internal_revenue_service number release date index number ------------------------------ ------------------------------------------- ------------------------------------------------------------ ---------------------------- ------------- ------------------------------------------- ------------------------------------------------------- ---------------------------- - department of the treasury washington dc third party communication date of communication month dd yyyy person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp b06 plr-164070-04 date date legend shareholder parent distributing partner a partner b llc ------------------------- -------------------------------------------------- ----------------------- --------------------------------------------- ------------------------------- ----------------------- ------------------------------------- --------------------------- ----------------------- ----------------------------- ------------------------------- ----------------------- -------------------------- ------------------------------- ----------------------- ---------------- ----------------------------------------------- ---------------------------------------------------------------------- ----------------------- ------------------------------------------------------ -------------------------------------------------------- plr-164070-04 controlled -------------------------------------------------------------------------------- controlled -------------------------------------------------------------------------------- controlled -------------------------------------------------------------------------------- controlled -------------------------------------------------------------------------------- controlled -------------------------------------------------------------------------------- busine sec_1 ----------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------- -------------------------------------------------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------- ------- -------- -------- ---------- --------------------------------------------------------------------------------- busine sec_2 ------------------------------------------------------------------------- aa bb cc dd country country state x state y dear -------------- requesting rulings concerning the federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated january this responds to your authorized representative’s a letter dated december ------------ ---------- ---------- --------- the rulings contained in this letter are predicated upon the facts and plr-164070-04 date date and date the information submitted for consideration is summarized below representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process moreover no information provided by the taxpayer has been reviewed and no determination has been made regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 and iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7t shareholder incorporated under the laws of country owns all of the outstanding_stock of parent a state x corporation parent is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return as well as an affiliated_group containing foreign subsidiaries parent owns all of the outstanding_stock of distributing a state y corporation and partner a and partner b both state x corporations partner a and partner b respectively own aa and bb of llc a limited_liability_company which has elected to be treated as a partnership for federal_income_tax purposes llc owns cc of each of controlled controlled controlled controlled and controlled collectively the controlled entities the controlled entities are all incorporated under the laws of country and are considered controlled_foreign_corporations cfcs within the meaning of sec_957 under the laws of country each country entity must have more than one shareholder to satisfy this requirement parent owns the remaining dd of each of the controlled entities less than distributing and llc are each currently engaged in busine sec_1 and each of the controlled entities are engaged in busine sec_2 the same line_of_business as busine sec_1 partner a and partner b serve as holding_companies for each company’s respective interest in llc and neither corporation directly conducts any business we have received financial information that busine sec_1 and busine sec_2 each have had gross_receipts and operating_expenses representative of an active trade_or_business for each of the past five years proposed the following transaction for what has been represented as a valid business_purpose the taxpayers have plr-164070-04 i ii iii iv partner b will merge with and into partner a with partner a surviving the merger under applicable state law first merger the taxpayer has represented that the first merger will qualify under sec_368 as a result of the first merger llc will have one owner and will cease to be considered a partnership for u s federal_income_tax purposes partner a will merge with and into distributing with distributing surviving the merger under applicable state law second merger the taxpayer has represented that the second merger will qualify under sec_368 llc will transfer all of its assets used in the conduct of busine sec_1 to distributing parent will transfer its nominal dd interest in each of the controlled entities to distributing the taxpayer has represented that this transfer is done solely to satisfy country law and will constitute a tax-free_exchange under sec_351 v parent will issue shares of its common_stock to llc in exchange for the cc of the stock of each of the controlled entities held by llc vi distributing will distribute the stock of llc to parent vii llc will liquidate and the stock that parent issued in step v will be cancelled in accordance with ruling below steps v vi and vii will be treated for u s federal tax purposes as if distributing distributed the stock of each of the controlled entities to parent the distributions the following representations are made with respect to the proposed transaction a the indebtedness owed by the controlled entities to distributing after the proposed transaction will not constitute stock_or_securities b c no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation no part of the consideration to be distributed by distributing will be received by a security holder as an employee or in any capacity other than that of a security holder of the corporation plr-164070-04 d e f g h the years of financial information submitted concerning busine sec_1 and busine sec_2 represents its present operations and there have been no substantial operational changes since the date of the last financial statements submitted following the transaction distributing and each of the controlled entities will continue the active_conduct of its business independently and with its separate employees the distribution of the stock or stock and securities of the controlled entities is carried out for the following corporate business purposes to rationalize the number of legal entities in the consolidated_group and enable shareholder to claim an indirect_foreign_tax_credit for taxes paid_by the consolidated_group and the country taxes paid_by the controlled entities the distribution of the stock or stock and securities of the controlled entities is motivated in whole or substantial part by one or more of these corporate business purposes the proposed transaction is not being used principally as a device for the distribution of the earnings_and_profits of distributing or the controlled entities or both distributing neither accumulated its receivables nor made any extraordinary payment of its payables in anticipation of the transaction i with the exception of a loan made by llc to controlled for working_capital and other than receivables payables having arm’s length terms and incurred in the ordinary course of distributing’s and the controlled entities’ businesses no inter-corporate debt will exist between distributing and the controlled entities at the time of or subsequent to the distributions j k immediately before the distributions items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations further distributing’s excess_loss_account with respect to the controlled entities will be included in income immediately before the distributions payments made in connection with all continuing transactions if any between distributing and the controlled entities will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length l neither distributing nor any of the controlled entities is an investment_company as defined in sec_368 and iv plr-164070-04 m the distributions are not part of a plan or series of related transactions n o p q within the meaning of sec_1_355-7t pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or the controlled entities including any predecessor or successor of any such corporation for purposes of sec_355 immediately after the distributions no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the distributions for purposes of sec_355 immediately after the distributions no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power or percent or more of the total value of shares of all classes of stock of the controlled entities that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the distributions or ii attributable to distributions on distributing’s stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the distributions the controlled entities are controlled_foreign_corporations the controlled entities will remain controlled_foreign_corporations after the distributions neither distributing nor any of the controlled entities has been a united_states_real_property_holding_corporation a usrphc as defined in sec_897 at any time during the 5-year period ending on the date of the distributions and neither