third party communication date of communication month dd yyyy cca_2014040814001411 id uilc number release date from sent tuesday april pm to cc bcc subject re sec_6324 estate_tax lien question hi--i think everything about estate_tax liens is confusing but i think i understand what you are getting mixed up the training material talking about where we can levy without a court_proceeding or transferee assessment is talking about our general levy authority to levy property subject_to a lien which means we can levy property that was not divested from the general sec_6324 estate_tax lien upon transfer to heirs beneficiaries the general estate_tax lien remains upon property when it is transferred unless it is divested as provided in a nonprobate property or a probate property we can also levy property based upon the like lien that arises under a if we are collecting based upon the personal liability that arises under a rather than based upon an estate_tax lien then we do need either a suit or transferee assessment the below excerpt is from the gl training materials chapter on liens and special liens which provides a good outline of estate_tax lien stuff the statute_of_limitations applicable to the personal liability established by sec_6324 is not the 10-year period from the date of death set forth in sec_6324 rather it is years from the date the assessment is made against the estate upon the filing of the estate_tax_return in accordance with sec_6502 the sec_6324 personal liability arises independently from the estate_tax lien accordingly it may be collected within the ordinary collection_period of years from the date of assessment a separate assessment against the transferees is not required see united_states v bevan no 07-cv-1944 mce jfm ps wl at e d cal date 539_fsupp_42 d md estate of mangiardi v commissioner tcmemo_2011_24 does this help


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c may number release date uil the honorable amy klobuchar united_states senator washington avenue south suite minneapolis mn attention ----------------- conex-117240-14 dear senator klobuchar i am responding to your inquiry dated date on behalf of your constituent -------------------- -------------- asked for an additional tax_bracket for widows and widowers so they do not have to pay more tax after a spouse’s death a widow’s filing_status is married for the tax_year in which her spouse died however under current law a widow’s filing_status is unmarried for the tax years after the tax_year in which her spouse died unless she qualifies for another filing_status that results in a smaller tax_liability a widow who provides more than one-half the cost of maintaining a home may be eligible to use qualifying widow with dependent_child as her filing_status for years following the year her spouse died if she can claim a dependency_deduction for a child or stepchild who lived in her home all year in addition an unmarried taxpayer who furnishes more than one-half of the cost of maintaining a home may be able to file as head_of_household if in certain cases a qualifying_child or other individual if the taxpayer can claim that other person as a dependent lived in that home for more than one-half the year otherwise widows must file as single unless the congress changes the law to provide the relief -------------- requested conex-117240-14 i hope this information is helpful if you have additional questions please call me or ----- ------------------- at -------------------- sincerely michael j montemurro chief branch office of associate chief_counsel income_tax and accounting


internal_revenue_service number release date index no department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi -- plr-136247-03 date date legend taxpayer generator project dear this letter responds to your letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting a letter_ruling concerning whether the transfer of an intertie from generator to taxpayer is a nonshareholder contribution_to_capital excludable from income under sec_118 of the internal_revenue_code taxpayer represents that the facts are as follows facts generator built project project is a qualifying_facility under the public_utilities regulatory policies act of generator signed an interconnection agreement with taxpayer that provides for the interconnection of project with taxpayer’s grid the interconnection agreement has an indefinite term the interconnection agreement will continue until a mutually agreed termination_date not to exceed the date on which project ceases commercial operation taxpayer built and owns the intertie generator reimbursed taxpayer for the cost of the intertie plr-136247-03 generator is selling the electricity from project to third-party customers ownership to all power that is wheeled from project will transfer to the third-party customers prior to its transmission on taxpayer’s grid taxpayer represents that generator will treat the cost reimbursements as basis in an intangible asset and recover its basis using the straight-line method over years taxpayer also represents that generator will not purchase power from taxpayer the intertie is not a dual-use intertie in addition generator certified to taxpayer that the inflow of power to project in all years would not exceed five percent of the projected total power flows over the intertie taxpayer will not include the intertie in its rate base further taxpayer represents the following the intertie contributed by generator to taxpayer has become a permanent part of taxpayer’s capital generator’s contribution was not compensation_for services provided by taxpayer to generator the contribution was a bargained-for-exchange the contribution resulted in a benefit to taxpayer in an amount commensurate with its value and the intertie will be used by taxpayer in its business to produce income law and analysis sec_61 and sec_1_61-1 of the income_tax regulations provide that gross_income means all income from whatever source derived unless excluded by law sec_118 provides that in the case of a corporation gross_income does not include any contribution_to_the_capital_of_the_taxpayer sec_118 as amended by a of the tax_reform_act_of_1986 the act and a of the small_business job protection act of provides that for purposes of subsection a except as provided in subsection c the term contribution to the capital of taxpayer does not include any contribution_in_aid_of_construction ciac or any other contribution as a customer or potential customer sec_1_118-1 provides in part that sec_118 also applies to contributions to capital made by persons other than shareholders for example the exclusion applies to the value of land or other_property contributed to a corporation by a governmental_unit or by a civic group for the purpose of enabling the corporation to expand its operating facilities however the exclusion does not apply to any money or property transferred to the corporation in consideration for goods or services rendered or to subsidies paid to induce the taxpayer to limit production the legislative_history to sec_118 indicates that the exclusion_from_gross_income for nonshareholder contributions to capital of a corporation was intended to apply to those contributions that are neither gifts because the contributor expects to derive indirect benefits nor payments for future services because the anticipated future_benefits are too intangible the legislative_history also indicates that the provision was intended to codify the existing law that had developed through administrative and court decisions plr-136247-03 on the subject h_r rep no 83rd cong 2d sess s rep no 83d cong 2d sess notice_88_129 1988_2_cb_541 as modified and amended by notice_90_60 1990_2_cb_345 and notice_2001_82 2001_2_cb_619 provides specific guidance with respect to the treatment of transfers of property to regulated public_utilities by qualifying small power producers and qualifying cogenerators collectively qualifying facilities as defined in sec_3 of the federal power act as amended by section of the public_utilities regulatory policies act of purpa the amendment of sec_118 by the act was intended to require utilities to include in income the value of any ciac made to encourage the provision of services by a utility to a customer see h_r rep no 99th cong 2d sess conference_report in a ciac transaction the purpose of the contribution of property to the utility is to facilitate the sale of power by the utility to a customer in contrast the purpose of the contribution by a qualifying_facility to a utility is to permit the sale of power by the qualifying_facility to the utility accordingly the fact that the amendments to sec_118 render ciac transactions taxable to the utility does not require a similar conclusion with respect to transfers from qualifying facilities to utilities notice_88_129 provides in part that with respect to transfers made by a qualifying_facility to a utility exclusively in connection with the sale of electricity by the qualifying_facility to the utility a utility will not realize income upon transfer of an intertie by a qualifying_facility an intertie may include new connecting and transmission facilities or modifications upgrades or relocations of a utility’s existing transmission network the possibility that an intertie may be used to transmit power to a utility that will in turn transmit the power across its transmission network for sale by the qualifying_facility to another utility wheeling will not cause the contribution to be treated as a ciac further the notice provides in part that a transfer from a qualifying_facility to a utility will not be treated as a qualifying_facility transfer qf transfer under this notice to the extent the intertie is included in the utility’s rate base moreover a transfer of an intertie to a utility will not be treated as a qf transfer under this notice if the term of the power purchase contract is less than ten years notice_88_129 also provides in part that a utility that constructs an intertie in exchange for a cash payment from a qualifying_facility pursuant to a purpa contract will be deemed to construct the property under contract and will recognize income from the construction in the same manner as any other taxpayer constructing similar_property under contract subsequent to the construction of the property the qualifying_facility will be deemed to transfer the property to the utility in a qf transfer that will be treated in exactly the same manner as an in-kind qf transfer in addition the notice provides in part that the contribution of a dual-use intertie to a utility will be treated as a qf transfer and therefore nontaxable if in light of all plr-136247-03 information available to the utility at the time of transfer it is reasonably projected that during the first ten taxable years of the utility beginning with the year in which the transferred property is placed_in_service no more than five percent of the projected total power flows over the intertie will flow to the qualifying_facility notice_2001_82 amplifies and modifies notice_88_129 notice_2001_82 extends the safe_harbor provisions of notice_88_129 to include transfers of interties from non- qualifying facilities and transfers of interties used exclusively or in part to transmit power over the utility’s transmission grid for sale to consumers or intermediaries wheeling the notice requires that ownership of the electricity wheeled passes to the purchaser prior to its transmission on the utility’s transmission grid this ownership requirement is deemed satisfied if title passes at the busbar on the generator’s end of the intertie further notice_2001_82 provides that a long-term interconnection agreement in lieu of a long-term power purchase contract may be used to satisfy the safe_harbor provisions of notice_88_129 in wheeling transactions finally notice_2001_82 requires that the generator must capitalize the cost of the property transferred as an intangible asset and recovered using the straight-line method over a useful_life of years in the instant case the transfer of the intertie is subject_to the guidance set forth in notice_88_129 notice_90_60 and notice_2001_82 for the following reasons the project is a qualifying_facility under the public_utilities regulatory policies act of as contemplated under notice_88_129 generator and taxpayer have entered into a long-term interconnection agreement the intertie will be used in connection with generator’s sale of electricity wheeled over taxpayer’s transmission grid to third parties the cost of the intertie will not be included in taxpayer’s rate base no more than five percent of the projected total power flows over the intertie will flow to the qualifying_facility during the first ten taxable years beginning with the year in which the intertie is placed_in_service ownership of the electricity wheeled will not be with generator prior to its transmission on the grid and the cost of the intertie will be capitalized by generator as an intangible asset and recovered using the straight-line method over a useful_life of years thus we conclude that the transfer of the intertie by generator to taxpayer meets the safe_harbor requirements of notice_88_129 as amended and modified by notice_90_60 and notice_2001_82 next we must decide whether the contribution qualifies as a contribution_to_capital under sec_118 the legislative_history of sec_118 provides in part as follows this sec_118 in effect places in the code the court decisions on the subject it deals with cases where a contribution is made to a corporation by a governmental_unit chamber of commerce or other association of individuals having no proprietary interest in the corporation in many such cases because the contributor expects to derive indirect benefits the contribution cannot be called a gift yet the anticipated future_benefits may also be so intangible as to not warrant treating the contribution as a payment for future services plr-136247-03 s rep no 83d cong 2d sess in 319_us_98 the court held that payments by prospective customers to an electric utility company to cover the cost of extending the utility’s facilities to their homes were part of the price of service rather than contributions to capital the case concerned customers’ payments to a utility company for the estimated cost of constructing service facilities primary power lines that the utility company otherwise was not obligated to provide the customers intended no contribution to the company’s capital later in 339_us_583 the court held that money and property contributions by community groups to induce a shoe company to locate or expand its factory operations in the contributing communities were nonshareholder contributions to capital the court reasoned that when the motivation of the contributors is to benefit the community at large and the contributors do not anticipate any direct benefit from their contributions the contributions are nonshareholder contributions to capital id pincite finally in 412_us_401 the court in determining whether a taxpayer was entitled to depreciate the cost of certain facilities that had been funded by the federal government held that the governmental subsidies were not contributions to the taxpayer’s capital the court recognized that the holding in detroit edison co had been qualified by its decision in brown shoe co the court in chicago burlington quincy railroad co found that the distinguishing characteristic between those two cases was the differing purpose motivating the respective transfers in brown shoe co the only expectation of the contributors was that such contributions might prove advantageous to the community at large thus in brown shoe co since the transfers were made with the purpose not of receiving direct services or recompense but only of obtaining advantage for the general community the result was a contribution_to_capital the court in chicago burlington quincy railroad co also stated that there were other characteristics of a nonshareholder contribution_to_capital implicit in detroit edison co and brown shoe co from these two cases the court distilled some of the characteristics of a nonshareholder contribution_to_capital under both the and codes first the payment must become a permanent part of the transferee’s working_capital structure second it may not be compensation such as a direct payment for a specific quantifiable service provided for the transferor by the transferee third it must be bargained for fourth the asset transferred foreseeably must benefit the transferee in an amount commensurate with its value fifth the asset ordinarily if not always will be employed in or contribute to the production of additional income and its value assured in that respect chicago burlington quincy railroad co u s pincite plr-136247-03 based on the facts represented we conclude that the transfer of the intertie by generator to taxpayer possesses the characteristics of a nonshareholder contribution_to_capital as described in chicago burlington quincy railroad co therefore the transfer of the intertie by generator to taxpayer will be a contribution_to_capital under sec_118 accordingly based solely on the foregoing analysis and the representations made by taxpayer and generator we rule that the transfer of the intertie by generator to taxpayer will not constitute a contribution_in_aid_of_construction under sec_118 and will be excludable from the gross_income of taxpayer as a nonshareholder contribution_to_capital under sec_118 except as specifically set forth above no opinion is expressed or implied concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations specifically no opinion is expressed or implied as to whether taxpayer’s representation that less than five percent of the total projected power flows over the intertie from taxpayer to generator is a reasonable projection for purposes of the five percent test in notice_88_129 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 walter h woo senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy


office_of_chief_counsel internal_revenue_service memorandum cc pa cbs b03 sahovey postf-157519-03 uilc date date to benjamin de luna associate area_counsel manhattan group large mid-size business from peter d devlin s number release date subject deputy assistant chief_counsel collection bankruptcy and summonses office name ----------------------------------- this memorandum responds to your request that we review and comment on a proposed disclosure agreement the agreement submitted by the taxpayer ------ whereby the taxpayer would turn over to the service in lieu of a summons certain billing records that contain protected health information that is otherwise subject_to statutory disclosure restraints set forth in the privacy regulations of the health insurance portability and accountability act of hipaa as discussed below we are opposed to the service entering into this or any other similar agreement for the production of documents because it is legally unnecessary it conflicts with statutorily imposed disclosure and or document retention rules and it will create bad precedent for future audits that require production of protected health information background --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- the proposed agreement arose under the service’s audit of the --------and --------tax years after requesting cbs’ comments however the service closed that audit and initiated a new audit of the same issues for --------and ------- although the current agreement is moot the service believes -------will raise the same hipaa concerns and seek substantively the same agreement when information is requested in the current audit we provide this response so you may consider cbs’s views at that time postf-157519-03 ----------------------------------- these contracts generally require ------ ------------- to provide the insurance_company a discount when the insurance_company pays its client’s bill these discounts are referred to as contractuals since they arise under the contract agreement ---------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- the service is currently investigating the propriety of the various methods ------ uses to calculate its contractuals --------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- accordingly the service sought to audit the discount ------ claimed on its --------and --------tax returns the service attempted to obtain de-identified information for the audit however after reviewing the information provided the service determined that it could not proceed without information that identifies specific health care recipients ------ is willing to release the protected health information but only if the service enters into a contractual agreement discussion and analysis congress passed the health insurance portability and accountability act of in part to provide protection for the privacy interest of health care patients pursuant to the authority granted in hipaa regulations were promulgated authorizing and or prohibiting disclosure of certain information see c f_r sec_164 effective date the rules have the effect of restricting the service’s information gathering authority by imposing civil and criminal penalties on covered entities for unauthorized disclosure of medical information that identifies a particular person protected health information there is no dispute that ------ is a covered_entity and that the service is requesting protected health information thus unless one of the exceptions to hipaa’s bar to production applies the service is not entitled to the requested information the agreement proposed by ------ is fashioned after hipaa’s rules for the exchange of information between a covered_entity and a business_associate business associates are defined in hipaa and include entities that assist covered entities in performing health services eg a consultant or a lawyer c f_r in auditing ------ the service is performing a tax oversight role mandated by congress it i sec_2 the rules permit releasing protected health information to a business_associate as long as the covered_entity and the business_associate enter into an agreement that assures the business_associate will safeguard the information c f_r sec_164 e postf-157519-03 not a business_associate and need not enter into an agreement to receive protected information see final rule fed reg date noting that health oversight agencies permitted to obtain protected health information under c f_r sec_164 e are not business associates and need not enter into agreements there does not appear to be anything in the rules that permits a covered_entity to release information to a non-business associate simply because those parties enter into an agreement to the contrary c f_r sec_164 states that a covered_entity may only release protected health information as permitted by the rules the only exception applicable to the current audit i sec_45 c f_r sec_164 f under this law enforcement exception ------ may release information pursuant to an idr or summons as long as the service states that the information sought is relevant and material to a legitimate law enforcement inquiry the request is specific and limited in scope to the extent reasonably practicable in light of the purpose for which the information is sought and de-identified information could not reasonably be used c f_r sec_164 f ii c the agreement expressly recognizes this requirement by mandating that the service state in each idr that the information produced will satisfy the three requirements as a practical matter since the agreement requires production of information pursuant to an idr that satisfies hipaa’s requirement in c f_r sec_164 f ii the agreement only requires ------ to release information that the service could likewise summons under hipaa id in view of the fact that hipaa does not appear to authorize release of information pursuant to an agreement and that the information that ------ proposes to release is subject_to a summons there is no concrete reason for entering into the agreement moreover the information gathering regime contained in the internal_revenue_code contains clear and broad authority to obtain the information that is sought in this case and that authority has been well tested in courts sec_7602 et seq 379_us_48 ------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- the office_of_chief_counsel has a long standing position that the service should not enter into any agreement for the production of documents when the service can compel production this policy is based largely on sec_6103 which is both a restrictive and permissive statute while sec_6103 lays out the general_rule prohibiting the disclosure of returns and return_information subsections c through o provide exceptions permitting and in some cases requiring specific limited disclosures accordingly there might be circumstances under which sec_6103 either allows or postf-157519-03 requires disclosure of return_information that the agreement restricts additionally executing agreements with taxpayers that bind the service requires a delegation of authority ------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- for the forgoing reasons the service should not enter into this agreement or any other contract to secure information from a covered_entity that is subject_to hipaa in lieu of a summons even if any specific concerns we might have to the provisions in the agreement are addressed the concern remains that entering into an agreement with --- ------ is legally unnecessary contravenes current policy and raises the specter of preferential treatment if you have any questions in this matter please call me pincite-


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b05- plr-114408-02 date date in re distributing distributing distributing controlled sub sub sub sub a sub b sub c sub d sub e sub f sub g sub h sub sub a sub b sub c sub d sub e sub f sub g sub h sub i sub j sub sub a sub b sub c sub sub sub a sub b sub c state a state b business a date x date y date z date a r s t u v w x y z a b c d e f g h j k l m n dear this is in response to your letter dated date in which rulings are requested as to the federal_income_tax consequences of a proposed transaction the facts submitted for consideration are substantially as set forth below distributing is a publicly traded state a corporation that is indirectly engaged in business a through its ownership of sub sub and distributing each of which is a wholly-owned domestic subsidiary of distributing as of date z distributing had outstanding w shares of common_stock which were widely held and publicly traded sub wholly owns sub which is a domestic_corporation sub owns stock of sub a representing sec_368 control and wholly owns sub b sub c sub d sub e sub f sub g and sub h each of which is a domestic_corporation sub d wholly owns sub a foreign_corporation which wholly owns sub a a foreign_corporation sub h wholly owns sub b and sub c each of which is a domestic_corporation and sub d and sub e each of which is a foreign_corporation distributing wholly owns distributing sub and sub a each of which is a domestic_corporation sub a wholly owns sub b and sub c each of which is a domestic_corporation distributing wholly owns controlled and after step iv below sub each of which is a domestic_corporation controlled wholly owns sub which wholly owns sub a sub b and sub c each of sub sub a sub b and sub c is a domestic_corporation financial information has been submitted which indicates that each of sub sub a sub b sub c sub e sub f sub g sub a sub b sub c sub d sub e sub i sub sub b sub c sub sub a sub b and sub c has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for the last five years it has been represented that immediately after the distributions of controlled described below at least percent of the fair_market_value of the gross assets of each of distributing distributing distributing sub sub sub d sub h sub sub g sub h sub a controlled and sub will consist of the stock and securities of controlled corporations that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 according to taxpayer’s submission along with supporting documentation the separation of distributing and controlled would positively affect the operations of each distributing and controlled have experienced significant systemic problems by operating in a parent-subsidiary relationship with each other eliminating that relationship would enhance the business prospects of both entities accordingly the following steps have been taken or are proposed i ii on date x controlled distributed to distributing two promissory notes in the total principal_amount of dollar_figurer all or a portion of these promissory notes have been distributed by distributing to distributing and from distributing to distributing prior to distribution step viii below no excess_loss_account with respect to the stock of distributing distributing or controlled was created or increased as a result of these distributions on date y approximately s million shares of distributing common_stock that were held by controlled and approximately t million shares of distributing common_stock that were held by distributing representing all of the shares of distributing common_stock that were held by subsidiaries of distributing other than shares if any held by subsidiaries of sub that are h as inventory as part of their j operations were recapitalized into shares of k distributing preferred_stock in a transaction intended to qualify under sec_368 of the code at the time of the transaction none of any shares of any series of distributing preferred_stock will be held by controlled or its subsidiaries iii controlled recapitalized its outstanding_stock into controlled class a common_stock and controlled class b common_stock in a transaction intended to qualify under sec_368 iv controlled distributed to distributing or otherwise transferred to other subsidiaries of distributing certain subsidiaries other than sub but including sub which was transferred to distributing and shares of k distributing preferred_stock v on date a controlled completed an initial_public_offering of shares of controlled class a common_stock in which it issued shares of controlled class a common_stock representing less than percent of the voting power of the outstanding controlled common_stock and an offering of debentures collectively referred to as the public offering and used the net_proceeds therefrom to prepay dollar_figureu of the promissory notes that it issued in step i as well as certain other outstanding intercompany debt including approximately dollar_figurev owed to sub it is represented that the debentures issued in the public offering consitute debt for federal tax purposes the public offering caused distributing and controlled to deconsolidate for federal_income_tax purposes because in it shares of controlled class a common_stock representing greater than percent of the value of the outstanding controlled stock were issued to the public vi the state b operations of sub f an indirect wholly owned subsidiary of distributing will be transferred to a single-member limited_liability_company owned by sub b an indirect wholly-owned subsidiary of distributing and the common_stock of sub a which stock is percent owned by sub will be recapitalized into common_stock and preferred_stock of sub a representing sec_368 control in a transaction intended to qualify under sec_368 vii distributing and certain of distributing 1's subsidiaries will restructure certain intercompany receivables into formal interest-bearing notes which are intended to qualify as securities for federal_income_tax purposes viii distributing will distribute an amount of its controlled class a common_stock and controlled class b common_stock representing sec_368 control of controlled to distributing distribution ix distributing will distribute an amount of the controlled class a common_stock and controlled class b common_stock received in step viii above representing sec_368 control to distributing distribution x distributing will distribute to distributing common_stock shareholders pro_rata an amount of controlled common_stock representing sec_368 c control of controlled external distribution an amount of controlled common_stock representing not more than z percent of the value of the outstanding controlled common_stock immediately following the external distribution the retained shares will be retained in the aggregate by distributing distributing and distributing or wholly-owned subsidiaries thereof xi pursuant to distributing 1's restricted_stock programs distributing restricted_stock has been awarded as compensation to certain employees of distributing distributing 1's employees and controlled controlled’s employees it is represented such stock is subject_to a substantial_risk_of_forfeiture within the meaning of sec_83 as part of the external distribution shares of controlled common_stock will be distributed restricted_stock distribution on distributing restricted_stock distributing restricted_stock pursuant to the distributing and controlled restricted_stock plans shares of controlled common_stock received by holders of distributing restricted_stock will be subject_to the same vesting requirements and restrictions as the shares of underlying distributing restricted_stock pursuant to such stock plans immediately upon their receipt of shares of controlled common_stock in the external distribution controlled’s employees who hold distributing restricted_stock will surrender to distributing their distributing restricted_stock the cancellation transaction and receive from controlled newly issued shares of controlled common_stock the controlled restricted_stock transaction which are equal in value to the surrendered distributing restricted_stock and which are subject_to the same vesting requirements as the distributing restricted_stock controlled will hold the reversionary_interest in all the shares of controlled restricted_stock regardless of whether such shares are held by distributing 1’s employees or controlled’s employees xii distributing will transfer dollar_figurel to controlled distributing proposes to acquire sub j indirectly by way of a merger of sub j into sub g with sub g surviving after the merger sub g will be contributed to sub and sub and sub h and will become a wholly owned subsidiary of sub h following these transactions sub g will wholly own sub h which will wholly own sub i as part of these transactions an active business of sub c will be transferred to sub i the business purposes for the retention of the retained shares is to facilitate compliance with certain m requirements none of distributing 1‘s directors or officers will remain as directors and officers of controlled following the external distribution the retained shares will be disposed of as soon as a disposition is warranted consistent with the business_purpose for the retention but in any event not later than five years after the external distribution distributing and its subsidiaries will vote the retained shares in proportion to the votes cast by controlled ‘s other shareholders distributing and controlled will enter into certain transitional agreements transitional services agreements relating to the sharing of facilities data systems and other historically shared corporate and administrative services the consideration to be paid under the transitional services agreement is based on an existing cost allocation methodology between distributing and controlled which is designed to achieve cost reimbursement distributing and controlled have entered into agreements relating to the licensing of certain intellectual_property in addition certain continuing n related arrangements will exist between distributing and controlled following the transaction the n agreement a tax_sharing_agreement and a g agreement were entered into prior to the public offering under such entered agreements payments will be made by distributing to controlled or by controlled to distributing as the case may be with respect to events that have arisen in taxable periods ending on or before the public offering or for taxable periods beginning before and ending after the public offering controlled may decide based on prevailing market conditions to repurchase shares of controlled class a common_stock in open market transactions prior to distribution in addition distributing and controlled may also decide to have controlled repurchase shares of controlled common_stock from distributing distributing and or distributing or their subsidiaries prior to the distributions of controlled stock it is represented that sec_368 control will in all events be distributed in the distributions in connection with distribution the following representations have been made a b c indebtedness if any owed by controlled to distributing after distribution will not constitute stock_or_securities no part of the consideration to be distributed by distributing will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing immediately after distribution at least percent of the fair_market_value of the gross assets of distributing will consist of the stock and securities of a controlled_corporation sub that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 d e f g h i j k the five years of financial information submitted on behalf of sub is representative of sub 6’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted immediately after distribution at least percent of the fair_market_value of the gross assets of controlled will consist of the stock and securities of a controlled_corporation sub that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after distribution at least percent of the fair_market_value of the gross assets of sub will consist of the stock and securities of controlled corporations sub a sub b and sub c that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 the five years of financial information submitted on behalf of sub a is representative of sub a’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of sub b is representative of sub b’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of sub c is representative of sub c’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted following distribution distributing through controlled subsidiary sub and controlled through controlled_subsidiaries sub a sub b and sub c will continue the active_conduct of its business independently and with its separate employees distribution is carried out for the corporate business_purpose of making possible distribution and the external distribution the corporate business purposes for which are to resolve substantial fit and focus problems and enable controlled to raise capital on a substantially more cost-effective basis through the public offering distribution is motivated in whole or substantial part by these corporate business purposes l there is no plan or intention by distributing to sell exchange transfer m n o p q r s by gift or otherwise dispose_of any its stock in either distributing or controlled after distribution1 except pursuant to distribution there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after distribution other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after distribution except in the ordinary course of business except for intercompany indebtedness which does not constitute a security and which may arise pursuant to certain intercompany agreements entered into in connection with distribution no intercorporate debt will exist between distributing and controlled at the time of or subsequent to distribution immediately before distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further distributing 3's excess_loss_account if any with respect to its controlled common_stock will be included in income immediately before distribution to the extent required by applicable regulations see sec_1_1502-19 except for the transitional services agreements the licensing agreements with respect to certain intellectual_property and the n agreement payments made in connection with continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length immediately after distribution the gross assets of the businesses actively conducted as defined in sec_355 by each of sub sub a sub b and sub c will have a fair_market_value equal to at least five percent of the total fair_market_value of such corporation’s gross assets distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire other than as a result of the distribution directly or indirectly stock possessing a percent or greater interest as defined in sec_355 of either distributing or controlled t immediately after distribution no person will hold directly or indirectly disqualified_stock within the meaning of sec_355 in distributing or controlled that constitutes a percent or greater interest in distributing or controlled in connection with distribution the following representations have been made a b c d e f g h indebtedness if any owed by controlled to distributing after distribution will not constitute stock_or_securities no part of the consideration to be distributed by distributing will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing immediately after distribution at least percent of the fair_market_value of the gross assets of distributing will consist of the stock and securities of controlled corporations distributing sub and sub a that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 the five years of financial information submitted on behalf of sub is representative of sub 5's present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted immediately after distribution at least percent of the fair_market_value of the gross assets of sub a will consist of the stock and securities of controlled corporations sub b and sub c