internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 4-plr-137130-01 date june re legend grantor spouse son trust trust trust date date grandchild grandchild grandchild grandchild exempt trust grandchild exempt trust grandchild exempt trust university state state district_court plr-137130-01 dear this is in response to your letter of date and prior correspondence in which you request a ruling on the application of the income gift estate and generation- skipping transfer gst tax provisions of the internal_revenue_code to the proposed modification to trust trust and trust on date grantor and spouse created two irrevocable inter_vivos trusts trust and trust for the benefit of son’s then living children grandchild grandchild and grandchild and any children of son born after creation of the trusts spouse created a third irrevocable inter_vivos_trust trust for the benefit of grandchild grandchild and grandchild and any children of son born after creation of the trusts son and grandchild grandchild and grandchild are all currently living and no additional children of son were born after creation of the trusts article iii a of trust sec_2 and provides that the trusts will terminate years after the last to die of grandchild grandchild and grandchild article iii b of trust sec_2 and provides as follows b during the continuance of this trust the trustees shall have the power to pay out of the income or corpus of this trust estate such amount or amounts to or for the benefit of grandchild grandchild grandchild or any child or children of son as may hereafter be born or either of them as to said trustees may be found necessary for the care support education and maintenance of said named parties in this connection the amount and number of said payments are vested in the sole discretion of said trustees and their authority in this connection shall not be subject_to question by any beneficiary or any other party article iii c of trust sec_2 and provides c upon the expiration of the term as hereafter provided the trustees shall make a final accounting of the estate in their hands and shall deliver said trust estate in fee simple to any child or children as may hereafter be born to son if any then survive or if deceased to their respective issue if any and to any child or children as may hereafter be born to grandchild if any then survive or if deceased to their respective issue if any and plr-137130-01 to any child or children as may hereafter be born to grandchild if any then survive or if deceased to their respective issue if any and to any child or children as may hereafter be born to grandchild if any then survive or if deceased to their respective issue if any per stirpes in accordance with their respective relationship to the grantors herein article iii c of trust provides c upon the expiration of the term as herein provided the trustees shall make a final accounting of the estate in their hands and shall deliver said trust estate in fee simple equally and share and share alike unto the then surviving grandchildren of my son son or their descendants per stirpes article iii of trust further provides that if there is no beneficiary to take the estate under paragraph c then the trustee will deliver the estate to son if living if son is not living then the trustee will deliver the trust estate to university all three trusts provide that if any beneficiary of trust or has not attained the age of at the time of vesting of the trust estate then trustees will act as guardian of the trust estate you propose to divide each of the current trust sec_2 and into three trusts one for the benefit of each of the grandchildren with each of the divided trusts receiving an undivided one-third of each of the assets of trust sec_2 and the three new trusts for the benefit of grandchild will be merged into a single new trust grandchild exempt trust the three new trusts for the benefit of grandchild will be merged into a single new trust grandchild exempt trust and the three new trusts for the benefit of grandchild will be merged into a single new trust grandchild exempt trust trust sec_2 and will be divided and merged pursuant to an appropriate judicial proceeding brought in state district_court grandchild exempt trust will have the identical terms to trust and except that article iii paragraphs a b and c will be revised as follows a this trust shall terminate twenty-one years after the death of the last to die of grandchild grandchild and grandchild b during the continuance of this trust the trustees shall have the power to pay out of the income or corpus of this trust estate such amount or amounts to or for plr-137130-01 the benefit of grandchild and or any child other than grandchild and grandchild of son as to said trustees may be found necessary for their care support education and maintenance after the death of grandchild the trustees shall have the power to pay out of the income or corpus of the trust estate such amount or amounts to or for the benefit of grandchild 1’s children and or any child other than grandchild and grandchild of son as to said trustees may be found necessary for their care support education and maintenance after the death of grandchild the trustees shall have the power to pay out of the income or corpus of the trust estate such amount or amounts to or for the benefit of grandchild 1’s children and or any child other than grandchild or grandchild of son as to said trustees may be found necessary for their care support education and maintenance in this connection the amount and number of said payments are vested in the sole discretion of said trustees and their authority in this connection shall not be subject_to question by any beneficiary or any other party c upon the expiration of twenty-one years after the death of the last survivor of grandchild grandchild and grandchild3 the trustees shall make a final accounting of the estate in their hands and shall deliver said trust estate as follows i if any child other than grandchild grandchild and grandchild is born to son a portion thereof equal to a fraction a the numerator of which is one and b the denominator of which is equal to the total number of son’s children who are living or deceased leaving issue then living shall pass to such child if such child is then living otherwise to such child’s then living issue per stirpes example if son has a fourth 4th child then one-fourth 4th of the trust would pass to such child ii any portion of said trust estate not disposed of under subparagraph i above shall pass as follows a if any issue of grandchild are then living then to grandchild 1’s then living issue per stirpes b if no issue of grandchild are then living then to grantors’ then living issue per stirpes c if no person described in subparagraph a or b above is then living then to son if he is then living or d if no person described in subparagraph a b or c is then living then to university plr-137130-01 grandchild exempt trust will have the identical terms to trust and except that article iii paragraphs a b and c will be revised as follows a this trust shall terminate twenty-one years after the death of the last to die of grandchild grandchild and grandchild b during the continuance of this trust the trustees shall have the power to pay out of the income or corpus of this trust estate such amount or amounts to or for the benefit of grandchild and or any child other than grandchild and grandchild of son as to said trustees may be found necessary for their care support education and maintenance after the death of grandchild the trustees shall have the power to pay out of the income or corpus of the trust estate such amount or amounts to or for the benefit of grandchild 2’s children and or any child other than grandchild and grandchild of son as to said trustees may be found necessary for their care support education and maintenance after the death of grandchild the trustees shall have the power to pay out of the income or corpus of the trust estate such amount or amounts to or for the benefit of grandchild 2’s children and or any child other than grandchild or grandchild of son as to said trustees may be found necessary for their care support education and maintenance in this connection the amount and number of said payments are vested in the sole discretion of said trustees and their authority in this connection shall not be subject_to question by any beneficiary or any other party c upon the expiration of twenty-one years after the death of the last survivor of grandchild grandchild and grandchild the trustees shall make a final accounting of the estate in their hands and shall deliver said trust estate as follows i if any child other than grandchild grandchild and grandchild is born to son a portion thereof equal to a fraction a the numerator of which is one and b the denominator of which is equal to the total number of son’s children who are living or deceased leaving issue then living shall pass to such child if such child is then living otherwise to such child’s then living issue per stirpes example if son has a fourth 4th child then one-fourth 4th of the trust would pass to such child ii any portion of said trust estate not disposed of under subparagraph i above shall pass as follows a if any issue of grandchild are then living then to grandchild 2’s then living issue per stirpes b if no issue of grandchild are then living then to grantors’ plr-137130-01 then living issue per stirpes c if no person described in subparagraph a or b above is then living then to son if he is then living or d if no person described in subparagraph a b or c is then living then to university grandchild exempt trust will have the identical terms to trust and except that article iii paragraphs a b and c will be revised as follows a this trust shall terminate twenty-one years after the death of the last to die of grandchild grandchild and grandchild b during the continuance of this trust the trustees shall have the power to pay out of the income or corpus of this trust estate such amount or amounts to or for the benefit of grandchild and or any child other than grandchild and grandchild of son as to said trustees may be found necessary for their care support education and maintenance after the death of grandchild the trustees shall have the power to pay out of the income or corpus of the trust estate such amount or amounts to or for the benefit of grandchild 3’s children and or any child other than grandchild and grandchild of son as to said trustees may be found necessary for their care support education and maintenance after the death of grandchild the trustees shall have the power to pay out of the income or corpus of the trust estate such amount or amounts to or for the benefit of grandchild 3’s children and or any child other than grandchild or grandchild of son as to said trustees may be found necessary for their care support education and maintenance in this connection the amount and number of said payments are vested in the sole discretion of said trustees and their authority in this connection shall not be subject_to question by any beneficiary or any other party c upon the expiration of twenty-one years after the death of the last survivor of grandchild grandchild and grandchild the trustees shall make a final accounting of the estate in their hands and shall deliver said trust estate as follows i if any child other than grandchild grandchild and grandchild is born to son a portion thereof equal to a fraction a the numerator of which is one and b the denominator of which is equal to the total number of son’s children who are living or deceased leaving issue then living shall pass to such child if such child is then living otherwise to such child’s then living issue per stirpes example if son has a fourth 4th child then one-fourth 4th of the trust would pass to such child plr-137130-01 ii any portion of said trust estate not disposed of under subparagraph i above shall pass as follows a if any issue of grandchild are then living then to grandchild 2’s then living issue per stirpes b if no issue of grandchild are then living then to grantors’ then living issue per stirpes c if no person described in subparagraph a or b above is then living then to son if he is then living or d if no person described in subparagraph a b or c is then living then to university you represent that trust sec_2 and were created before date and that there have been no additions to trust after that date you have requested the following rulings that the proposed transaction will not cause the interest of grandchild grandchild or grandchild with respect to trust sec_2 or or with respect to any of the new grandchild exempt trusts to be includible in such beneficiary’s gross_estate under sec_2033 that the proposed transactions will not cause the interest of grandchild grandchild or grandchild with respect to trust sec_2 or or with respect to any of the grandchild exempt trusts to be includible in such beneficiary’s gross_estate under sec_2036 through that the proposed transactions will not cause grandchild grandchild or grandchild to have made a gift under chapter of the code each of trust sec_2 and and the grandchild exempt trust sec_1 and will be treated as trusts that were irrevocable on date for purposes of b a of the tax_reform_act_of_1986 and will remain exempt from generation- skipping transfer_tax and no constructive or actual additions to any of trust sec_2 or or any grandchild exempt trust will result from the proposed transactions transfers to the grandchild exempt trust sec_1 and pursuant to the proposed transactions will not be generation-skipping transfers and will not be subject plr-137130-01 to tax under sec_2601 the proposed transactions will not cause trust sec_2 or the grandchild exempt trust sec_1 and or grandchild or to recognize gain_or_loss from the sale_or_other_disposition of property under sec_61 or sec_1001 pursuant to sec_1223 the holding_period for grandchild exempt trust sec_1 and in each asset received from trust sec_2 and will include trust sec_2 and 4's holding_period for each asset pursuant to sec_1015 the basis for grandchild exempt trust sec_1 and in each asset received from trust sec_2 and will include trust sec_2 and 4's basis for each such asset estate_tax rulings - and 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_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death in this case trust sec_2 and are inter_vivos trusts created by grantor and spouse for the benefit of their grandchildren after the proposed division of trust sec_2 and and the merger into grandchild exempt trust sec_1 and grandchild grandchild and grandchild will have the same rights with respect to the particular grandchild exempt trust as each had under trust sec_2 and prior to the transaction accordingly we conclude that if trust sec_2 and are divided and merged into grandchild exempt trust sec_1 and pursuant to the proposed court