distributing nor any of the controlled entities will be a usrphc immediately after the distributions based solely on the information submitted and the representations set forth above we rule as follows for federal tax purposes steps v vi and vii of the proposed transaction will be treated as if distributing transferred the stock of each of the controlled entities to parent see revrul_83_142 1983_2_cb_68 revrul_77_191 1977_1_cb_94 revrul_57_311 c b distributing will recognize no gain_or_loss and no amount will be included in its income upon the distributions sec_355 plr-164070-04 parent will recognize no gain_or_loss and no amount will otherwise be included in the income of parent upon the distributions sec_355 the basis of the stock of each of the controlled entities in the hands of parent immediately after the distributions shall be the lesser_of the adjusted_basis of the respective stock in the hands of distributing or the substituted_basis allocated to the stock of the controlled entities in accord with sec_1 a sec_358 notice_87_64 c b the holding_period of the stock of each of the controlled entities stock received by parent will be the greater of the holding_period of such stock in the hands of distributing or the holding_period of the stock of distributing in the hands of parent sec_1248 notice_87_64 1987_2_cb_375 sec_1248 will not be applicable to the distributions sec_1248 notice_87_64 c b the earnings_and_profits of each of the controlled entities to the extent attributable to such stock under sec_1_1248-2 or sec_1_1248-3 whichever is applicable which were accumulated in taxable years of such foreign_corporations beginning after date and during the periods that each of the controlled entities was a controlled_foreign_corporation shall be attributable to such stock as provided in sec_312 proper allocation of earnings_and_profits between distributing and the controlled entities will be made under sec_1_312-10 no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or the effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the distributions satisfy the business_purpose requirement of sec_1_355-2 ii whether the proposed transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or the controlled entities or both see sec_355 and sec_1_355-2 and iii whether the distributions and an acquisition or acquisitions are part of a plan or series of related transactions under sec_355 in addition no opinion is expressed regarding whether the transaction described in step i and step ii each qualify as a reorganization under sec_368 and whether the requirements of sec_351 have been satisfied in step iv or any_tax consequences as a result of these transactions further no opinion is expressed regarding whether any or all of the above referenced foreign_corporations are passive foreign investment companies within the meaning of sec_1297 of the code and the regulations to be promulgated thereunder if it is determined that any or all of the above described foreign_corporations are passive plr-164070-04 foreign_corporations no opinion is expressed with respect to the application of sec_1291 through to the proposed transaction in particular in a transaction in which gain is not otherwise recognized regulations under sec_1291 may require gain recognition notwithstanding any other provision of the code internal_revenue_code provides that it may not be used or cited as precedent taxpayer involved in the taxable_year in which the transaction is consummated to the taxpayer and a copy to the taxpayer’s authorized representative a copy of this letter must be attached to the federal_income_tax return of each this ruling is only directed to the taxpayer requesting it sec_6110 of the under a power_of_attorney on file with this office the original letter is being sent sincerely mark j weiss mark j weiss acting assistant to the chief branch corporateoffice of associate chief_counsel corporate cc


internal_revenue_service number release date index number ------------------------------------- ------------------------------- ------------------------------------------ ------------------------------ ----- department of the treasury washington dc person to contact ------------------------------ --------- ------------- ----------------------------------------------------- - telephone number --------------------- refer reply to cc psi - plr-165124-04 date date ---------- --------------------------- ------------------------------- legend x --------------------------------------------------- state date dear ------------------ requesting relief under sec_1362 of the internal_revenue_code facts desired that x elect s_corporation treatment effective on date but the election to be treated as an s_corporation was not received by the appropriate service_center accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis x was incorporated on date under the laws of state the shareholder of x this letter responds a letter dated date submitted on behalf of x sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion x did not timely make an election to be treated as an s_corporation under based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date provided that within days from the date of this letter x submits a properly completed form_2553 election by a small_business_corporation with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the in accordance with the power_of_attorney on file with this office a copy of this code provides that it may not be used or cited as precedent letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely yours beverly katz senior technician reviewer branch associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number ------------------------ ------------------------- --------------------------- - legend spouse trust a department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b09 plr-135685-03 date june ------------------------- ----------------------------------------------------------------------------------------- ------------------------ date taxpayer ----------------- ----------------------------------------------------------------------------------------- year year year year year year year year year year year year trust b_trust c trust d ----------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------------------- date child child child partnership attorney ----------------------- ------------------ ------------------------------ ----------------------- -------------------------------- ----------------------------------------------- --------------------- ----------------------------- -------------------------- -------------------------- the facts and representations submitted are summarized as follows this is in response to your letter dated date and prior plr-135685-03 accounting firm date date dear sir correspondence requesting an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to make an allocation of generation-skipping_transfer gst tax exemption trust a spouse established trust a an irrevocable_trust on date to benefit spouse’s grandchildren and other skip persons trust a holds insurance policies the premiums for which are funded by spouse through annual split_gifts with taxpayer trustee may pay to any one or more of spouse’s descendants so much of the net_income as the trustee from time to time considers advisable for the beneficiary’s support health education and welfare taking into account their respective incomes known to the trustee adding any unpaid net_income to principal payments shall not be advancements trust a taxpayer and spouse reported each transfer on a form_709 united_states gift and generation-skipping_transfer_tax return gift_tax_return and elected to split each gift under sec_2513 taxpayer made late or timely allocations of gst_exemption for each transfer of cash to trust a for each year spouse and taxpayer elected to split_gifts under sec_2513 taxpayer filed a gift_tax_return for each year reporting the transfers to trust a beginning in year and continuing through year taxpayer allocated any remaining gst_exemption to each transfer when possible but did not have sufficient remaining exemption amounts to allocate exemption to the full value of the transfers taxpayer’s year and year gift_tax returns included the following statement with respect to the allocation of gst_exemption to the transfers to trust a article iii paragraph provides that while either taxpayer or spouse is living the in year year year year year and year spouse made transfers in year year year year year and year spouse transferred cash to plr-135685-03 donor allocates to this trust the smallest amount of the donor’s gst_exemption necessary to produce an inclusion_ratio as defined in internal_revenue_code sec_2642 which is closest to or if possible equal to zero this is a formula election which will change if values are changed on audit article iv of each trust provides that the trustee may pay to any one or more of spouse created irrevocable trusts trust b_trust c and trust d for the benefit on date in year spouse gifted limited_partnership interests in partnership to trust b_trust c and trust d of each of his three children and their descendants on date spouse’s children are child child and child trust b_trust c and trust d have similar provisions and differ only in the name of the primary beneficiary of each trust the primary beneficiary of trust b is child the primary beneficiary of trust c is child the primary beneficiary of trust d is child the primary beneficiary and the descendants of the primary beneficiary so much or all of the net_income and principal as the trustee from time to time considers advisable for the beneficiary’s support health education and welfare taking into account their respective incomes known to the trustee adding any unpaid net_income to principal payments shall not be advancements trust b_trust c and trust d for the benefit of child child and child respectively after the transfer trust b_trust c and trust d each owned a percent limited_partnership_interest in partnership spouse retained a percent limited_partnership_interest and a percent general_partnership interest in partnership taxpayer and spouse each filed gift_tax returns for year and elected to split the year gifts to trust b_trust c and trust d under sec_2513 a letter written by attorney taxpayer’s estate planner in year advised accounting firm to allocate gst_exemption to the trusts accounting firm prepared the returns but did not allocate taxpayer’s gst_exemption to the gifts an appraisal with respect to the valuation of the limited_partnership interests in partnership was attached to both returns no other transfers have been made to trust b_trust c or trust d there have been no taxable terminations of or distributions from trust b_trust c or trust d as defined in sec_2612 accounting firm discovered that taxpayer’s gst_exemption was not allocated to the transfers to the trusts accounting firm and attorney advised taxpayer to make late allocations under the direction of taxpayer attorney prepared amended gift_tax returns for year allocating gst_exemption to trust b_trust c and trust d the amended returns were filed on date accounting firm subsequently discovered an error in the valuation of partnership reported in the year gift_tax returns accounting taxpayer has requested the following rulings an extension of time to make plr-135685-03 firm prepared amended gift_tax returns to correct the valuation errors the amended gift_tax returns were filed on or about date rulings requested an allocation of his gst_exemption to his portion of the gifts made on date to trust b_trust c and trust d the late allocations made by taxpayer on date with respect to the date transfers to trust b_trust c and trust d are void pursuant to the formula allocation of gst_exemption on taxpayer’s year gift_tax_return the smallest amount of taxpayer’s available gst_exemption necessary to produce an inclusion_ratio that is closest to or equal to zero will be allocated to taxpayer’s portion of the year transfer to trust a an extension of time to make an allocation of taxpayer’s gst_exemption to his portion of the year and year transfers to trust a pursuant to the formula allocation of gst_exemption on taxpayer’s year gift_tax_return the smallest amount of taxpayer’s available gst_exemption necessary to produce an inclusion_ratio that is closest to or equal to zero will be allocated to taxpayer’s portion of the year transfer to trust a sec_2513 of the internal_revenue_code provides that a gift made by one spouse to any person other than the other spouse shall for the purposes of this chapter be considered as made one-half by him and one-half by his spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states have signified under the regulations provided for in subsection b their consent to the application of paragraph in the case of all such gifts made during the calendar_year by either while married to the other sec_25_2513-2 of the gift_tax regulations provides that consent to the application of the provisions of sec_2513 with respect to a calendar_period shall in order to be effective be signified by both spouses if both spouses file gift_tax returns within the time for signifying consent it is sufficient if the consent of each spouse is signified on his own return skipping transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2601 imposes a tax on every generation-skipping_transfer a generation- sec_2513 provides that paragraph shall apply only if both spouses sec_2631 provides that for purposes of determining the inclusion_ratio sec_26_2632-1 of the generation-skipping_transfer_tax regulations sec_2632 provides that any allocation by an individual of his or her gst plr-135685-03 exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed provides in relevant part that except as provided in sec_26_2642-3 relating to charitable_lead_annuity trusts an allocation of gst_exemption to a_trust is void to the extent the amount allocated exceeds the amount necessary to obtain an inclusion_ratio of zero with respect to the trust sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c - a the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period and b such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an sec_2642 provides generally that the secretary shall by regulation sec_2642 provides that in determining whether to grant relief under notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time requests for relief under sec_301_9100-3 will be granted when the taxpayer under sec_301_9100-1 a regulatory election includes an election whose due sec_301_9100-3 provides that in general requests for extensions of time plr-135685-03 allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the requirements of sec_301_9100-3 have been satisfied therefore taxpayer is granted an extension of time of days from the date of this letter to file a supplemental form_709 with a notice of allocation allocating gst_exemption to the transfers made to trust b_trust c and trust d on date in addition taxpayer is granted an extension of time of days from the date of this letter to file supplemental form sec_709 with notices of allocation allocating gst_exemption to the transfers made to trust a in year and year each allocation will be effective as of the date of the transfer and the gift_tax value of each transfer will be used in determining the amount of the gst_exemption allocated to each trust the inclusion_ratio for the trusts should be determined under sec_2642 and sec_2642 the late allocations filed on date with respect to trust b_trust c and trust d in excess of the amount necessary to obtain an inclusion_ratio of zero with respect to the trust will be void under sec_26_2632-1 furthermore pursuant to the formula allocations of gst_exemption on taxpayer’s year and year based on the facts submitted and the representations made we conclude that sec_301_9100-3 provides that a taxpayer is deemed to have acted except as expressly provided herein no opinion is expressed or implied plr-135685-03 gift_tax returns the smallest amount of taxpayer’s available gst_exemption necessary to produce an inclusion_ratio that is closest to or equal to zero will be allocated to taxpayer’s portion of the year and year transfers to trust a a copy of this letter should be attached to each supplemental form_709 and filed with the internal_revenue_service center cincinnati ohio concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we are expressing no opinion as to whether the transfers to trust b_trust c and trust d are subject_to an estate_tax_inclusion_period under sec_2642 in addition we have specifically not ruled on the value of the transfers to trust b_trust c and trust d representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination being sent to your attorney provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer requesting it sec_6110 the rulings contained in this letter are based upon information and sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------- ------------------------------------------------------------ --------------------------------------- ----------------------------------------- ------------------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------------------------------- ----------------------------------------------------- ---------------------------- telephone number -------------------- refer reply to cc tege eoeg eo1 plr-138562-15 date date legend authority state hospital county act ordinance county defined_benefit_plan county defined_contribution_plan dear ------------ -------------------------------------------- ------------- --------------------------- ----------------- ------------------------------------------------ --------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- -- -------------- this letter responds to a letter from your authorized representative dated date as well as subsequent correspondence submitted on behalf of authority requesting rulings that authority’s income is excludable from gross_income under sec_115 of the internal_revenue_code code plr-138562-15 a authority is an instrumentality within the meaning of sec_3121 and sec_3306 and accordingly b remuneration paid to authority’s employees is not subject_to the taxes imposed under the federal_unemployment_tax_act futa c remuneration paid to an employee of the authority is subject_to social_security_taxes imposed under sec_3101 and sec_3111 of the code if the employee is covered under an agreement under sec_218 of the social_security act sec_218 agreement d remuneration paid to an employee of the authority is not subject_to social_security_taxes if the employee is a participant in the county defined_contribution_plan provided the employee is not covered under a sec_218 agreement e remuneration paid to an employee of the authority is not subject_to social_security_taxes if the employee is a participant in the county defined_benefit_plan provided the employee is not covered under a sec_218 agreement and authority is a successor employer to the county for purposes of determining whether the maximum wage_base exception provided by sec_3121 applies facts state passed the act in order to facilitate hospital continuing in its mission as a public hospital with improved organizational and operational structure that allows for greater flexibility responsiveness and innovation the act authorizes the county board_of supervisors county board to pass ordinance creating authority and to transition hospital and its operations to authority the act provides that authority will be a public agency that is a local unit of government separate and apart from the county and any other public entity for all purposes the purpose of authority is to provide medical_care for county’s indigent population to achieve continued viability of the hospital and to provide an ongoing material benefit to county and its residents to accomplish its purpose authority is authorized by statute to enter into joint ventures with any public or private entity however authority represents that it is not a party to any joint_venture with any private non-governmental entity ordinance establishing authority provides that substantially_all of the assets of hospital and related health care resources shall be transferred to authority authority represents that county will transfer to authority all the real_property buildings fixtures equipment supplies and other assets necessary to operate hospital and that immediately thereafter employees will be transferred directly and immediately from the employ of county to the employ of authority ordinance provides that authority shall not be an agency division or department of county or any other public entity but shall be an instrumentality of county for purposes of participating in the county’s retirement_plan and other governmental_plan plr-138562-15 ordinance provides for a transitional governing board consisting of the chief_executive_officer ceo of hospital a person engaged in the administration of hospital appointed by the ceo the county administrative officer and one county executive appointed by the county administrative officer the county administrative officer is the chair of the transitional governing board the transitional governing board is to function for the exclusive purpose of facilitating the transfer of hospital and its operations to authority in advance of the appointment of the governing board_of authority any_action taken by the transitional governing board may be taken only after a unanimous vote in favor of the action the transitional governing board shall cease upon its dissolution by the county board or shall automatically be dissolved upon the assumption of office of sufficient members of the governing board to constitute a quorum allowing authority to conduct business under county law the authority governing board shall consist of the county administrative officer ex officio a member of the hospital medical staff and five members of the community at large appointed by the county board none of whom shall be a physician announcement of community member vacancies and hospital medical staff vacancies on the governing board shall be posted on county and authority web sites at hospital and via press release the applications for positions on the authority governing board will be reviewed by a committee consisting of the county counsel the ceo of hospital and the county administrative officer the completed applications of all qualified applicants are submitted to the county board at least days prior to the scheduled meeting of the county board to consider appointment of an individual to fill any vacancy on the governing board the county board will select the five community members and the medical staff member of the governing board from the pool of qualified applicants as reviewed by the reviewing committee discussed in the preceding paragraph under ordinance applications from all qualified applicants for the governing board shall be provided to the county board and the county board selects the new appointees with respect to selection of the member of the hospital medical staff on the governing board the county board conducts interviews before making the selection ordinance provides that authority shall have the ability to retain surplus revenues for uses consistent with its purposes if authority participates in the county treasury pool authority is required to deposit all revenues received in the treasury pool and the treasurer shall immediately credit and apply on its books any and all revenues so deposited to the repayment of any temporary transfers made to authority by county ordinance provides that the county board shall either approve or reject authority’s annual budget in its entirety the county board shall not approve or reject individual line items in the budget authority shall conduct and fund an independent annual audit by an audit firm approved by the county board and shall provide copies of all final audits of plr-138562-15 authority or the hospital to the county board authority shall provide the county board upon request with a plan to address audit findings requiring corrective action and a report of corrective action taken the county board shall approve the initial and any successive ceo of authority prior to his or her appointment by authority the county board may participate in the evaluation of the ceo and shall have the authority to remove the ceo authority shall obtain the approval of the county board prior to entering into or incurring any debt other than debt which has a repayment term of less than one year and debt secured only by private property authority may request that the county board levy a tax on behalf of authority if the county board approves the proposal to levy the tax it shall call the election to seek voter approval and place the appropriate measure on the ballot for that election the county board may at the request and on behalf of authority contract for services or purchase items as it deems necessary appropriate or convenient for the conduct of authority’s activities consistent with its purposes the county shall provide or arrange for legal services to authority and shall bill authority accordingly the county board shall have the right to approve certain actions by authority which include among other things a transfer of substantially_all of the assets operations or control of hospital from authority b relocation or replacement of the acute care hospital c replacement or acquisition of any new acute care hospital and d establishment or acquisition of new health care programs or facilities that have an annual operating budget that exceeds a certain percentage of authority’s total annual operating budget e elimination of certain services f establishment or operation of certain types of health_plans and g operation or ownership of any facility or clinic located outside of county county board shall adopt the initial governing bylaws for authority which it may amend from time to time the bylaws shall become operative upon approval by a majority vote of the county board any changes or amendments to the bylaws shall be by majority vote of the county board employees of authority are deemed to be employees of county under county defined_benefit_plan and are eligible to participate in the plan employees transferring to authority will maintain equivalent positions and benefits seniority although the financial obligations of authority are generally not obligations of county or state county is obligated to make employer contributions to county defined_benefit_plan for legacy employees in the event authority fails to do so and in the event of authority’s dissolution or bankruptcy county is also obligated to make employer contributions to county defined_benefit_plan for authority employees hired after the transfer of hospital from county to authority authority represents that the benefits provided under the county defined_benefit_plan are at least equal to the primary insurance amount under social_security plr-138562-15 county defined_contribution_plan is a mandatory plan under which percent of a participant employee’s compensation is deferred and required to be contributed to the plan an eligible_employee for purposes of the county defined_contribution_plan includes all common_law part-time temporary and seasonal employees of the county who are not eligible to participate in the county defined_benefit_plan the county pension_plan for physician employees or any other county retirement_plan which satisfies the requirements of sec_218 of the social_security act the county defined_contribution_plan is intended to be a plan described in sec_457 of the code and to meet the definition of a retirement_system under sec_3121 of the code the plan provides that all amounts of deferred_compensation shall at all times be and remain as assets of the participant the plan also provides that any and all interest or other income payable on any of the participant’s investments of deferred_compensation also shall be an asset of the participant the plan covers employees of eligible employers pursuant to sec_457 who adopt the plan and meet certain additional conditions the authority intends to adopt the plan and become an eligible_employer in an agreement between authority and county county board has the power to dissolve authority in the event of dissolution county board shall provide for the disposition of authority’s assets obligations and liabilities to county or another state or public entity for a public purpose law and analysi sec_1 income excluded from gross_income under sec_115 sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of any essential_governmental_function and accruing to a state or any political_subdivision thereof revrul_77_261 1977_2_cb_45 holds that income generated by an investment fund that is established by a state to hold revenues in excess of the amounts needed to meet current expenses is excludable from gross_income under sec_115 of the code because such investment constitutes an essential_governmental_function the ruling explains that the statutory exclusion is intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of an entity engaged in the operation of a public_utility or the performance of some governmental function that accrues to either a state or political_subdivision of a state the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and that are within the ambit