internal_revenue_service number release date index number -------------------- ----------------- ------------------ ----------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc intl b02 plr-117864-10 date date ty ------- legend country x country y -------- ------ country z --------------- year year year year year ------- ------- ------- ------- ------- dear ------------ this is in response to a letter submitted on your behalf by your authorized representative requesting permission to reelect the provisions of sec_911 of the internal_revenue_code code for year and subsequent tax years plr-117864-10 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed 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 taxpayer lived and worked in country x from year to year in year taxpayer revoked his sec_911 election on his u s federal_income_tax return taxpayer moved to country y in year and then to country z the individual income_tax rate in country y is substantially higher than the individual income_tax rate in country z sec_911 of the code permits certain taxpayers to elect to exclude from gross_income their foreign_earned_income and housing cost amounts the election applies to the taxable_year for which it is made and for all subsequent taxable years unless revoked by the taxpayer sec_911 provides that once revoked the election may not be made again by the taxpayer until the sixth taxable_year after the year in which the revocation was made however sec_1_911-7 provides that if an individual revokes an election under sec_1_911-7 and desires to reelect the same exclusion within the next five years the individual must obtain permission by requesting a ruling the service may permit the taxpayer to reelect the foreign_earned_income_exclusion before the sixth year after considering all of the facts and circumstances sec_1_911-7 provides that relevant facts and circumstances may include a period of united_states residence a move from one foreign_country to another foreign_country with differing tax_rates a substantial change in the tax laws of the foreign_country of residence or physical presence and a change_of employer accordingly based solely on the information and representations set forth above taxpayer may reelect the sec_911 foreign_earned_income_exclusion for year and subsequent tax years this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-117864-10 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely jeffery g mitchell branch chief international


internal_revenue_service number release date index number ------------------------------------ ------------------------------------------- ------------------------- re ------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-128597-10 date date legend legend decedent spouse trust --------------------------------------------------------- ------------------------ ---------------------------------------------------------------------------------------------- ------------------------------------------------ date date date date date accountant --------------------------------- ------------------ ------------------- ------------------ ---------------------- ------------------ dear ----------------- this letter responds to a letter from your authorized representative dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make a reverse_qtip_election under sec_2652 of the internal_revenue_code and to sever marital trust into gst exempt marital trust and gst non-exempt marital trust pursuant to sec_26_2654-1 of the generation-skipping_transfer_tax regulations and a ruling that the automatic allocation rules under sec_2632 apply to family_trust and gst exempt marital trust the facts and representations submitted are summarized as follows on date decedent and decedent’s spouse spouse created a revocable_trust trust trust was completely restated on date decedent died testate on date survived by spouse article eight sec_1 of trust provides that upon decedent’s death the trustee shall divide the trust into three separate trusts survivor’s trust marital trust and family_trust article nine provides in part that marital trust benefits spouse during his lifetime and upon his death decedent’s children and their descendants per stirpes plr-128597-10 article ten provides in part that family_trust benefits spouse during his lifetime and upon his death decedent’s children and their descendants article sixteen sec_11 provides that in order to minimize the impact of any generation-skipping tax that may be applied to any of the trusts created by this agreement or their beneficiaries the trustee in its sole and absolute discretion is authorized to divide any trust that would be partially exempt from gst tax into gst exempt and gst non-exempt trusts the exempt trust and nonexempt trust shall consist of a fractional interest of the total trust assets on date accountant prepared and filed decedent’s form_706 united_states estate and generation-skipping_transfer_tax return family_trust was reported on part of the return accountant reported marital trust as qtip property on schedule m of the form_706 and therefore the executor of decedent’s estate is deemed to have made the qtip_election to have the marital trust treated as qualified_terminable_interest_property under sec_2056 accountant failed to identify gst exempt marital trust and gst non-exempt marital trust as separate trusts and did not make a reverse_qtip_election under sec_2652 with respect to the gst exempt marital trust accountant also failed to attach schedule r to the form_706 and as a result decedent’s gst_exemption was not affirmatively allocated to either family_trust or marital trust the failure to make a reverse_qtip_election with respect to gst exempt marital trust and to allocate decedent’s gst_exemption to family_trust and gst exempt marital trust was discovered several months later when an attorney hired to administer the trusts was funding the family_trust gst exempt marital trust and gst non-exempt marital trust following this discovery marital trust was divided into a gst exempt marital trust and a gst non-exempt marital trust on date accountant filed a supplemental form_706 and attached a schedule r on which he made a reverse_qtip_election for gst exempt marital trust and allocated decedent’s gst_exemption to family_trust and gst exempt marital trust law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall except as limited by sec_2056 be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property which passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides that in the case of qualified_terminable_interest_property for purposes of sec_2056 such property shall be treated as passing to the plr-128597-10 surviving_spouse and for purposes of sec_2056 no part of such property shall be treated as passing to any person other than the surviving_spouse sec_2601 imposes a tax on every generation-skipping_transfer within the meaning of subchapter_b made by a transferor to a skip_person under sec_2611 the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines the term applicable_rate with respect to any generation-skipping_transfer as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 as in effect for the year at issue provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2632 once made is irrevocable sec_2631 provides that for purposes of sec_2632 the gst_exemption amount for any calendar_year is equal to the applicable_exclusion_amount under sec_2010 for each calendar_year sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that any portion of an individual's gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows a first to property which is the subject of a direct_skip occurring at such individual's death and b second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual's death sec_26_2632-1 provides in part that a decedent’s unused gst_exemption is automatically allocated on the due_date for filing form_706 to the extent not otherwise allocated by the decedent’s executor on or before that date unused gst_exemption is allocated pro_rata on the basis of the value of the property as finally determined for purposes of chapter first to direct skips treated as occurring at the transferor’s death the balance if any of unused gst_exemption is allocated pro_rata on the basis of the chapter value of the nonexempt_portion of the trust property to trusts with respect to which a taxable_termination may occur or from which a taxable_distribution may be made plr-128597-10 sec_2652 provides in part that for purposes of chapter the term transferor means in the case of any property subject_to the tax imposed by chapter the decedent an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides in part that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 by reason of subsection b the estate of the decedent may elect to treat all of the property in such trust for gst tax purposes as if the election to be treated as qualified_terminable_interest_property had not been made reverse_qtip_election sec_26_2652-2 provides in part that a reverse_qtip_election is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies sec_26_2652-2 provides that an election under sec_2652 is made on the return on which the qtip_election is made sec_26_2654-1 provides in part that the severance of a_trust that is included in the transferor’s gross_estate or created under the transferor’s will into two or more trusts is recognized for purposes of chapter if the trust is severed pursuant to a direction in the governing instrument providing that the trust is to be divided upon the death of the transferor and the terms of the new trusts provide in the aggregate for the same succession of interests and beneficiaries as are provided in the original instrument and the severance occurs prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and either the new trusts are severed on a fractional basis sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute based on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 are satisfied therefore decedent’s estate is granted an extension of time to date to sever marital trust into gst exempt marital trust and gst nonexempt marital trust and to make a reverse_qtip_election with respect to plr-128597-10 gst exempt marital trust further we rule that the automatic allocation rules of sec_2632 apply to automatically allocate decedent’s unused gst_exemption to family_trust and gst exempt marital trust we note that based upon the relief granted the allocation of decedent’s gst_exemption made on the supplemental form_706 is void under sec_26_2632-1 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed 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 whether marital trust qualifies as a qtip for purposes of sec_2056 the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries by _____________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes copy of this letter cc


department of the treasu internal_revenue_service washington d c pate jun uniform issue list ope ct legend x n u t c v dear applicant this is in reply to your ruling_request of date you have requested approval of a proposed set- aside of your income under the suitability test of sec_4942 g9 b i of the internal_revenue_code and sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations you w are exempt from federal_income_tax under sec_501 of the code and are a private_foundation under sec_509 of the cede you seek to engage in two transactions in the first transaction you propose to set_aside x of your income pursuant to sec_4942 of the code your specific project for the income is a matching grant program with p a local organization recognized under sec_501 of the code you represent that all of the amounts to be set_aside for this specific project will be paid out for this project within months from the time when your first amount of income is set_aside you indicate that this project can better be accomplished by the use of a set-aside of your income rather than by immediate payment of your funds because it will enable p to better accomplish its charitable activities through a matching grant program in the second transaction you propose to set_aside amounts of up to y dollars of your income pursuant to sec_4942 of the code your specific project for the income is a matching grant program with u a local organization recognized under sec_501 of the code you represent that all of the amounts to be set_aside for this specific project will be paid out for this project within months from the time when your first amount of income is set_aside you indicate that this project can better be accomplished by the use of a set-aside of your income rather than by immediate payment of your funds because it will enable u to better accomplish its charitable activities through a matching grant program sec_501 of the code provides for the exemption from federal_income_tax of nonprofit_organizations organized and operated exclusively for charitable and or the other exempt purposes stated in that section sec_509 of the co e describes organizations exempt from federal_income_tax under sec_501 of the code that are private_foundations subject_to the private_foundation provisions of chapter of the code sec_4942 of the code imposes excise_tax on any private_foundation that does not expend qualifying distributions for exempt purposes at least equal to its distributable_amount for its tax_year sec_4942 of the code provides that in general a qualifying_distribution is any amount including reasonable and necessary administrative expenses paid to accomplish or to acquire an asset used directly in carrying on one or more of the purposes described in sec_170 of the code which includes charitable -2- sec_4942 of the code provides that an amount of income that is set_aside for a specific project within one or more purposes of sec_170 of the code may be treated as a qualifying_distribution if the amount meets the set-aside_requirements of sec_4942 of the code sec_4942 of the code provides in pertinent part that an amount set_aside for a specific project may at the time of the set-aside the private_foundation establishes to the be treated as a qualifying_distribution if satisfaction of the secretary that the amount set_aside will be paid for the specific project within five years and that the suitability test for a set-aside under sec_4942 of the code is met sec_4942 of the code provides a suitability test in which the private_foundation at the time of the set-aside must establish to the satisfaction of the secretary that the specific project is one that can better be accomplished by the set-aside of income rather than by the immediate payment of funds sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations provides that the amounts of income set_aside for a specific project for one or more of the purposes in sec_170 or sec_170 b of the code may be treated as qualifying distributions for the tax_year s in which such amounts are set_aside but not in the tax_year in which actually paid if the requirements of sec_4942 i of the code are met the foundation establishes to the satisfaction of the commissioner that the amount set_aside will be paid for the specific project within months after it is set_aside and the set-aside otherwise meets the suitability test of sec_53_4942_a_-3 of the regulations sec_53_4942_a_-3 of the regulations provides that its suitability test for a set-aside is met if the foundation establishes that the specific project is one in which relatively long-term grants or expenditures must be made the regulation cites as an example of a suitable project a plan to provide matching grants sec_53_4942_a_-3 i of the regulations provides that a private_foundation must obtain intemal revenue service approval of its set-aside of income under the suitability test by applying before the end of the tax_year in which the amount is set_aside you have timely sought approval of your set-aside of income in advance of the time when the amounts of income are to be set_aside as required by sec_4042 k2kek of the code and sec_53_4942_a_-3 of the regulations your set-aside of x and y as matching grants will be for specific projects within the charitable purposes of sec_170 of the code as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations you represent that your amounts of income to be set_aside for these specific projects will be paid out for these projects within and months from the time when the first amounts are set_aside as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations your project is better accomplished by this set-aside of income rather than by immediate payment under the suitability test of sec_4942 of the code and sec_53_4942_a_-3 of the regulations because the first set-aside will permit p to implement a matching grant program which will allow it to fund construction of p's new facilities its matching grant program and thus increase its membership the second set-aside will permit u to engage in thus your specific project of providing a matching grant meets the requirements for a set-aside of income under the suitability test of sec_4942 of the code and sec_53_4942_a_-3 of the regulations accordingly we rule that your amounts of income of up to x and y dollars to be set_aside for the establishment of a matching grant will be qualifying distributions under sec_4942 of the code and sec_53 a - b of the regulations in your tax_year s when such amounts are set_aside sec_53_4942_a_-3 of the regulations provides that any set-aside approved by the internal_revenue_service must be evidenced by the entry of a dollar amount in your books_and_records as a pledge or obligation to be paid at a future date or dates further the amount of the set-aside must be taken into account in determining your minimum_investment_return see sec_53_4942_a_-2 of the regulations and any income attributable to a set- - aside must be taken into account in computing your adjusted_net_income see sec_53_4942_a_-2 of the regulations because this ruling letter could help to resolve any questions please keep it in your permanent records and include a copy in your annual retum form_990-pf this ruling letter is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely signed garland a carter garland a carter manager exempt_organizations technical branch pho


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uniform issue list nov s - t ep pé t legend taxpayer a financial_institution b financial_institution c ira x account d amount dear this is in response to your request dated february as supplemented by correspondence dated july and date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that he received a distribution from ira x totaling amount taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to a mistake made by financial_institution c taxpayer a further represents that amount has not been used for any other purpose taxpayer a maintained ira x an individual_retirement_account ira under code sec_408 with financial_institution b the assets of ira x were invested in certificates of deposit cd seeking more favorable interest rates on date taxpayer a completed paperwork with financial_institution b authorizing the direct transfer of amount from ira x to an ira with financial_institution c taxpayer a was issued a cashiers check payable to financial_institution c custodian for the benefit age he wanted to open an ira cd and with the paperwork of taxpayer a on january ‘oi axpayer a represents that he went to financial_institution c with instructions that completed by financial_institution b in which he had authorized a direct transfer of amount to an ira with financial_institution c financial_institution c prepared the paperwork for the account and taxpayer a represents that financial_institution c assured him the account was an ira amount was deposited into account d a non- ira cd the error was discovered in january j when taxpayer a went to renew the cd based on the above facts and representations with respect to the distribution of amount you request a ruling that the internal_revenue_service waive the day roliover requirement contained in sec_408 of the code sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on ‘which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code meses revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was caused by errors committed by a financial_institution therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact se t ep ra t1 at please address all correspondence to se t ep ra t1 sincerely yours carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose notice


internal_revenue_service number release date index number ------------------------------------ --------------------------------------------- --------------------------------- re --------------------------------------------- ---------------------------------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-120965-16 date date -------------------------- ------------------------ ------------------------------------------------- --------------------------------------------------------------- ------------------------------------ ------------------------------------------- trustor date trust trust trust trust daughter ----------------------------------------------------- daughter ----------------------- daughter ------------------------------ date trustees date court ---------------------------------------------------------------------------------------------------------------- state statute cite ---------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- cite cite ----------------------- ------------------------------------------------------------------------- -------------------------- ----------------------------------------------------------------------------------------------- ------------------- --------------------------------------------------- ---------------------------------------------------------------------------------------------- ------------------------------------------------------ ---------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ dear --------------- this letter responds to your letter dated date requesting a ruling regarding the generation-skipping_transfer consequences to a court-ordered modification to a_trust plr-120965-16 the facts and representations made are as follows on date trustor created an irrevocable_trust trust to benefit his three daughters daughter daughter and daughter date is a date prior to date pursuant to the terms of trust three separate trusts trust trust and trust were established one to benefit each daughter each daughter is the primary beneficiary of her trust the three trusts are sitused in state and are administered under the laws of state this private_letter_ruling pertains to trust benefitting daughter article iii paragraph a of trust provides that during the primary beneficiary’s lifetime the trustees may from time to time distribute to or for the benefit of each primary beneficiary so much of the corpus and income of her trust as the trustees determine in their discretion the income of a_trust not so distributed shall be accumulated and added to the corpus of the trust article iii paragraph b provides that the trustees may also from time to time distribute to or for the benefit of the issue of such primary beneficiary at such times and in such amounts as they in their sole discretion determine article iii paragraph c provides that upon the death of a primary beneficiary the trustees shall divide such deceased primary beneficiary’s trust into as many equal shares as there are children of such deceased primary beneficiary surviving and deceased children thereof leaving issue surviving thereafter one such share shall be allocated for the benefit of each surviving child of such deceased primary beneficiary and one such share shall be allocated collectively for the benefit of the surviving issue of a deceased child of such primary beneficiary who leaves issue then surviving article iii paragraph c provides that the separate shares to a surviving child secondary beneficiary of a deceased primary beneficiary shall be held and managed as a separate trust the trustees may from time to time distribute to or for the benefit of each such secondary beneficiary so much of the corpus and income of his or her trust as the trustees determine in their discretion under paragraph c the secondary beneficiary may withdraw one-third of the principal of his or her trust at the age of one-half of the principal of his or her trust at the age of and the remaining balance of his or her trust at the age of article iii paragraph c provides that if a secondary beneficiary dies before receiving final distribution of his or her trust then the balance shall be paid over and distributed equally to such secondary beneficiary’s surviving issue by right of representation but if such secondary beneficiary leaves no issue surviving then all of his or her trust shall be paid over and distributed equally to the other secondary beneficiaries or their issue such issue however taking by right of representation only the share which their parent would have received if living plr-120965-16 paragraph c provides that if any amounts become distributable to persons who have not then attained the age of then such distributee’s share shall continue to be held in trust for his or her benefit and the trustees shall pay to or for the benefit of such distributee so much of the net_income and principal that the trustees in their sole discretion deem necessary or advisable to provide for the proper care support and education of such distributee when such distributee attains the age of any balance held for his or her benefit shall be paid over and distributed to him or her outright if such distributee dies before attaining age then upon the death of such distributee any remaining portion of such trust for his or her benefit shall be paid over and distributed to the surviving issue of the child of such deceased secondary beneficiary who was his or her parent by right of representation if no issue of his or her parent survives him then to trustor’s heirs-of-law as determined at that time article iii paragraph c provides that if at any time before final distribution of the trust estate there shall not be in existence any one who is or might become entitled to receive benefits therefrom any portion of the trust estate then remaining shall be paid over and distributed as follows a one-half in equal shares to trustor’s two sisters or to their surviving issue by right of representation and b one-half to trustor’s wife’s parents or the survivor of them two omissions were made by the attorney in drafting the dispositive provisions of trust first trust fails to include a provision directing how assets are to be distributed if the primary beneficiary dies without surviving issue second trust contains no dispositive provisions for any share allocated to the issue of a deceased child of trustor’s daughters when trustor executed trust he was not aware that the terms of trust did not contain these distributive provisions on date trustor executed an affidavit to confirm that he intended to create separate trusts for each daughter he assumed each daughter would die with surviving issue and he intended that the assets of each separate trust would be administered and distributed under article iii of trust as follows to or for the benefit of trustor’s daughters for whom each separate trust was created for her lifetime in the case of a deceased daughter leaving surviving issue to or for the benefit of the surviving issue of said daughter for whom the separate trust was initially created in the case of a deceased daughter leaving no surviving issue to be divided equally between the separate trusts of trustor’s then- living daughters and the then-living issue of any deceased daughter by right of representation plr-120965-16 if all of trustor’s daughters and all of their issue are deceased then and only then would the remaining trusts assets be distributed to trustor’s more remote family members named in trust trustees petitioned court to modify the terms of article iii of trust to resolve the ambiguities in conformance with trustor’s intentions on date court issued an order that modifies and restates trust as follows article iii paragraphs a and b are not modified article iii paragraph c is divided into two paragraphs c and d paragraph c contains provisions for trust in the event a primary beneficiary dies leaving no surviving issue and paragraph d contains provisions for trust in the event a primary beneficiary dies leaving surviving issue paragraph c provides that upon the death of a primary beneficiary who leaves no surviving issue the assets of such deceased primary beneficiary’s trust will be divided into as many shares as there are i primary beneficiaries who are then living and ii primary beneficiaries who are then deceased but are survived by issue one share is to be allocated to each living primary beneficiary and one share is to be allocated to each deceased primary beneficiary with surviving issue thereafter any share of a living primary beneficiary will be distributed to a separate trust of such primary beneficiary established under trust any share of a deceased primary beneficiary with surviving issue will be distributed to the issue of such deceased primary beneficiary by right of representation provided that if an issue of the deceased primary beneficiary is a beneficiary of a separate trust established under trust the property that is otherwise distributable to such person will not be distributed outright to such person but is to be instead added to such separate trust to be held and distributed as provided therein paragraph d provides that upon the death of a primary beneficiary leaving surviving issue the trustees shall divide such deceased primary beneficiary’s trust into as many equal shares as there are children of such deceased primary beneficiary surviving and deceased children thereof leaving issue surviving thereafter one such share shall be allocated for the benefit of each surviving child of such deceased primary beneficiary and one such share shall be allocated collectively for the benefit of the surviving issue of a deceased child of such primary beneficiary who leaves issue then surviving plr-120965-16 subject_to article iv after such allocation such shares shall be held and distributed as follows ie pursuant to sec_1 through of article iii sec_1 through are substantively unchanged except to incorporate new paragraph d sec_5 and section are unchanged and renamed paragraph e and paragraph f respectively the modifications are contingent upon the trustees receiving a favorable private_letter_ruling from the internal_revenue_service trust was irrevocable prior to date the trustees represent that there have been no additions to trust after date ruling_request trustees request a ruling that the court-ordered modifications of trust to correct the scrivener’s errors and resolve ambiguities related to the administration and distribution of trust upon the death of daughter will not cause trust to lose its gst exempt status or cause the provisions of chapter to apply to any generation-skipping transfers made under trust law and analysis sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer gst sec_2611 provides that for purposes of the gst tax the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip under section a of the tax_reform_act_of_1986 the act the gst tax is generally applicable to generation-skipping transfers made after date however under section b a of the act and sec_26_2601-1 of the generation-skipping_transfer regulations the tax does not apply to any generation-skipping_transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the plr-120965-16 rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a judicial construction of a governing instrument to resolve an ambiguity in the terms of the instrument or to correct a scrivener’s error will not cause an exempt trust to be subject_to the provisions of chapter if the judicial action involves a bona_fide issue and the construction is consistent with applicable state law that would be applied by the highest court of the state sec_26_2601-1 example considers a situation where in grantor established an irrevocable_trust for the benefit of grantor’s children a and b and their issue the trust is to terminate on the death of the last to die of a and b at which time the principal is to be distributed to their issue however the provision governing the termination of the trust is ambiguous regarding whether the trust principal is to be distributed per stirpes only to the children of a and b or per capita among the children grandchildren and more remote issue of a and b in the trustee files a construction suit with the appropriate local court to resolve the ambiguity the court issues an order construing the instrument to provide for per capita distributions to the children grandchildren and more remote issue of a and b living at the time the trust terminates the court’s construction resolves a bona_fide issue regarding the proper interpretation of the instrument and is consistent with applicable state law as it would be interpreted by the highest court of the state therefore the trust will not be subject_to the gst tax state statute provides that a court may reform the terms of a_trust to conform to the trustor’s intention if the failure to conform was due to a mistake of fact or law and the trustor’s intent can be established state statute is a codification of the court’s common_law equitable power of courts to reform a_trust upon a showing of factors including mistake see cite see also cite which quotes the rule that w here an instrument is drawn or executed which professes or is intended to carry into execution an agreement previously entered into but which by mistake of the draftsman either as to fact or law does not fulfill that intention or violates it equity will correct that mistake so as to produce a conformity to the agreement if the language of the trust instrument is not clear construction of an ambiguous trust instrument is a question of law to be decided by the court see cite in interpreting a_trust instrument all words and provisions appearing in the trust are given effect as far as possible and none are cast aside as meaningless but where the trust instrument is ambiguous extrinsic evidence can be used to determine a trustor’s intent see id plr-120965-16 in 387_us_456 the supreme court considered whether a state trial court’s characterization of property rights conclusively binds a federal court or agency in a federal estate_tax controversy the court concluded that the decision of a state trial_court as to an underlying issue of state law should not be controlling when applied to a federal statute rather the highest court of the state is the best authority on the underlying substantive rules of state law to be applied in the federal matter if there is no decision by that court then the federal authority must apply what it finds to be state law after giving proper regard to the state trial court’s determination and to relevant rulings of other courts of the state in this respect the federal_agency may be said in effect to be sitting as a state court in this case the two omissions described above created ambiguities in trust trustees petitioned court to construe trust in order to resolve the ambiguities this judicial action involved bona_fide issues an examination of the relevant trust instruments and representations of the parties indicate that trustor intended to create separate trusts to provide for his three daughters and their respective surviving issue further trustor assumed that each daughter would die with surviving issue and he intended that the assets of each separate trust would be administered and distributed under article iii of trust to each daughter for that daughter’s lifetime and then for a deceased daughter’s surviving issue trustor intended that in the event a deceased daughter left no surviving issue then that daughter’s trust would be divided equally between the separate trusts of the then-living daughters and the then-living issue of any deceased daughter by right of representation further trustor intended that if all of his daughters and all of their issue are deceased then and only then would the remaining trust assets be distributed to trustor’s more remote family members accordingly we conclude that the court-ordered modifications to trust are consistent with applicable state law that would be applied in the highest court of state therefore based upon the facts presented and the representations made we conclude that the court-ordered modifications of trust to correct the scrivener’s errors and resolve ambiguities related to the administration and distribution of trust upon the death of daughter will not cause trust to lose its gst exempt status or cause the provisions of chapter to apply to any gst made under trust plr-120965-16 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 leslie h finlow leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court sonja and david brown petitioners v commissioner of internal revenue respondent docket no 11395-01s filed date sonja and david brown pro_se douglas s polsky for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years at issue respondent determined deficiencies of dollar_figure and dollar_figure in petitioners' federal income taxes respectively for and an addition_to_tax for in the amount of dollar_figure under sec_6651 and penalties under sec_6662 in the amounts of dollar_figure and dollar_figure for and respectively some of the facts were stipulated and those facts with the annexed exhibits are so found and are incorporated herein by reference at the time the petition was filed petitioners' legal residence was albuquergue new mexico the issues for decision are whether petitioners are entitled to itemized_deductions for charitable_contributions and unreimbursed employee business_expenses and whether petitioners are liable for the accuracy-related_penalties under sec_6662 in addition the court considers the applicability of sec_6673 to the facts of this case ’ petitioners were both employed during the years in question mr brown petitioner was employed by a furniture rental company and mrs brown was employed by the department of veterans affairs an agency of the united_states they reported respondent determined that petitioners failed to include in income for dollar_figure in interest reported by a bank in which petitioners had an interest-bearing account petitioners conceded this adjustment at trial the sec_6651 addition_to_tax for was also conceded by petitioners at trial combined wages of dollar_figure and dollar_figure respectively for and prior to the years at issue petitioners' federal_income_tax returns were prepared by a commercial tax preparation service for the years in question however petitioners' returns were prepared by robin beltran upon the recommendation of several of petitioners' friends petitioners had never previously claimed itemized_deductions on their federal_income_tax returns for each year in question mr beltran advised petitioners that no documentation was necessary to substantiate their claimed itemized_deductions the itemized_deductions claimed on the returns were arbitrarily determined by mr beltran for each of the years in guestion petitioners claimed itemized_deductions on a schedule a itemized_deductions of their federal_income_tax return for petitioners claimed itemized_deductions totaling dollar_figure of which dollar_figure was disallowed by respondent for petitioners deducted dollar_figure of which dollar_figure was disallowed by respondent petitioners nevertheless were allowed itemized_deductions for both years since the total of their other claimed and allowed deductions exceeded the standard_deduction under sec_63 the court notes that this case is one of numerous cases heard by the court involving tax returns prepared by mr beltran which essentially involve the same deductions at issue here for the years at issue the disallowed deductions consisted of charitable_contributions job expenses and other miscellaneous deductions the disallowed deductions consisted of the following amounts claimed on petitioners' returns charitable_contributions cash dollar_figure dollar_figure noncash s big_number big_number dollar_figure unreimbursed employee_expenses big_number big_number tax preparation fees -- before deduction of the sec_67 a limitation at trial petitioners alleged that their actual charitable_contributions for the years in question approximated the amounts claimed on their returns however they admittedly included in these numbers the approximate value of gifts to members of their respective families and friends for birthdays graduations weddings and holidays for the noncash gifts included a bmw vehicle that petitioners donated to their former minister which they intended to be a gift to him personally and not a gift to his church the manner in which mr beltran prepared petitioners' tax returns for the years at issue was described by petitioner as follows when we sat down with our preparer he did his figuring came up with these numbers he came up with the number we said now will we need to provide documentation he said that's not necessary based on --- and he pulled out what looked like part of the tax code or something out of the tax book there or manual and he showed us certain column certain section paragraph whatever it states right here that documentation's not necessary we said okay that looks good to us we didn't have anything to --- we didn't have any reason to doubt him because before moving into our house in '99 we never claimed itemized_deductions we had nothing to go off of other than paying the irs every year going to h_r block here you go how much do we owe fine petitioners presented no documentary information at trial that would establish that they made any qualifying charitable_contributions during the years at issue although petitioners claimed and the court has no reason to doubt their testimony that they generously gave during the years in guestion the generosity to which their benevolence was intended included gifts to family and friends such as for birthdays weddings and graduations as opposed to donations to gualified organizations sec_170 such gifts are not deductible as charitable_contributions under sec_170 and b moreover the tax_return for the year which included the donation of a bmw motor_vehicle did not include the irs form_8283 noncash charitable_contributions which is required under sec_1_170a-13 income_tax regs relating to deductions in excess of dollar_figure for charitable_contributions of property other than money moreover the court is satisfied from the record that the amounts deducted as charitable_contributions on petitioners’ returns were arbitrarily determined by the return preparer on this record the court sustains respondent on the disallowed charitable_contribution deductions for and the claimed deductions for unreimbursed employee business_expenses related to the use of petitioner's personal vehicle in connection with his employment petitioner never sought reimbursement for such expenses from his employer he did not maintain a log or other contemporaneous record documenting the use of his vehicle the amounts claimed as deductions on the returns were also arbitrarily determined by the return preparer the deductions cannot be allowed for the reason that under sec_274 and the regulations thereunder vehicle expenses are subject_to strict substantiation rules that require adequate_records through either an account book diary statement of expense or similar record as well as documentary_evidence to establish each element of an expenditure sec_1 5t c temporary income_tax regs fed reg date no records were presented at trial to substantiate these expenses consequently respondent is sustained on the the court notes that the dollar_figure of unreimbursed employee_expenses represented percent of petitioner's wages for the same category of expenses for represented percent of his wages disallowance of the employee_business_expense deductions all other expenses petitioners incurred that would be deductible as itemized_deductions such as for example the tax preparation fee for while allowable would not exceed percent of petitioners' adjusted_gross_income under sec_67 thus none of the itemized_deductions on schedule a of petitioners' returns for job expenses and other miscellaneous deductions are deductible respondent therefore is sustained on this issue petitioners contend they should be absolved of liability for the sec_6662 penalties because they relied on the representations of their return preparer the court is satisfied that petitioners knew that the amounts deducted on their tax returns for charitable_contributions and employee business_expenses were false they even asked their return preparer whether they needed documentation to substantiate the amounts deducted which indicates to the court that petitioners had reason to doubt whether they could deduct such amounts sec_6662 provides for an accuracy-related_penalty egual to percent of any portion of an underpayment_of_tax required to be shown on the return that is attributable to the taxpayer's negligence or disregard of rules or regulations sec_6662 and b negligence consists of any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and disregard consists of any careless reckless or intentional disregard sec_6662 the courts have refined the code definition of negligence as a lack of due care or failure to do what a reasonable and prudent person would do under similar circumstances 925_f2d_348 9th cir affg t cc sec_1_6662-3 income_tax regs provides that negligence is strongly indicated where a taxpayer fails to make a reasonable attempt to ascertain the correctness of a deduction on a return which would seem to a reasonable and prudent person to be 'too good to be true’ under the circumstances an exception applies when the taxpayer demonstrates there was reasonable_cause for the underpayment and the taxpayer acted in good_faith with respect to the underpayment sec_6664 whether the taxpayer acted with reasonable_cause and in good_faith is determined by the relevant facts and circumstances the most important factor is the extent of the taxpayer's effort to assess the proper tax_liability stubblefield v commissioner tcmemo_1996_537 sec_1 b income_tax regs under sec_1_6664-4 income_tax regs circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances including the experience knowledge and education of the taxpayer moreover a taxpayer is generally charged with knowledge of the law 99_tc_202 although a taxpayer is not subject_to the addition_to_tax for negligence where the taxpayer makes honest mistakes in complex matters the taxpayer must take reasonable steps to determine the law and to comply with it id under certain circumstances a taxpayer may avoid the accuracy-related_penalty for negligence where the taxpayer reasonably relied on the advice of a competent professional sec_1_6664-4 income_tax regs see sec_6664 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 however reliance on a professional adviser standing alone is not an absolute defense to negligence it is only one factor to be considered in order for reliance on a professional adviser to relieve a taxpayer from the negligence_penalty the taxpayer must establish that the professional adviser on whom he or she relied had the expertise and knowledge of the relevant facts to provide informed advice on the subject matter freytag v commissioner supra pincite petitioners made no effort to ascertain the professional background and qualifications of their return preparer they knew that the items at issue were false and expressed their reservations to mr beltran the answers he gave them should -- - have raised other questions petitioners clearly did not make a reasonable effort to determine whether the representations of mr beltran were correct they did not consult other tax professionals to verify the accuracy of the returns prepared by mr beltran or the representations he made to them regarding their deductions the court is satisfied from the record that mr beltran knew or had reason to know all the relevant facts upon which had he been a qualified professional he could have accurately advised petitioners on the amount of their allowable deductions mr beltran listed unrealistic amounts as deductions on petitioners' returns the court is further satisfied that petitioners knew they were required under the law to substantiate deductions claimed on their returns the questions they raised with mr beltran and the answers he gave them should have prompted them to look beyond and ascertain the accuracy of his representations petitioners therefore made no effort to assess their tax_liabilities correctly on this record the court sustains respondent on the sec_6662 accuracy-related_penalties for the years in question sec_6673 authorizes the court to require a taxpayer to pay to the united_states a penalty not exceeding dollar_figure when in the court's judgment proceedings have been instituted or maintained by the taxpayer primarily for delay or where the taxpayer's position in the proceeding is frivolous or groundless the court considers petitioners' claim that they should not be liable for the deficiencies and penalties to be frivolous and groundless petitioners knew or should have known that a substantial portion of the itemized_deductions at issue was false and could not be sustained petitioners knew that they could deduct only amounts that they had actually paid they made no attempt to determine the qualifications of their return preparer and moreover did not seek other professional advice to satisfy the concerns they had over the returns prepared by mr beltran petitioners cited no legal authority to the court that under similar facts would exonerate them from the penalties under sec_6662 the function of this court is to provide a forum to decide issues relating to liability for federal taxes any reasonable and prudent person under the facts presented to the court should have known that petitioners' claimed deductions could not have been sustained and petitioners knew that this court does not and should not countenance the use of this court as a vehicle for disgruntled litigants to proclaim the wrongdoing of another his return preparer as a basis for relief from penalties that were determined by respondent on facts that clearly are not sustainable golub v commissioner tcmemo_1999_288 petitioners therefore have interfered with the court's function to the detriment of other parties having cases with legitimate issues for the court to consider petitioners have caused needless expense and wasted resources not only for the court but for its personnel respondent and respondent's counsel under these circumstances the penalty under sec_6673 is warranted and petitioners will be ordered to pay a penalty of dollar_figure to the united_states under sec_6673 reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service number release date index number ----------------------------- ------------- --------------------- -------------------------------------------- ------------------------------ department of the treasury washington dc person to contact ------------------------------- -------- ------------- ----------------------------------------------------- telephone number -------------------- refer reply to cc psi - plr-134230-04 date date ----------------------------------------------- ------------------ legend x ----------------------- --------------------------------------------------- a b ----------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- -------------------------------------------------- ---------------------------------------------------------- ------------------------------------------------------------------ -------------------------------------------------------- ------------------------------------------------------------- ----------------------------------------------------------------- ---------------------------------------------------------------- -------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------------------------------------- ---------------------------------------------------------------- ------------------------------------ ------------------------------------ trust --------------------------------------------------- trust --------------------------------------------------- trust ----------------------------------------------------- trust ----------------------------------------------------- trust ------------------------------------------------------------------- ----------------------------------------------------- trust ----------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- trust --------------------------------------------------- family_trust state --------------------------------------- ------------------------------------ ---------------------------------- ----------------------------- ---------------------------- ------------- ------------------------------------------ ------------------------------------------- -------------------------------------------- ------- ------- ------- ---------------- ----------------- ------------------- ---------------------- ---------------------- ---------------------- ------------------------- d1 d2 d3 d4 d5 d6 d7 y1 y2 y3 dear ----------------------- this responds to a letter dated date submitted on behalf of x by its authorized representative requesting relief under sec_1362 of the internal_revenue_code on d1 and elected to be an s_corporation effective d2 trust sec_1 and the family_trust were shareholders of x on d2 on d3 a died the family_trust was divided into trust and another trust that distributed its shares in x to trusts and on d5 trusts qssts trust sec_1 and made qsst elections effective d2 however for taxable years y1 and y2 those trusts did not distribute income annually as required by sec_1361 this caused a termination of x’s s election on d4 by d6 trust sec_1 and made distributions for taxable years y1 y2 and y3 beneficiary of trusts and did not file a qsst election on behalf of either trust or trust although x’s s election was already terminated due to the failure to distribute the information submitted states that x was incorporated under the laws of state furthermore trusts and were intended to be qssts however b the it was intended that trust sec_1 and qualify as qualified subchapter_s x represents that the circumstances resulting in the termination of x's s sec_1362 provides that except as provided in sec_1362 a small_business sec_1361 provides that the term small_business_corporation means income mentioned above the transfer of x stock to trusts and on d5 would also have caused a termination of x’s s election trusts and sold all of their interests in x to other x shareholders effective d7 and are not current x shareholders x represents that the remaining shareholders trust sec_11 sec_12 and are all eligible shareholders with proper elections corporation election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make such adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 -- a such trust shall be treated as a_trust described in sec_1361 and b for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1361 shall be effective up to days and months before the date of the election sec_1361 provides that the term qsst means a_trust all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1361 provides that a beneficiary of a qsst or his legal sec_1361 provides that if any qsst ceases to meet any sec_1362 provides that an election under sec_1362 will be sec_1362 provides that if -- an election under sec_1362 by any sec_1_1361-1 of the income_tax regulations provides that the current requirements of sec_1361 but continues to meet the requirements of sec_1361 the provision of sec_1361 shall not apply to such trust as of the first day of the first taxable_year beginning after the first taxable_year for which it failed to meet the requirements of sec_1361 income_beneficiary of the trust must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax return the applicable form or a statement including the information listed in sec_1_1361-1 terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on and after the date of cessation corporation -- a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken -- a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the representations made and the information submitted we conclude that x's s_corporation_election terminated on d4 additionally we conclude that x’s s_corporation_election would have terminated on d5 because of the failure to timely file a qsst election for trusts and we further conclude that the termination of x's s election was an inadvertent termination within the meaning of sec_1362 accordingly pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from d4 and thereafter provided x's s_corporation_election was valid and was not otherwise terminated under sec_1362 all of x's shareholders in determining their respective income_tax liabilities during the termination period and thereafter must include their pro_rata share of the separately_stated items of income additionally from d4 and thereafter trust sec_1 and will be treated including tax-exempt_income loss deduction or credit and non-separately stated computed items of income or loss of x as provided in sec_1366 make any adjustments to basis provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 as qssts described in sec_1361 assuming they otherwise qualify as qssts from d5 through d7 for trust and from d5 and thereafter for trust both trusts will be treated as qssts and the beneficiary of trusts and will be treated as the owner of the x stock held by trusts and provided that b files a qsst election effective d5 for trusts and with the appropriate service_center within days following the date of this letter if trust sec_1 b x or x's shareholders fail to treat x as described above this ruling shall be null and void a copy of this letter should be attached to the qsst election except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code specifically no opinion is expressed on whether x is otherwise eligible to be treated as an s_corporation or whether any of the trusts subject_to this ruling are eligible qssts under sec_1361 k provides that it may not be used or cited as precedent being sent to x's authorized representative enclosures carolyn hinchman gray senior counsel branch associate chief_counsel passthroughs and special industries pursuant to the power_of_attorney on file with this office a copy of this letter is this ruling letter is directed only to the taxpayer who requested it section copy of this letter copy for sec_6110 purposes sincerely


internal_revenue_service national_office technical_advice_memorandum date number release date third party contact index uil no case mis no district_director tam-117215-99 cc dom it a b2 taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend taxpayer number n number o issue s are food and beverages provided by taxpayer to its independent_contractor representatives at national and regional meetings subject_to the partial deduction disallowance of sec_274 of the internal_revenue_code do the exceptions to the sec_274 partial deduction disallowance for a de_minimis_fringe_benefits or b recreational or social activities for employees apply conclusion s the food and beverages provided by taxpayer to independent_contractor representatives at national and regional meetings are subject_to the partial deduction disallowance of sec_274 none of the exceptions to the partial deduction disallowance apply facts taxpayer is a brokerage firm that does business through approximately n broker representatives in approximately o locally owned and operated branch offices taxpayer treats the brokers as independent contractors for tax purposes during each of the tax years in question taxpayer held four regional sales and education conferences a national sales and education conference and a top producers conference the purposes of the conferences were to promote taxpayer’s products and services and provide educational presentations that satisfy the national association of securities dealers’ continuing education requirements for brokers the conferences included programs and presentations relating to developments in the industry new product lines and sales ideas and techniques the regional conferences lasted three days and two nights the top producers’ conferences lasted four days and three nights and the national conferences lasted five days and four nights each representative was invited to one regional conference and the national conference taxpayer invited representatives who satisfied certain performance quotas to the top producers' conference representatives typically attended one regional conference and the national conference each representative attending a conference was allowed to invite a spouse or other guest at each conference taxpayer provided breakfast and lunch to the representatives but not their guests each day at no charge taxpayer provided lunch for attendees because time constraints did not allow attendees to leave the premises for lunch the short lunch period provided scheduling flexibility allowed attendees to network and encouraged attendees to interact with one another and share individual insights and personal experiences at both the regional and national conferences taxpayer paid for two cocktail parties at which food and beverages were served the cocktail parties were open to attendees and guests and also were attended by conference organizers event sponsors representatives of companies whose products are distributed by taxpayer and industry representatives generally conference speakers on industry issues the cocktail parties provided a place for the attendees and their guests to meet and for attendees to discuss the day's topics and ask questions the breakfasts lunches and cocktail parties were generally catered by the hotel hosting the conference at the regional conferences industry sponsors took the representatives and their guests to dinner at an outside location the sponsors not the taxpayer paid for these dinners at the national conferences taxpayer and industry sponsors each hosted two dinners for the representatives and their guests similarly at the top producers’ conferences taxpayer and industry sponsors each hosted a dinner for the representatives and their guests taxpayer knew the identity of each representative and the number of guests attending each conference additionally taxpayer knew the aggregate cost of food and beverages provided at each conference the aggregate cost of food and beverages provided ranged from dollar_figure per representative at one conference to dollar_figure per representative at another conference taxpayer did not include the value of food and beverages provided to each representative at conferences in the amount of taxable compensation reported on forms furnished by taxpayer to the representatives on its tax returns for the years in question taxpayer deducted the full cost of the meals and cocktail parties provided at the conferences less the cost of meals and entertainment provided to guests of attendees without applying the deduction disallowance of sec_274 law sec_162 allows a deduction for the ordinary and necessary expenses paid_or_incurred in carrying on any trade_or_business however a deduction otherwise allowable under sec_162 may be subject_to disallowance or reduction by sec_274 sec_274 limits the deduction for any expense for food or beverages to of the amount that otherwise would be allowable under sec_162 however sec_274 excludes certain expenses from the application of sec_274 including a expenses described in sec_274 or and b expenses for food or beverages excludable from the recipient's gross_income under sec_132 by reason of sec_132 relating to de_minimis fringes sec_274 describes expenses for recreational social or similar activities primarily for the benefit of employees other than highly compensated employees sec_1_274-2 states that the exception provided in sec_274 applies to usual employee benefit programs such as christmas parties annual picnics and athletic_facilities that are available to employees generally sec_61 provides that gross_income includes all income from whatever source derived including compensation_for services fees commissions fringe_benefits and similar items sec_1_61-21 provides that a taxable fringe benefit is included in the income of the person performing the services in connection with which the fringe benefit is furnished thus a fringe benefit may be taxable to a person even though that person did not actually receive the fringe benefit if a fringe benefit is furnished to someone other than the service provider such benefit is considered as furnished to the service provider sec_132 excludes from gross_income the value of a de_minimis_fringe benefit as defined in sec_132 sec_1_132-6 provides however that a fringe benefit not satisfying the definition in sec_132 for exclusion under sec_132 is includible in the employee’s gross_income unless excluded under a provision other than sec_132 pursuant to sec_132 the term de_minimis_fringe means any property or service the value of which is after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees so small as to make accounting for it unreasonable or administratively impracticable sec_1_132-6 provides that generally the frequency with which similar fringes are provided by the employer to the employer's employees is generally determined by reference to the frequency with which the employer provides the fringes to each individual employee rather than to the employer's workforce as a whole employee- measured frequency however sec_1_132-6 provides that where it would be administratively difficult to determine frequency with respect to individual employees the frequency with which the employer provides similar fringes is determined by reference to the frequency with which the employer provides the fringes to the workforce as a whole employer-measured frequency sec_1_132-6 provides that unless excluded by a provision of the internal_revenue_code other than sec_132 the value of any fringe benefit that would not be unreasonable or administratively impracticable to account for is includable in the employee's gross_income sec_1_132-6 provides examples of de_minimis_fringe_benefits that are excludable from an employee’s gross_income these include occasional typing of personal letters by a company secretary occasional personal_use of an employer's copying machine occasional cocktail parties group meals or picnics for employees and their guests traditional birthday or holiday gifts of property not cash with a low fair_market_value occasional theater or sporting event tickets coffee doughnuts and soft drinks local telephone calls and flowers fruit books or similar_property provided to employees under special circumstances eg on account of illness outstanding performance or family crisis sec_1_132-6 provides examples of fringe_benefits that are not excludable from an employee’s gross_income as de_minimis these include season tickets to sporting or theatrical events the commuting use of an employer-provided automobile or other vehicle more than one day a month membership in a private country club or athletic facility regardless of the frequency with which the employee uses the facility and use of employer-owned or leased facilities such as an apartment hunting lodge boat etc for a weekend sec_1_132-1 provides that for purposes of sec_132 relating to de_minimis fringes the term employee means any recipient of a fringe benefit consequently recipients of de_minimis fringes who are treated as independent contractors may be eligible to exclude the value of the benefits from their gross_income analysis taxpayer asserts that its deduction for the cost of food and beverages provided to its representatives who attended one or more of its conferences is not subject_to the partial_disallowance of sec_274 because the food and beverages either constitute a de_minimis_fringe benefit or are social activities within the meaning of sec_274 de_minimis_fringe_benefits the taxpayer’s representatives performed services for the taxpayer and attended one or more conferences at which they received the food and beverages that the taxpayer seeks to classify as de_minimis_fringe_benefits although they are treated as independent contractors by the taxpayer the representatives would be eligible to exclude these fringe_benefits from their gross incomes under sec_132 if the provisions of sec_132 are satisfied sec_1_132-1 whether a benefit qualifies as a de_minimis_fringe depends on the facts and circumstances of a particular case generally the value of the benefit and the frequency with which taxpayer provided similar fringe_benefits to taxpayer's representatives are relevant considerations in this case as part of a multi-day conference the taxpayer provided each attendee a package of food and beverages consisting at least of breakfast lunch snacks and cocktails therefore in determining the value and frequency with which similar benefits are provided to employees we conclude that the benefit properly to be considered here is the food and beverages provided to each representative during each multi-day conference additionally the value of food and beverages provided to each representative included the food and beverages provided to the representative’s spouse or guest see sec_1_61-21 since taxpayer knew the identity of each representative attending a particular conference it would not have been administratively difficult for taxpayer to determine the frequency with which taxpayer provided the benefit to each individual representative consequently the frequency with which taxpayer provided the benefit must be determined with respect to each individual representative in accordance with the employee-measured standard of sec_1_132-6 in this case taxpayer invited each representative to a regional conference and the national conference and invited select representatives to the top producers’ conference thus an individual representative might attend at most three conferences a year this maximum frequency of three times a year would not preclude treating the benefit as de_minimis if the aggregate value of food and beverages provided to each representative and guest attending a particular conference was so small as to make accounting for it unreasonable or administratively impracticable however the pro_rata value of food and beverages that taxpayer provided to each representative per conference dividing taxpayer's cost by the total number of attendees ranged from dollar_figure to dollar_figure even the lowest value dollar_figure exceeds an amount that would reasonably be considered to be de_minimis it would not be unreasonable or administratively impracticable for taxpayer to account for this amount under the circumstances of this case the benefit provided to associates attending even one multi-day conference is more like the use of employer-owned facilities for a weekend not a de_minimis_fringe than an occasional group meal or cocktail party we conclude that the value of the food and beverages that taxpayer provided to its representatives at the conferences was not a de_minimis_fringe benefit although not necessary to the discussion in this memorandum it appears that even if sec_132 does not exclude the fringe_benefits here from the representatives incomes sec_132 relating to working_condition_fringe_benefits as defined in sec_132 would exclude some or all of the benefits from their incomes social activities for employees we also conclude that sec_274 does not apply to taxpayer's expenses sec_274 applies only to expenses for recreational social or similar activities for employees not for independent contractors as taxpayer treated the majority of its representatives even if the representatives were taxpayer's employees the activities were available only to the limited group of individuals who worked as brokers and not to taxpayer's employees generally see f v finally taxpayer has asserted that the meals and cocktail parties served a significant business_purpose thus they were not recreational or social in nature we have considered the other exceptions in sec_274 to sec_274 but none apply under the facts presented thus taxpayer's deduction for the cost of food and beverages provided to its representatives at its sales and educational conferences is subject_to the partial deduction disallowance of sec_274 caveat s 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