internal_revenue_service number release date index number --------------------------------------- -------------------------------- -------------------------------------------- ---------------------------- ----------------- ---------------------------- in re ------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ------------------ telephone number ---------------------- refer reply to cc psi b05 plr-126740-16 date date legend cooperative --------------------------------------------------------------------------------------------- sub sub year year -------------------------------------- --------------------------- ------------------------------- ------- ------- dear -------------------- this letter responds to a request for a private_letter_ruling dated date submitted on behalf of cooperative by its authorized representative regarding the application of cooperative tax law to the transaction described below cooperative is a nonexempt rural_cooperative telephone company operating_on_a_cooperative_basis cooperative’s bylaws require it to allocate patronage_earnings among its patrons on a patronage basis cooperative was previously granted exemption as a rural telephone company under sec_501 of the internal_revenue_code but in recent years it is no longer exempt cooperative is the parent and agent of an affiliated_group taxpayer group including sub and sub sub and sub are corporations wholly owned by cooperative taxpayer group files its tax_return on a consolidated basis as provided in sec_1501 cooperative provides telecommunication services to rural customers the purpose of sub and sub is to hold nonregulatory telecommunication assets for the benefit of cooperative and in furtherance of cooperative’s telecommunication services plr-126740-16 entities that provide regulated services like telephone services create subsidiaries to hold nonregulated assets in an effort to comply with federal state and local regulations the separation of regulated and nonregulated assets by the creation of subsidiaries assists telecommunications cooperatives in complying with such regulations on or before year cooperative’s management and board_of directors identified internal and external pressures that required a change in the business model of providing telephone service to its customers these pressures included shrinking plain- old telephone service pots access lines and declining access minutes of use as customers migrated to mobile cellular services competition from cellular providers within the exchange area and the loss of pots lines required investment in new technologies for its customers including additional spectrum to provide advanced telecommunications services in year cooperative through sub purchased the additional spectrum sub used the spectrum to provide wireless service to cooperative members sub received compensation from sub for use of the spectrum cooperative eventually determined that the spectrum did not meet its long-term objectives because of unanticipated inadequacy of the spectrum together with fiber options that had substantial bandwidth capacity that would be more consistent with its strategic goals in year sub sold the spectrum to an unrelated third party this private_letter_ruling request concerns the treatment of the gain arising from the sale of the spectrum sec_501 of the code contemplates that rural_cooperative telephone_companies may qualify as tax-exempt organizations as the telephone business has developed however very few rural telephone cooperatives including cooperative qualify for this exemption therefore cooperative is a non-profit but taxable cooperative corporation subchapter_t of the code sections provides the statutory scheme for taxing most cooperatives rural telephone cooperatives however are not governed by subchapter_t because of the exclusion provided by sec_1381 for rural telephone cooperatives when congress enacted subchapter_t in congress excluded rural telephone cooperatives to avoid overregulating them and presumably to provide them with more flexible tax treatment because of the necessary services they provided to underserved parts of the country the underlying committee reports stated that cooperative corporations engaged in providing telephone service to persons in rural areas would continue to be treated the same as under prior_law see h_r rep no 87th cong 2d sess a127 s rep no 87th cong 2d sess see also revrul_83_135 1983_2_cb_149 plr-126740-16 sec_1382 and sec_1388 of subchapter_t placed new restrictions on the ability of cooperatives to deduct patronage_dividends that were allocated but not paid in many other ways however subchapter_t codified the law that existed prior to since its enactment in most of the development in the law regarding the taxation of cooperatives has occurred in cases under subchapter_t while the cases and rulings interpreting subchapter_t may not control the taxation of rural telephone cooperatives these authorities indicate the position of the service and the courts on many of the issues that do control the taxation of rural telephone cooperatives cooperatives are a unique form of business_entity which are democratically controlled by their patrons in cooperatives each member has one vote regardless of how much capital he or she contributed cooperatives are required to allocate their net margins from business done with or for their patrons back to their patrons in proportion to their patronage this return of patronage-sourced income is bound up with the basic concept of a cooperative rather than using their net_income to pay dividends to their shareholders as a regular business corporation would cooperatives pay patronage_dividends to their members based on the amount of business that the member does with the cooperative patronage_dividends are thus effectively price rebates for member-patrons see 995_f2d_101 7th cir the taxable_income of a cooperative is calculated in much the same manner as the taxable_income of a taxable corporation with one distinct difference the income of a cooperative that is attributable to business done with or for patrons is excluded or deducted from the income of the cooperative when such income is allocated to the cooperative’s patrons at the time this patronage-sourced income is allocated or in the case of cooperatives not subject_to subchapter_t at the time it is distributed the cooperative’s patrons realize the income patronage-sourced income flows through the cooperative and is taxed only once in order for the amount_realized from the proposed sale of the spectrum to be deductible by cooperative upon allocation the amount must be patronage-sourced income ie income derived from business done with or for cooperative’s patrons while neither the code nor the regulations provide a clear definition of patronage- sourced income the courts have in general held that if the income at issue is produced by a transaction which is directly related to the cooperative enterprise such that the transaction facilitates the cooperative’s marketing purchasing or service activities then the income is deemed to be patronage income farmland industries inc v commissioner 78_tcm_846 acq aod citing 765_f2d_1102 fed cir 675_f2d_988 8th cir 88_tc_238 87_tc_435 plr-126740-16 in revrul_69_576 1962_2_cb_166 the service provided the following analysis of what it means for income to be patronage sourced the classification of an item_of_income as from either patronage or nonpatronage sources is dependent on the relationship of the activity generating the income to the marketing purchasing or service activities of the cooperative if the income is produced by a transaction which actually facilitates the accomplishment of the cooperative's marketing purchasing or service activities the income is from patronage sources however if the transaction producing the income does not actually facilitate the accomplishment of these activities but merely enhances the overall profitability of the cooperative being merely incidental to the association's cooperative operation the income is from nonpatronage sources see also revrul_74_160 1974_1_cb_245 ruling that interest_income realized from loans made by the taxpayer was patronage source because the loans actually facilitated the accomplishment of taxpayer’s cooperative activities in that the loans enabled the taxpayer to obtain the necessary supplies for its operations revrul_83_135 1983_2_cb_149 provides that a taxable cooperative not subject_to the provisions of subchapter_t of the code may exclude from gross_income the patronage_dividends paid or allocated to its patrons in accordance with its by-laws the sale of the spectrum by sub will generate income for cooperative cooperative purchased the spectrum through sub to insure that telecommunication services would be available to cooperative’s customers courts have ruled in several instances that income from corporations organized by cooperatives to conduct activities related to the cooperative business is patronage sourced in farmland industries the taxpayer a cooperative organized for the purpose of providing petroleum products to its patrons sought to have the proceeds from the disposition of its stock in three subsidiaries classified as patronage-sourced income in reaching its decision the court stated that its task was to determine whether each of the gains and losses at issue was realized in a transaction that was directly related to the cooperative enterprise or in a transaction that generated incidental income that contributed to the overall profitability of the cooperative but did not actually facilitate the accomplishment of the cooperative’s marketing purchasing or servicing activities on behalf of its patrons t c m pincite emphasizing the need to focus on the totality of the circumstances and to view the business environment to which the income producing transaction is related the tax_court analyzed the reasons behind both the organization of the subsidiaries and their eventual disposition id pincite first it looked at whether the taxpayer’s subsidiaries were organized to perform functions related to its cooperative enterprises plr-126740-16 the subsidiaries had been organized to explore for produce and transport crude_oil the tax_court determined that all of the subsidiaries were organized to perform functions related to the taxpayer’s business and were not mere passive investments id pincite in other cases the direct relationship between the purpose of a cooperative business and its reasons for investing in a subsidiary were found to be dispositive on the question of whether income received from the subsidiary was patronage sourced for example in astoria plywood corp v united_states a f t r 2d ustc d or the court found that the income derived by a plywood and veneer workers cooperative from the cancellation of a lease on a veneer plant was patronage sourced because the production of veneer was an integral part of the cooperative’s business in other words the reason the cooperative leased the property to begin with had nothing to do with investing in real_estate and everything to do with making veneer similarly in 410_fsupp_1100 d or the court held that the dividends received by a plywood workers cooperative from west coast adhesives a glue supplier that the cooperative helped to organize in order to supply its adhesive needs were patronage-sourced income because glue is essential for the manufacture of plywood and because the arrangement to produce the glue was reasonably related to the business done with or for the cooperative’s patrons cooperative’s purchase of the spectrum through sub was directly related to its cooperative business investing in a company in order to provide wireless telephone service is directly related to the business of a rural_cooperative telephone company whose reason for existence is to provide telephone service to its patrons cooperative’s sale of the spectrum through sub is also directly related to its cooperative business_purpose in cf industries judge posner noted in his opinion that the court was not aware of any dramatic opportunities for tax_avoidance by use of the cooperative form f 2d pincite however the court implied that a cooperative would be gaining an unfair tax advantage for its members if it were investing in businesses unrelated to its cooperative purpose and in effect running a mutual_fund for its members on the side id judge posner indicated that one type of transaction would not pass the mutual_fund test a temporary investment by a cooperative in securities id certainly if cooperative had taken its members capital and purchased a diversified portfolio of public company securities there can be no doubt that the proceeds from such a portfolio should not and would not be patronage sourced but cooperative did nothing of this sort rather cooperative through sub purchased the spectrum for the purpose of providing its patrons with advanced telecommunication services plr-126740-16 accordingly based on the facts submitted and the representations made we rule that taxpayer group’s gain on the sale by sub of the spectrum which was purchased for the purpose of meeting existing patron’s service demands and potentially expanding service to new patrons of cooperative qualifies as patronage-sourced income taxpayer group’s gain on the sale of the spectrum which was purchased and sold by sub in furtherance of cooperative’s cooperative function is patronage sourced income and therefore excludable under cooperative tax laws applicable to taxable rural telephone cooperatives 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 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination 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 theresa m melchiorre assistant to the branch chief branch office of the associate chief_counsel passthroughs special industries enclosure copy of this letter for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc in re person to contact telephone number refer reply to cc psi b01- plr-140283-01 date date legend llc state date date this letter is in response to your request for a written_determination dated date and submitted on behalf of llc requesting an extension of time to make an election under sec_754 of the internal_revenue_code facts based on the materials submitted and representations therein the relevant facts are as follows llc is a limited_liability_company formed under the laws of state on date x a member of llc died on date llc’s partnership return was filed without a sec_754 election to adjust the basis of partnership property law and analysis under sec_754 a partnership may elect to adjust the basis of partnership property where there is a distribution_of_property or a transfer of a partnership_interest the election applies to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year that the election applies and all subsequent years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 is made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed no later than the time for filing for the taxable_year including extensions under sec_301_9100-1 of the procedure and administration regulations 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 deadline is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 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 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 conclusions based 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 llc is granted an extension of time of sixty days following the date of this letter to make a sec_754 election the election should be made in a written_statement filed with the applicable service_center for association with llc’s return a copy of this letter should be attached to the statement filed a copy of this letter is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the transactions described above under any other provision of the code specifically we express no opinion as to whether or not llc is a partnership for federal tax purposes 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 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer s paul f kugler sincerely paul f kugler office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for section purposes


internal_revenue_service number release date index number ------------------------------- ---------------------------- ------------------------------------------ -------------- ------------------------------- - department of the treasury washington dc person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc fip plr-112415-04 date date legend company a -------------------------------------------------------------- company b --------------------------------------------------------------- company c --------------------------------------------------------------- company d -------------------------------------------------------------- - company e --------------------------------------------------------------- company f --------------------------------------------------------------- company g -------------------------------------------------------------- parent -------------------------------------------------------------- state a ------ -------------------------------------------------------------- --------------------------------------------------------------- ---------------------------------------------- ------------------------------------------------ -------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------- -------------------------------------------------- ---------------- ------------------------ -------------------------- --------------------------------------------- --------------------------------------------------------- plr-112415-04 state b t u v w x structure y structure z structure dear ---------------------- behalf of seven affiliated life_insurance_companies the companies as listed above the companies have requested certain rulings with respect to the tax consequences stemming from certain investments by the companies’ separate_accounts in the shares of certain regulated_investment_companies for purposes of applying the diversification requirements of sec_817 of the internal_revenue_code this is in response to your letter dated date requesting rulings on ---------------------------------------------- ------------------------------------------- --------------------------------------- facts each of the companies is a life_insurance_company as defined in sec_816 of the code parent a non-insurance company is the common parent of the companies although not all of the companies are included in parent’s life-nonlife consolidated_return group due to the limitations in sec_1504 each company issues variable life_insurance contracts and or variable_annuity contracts that are variable_contracts within the meaning of sec_817 the variable_contracts are based on one or more separate_accounts maintained by the issuing company and provide both fixed and variable investment options each separate_account is segregated from the general_asset_account of the issuing company pursuant to the requirements of state law or regulations the assets of the separate_accounts attributable to the contracts are allocated among various subaccounts each subaccount corresponds to a particular variable investment option available to the contract owner under the terms of the contract and is comprised of assets that are consistent with the investment strategies and goals of that subaccount the investment return and market_value of the assets held by each subaccount are allocated in an each subaccount invests or will invest in shares of a particular regulated although none of the companies has invested or will invest through its separate plr-112415-04 identical manner to any variable_contract supported in whole or in part by that subaccount investment_company ric as defined in sec_851 the assets of some of these rics the lower-tier funds are comprised of individual securities such as stocks and bonds other rics in which the subaccounts invest the upper-tier funds generally do not or will not hold individual securities but rather hold or will hold primarily the shares of lower-tier funds such arrangements are referred to as master-feeder arrangements where multiple upper-tier funds invest in a single lower-tier fund or fund of funds arrangements where a single upper-tier fund invests in multiple lower-tier funds the upper-tier funds and the lower-tier funds that are the subject of this ruling_request comprise three groups of related rics referred to as structure x structure y and structure z accounts in each upper-tier and lower-tier fund available through structure x structure y or structure z as the legal issues presented in applying the diversification requirements of sec_817 to the companies’ respective investments in shares of these funds are essentially the same this ruling will be addressed using company a and company e exemplars for all of the companies laws of state a company a is licensed to do business in states the district of columbia and puerto rico company a does not join in the filing of a consolidated_return with any other corporation company a issues variable_annuity contracts that are supported by a separate_account referred to as separate_account b in support of such variable_annuity contracts certain subaccounts of separate_account b invest in upper- tier funds available through structure x company a generally employs x structure upper-tier funds in connection with variable_contracts that have significant servicing and or distribution costs the x structure upper-tier funds provide company a with flexibility in meeting its revenue requirements with respect to variable_contracts in situations where a lower-tier fund does not offer a class of shares suitable to meet these requirements series of w an open-end management investment_company registered under the investment_company act of the act each x structure upper-tier fund invests in a single one of three corresponding x structure lower-tier funds the x structure lower-tier funds are each a series of t an open-end management investment_company registered under the act accordingly each x structure upper-tier fund serves as a feeder for a corresponding x structure lower-tier fund the x structure upper-tier funds consist of three portfolios each of which is a company a is a stock life and health insurance_company organized under the plr-112415-04 in addition to investments in x structure upper-tier funds company a plans to offer holders of its variable_annuity contracts additional investment options by creating additional subaccounts of separate_account b that will invest in upper-tier funds of structure y the y structure upper-tier funds will consist of four portfolios each of which will be a series of w each y structure upper-tier fund will invest in approximately five to ten y structure lower-tier funds although that number will vary and may also invest directly in cash government securities or other short-term investments currently there are fifty-four y structure lower-tier funds from which the investment manager of a y structure upper-tier fund may choose each y structure lower-tier fund may be a series of a proprietary y structure fund which will be an open-end management investment_company registered under the act in addition to the shares purchased by y structure upper-tier funds shares of y structure lower-tier funds are or will be made available to other rics partnerships or trusts that serve as investment vehicles for variable_contracts issued by life_insurance that are not affiliated with the companies but which satisfy the requirements of sec_1_817-5 and sec_1_817-5 of the regulations third party funds moreover shares of y structure lower-tier funds are also offered for direct purchase by segregated_asset accounts of life_insurance_companies general accounts of life_insurance_companies or corporations that are related_taxpayers as specified in sec_267 managers of the lower-tier funds or related_taxpayers of such managers or trustees of qualified_pension or retirement plans within the meaning of sec_1 f iii of the regulations each y structure lower-tier fund is treated as a separate ric for federal_income_tax purposes and the shares each lower-tier fund are registered under the act laws of state b company e is licensed to conduct an insurance_business in all states the district columbia guam puerto rico and the u s virgin islands company e joins with its subsidiary company d listed above in the filing of a life-life consolidated federal_income_tax return company e issues both variable life_insurance and variable_annuity contracts the variable life_insurance contracts issued by company e are supported by company e’s variable life b separate_account the variable_annuity contracts issued by company e are supported by company e’s variable_annuity b separate_account variable_annuity c separate_account and variable_annuity d separate_account subaccounts of company e’s separate_accounts invest in upper-tier funds available through structure z the z structure upper-tier funds consist of four portfolios each of which will be a series of u an open-end management investment_company registered under the act each z structure upper-tier fund will invest in a single one of four corresponding lower-tier funds the z structure lower-tier funds are each a series of v an open-end management investment_company registered under the act accordingly each z structure upper-tier fund serves as a feeder to a corresponding z structure lower-tier fund company e is a stock life and health insurance_company organized under the plr-112415-04 representation sec_2 except as otherwise permitted by sec_1_817-5 of the regulations all except as otherwise permitted by sec_1_817-5 of the regulations a the companies make the following representations in connection with the ruling_request shares of each upper-tier fund are or will be available exclusively for purchase by segregated_asset accounts of life_insurance_companies in support of variable_contracts as described in sec_817 and b shares of each lower-tier fund are or will be available exclusively for purchase by upper-tier funds third party funds or directly by segregated_asset_account of life_insurance_companies in support of variable_contracts as described in sec_817 shares of each fund will not be available for purchase by the general_public and will be registered under the act each upper- tier and each lower-tier fund will be treated as a separate ric for federal_income_tax purposes pursuant to sec_851 beneficial interests in any other ric partnership or trust a third party fund that purchases shares of a lower-tier fund will be held by one or more segregated_asset accounts of one or more insurance_companies and public access to each third party fund will be available exclusively through the purchase of a variable_contract within the meaning of sec_817 taxpayer holds or will hold an interest in an upper or lower-tier fund i the return on such interest is will be computed in the same manner that the return on an interest held by a segregated_asset_account is computed determined without regard to expenses attributable to variable_contracts ii there is or will be no intent to sell such interest to the public and iii a segregated_asset_account of the life_insurance_company also holds or will hold a beneficial_interest in the fund taxpayer holds or will hold an interest in the fund i the holding of such interest is or will be in connection with the creation or management of the fund ii the return on such interest is or will be computed in the same manner that the return on an interest held by a segregated_asset_account is computed determined without regard to expenses attributable to variable_contracts and iii there is or will be no intent to sell such interest to the public to the extent the general account of a life_insurance_company or related to the extent the manager of an upper or lower-tier fund or a related plr-112415-04 requested ruling sec_1 the diversification requirements of sec_817 of the code and sec_1_817-5 of the regulations will be applied to a subaccount that invests directly in a lower-tier fund by treating as an asset of the subaccount a pro_rata share of each asset of the lower-tier fund in accordance with sec_1_817-5 and i of the regulations the diversification requirements of sec_817 of the code and sec_1_817-5 of the regulations will be applied to a subaccount that invest s in an upper-tier fund by treating as an asset of the subaccount a pro_rata share of each asset of any lower-tier fund in which the upper-tier fund invests in accordance with sec_1_817-5 and i of the regulations statutory and regulatory provisions for purposes of part i of subchapter_l of chapter of the code sections sec_817 of the code provides that for purposes of subchapter_l sec_72 the term variable_contract is defined in sec_817 for an annuity_contract to be a variable_contract it must provide for the allocation of all or a part of the amounts received under the contract to an account which pursuant to state law or regulation is segregated from the general asset accounts of the issuing insurance_company it must provide for the payment of annuities and the amounts paid in or the amounts paid out must reflect the investment return and the market return of the segregated_asset_account see sec_817 - relating to annuities and sec_7702 relating to the definition of life_insurance_contract a variable_contract other than a pension_plan_contract which is otherwise described in sec_817 and which is based on a segregated_asset_account shall not be treated as an annuity endowment or life_insurance_contract for any period and any subsequent period for which the investments made by such account are not in accordance with regulations prescribed by the secretary adequately diversified sec_1_817-5 of the regulations provides that a segregated_asset_account shall consist of all the assets for which the investment return and market_value is allocated in an identical manner to any variable_contract invested in any of such assets sec_1_817-5 of the regulations sets forth the diversification requirements for variable_contracts based on segregated_asset accounts generally the investments of a segregated_asset_account will be considered to be adequately diversified for purposes of sec_817 of the code and sec_1_817-5 of the regulations if no more than percent of the value of the total assets of the account is represented by any one in certain situations sec_817 of the code provides a look-through_rule for plr-112415-04 investment no more than percent by any two investments no more than percent by any three investments and no more than percent by any four investments see sec_1_817-5 meeting the diversification requirements if all of the beneficial interests in a regulated_investment_company are held by one or more a insurance_companies or affiliated companies in their general account or in segregated_asset accounts or b fund managers of affiliated companies in connection with the creation or management of the regulated_investment_company the diversification requirements of sec_817 are applied by taking into account the assets held by such regulated_investment_company sec_1_817-5 of the regulations further describes the look-through_rule for the application of the diversification requirements of sec_1_817-5 sec_1_817-5 provides that if the look-through_rule applies a beneficial_interest in a regulated_investment_company will not be treated as a single investment of a segregated_asset_account instead a pro_rata portion of each asset of the investment_company will be treated for purposes of sec_1_817-5 as an asset of the segregated_asset_account sec_1_817-5 shall apply to an investment_company if section f i of the regulations provides that the look-through_rule of a all the beneficial_interest in the investment_company other than those described in sec_1_817-5 are held by one or more segregated_asset accounts of one or more insurance_companies and b public access to such investment_company is available exclusively except as otherwise permitted under sec_1_817-5 through the purchase of a variable_contract solely for this purpose the status of the contract as a variable_contract will be determined without regard to sec_817 of the code and sec_1_817-5 of the regulations the beneficial interests described in sec_1_871-5 are i under specified circumstances the general account of a life_insurance_company or a corporation related in a manner specified in sec_267 of the code to a life_insurance_company ii under specified circumstances the manager or a corporation related in a manner specified in sec_267 to the manager of the investment_company iii the trustee of a qualified_pension or retirement_plan and iv the public or policyholders that are treated as owners of beneficial interests in the investment_company under revrul_81_225 1981_2_cb_12 but only if a the investment_company was closed to the public in accordance with revrul_82_55 1982_1_cb_12 or b all the assets of the segregated_asset_account are attributable to premium payments made by policyholders prior to date to premium payments made in connection with a qualified_pension or retirement_plan or to any combination of such premium payments since the service has issued a number of requested rulings addressing plr-112415-04 when the investor in a variable_annuity contract has sufficient control_over the underlying investments to be treated as the owner of those investments revrul_77_85 1077_1_cb_12 concludes that if a purchaser of an investment annuity_contract selects and controls the investment_assets in the separate_account of the issuing life_insurance_company then the purchaser is treated as the owner of those assets for federal_income_tax purposes similarly revrul_80_274 1980_2_cb_27 holds that where an s l depositor transfers a certificate of deposit c d to a life insurer in exchange for an annuity_contract and the life insurer is expected to continue to hold the c d for the benefit of the depositor the depositor not the insurance_company is considered the owner of the d c for tax purposes revrul_81_225 1981_2_cb_12 clarified by revrul_82_55 1982_1_cb_12 and revrul_2003_92 2003_2_cb_350 describes four situations in which investments in mutual funds to fund annuity_contracts are considered to be owned by the policyholder rather than by the insurance_company issuing the annuity_contracts and one situation in which the insurance_company is considered the owner of the mutual_fund shares in situation the investment_assets in the segregated account supporting the annuity_contracts consist solely of shares in a single publicly available mutual_fund managed by an independent investment_advisor situation is similar to situation except that the mutual_fund is managed by the insurance_company or one of its affiliates situation also is similar to situation except that the segregated_asset_account supporting the annuity_contracts consists of five subaccounts the policyholder retains the right to allocate or reallocate funds among the five subaccounts during the life of the annuity_contract situation is similar to situation except that the shares of the mutual_fund are not sold directly to the public but are available only through the purchase of an annuity_contract or by participation in an investment plan account of the type described in revrul_70_525 1970_2_cb_144 situation also is similar to situation except that the shares in the mutual_fund are available only through the purchase of an annuity_contract sufficient control and other incidents_of_ownership to be considered the owners of the mutual_fund shares for federal_income_tax purposes the ruling reaches the opposite conclusion in situation because the sole function of the mutual_fund in situation is to provide an investment vehicle to allow the insurance_company to meet its obligations under its annuity_contracts and the insurance_company possesses sufficient incidents_of_ownership to be considered the owner of the underlying portfolio of assets of the mutual_fund thus the ruling concludes that in situation the insurance_company not the policyholder is treated as the owner of the mutual_fund shares for federal_income_tax purposes in revrul_82_54 1982_1_cb_11 the purchasers of certain annuity_contracts have the right to direct the issuing insurance_company to invest in the shares of any or revrul_81_225 concludes that the policyholders in situation sec_1 - have plr-112415-04 all of three mutual funds that are not available to the public one mutual_fund invests primarily in common stocks another in bonds and a third in money market investments policyholders are free to allocate their premium payments among the three funds and have an unlimited right to reallocate contract values among the funds prior to the maturity_date of the annuity_contract the ruling concludes that the policyholders’ ability to choose among general investment strategies for example between stocks bonds or money market instruments either at the time of the initial purchase or subsequent thereto does not constitute sufficient control so as to cause the policyholders to be treated as the owners of the mutual_fund shares in 749_f2d_513 8th cir cert_denied 473_us_905 the court upheld the investor_control theory of revrul_81_255 the taxpayers in christoffersen purchased a variable_annuity contract that reflected the investment return and market_value of assets held in a separate_account that was segregated from the general assets of the issuing insurance_company the taxpayers had the right to direct that their premium payments be invested in any one or all of six publicly traded mutual funds the taxpayers could reallocate their investment among the funds at any time and had the right to make withdrawals to surrender the contract and to apply the accumulated value under the contract to provide annuity payments the court held that the taxpayers and not the issuing insurance_company owned the mutual funds for federal_income_tax purposes were not considered the owners of the assets in which the funds invested even though the policyholders had the ability to allocate the premium paid among various subaccounts change such allocations at any time and transfer funds from one subaccounts to another the investment in the subaccounts was available solely through purchase of variable_annuity contracts and was not otherwise publicly available moreover the policyholders were not able to communicate directly or indirectly with the investment advisors regarding the investment strategies of the subaccounts revrul_2003_91 concludes that the policyholders did not have direct or indirect control_over any of the assets in the subaccounts and therefore would not be treated as the owners of such assets asset accounts or subaccounts of life_insurance_companies or upper -tier funds and public access to the lower-tier funds is available exclusively through the purchase of variable_annuity contracts or variable life_insurance policies except as otherwise permitted by sec_1_817-5 the requirements of sec_1_817-5 of the regulations are satisfied with respect to segregated_asset accounts or subaccounts that invest in the lower-tier funds pursuant to the look-through_rule of sec_1_817-5 a pro_rata portion of each asset of the lower-tier fund will be treated as an asset of each segregated_asset_account or subaccount that invests a lower-tier fund since all of the shares of the lower-tier funds will be held by either segregated in revrul_2003_91 2003_2_cb_347 holders of variable_annuity contracts similarly the requirements of sec_1_817-5 of the regulations are satisfied by plr-112415-04 the indirect investment of segregated_asset accounts and subaccounts in shares of any lower-tier fund through an investment in an upper-tier fund therefore pursuant to the look-through_rule of sec_1_817-5 a pro_rata portion of each asset of any such lower-tier fund will be treated as an asset of each segregated_asset_account or subaccount that indirectly invests in a lower-tier fund through investment in a upper-tier fund holdings based solely upon the information provided and the representations made we the look-through_rule of sec_1_817-5 will apply to a subaccount conclude the look-through_rule of sec_1_817-5 will apply to a subaccount that invests in shares of a lower-tier fund such that a pro_rata share of the assets of the lower-tier fund will be treated as assets of the subaccount for purposes of applying the diversification test of sec_817 of the code that invests in an upper-tier fund such that a pro_rata share of the assets of any lower-tier fund in which the upper-tier fund invests will be treated as assets of the subaccount for purposes of applying the diversification test of sec_817 of the code concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed concerning the application of the investor_control rules set forth in christoffersen or rev ruls and the code provides that it may not be used or cited as precedent letter is being sent to your authorized representative relevant this ruling is directed only to the taxpayers requesting it sec_6110 of in accordance with the power_of_attorney on file with this office a copy of this a copy of this letter must be attached to any income_tax return to which it is except as expressly provided herein no opinion is expressed or implied plr-112415-04 representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination the rulings contained in this letter are based upon information and sincerely s gary geisler assistant to the branch chief branch office of associate chief_counsel financial institutions products


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 fip b03 plr-101674-17 date date legend taxpayer a b date year ------------------------------------------- -------------------------- ---- -- --------------------------- ------- dear ----------------------- this ruling responds to a letter dated date and subsequent correspondence submitted on behalf of taxpayer taxpayer requested a ruling that subject_to sec_856 amounts received by taxpayer from wireless telecommunication carriers for_the_use_of certain distributed antenna system das assets and related property interests qualify as rents_from_real_property under sec_856 facts taxpayer is a corporation for federal_income_tax purposes taxpayer intends to elect to be taxed as a real_estate_investment_trust reit under sec_856 through sec_859 of plr-101674-17 the internal_revenue_code beginning with its taxable_year ending on date taxpayer owns land and cellular communications towers and has acquired interests in das assets as described below das components a das is a system for the transmission of telecommunication signals through fiber optic and coaxial cables wireless carriers supplement their cell tower antennas with dass to improve capacity and signal strength in densely populated areas eg college campus sports stadium or convention center and hard-to-reach areas eg underground transportation system a das may be located outdoors outdoor das or inside a structure indoor das the main components of both indoor dass and outdoor dass are fiber optic and coaxial cables and related conduit piping collectively das cables taxpayer typically owns the das cables in both outdoor dass and indoor dass in certain circumstances however taxpayer does not own the fiber optic cable and related conduit piping in an outdoor das taxpayer would instead own an exclusive right to use certain strands of fiber optic cables and related conduit that are owned by third parties in an outdoor das fiber optic cables are buried in the ground within conduit piping or strung between telephone poles in an indoor das fiber optic and coaxial cables and related conduit piping are embedded in or affixed to walls or ceilings of a building or other structure such as an underground transportation system for purposes of this ruling taxpayer represents that the das cables are real_property for purposes of sec_856 outdoor das and indoor das also consist of antennas optical converters amplifiers and equipment cabinets collectively das equipment taxpayer owns the das equipment in both outdoor dass and indoor dass the wireless telecommunications carriers own base stations which are placed in equipment cabinets owned by taxpayer for purposes of this ruling taxpayer represents that the das equipment will be treated as personal_property for purposes of sec_856 taxpayer represents that rent attributable to personal_property leased under or in connection with leasing of a das will not exceed percent of the total rent for the taxable_year attributable to both the real and personal_property leased under or in connection with the lease as provided in sec_856 das property interests taxpayer generally does not own the poles or other structures to which das cables and das equipment are affixed the land in which the fiber optic cables are buried and the buildings or other structures in which indoor das are located instead taxpayer holds interests that generally take the form of leasehold or license interests easements rights-of-way permits rights of use attachment rights or other similar plr-101674-17 rights or interests to occupy the land or structures to which the das cables and das equipment are affixed as well as in limited circumstances exclusive and indefeasible right to use for certain strands of fiber optic cable and related conduit that are owned by third parties collectively the das property interests taxpayer intends to construct dass with respect to the das property interests taxpayer will lease license or otherwise grant to wireless telecommunications carriers the right to use the das pursuant to the das agreements described below for purposes of this ruling taxpayer represents that the das property interests qualify as interests_in_real_property under sec_856 das agreements taxpayer will enter into agreements with a wireless telecommunication carrier user pursuant to which taxpayer grants the user the right to use a das to transport user’s telecommunications signals through the das cables das agreement a single das may be leased to more than one user typically there are multiple users at each das site thus signals of more than one user may be transported by a single strand or pathway of fiber optic cable each user however will have an exclusive use of a dedicated frequency within a single fiber optic pathway each user’s dedicated frequency will be specified in its das agreement the das agreements typically have terms of a years with renewal options under the das agreements a user generally pays taxpayer an initial capital_contribution fee representing the cost of constructing the das plus a markup amount above the total cost of the das this markup amount represents the cost of coordinating and supervising the construction of the das at a particular site the user also pays taxpayer a fixed recurring amount for the ongoing use of the das during the term of its das agreement with taxpayer the recurring amounts are typically paid monthly and are subject_to escalation taxpayer represents that it will not receive any amounts based on a percentage of the user’s or any other person’s income or profits with respect to a das das user services and activities under the das agreement taxpayer is generally obligated to furnish certain services provided in connection with leasing a das the services performed by taxpayer include certain services in designing the das design services discussed below constructing the das installing the components of the das including antennas fiber optic and coaxial cables amplifiers optical converters and other equipment providing the user access to electrical power or submetering electricity to power das components that require electricity providing ongoing monitoring of the functioning of the das to ensure that components of the system owned by taxpayer are operational safe and secure as opposed to maximizing the quality of the system’s plr-101674-17 performance inspecting the das periodically to identify problems that cause the system to stop working such as breaks in the fiber optic cable and weather damage or that present safety or security risks and limited maintenance and minor repair work to ensure the das functions in a safe and secure manner in addition taxpayer will supervise the activities with respect to a das which will be provided by an independent_contractor as defined in sec_856 from whom taxpayer derives no income independent_contractor or by a taxable_reit_subsidiary as defined in sec_856 trs of taxpayer taxpayer may supervise or perform monitoring inspections and limited maintenance and minor repair work on the das collectively with the services described in the previous paragraph das user services and activities major repairs will be performed by an independent_contractor or trs each user is responsible for the repair and maintenance of its own base station and related equipment taxpayer represents that the das user services and activities are usually and customarily provided in connection with the lease of a das charges for certain of the das user services and activities are included as part of the initial capital_contribution fee as discussed above or as part of the recurring maintenance fee the recurring maintenance fee only covers certain of the das user services and activities taxpayer represents that electricity costs are passed through to the user or the user may pay the recurring electricity charges directly to the utility company taxpayer represents that the design services are not unique to any particular user and that a das is typically designed to be used by up to b users the design services are offered to all users at a site primarily to determine where to place the das to provide sufficient capacity and performance for all users and their customers and for optimal efficiency and functionality of the das this determination includes the location of the antennas the optimal pathway of the fiber optic and coaxial cables and the amount of fiber optic cable needed to ensure adequate cabling for current and future users the design process also considers the type of equipment and wireless frequencies users will use as well as outside influences that may have an effect on the network taxpayer represents that the design process is necessary to ensure that a das operates properly and reliably for the system’s intended purpose for which it is constructed and leased that is to allow existing and future users to lease space that is adequate to provide the desired level of coverage to their customers in situations where a charge is for an additional service the charge may be separately_stated and the amount of the charge will generally equal the cost of the service eg the fee paid_by taxpayer to the independent_contractor taxpayer will charge as compensation_for its supervisory role taken in connection with the provision of the design and construction services plr-101674-17 law and analysis sec_856 provides that at least percent of a reit’s gross_income must be derived from among other sources rents_from_real_property sec_856 provides that at least percent of a reit’s gross_income must be derived from among other sources rents_from_real_property sec_856 provides that rents_from_real_property include subject_to exclusions provided in sec_856 a rents from interests_in_real_property b charges for services customarily furnished or rendered in connection with the rental of real_property whether or not such charges are separately_stated and c rent attributable to personal_property leased under or in connection with a lease of real_property but only if the rent attributable to the personal_property for the taxable_year does not exceed percent of the total rent for the taxable_year attributable to both the real and personal_property leased under or in connection with the lease sec_856 provides that any impermissible_tenant_service_income is excluded from the definition of rents_from_real_property sec_856 defines impermissible_tenant_service_income to mean with respect to any real or personal_property any amount received or accrued directly or indirectly by the reit for services furnished or rendered by the reit to tenants at the property or for managing or operating the property sec_856 provides certain exceptions from impermissible_tenant_service_income sec_856 provides that for purposes of sec_856 services furnished or rendered or management or operation provided through an independent_contractor from whom the reit does not derive or receive any income or through a taxable_reit_subsidiary of the reit shall not be treated as furnished rendered or provided by the reit and there shall not be taken into account any amount which would be excluded from unrelated_business_taxable_income under sec_512 if received by an organization described in sec_511 sec_512 provides in part that there shall be excluded from the computation of unrelated_business_taxable_income all rents_from_real_property and all rents from personal_property leased with such real_property if the rents attributable to such personal_property are an incidental amount of the total rents received or accrued under the lease determined at the time the personal_property is placed_in_service sec_1_512_b_-1 provides that payments for the use or occupancy of rooms and other space where services are also rendered to the occupant such as for the use or occupancy of rooms or other quarters in hotels boarding houses or apartment houses furnishing hotel services or in tourist camps or tourist homes motor courts or motels or for the use or occupancy of space in parking lots warehouses or plr-101674-17 storage garages do not constitute rent from real_property generally services are considered rendered to the occupant if they are primarily for the occupant’s convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only the supplying of maid service for example constitutes such service whereas the furnishing of heat and light the cleaning of public entrances exits stairways and lobbies and the collection of trash are not considered as services rendered to the occupant sec_1_856-4 defines the term rents_from_real_property generally as the gross amounts received for_the_use_of or the right to use real_property of the reit sec_1_856-4 provides that the term rents_from_real_property includes charges for services customarily furnished or rendered in connection with the rental of real_property whether or not the charges are separately_stated services furnished to tenants of a particular building will be considered as customary if in the geographic market in which the building is located tenants in buildings of similar class are customarily provided with the service where it is customary in a particular geographic marketing area to furnish electricity or other utilities to tenants in buildings of a particular class the submetering of utilities to tenants in such buildings will be considered a customary service sec_1_856-4 provides that the trustees or directors of a_trust are not required to delegate or contract out their fiduciary duty to manage the trust itself as distinguished from rendering or furnishing services to the tenants of its property or managing or operating the property thus the trustees or directors may do all those things necessary in their fiduciary capacities to manage and conduct the affairs of the trust itself for example the trustees or directors may establish rental terms choose tenants enter into and renew leases and deal with taxes interest and insurance relating to the trust’s property the trustees may also make capital expenditures with respect to the trust’s property as defined in sec_263 and may make decisions as to repairs of the trust’s property of the type that would be deductible under sec_162 the cost of which may be borne by the trust under each das agreement a user has a right to use a das each das agreement typically has a term of a years with a fixed recurring amount for_the_use_of the das during the term of the das agreement taxpayer represents that the das cables and the related das property interests qualify as real_property under sec_856 and that any personal_property leased in connection with the das cables and related das property satisfy the requirements of sec_856 therefore amounts received by taxpayer for use of the das cables and the related das property interests qualify as rents from interests_in_real_property under sec_856 based upon the information submitted and representations made the das user services and activities are usually and customarily provided in connection with the rental of telecommunications infrastructure similar to the dass or represent an exercise of the fiduciary duties of the taxpayer’s directors in accordance with sec_1_856-4 that are not services plr-101674-17 rendered to the user in connection with the rental of real_property accordingly the provision by taxpayer of the das user services and activities does not give rise to impermissible_tenant_service_income and will not cause any portion of the rents received by taxpayer from users for use of the das cables and related das property interests to fail to qualify as rents_from_real_property under sec_856 conclusion based on the facts and representations submitted by taxpayer we rule that amounts received by taxpayer under the das agreements for_the_use_of the das cables and the related das property interests qualify as rents from interests_in_real_property under sec_856 the provision by taxpayer of the das user services and activities does not give rise to impermissible_tenant_service_income and will not cause any portion of the rents received by taxpayer from users for use of the das cables and related das property interests to fail to qualify as rents_from_real_property under sec_856 this ruling’s application is limited to the facts representations code sections and regulations cited herein 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 in particular no opinion is expressed concerning whether the das cables qualify as real_property or whether the related das property interests qualify as interests_in_real_property for purposes of sec_856 no opinion is expressed concerning any other services or activities performed by taxpayer or a trs no opinion is expressed concerning whether taxpayer otherwise qualifies as a reit under subchapter_m part ii of chapter of the code furthermore the ruling herein related to whether income from services and activities performed by taxpayer is impermissible_tenant_service_income is specifically limited to whether the income is qualifying_income for reit qualification purposes the definition of rents_from_real_property under sec_856 differs in scope and structure from the definition of rents_from_real_property under sec_512 which applies to exempt_organizations described in sec_511 therefore an exempt_organization providing the same services may have unrelated_business_taxable_income because the income may not be excluded under sec_512 as rents_from_real_property 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 plr-101674-17 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely __________________________ k scott brown branch chief branch office of the associate chief_counsel financial institutions products enclosure copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c tep ti tax_exempt_and_government_entities_division feb uniform issue list xxxxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxkxkkxxkxkxxxx legend taxpayer a irab bank c bank d xxxxxxxxxxxxxx xxxxxxxxkxxkxkxk xxxxxxxxxxxxxx xxxxxkxxxkxxxxxk xxxxxxxxxxxxxx xxxxxxxxxxxxxx account e xxxxxxxxxxxxxx ira f financial_institution g ira h amount amount amount xxxxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxxxxxxxk xxxxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxxxxxxx dear xxxxxxxxxxxxxx this is in response to your request dated date as supplemented by correspondence dated date in which you request a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he received a distribution equal to amount from ira b which was maintained by bank c taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by d a was due to a mistake by bank d in failing to deposit amount into a rollover ira account taxpayer a initiated a transfer of taxpayer a maintained ira b a certificate of deposit cd with bank c upon maturity of the cd on february amount from ira b to an account at bank d instead of depositing amount into a rollover ira account as taxpayer a intended bank d deposited amount in account e a non-ira cd upon maturity of the non-ira cd in and before the mistake was discovered taxpayer a transferred amount from account e to ira f with financial_institution g when the discovered in may _ bank d transferred amount to ira h an ira cd set up by taxpayer a at bank d taxpayer a states that he believed that account e was an ira and that bank d made a mistake in depositing amount into a non- ira cd mistake was based on the above facts and representations taxpayer a requests that the service waive the 60-day rollover requirement with respect to the distribution of amount from ira b sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money or any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or in gross_income determined without regard to sec_408 ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary_of_the_treasury may waive the 60-day requirement under sec_408 and sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information and documentation submitted by taxpayer a is consistent with the assertion that the failure to accomplish a timely rollover of amount was due to a mistake by bank d therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira b provided all other requirements of sec_408 of the code except the 60-day requirement are met the contribution of amount to ira f on february amount less amount to ira h in may contributions within the meaning of sec_408 of the code the remainder of amount equal to amount will not be considered a valid rollover_contribution to ira h ‘and the contribution of amount _ will be considered rollover this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact xxxxxxxxxxxxxx id xxxxxxxxxx at xxx xxx-xxxx please address all correspondence to se t ep ra t1 sincerely yours cob tm a weathas carlton a watkins manager employee_plans technical group enclosures notice of intention to disclose deleted copy of this letter


internal_revenue_service number release date index number ------------------- ------------------------------ ------------------- ------------------------ ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number --------------------- refer reply to cc corp plr-149874-09 date date company ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ -------------------- business a ------------------------------------------------------------------------------------------------ --------------------------------------------------------------- state a state b ------------- ------------- private offering a -------------------------------------------------------------- --------------------------------------------------------------- private offering b -------------------------------------------------------------- --------------------------------------------------------------- private offering c -------------------------------------------------------------- --------------------------------------------------------------- private offering d --------------------------------------------------------------------------- --------------------------------------------------- private offering e -------------------------------------------------------------- --------------------------------------------------------------- private offering f -------------------------------------------------------------- ------------------------------------------ plr-149874-09 private offering g -------------------------------------------------------------- ------------------------------------------ private offering h -------------------------------------------------------------- ------------------------------------------ date date date date date date date date date date date date date date date tax advisor a b c ---------------------- ---------------------- ------------------ -------------- ------------------ -------------- ---------------------- ---------------- --------------------- -------------- ----------------------- -------------- ----- ----------------------- ------------- ---------------- ---------------------- ------------- ------------- ------------- plr-149874-09 d e f g h i j k l m n o p q r s t u ------------- -- ----------- ------ ------------- ------ ------------- ------ ---------------- ------ ----------- --------------- ------------- ------------- ------------ ---- ------------- ---- dear ------------- we respond to your letter dated date requesting rulings regarding sec_382 of the internal_revenue_code the relevant information provided in that letter is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed plr-149874-09 by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination summary of facts company was originally incorporated in state a on date and reincorporated in state b on date company engages in business a as discussed in greater detail below company had multiple rounds of private stock offerings from inception through its initial_public_offering ipo on date at its inception company issued approximately a shares of common_stock to its founders from date through date taking into account stock splits on date and date respectively the original amount of common_stock shares issued through date increased to b shares as of date approximately c additional common_stock shares adjusted for the date and date stock splits were issued subsequently to the initial date issuance and prior to the private offering e transaction discussed below by reason of stock_option exercises common_stock dividends and general stock issuances prior to its ipo company was a private corporation that engaged in numerous financing transactions to support the development of its products and the expansion of its customer base on date company issued approximately d shares of private offering a at dollar_figuree per share as these shares had substantially higher relative values than the then existing common_stock and were issued to new investor shareholders company determined that an ownership_change within the meaning of sec_382 occurred on the private offering a issuance date on date company issued approximately f shares of private offering b at dollar_figureg per share company determined that an ownership_change within the meaning of sec_382 occurred on the private offering b issuance date on date company issued approximately h shares of private offering c at dollar_figurei per share on date company issued approximately j shares of private offering d at dollar_figurek per share on date company issued approximately l shares of private offering e at dollar_figurem per share on date company issued private offering f stock in connection with the issuance of private offering f shares of company’s private offering a private offering b plr-149874-09 private offering c and private offering d were converted into shares of company’s common_stock additionally the terms of company’s private offering e were modified in connection with the private offering f financing which reduced the overall liquidation preferences of the private offering e stock company issued private offering g and private offering h stock on date and date respectively on date company completed its ipo of approximately n shares of common_stock in connection with company’s ipo all of company’s outstanding preferred_stock the private offering e private offering f private offering g and private offering h stock were converted into approximately o shares of company common_stock since company was private during the private offering a through private offering h transactions company relied upon a third party advisor to perform valuations to determine the relative value of each class of stock for purposes of its sec_382 analyses at the times of the private offering c d e and f financings company engaged tax advisor to perform a sec_382 ownership_change analysis for the periods from inception through the private offering f financing the sec_382 analysis company's corporate records included the names of the various entities that had invested in each of the private offering a through private offering e financings the participating entities as well as the amount of shares acquired by these entities in each financing in order to get a better understanding of the nature of the participating entities company identified representatives of the participating entities who were knowledgeable about a given participating entity’s investment in company stock collectively the investor representatives once identified company made written inquiries the written inquiries of the investor representatives concerning i ii iii whether or the extent to which the participating entities were economic owners of company’s stock the identity of potential indirect percent shareholders of company stock by reason of owning significant percentages of the economic rights in the participating entities any indirect shifting of company stock among the owners of company stock eg segregation_rules as applied to participating entities through redemptions issuances of equity rights etc and iv whether the participating entities might be viewed as a single percent shareholder under the entity rules of sec_1_382-3 of the income_tax regulations after sending the written inquiries company arranged teleconferences between tax advisor company and the investor representatives to discuss these questions for plr-149874-09 purposes of the sec_382 analysis the participating entity interviews in certain cases these discussions were supplemented by one or more emails confirming the understanding of the responses to the various questions submitted as a result of the information received in the written inquiries and the participating entity interviews company confirmed that certain participating entities that invested in company’s private offering d and or private offering e stock either did not own shares of company’s stock prior to these financing transactions or owned a disproportionately small amount of company’s stock among the less than percent shareholders within the participating entities it appears that approximately p private offering d shares and q private offering e shares were acquired by participating entities that did not own company stock prior to the private offering d financing under the solely for cash exception of sec_1_382-3 approximately r s and t more than u of the shares issued to these new investors would be treated as exempted shares and treated as acquired by historic public groups in the private offering d and private offering e financing transactions respectively company with assistance from tax advisor determined that if it allocated shares to newly created public groups based on knowledge about actual ownership of those shares rather than the amount of shares that would be allocated under the solely for cash exception of sec_1_382-3 company would have experienced an ownership_change at the time of the private offering e financing date if company allocates the exempted shares amount under sec_1_382-3 to the pre-existing public groups an ownership_change would occur at the time of the private offering f financing date the value of company's stock declined from the time of the private offering e financing to the private offering f financing and net operating losses arose between those two financing transactions so company would prefer to be able to allocate shares to newly created public groups based on knowledge about actual ownership of those shares company makes the following representations representations a b company's only classes of outstanding_stock during the relevant testing periods are the company common_stock and the preferred_stock described herein during the relevant testing periods company relied on its corporate records and information obtained from direct shareholder interviews to identify company’s shareholders who have direct ownership interests of percent or more of company stock prior to the ipo company had no other actual knowledge or relevant tracking system of owners plr-149874-09 rulings based solely on information submitted and the representations set forth above we rule as follows company's corporate records and the information obtained from the written inquiries and participating entity interviews are acceptable methods of determining actual knowledge under sec_1_382-2t company is permitted to use actual knowledge to determine the allocation of shares issued in the financing transactions arising during the testing_period ending as of the private offering e financing to newly segregated public_group s and may make such an allocation in lieu of the allocations described in sec_1_382-3 caveats 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 in particular no opinion is expressed regarding whether company experienced any ownership_change as defined under sec_382 as a result of any of the stock issuances described in this letter or whether company correctly applied the acceptable methods for establishing actual knowledge of its stock ownership during the possible testing periods procedural statements 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling plr-149874-09 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely filiz a serbes chief branch office of associate chief_counsel corporate cc


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc dom p si - plr-120033-98 date date number release date x y a d1 d2 dear this responds to a letter dated date and subsequent correspondence submitted by you on x’s behalf as x’s authorized representative requesting that x be given an extension of time in which to elect to treat y as a qualified_subchapter_s_subsidiary qsss under sec_1361 of the internal_revenue_code the information submitted states that y was incorporated on d1 a as president of x and y represents that x intended to treat y as a qsss effective on d1 and relied on x’s attorney to file the necessary form on d2 the attorney mistakenly filed a form_2553 election by a small_business_corporation for y rather than a form_966 corporate dissolution or liquidation sec_1361 defines the term qualified_subchapter_s_subsidiary qsss as a domestic_corporation which is not an ineligible_corporation if percent of the stock of the corporation is owned by an s_corporation and the s_corporation elects to treat the corporation as a qsss the statutory provision does not however provide guidance on the manner in which the qsss election is made or the effective date of the election on date the service published notice_97_4 1997_1_cb_351 providing a temporary procedure for the making of a qsss election under notice_97_4 a taxpayer makes a qsss election with respect to a subsidiary by filing a form_966 corporate dissolution or liquidation subject_to certain modifications with the appropriate service_center the election may be effective on the date the form_966 is filed or up to days prior to the filing of the form provided that date is not before the parent’s first taxable_year beginning after date and that the subsidiary otherwise qualifies as a qsss for the entire period for which the retroactive election is in effect sec_301_9100-1 of the procedure and administration regulations provides that the commissioner has the discretion to grant a reasonable extension of the time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-1 defines 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 announcement published in the internal_revenue_bulletin 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 in the present situation the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time to make an election to treat y as a qsss effective d1 until days following the date of this letter the election should be made by following the procedure set forth in notice_97_4 a copy of this letter should be attached except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 of the code or whether y otherwise qualifies as a qsss for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours paul f kugler assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c office_of_chief_counsel date cc intl br1 genin-117677-03 number info release date uil dear reference application of u s -italy income_tax treaty this responds to your letter to the office_of_chief_counsel dated date which outlines a question you have regarding the taxation of your italian pension in response your inquiry we are providing the following by the state of general information this information_letter is advisory only and has no binding effect on the internal_revenue_service you have requested general information regarding the application of the united_states - italy income_tax treaty treaty available on the internet at http www irs gov pub irs-trty italy pdf to pension payments received by you from italy you are a u s resident living in allowed a partial_tax credit against your u s federal income taxes for the income taxes you pay to italy but are not allowed any_tax credit against your income taxes for foreign_income_taxes paid and you have asked why you are article relief from double_taxation of the treaty provides in pertinent part in accordance with the provisions and subject_to the limitations of the law of the united_states the united_states shall allow to a resident or citizen_of_the_united_states as a credit against the united_states tax on income the appropriate amount of income_tax paid to italy article taxes covered of the treaty provides in pertinent part the existing taxes to which this convention shall apply are a in the case of the united_states the federal income taxes imposed by the internal_revenue_code genin-117677-03 state income taxes are not imposed by the internal_revenue_code rather they are imposed by state statutes enacted at the discretion of the individual states the treaty does not apply to income taxes imposed by any of the individual states including and does not require any of the individual states to allow a credit against their income_tax for taxes paid to italy each state is free to enact its own rules we hope this information will be helpful to you if you require a definitive determination of the law applicable to your particular facts you may submit a request for a private_letter_ruling to this office pursuant to the rules set forth in revproc_2003_1 which is available on the internet at http www irs gov pub irs-irbs irb03-01 pdf if you should have any further questions in this matter please contact at sincerely m grace fleeman senior counsel branch office of associate chief_counsel international