings above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provisions of the code specifically no opinion is expressed regarding company's eligibility to be an s_corporation further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely joni larson acting assistant to the chief branch office of assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


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 ------------------------- conex-150727-11 o f f i c e o f c h i e f c o u n se l number release date uil the honorable jack reed united_states senate washington dc attention --------------- dear senator reed this letter responds to your inquiry dated date you asked how homeowners should treat for federal_income_tax purposes principal reductions they receive from the principal reduction alternativesm pra provided under the united_states government’s home affordable mortgage programsm hampsm the internal_revenue_service irs is in the process of posting to the irs website www irs gov faqs that address the tax treatment of pra principal reductions for your convenience i have enclosed a copy of the faqs i hope this information is helpful if we can assist you further please contact me at ----------------------or --------------------at --------------------- enclosure sincerely andrew j keyso deputy associate chief_counsel income_tax accounting


id office uilc cca_2011053110472155 ---------------------------- number release date from --------------------- sent tuesday date am to ---------------- cc subject re cdp cases and overpayments - where does the year lookback period start is the question whether the taxpayer's request for a cdp hearing can qualify as an informal claim_for_refund possibly yes maybe depending on whether the taxpayer specifically requested a refund in the request


internal_revenue_service cc dom p si 1-cor-106502-00 date number info release date uil we are responding to you a form_2553 that was forwarded to our office by the memphis service_center based on the information submitted it appears that you are requesting to establish s_corporation status effective beginning date although we are unable to respond to your request in its current form we are furnishing the following general information relating to your election announcement copy enclosed provides guidance on seeking relief for late s_corporation elections and inadvertent invalid s_corporation elections generally to request relief for a late or invalid s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2000_1 copy enclosed in addition revproc_2000_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their last-filed tax_return qualify for a reduced user_fee in the amount of dollar_figure if you are eligible to use the reduced fee provision you must include the statement described in b b of appendix a with your request please review appendix b for a sample format for requesting a private_letter_ruling if you decide to submit a formal request for a private_letter_ruling please explain why your form_2553 was filed late provide documents supporting your intention to be an s_corporation from incorporation and include the proper user_fee please refer your request to our office by adding the following to the address attn cc dom corp t p o box ben franklin station washington dc direct to cc dom p si br room please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful signed dianna k miosi sincerely yours dianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries enclosures announcement revproc_2000_1