of a sovereign to conduct revrul_90_74 1990_2_cb_34 holds that the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public plr-138562-15 liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 of the code because the organization is performing an essential_governmental_function the revenue_ruling states that the income of such an organization is excluded from gross_income so long as private interests do not participate in the organization or benefit more than incidentally from the organization the benefit to the employees of the insurance coverage obtained by the member political subdivisions was deemed incidental to the public benefit by providing hospital and medical_care to county’s residents including the indigent population in particular authority promotes public health promoting public health is an essential government function within the meaning of sec_115 of the code see revrul_77_261 no part of the net_earnings of authority inures to the benefit of or is distributable to any private entity or individual no private interests are involved or participate in the authority upon dissolution assets of the authority must be distributed to county or another state or other public entity thus the authority’s income accrues to a state or a political_subdivision of a state within the meaning of sec_115 of the code see revrul_90_74 based solely on the facts and representations submitted authority’s income is excludible from gross_income under sec_115 of the code instrumentality issue federal_insurance_contributions_act fica_taxes are imposed on wages as defined in sec_3121 of the code the term wages is defined in sec_3121 as all remuneration for employment unless specifically excepted employment is defined in sec_3121 as including any service of whatever nature performed by an employee for the person employing him or her with certain exceptions fica_taxes include the old-age_survivors_and_disability_insurance_tax social_security_taxes and hospital insurance taxes medicare taxes social_security_taxes are imposed by sec_3101 employee’s portion and a employer’s portion medicare taxes are imposed by sec_3101 employee’s portion and b employer’s portion the additional medicare_tax is imposed under sec_3101 and consists of the employee’s portion only sec_3121 provides an exception from the definition of employment for service performed in the employ of a state or any political_subdivision thereof or any instrumentality of one or more of the foregoing which is wholly owned thereby except that the paragraph shall not apply in the case of certain services the sec_3121 exception does not apply if the service is covered under an agreement entered into pursuant to sec_218 of the social_security act sec_218 agreement generally the exception provided by sec_3121 applies if the plr-138562-15 employee of the state political_subdivision or instrumentality is a member of a retirement_system of such state political_subdivision or instrumentality and if the employee is not covered under a sec_218 agreement revrul_57_128 1957_1_cb_311 sets forth six factors that are used to determine whether an organization is an instrumentality of a state or political_subdivision which is wholly owned thereby whether the organization is used for a governmental purpose and performs a governmental function whether the performance of the organization’s function is on behalf of one or more states or political subdivisions whether there are any private interests involved or whether the states or political subdivisions involved have the powers and interests of an owner whether control or supervision of the organization is vested in public authority or authorities if express or implied statutory or other authority is necessary to the creation and or use of such an instrumentality and whether such authority exists and the organization’s degree of financial autonomy and the source of its operating_expenses generally the exception provided by sec_3121 does not apply for medicare_tax purposes the rules governing medicare taxation of services performed by employees of states and political subdivisions and instrumentalities are in sec_3121 generally remuneration paid for services of an employee of a state local_government or one of their instrumentalities is subject_to medicare taxes unless the continuing employment exception provided by sec_3121 applies generally the continuing employment exception from medicare taxation in sec_3121 may apply if the employee has been continuously employed by the same governmental entity and was performing services prior to date sec_3301 imposes on every employer as defined in sec_3306 for each calendar_year the tax under the futa equal to a certain percentage of wages sec_3306 provides that wages for futa purposes means all remuneration for employment with certain specific exceptions employment is defined in sec_3306 for futa purposes as including services performed by an employee for an employer with certain specific exceptions sec_3306 provides an exception from employment for futa_tax purposes for services performed in the employ of a state or any political_subdivision thereof or in the employ of an indian_tribe or any plr-138562-15 instrumentality of one or more of the foregoing which is wholly owned by one or more states or political subdivisions or indian tribes in determining whether authority is an instrumentality of county wholly owned by county for purposes of fica and futa we consider the factors set forth in revrul_57_128 with respect to the first factor authority is used for a governmental purpose and performs a governmental function the provision of medical_care to county’s indigent population and the provision of public medical_care qualify as a governmental purpose also providing medical_care to the public is considered a governmental function with respect to the second factor the performance of its function is on behalf of county authority is providing and promoting health care for the indigent residents of county and for the benefit of the residents of county with regard to the third factor there are no private interests involved and county has powers and interests of an owner authority is run by the governing board which is appointed by the county board with the county administrative officer serving ex- officio a member of the governing board may be removed by the county board during his or her term with or without cause the county board approves the annual budget of authority the county board approves the ceo of authority and has the authority to remove the ceo the county board in its discretion may find and declare by adoption of a resolution that authority shall cease to exist and cause authority to be dissolved in event of dissolution the county board shall provide for the disposition of authority’s assets obligations and liabilities authority is required to conduct and fund an independent annual audit by an audit firm approved by the county board county retains control_over any transfer of operations and or any subleasing of hospital with regard to the fourth factor some control and supervision of authority is vested in county the county board appoints and can remove board members adopts and amends the bylaws of authority and can dissolve authority the county board approves the ceo of authority and has the authority to remove the ceo the county board approves the annual budget authority must obtain the approval of the county board before incurring any debt other than debt of less than one year or debt secured_by personal_property with regard to the fifth factor state law passed legislation act that authorized the creation of authority by county law ordinance the sixth factor is the degree of financial autonomy and the source of operating_expenses the operating_expenses of the authority are paid_by a combination of public funding and authority’s own income authority may ask the county to levy a tax on its behalf authority may borrow money from county the county board may make purchases and contract for services on behalf of authority county will pay plr-138562-15 contributions for the pensions of legacy employees and upon dissolution or bankruptcy county will pay the employer contributions of newly-hired employees upon dissolution the county board shall provide for the disposition of any remaining authority assets including transfer of such assets to county or another state or public entity for a public purpose county retains the ultimate responsibility for indigent medical_care even though the care will be performed by authority therefore after consideration of the factors set forth in revrul_57_128 we conclude that authority is an instrumentality wholly owned by county for purposes of sec_3121 and sec_3306 whether futa_tax applies to the remuneration paid to employees of authority because authority is an instrumentality wholly owned by county services in the employ of authority are excepted from employment by sec_3306 therefore remuneration paid for services in the employ of hospital is not subject_to futa_tax whether social_security_tax applies to the remuneration paid to employees of authority if an employee of a state political_subdivision or instrumentality thereof is covered under an agreement under sec_218 of the social_security act the employee’s remuneration is subject_to social_security_taxes see sec_3121 when an employee is not covered under a sec_218 agreement the employee’s remuneration is generally subject_to social_security_taxes unless the employee is a member of a retirement_system sec_31_3121_b_7_-2 of the regulations provides rules for determining whether an employee is a member of a retirement_system these rules generally treat an employee as a member of a retirement_system if he or she participates in a system that provides retirement benefits and has an accrued_benefit or receives an allocation under the system that is comparable to the benefits he or she would have or receive under social_security in the case of part-time seasonal and temporary employees this minimum retirement benefit is required to be nonforfeitable sec_31_3121_b_7_-2 of the regulations provides that a plan must provide a minimum level of benefits to an employee for the employee to qualify as a member of a retirement_system under sec_31_3121_b_7_-2 a defined benefit retirement_system maintained by a state political_subdivision or instrumentality thereof meets the requirements of sec_31_3121_b_7_-2 with respect to an employee on a given day if and only if on that day the employee has an accrued_benefit under the system that entitles the employee to an annual_benefit commencing on or before his or her social_security_retirement_age that is at least equal to the annual primary insurance amount the employee would have under social_security for this purpose the primary insurance amount an individual would have under social_security is determined as it would be under the social_security act if the employee had been covered under social_security for all periods of service with the state political_subdivision or instrumentality plr-138562-15 had never performed service for any other employer and had been fully insured within the meaning of sec_214 of the social_security act except that all periods of service with the state political_subdivision or instrumentality must be taken into account ie without reduction for low-earning years rev_proc 1991_2_cb_694 provides safe_harbor formulas for defined benefit retirement systems for purposes of meeting the minimum benefit requirement of the regulations a defined contribution retirement_system maintained by a state political_subdivision or instrumentality thereof meets the requirements of sec_31_3121_b_7_-2 with respect to an employee if and only if allocations to the employee's account not including earnings for a period are at least percent of the employee's compensation_for service for the state political_subdivision or instrumentality during the period matching_contributions by the employer may be taken into account for this purpose authority states that the county defined_benefit_plan provides benefits that are in excess of the primary insurance amount under social_security if the county defined_benefit_plan provides benefits to an employee that are in excess of the primary insurance amount under social_security under the specific test set forth in sec_31_3121_b_7_-2 of the regulations or that meets one of the safe harbors described in revproc_91_40 1991_2_cb_694 the services of the employee in the employ of authority are excepted from employment for social_security_tax purposes provided the employee is not covered under a sec_218 agreement a participant in the county defined_contribution_plan meets the requirements to be a member of a retirement_system under sec_3121 because the plan provides for a percent contribution from deferred_compensation that is nonforfeitable and that is required to be made with respect to part-time seasonal and temporary employees thus the services of employees who are not covered under a sec_218 agreement and who are covered under the county defined_contribution_plan whose compensation is deferred as set forth in the plan will be excepted from employment by sec_3121 and their remuneration will not be subject_to social_security_taxes whether medicare_tax applies to the remuneration paid to employees of authority sec_3121 provides generally that remuneration paid to employees of states political subdivisions or instrumentalities thereof is subject_to medicare_tax unless the continuing employment exception provided by sec_3121 applies therefore remuneration paid to authority employees is subject_to medicare_tax unless the continuing employment exception applies successor employer issue with respect to those employees who are subject_to social_security_tax because they are covered under a sec_218 agreement authority has requested a ruling that it will plr-138562-15 qualify as a successor employer to the county for purposes of determining whether the exception from wages for social_security_tax purposes provided by sec_3121 applies sec_3121 provides an exception from the social_security_tax portion of the fica for remuneration paid_by an employer to an employee with respect to employment during the calendar_year after the employer has paid wages to the employee equal to the contribution_and_benefit_base for the year there is generally no exception from wages for an employer because another employer has already paid wages to the employee equal to the contribution and benefits base during the calendar_year remuneration paid_by the second employer is generally subject_to social_security_taxes on remuneration that is not otherwise excepted up to the amount of a new contribution_and_benefit_base applicable to that employer with respect to the employee although the employee can obtain a refund of the employee portion of social_security_taxes on his or her income_tax return to the extent the employee portion of social_security_taxes has been paid on wages in excess of the contribution benefit base as a result of the employee having two or more employers the employer is not entitled to a refund of the employer portion of social_security_tax on such wages the predecessor-successor rule in sec_3121 provides an exception to the general_rule that a new contribution_and_benefit_base applies in the case of a second employer sec_3121 provides that if an employer referred to as a successor employer during any calendar_year acquires substantially_all the property used in a trade_or_business of another employer hereinafter referred to as a predecessor or used in a separate_unit of a trade_or_business of a predecessor and immediately after the acquisition employs in his trade_or_business an individual who immediately prior to the acquisition was employed in the trade_or_business of such predecessor then for the purpose of determining whether the successor employer has paid remuneration with respect to employment equal to the contribution_and_benefit_base to such individual during such calendar_year any remuneration paid with respect to employment paid to such individual by such predecessor during such calendar_year and prior to the acquisition shall be considered as having been paid_by such successor employer sec_31_3121_a_1_-1 of the regulations provides that three tests must be met for the wages paid_by a predecessor to an employee to be for purposes of the annual wage limitation treated as having been paid to such employee by a successor i the successor during a calendar_year acquired substantially_all the property used in a trade_or_business or used in a separate_unit of a trade_or_business of the predecessor ii such employee was employed in the trade_or_business of the predecessor immediately prior to the acquisition and is employed by the successor in the successor’s trade_or_business immediately after the acquisition and iii such wages were paid during the calendar_year in which the acquisition occurred and prior to such acquisition plr-138562-15 sec_31_3121_a_1_-1 of the regulations provides that the method of acquisition by an employer of the property of another employer is immaterial the acquisition may occur as a consequence of the incorporation of a business by a sole_proprietor or a partnership the continuance without interruption of the business of a previously existing partnership by a new partnership or by a sole_proprietor or a purchase or any other transaction whereby substantially_all the property used in a trade_or_business or used in a separate_unit of a trade_or_business of one employer is acquired by another employer sec_31_3121_a_1_-1 of the regulations provides that substantially_all the property used in a separate_unit of a trade_or_business may consist of substantially_all the property used in the performance of an essential operation of the trade_or_business or it may consist of substantially_all the property used in a relatively self-sustaining entity which forms a part of the trade_or_business sec_31_3121_a_1_-1 of the regulations provides two examples of the requirement that the successor acquired substantially_all the property used in a separate_unit of a trade_or_business in example the m corporation which is engaged in the manufacture of automobiles including the manufacture of automobile engines discontinues the manufacture of the engines and transfers all the property used in such manufacturing operation to the n company under the regulations the n company is considered to have acquired a separate_unit of the trade_or_business of the m corporation namely its engine manufacturing unit in example the r corporation which is engaged in the operation of a chain of grocery stores transfers one of such stores to the s company the regulations provide that the s company is considered to have acquired a separate_unit of the trade_or_business of the r corporation sec_31_3121_a_1_-1 of the regulations provides that a successor may receive credit for wages paid to an employee by a predecessor only if immediately prior to the acquisition the employee was employed by the predecessor in his trade_or_business which was acquired by the successor and if immediately after the acquisition such employee is employed by the successor in his trade_or_business whether or not in the same trade_or_business in which the acquired property is used if the acquisition involves only a separate_unit of a trade_or_business of the predecessor the employee need not have been employed by the predecessor in that unit provided he was employed in the trade_or_business of which the acquired unit was a part with regard to the three requirements sets forth in the regulations for successor status authority has represented that it will acquire substantially_all the assets of hospital hospital qualifies as a separate_unit of a trade_or_business for purposes of the underlying regulations the employees who will be transferred are employed in the trade_or_business of the predecessor immediately prior to the acquisition authority has also represented that the employees will be employed by authority in its trade or plr-138562-15 business immediately after the asset acquisition wages are paid_by county during the calendar_year prior to the acquisition thus provided the transfer of employment with respect to a particular employee is immediately after the acquisition of the assets authority will qualify as a successor employer under sec_3121 for purposes of determining whether remuneration paid to the employee in the calendar_year is in excess of the contribution_and_benefit_base for social_security_tax purposes thus authority may take into account wages paid_by the county before the acquisition in determining whether the sec_3121 exception from wages for social_security_tax purposes applies conclusions the income of authority is excludable from gross_income under sec_115 of the code a authority is a wholly owned instrumentality of county for purposes of sec_3121 and sec_3306 b remuneration for services in the employ of authority is not subject_to futa taxes because authority is a wholly owned instrumentality under sec_3306 c remuneration for services in the employ of authority by an employee who is covered under a sec_218 agreement is subject_to social_security_taxes d remuneration for services in the employ of authority by an employee who is not covered under a sec_218 agreement and who is a member of the county defined_contribution_plan and is deferring and has deferred_compensation in accordance with the terms of that plan is not subject_to social_security_taxes e remuneration for services in the employ of authority by an employee who is not covered under a sec_218 agreement and who is a member of the county defined_benefit_plan is not subject_to social_security_tax provided that the employee’s benefits under such plan meet the requirements of the specific test set forth in sec_31_3121_b_7_-2 of the regulations or that the employee’s benefits under the plan meet one of the safe harbors described in revproc_91_40 1991_2_cb_694 authority qualifies as a successor employer to county for purposes of determining whether the exception under sec_3121 applies with respect to employees who are employed by authority immediately after the acquisition and thus authority may take into account wages paid_by county before the acquisition in the calendar_year in determining whether wages in excess of the contribution_and_benefit_base have been paid to such employees plr-138562-15 this ruling is limited to the facts and representations stated in this letter except as expressly provided in this letter no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file we are sending a copy of this ruling letter to your authorized representatives sincerely _____________________________________ theodore r lieber senior tax law specialist exempt_organizations branch associate chief_counsel tax exempt and government entities


internal_revenue_service number release date index number -------------------------------------- --------------------------------------------------------- -------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-149018-09 date date legend x -------------------------------------------------------- ------------------------ country ------------------------------------ date ------------------- dear ----- ------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a corporation under sec_301_7701-3 the information submitted states that x was formed on date under the laws of country x represents that x is a foreign_entity eligible to elect to be treated as a corporation for u s income_tax purposes x has a single owner that does not have limited_liability x inadvertently failed to timely file a form_8832 entity classification election electing to treat x as a corporation effective date sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes if the foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 a foreign eligible_entity may elect to be treated as an association_taxable_as_a_corporation if all members have limited_liability pursuant to the rules in sec_301_7701-3 plr-149018-09 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 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 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a corporation for u s income_tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on x filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief being effective date to the extent appropriate these returns must include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations ii forms return of u s persons with respect to certain foreign_partnerships and iii forms information_return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-149018-09 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by __________________________ melissa c liquerman branch chief branch office_of_chief_counsel enclosures copy of this letter copy for sec_6110 purposes


uniform issue list no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division krrkkekerererererererrerereer khekerererererererererer kekkrererererererere sill kau ity attention president legend n churches reekreeecrererekrerkerereerkeeeeie regional churches keke ererererere ere eere rrerrererrereerrrerere organization a organization b organization c committee e kkeekkkererrerereeerere hrekererereekekerkeeerkeere eere eere rererererrkee herec ererererererrerereneerere kekekekereerereerrreieererere eea eeerereeeerer krekekrrererekeeeee state c city d rkekkkrekkkee erekerrerrkek directory rherrererererer ere eere eere reet ee serre eerie kekekreekrerererererereererrererrerer plan x erererererererrererererereerererereere hrrekrerkerkererrererereer rrkkerekrekrererereeerrereere ladies and gentlemen this is in response to a letter dated date as supplemented by letters dated date date and date in which your of ok oi fe ok ok fo ke oe eo oe oe oo page authorized representative requested a ruling regarding the status of plan x as a church_plan described in sec_414 of the internal_revenue_code code the following facts and representations have been submitted on your behalf n churches is a denomination that is organized on a cooperative basis under which local autonomous churches and other ministry organizations voluntarily join together to engage in cooperative ministries and missions in accordance with the n churches’ faith and belief congregationally governed denomination in which decisions are made on behalf of the denomination as a whole at biennial meetings of representatives of the local ministries the individual churches of n churches thus are not controlled by a main denominational organization rather each local church is a separate autonomous organization that elects to participate in the community of churches comprising n churches n churches is thus a organization a is a nonprofit state c_corporation that has for many years operated a retirement home under the auspices of the n churches by letter dated date the internal_revenue_service issued a letter to organization a stating that the application_for_exemption_from_federal_income_tax under sec_501 of the code issued previously still remains in effect the stated purposes of organization a are to provide retirement residence and care for the needy retired ministers and missionaries and their living spouses and to involve retirement ministers and missionaries as chaplains of the n churches range of living options and services to ministers missionaries their spouses and to the lay community organization a is a christian retirement community that offers a full organization a is a member of organization b and is listed in the directory of its members organization b is an association of faith-based ministries organized under the auspices of the n churches it was founded in and has been affiliated with the national ministries of the n churches since for over years organization b has partnered with the n churches at the local and national level to provide a broad spectrum of care as a ministry of the n churches organization b today continues its mission to develop and enhance the ministries of its members to promote standards of excellence in the n churches’ health services to adults and children of special needs and to communicate its program to all of the n churches organization a was conceived as an outreach of the n churches and it was established in continues to function as such to the present day under the auspices and control of what is now called the regional churches fe ae oc oe oe oe fe a ae oe oe ak og or a ok page during the 1930’s organization a was given the right to form its own board subject_to several conditions intended to insure continuing influence and control_over organization a’s ministry among the most important of these features was the requirement that the executive minister of the n churches of city d and the executive minister of the regional churches serve on the board_of trustees of organization a as well as the requirement that board members come from the n churches the president of organization a is and has always been an ordained minister in the n churches the current president of organization a serves on a number of denominational committees and commissions including committee e which votes on the professional standing ie ordination of clergy in certain states organization a participates in a number of training events in which it underwrites the educational program for several dozen of the n churches’ ministers who gather for retreats on a nearly annual basis in addition a considerable portion of organization a’s charitable receipts come from the n churches and the direct solicitation of the n churches’ pastors and laypeople organization a’s articles of incorporation provide that one of its specific and primary purposes is to establish a home or homes in the area served by the regional churches and to use the home for the residence and care of aging ministers missionaries and lay members of the n churches and other worthy evangelical church members and others as determined by the board_of trustees although organization a did open its doors to lay persons in the 1960's its ongoing mission has always been the care of retired ministers and missionaries of the n churches organization a’s articles of incorporation provide that at least percent of the organization a’s trustees must be members in good standing in the n churches affiliated with the regional churches further according to organization a’s bylaws the board_of trustees is composed of not less than and not more than members with each serving a term of three years or until the trustee ceases to be a member of the n churches affiliated with the regional churches whichever is sooner thus all the members of the organization a board_of trustees are members of the n churches and several members are also n churches’ ministers in addition the executive minister of the regional churches and executive secretary of city d mission society are non-voting advisory members of organization a’s board_of trustees organization c a state c nonprofit public benefit corporation is the sole member of organization a organization c as sole voting member has the authority inter alia to elect and remove organization a’s trustees amend and restate its articles of incorporation and bylaws and approve its budgets fe fe he fe oe sec_2s fe fe oe 2s ae oe oe fe fe fee oe fe ie page organization c’s articles of incorporation and bylaws correspond closely to those of organization a thus organization c’s articles of incorporation require that at least percent of organization c’s trustees must be members in good standing of the n churches affiliated with the regional churches the organization c board_of trustees like the organization a board_of trustees is composed of not less than and not more than members who each serve a term of three years or until the trustee ceases to be a member of a church affiliated with the regional churches whichever is sooner further at least one member from the organization a board_of trustees serves as either an officer or trustee of organization c in a letter dated date it was represented that organization a shares common religious bonds and convictions with the n churches within the meaning of sec_414 of the code for the reasons stated above a considerable portion of organization a’s charitable receipts come from fundraising among the n churches and the direct solicitation of pastors and laypeople of the n churches organization a is listed in directory which is a directory of organizations of regional churches and it is also listed in n churches official directory organization a established plan x in for the benefit of its employees and their beneficiaries plan x is a defined_benefit_plan established to provide retirement benefits to employees of organization a plan x was drafted to conform to the requirements of code sec_401 the principal purpose and function of the plan_administrator is the administration of plan x on date organization a’s executive committee of the board_of trustees passed a resolution to clarify that the administrator is the retirement_plan administrative committee that resolution also provided that organization a’s president chief financial officer and treasurer shall be members of the committee the administrative committee is responsible for maintaining plan x and for making all discretionary determinations arising in connection with the administration interpretation and application of the plan _ based on the forgoing facts and representations a ruling is requested that plan x is a church_plan within the meaning of sec_414 of the code sec_414 of the code generally defines a church_plan as a plan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches which is exempt from taxation under sec_501 of the code sec_414 of the code provides that a plan established and maintained for its employees by an employer which is not itself a church or a fe fe es fe oe oe oe oe ae ag of page convention or association of churches but is associated with a church or a convention or association of churches will be treated as a church_plan if it is maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association of churches if such organization is controlled by or associated with a church or a convention or association of churches in pertinent part sec_414 of the code provides that an employee of a church or a convention or association of churches shall include an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 of the code and which is controlled by or associated with a church or a convention or association of churches sec_414 of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 shall be deemed the employer of any individual included as an employee under subparagraph b of sec_414 sec_414 of the code provides that an organization whether a civil law corporation or otherwise is associated with a church_or_convention_or_association_of_churches if the organization shares common religious bonds and convictions with that church_or_convention_or_association_of_churches in order for an organization to have a church_plan under sec_414 of the code it must establish that its employees are employees or deemed employees of the church_or_convention_or_association_of_churches under sec_414 of the code by virtue of the organization's affiliation with a church or a convention or association of churches in addition in the case of a plan established by an organization that is not itself a church_or_convention_or_association_of_churches the plan must be established and maintained for its employees by an organization described in sec_414 of the code organization a is an organization described in sec_501 of the code the following factors show that organization a is associated with organization c the regional churches and the n churches one of its purposes is to provide a retirement residence for retired n churches ministers and missionaries and their living spouses in a christian retirement community its president has always been an ordained minister in the n churches in addition the executive minister of the regional churches and executive secretary of city d mission society are non-voting advisory members of organization a’s board_of trustees a considerable portion of organization a’s _ charitable receipts come from fundraising among the n churches the fact that fe 2s ag oe ao oe oe ke oe oe ae a a ok oo page organization a is listed in directory and n churches official directory is a further indication that organization a shares common religious bonds and convictions with the regional churches and the n churches under these circumstances organization a shares common religious bonds and convictions _ with the n churches and the regional churches and is therefore associated with an association of churches within the meaning of sec_414 of the code in view of the stated purposes of organization a its organization and structure its actual activities its relationship to organization b and organization c as well as its recognized status within the regional churches and the n churches the employees of organization a meet the definition of employee in sec_414 of the code they are deemed to be employees of a church or a convention or association of churches by virtue of being deemed to be employees of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 and which is controlled by or associated with a church or a convention or association of churches the organization must also establish that its plan is established and maintained by a church or a convention or association of churches or by an organization described in sec_414 of the code to be described in sec_414 of the code an organization must have as its principal purpose the administration of the plan and must also be controlled by or associated with a church or a convention or association of churches it has been submitted that organization a established plan x and that plan x has been administered by the retirement_plan administrative committee since date organization a controls the members of the executive committee of its board_of trustees which passed a resolution designating the retirement_plan administrative committee as the plan x administrator the principal purpose of the retirement_plan administrative committee is the administration of plan x under these circumstances the retirement_plan administrative committee acting as administrator of plan x constitutes an organization described in sec_414 of the code accordingly we conclude that plan x qualifies as a church_plan within the meaning of sec_414 of the code this letter expresses no opinion whether plan x is a qualified_plan under sec_401 of the code requests for determination letters are to be addressed to ep determinations internal_revenue_service covington ky in accordance with the instructions in revproc_2003_6 internal_revenue_bulletin fe re 29e 2fs fe is fs fe 2h fe ie oe 2c ois ok ofc he oe oe oe page this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this letter has been sent to your authorized representative in accordance with the current power_of_attorney on file in this office if you have any questions please conta at sincerely yours is code pore __alan c pipkin manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice