t c summary opinion united_states tax_court alex halo petitioner v commissioner of internal revenue respondent docket no 23774-12s filed date alex halo pro_se sandy halo specially recognized for petitioner daniel c munce for respondent summary opinion whalen judge the case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure petitioner asks the court to redetermine a deficiency of dollar_figure in his income_tax for there are two issues for decision by the court the first is whether petitioner is allowed a deduction of dollar_figure under sec_219 for the aggregate amount he contributed to an individual_retirement_account ira the second issue is whether petitioner is entitled to exclude from gross_income the entire amount of social_security_benefits he received during taxable_year totaling dollar_figure background petitioner was approximately years of age at the end of during that year petitioner did not earn any wages salaries professional fees or other_amounts derived from or received for personal service actually rendered petitioner was unemployed for the entire year and he received unemployment_compensation totaling dollar_figure petitioner also received taxable interest_income during the year totaling dollar_figure finally petitioner received social_security_benefits during the year totaling dollar_figure of that amount dollar_figure was paid in for and dollar_figure was paid in for other tax years petitioner filed a timely form 1040a u s individual_income_tax_return for taxable_year on the return petitioner stated that his occupation was unemployed warehouse worker he reported total income of dollar_figure comprising taxable interest of dollar_figure and unemployment_compensation of dollar_figure petitioner reported none of the social_security_benefits that he received during during the year petitioner made aggregate retirement contributions of dollar_figure to an ira on his return he claimed an ira deduction of dollar_figure after deducting that amount he reported adjusted_gross_income of dollar_figure petitioner's claimed ira deduction discussion as a preliminary matter we note that deductions are strictly a matter of legislative grace the general_rule is that a taxpayer bears the burden of proving his or her entitlement to the claimed deductions rule a see 292_us_435 furthermore the taxpayer is required to maintain records sufficient to substantiate each deduction claimed see sec_6001 sec_1_6001-1 income_tax regs in certain limited circumstances sec_7491 shifts to the commissioner the burden_of_proof with respect to factual issues relevant to ascertaining a taxpayer’s tax_liability sec_7491 does not affect our analysis in this case because there are no factual issues as to which our holding depends upon which party bears the burden_of_proof generally an individual is entitled to a deduction equal to the qualified retirement contributions of the individual for the taxable_year sec_219 sec_1_219-1 income_tax regs a qualified_retirement_contribution is defined by sec_219 to include any amount_paid in cash for the taxable_year by or on behalf of an individual to an individual_retirement_plan for such individual’s benefit an individual_retirement_plan means an individual_retirement_account described in sec_408 and an individual_retirement_annuity described in sec_408 sec_7701 the maximum amount allowable as a deduction under sec_219 to an individual for any taxable_year cannot exceed the lesser_of the deductible amount or an amount equal to the compensation includible in the individual’s gross_income for such taxable_year sec_219 for taxable_year the deductible amount is dollar_figure plus a catch-up contribution of dollar_figure for individuals age or older see sec_219 as a result of the limitation set forth in sec_219 the maximum amount deductible under sec_219 cannot exceed the amount of compensation reported by the taxpayer for the taxable_year the term compensation is defined by sec_219 in pertinent part as follows compensation --for purposes of this section the term compensation includes earned_income as defined in sec_401 the term compensation does not include any amount received as a pension or annuity and does not include any amount received as deferred_compensation for purposes of this paragraph sec_401 shall be applied as if the term trade_or_business for purposes of sec_1402 included service described in subsection c also see sec_86 which provides that any social_security_benefit shall be treated as an amount received as a pension or annuity the term compensation is further defined in sec_1_219-1 income_tax regs as follows compensation --for purposes of this section the term compensation means wages salaries professional fees or other_amounts derived from or received for personal service actually rendered including but not limited to commissions paid salesmen compensation_for services on the basis of a percentage of profits commissions on insurance premiums tips and bonuses and includes earned_income as defined in sec_401 but does not include amounts derived from or received as earnings or profits from property including but not limited to interest and dividends or amounts not includible in gross_income emphasis added sec_401 referred to in sec_219 and sec_1_219-1 income_tax regs provides that the term earned_income generally means net_earnings_from_self-employment during petitioner had no wages salaries or other_amounts received for personal services during that year he was not engaged in a trade_or_business he filed no schedule c profit or loss from business with his income_tax return and he had no net_earnings_from_self-employment accordingly petitioner had no compensation that was includible in his gross_income for see kobell v commissioner tcmemo_2011_66 holding that the term compensation does not include social_security_benefits sec_86 sec_219 nor does it include interest unless the interest is received in the course of a trade_or_business as a dealer in stocks and securities sec_1402 russell v commissioner tcmemo_1996_278 holding that unemployment benefits received by the taxpayer do not constitute compensation_for purposes of calculating the allowable deduction for a contribution to an ira under sec_219 therefore the maximum amount allowable to petitioner as a deduction under sec_219 for taxable_year is zero see sec_219 inclusion of social_security_benefits in gross_income gross_income includes all income from whatever source derived unless excluded from gross_income by a provision of the internal_revenue_code see sec_61 in the case of social_security_benefits the amount included in gross_income if any is determined in accordance with the formula set forth in sec_86 under that formula a portion of the benefits is includible in gross_income if the sum of the taxpayer’s modified_adjusted_gross_income as defined by sec_86 plus one-half of the amount of social_security_benefits received exceeds certain threshold amounts the base_amount and the adjusted_base_amount see sec_86 in petitioner’s case these threshold amounts are dollar_figure and dollar_figure respectively sec_86 a as applied to petitioner for modified_adjusted_gross_income dollar_figure plus one-half of the social_security_benefits he received dollar_figure exceeds the adjusted_base_amount dollar_figure by dollar_figure see appendix infra p accordingly the portion of petitioner’s social_security_benefits that is includible in gross_income is determined as provided in sec_86 that provision requires petitioner to include in gross_income the lesser_of a or b computed as follows a the sum of i of the above excess dollar_figure plus ii the lesser_of the amount determined under sec_86 dollar_figure or one-half of the difference between petitioner’s adjusted_base_amount and his base_amount dollar_figure or b of the social_security_benefits received during the taxable_year dollar_figure see sec_86 pursuant to that formula dollar_figure is includible in petitioner’s gross_income for ie dollar_figure plus dollar_figure see appendix in petitioner received social_security_benefits amounting to dollar_figure but contrary to the mandate of sec_86 he did not include any portion of these benefits in gross_income respondent determined in the notice_of_deficiency that dollar_figure of the benefits petitioner received is includible in gross_income the notice does not show how that amount was computed but respondent’s computation is in accord with the formula in sec_86 see the computation of the amount includible as set forth in the appendix petitioner does not take issue with respondent’s computation of the amount of taxable benefits under sec_86 petitioner’s position is that the entire amount received during consists of disability benefits and consequently no part of the amount received is subject_to tax petitioner does not point to any provision of the internal_revenue_code such as sec_104 as authority for his position the nature of petitioner’s disability is not clearly set out in the record but it is conceded by respondent and it is accepted by the court for purposes of this case assuming arguendo that the social_security_benefits received by petitioner during and reported on the form ssa-1099 social_security_benefit statement in the amount of dollar_figure are disability benefits as petitioner claims our analysis of the amount includible in petitioner’s gross_income remains unchanged for purposes of sec_86 the term social_security_benefit is defined to mean any amount received by a taxpayer by reason of entitlement to a monthly benefit under title ii of the social_security act sec_86 title ii of the social_security act provides for old-age survivors and disability benefits see u s c secs including sec_423 providing for disability insurance benefit payments therefore amounts received as social_security disability benefits are social_security_benefits for purposes of sec_86 and are includible in the taxpayer’s income as provided by that section see eg 123_tc_245 aff’d 436_f3d_344 2d cir watts v commissioner tcmemo_2009_103 slip op pincite joseph v commissioner tcmemo_2003_19 slip op pincite thomas v commissioner tcmemo_2001_120 slip op pincite upon consideration of the foregoing decision will be entered for respondent appendix computation of amount of social_security_benefits includible in gross_income base_amount adjusted_base_amount sec_86 modified agi soc sec benefits dollar_figure dollar_figure sec_86 soc sec benefits dollar_figure sec_86 total dollar_figure sec_86 base_amount dollar_figure sec_86 adjusted_base_amount excess described in sec_86 dollar_figure excess described in sec_86 lesser_of sec_86 sec_86 excess dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure sec_86 of excess sec_86 lesser_of amount includible is the lesser_of a the sum of i plus ii lesser_of dollar_figure amount determined under sec_86 dollar_figure dollar_figure less dollar_figure soc sec benefits dollar_figure dollar_figure or b dollar_figure amount of social_security_benefits includible in gross_income dollar_figure


number release date id office uilc cca_2011012010403637 ---------- from ------------------- sent thursday date am to -------------------- cc ----------- subject re initiating an exam sec_7605 generally requires only one inspection of a taxpayer's books of account subject_to listed exceptions sec_6223 requires the issuance a notice of the beginning of an administrative_proceeding at the partnership level with respect to a partnership_item nbap ----------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------


internal_revenue_service number release date index number ----------------------------------------------- ------------------------- ---------------- ---------------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-106867-10 date june legend x -------------------------- ------------------------------- a ----------------------------- --------------------------------- country ---------- date ---------------------- dear ------------------------- this responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an entity classification election the information submitted states that x was formed under the laws of country on date x is entirely owned by a x represents that x is a foreign_entity that was eligible to elect to be treated as a disregarded_entity for federal tax purposes effective on date the election however was not timely filed nevertheless x represents that it has been consistently treated by a as a disregarded_entity for federal tax purposes plr-106867-10 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301 b by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than 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 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief 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 granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 plr-106867-10 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder 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 as a condition for this late election relief a must file within days of the date of this letter form_8858 information_return of u s persons with respect to foreign disregarded entities for all tax periods affected by this ruling through the present consistent with x having made a timely entity classification election copies of this letter should be attached to such forms in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely associate chief_counsel passthroughs special industries by _______________________________ richard t probst branch reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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-128113-05 date date ------- -------------------- --------------------- ------------------------- --------------------------- --------------------------------- legend x -------------------------------------------------- a ---------------------------------- date date date year year year a dear ------------------------- correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code owned by a x elected to be an s_corporation effective date x had subchapter_c_earnings_and_profits at the close of each of its year year and year taxable years and had gross_receipts for each of those years more than percent of which were passive_investment_income as a result x’s s election terminated on date the information submitted states that x was incorporated on date and is wholly this letter responds to a letter dated date and subsequent ----------- ------- ------- x represents that the termination of x’s election to be an s_corporation was plr-128113-05 inadvertent unintended and not the result of tax_avoidance or retroactive tax planning x and a agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that a small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that 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_1362 provides that an election under sec_1362 shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of three consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income sec_1362 provides that any termination under sec_1362 shall be effective on and after the first day of the first taxable_year beginning after the third consecutive taxable_year referred to in sec_1362 sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or sec_1362 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified under sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1368 provides rules for determining the source of distributions made by an s_corporation having accumulated_earnings_and_profits with respect to its stock sec_1368 and sec_1_1368-1 of the income_tax regulations provide that an s_corporation may with the consent of all of its affected_shareholders elect to distributed earnings_and_profits first sec_1_1368-1 provides that an s_corporation may elect to distribute all or part of its accumulated_earnings_and_profits through a deemed_dividend if an s_corporation makes the election provided in sec_1_1368-1 the s_corporation will be plr-128113-05 considered to have made the election under sec_1368 and sec_1_1368-1 to distribute earnings_and_profits first sec_1375 provides that if for the taxable_year an s_corporation has- accumulated_earnings_and_profits at the close of such taxable_year and gross_receipts more than percent of which are passive_investment_income then there is imposed a tax on the income of such corporation for such taxable_year such tax shall be computed by multiplying the excess_net_passive_income by the highest_rate of tax specified in sec_11 sec_1375 provides that the amount of the excess_net_passive_income for any taxable_year shall not exceed the amount of the corporation’s taxable_income for such taxable_year as determined under sec_63 a - without regard to the deductions allowed by part viii of subchapter_b other than the deduction allowed by sec_248 relating to organizational_expenditures and ii without regard to the deduction under sec_172 the information submitted by x indicates that x had no taxable_income for year and year based solely on the representations made and the information submitted we conclude that x’s s_corporation_election terminated on date under sec_1362 because x had subchapter_c_earnings_and_profits at the close of each of three consecutive taxable years and had gross_receipts for each of those taxable years more than percent of which were passive_investment_income we further conclude that the termination of x’s s_corporation_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 beginning date and thereafter provided that x’s s_corporation_election was valid and has not otherwise terminated under sec_1362 and provided that the following conditions are met within days from the date of this letter x shall file an amended_return for the year taxable_year electing pursuant to sec_1_1368-1 to make a deemed_dividend distribution of dollar_figurea also within days from the date of this letter a shall amend a’s individual year income_tax return to reflect the changes made to x’s year return if these conditions are not met then this ruling is null and void furthermore if these conditions are not met x must notify the ogden service_center with which x’s s_corporation_election was filed that its election terminated on date based on the particular facts of this case no adjustments are required under sec_1362 federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer who requested it sec_6110 except as specifically set forth above no opinion is expressed concerning the pursuant to a power_of_attorney on file with this office a copy of this letter is plr-128113-05 being forwarded to x's authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely yours j thomas hines chief branch associate chief_counsel passthroughs and special industries


t c memo united_states tax_court alron engineering testing corp petitioner v commissioner of internal revenue respondent docket no filed date mark m camp for petitioner mark j miller and christa a gruber for respondent memorandum findings_of_fact and opinion goldberg special_trial_judge respondent determined deficiencies in petitioner’s federal_income_tax of dollar_figure and dollar_figure for the taxable years ended date and june respectively unless otherwise indicated section references are to the internal_revenue_code in effect for the years in issue the sole issue in this case is whether petitioner is a - - qualified_personal_service_corporation under sec_448 and therefore subject_to the flat 35-percent tax_rate pursuant to sec_11 findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioner’s principal_place_of_business was menomonee falls wisconsin petitioner is a wisconsin corporation licensed by the state and engaged in the business of providing geotechnical testing and engineering services petitioner is described as a geotechnical testing and engineering firm on the corporate annual reports filed with the state of wisconsin petitioner also files at least biannually a report with the architects and engineers registration during the taxable years in issue petitioner employed two engineers allan f huseth mr huseth and jeffrey smith mr smith and approximately ten non-engineering personnel including technicians and clerical staff mr huseth the president of petitioner and 100-percent owner of petitioner’s stock during the years in issue is a registered professional engineer in the state of wisconsin since with a bachelor of science degree in civil engineering and a master of science degree with a specialty in soil mechanics and highway engineering mr smith holds a 4-year degree in civil engineering and a master’s degree in soil mechanics technicians on petitioner’s staff were given a variety of duties including operating equipment eg drilling creation of cylinders and other test samples laboratory testing and field testing the educational background of petitioner’s non- engineering staff ranged from employees with a 2-year degree’ in civil engineering to a few with high school diplomas one employee did not receive a high school diploma all of petitioner’s employees worked full-time during the years in issue petitioner’s geotechnical testing services consisted primarily of physical tests of concrete and soil samples conducted in either the field or laboratory petitioner provided necessary equipment eg drill rigs and laboratory facilities including a moist curing room where concrete specimens were cured until the required specification date operation of equipment out in the field or laboratory did not require basic knowledge of mathematics or engineering principles since it was not analytical in nature training of petitioner’s technical employees or technicians occurred on the job a 2-year degree in civil engineering is not the equivalent of an engineering degree required to perform professional engineering services in wisconsin see wis stat sec dollar_figure q4e- concrete testing consisted of primarily compressions tests to check specifications and density of freshly poured concrete in the field tests were conducted on concrete core samples or x cylinders created by petitioner’s technicians or brought in by third party contractors petitioner also tested soil samples for moisture contents density determinations shear strengths permeability tests proctor tests and other tests soil borings and sometimes rock core borings were obtained to classify the type of soil or rock substance to conduct a soil density test technicians in the field used nuclear meters to determine the density of materials for earthwork projects training to read the meter was done on the job in approximately minutes technicians handled all aspects of obtaining samples drilling or laboratory testing in both concrete and soil testing information collected from a test was given to clerical staff upon request by a client an engineering analysis could be generated from the test results otherwise the data was given to the client in a report written by the clerical staff without analysis only technical personnel conducted and collected data from geotechnical tests it was not the function of the engineers to create or test the cylinders or core samples petitioner also provided engineering services engineering services included offering recommendations on types of - - foundations or supporting structures bridges and buildings or pavement design from samples in an engineering analysis a professional engineer reviews studies and analyzes information from field logs and laboratory data to recommend the type of foundations of the structure or the best options available analyses are based upon data collected by petitioner’s technicians or provided by third party soil testing companies in order for petitioner to provide engineering services the client must request it engineering services were billed at a rate between dollar_figure and dollar_figure per hour depending on the precise service rendered billing for geotechnical testing depended on the type of testing requested the parts required to create samples and the hourly rate for technicians which was lower than the hourly rate for engineers petitioner’s clientele may request geotechnical testing or engineering analysis or both for instance other structural or geotechnical engineering firms have hired petitioner for the sole task of providing them with test samples and results from the field or laboratory these clients conduct their own engineering analysis of the data provided by petitioner’s test reports petitioner maintained its books_and_records to reflect the type of service whether engineering or geotechnical testing by using account numbers every job billed to a client had an - - associated account number and short narrative to distinguish the type of service rendered and billed the accounts range from to account sec_5001 through and through relate to geotechnical services including field and laboratory technician services and field soil boring services only account sec_5006 and sec_5007 relate to engineering services including both office and field engineering services during the taxable years ended date and date petitioner used the graduated_tax rates under sec_11 to determine its corporate tax_liability in a notice_of_deficiency respondent determined that petitioner was a qualified_personal_service_corporation under sec_448 thereby requiring a flat_tax rate of percent under sec_11 b opinion respondent contends that engineering and geotechnical testing are both services within the field of engineering and therefore petitioner is a qualified_personal_service_corporation as defined in sec_448 petitioner contends that it is not a qualified_personal_service_corporation because geotechnical testing is not in the field of engineering furthermore petitioner argues that it did not perform substantially_all of its services within the field of engineering as defined under sec_448 - j- sec_448 defines a qualified_personal_service_corporation as any corporation a substantially_all of the activities of which involve the performance of services in the fields of health law engineering architecture accounting actuarial science performing arts or consulting and b substantially_all of the stock of which by value is held directly or indirectly through or more partnerships s_corporations or qualified personal_service_corporations not described in paragraph or of subsection a by-- employees performing services for such corporation in connection with the activities involving a field referred to in subparagraph a retired employees who had performed such services for such corporation the estate of any individual described in clause or or 1v any other person who acquired such stock by reason of the death of an individual described in clause or but only for the 2-year period beginning on the date of the death of such individual under sec_11 the income of a personal_service_corporation is taxed at a rate of percent to qualify as a personal_service_corporation a corporation must satisfy the function and ownership tests under the regulations sec_1_448-1t and temporary income_tax regs fed reg date as amended by t d fed reg date t d fed reg date since petitioner concedes that all of its stock is owned by its employee mr huseth the ownership test is --- - satisfied to satisfy the function test substantially_all of the corporation’s activities must involve the performance of services in the field of engineering see id as a threshold matter petitioner must provide services in the field of engineering although petitioner concedes that it does provide engineering services which are clearly in the field of engineering petitioner contends that geotechnical testing is not within the field of engineering we agree with petitioner geotechnical testing does not require the same education training and mastery as engineering according to wisconsin law a professional engineer licensed with the state must meet certain minimum education experience and examining board requirements this is not the case for technicians who perform geotechnical testing services there are no standard minimum requirements to provide geotechnical testing services under the laws of wisconsin according to mr huseth’ sec_2 the basic minimum requirements are as follows a diploma or certificate from an engineering school or college approved by the examining board_of not less than years together with an additional years of experience in engineering work or a specific record of or more years of experience in engineering work indicating that the applicant is competent to be placed in responsible charge of such work or a specific record of years or more of experience in engineering work indicating that the applicant is competent to practice engineering or a diploma or certificate from an engineering school or college approved by the examining board_of not less than years together with an additional years of experience in engineering work all satisfactory to the examining board wis stat sec dollar_figure --- - testimony technicians are trained on the job and do not require a minimum education standard to operate equipment or gather test data equipment or laboratory training may be completed in as long as a single day or in as little as a half hour moreover technicians are not bound by state or board licensing or review petitioner’s geotechnical testing services are separate and distinct from petitioner’s engineering services the essence of engineering services is in the application of mathematical physical and engineering sciences to services or projects such as consultation investigation evaluation planning design and review of structures and buildings although geotechnical testing data may be used in petitioner’s engineering analysis the data may be used for other purposes and by other parties as well when petitioner provides an engineering analysis the data may be supplied by the client or petitioner in the alternative petitioner may supply data from geotechnical testing services without rendering any professional engineering services although we agree with respondent that engineering services could not be completed without the data provided from geotechnical testing whether that information was furnished by petitioner or another geotechnical testing firm we are not persuaded to find that sufficient reason to deem the means of providing data under the umbrella of engineering in practice and principle the two lines of services may function mutually exclusively sec_448 a requires that substantially_all of petitioner’s activities must be devoted to the field of engineering under sec_1_448-1t substantially_all is defined as percent or more of the employees’ time devoted to the performance of services within the field of engineering the temporary_regulation further provides that for purposes of determining whether the 95-percent rule is satisfied the performance of any activity incident to the actual performance of engineering services is considered the performance of services in that field respondent contends that geotechnical testing is incident to the qualifying field of engineering the temporary_regulation states that activities incident to the performance of services in a qualifying field include the supervision of employees engaged in directly providing services to clients and the performance of administrative and support services incident to such activities sec_1_448-1t temporary income_tax regs fed reg date as amended by t d fed reg date t d fed reg date in this case geotechnical testing of soils and concrete is not within the field of engineering nor is during his testimony mr huseth referred to three other geotechnical testing companies in the area that did not employ any engineers on their staffs it incident to engineering petitioner’s geotechnical testing services are not dependent upon petitioner’s ability to provide engineering services it was not unusual for clients to request petitioner’s geotechnical testing services exclusive of a subseguent engineering analysis in the alternative an engineering analysis may be completed by data furnished by a third party not necessarily petitioner’s own geotechnical testing department specific services provided by petitioner varied depending upon the unique request of the client moreover administrative and support services provided for engineering analyses may be separated from the administrative and support services provided for geotechnical testing services since we have decided that geotechnical testing is not in the field of engineering a qualifying service then we must next decide how much of petitioner’s time was spent in petitioner’s engineering services according to the temporary_regulation substantially_all or percent of petitioner’s employees’ time must be devoted to rendering a qualifying service under sec_448 d petitioner proffered evidence demonstrating the overall breakdown of testing and engineering services rendered during the years in issue by dollar amounts reflected in invoices from the invoices in the record we find that petitioner’s engineering services were billed between dollar_figure and dollar_figure per hour depending on the type of engineering service rendered although the invoices reflect a mix of work both geotechnical and engineering services we can reasonably distinguish by use of the account numbers the proportionate time spent in engineering and geotechnical testing we find petitioner spent more than percent of its time on geotechnical services since geotechnical testing is separate and distinct from the field of engineering petitioner does not meet the function test as required under sec_448 in our review and analysis of exhibits through it is reasonable to conclude that percent of petitioner’s time was not devoted in the field of engineering or incident to the field of engineering we find petitioner is not a qualified_personal_service_corporation under sec_448 and therefore not subject_to the 35-percent flat_tax rate exhibit is a record of invoices billed from date through date exhibit is a record of invoice billed from date through date exhibit is a record of invoice billed from date through date exhibit is a sample of petitioner’s invoices dated throughout the years in issue showing the account numbers for services rendered exhibit 1s a breakdown of sales totals from date through date and also from date through date this summary is based upon the account numbers petitioner followed in bookkeeping this exhibit also includes the job descriptions associated with account numbers to reflect the foregoing decision will be entered for petitioner


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi b01-plr-109325-00 date date legend portfolio trust fund company manager state state declaration date dollar_figurea dollar_figureb this letter responds to your submission of date together with subsequent correspondence in which you requested certain rulings under sec_704 sec_721 and sec_7704 of the internal_revenue_code facts portfolio is a sub-trust of trust which was organized as a business_trust under the laws of state pursuant to declaration trust is registered as an investment_company under the investment_company act of act portfolio is a separate business_trust under the laws of state which recognize that separate trusts established under a single instrument with common trustees are independent legal entities portfolio is registered as an investment_company under the act portfolio and fund represent that portfolio is classified as a partnership under sec_301_7701-3 of the procedure and administration regulations portfolio serves as an investment vehicle for fund fund is a separate series of company a state corporation that is an open-end management investment_company under the act fund invests substantially_all of its assets available for investment in portfolio and has the same investment objective as portfolio fund is treated as a corporation for federal_income_tax purposes and has elected or will elect to be taxed as a regulated_investment_company ric under part i of subchapter_m of chapter of subtitle a of the code fund intends to be operated in a manner which would permit it plr-109325-00 to continue to qualify as a ric portfolio was formed on date when manager became a partner in portfolio in exchange for cash of dollar_figurea and fund became a partner in portfolio in exchange for securities and other assets with a fair_market_value of dollar_figureb manager is the investment_advisor for fund beneficial interests in portfolio are issued solely in private_placement transactions that do not involve any public offering within the meaning of sec_4 of the securities act of as amended act portfolio will not register its shares under the act because shares in portfolio may be issued solely in private_placement transactions that do not involve any public offering within the meaning of sec_4 of the act investments in portfolio only may be made by investment companies or certain other entities that are accredited investors within the meaning of regulation d under the act the interest of each partner in portfolio is limited to the net assets of portfolio and does not extend to the assets of any other investment vehicles of trust portfolio has not invested in any of trust’s other investment vehicles nor are any of trust’s other investment vehicles invested in portfolio except as required by sec_704 and sec_1_704-1 each partner will be allocated a pro_rata share of partnership income gain loss deduction and credit in accordance with the regulations under sec_704 each partner’s initial capital_account balance will be the amount of money and the fair_market_value of the property contributed to portfolio by the partner under sec_1_704-1 portfolio will revalue its investment portfolio to fair_market_value as of the close of each day portfolio will adjust each partner’s capital_account to reflect the partner’s share of the net change in the value of its portfolio of securities from the close of the prior day to the close of the current day portfolio intends to qualify as a securities_partnership under sec_1_704-3 the number of partners in portfolio will be limited to or fewer calculated pursuant to sec_1_7704-1 portfolio has made the following additional representations fund has contributed either cash and or a portfolio of assets that meets the diversification requirements of sec_1_351-1 as further defined in sec_368 for purposes of this test government securities are not included within the meaning of securities under sec_368 but are included within the meaning of total assets in sec_368 the assets contributed by fund other than cash will consist of readily marketable_stock and securities as defined in sec_1_351-1 prior to the taxpayer_relief_act_of_1997 all cash received by portfolio will be invested in readily marketable_stock and plr-109325-00 securities as defined in sec_1_351-1 prior to the taxpayer_relief_act_of_1997 the burden of making sec_704 allocations separate from reverse sec_704 allocations is substantial law and analysis ruling portfolio and fund have requested a ruling that portfolio will not be a publicly_traded_partnership within the meaning of sec_7704 sec_7704 provides that a publicly_traded_partnership is treated as a corporation sec_7704 and sec_1_7704-1 provide that for purposes of sec_7704 the term publicly_traded_partnership means any partnership if interests in the partnership are traded on an established_securities_market or readily_tradable on a secondary market or the substantial equivalent thereof sec_1_7704-1 provides that interests in a partnership are readily_tradable on a secondary market or the substantial equivalent thereof if taking into account all of the facts and circumstances the partners are readily able to buy sell or exchange their partnership interests in a manner that is comparable economically to trading on an established_securities_market sec_1_7704-1 provides that interests in a partnership are not readily_tradable on a secondary market or the substantial equivalent thereof for purposes of sec_7704 if i all interests in the partnership were issued in a transaction or transactions that was not required to be registered under the act and ii the partnership does not have more than partners at any time during the taxable_year sec_1_7704-1 provides that for purposes of sec_1_7704-1 a person owning an interest in a partnership grantor_trust or s_corporation flow-through_entity that owns directly or through other flow-through entities an interest in the partnership is treated as a partner in the partnership only if i substantially_all of the value of the beneficial owner’s interest in the flow-through_entity is attributable to the flow-through entity’s interest direct or indirect in the partnership and ii a principal purpose of the use of the tiered arrangement is to permit the partnership to satisfy the 100-partner limitation of sec_1_7704-1 portfolio has represented that the number of partners in portfolio will be limited to or fewer calculated pursuant to sec_1_7704-1 no interest in portfolio has been or will be issued in a transaction or transactions required to be registered under the act accordingly portfolio will not be a publicly_traded_partnership within the meaning of sec_7704 plr-109325-00 ruling portfolio and fund have requested a ruling that portfolio and fund will not recognize gain_or_loss under sec_721 and sec_351 as a result of the contribution of assets by fund to portfolio sec_721 states generally that no gain_or_loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership sec_721 states that sec_721 shall not apply to gain realized on a transfer of property to a partnership that would be treated as an investment_company within the meaning of sec_351 if the partnership were incorporated treas reg c provides that a transfer of property will be considered to be a transfer to an investment_company if i the transfer results directly or indirectly in diversification of the transferor’s interests and ii the transferee is among other possibilities a corporation more than percent of the value of whose assets are held for investment a transfer will not result in diversification and therefore not constitute a transfer to an investment_company if a transferor transfers a diversified portfolio of stocks and securities as determined under sec_368 applying the relevant provisions of sec_368 but treating government securities as part of total assets but not as securities of an issuer sec_1_351-1 after applying the law to the facts submitted and the representations made we conclude that portfolio and fund will not recognize gain_or_loss under sec_721 and sec_351 as a result of the contributions of assets by fund to portfolio we express no opinion about whether subsequent transfers of stock and securities to portfolio by any transferor will affect the tax consequences of the original transfers ruling portfolio and fund have requested permission to aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for the purpose of making sec_704 and reverse sec_704 allocations sec_704 provides that income gain loss and deduction with respect to property contributed to the partnership by a partner is shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair_market_value at the time of contribution sec_1_704-3 states that the purpose of sec_704 is to prevent the shifting of tax consequences among partners with respect to precontribution gain_or_loss under sec_704 a partnership must allocate income gain loss and deductions with respect to property contributed by a partner to the partnership so as to take into account any variation between the adjusted tax basis of the property and its fair market plr-109325-00 value at the time of the contribution this allocation must be made using a reasonable method that is consistent with the purpose of sec_704 sec_1_704-3 provides that the principles of sec_1_704-3 apply to allocations with respect to property for which differences between book_value and adjusted tax basis are created when a partnership revalues partnership property under sec_1_704-1 reverse sec_704 allocations a partnership that makes allocations with respect to revalued property must use a reasonable method that is consistent with the purposes of sec_704 and c sec_1_704-3 indicates that sec_704 generally applies on a property-by- property basis therefore in determining whether there is a disparity between adjusted tax basis and fair_market_value the built-in gains and built-in losses on items of contributed or revalued property generally cannot be aggregated sec_1_704-3 sets forth a special rule allowing certain securities partnerships to make reverse sec_704 allocations on an aggregate basis specifically sec_1_704-3 provides that for purposes of making reverse sec_704 allocations a securities_partnership may aggregate gains and losses from qualified_financial_assets using any reasonable approach that is consistent with the purposes of sec_704 once a partnership adopts an aggregate approach the partnership must apply the same aggregate approach to all of its qualified_financial_assets for all taxable years in which the partnership qualifies as a securities_partnership sec_1_704-3 defines a securities_partnership as a partnership that is either a management company or an investment_partnership and that makes all of its book allocations in proportion to the partners’ relative book capital accounts except for reasonable special allocations to a partner that provides management services or investment advisory services to the partnership under sec_1_704-3 a partnership is a management company if it is registered as a management company under the act sec_1_704-3 defines qualified_financial_assets as any personal_property including stock that is actively_traded as defined in sec_1_1092_d_-1 defining actively_traded property for purposes of the straddle rules for a management company qualified_financial_assets also include the following even if not actively_traded shares of stock in a corporation notes bonds debentures or other evidences of indebtedness interest rate currency or equity notional_principal_contracts evidences of an interest in or derivative financial instruments in any security currency or commodity including any option forward or futures_contract or short position or any similar financial_instrument sec_1_704-3 and e v describe two approaches to making aggregate reverse sec_704 allocations that are generally reasonable -- the partial netting approach and the full netting approach however sec_1_704-3 provides that other approaches may be reasonable in appropriate circumstances plr-109325-00 sec_1_704-3 provides that an allocation method or combination of methods is not reasonable if the contribution of property or event that results in reverse sec_704 allocations and the corresponding allocation of tax items with respect to the property are made with a view to shifting the tax consequence of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the partners' aggregate tax_liability furthermore sec_1_704-3 provides that the character and other tax_attributes of gain_or_loss allocated to the partners under an aggregate approach must a preserve the tax_attributes of each item of gain_or_loss realized by the partnership b be determined under an approach that is consistently applied and c not be determined with a view to reducing substantially the present_value of the partners' aggregate tax_liability portfolio has represented that its allocations have complied and will comply with sec_1_704-3 the aggregation rule_of sec_1_704-3 applies only to reverse sec_704 allocations therefore a securities_partnership using an aggregate approach must generally account for any built-in_gain or loss from contributed_property separately the preamble to sec_1_704-3 explains that the final regulations do not authorize aggregation of built-in gains and losses from contributed_property with built-in gains and losses from revaluations because this type of aggregation can lead to substantial distortions in the character and timing of income and loss recognized by contributing partners t d 1995_1_cb_120 however the preamble also recognizes that there may be instances in which the likelihood of character and timing distortions is minimal and the burden of making sec_704 allocations separate from reverse sec_704 allocations is great consequently sec_1 e iii authorizes the commissioner to permit by published guidance or letter_ruling aggregation of qualified_financial_assets for purposes of making sec_704 allocations in the same manner as that described in sec_1_704-3 in this case portfolio will use the partial netting approach described in sec_1_704-3 portfolio’s burden of making sec_704 allocations separate from reverse sec_704 allocations is represented to be substantial in addition the likelihood that this type of aggregation could be abused by portfolio and its partners is minimal it is represented that fund is a publicly_offered_regulated_investment_company as defined in sec_67 and sec_1_67-2t after applying the relevant law to the facts presented and the representations made we conclude that portfolio may aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio by fund with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for purposes of making sec_704 and reverse sec_704 allocations provided that a contribution or revaluation of property and the corresponding allocation of tax items with respect to the property are not made with a view to shifting the tax consequences of built-in_gain or plr-109325-00 loss among the partners in a manner that substantially reduces the present_value of the partners’ aggregate tax_liability except as specifically ruled upon above we express no opinion on the federal tax consequences of the transactions described above under any other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction s that are not specifically covered by the above rulings ruling three is limited to allocations of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets made under sec_704 sec_704 and sec_1_704-3 specifically no opinion is expressed concerning i whether fund qualifies as a ric that is taxable under subchapter_m part i of the code ii allocations of items other than items of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets or iii the aggregation of built-in gains and losses from qualified_financial_assets contributed to portfolio other than those described above in addition portfolio must maintain sufficient records to enable it and its partners to comply with sec_704 and sec_737 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to portfolio and portfolio’s second authorized representative sincerely david r haglund senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------- ---------------------------------------- -------------------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-137315-08 date date legend x ------------------------------------------ ----------------------------------------- d ---------------------- state ------------- dear ----------------- this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on d under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d but the proper election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s plr-137315-08 corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of that year x did not file a timely election to be treated as an s_corporation under sec_1362 effective d x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d if within days from the date of this letter x submits a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed or implied concerning whether x otherwise qualifies as an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-137315-08 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s authorized representative sincerely dianna k miosi dianna k miosi chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


t c memo united_states tax_court gene c smith petitioner v commissioner of internal revenue respondent docket no 18639-99l filed date gene c smith pro_se joanne b minsky for respondent memorandum findings_of_fact and opinion laro judge petitioner petitioned the court under sec_6330 we decide herein whether his income_tax as assessed by respondent for and should be reduced to section references are to the internal_revenue_code applicable to the relevant years - - take into account additional_amounts which petitioner alleges are deductible in determining that tax we hold it should not findings_of_fact most facts were stipulated we incorporate herein by this reference the parties’ stipulation of facts and the accompanying exhibits petitioner resided in deland florida when his petition was filed with the court petitioner failed to file timely federal_income_tax returns for and he filed returns for those years on various dates in on date respondent issued a notice_of_intent_to_levy and notice of your right to a hearing to petitioner on date respondent received a properly completed form request for a collection_due_process_hearing wherein petitioner requested a hearing ina letter dated date petitioner informed the appeals officer that he believed he did not need due process or otherwise need the hearing the appeals officer never conducted a face-to-face meeting or telephone conference with petitioner respondent issued a notice_of_determination to petitioner on date the determination upheld the prior assessments and proposed levy in pertinent part the determination found you failed to file your and federal individual income_tax returns and substitute returns were prepared by the atlanta service_center based on information obtained from third parties you failed to petition the tax_court after statutory notices of deficiency were mailed to you the only legal requirements before taking general collection enforcement actions are the notice_and_demand the notice_of_intent_to_levy and the notice of right to collection_due_process_hearing with the best information available it is determined the requirements of various applicable law and administrative procedures have been met all legal and procedural requirements and the levies proposed were appropriate under the circumstances opinion where the validity of the underlying tax_liability is properly at issue in an appeal brought under sec_6330 the court will review the taxpayer’s liability under the de novo standard where the underlying liability is not at issue the court will review the commissioner’s administrative determination for abuse_of_discretion 114_tc_604 to determine which standard of review applies the court must decide whether petitioner’s underlying tax_liability is at issue a taxpayer may challenge the existence or amount of the underlying tax_liability for any_tax period if the taxpayer did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability sec_6330 b petitioner’s sole allegation in his petition is that respondent’s determination 1s incorrect in that it fails to reflect certain deductions petitioner alleged in his opening statement that the notices of deficiency were not mailed to his q4e- last_known_address and that he did not receive the notices of deficiency respondent asserts that petitioner’s underlying tax_liability is not before the court respondent contends that there is no evidence petitioner did not receive the notices of deficiency the parties ask the court to decide primarily whether petitioner received a notice_of_deficiency for any of the subject years if he did he would be precluded from challenging his underlying tax_liability for the related year or years we need not and do not decide that issue assuming arguendo that petitioner did not receive a notice_of_deficiency for any of the subject years and thus was entitled to challenge his underlying tax_liability for each of those years he has not established that he is entitled to any of the additional deductions which he claims petitioner did not provide at trial any evidence in the form of either testimony or documentation to support his claim to any additional deduction in fact he chose to present no evidence at all other than by way of the stipulated facts and exhibits none of which adequately supports his claim given that petitioner set forth in his petition no allegation that respondent abused his discretion that petitioner has not claimed that the proposed method of collection is inappropriate that petitioner has not offered any alternative means of collection and that petitioner has raised no spousal defenses we hold for respondent see 117_tc_183 accordingly decision will be entered for respondent


tax_exempt_and_government_entities_division oct re dear this letter is in response to your request with respect to the above-referenced defined benefit pension_plan pursuant to revproc_90_49 for the plan_year commencing date revproc_90_49 sets forth the procedure whereby under certain circumstances a disallowance of the deduction of employer contributions to a qualified defined_benefit_plan may be obtained thereby fulfilling a condition under which such contributions could revert to the employer based on the information submitted we have determined that contributions amounting to dollar_figure which were made for the plan_year commencing date may be considered as disallowed solely for the purpose of applying revrul_91_4 therefore the return of contributions not exceeding dollar_figure would not adversely affect the qualified status of the plan providing this reversion occurs no later than one year from the date of this letter however if the amount is not returned by your tax filing_date including extensions filed for and granted the tax under sec_4972 would apply in granting this approval we are not expressing any opinions as to the accuracy or acceptability of any calculations or other material submitted with your request when filing form_5500 for the plan_year commencing date a copy of this letter must be attached to the schedule sb form a copy of this letter should be furnished to the enrolled_actuary for the plan ' 20111101'1 if you require further assistance in this matter please contact sincerely yours david m ziegler manager employee_plans actuarial group


internal_revenue_service department of net ad significant index no te ep ra t- fred washington dc contact person telephone number in reference to date feb mi inre request for rulings on behalf of this is in response to a letter from your authorized representative form dated date in which six rulings were requested all of which related to one or more of the trusts named above as q r ’ and s the first five of the requested rulings were answered by technical branch of the exempt_organizations division now known as exempt_organizations technical group tax_exempt_and_government_entities_division the sixth requested ruling was referred to employee_plans actuarial group and that is the only ruling_request that this letter will address the sixth requested ruling was amended by your authorized representative in a telephone call with of our office on date to replace all references to internal_revenue_code code sec_419 with code sec_419a and on date to modify the wording of the sixth requested ruling facts according to the facts submitted m is a holding_company created in conjunction with the merger as of date of n and its subsidiaries and affiliates with o and its su subsidiaries and affiliates a substantial number of n’s employees are represented by one of two local unions affiliated with p and approximately percent of o’s employees are represented by a third local union affiliated with p none of the represented employees are employees who are owners officers or executives of the employer prior to the merger n maintained trust q which received a favorable determination_letter from the internal_revenue_service service as a voluntary employees’ beneficiary association veba described in sec_501 of the code dated date trust q consisted of five sub-trusts and although assets were pooled for investment separate_accounting was maintained for each sub-trust none of the sub-trusts benefited any key_employee within the meaning of sec_416 of the code assets of each sub-trust were available only to pay benefits as follows one sub-trust provided post-retirement medical benefits for current and retired union- represented employees and their dependents where such benefits were the product of good-faith labor negotiations one sub-trust provided post-retirement life_insurance benefits for current and retired union-represented employees and their dependents where such benefits were the product of good-faith labor negotiations you have identified the two foregoing sub-trusts as sub-trusts du one sub-trust provided post-retirement medical benefits for current and retired non- union management employees and their dependents one sub-trust provided post-retirement life_insurance benefits not in excess of dollar_figure per retiree for current and retired management employees one sub-trust provided post-retirement life_insurance benefits in excess of dollar_figure per retiree for some current and retired management employees you have identified the three foregoing sub-trusts and as sub-trusts dm prior to the merger o maintained trust r which received a favorable determination_letter from the service as a veba dated date trust r consisted of two sub-trusts one for post-retirement medical benefits and the other for post-retirement life_insurance benefits of although approximately percent of o’s employees were and are represented by a labor_organization and post-retirement welfare benefits for current and retired employees of o and their dependents were the product of good-faith labor negotiations o did not segregate the assets of trust r attributable to such negotiated benefits when trust s was created on date after the merger of n and o the seven sub- trusts of trust q and trust r were maintained as separate_accounts within trust s m now wants to establish five sub-trusts within trust s with the same purposes as those maintained within trust n that is assets of each sub-trust will be available only to pay benefits as follows one sub-trust will provide post-retirement medical benefits for current and retired union-represented employees and their dependents where such benefits are the product of good-faith labor negotiations one sub-trust will provide post-retirement life_insurance benefits for current and retired union-represented employees and their dependents where such benefits are the product of good-faith labor negotiations you have identified the two foregoing sub-trusts as sub-trust cu one sub-trust will provide post-retirement medical benefits for current and retired non- union management employees and their dependents one sub-trust will provide post-retirement life_insurance benefits not in excess of dollar_figure per retiree for current and retired management employees and one sub-trust will provide post-retirement life_insurance benefits in excess of dollar_figure per retiree for some current and retired management employees you have identified the three foregoing sub-trusts and as sub-trust cm the sub-trusts providing post-retirement medical and life_insurance benefits to union- represented employees and retirees of m’s subsidiaries and affiliates and their dependents cu will contain the assets of sub-trusts du along with a proportional amount of the sub-trusts of trust r such proportional amount of the sub-trusts of trust r was actuarially calculated to bear a relation to the entire amount of trust r prior to such transfer equal to the relation that the actuarial present_value of the collectively-bargained post-retirement benefits earned by the o union-represented employees and retirees and payable from trust r bears to the total actuarial present_value of all such benefits eared by all employees of o and payable from trust r the amount will be allocated to the two sub-trusts of r on the basis of trust r’s obligations for post- ah -4 retirement medical and life_insurance benefits for such union-represented employees and retirees the other three sub-trusts cm will contain the assets of sub-trusts dm along with the remainder of the trust o allocated on the basis of that trust’s respective obligations for medical life_insurance under dollar_figure and life_insurance over dollar_figure under no circumstances may the assets of sub-trusts cu be used for any purpose other than the provision of welfare benefits to union-represented employees and former employees retirees and their dependents under no circumstances may the assets of sub-trusts cm be used for any purpose other than the provision of post-retirement welfare benefits to non-union employees and former employees retirees and their dependents no key employees within the meaning of code sec_416 or individuals who are owners of m its affiliates or subsidiaries other than through shares held by qualified_retirement_plans or de_minimis shares held personally by retirees officers or executives will be eligible to receive benefits from any of the sub-trusts of trust s ruling requested based on the facts as stated you have requested the following ruling sub-trusts cu do not have to meet the requirements for medical reserves set out in sec_419a of the code applicable law sec_419 of the code provides that contributions paid_or_accrued by an employer to a welfare_benefit_fund shall not be deductible under chapter of the code but if they would otherwise be deductible such contributions shall subject_to the limitations of subsection b be deductible under sec_419 of the code for the taxable_year in which paid sec_419 provides that the amount of the deduction allowable under subsection a for any taxable_year shall not exceed the welfare_benefit fund's qualified_cost for the taxable_year sec_419 provides that the term qualified_cost means the sum of a the qualified_direct_cost for such taxable_year and b subject_to the limitation of sec_419a any addition to a qualified_asset_account for the taxable_year minus c after-tax_income sec_419a of the code gives limitations on additions to a qualified_asset_account a qualified_asset_account is defined in sec_419a as any account consisting of assets set_aside to provide for the payment of disability benefits medical benefits sub or severance_pay benefits or life_insurance benefits sec_419a and c provide rules and limitations related to additions to qualified asset accounts sec_419a of the code provides that the account limit for any taxable_year may include a reserve funded over the working lives of the covered gu employees and actuarially determined on a level basis using assumptions that are reasonable in the aggregate as necessary to provide post-retirement medical benefits and post-retirement life_insurance benefits for covered employees sec_419a provides that no reserve may be taken into account under sub sec_419a for post-retirement medical benefits or life_insurance benefits to be provided to covered employees unless the plan satisfies the nondiscrimination requirements of code sec_505 with respect to such benefits whether or not such requirements apply to such plan sec_419a further states that the requirement to satisfy sec_505 does not apply to any plan maintained pursuant to an agreement between employee_representatives and one or more employers if the secretary finds that such agreement is a collective bargaining agreement and that post-retirement medical benefits or life_insurance benefits were the subject of good_faith bargaining between such employee_representatives and such employer s sec_419a of the code provides that no account limits shall apply in the case of any qualified_asset_account under a separate welfare_benefit_fund under a collective bargaining agreement sec_501 of the code describes a voluntary employees’ beneficiary association veba as providing for the payment of life sick accident or other_benefits to its members or their dependents or designated beneficiaries and in which no part of its net_earnings inures other than through such payments to the benefit of any private_shareholder_or_individual sec_1_419a-2t q a-2 of the temporary income_tax regulations defines a welfare_benefit_fund maintained pursuant to a collective bargaining agreement and states for purposes of q a-1 a collectively bargained welfare fund is a welfare_benefit_fund that is maintained pursuant to an agreement which the secretary of labor determines to be a collective bargaining agreement and which meets the requirements of the secretary_of_the_treasury as set forth in paragraph below notwithstanding a determination by the secretary of labor that an agreement is a collective bargaining agreement a welfare_benefit_fund is considered to be maintained pursuant to a collective bargaining agreement only if the benefits provided through the fund were the subject of arms-length negotiations between the employee_representatives and one or more employers and if such agreement between employee_representatives and one or more employers satisfies sec_7701 of the code moreover the circumstances surrounding a collective bargaining agreement must evidence good_faith bargaining between adverse parties over the welfare benefits to be provided through the fund finally a welfare_benefit_fund is not considered to be maintained pursuant to a collective bargaining agreement unless at least percent of the employees eligible to receive benefits under the fund are covered by the collective bargaining agreement in the case of a collectively bargained welfare_benefit_fund only the portion of the fund as determined under allocation rules to be provided by the commissioner attributable to employees covered by a collective bargaining agreement and from which benefits for such employees are provided is considered to be maintained pursuant to a collective bargained agreement notwithstanding the preceding paragraphs and pending the issuance of regulations setting account limits for collectively bargained welfare_benefit funds a welfare_benefit_fund will not be treated as a collectively bargained welfare_benefit_fund for purposes of q a-1 if and when after date the number of employees who are not covered by a collective bargaining agreement and are eligible to receive benefits under the fund increases by reason of an amendment merger or other action of the employer or the fund in addition pending the issuance of such regulations for purposes of applying the percent test of paragraph to a welfare_benefit_fund that is not in existence on date percent shall be substituted for percent analysis the employees who will receive benefits from the two sub-trusts designated cu will consist only of union-represented employees and retirees of m’s subsidiaries and affiliates and their dependents furthermore under no circumstances may the assets of sub-trusts cu be used for any purpose other than the provision of welfare benefits to union-represented employees and former employees retirees and their dependents none of the represented employees are employees who are owners other than of a de_minimis number of shares of the company executives or officers of the company and none of the sub-trusts of s benefit any key_employee within the meaning of sec_416 of the code because the benefits provided through the cu sub-trusts established with the allocation to them of sub-trusts du and the actuarially determined proportional share of r were the subject of arms-length negotiations between employee_representatives the three local unions and the employers and none of the represented employees are executives officers or owners of more than a de_minimis amount of employer stock sub-trusts cu are maintained pursuant to a collective bargaining agreement within the meaning of sec_1_419a-2t of the regulations the sub-trusts cu constitute separate welfare_benefit funds maintained pursuant to a collective bargaining agreement within the meaning of sec_419a of the code and therefore no account limits will apply as long as the assets of each sub-trust are not available to pay any benefits provided by the other sub-trusts additionally because the benefits provided through the sub-trusts cu were the subject of good_faith bargaining between employee_representatives the three local unions and the employers the reserves for post-retirement medical benefits and life_insurance benefits under sub- trusts cu will not be subject_to the nondiscrimination requirements of code sec_419a or code sec_505 holding sub-trusts cu do not have to meet the requirements for medical reserves set out in sec_419a of the code if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent sincerely yours martin fanens martin l pippins manager employee_plans actuarial group tax_exempt_and_government_entities_division al