that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after distribution at least percent of the fair_market_value of the gross assets of distributing will consist of the stock and securities of a controlled_corporation sub that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after distribution at least percent of the fair_market_value of the gross assets of controlled will consist of the stock and securities of a controlled_corporation sub that is engaged in the active_conduct of trade_or_business as defined in sec_355 immediately after distribution at least percent of the fair_market_value of the gross assets of sub will consist of the stock and securities of controlled corporations sub a sub b and sub c that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 i j k l the five years of financial information submitted on behalf of sub b is representative of sub b’s present operations and with regard to such business there have been no substantial changes since the date of the last financial information statements submitted the five years of financial information submitted on behalf of sub c is representative of sub c’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted following distribution distributing through controlled_subsidiaries sub sub b sub c and sub and controlled through sub a sub b and sub c will continue the active_conduct of its business independently and with its separate employees distribution is carried out for the corporate business_purpose of making possible the external distribution the corporate business purposes for which are to resolve substantial fit and focus problems and enable controlled to raise capital on a substantially more cost-effective basis through the public offering distribution is motivated in whole or substantial part by these corporate business purposes m there is no plan or intention by distributing to sell exchange transfer by gift or otherwise dispose_of any of its stock in either distributing or controlled after distribution except pursuant to the external distribution distributing and its subsidiaries will dispose_of the retained shares pursuant to the standards of appendix b to revproc_96_30 n o p there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after distribution other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after distribution except in the ordinary course of business except for intercompany indebtedness which does not constitute a security and which may arise pursuant to certain intercompany agreements entered into in connection with distribution no intercorporate debt will exist between distributing and controlled at the time of or subsequent to distribution q immediately before distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further distributing 2's excess_loss_account if any with respect to its controlled common_stock will be included in income immediately before distribution to the extent required by applicable regulations see sec_1_1502-19 except for the transitional services agreements the licensing agreements with respect to certain intellectual_property and the n agreement payments made in connection with continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length immediately after distribution the gross assets of the businesses actively conducted as defined in sec_355 by each of sub sub 5b sub c sub sub a sub b and sub c will have a fair_market_value equal to at least five percent of the total fair_market_value of each such corporation’s gross assets distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire other than as a result of the distribution directly or indirectly stock possessing a percent or greater interest as defined in sec_355 of either distributing or controlled immediately after distribution no person will hold directly or indirectly disqualified_stock within the meaning of sec_355 in distributing or controlled that constitutes a percent or greater interest in distributing or controlled r s t u in connection with the external distribution the following representations have been made a b c indebtedness if any owed by controlled to distributing after the external distribution will not constitute stock_or_securities no part of the consideration to be distributed by distributing will be received by any shareholder as creditor employee or in any capacity other than that of a shareholder of distributing immediately after the external distribution at least percent of the fair_market_value of the gross assets of distributing will consist of the stock and securities of controlled corporations sub sub and distributing that are engaged in the active_conduct_of_a_trade_or_business as defined in d e f g h i j k l sec_355 immediately after the external distribution at least percent of the fair_market_value of the gross assets of sub will consist of the stock and securities of a controlled_corporation sub that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the external distribution at least percent of the fair_market_value of the gross assets of sub will consist of the stock and securities of controlled corporations sub a sub b sub c sub d sub e sub f sub g and sub h that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 the five years of financial information submitted on behalf of sub a is representative of sub a’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of sub b is representative of sub b’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of sub c is representative of sub c’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted immediately after the external distribution at least percent of the fair_market_value of the gross assets of sub d will consist of the stock and securities of a controlled_corporation sub that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the external distribution at least percent of the fair_market_value of the gross assets of sub will consist of the stock and securities of a controlled_corporation sub a that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 the five years of financial information submitted on behalf of sub a is representative of sub a’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of sub e is representative of sub e’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted m the five years of financial information submitted on behalf of sub f is representative of sub f’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted n o p q r s t the five years of financial information submitted on behalf of sub g is representative of sub g’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted immediately after the external distribution at least percent of the fair_market_value of the gross assets of sub h will consist of the stock and securities of controlled corporations that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 such controlled corporations shall consist of sub b sub c sub d sub e and if sub g has been acquired by then sub g the five years of financial information submitted on behalf of sub b is representative of sub b’s present operations and with regard to its businesses there have been no substantial changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of sub c is representative of sub c’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of sub d is representative of sub d’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of sub e is representative of sub e’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of sub i is representative of sub i’s present operations and with regard to such business there have been no substantial changes since the date of the last financial statements submitted u the five years of financial information submitted on behalf of sub is representative of sub 2's present operations and with regard to such v w x y z business there have been no substantial changes since the date of the last financial statements submitted immediately after the external distribution at least percent of the fair_market_value of the gross assets of distributing will consist of the stock and securities of controlled corporations distributing sub and sub a that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the external distribution at least percent of the fair_market_value of the gross assets of sub a will consist of the stock and securities of controlled corporations sub b and sub c that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the external distribution at least percent of the fair_market_value of the gross assets of distributing will consist of the stock and securities of a controlled_corporation sub that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the external distribution at least percent of the fair_market_value of the gross assets of controlled will consist of the stock and securities of a controlled_corporation sub that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the external distribution at least percent of the fair_market_value of the gross assets of sub will consist of the stock and securities of controlled corporations sub a sub b and sub c that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 aa following the external distribution distributing through controlled_subsidiaries sub sub a sub b sub c sub e sub f sub g sub a sub b sub c sub d sub e sub i sub sub b sub c and sub and controlled through controlled_subsidiaries sub a sub b and sub c will continue the active_conduct of its business independently and with its separate employees bb the external distribution is carried out for the corporate business purposes of enhancing the future success of each of distributing 1’s and controlled’s respective business by resolving substantial fit and focus problems that have evolved and are exacerbated by the operation of both businesses within a single affiliated_group_of_corporations the external distribution will also enable controlled to raise capital on a substantially more cost-effective basis through the public offering the external distribution is motivated in whole or substantial part by these corporate business purposes cc there is no plan or intention by any distributing common_stock shareholder who own sec_5 percent or more of the distributing common_stock and the management of distributing to its best knowledge is not aware of any plan or intention on the part of any particular remaining common_stock shareholder of distributing to sell exchange transfer by gift or otherwise dispose_of any of its stock in either distributing or controlled after the external distribution dd there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the external distribution other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 ee there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the external distribution except in the ordinary course of business ff gg except for intercompany indebtedness which does not constitute a security and which may arise pursuant to certain intercompany agreements entered into in connection with the three distributions of controlled no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the external distribution immediately before the external distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further distributing 1's excess_loss_account if any with respect to its controlled common_stock will be included in income immediately before the external distribution to the extent required by applicable regulations see sec_1_1502-19 hh except for the transitional services agreements the licensing agreements with respect to certain intellectual_property and the n agreement payments made in connection with continuing transactions if any between distribution and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length ii immediately after the external distribution the gross assets of the businesses actively conducted as defined in sec_355 by each of sub a sub b sub c sub e sub g sub a sub b sub c sub d sub e sub i sub sub b sub c sub sub a sub b and sub c will have a fair_market_value equal to at least five percent of the total fair_market_value of such corporation’s gross assets the gross assets of the active business relied upon for purpose of sec_355 by sub had a fair_market_value of approximately dollar_figurex as of date z representing approximately y percent of the fair_market_value of the gross assets of sub the active business generated net_income over the five year period ending on date z representing approximately z percent to a percent of sub 2's total consolidated net_income for the same period the gross assets of the active business relied upon for purposes of sec_355 by sub f had a fair_market_value in excess of dollar_figureb as of date z representing approximately percent of the fair_market_value of the gross assets of sub f the active business generated revenues representing approximately c percent to d percent of sub f’s total consolidated revenues over that same period it employed e employees as of date z representing approximately f percent of total employees of sub f and its subsidiaries jj kk the external distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire other than as a result of the distribution directly or indirectly stock possessing a percent or greater interest as defined in sec_355 of either distributing or controlled immediately after the external distribution no person will hold directly or indirectly disqualified_stock within the meaning of sec_355 in distributing or controlled that constitutes a percent or greater interest in distributing or controlled based solely on the information submitted and the representations set forth above we rule as follows for federal_income_tax purposes the distribution of promissory notes by controlled to distributing pursuant to step i above and the contribution of dollar_figurel to controlled by distributing pursuant to step xii above will be viewed as a distribution in the amount of the fair_market_value of the promissory notes less the dollar_figurel contributed to controlled the amount distributed to distributing pursuant to step i above shall be treated as a distribution_of_property to which sec_301 applies otherwise no gain_or_loss will be recognized to and no amount will be included in the income of distributing upon the receipt of controlled stock from distributing in distribution sec_355 no gain_or_loss will be recognized to distributing upon the distribution of the stock of controlled in distribution sec_355 the aggregate basis of the controlled stock and the distributing stock in the hands of distributing immediately after distribution will be the same as the aggregate basis of the distributing stock immediately prior to distribution allocated in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 the holding_period of the controlled stock to be received by distributing in distribution will include the holding_period of the distributing stock with respect to which the distribution will be made provided that such stock is held as a capital_asset on the date of distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between distribution and controlled will be made under sec_1_312-10 the amount distributed to distributing pursuant to step i above shall be treated as a distribution_of_property to which sec_301 applies otherwise no gain_or_loss will be recognized to and no amount will be included in the income of distributing upon the receipt of controlled stock in distribution sec_355 no gain_or_loss will be recognized to distributing upon the distribution of the controlled stock to distributing in distribution sec_355 the aggregate basis of the controlled stock and the distributing stock in the hands of distributing immediately after distribution will be the same as the aggregate basis of the distributing stock held immediately prior to distributing allocated in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 the holding_period of the controlled stock to be received by distributing in distribution will include the holding_period of the distributing stock with respect to which the distribution will be made provided that the distributing stock is held as a capital_asset on the date of distribution sec_1223 as provided under sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 no gain_or_loss will be recognized to and no amount will be included in the income of distributing shareholders upon the receipt of controlled stock in the external distribution sec_355 no gain_or_loss will be recognized to distributing upon the distribution of the controlled stock to distributing shareholders in the external distribution sec_355 the aggregate basis of the controlled stock and the distributing stock in the hands of distributing shareholders immediately after the external distribution will be the same as the aggregate basis of the distributing stock held immediately prior to the external distribution allocated in proportion to the fair_market_value of each in accordance with sec_1 a sec_358 the holding_period of the controlled stock to be received by each distributing shareholder in the external distribution will include the holding_period of the distributing stock with respect to which the distribution will be made provided that the distributing stock is held as a capital_asset on the date of the external distribution sec_1223 as provided under sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 payments made by distributing to controlled or by controlled to distributing under the tax_sharing_agreement or the g agreement regarding liabilities that i have arisen or will arise for a taxable_period ending on or before the public offering or for a taxable_period beginning before and ending after the public offering and ii do not become fixed or ascertainable until after the public offering will be treated as occurring immediately before the public offering cf 344_us_6 tax character of later transaction will derive from earlier related transaction revrul_83_73 1983-1c b no gain_or_loss will be recognized by distributing controlled distributing 1's employees or controlled’s employees in connection the i restricted_stock distribution ii the cancellation transaction and iii the controlled restricted_stock transaction no opinion is expressed as to the tax consequences of the transitional services agreement the agreement relating to the licensing of certain intellectual_property and the n agreements no opinion was requested and none is expressed concerning which entity is entitled to the deduction under sec_83 when the restrictions on the distributing restricted_stock and the controlled restricted_stock lapse furthermore no opinion is expressed with respect to the tax treatment of the proposed transaction under other provisions of the code and regulations or with respect to the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not directly covered by the above rulings this ruling letter is directed only to the taxpayers who requested it sec_6110 j of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to the taxpayers sincerely charles whedbee senior technical reviewer branch office of associate chief_counsel corporate cc


significant index no department of the treasury internal_revenue_service ash tote get err az bien dear’ this is in response to your request for a ruling on behalf of the company conceming the application of sec_402 of the pension_protection_act of ppa '06 with respect to the plan the company is a commerciai passenger airline the plan has a plan_year that is the same as the company's fiscal_year -- april to march ppa ‘06 revised the minimum_funding standards of sec_412 of the internal_revenue_code and added new sec_430 under sec_412 as amended by ppa a defined_benefit_plan that is not a multiemployer_plan will be treated as satisfying the minimum_funding_standard for a plan_year if the employer makes the minimum_required_contribution under sec_430 sec_430 generally provides that the minimum_required_contribution for a plan_year is determined in relevant part by amortizing any shortfall amortization base as defined over a period of plan years’ under sec_402 of ppa '06 an eligible_plan may elect to have sec_430 of the code applied to its first taxable_year beginning in by amortizing the shortfall amortization base for such taxable_year over a period of plan years rather than plan years part of title of the employee_retirement_income_security_act_of_1974 erisa as amended contains parallel provisions beginning with such year under sec_402 of ppa ’06 an eligible_plan includes a defined benefit pian which is sponsored by a commercial passenger airline sec_402 b of ppa '06 provides that an election under sec_402 to use this special 10-year amartization schedule shall be made not later than date sec_402 of ppa '06 provides that the plan_sponsor shall make any election under sec_402 in such manner as tha secretary_of_the_treasury may prescribe the service issued announcement 2008_3_irb_307 which provided for a specific written election to be made and submitted to the service by the airlines by the statutory due_date date announcement was published in the date issue of the intemal revenue bulletin irb the company represents that it relies on outside pension professionals including attomeys and actuaries for advice conceming the funding of the plan the ruling_request states that the chairperson of the company's plan committee is not an attomey and has no technical expertise regarding federal tax or pension law - according to the information submitted in may september and date the content of presentations made to the campany by the plan's consulting actuary assumed that the 10-year amortization election of sec_402 a of ppa '06 would apply in such presentations the plan’s consulting actuary further suggested that the plan was still awaiting regulations that will clarify the airline reflef' provided under sec_402 the company has represented that the actuary's projections of contributions made on the basis of the 10-year amortization election were used in planning for pension expenses immediately upon becoming aware of the release of announcement the company filed the prescribed election form complying with the requirements of the announcement the company's election form is dated date furthermore the filing in accordance with announcement was made shortly after the release of announcement and prior to its publication in irb upon being informed that their election form complying with announcement was late the company's representatives requested a meeting with the service then on date the company submitted a formal written request that the company be granted an extension of time to make the election under sec_402 of ppa ‘06 specifically the ruling requested was that the company be granted additional time to make the election under sec_301_9100-1 through of the income_tax announcement was released to the media on friday december 21st regulations altematively the company asserts that the election should be considered timely under the substantial compliance doctrine treasury reg dollar_figure sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make regulatory or certain statutory elections 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 announcement published in the internal_revenue_bulletin sec_301_9100-1 defines the term statutory election as an election whose due_date is prescribed by statute under sec_301_9100-1 c the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 of the reguiations to make a regulatory election or certain statutory elections under subtitle a of the code if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasanably and in good_faith and that granting the relief will not prejudice the interests of the government sec_301 91g0-2 lists certain regulatory and statutory elections for which automatic extensions of time to file are granted sec_301_9100-3 generally provides guidance with respect to the granting of relief with respect to regulatory elections not referenced in sec_301_9100-2 the relief requested in this case is nat referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for extensions of time for regulatory elections will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government rules for determining whether such tests have been met in the case of regulatory elections are set forth in sec_301_9100-3 and sec_301_9100-3 respectively the substantial compliance doctrine is an equitable one designed to avoid hardship in cases where the party does all that can reasonably be expected and can be applied only where invocation thereof would not defeat the policies of the underlying statutory provisions 719_f2d_1001 9th cir affd per curiam 272_f2d_945 325_us_293 when the regulatory the commissioner may insist upon full compliance with his regulations angelus commissioner miling co v requirements relate to the substance or essence of a statute see 69_tc_837 dunavant v commissioner t c 31_tc_655 ‘6th cir however under the doctrine_of substantial compliance where taxpayers have not complied with’all of the requirements of an election provision of the statute or regulations an election may nevertheless be deemed to have been made by the taxpayer if the requirements that have not been satisfied do not relate to the substance or essence of the applicable election see wilkinson v commissioner gc memo thus substantial compliance with regulatory requirements may suffice when such requirements are procedural and when the essential statutory purposes have been fuliled 67_tc_1071 67_tc_736 61_tc_5 v united_states f_supp 2d analysis of substantial compliance is to determine whether the election requiremants are mandatory in nature or merely procedural details established to facilitate the commissioner's administration of the internal_revenue_code filter co v commissioner t c an election to be made by attachment of a statement to a retum the inquiry should be into whether the statement merely confirmed the election which had been made in substance or was the very essence of the election see also american air in the case of a regulation that requires stated similarly the district_court in true ruled that the first step in an d wyo factors that courts have used in determining whether strict compliance as opposed to substantial compliance is required include whether the taxpayer's failure to comply fully defeats the purpose of the statute whether the taxpayer attempts to benefit from hindsight by adopting a position inconsistent with his original action or omission whether the commissioner is prejudiced by the untimely election whether the sanction imposed on the taxpayer for the failure is excessive and out of proportion to the default and whether the regulation provided with detailed specificity the manner in which an election was to be made 81_tc_709 67_tc_1071 columbia tron metal co v commissioner 14_tc_706 affd 192_f2d_261 6th in its ruling_request the company asserts that it should be treated as having made a timely sec_402 election because it qualifies for relief under sec_301 through -3 of the regulations or in the altemative because it should be treated as having made a timely election based on the facts and circumstances in accordance with the substantial compliance doctrine initially the company's ruling_request seeks relief under the provisions of sec_301_9100-1 through -3 of the regutations under those rules the commissioner may grant a reasonable extension of time to make a regulatory election or certain statutory elections under subtitle a of the code sec_402 of ppa '06 states that an election under sub sec_402 ax2 of ppa ‘06 shall be made not later than december and that any such election shall be made in the manner as the secretary_of_the_treasury may provide the company attempts to frame this due_date as regulatory based on the provisions of announcement the company argues that the election due_date is set forth in the announcement and thus should be treated as a regulatory election because the due_date for an election under sec_402 of ppa ‘06 is expressly prescribed by the statutory provision the election is by definition a statutory election within the meaning of sec_304 b of the regulations additionally there are no regulations revenue rulings revenue procedures notices or announcements that purport to prescribe the due_date for a a election announcement did not dictate the due_date for the election but simply restated the statutory due_date with reference to ppa '06 sec_402 the due_date in this instance cannot be determined without reference to statute the mere incorporation of a statutory due_date in an announcement does not change a statutory election into a regulatory election while the service has broad authority under sec_301_9100-3 to grant relief in the case of a regulatory election sec_301_9100-3 does not apply in the case of a statutory election furthermore the statutary election at issue is not one of the enumerated elections set forth in sec_301_9100-2 of the regulations accordingly the service does not have the authority under sec_301_9100-1 through -3 of the regulations to grant an extension to the statutory etection date of date as set farth in sec_402 b of ppa ‘06 the company also argues that under the substantial compliance doctrine it has satisfied the election requirements in order to use the special funding_rule in sec_402 of ppa ‘08 because we have concluded that relief is not available under sec_301_9100-1 through of the regulations we need not address the issua of whether such relief could apply to title of erisa the company argues that its and its actuary's actions during and its prompt though tardy by less than two weeks election filing should be treated as rising to the evel of substantial compliance with the election requirement the company's planning and internal budgeting including several meetings and exchanges of correspondence with the plan's actuary all contemplated that the 10-year amortization election under sec_402 of ppa '06 would apply to the plan with respect to post-ppa ‘06 plan years sec_402 d b of ppa provided that an election under sec_402 of ppa ‘06 must be made not later than date ppa '06 sec_402 d provides that a plan_sponsor shall make any election under subsection a in such manner as the secretary_of_the_treasury may prescribe the statute's proviso that treasury may prescribe a manner in which to make the sec_402 a election indicates that congress authorized but did not require treasury to issue specific election-related guidance however announcement r b sets forth the procedures for electing the altemative funding schedule under sec_402 a of ppa ‘06 the appendix to announcement contains a model fill-in-the-blank election form as well as the address to which the election must be sent issue of the internal_revenue_bulletin but was released to the media on date the announcement was published in the date prior to the release of announcement the company did not have any guidelines as fo how to make an election under sec_402 ax2 of ppa ‘06 the materials submitted by the company indicated that at least as early as date the company and its advisors were proceeding as if an election to use the 10-year amortization_method applied to the plan and that the company and its advisors were awaiting regulations that would clarify the airline relief under sec_402 of ppa ‘06 in order to file a formal election in this case the company's signed election form pursuant to announcement was made prior to the start of the first plan_year for which the election applied since such plan_year began on date in addition the company stated that neither the circumstances of the company nor the plan had materially changed in any relevant respect from date to date a tate filing meets the test of substantial compliance if circumstances mitigate the taxpayer's belated filing 592_f2d_1251 also 321_f2d_717 10th cir 556_f2d_1019 ct_cl here the company fulfilled the essential purpose of the election requirement in order to use tha special funding_rule of sec_402 ax2 sth cir see é of ppa ‘06 the information furnished is that the plan’s financial affairs both intemally and in discussions with the plan’s enrolled_actuary were administered as if the election applied to the plan announcement was released on a friday and was published by the tax press the following week because december and were government holidays the announcement was typically not published by the tax media until date given the holiday season and the relatively few business days it is somewhat understandable that the company and its consultants could not react in a timeliar manner to the announcement moreover the facts do not suggest that the company is attempting to benefit from hindsight by seeking to have its election recagnized nor would the commissioner be prejudiced by recognition of the company's election on the other hand to preclude recognition of the company's funding election in these circumstances would punish the company inordinately under the circumstances particularly in light of the timing of issuance of announcement and the plan_year of the plan accordingly we conclude based on the forgoing facts information and representations that section relief is not available to the plan in this instance however in light of the unique facts and circumstances presented in this matter the company made a timely election to utilize the special funding_rule set forth in sec_402 of the pension_protection_act of ppa ‘06 pursuant to the substantial compliance doctrine thus the shortfall amortization base established as of date may have an amortization period of plan years this ruling is directed only to the taxpayer that requested it sec_6110 kx3 of the code provides that it may not be used or cited by others as pracedent plan_year beginning date enter on an when filing form_8500 for the attachment to the schedule sb actuarial information the date of this letter and label the attachment schedule sb line - alternative funding’ ifyou have any questions regarding this matter please contact me at sincerely yours 2d ca a david m ziegler manager employee_plans actuarial group


t c memo united_states tax_court patrick s arnold petitioner v commissioner of internal revenue respondent docket nos filed date steven d morford for petitioner kelly m davidson for respondent memorandum findings_of_fact and opinion thornton judge in these consolidated cases respondent determined the following deficiencies and additions to tax with respect to petitioner’s federal income taxes year deficiency dollar_figure big_number big_number big_number additions to tax sec_6651 sec_6651 sec_6654 dollar_figure big_number big_number big_number dollar_figure -- big_number big_number dollar_figure -- big_number big_number the sole issue is whether petitioner is entitled to deductions claimed on schedules a itemized_deductions and schedules c profit or loss from business attached to his untimely returns for the years at issue unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure after issuing the notice_of_deficiency for respondent issued petitioner a new examination_report redetermining a deficiency of dollar_figure and additions to tax pursuant to sec_6651 and and in the amounts of dollar_figure dollar_figure and dollar_figure respectively respondent has conceded the amounts of deficiency and additions to tax in excess of those determined in the new examination_report neither in his petition nor otherwise in this proceeding has petitioner assigned error to respondent’s determination that he is liable for additions to tax pursuant to sec_6651 and and we deem petitioner to have conceded that the additions to tax are appropriate see 118_tc_358 if an individual does not challenge a penalty by assigning error to it the commissioner has no obligation under sec_7491 to produce evidence that the penalty is appropriate the exact amount of the additions to tax shall be determined in the parties’ rule calculations findings of fact3 the parties have stipulated some facts which we incorporate herein when he petitioned the court petitioner resided in arizona during the years at issue petitioner was in the masonry tile and stone installation business he failed to file timely form sec_1040 u s individual_income_tax_return for and and made no estimated_tax payments respondent issued separate notices of deficiency for each of these years determining that petitioner had unreported income each petition in these consolidated cases alleges as the sole assignment of error that respondent has failed to take into account petitioner’s ordinary and necessary expenses the petitions state identically tax returns are in the process of being prepared to reflect those expenses after petitioning this court petitioner submitted to respondent federal_income_tax returns for the years at issue attached to these returns which are in evidence are schedules a and schedules c in which petitioner claimed numerous and sizable deductions petitioner failed to file any posttrial brief and consequently failed to set forth any objections to respondent’s proposed findings_of_fact we consider petitioner to have waived any objections to respondent’s proposed findings_of_fact see rule e in an answering or reply brief the party shall set forth any objections together with the reasons therefor to any proposed findings of any other party opinion petitioner does not dispute respondent’s determinations as to the amounts of his unreported income for the years at issue although his contentions are vague petitioner appears to claim entitlement to at least some of the various deductions claimed on his untimely returns the record is sparse petitioner’s counsel was unprepared at trial called no witnesses and filed neither a pretrial memorandum nor a posttrial brief as ordered the evidence consists almost entirely of the parties’ limited stipulations and the testimony of respondent’s revenue_agent generally the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer has the burden to prove that the determinations are in error rule a 290_us_111 deductions are a matter of legislative grace and a taxpayer must prove entitlement to claimed deductions rule a 503_us_79 the taxpayer must keep sufficient records to substantiate any deductions claimed sec_6001 if a taxpayer establishes a deductible expense but i sec_4 on his schedules c profit or loss from business petitioner reported as gross_receipts or sales the same amounts that respondent had determined in the notices of deficiency as unreported income petitioner does not claim and has not established that the conditions of sec_7491 have been met to shift the burden_of_proof to respondent with regard to any factual issue as to petitioner’s liability for tax unable to substantiate the precise amount the court generally may approximate the deductible amount but only if the taxpayer presents sufficient evidence to establish a rational basis for making the estimate 39_f2d_540 2d cir 85_tc_731 cf kendrix v commissioner tcmemo_2006_9 questioning whether the cohan_rule applies with respect to claimed charitable_contributions that have not been adequately substantiated on the schedules a attached to his untimely returns petitioner claimed among other things cash and noncash charitable_contributions including carryover amounts in the following amounts year charitable_contributions dollar_figure big_number big_number big_number respondent concedes that petitioner has substantiated charitable_contributions in and in the amounts of dollar_figure and dollar_figure respectively petitioner has failed to establish that he is entitled to any greater amount of charitable deduction petitioner’s claimed charitable deduction included a dollar_figure carryover of excess charitable_contributions from his taxable_year on brief respondent concedes that petitioner had available a dollar_figure charitable_contribution carryover from continued moreover in this proceeding petitioner has offered no evidence to show that he is entitled to any other itemized_deductions on the schedules c attached to his untimely returns petitioner claimed among other things expenses for materials_and_supplies in the following amounts year amount dollar_figure big_number big_number big_number the parties have stipulated certain of petitioner’s receipts for materials_and_supplies totaling dollar_figure for dollar_figure for dollar_figure for and dollar_figure for we hold that petitioner is entitled to deductions for materials_and_supplies in these amounts petitioner has introduced no evidence to substantiate any greater amount of schedule c expenses or to provide any basis for us to estimate them continued but contends on the basis of stipulated evidence that the entire carryover must be treated as a charitable_contribution paid in see sec_170 sec_1_170a-10 and income_tax regs individuals’ charitable_contributions in excess of the applicable_percentage limitation must be treated as charitable_contributions paid in each of the taxable years immediately succeeding the contribution_year in order of time petitioner has offered neither evidence nor argument against these contentions at trial petitioner’s counsel stated that it was pretty obvious that petitioner must have had labor expenses to generate his income shortly before trial petitioner provided respondent with copies of forms annual summary and transmittal of u s continued to reflect the foregoing and concessions by respondent decision will be entered under rule continued information returns for his through taxable years with attached forms 1099-misc miscellaneous income reporting payments allegedly made to specified individuals for those years the parties have stipulated however that the social_security numbers reported in the forms 1099-misc do not belong to the individuals whose names are reported therein moreover respondent alleges that he has no record that petitioner ever filed the forms and 1099-misc in any event at trial petitioner offered neither these forms nor any other evidence to substantiate claimed labor expenses