order the proposed division and merger of trust sec_2 and will not cause the interest of grandchild grandchild or grandchild with respect to trust sec_2 or or any of the grandchild exempt trusts to be includible in grandchild or 3's gross_estate under sec_2033 sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or plr-137130-01 enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income from the property sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend or revoke or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent’s death in order for to apply the decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth under which the decedent retained an interest in or power over the income or corpus of the transferred property in the present case the beneficiaries of trust sec_2 and after the proposed division and merger into grandchild exempt trust sec_1 and will have the same interest that each beneficiary had as a beneficiary under trust sec_2 and the proposed division of trust sec_2 and and merger into grandchild exempt trust sec_1 and will not constitute a transfer by grandchild or within the meaning of we conclude that the proposed transaction will not cause the interest of grandchild grandchild or grandchild with respect to trust sec_2 or or the grandchild exempt trust sec_1 or to be includible in their respective gross_estate under gift_tax ruling - sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at plr-137130-01 the date of the gift shall be considered the amount_of_the_gift in this case the interest of grandchild grandchild and grandchild will remain the same after the proposed division and merger accordingly based on the facts submitted and the representations made we conclude that the proposed transaction will not cause grandchild grandchild or grandchild to have made a taxable gift_for purposes of the federal gift_tax under chapter of the code gst rulings - and sec_2601 imposes a tax on every generation-skipping_transfer section b a of the tax_reform_act_of_1986 and sec_26_2601-1 provide that the generation-skipping_transfer_tax shall not apply to any generation- skipping transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered an irrevocable_trust except as provided in sec_26_2601-1 b or c relating to property includible in the grantor’s gross_estate under sec_2038 and sec_2042 sec_26_2601-1 provides that if an addition is made after date to an irrevocable_trust which is excluded from the application of chapter by b a of the act a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter 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 generation-skipping_transfer_tax will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraphs b i a b or c of this subsection by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter but only if - the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than plr-137130-01 the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust in this case trust sec_2 and were created and irrevocable before date also it is represented that no additions have been made to trust sec_2 or since date consequently trust sec_2 and are currently exempt from gst tax the proposed partition of trust sec_2 and and merger into grandchild exempt trust sec_1 and will not shift any beneficial_interest in trust sec_2 or to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the proposed partition and merger of trust sec_2 and will not extend the time for vesting of any beneficial_interest in the trusts beyond the period provided for in the original trusts see sec_26 b e example sec_5 and further the partition and merger will not result in an actual or constructive_addition to the grandchild exempt trusts accordingly based on the facts submitted and the representations made if state district_court issues an order approving the partition of trust sec_2 and and the merger of the partitioned trusts as proposed into grandchild exempt trust sec_1 and distributions from grandchild exempt trust sec_1 and to the beneficiaries will not be subject_to the provisions of chapter income_tax rulings - and sec_61 of the code provides that gross_income includes gains derived from dealings in property sec_1001 of the code provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a plr-137130-01 new or additional interest as a result thereof thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 in revrul_69_486 1969_2_cb_159 distinguished by revrul_83_61 1983_1_cb_78 a non-pro rata distribution of trust property was made in_kind by the trustee although the trust instrument and local law did not convey authority to the trustee to a make a non-pro rata distribution_of_property in_kind the distribution was effected as a result of a mutual agreement between the trustee and the beneficiaries because neither the trust instrument nor local law conveyed authority to the trustee to make a non-pro rata distribution revrul_69_486 held that the transaction was equivalent to a pro_rata distribution followed by an exchange between the beneficiaries and was subject_to the provisions of sec_1001 and sec_1002 of the code the present case is distinguishable from revrul_69_486 because the assets of trust sec_2 and will be allocated pro_rata among the grandchild exempt trusts thus grandchild exempt trust sec_1 and will not receive property with a different quality and value than the property held in trust sec_2 and therefore although each beneficiary will be entitled to receive income and or principal from only one of the grandchild exempt trusts the amount of such distributions will be the same as the fractional amount that he or she would have been entitled to receive under trust sec_2 and accordingly the proposed transaction with respect to the division and merger of trust sec_2 and will not be treated as a pro_rata distribution followed by an exchange of assets among the beneficiaries 499_us_554 concerns the issue of when a sale_or_exchange has taken place that results in realization of gain_or_loss under sec_1001 of the code in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender’s interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court in cottage savings u s pincite concluded that sec_1_1001-1 of the regulations reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the supreme court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it plr-137130-01 exchanged interests in the loans it is consistent with the supreme court’s opinion in cottage savings to find that the interests of the beneficiaries of grandchild exempt trust sec_1 and will not differ materially from their interests in trust sec_2 and the proposed transactions will not change the interests of the beneficiaries instead the beneficiaries will be entitled to the same benefits after the proposed transactions as before the proposed transactions are similar to the kinds of transactions discussed in revrul_56_437 since the existing trusts are to be partitioned and divided but all other provisions of such trusts will remain substantially unchanged other than changes described above which are necessary to ensure that the beneficiaries will be entitled to the same benefits under the grandchild exempt trust sec_1 and as before thus the proposed transactions will not result in a material difference in the kind or extent of the legal entitlements enjoyed by the beneficiaries therefore if state district_court issues the proposed court order the division of trust sec_2 and and the merger of the partitioned trusts into grandchild exempt trust sec_1 and and the pro_rata allocation of each existing asset among the grandchild exempt trusts will not result in the recognition by trust sec_2 or by any of the grandchild exempt trusts or by grandchild or of any gain_or_loss from the sale_or_other_disposition of property under sec_61 or sec_1001 because ruling that there is no income under sec_61 would be too broad we have limited our holdings only to sec_61 gains derived from dealings in property sec_1015 provides that the basis in property acquired by a transfer in trust is the same as it would be in the hands of the grantor with adjustments for gain and loss recognized sec_1_1015-2 provides that in the case of property acquired after date by transfer in trust other than by a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor upon such transfer under the law applicable to the year in which the transfer is made in addition the principles in sec_1_1015-1 concerning the uniform basis are applicable in determining the basis_of_property where more than one person acquires an interest in property by transfer in trust sec_1_1015-1 provides that property acquired by gift has a single or uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 in this case because sec_1001 does not apply to the proposed division and merger of trust sec_2 and the basis of the assets in the grandchild exempt trust sec_1 and plr-137130-01 will be the same as the basis of the assets in trust sec_2 and sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which the property was held by any other person if under chapter of the code the property has for the purposes of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of the other person if a successor trust’s basis in an asset transferred to it by the trust equals the trust’s basis in that asset at the time of transfer then under sec_1223 the successor trust obtains the trust’s holding_period of the same assets in trust as noted above the basis of the assets held by the grandchild exempt trust sec_1 and will be the same as the assets currently held by trust sec_2 and accordingly under sec_1223 the holding_period of the assets in the grandchild exempt trust sec_1 and will include the holding_period of the same assets in trust sec_2 and 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 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to the taxpayers 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 yours george l masnik chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for purposes cc


washington dc department of the treasury internal_revenue_service number release date index number person to contact telephone number refer reply to cc psi - plr-119797-02 date date legend a b c d e f g h i j k l m n o p plr-119797-02 q r s t u v w x y z country1 country2 country3 d1 d2 d3 d4 d5 dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of b c d e f g h i j k l m n o p q r s t u v w x y and z by their authorized representatives requesting a ruling that b c d e f g h i j k l m n o p q r s t u v w x y and z each be given an extension of time to elect under sec_301_7701-3 of the procedure and plr-119797-02 administration regulations to be classified as a disregarded_entity for federal tax purposes facts the information submitted states that a is a us partnership owned by us investors b a wholly owned subsidiary of a was formed on d1 pursuant to the laws of country1 c a wholly owned subsidiary of b was formed on d2 pursuant to the laws of country2 d a wholly owned subsidiary of c was formed on d3 pursuant to the laws of country3 e a corporation formed under the laws of country3 became a wholly owned subsidiary of d as of d4 on d4 c and d purchased f g h i j k l m n o p q r s t u v w x y and z immediately after the purchase the properties owned by the subsidiaries were transferred to e e owns f and g f owns h h owns i j k l m n o and p j owns q r s t u v w x and y p owns z b represents that pursuant to sec_301_7701-3 b is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes b has a single owner that has limited_liability as defined in sec_301_7701-3 b intended to be disregarded for federal tax purposes effective on d1 however b inadvertently failed to timely file a form_8832 entity classification election c represents that pursuant to sec_301_7701-3 c is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes c has a single owner that has limited_liability as defined in sec_301_7701-3 c intended to be disregarded for federal tax purposes effective on d2 however c inadvertently failed to timely file a form_8832 entity classification election d represents that pursuant to sec_301_7701-3 d is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes d has a single owner that has limited_liability as defined in sec_301_7701-3 d intended to be disregarded for federal tax purposes effective on d3 however d inadvertently failed to timely file a form_8832 entity classification election e f g h i j k l m n o p q r s t u v w x y and z represent that pursuant to sec_301_7701-3 e f g h i j k l m n o p q r s t u v w x y and z are each a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes e f g h i j k l m n o p q r s t u v w x y and z each has a single owner that has limited_liability as defined in sec_301_7701-3 e f g h i j k l m n o p q r s t u v w x y and z each intended to be disregarded for federal tax purposes effective on d5 however e f g h i j k l m n o p q r s t u v w x y and z each inadvertently failed to timely file a form_8832 entity classification election plr-119797-02 law and analysis 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 a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides that 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 owners if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that when elections under sec_301 c i for a series of tiered entities are effective on the same date the eligible entities may specify the order of elections on form_8832 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 provides that an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed under c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin sec_301_9100-1 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 plr-119797-02 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish 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 that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result b 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 under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d1 c 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 under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d2 d 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 under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d3 e f g h i j k l m n o p q r s t u v w x y and z each 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 under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d5 additionally in accordance with sec_301_7701-3 the entities may specify that the order of the elections of e f g h i j k l m n o p q r s t u v w x y and z be deemed made in order from the bottom subsidiary to the top subsidiary on form_8832 a copy of this letter should be attached to each form_8832 a copy is included for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-119797-02 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


significant index nos internal_revenue_service dec employee_plans technical_advice_memorandum taxpayer's name taxpayer's address lp ps sl ud ep 2h- at at taxpayer's identification_number ein year involved taxpayer fund issues whether the fund is a welfare_benefit_fund under the provisions of sec_419 of the internal_revenue_code the code’ whether qualified direct costs under the provisions of sec_419 of the code only includes claims that are either a funded through and paid directly to health care providers and employees by a welfare_benefit_fund set up by an employer or b paid directly to health care providers and employees by the employer from a corporate account and reimbursed by the welfare_benefit_fund pursuant to a reimbursement agreement entered into between the welfare_benefit_fund and the employer ie benefits provided by the employer as an agent for the fund whether an actuarial certification of a welfare_benefit account limit under sec_419a of the code can be based on the total expenditures of the welfare_benefit_fund and an employer or merely the total expenditures of the welfare_benefit_fund facts the taxpayer is an accrual basis taxpayer with an october to september fiscal_year effective ee the taxpayer and certain individuals the trustees entered into an agreement to establish a_trust the fund to implement and form a part of certain employee benefit plans the plans previously adopted by the taxpayer the plans are represented to be employee_welfare_benefit_plans as defined in sec_3 of the employee_retirement_income_security_act_of_1974 as amended erisa the plans are represented to provide life sick and accident or other qualifying benefits described in sec_1_501_c_9_-3 c and d of the treasury regulations the fund received a letter dated date determining its status as an organization described sec_501 of the code through made through the ae payments for benefits provided by the plans were fund either directly to health care providers or in the case of section aa ie spending account benefits to the employees through the taxpayer funded all benefits through the fund other than flexible_spending_account benefits that were funded by employee contributions ii the taxpayer changed the operation of the fund at that beginning time the taxpayer began a process of funding the fund only at year-end in an amount estimated to be equal to the amount of claims incurred but unreported at year-end employees continued to contribute to the fund to fund the flexible_spending_account benefits also beginningiiii er benefits provided by the plans were paid directly by the taxpayer ie not through the fund other than benefits associated with the employees’ flexible_spending_account plan concurrent with the change in operation of the fund the taxpayer and the fund entered into an agreement that provided that the fund would reimburse the taxpayer and accept as a liability the debts and expenses of the taxpayer associated with the taxpayer’s payment of medical_expenses otherwise eligible for coverage under the fund to the full extent of its assets when requested by the taxpayer represents that in operation the amounts contributed by the taxpayer at the end of each year to the fund are usually returned to the taxpayer within the first two and one- half months of the following year as reimbursement for benefit payments paid directly by the taxpayer in such following year the taxpayer law sec_419 of the code provides that contributions paid_or_accrued to a welfare_benefit_fund shall not be deductible under chapter but if they would otherwise be deductible shall subject_to the limitation of subsection b be deductible under sec_419 for the taxable_year when paid sec_419 of the code provides that the amount of any deduction under sub sec_419 for any taxable_year shall not exceed the welfare_benefit fund's qualified_cost for the taxable_year sec_419 of the code provides that for purposes of sec_419 except as otherwise provided for in sub sec_419 the term qualified_cost means with respect to any taxable_year the sum of the qualified_direct_cost for the taxable_year and subject_to the limitations of sec_419a of the code any additions to a qualified_asset_account for the taxable_year sec_419 of the code provides that in the case of any welfare_benefit_fund the qualified_cost for any taxable_year shall be reduced by such fund's after-tax_income for such taxable_year sec_419 of the code provides that the term qualified_direct_cost means with respect to any taxable_year the aggregate amount including administrative expenses which would have been allowable as a deduction to the employer with respect to the benefits provided during the taxable_year if such benefits were provided directly by the employer and the employer used the cash_receipts_and_disbursements_method of accounting sec_419 of the code provides that no item may be taken into account more than once in determining the qualified_cost of any welfare_benefit_fund sec_419 of the code provides that for purposes of sec_419 the term welfare_benefit_fund means any fund which is part of a plan of an employer and through which the employer provides welfare benefits to employees or their beneficiaries sec_419 of the code provides that for purposes of sec_419 the term welfare_benefit means any benefit other than a benefit with respect to which sec_83 applies sec_404 applies without regard to sec_404 or sec_404a applies sec_419 of the code provides that for purposes of sec_419 the term fund means any organization described in paragraph or of sec_501 any trust corporation or other organization not exempt from tax_imposed_by_chapter_1 and to the extent provided in regulations any account held for an employer by any person sec_419a of the code provides that for purposes of subpart d and sec_512 the term qualified_asset_account means 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 of the code provides that no addition to any qualified_asset_account may be taken into account under sec_419 to the extent such addition results in an amount exceeding the account limit sec_419a provides that except as otherwise provided in sub sec_419a the account limit for any qualified_asset_account for any taxable_year is the amount reasonably and actuarially necessary to fund the claims incurred but unpaid as of the close of such taxable_year for benefits referred to in sub sec_419a and administrative costs with respect to such claims sec_419a of the code provides that unless there is an actuarial certification of the account limit determined under sub sec_419a for any taxable_year the account limit for such taxable_year shall not exceed the sum of the safe_harbor limits for such taxable_year sec_419a of the code provides that in the case of medical benefits the safe_harbor limit for any taxable_year i sec_35 percent of the qualified direct costs other than insurance premiums for the immediately preceding taxable with respect to medical benefits sec_501 of the code provides that voluntary employees’ beneficiary associations providing for the payment of life sick accident or other_benefits to the members of such association or their dependents or designated beneficiaries if no part of the net_earnings of such association inures other than through such payments to the benefit of any private_shareholder_or_individual are organizations referred to in sub sec_501 a 2u0514022 q a -6 a of sec_1_419-1t of the regulations provides in part the following example of a qualified_direct_cost lf a calendar_year welfare_benefit_fund pays an insurance_company in date the full premium for coverage of its current employees under a term health insurance_policy for the twelve month period ending date the insurance_company will be treated as provided by the fund over such twelve month period accordingly only the portion of the premium for coverage during will be treated as a qualified_direct_cost of the fund for the remaining portion of the premium will be treated as a qualified_direct_cost of the fund for q a-6 a of sec_1_419-1t of the regulations further provides that the qualified_direct_cost for a taxable_year includes the administrative expenses_incurred by the welfare_benefit_fund in delivering the benefits for the year q a-6 c of sec_1_419-1t of the regulations provides that the qualified_direct_cost of a welfare_benefit_fund does not include expenditures by the fund that would not have been deductible if they had been made directly by the employer for example a fund's purchase of land in a year for an employee recreational facility will not be treated as a qualified_direct_cost because if made directly by the employer the purchase would not have been deductible under sec_263 analysis - issue the fund has been determined to be an organization described in paragraph of sec_501 of the code the fund is part of a plan of the taxpayer through which the taxpayer provides welfare benefits to its employees or their beneficiaries therefore the requirements of sec_419 are satisfied and the fund is a welfare_benefit_fund within the meaning of sec_419 analysis - issue sec_419 of the code provides in part that the term qualified_direct_cost means the amount that would have been allowable as a deduction to the employer with respect to the benefits provided during the taxable_year if such benefits were provided by the employer italics added in the instant case the issue is whether the italicized fragment of the preceding sentence refers merely to benefits provided by the welfare_benefit_fund including benefits that are provided by the employer as an agent for the fund or could be taken to mean benefits provided by either the fund or the employer in this regard if it were to be inferred that the italicized fragment above could be taken to also include benefits provided by the employer it would then be necessary to avoid taking items into account more than once to infer additional language in sec_419 providing that if such benefits provided during the taxable_year were provided by the employer such benefits would only fit within the meaning of qualified direct costs if the employer did not take a deduction for such benefits clearly the more straightforward interpretation of sec_419 is that the fragment benefits provided during the taxable_year refers only to benefits provided by a welfare_benefit_fund and thus qualified direct costs are limited to costs paid directly by a welfare_benefit_fund including benefits that are provided by the employer as an agent for the fund moreover the examples incorporated in q a-6 a and c of sec_1_419-1t of the regulations each exemplify the meaning of qualified_direct_cost by way of expenditures it is only with reference to administrative expenses in paid_by a welfare_benefit_fund paragraph a that qualified direct costs are described in terms of expenses_incurred as opposed to paid however even in that instance the reference is with regard to delivering the benefits during the year italics added therefore q a-6 of sec_1_419-1t also supports the conclusion that qualified direct costs are limited to costs paid directly by a welfare_benefit_fund including benefits that are provided by the employer as an agent for the fund thus in the instant case qualified direct costs would generally not include payments of benefits made directly by the employer during the final nine and one-half months of the year ie payments for which the employer is not reimbursed by the fund under the double-counting prohibition of sec_419 qualified direct costs might also not include reimbursement payments made by the fund to the employer in the first two ard one-half months of the year if those payments are viewed as depleting the qualified_asset_account additions which were deducted in the prior year the safe_harbor limit of sec_419a would therefore be zero percent of zero is zero even if those reimbursement payments do give rise to qualified direct costs percent of those payments would still be less than the account limit that is needed to support a deduction of the year-end contributions analysis - issue sec_419a of the code provides that except as otherwise provided in that subsection the account limit for any qualified_asset_account for any taxable_year is the amount reasonably and actuarially necessary to fund claims incurred but unpaid and administrative costs with respect to such claims sec_419a provides that without actuarial certification the account limit of a qualified_asset_account may not exceed the safe_harbor limit for the taxable_year sec_419a provides that in the case of medical benefits the safe_harbor limit i sec_35 percent of the qualified direct costs other than insurance premiums for the immediately preceding_taxable_year with respect to medical benefits in the situation where there is actuarial certification however sec_419a provides that the limit is the amount reasonably and actuarially necessary to fund claims incurred but unpaid thus the limit is merely based on an estimate of the liability of the welfare_benefit_fund at the end of the taxable_year generally an actuary would estimate this liability by studying historical patterns of claims paid in years subsequent to the years in which such claims were incurred the fact that a sponsoring employer may have in the past voluntarily paid claims for which a welfare_benefit_fund had liability does not alter this conclusion for example consider two funds fund a and fund b in which the respective fund actuaries correctly estimated for each incurred but unreported claims of dollar_figure as of the end of due it turned out to unreported claims of dollar_figure on date and date for each fund the sponsoring employer employer a and employer b contributed an amount such that the balance of the fund was dollar_figure as of the close of business on date in each fund the sponsoring employer made no other contributions subsequent to date before date in fund a the first reported claims in were the unreported dollar_figure claims of date and date in fund b a claim of dollar_figure was incurred on date and reported on date before either of the unreported claims of dollar_figure of date and date were reported in fund a after the incurred claims of date and date were paid the balance of the fund was zero all subsequent claims in ie for incidents incurred in were paid directly by employer a in fund b after the incurred claim of date was paid the balance of the fund was zero all subsequent claims paid in including the claims incurred on date and date were directly paid_by employer b in this example the respective actuaries for funds a and b each correctly estimated the incurred but unreported claims as of the end of for the respective funds the fact that in fund b the incurred but unreported claims at the end of were subsequently paid_by employer b directly and not by fund b is immaterial conclusions the fund is a welfare_benefit_fund under the provisions of sec_419 of the code qualified direct costs under the provisions of sec_419 of the code only includes claims that are either a funded through and paid directly to health care providers and employees by a welfare_benefit_fund set up by an employer or b paid directly to health care providers and employees by the employer from a corporate account and reimbursed by the welfare_benefit_fund pursuant to a reimbursement agreement entered into between the welfare_benefit_fund and the employer an actuarial certification of a welfare_benefit account limit under sec_419a may be based on the total expenditures of the welfare_benefit_fund plus any additional expenditures by a sponsoring employer that would qualify as qualified direct costs if paid_by the welfare_benefit_fund but in either case only to the extent such expenditures are for claims paid in years subsequent to the years in which such claims were incurred


internal_revenue_service index nos number release date cc dom fi p - plr-101962-98 date date legend fund state x accountant this ruling is in response to your letter dated date requesting a ruling that fund did not change its method_of_accounting for market_discount by attaching certain election statements to its income_tax return for the tax_year ending on date facts fund is a business_trust organized in under the laws of state fund has in each year since inception qualified as a regulated_investment_company ric under subchapter_m of the internal_revenue_code and has filed its federal_income_tax return as a ric using a tax_year ending on january fund is part of a family of over funds managed by x fund invests in municipal obligations the interest on which is exempt from federal_income_tax under sec_103 of the code and fund has qualified each year to pay exempt_interest_dividends under sec_852 fund has invested in certain exempt obligations that are market_discount bonds under sec_1278 accountant was engaged by x to prepare the federal_income_tax returns for of the funds plr-101962-98 managed by x for the tax_year ending on date fund is the only fund in this group that invests in exempt obligations during the tax_return preparation process x’s vice president director of tax specifically instructed accountant to make the sec_1278 election to include market_discount in income currently and the sec_1276 election to calculate market_discount using the constant interest method for taxable bonds in all x funds for which returns were being prepared x did not intend to make the election for any_tax exempt bonds nor did it instruct accountant to do so on date accountant presented the returns to x for final review and signature fund’s return was filed on date on date after the return was filed management of fund noticed that the return erroneously included a one page statement purporting to make the sec_1278 and sec_1276 elections this statement was similar to the statements that were filed with the tax returns for other funds in the group the election statement had not been noticed when x reviewed the tax_return prior to filing and x had no actual knowledge that it was included in the return on date this ruling_request was submitted upon investigation by x and accountant it was discovered that the election was erroneously attached when the fund’s tax_return was assembled along with the tax returns for the other funds consistent with its intent to continue to recognize market_discount upon disposition of the bond under sec_1276 and to accrue market_discount using ratable accrual fund’s return for the taxable_year ending on date did not reflect these elections rather fund continued to defer recognition of market_discount for the market_discount bonds held by fund additionally a supporting schedule listing the amount of market_discount on bonds disposed of during the tax_year ending on date that was reclassified from capital_gain to ordinary_income includes market_discount from the disposition of bonds that would have been subject_to the erroneous sec_1276 election the reclassified amounts were accrued using ratable accrual rather than constant yield thus fund continued to calculate market_discount using the ratable_accrual_method pursuant to sec_1276 as it had done in prior years law sec_1276 provides that gain on the disposition of any market_discount_bond shall be treated as ordinary_income to the extent that it does not exceed the accrued market_discount on the bond in general a bond has market_discount if the basis of the bond immediately after its acquisition by the taxpayer is less than the stated redemption price of the bond at maturity sec_1278 a bond is defined as any bond debenture note certificate or other evidence_of_indebtedness sec_1278 however a market_discount_bond does not include an obligation with a maturity_date of one year or less a u s savings bond or an installment plr-101962-98 obligation to which sec_453b applies sec_1278 in lieu of including accrued market_discount in income as required by sec_1276 a a taxpayer may elect to include accrued market_discount in income currently sec_1278 this election applies to all market_discount bonds acquired by the taxpayer on or after the first day of the first taxable_year to which the election applies accrued market_discount for a bond is generally determined under a ratable formula sec_1276 alternatively a taxpayer may irrevocably elect to compute accrued market_discount on the basis of a constant interest rate calculation sec_1276 under the alternative calculation the constant interest rate is determined as if the bond were issued on the date acquired by the taxpayer for an amount equal to the taxpayer’s basis sec_1_446-1 of the regulations delegates to the commissioner the secretary’s authority to consent to a change in accounting_method and provides that permission to change a taxpayer’s method_of_accounting will not be granted unless the taxpayer agrees to the commissioner’s prescribed terms and conditions for effecting the change sec_1_446-1 authorizes the commissioner to prescribe administrative procedures setting forth the limitations terms and conditions deemed necessary to permit a taxpayer to obtain consent to change a method_of_accounting including such procedures as may be necessary to prevent the omission or duplication of terms includible in gross_income or deductions revproc_92_67 1992_2_cb_429 provides procedures for taxpayers to make elections to change their methods_of_accounting under sec_1276 and sec_1278 the consent of the commissioner is automatically granted if the change is effected in accordance with the terms of the revenue_procedure section of revproc_92_67 section dollar_figure of revproc_92_67 provides the procedures for making a sec_1278 election an otherwise qualified_taxpayer makes a sec_1278 election by attaching to the taxpayer’s timely filed income_tax return for the election_year a statement that market_discount has been included in the gross_income of the taxpayer under sec_1278 of the code the statement must also describe the method used by the taxpayer to determine the market_discount attributable to the taxable_year covered by the tax_return the election applies to all market_discount bonds acquired on or after the election date section dollar_figure of revproc_92_67 provides the procedures for making a constant interest rate election under sec_1276 an otherwise qualified_taxpayer makes a constant interest rate election for the bond by attaching to a timely filed tax_return a statement identifying the bond and plr-101962-98 stating that the taxpayer is making a constant interest rate election with respect to the bond analysis fund attached an election statement to a timely filed federal tax_return stating that it elected to calculate market_discount using the constant_yield_method under sec_1276 and accrue marked discount currently under sec_1278 however fund did not implement the change in its books_and_records or on its tax_return fund argues that the election was erroneous and that it should be allowed to continue using its prior method of accruing and recognizing market_discount sec_3 of revproc_92_67 sets forth the procedure for making a valid sec_1278 election and requires the taxpayer to attach a statement to the return that it is making the election and that the market_discount has been included in addition the statement must also describe the method used by the taxpayer to determine market_discount accrued in the year of the election in order for an election statement to meet this requirement the representation that market_discount was included must be true and accurate although the election statement included a representation that market_discount was included in income currently and computed under the constant_yield_method this was in fact not the case accordingly the election statement fails to meet the requirements of sec_3 of revproc_92_67 section of rev_proc requires that the taxpayer actually change its method_of_accounting in order to avail itself of the grant of automatic consent in that section the previously filed tax_return documents and supporting schedules submitted and representations made under penalty of perjury indicate that the taxpayer did not change its method_of_accounting accordingly the taxpayer did not comply with the requirement set forth in section of revproc_92_67 for obtaining the commissioner’s consent to change we conclude that the taxpayer did not comply with all the terms and conditions set forth in revproc_92_67 and will not be deemed to have changed its method_of_accounting for market_discount moreover the taxpayer did not change its method_of_accounting for market_discount for the tax_year ending in date and should continue to recognize market_discount upon disposition of the bonds and should continue to calculate market_discount using the ratable method pursuant to sec_1276 consistent with its method_of_accounting used previously except as specifically ruled upon herein we express no opinion concerning any federal_income_tax consequences relating to the facts herein under any other section of the code this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling should be attached to fund’s future federal tax returns plr-101962-98 additionally fund must include a copy of the ruling with any future request or election to change its method_of_accounting for market_discount under sec_1278 or sec_1276 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 assistant chief_counsel financial institutions products by richard c hoge richard c hoge assistant to the chief branch 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 plr-114177-05 date august --------------------------------------------------------------------------------- legend spouse taxpayer ------------------------------------------------------------------------------------------------------------- ------------------------------------------------ ------------------------------------------------- -------------------------------------------------- trust trust trust year date ------------------------------------------------ ------- -------------------- -------------------------- ----------------------- ------------ date date x dear -------------- this letter is in response to a letter dated date from your authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make an plr-114177-05 allocation of taxpayer’s and spouse’s generation-skipping_transfer gst tax exemption the facts and representations submitted are summarized as follows on date taxpayer and spouse as settlers established irrevocable trusts trusts for the benefit of their children and descendants of their children during year taxpayer and spouse transferred cash and stock to each of the three trusts taxpayer and spouse timely filed united_states gift and generation-skipping_transfer_tax returns form sec_709 to report the transfers for year and consented to split the gifts pursuant to sec_2513 the certified_public_accountant who prepared the returns and on whose expertise taxpayer and spouse relied mistakenly omitted the transfers of dollar_figurex to each of trusts on the returns on date taxpayer died on date taxpayer’s estate and spouse each filed amended form sec_709 to reflect the omitted gifts for year however the accountant mistakenly failed to allocate any gst_exemption to these gifts following taxpayer’s death spouse as personal representative of taxpayer’s estate engaged a law firm and a new accounting firm to assist with the administration of taxpayer’s estate the accounting firm discovered that the gift_tax returns filed by the former accountant failed to allocate any of taxpayer’s or spouse’s available gst tax exemptions to the transfers on the returns sec_2601 imposes a tax on every generation-skipping_transfer a generation- sec_2631 provides that for purposes of determining the gst tax every sec_2632 provides that any allocation by an individual of his or her gst skipping transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor 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_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an sec_2642 provides that in determining whether to grant relief under notice_2001_50 2001_2_cb_189 provides that under sec_2642 the sec_2642 provides generally that the secretary shall by regulation plr-114177-05 estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 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 six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except in subtitles e g h and i for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an election described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 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 that in general requests for extensions of time under sec_301_9100-1 a regulatory election includes an election whose due requests for relief under sec_301_9100-3 will be granted when the taxpayer sec_301_9100-3 provides that a taxpayer is deemed to have acted plr-114177-05 reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or to advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer’s estate and spouse are each granted an extension of time of days from the date of this letter to make allocations of their respective gst exemptions to trusts for year an amended or supplemental form_709 should be filed for each taxpayer for year each form_709 should include a notice of allocation properly allocating the taxpayer's gst_exemption to the transfers to each trust the allocations will be effective as of the respective dates of the transfers to trust and the inclusion_ratio of trust will be determined based on the value of the transfers to trust as determined for federal gift_tax purposes and the amount of exemption allocated to trust a copy of this letter should be attached to each amended or supplemental form_709 and filed with the internal_revenue_service center cincinnati ohio copies are included for this purpose concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied pursuant to the power_of_attorney on file with this office this letter is being sent to the taxpayer's representative this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc