internal_revenue_service number release date index number 2032a 2032a ----------------------------- ---------------------- -------------------- ---------------- ------------------------------ re ------------------------------ -------------------- department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 - plr-142948-10 date date legend decedent child child child child grandchild grandchild grandchild grandchild grandchild grandchild grandchild grandchild trust trust trust date partnership date spouse ------------------------- --------------------- ------------------------ ---------------------- ---------------------------------- ------------------------ ---------------------- ----------------------- ------------------------- ------------------------- ---------------------- ------------------------ -------------------- ----------------------------- ------------------------------ ------------------------------ ------------------ --------------------------------------------------------------------------------------------- ----------------- ----------------------- plr-142948-10 spouse spouse spouse partner partner partner partner partner partner partner partner partner partner y state year year year date date v year ----------------------- ------------------- --------------------------------- -------------------------------- ---------------------------------- -------------------------------------- ------------------------------- ------------------------- ------------------------ -------------------------- ----------------------- ------------------------------------- ------------------------ ----------- --------------- ------- ------- ------- ------------------ ------------------- --------------------------------------------------------------------------------------------- ------- dear ----------------------------------------------- this letter responds to the letter dated date and subsequent correspondence submitted by your authorized representative requesting rulings under sec_2032a of the internal_revenue_code with respect to the proposed transfer of farmland held in trust for a qualified_heir to a limited_liability_company llc and the subsequent lease of that farmland by the llc to a partnership the facts and representations submitted are summarized as follows prior to his death decedent a united_states citizen owned and farmed land farm located in state united_states on date decedent entered into a lease lease with a general_partnership partnership in which decedent agreed to lease farm for the year through year crop years to partnership in exchange partnership agreed to pay decedent dollar_figurey during the lease_term partnership conducted farming operations on farm it is represented that during this period decedent actively and materially participated in the farming operation on farm decedent died in year of the lease plr-142948-10 decedent died on date survived by four children child child child and child child and his spouse spouse have two children grandchild and grandchild child and his spouse spouse have three children grandchild grandchild and grandchild child and his spouse spouse have three children grandchild grandchild and grandchild child is married to spouse under item vii of decedent’s will decedent bequeathed the residue of his estate to his children outright in substantially equal shares to be divided among them as they agree or in the absence of such agreement as his executor may determine the residue of decedent’s estate included farm item vii further provides that if any child does not survive decedent then decedent bequeaths that deceased child’s share of the residue to a separate trust for the then living children of the deceased child decedent’s grandchildren under item vii a the trustee of each separate trust shall pay the beneficiary grandchildren as much of the net_income of the trust as the trustee in the trustee’s discretion deems advisable for the education support maintenance and health of those grandchildren any income not distributed shall be added to principal item vii b provides that the trustee in the trustee’s discretion may distribute principal for the education support maintenance and health of each beneficiary grandchild under item vii c one-half of the assets of each separate trust will be distributed to the beneficiary grandchildren in shares as equal as the trustee can attain each share will be distributed to a beneficiary grandchild upon reaching age or if a grandchild dies before reaching that age to the then living descendants of the deceased grandchild the remaining assets of each separate trust will be distributed in equal shares to the beneficiary grandchildren each share will be distributed to a beneficiary grandchild upon reaching age or if a grandchild dies before reaching that age to the then living descendants of the deceased grandchild on date child child and child each disclaimed a portion of his undivided_interest in farm bequeathed to him under decedent’s will specifically child disclaimed one-half of his interest child disclaimed one-half of his interest and child disclaimed nine-tenths of his interest pursuant to item vii of decedent’s will child 1’s disclaimed interest passed to trust a_trust benefiting child 1’s children grandchild and grandchild child 2’s disclaimed interest passed to trust a_trust benefiting child 2’s children grandchild through grandchild child 3’s disclaimed interest passed to trust a_trust benefiting child 3’s children grandchild through grandchild accordingly after the disclaimers each grandchild held a beneficial_interest in farm indirectly through the trusts grandchild and grandchild were over age on decedent’s date of death and under item vii c of the will they are entitled to receive their interests in farm outright it is represented that those interests will be distributed to grandchild and grandchild upon receipt of this letter therefore the undivided interests in farm are currently held as follows child holds a 8th interest child holds a 8th interest child holds a 40th interest child holds a 4th interest trust holds a 8th interest trust holds a 8th interest and trust holds a plr-142948-10 40th interest in the event a_trust distributes any interest in farm to a beneficiary during the 10-year recapture_period under sec_2032a such beneficiary will enter into an agreement to be fully liable for any amount of additional estate_tax under that section upon the receipt of this letter grandchild and grandchild will each receive a distribution from trust equal to a 40th interest in farm trust will hold the remaining 40th interest in trust for grandchild this ruling_request pertains to trust the executor of decedent’s estate estate filed a timely united_states estate and generation-skipping_transfer_tax return and elected to value farm under sec_2032a child through child each executed an agreement to special valuation under sec_2032a in schedule a-1 of decedents’ form_706 be personally liable for any amount of additional estate_tax that may be due under sec_2032a it is represented that the leasing arrangement with partnership continued in effect after decedent’s death following the receipt of this letter_ruling and the distribution of the undivided interests in farm from trust to grandchild and grandchild child through child grandchild grandchild and trust through trust propose to transfer their undivided interests in farm to newly-formed limited_liability companies llc through llc in exchange for proportionate interests in the llcs specifically child and trust will transfer their undivided interests in farm to llc in exchange for proportionate interests in llc child and trust will transfer their undivided_interest in farm to llc in exchange for proportionate interests in llc child grandchild grandchild and trust will transfer their undivided_interest in farm to llc in exchange for proportionate interests in llc child will transfer her undivided_interest in farm to llc in exchange for a percent interest in llc article of the proposed llc operating_agreement provides that the managers have the authority to manage the business and affairs of the company article provides that the purpose of the company is to engage in the ownership leasing and farming of farm article prohibits the transfer of any member’s llc interests for years except to members of that qualified heir’s family as defined in sec_2032a article provides that each member will execute an agreement as a member of the llc to be personally liable for any additional estate_tax which may result due to the application of sec_2032a it is represented that llc will enter into an agreement to be fully liable for any amount of additional estate_tax that may be due under sec_2032a the proposed llc and operating agreements contain similar terms partnership was formed in year at the time decedent entered into lease and currently there were and are v corporate partners partner through partner each partner owns a v percent interest in partnership the shareholders of partner sec_1 and plr-142948-10 are child and spouse the shareholders of partner sec_2 and are child and spouse the shareholders of partner sec_3 and are child and spouse the shareholders of partner sec_4 and are child and spouse the shareholders of partner are estate child child and child the shareholders of partner are child child child and grandchild each llc proposes to enter into a leasing agreement with partnership specifically llc will enter into lease with partnership llc will enter into lease with partnership llc will enter into lease with partnership llc will enter into lease with partnership pursuant to the terms of each proposed lease each llc will lease its undivided_interest in farm to partnership for agricultural purposes specifically to be used as a farm for farming_purposes partnership will agree to pay each llc a sum certain per annum or a certain percentage share of the crops grown per annum the decision to pay either a fixed cash rent or to pay rent based on a percentage of crops grown on farm shall be made solely by partnership the term of each lease will be fixed by the parties subsequent to receiving this letter trust has requested the following rulings trust 2’s transfer of trust 2’s undivided_interest in farm to llc in exchange for a proportionate interest in llc as proposed will not be treated as a disposition of the trust beneficiaries’ interests in farm resulting in additional estate_tax under sec_2032a llc 2’s proposed leasing arrangement with partnership will not be treated as a cessation of the qualified_use of the trust beneficiaries’ interests in farm and accordingly will not result in additional estate_tax under sec_2032a law and analysis ruling sec_2032a provides that if the decedent was at the time of his death a citizen or resident_of_the_united_states and the executor elects the application of sec_2032a and files the agreement referred to in sec_2032a then for purposes of chapter the value of the qualified_real_property shall be its value for the use under which it qualifies under sec_2032a as qualified_real_property sec_2032a provides that for purposes of sec_2032a the term qualified_real_property means real_property located in the united_states which was acquired from or passed_from_the_decedent to a qualified_heir of the decedent and which on the date of the decedent’s death was being used for a qualified_use by the decedent or a plr-142948-10 member_of_the_decedent’s_family but only if the percentage requirements under subsections a through d are met sec_2032a provides that for purposes of sec_2032a the term qualified_use means the devotion of the property to any of the following a use as a farm for farming_purposes or b use in a trade_or_business other than the trade_or_business_of_farming sec_2032a provides that if within years after the decedent’s death and before the death of the qualified_heir the qualified_heir disposes of any interest in qualified_real_property other than by a disposition to a member of his family then an additional estate_tax will be imposed under sec_2032a the qualified_heir is personally liable for the additional estate_tax imposed under sec_2032a sec_2032a provides that the term qualified_heir means with respect to any property a member of the decedent's family who acquired such property or to whom such property passed_from_the_decedent sec_2032a provides that the term member_of_the_family means with respect to any individual only a an ancestor of such individual b the spouse of such individual c a lineal descendant of such individual of such individual’s spouse or of a parent of such individual or d the spouse of any lineal descendant described in subparagraph c sec_2032a provides in part that property shall be considered to have been acquired from or to have passed_from_the_decedent if such property is acquired by any person from the estate or from a_trust to the extent such property is includible in the gross_estate of the decedent under sec_2032a an interest in a discretionary_trust all the beneficiaries of which are qualified heirs shall be treated as a present_interest sec_20_2032a-3 which applies to pre-death ownership by a decedent provides that real_property valued under sec_2032a may be owned directly or may be owned indirectly through ownership of an interest in a corporation partnership or a_trust where the ownership is indirect however the decedent’s interest in the business must in addition to meeting the tests for qualification under sec_2032a qualify under the tests of sec_6166 as an interest in a closely-held business on the date of the decedent’s death and for sufficient other time as stated above the requirements under sec_20_2032a-3 address only pre-death ownership by a decedent although no regulations have ever been issued plr-142948-10 applying this rule to qualified heirs the legislative_history indicates that congress intended this rule to apply to qualified heirs as well it is intended however that the treasury_department will provide by regulations that the disposition of qualified_property by tax-free transfer to a corporation pursuant to sec_351 or to a partnership pursuant to sec_721 is not to result in application of the recapture_tax if the qualified_heir retains the same equitable interest in the property if the corporation or partnership would with respect to the qualified_heir be considered a closely_held_business within the meaning of sec_6166 and if the corporation or partnership consents to personal liability for the recapture if it disposes of the real_property or ceases to use the property for qualified purposes during the period in which recapture may occur emphasis added h_r rep no n pincite in this case grandchildren through decedent’s grandchildren are members of decedent’s family as defined under sec_2032a under decedent’s will an interest in farm passed from decedent to grandchildren through as beneficiaries of trust therefore grandchildren through are qualified heirs for purposes of sec_2032a e and g grandchildren through each hold an interest in farm indirectly through trust trust proposes to transfer trust 2’s undivided_interest in farm to llc in exchange trust will receive an ownership_interest in the llc proportionate to the transferred interest in farm accordingly trust will indirectly own farm through the llc the proposed llc operating_agreement provides that trust will execute an agreement as a member of the llc to be fully liable for any additional estate_tax which may result due to the application of sec_2032a further it is represented that llc will enter into an agreement to be fully liable for any amount of additional estate_tax that may be due under sec_2032a based upon the facts submitted and representations made and assuming llc satisfies the requirements of sec_6166 as a closely-held business we conclude that trust 2’s transfer of trust 2’s undivided_interest in farm to llc in exchange for a proportionate interest in the llc as proposed will not be treated as a disposition of the trust beneficiaries’ interests in farm resulting in additional estate_tax under sec_2032a ruling sec_2032a provides that if within years after the decedent’s death and before the death of the qualified_heir the qualified_heir ceases to use for the qualified_use the qualified_real_property which was acquired or passed_from_the_decedent then an additional estate_tax will be imposed plr-142948-10 the requirements for determining whether there has been a cessation in use under sec_2032a are found in sec_2032a sec_2032a provides that for purposes of sec_2032a real_property shall cease to be used for other qualified_use if a such property ceases to be used for the qualified_use set forth in subparagraph a of sec_2032a under which the property qualified under sec_2032a the legislative_history underlying the amendments to sec_2032a suggests by negative implication that the qualified_use requirement of sec_2032a is satisfied if the income from rental of the property is substantially dependent upon production see s rep no pincite specifically the senate report states that during any period when the decedent leases the real_property to a nonfamily member for use in a qualified_use pursuant to a lease under which the rental is not substantially dependent upon production the qualified_use requirement is not satisfied this requirement has been construed by the courts to apply to qualified heirs as well see 113_f3d_802 8th cir income from a leasing arrangement in which the lessee has the option to pay the lessor rent either in the form of a sum certain or a certain percentage of the crop share is substantially dependent upon production see estate of gavin supra and 783_f2d_694 7th cir in estate of gavin under the decedent’s will the farm property passed to decedent’s grandchildren and children some of the qualified heirs leased the farm to decedent’s son another qualified_heir the lease provided for either an annual rent of dollar_figure or a percent crop share at the son’s option the court found that the son’s ability to choose whether to pay fixed cash rent or a percent share put the other qualified heirs at risk because in a bad year the son would likely pay the fifty-fifty_split rather than the fixed payments the court held that the leasing arrangement did not result in a cessation of use under sec_2032a and therefore the qualified heirs were not subject_to additional estate_tax under sec_2032a in schuneman the decedent owned a farm and prior to her death she leased the farm to a third party the lessee agreed to conduct farming operations on the farm under the leasing arrangement the rental amount was based upon crop production and crop prices the court concluded that the lease arrangement created financial risk for the decedent and held that the farm was used in a qualified_use at the time of her death pursuant to lease llc will lease trust 2’s interest in farm to partnership for agricultural purposes specifically to be used as a farm for farming_purposes farming is a qualified_use under sec_2032a under lease partnership will agree to pay the llc either a sum certain per annum or a certain percentage of the share of crops grown per annum the decision to pay either fixed cash rent or to pay rent based on a percentage of crops grown on farm shall be made solely by partnership lease is plr-142948-10 substantially_similar to the lease in estate of gavin supra we conclude that the rental payments under lease will be substantially dependent upon production based on the facts submitted and representations made we conclude that llc 2’s proposed leasing arrangement with partnership will not be treated as a cessation of the qualified_use of the trust beneficiaries’ interests in farm for purposes of sec_2032a and accordingly will not be subject_to an additional estate_tax under sec_2032a the rulings contained in this letter are based upon information and representations submitted by the taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we are not ruling on the application of sec_2032a to the election on decedent’s form_706 made by the executor of decedent’s estate further we are not ruling on whether the trust beneficiaries materially participate in farming on farm for purposes of sec_2032a whether the required material_participation by a qualified_heir or a member of his family occurred is a factual determination section dollar_figure of revproc_2011_1 i r b provides that the service ordinarily does not issue letter rulings in certain areas because of the factual nature of the problem involved this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs and special industries by ______________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


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 corp plr-107215-17 date date ty ------- legend parent date date firm ---------------------------------------- ----------------- ----------------------- --------------------------- ------------------- company official ---------------------------------------------------------------------------- ---------------------------------- tax professional ------------------------------------------------------- ---------------------------------------------------- dear ---------------------- this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to make an election the extension is being requested for parent group as defined below to make an election under sec_1 a to file a consolidated_return for the tax_year ended on date the election the material information submitted for consideration is summarized below plr-107215-17 parent became the common parent of a new affiliated_group parent group as the result of a stock purchase on date parent group intended to file a consolidated_return for the tax_year ended on date parent engaged firm to prepare an automatic_extension request on form_7004 and a consolidated_return for parent group parent group filed a consolidated_return for the tax_year ended date on or before the extended due_date of the return if a valid automatic_extension had been filed it was then discovered that for various reasons a valid extension on form_7004 had not been filed immediately after this discovery parent submitted this request for an extension of time under sec_301_9100-3 to file a valid election parent group has represented that it is not attempting to alter a return position taken for which a penalty has been or could be imposed under sec_6662 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 a therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent group to file the election provided parent establishes it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements plr-107215-17 of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly provided that parent group qualifies substantively to file a consolidated_return for the tax_year ended date an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file the election parent group having already filed a consolidated_return for the tax_year must amend the return by attaching a copy of this letter to the return or if parent group files its returns electronically parent group may satisfy this requirement by attaching a statement to its return that provides the date on and the control number plr-107215-17 of this letter_ruling the above extension of time is conditioned on parent group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the director's office upon audit of the federal_income_tax returns involved we express no opinion as to the tax effects or consequences of filing the election or the return late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent group company official and tax professional however the director should verify all essential facts moreover notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in the office copies of this letter are being sent to your authorized representatives sincerely ken cohen chief branch office of associate chief_counsel corporate -


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi 6-plr-117043-03 date date in re revised schedule of ruling amounts legend plant taxpayer parent commission a commission b order a b c d e f g h i j k l m n o dear this letter responds to a request for private_letter_ruling dated date and subsequent submissions filed on behalf of the above taxpayer pursuant to the elective provisions of sec_1_468a-3 of the income_tax regulations requesting a schedule of ruling amounts relating to plant's qualified nuclear decommissioning fund fund taxpayer is requesting this schedule because commission a in order decreased the amount of decommissioning costs to be included in cost of service for plant taxpayer previously received a schedule of ruling amounts pertaining to plant on a information was submitted pursuant to sec_1_468a-3 taxpayer a regulated_public_utility is a wholly owned subsidiary of parent taxpayer directly owns a b percent interest as a tenant in common in the plant commission a and commission b have regulatory jurisdiction over the rates charged by taxpayer with respect to plant however taxpayer is only seeking a ruling_amount for the c percent portion of taxpayer’s operations allocable to commission a’s jurisdiction taxpayer joins parent in filing a consolidated tax_return and both are under the audit jurisdiction of the industry director natural_resources and construction lm nrc the estimated cost of decommissioning the plant is dollar_figured commission a in order provided for decommissioning costs for the plant to be included in taxpayer's cost of service for ratemaking purposes the level_funding limitation period and the funding_period are e through f the assumed after-tax rate of return to be earned by the assets of the fund is g percent the rate of escalation to determine the future cost of decommissioning the plant is h percent the proposed method for decommissioning the plant is prompt removal dismantlement method taxpayer has determined the estimated period for which the fund is to be in effect is i years j through k and the estimated_useful_life of the plant is l years m through n therefore the qualifying percentage is o percent sec_468a of the code provides that a taxpayer may elect to deduct the amount of payments made to a qualified decommissioning fund however sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a of the code 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 that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to 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 sec_468a of the code 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 ½ months after the close of the tax_year sec_1_468a-1 of the regulations 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 among other things a direct ownership_interest including an interest as a tenant in common or joint tenant sec_1_468a-2 of the regulations 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 lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such tax_year if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b the excess is not deductible by the electing taxpayer in addition under sec_1_468a-5 there are rules which provide that the internal_revenue_service may disqualify a nuclear decommissioning fund if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b sec_1_468a-3 of the regulations 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 of the regulations provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes 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 of the regulations provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation 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 on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations 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 multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations 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 under sec_1_468a-3 the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount we have examined the representations and the data submitted by the taxpayer in relation to the requirements set forth in the code and the regulations based solely upon these representations of the facts we reach the following conclusions for the period covered by this schedule of ruling amounts taxpayer had a qualifying interest in the plant and was therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commission a has determined the decommissioning costs to be included in taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commission a and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund taxpayer has determined under sec_1_468a-3 of the regulations that the qualifying percentage is o percent the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the cost of service amount applicable to the fund or 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 in regard to commission a satisfies the requirements of sec_468a of the code accordingly the schedule of ruling amounts requested by the taxpayer under sec_468a is approved as follows approved schedule of ruling amounts allocable to the taxpayer year amount approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year 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 powers of attorney we are sending this letter to the taxpayer’s authorized representative and are sending copies of this letter to the taxpayer and an additional authorized representative we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc pursuant to sec_1_468a-7 of the regulations 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 yours peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries the ruling_amount for this year is a blended amount with a portion of the amount based upon an earlier schedule of ruling amounts and therefore is not a violation of the level_funding requirement in sec_1_468a-3 of the regulations


internal_revenue_service national_office technical_advice_memorandum date number release date index uil no case mis no tam-113450-00 cc tege eoeg teb manager teb outreach planning and review taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend issuer organization bonds facilities seller seller mr a corporation b company c lessee space space date tam-113450-00 date date date date date year year a b c d e f issue whether the issuer is eligible for relief under sec_7805 of the internal_revenue_code the code from the retroactive revocation of the organization's exempt status the effect of which was analyzed in the previous technical_advice_memorandum in this case issued on date the issuer argues that it relied on the determination_letter issued to the organization its conduit borrower conclusion the issuer’s request for relief under sec_7805 is denied facts on or about date the organization received a favorable determination_letter as to its status as a tax exempt_organization under sec_501 the organization’s primary purpose was to further economic development through the development of job opportunities and the elimination of blighting or deteriorating physical conditions tam-113450-00 a few years later the organization contemplated the purchase of office space and a parking garage using the proceeds of tax-exempt_bonds it planned to lease all or most of the office space to its sec_501 subsidiary an entity organized to facilitate international trade activity which in turn would sublease the office space to businesses with potential for job growth and international trade the employees and visitors of the tenants of the office space would use the parking garage which would be run by a private operator on or about date the organization received a favorable letter_ruling that the proposed leasing activity by the organization and its subsidiary would not affect adversely the organization’s sec_501 status that the rental income from the office space and the revenues from the parking garage would not be unrelated_trade_or_business income and that the space would not be debt-financed_property under sec_514 the organization’s letter_ruling did not address the terms of the purchase of the office space or the garage nor any aspect of the bond transaction seller was a limited_partnership of which mr a was the general_partner and various trusts for his children were the limited partners seller owned an a-story building the building the building was subject_to two leases to the lessee a party unrelated to either the organization or the a group described below in combination these two leases covered nearly all of the space within the building the area covered by the first lease was space in the month prior to date the lessee and seller entered into an agreement whereby the lessee agreed to relinquish its interest in space with the exception of a reception area seller was a limited_partnership of which mr a and corporation b were general partners mr a was president of corporation b seller owned a parking garage the issuer issued the bonds on date and loaned the proceeds to the organization to purchase the first b floors of the building owned by seller the office space and the parking garage owned by seller together the facilities the bonds were zero-coupon revenue bonds secured_by the facilities and the revenues to be received by the organization seller purchased dollar_figured of the bonds and seller purchased the remaining dollar_figuree of the bonds the organization transferred dollar_figured of bond proceeds to seller for the office space and transferred dollar_figuree of bond proceeds to seller for the parking garage seller retained ownership of the c remaining upper floors the upper floors of the building thus the sellers of the facilities are the same parties as the bondholders the purchase agreement for the facilities was entered into by the organization its subsidiary mr a individually seller and seller the purchase agreement refers to mr a and the sellers collectively the a group tam-113450-00 in the purchase agreement the a group agreed to make renovations to the office space within one year failure to complete the renovations within the year would subject the a group to a penalty of dollar_figuref per day company c another entity run by mr a was located in the office space the organization permitted company c to retain its office there to supervise the renovations the renovations were delayed beyond the year and company c remained it was not until mid-year approximately two and one-half years after the purchase of the facilities that the renovations were substantially completed the organization’s books showed no record of payment from the a group for the delay in renovations at the time of conveyance the building was subject_to a mortgage securing payments on a loan obtained by the a group both the purchase agreement and the loan agreement between the issuer and the organization with respect to the bond proceeds the loan agreement required the a group to obtain a release of the mortgage on the office space within six months of closing in the event of a default under this condition the bonds were to be redeemed and the facilities returned to the sellers the a group was unable to negotiate a release without incurring a prepayment penalty so the respective parties amended the purchase agreement and the loan agreement to extend the deadline by six months the issuer the trustee for the bonds and the bondholders approved the amendment to the loan agreement one year after closing the a group still was unable to obtain a release of the mortgage without a prepayment penalty and the trustee at the direction of the bondholders waived the default for failure to remove the mortgage encumbrance in the purchase agreement the a group agreed to convey the office space to the organization free of the lessee’s interest unless the organization otherwise agreed in writing as stated above the lessee already had agreed in the previous month to release its interest in space an area entirely within the office space and the subject of the first lease the area covered by the second lease was space comprising over half of the office space plus the upper floors to be retained by seller contemporaneously with the purchase agreement seller the organization and the lessee entered into a written_agreement with respect to the second lease the lease restructuring agreement pursuant to the lease restructuring agreement the lessee agreed to vacate space it would continue to lease the upper floors from seller in return for vacating space seller agreed to pay the lessee a certain amount per year per square foot of space seller 1's payment nevertheless the lease restructuring agreement also provided that the lessee was permitted at any time during the nearly four years remaining on the lease to use some or all of space without payment to the organization upon 45-days’ written notice to the organization and to seller in the latter situation seller 1's payment would be reduced proportionately for any space so used if seller failed to make its payment the lease restructuring agreement allowed the lessee to offset its rent payments under the lease the lessee’s rent payments tam-113450-00 were assigned to the holder of the mortgage on the building therefore the lease restructuring agreement was contingent on either the a group paying the mortgage in full or obtaining the mortgage holder’s permission to the offset arrangement as noted above the a group did not pay off the mortgage however the mortgage holder did consent informally to the offset arrangement in the latter half of year about three years after the bonds were issued the internal_revenue_service the irs commenced an audit of the organization at that time both the lessee and company c continued to occupy portions of the office space another company used a portion of the office space as a subtenant of the lessee neither the organization nor the a group received any rent from this subtenant during year sec_1 and the lessee and its subtenant occupied from half to three-quarters of the office space the organization’s subsidiary was using a small amount of the office space neither the organization nor its subsidiary had leased out any of the office space to international businesses as intended or to any other organizations company c never relinquished its space the audit resulted in findings related to private benefit and inurement to the a group on date nearly four years after issuance the bonds were canceled and the facilities returned to the sellers the organization did not pursue its administrative remedies in connection with the adverse findings of the audit several months later the organization ceased its corporate existence on date approximately months after the bonds were canceled the irs issued a determination_letter revoking the organization’s tax exempt status effective date the beginning date of the organization’s taxable_year in which the purchase of the facilities occurred for the following reasons you are not a charitable_organization within the meaning of sec_1_501_c_3_-1 you have not operated exclusively for exempt purposes within the meaning of sec_501 of the internal_revenue_code you are operated for private benefit and your earnings inure to the benefit of private individuals the irs also began an audit of the bonds during which a request for technical_advice was submitted the technical_advice_memorandum dated date provided that absent an effective remedial action the revocation of the organization’s sec_501 status would cause interest on the bonds to be includable in the gross_income of the bondholders retroactive to the date_of_issuance of the bonds it also provided that there was no effective remedial action because the time for remedial action started on the date the acts occurred that caused the revocation and those acts occurred more than days before the bonds were canceled under the technical_advice_memorandum the date that the revocation letter was issued was not a factor in determining whether the remedial action was effective tam-113450-00 law and analysis sec_7805 provides that the secretary may prescribe the extent if any to which any ruling shall be applied without retroactive effect sec_601_201 of the statement of procedural rules provides except in rare or unusual circumstances the revocation or modification of a ruling will not be applied retroactively with respect to the taxpayer to whom the ruling was originally issued or to a taxpayer whose tax_liability was directly involved in such ruling if i there has been no misstatement or omission of material facts ii the facts subsequently developed are not materially different from the facts on which the ruling was based iii there has been no change in the applicable law iv the ruling was originally issued with respect to a prospective or proposed transaction and v the taxpayer directly involved in the ruling acted in good_faith in reliance upon the ruling and the retroactive revocation would be to his detriment to illustrate the tax_liability of each employee covered by a ruling related to a pension_plan of an employer is directly involved in such ruling also the tax_liability of each shareholder is directly involved in a ruling related to the reorganization of a corporation thus relief under sec_7805 is available where there has been a change in the position of the irs unrelated to a change in the relevant statute and the taxpayer relied to its detriment on the irs’ statement of its previous position eligibility for the relief necessarily requires first a ruling stating the irs’ position on which the taxpayer may rely and second a modification or revocation of that position generally relief under sec_7805 entitles the taxpayer to prospective application of the revocation or modification from the date of that modification or revocation the effect is that the acts taken by the taxpayer consistent with and in reliance on the earlier ruling and before the date of the modification or revocation are deemed to be in compliance with the irs’ then interpretation of the code acts taken by the taxpayer after the date of the modification or revocation however are evaluated in light of the irs’ revised interpretation and are not protected by the earlier ruling there are no rulings or other statements of an irs’ position concerning tax exempt bond rules relevant to this case that have been modified or revoked thus the issuer can not exhibit reliance on any such rulings in order to limit the retroactive effect of the technical_advice_memorandum the ruling on which the issuer relies is the organization’s determination_letter that ruling was revoked the only possible focus then of the issuer’s request for relief is on the effective date of the revocation of that determination_letter tam-113450-00 the issuer's request for relief under sec_7805 from the revocation of the organization's sec_501 status if granted would mean that for the issuer the revocation of the organization’s determination_letter would be effective only as of date of the revocation the essence of the issuer's argument in favor of this request for relief is that its lack of knowledge about the legal effect of the organization's actions entitle it to have the organization's actions before the revocation actually occurred deemed consistent with the organization's charitable purposes the issuer has not asked us for relief based on a lack of knowledge about the actions of the organization thus as to the issuer the deliberate acts causing the revocation would not have occurred until after the date of the actual revocation the consequence for purposes of the bonds would be that for the issuer the organization’s acts prior to the revocation date would not trigger the beginning of the time period for taking remedial action rather the organization’s acts taken after that effective date would be the deliberate actions sec_601_201 sets forth the procedural rules that apply when a taxpayer has relied upon a ruling that is revoked or modified these rules generally apply to the taxpayer to whom the ruling was originally issued and a taxpayer whose tax_liability was directly involved in such ruling the issuer is not the taxpayer to whom the determination_letter was addressed while the issuer has some interest with respect to the bonds it does not have a tax_liability it is the bondholders that bear any_tax liability nevertheless the issuer has argued that it is a taxpayer directly involved in the ruling we need not decide however in this case whether for purposes of sec_7805 it is appropriate to consider the issuer as directly involved in the determination_letter addressed to its conduit borrower under sec_601_201 a taxpayer cannot rely on a ruling letter unless the taxpayer acted in good_faith in relying on the letter here the issuer cannot claim good_faith reliance on the organization’s determination_letter the issuer knew of and moreover participated in some or all of the acts that resulted in the revocation of the organization’s tax exempt status good_faith includes honesty of intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry black’s law dictionary 6th ed as stated in the previous technical_advice_memorandum the tax exempt status of an organization as the owner and user of a bond-financed facility must be maintained subsequent to the issuance of the bonds accordingly the relevant time of inquiry is not only at the time of issuance of the bonds but continues subsequent to that date the organization’s tax exempt status was revoked because the organization was not operated exclusively for charitable purposes it operated for private benefit and inurement see generally sec_1_501_c_3_-1 income_tax regs the audit of the organization determined that the a group was the recipient of that prohibited private benefit and inurement for example the a group benefitted from the delays in and tam-113450-00 waiver of lifting the mortgage encumbrance the one and one-half year delay in the renovations without payment of the delay penalty and the continued occupancy of office space by company c and the lessee nearly four years after the organization’s purchase of the facilities the issuer as evidenced by the purchase agreement and the loan agreement was aware of the mortgage on the building the leasehold interest and the a group’s obligation to make renovations the issuer extended the deadline on lifting the mortgage encumbrance and thereafter the bond trustee waived the requirement the issuer argues that these actions were taken in good_faith were aimed at going forward with the organization’s ownership of the facilities and the leasing of the office space and were not to the detriment of the organization for example had the default not been waived the purchase agreement provided that the organization redeem the bonds and return the facilities to the sellers the issuer states that it had no knowledge or intent that the actions would be factors in the revocation this however does not alter the fact that the issuer had knowledge of the actions themselves also it knew or should have known that these actions benefitted the a group private persons and were inconsistent with the requirements for sec_501 status thus the issuer cannot demonstrate good_faith reliance on the organization’s determination_letter the issuer also has pointed to the organization’s letter_ruling as further evidence that the organization was acting in accordance with the facts in its application_for exemption the facts set forth in the organization’s letter_ruling about the leasing activity never came to fruition however and thus the letter_ruling does not help the issuer we note also that it is the bondholders that ultimately would be the primary beneficiaries of any relief to be granted in this case the bondholders are the same parties as the sellers and the recipients of the private benefit they were aware of and participated in the actions leading to the revocation the bondholders therefore are unable to claim good_faith reliance on the organization’s determination_letter because the issuer has failed to establish it acted in good_faith in relying on the organization’s determination_letter we need not address whether the issuer meets the remaining factors set forth in sec_601_201 no implication should be drawn from this conclusion as to the circumstances if any under which an issuer justifiably could rely on a sec_501 determination_letter issued to its conduit borrower accordingly based on the facts as presented above we deny the issuer’s request for relief under sec_7805 tam-113450-00 caveat a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent