department of the treasury i nternal revenue servi ce tege eo examinations mail stop dal commerce st dallas texas r - - - - - - - - - - tax_exempt_and_government_entities_division number release date legend org - organization name xx date address - address org address date september taxpayer_identification_number person to contact employee identification_number employee telephone number phone fax last date to file a petition december 20xx certified mail -return receipt dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated august 19xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason s organizations described in sec_501 c and exempt under sec_501 a must be both organized and operated exclusively for exempt purposes you have failed to produce documents to establish that you are operated exclusively for exempt purposes and that no part of your net_earnings inures to the benefit of prwate shareholders or individuals you failed to respond to repeated reasonable requests to allow the internal_revenue_service to examine your records regarding your receipts expenditures or activities as required by sec_6001 a and rev_ rul c b 627_ contributions to your organization are no longer deductible under sec_170 after january1 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instruction of the return processing of income_tax returnsand assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the 915t day after the date this determination was mailed to you_ please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to the united_states tax_court at the following address you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at seethe enclosed notice taxpayer_advocate service- your voice at the irs for taxpayer_advocate telephone numbers and addresses you should contact your state officials if you have any questions about how this final_determination may affect your state responsibilities and requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely sunita lough director eo examinations enclosures publication publication internal_revenue_service date department of the treasury tege eo examinations nonh capitol street nw room washington dc form tax veatia eo ied perdollar_figureol'l cootaclllo numtjer contact numbers telephone fax certified mall return receipt requested dear we have enclosed a co y ofour report ofexamination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary ifyou accept our findings take no further action we will issue a final revocation letter uyou do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement ofthe facts the applicable law and arguments in support of your position an appeals officer will review your ca c e the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and thc irs collection process you may also request that we refer this matter for technical_advice as explai ned in publication jf we issue a determination lettt r to you based on technical_advice no further administrative appeal is available to you withm the irs regarding the issue that was the subject of the technical_advice letter rev catalog number 34809f if we do not hear from you within days from the date ofthis letter we will process your case based on the recommendations shown in tbe report ofexamination ifyou do not protest this proposed detennination within days fr lm the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district ofcolumbia detcnnines that the organization involved bas exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notity the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the fonnal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance ifyou prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of tbis letter ifyou write please provide a tel cphone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely a r marsha a ramirez director eo examinations enclosures publication publication report of examination letter rev caiaiog number 34809f form 886a partment oflbe treasury -intemal revenue explanation of items name oftaxpayel org org schedule no or exhibit52-1388443 year period ended 20xx12 legend org - organization name xx - date country country agent - agent issue whether org exemption under sec_501 of the internal_revenue_code should be revoked due to their failure to establish the right to maintain such exemption facts org was granted tax-exemption status under sec_501 of the internal_revenue_code as of august 19xx during the course of the examination numerous attempts were made to contact the organization by mail and telephone the purpose of the examination was to determine the organization's filings status and whether the operational activities of the organization were in accordance with the guidelines governing organizations exempted under sec_501 of the internal_revenue_code a chronology sequence of events are listed as follows a review of org filing_requirements discloses that they did not file a return of organizatbns exempt from income_tax form_990 for 20xx a review of the corporation status of org with the district of country department of consumer and regulatory affairs discloses that their corporate status has been revoked april23 20xx revenue_agent mailed the appointment letter to the address noted on record for org and officers of the organization on record requesting an examination date june 20xx revenue_agent made a field call to the organization last_known_address on record in an attempt to locate the organization during the visit revenue_agent gathered from the security that the organization vacated porm 886-a rev departme nt uf the t rea lwy internal re venue service page -l form 886a name of taxpayel org org department of the treasury internal revenue ex lanation ofitems schedule no or exhibit52-1388443 year period ended 20xx12 the premises around november of 20xx and that no further information was available about the organization december 20xx revenue_agent mailed both regular and certified letter to the organization requesting them to contact the internal_revenue_service within the established deadline upon receiving the letter to initiate the examination law sec_501 of the code provides for exemption of organizations organized and operated exclusively for charitable purposes and that no part of the earnings_of which inures to the benefit of private shareholders or individuals sec_6033 of the internal_revenue_code of provides that every organization exempted from taxation under sec_501 of the code shall file an annual return stating specifically the items of gross_income receipts and disbursements and shall keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_1_6033-2 of the federal_income_tax regulations require that every organization which has established its rights to exemption from tax shall submit such additional information as may be required by the internal_revenue_service to further inquire into its exempt status sec_1 c of the federal_income_tax regulations states in part every organization exempt from tax under sec_501 shall keep such permanent books of account records including inventories as are sufficient to show specifically the items of gross_income receipts and disbursements such organizations shall keep such books_and_records as are required to substantiate the information required by sec_6033 revrul_59_95 g b describes an organization previously recognized as exempt when requested shall provide a financial statement of its operations the organization was unable to do so due to its incomplete records the service concluded that failure or inability to file the required information_return or otherwise to comply with sec_6033 of the code and its implementing regulations may result in termination of its exempt status on the grounds that the organization has fonn 886-a reva 6s department of the treasurylntemaj revenue service page -2 form 886a name oftaxpayei org dep rlm l1 of the treasury- lrlk lllal rewnue service explanation ofitems schedule no or exhibit52-1388443 year period ended 20xx12 not established that it is observing the conditions required for the continuation of its exempt status in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax argument the organization has been contacted by regular mail by registered and by telephone on numerous occasions requesting the filing of overdue returns and most recently to provide its books_and_records for examination to verify its continuing qualification for exemption the organization is unresponsive to scheduling appointment or providing the requested information authorized under sec_6033 government position since the organization has failed to furnish the information necessary to conduct an examination of its financial and operational activities which in turn is used to determine continuing qualification for tax exempt status the org no longer qualifies for tax exempt status effective january 20xx this is the first day of the tax period in which the organization fails to qualify for exemption under sec_501 also as of january 20xx contributions are no longer deductible as charitable_contributions in addition org will be required to file u s_corporation income_tax return form_1120 for all periods subsequent to december 20xx conclusion it is the internal revenue service's poslion that because we were not able to conduct the examination to determine whether your organization met the operational_test under sec_501 c accordingly the organization's exempt status is revoked effective january 20xx fonn 886-i reva departme nt of the treas ury- internal_revenue_service page -j


internal_revenue_service department of the treasury number release date index number washington dc person to contact david bergkuist id telephone number refer reply to cc intl br 3-plr-118045-00 date date do ty legend corp a corp b parent a parent b date m date n date dear this is in response to a letter dated date requesting a ruling that corp a and its subsidiaries be permitted to change to the tax_book_value_method of asset valuation for purposes of apportioning interest_expense for tax years beginning on or after date additional information was received in a letter dated date the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for a ruling it is subject_to verification on examination corp a is a domestic_corporation that is the parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return prior to date m corp a was an indirect subsidiary of parent a a foreign_corporation corp b is a domestic_corporation prior to date m corp b was a subsidiary of parent b a foreign_corporation on date m parent a and parent b merged as a result of this merger corp a and corp b became related_persons within the meaning of sec_1_861-8t of the temporary income_tax regulations plr-118045-00 on date n corp a acquired corp b in a sec_351 exchange prior to this date corp a apportioned its interest_expense using the fair_market_value_method of asset valuation as described in sec_1_861-9t of the temporary regulations prior to date n corp b was the parent of an affiliated_group_of_corporations that filed a consolidated federal_income_tax return corp b and its subsidiaries apportioned interest_expense using the tax_book_value_method of asset valuation as described in sec_1_861-9t corp a filed a federal_income_tax return for its consolidated_group for the tax_year beginning on date o in which the tax_book_value_method was used for purposes of apportioning interest_expense after date n corp b was included in corp a’s consolidated_income_tax_return sec_864 of the internal_revenue_code provides that all allocations and apportionments of interest_expense shall be made on the basis of assets rather than gross_income sec_1_861-9t of the temporary regulations provides that for purposes of apportioning interest_expense a taxpayer may elect to determine the value of its assets on the basis of either the tax book_value or the fair_market_value of its assets sec_1_861-8t provides that once a taxpayer uses the fair_market_value_method the taxpayer and all related_persons must continue to use such method unless expressly authorized by the commissioner to change methods sec_1_861-9t provides that if a taxpayer elects the fair_market_value_method of asset valuation the taxpayer must establish the fair_market_value of its assets to the satisfaction of the commissioner otherwise the commissioner may determine the appropriate values or require the taxpayer to use the tax_book_value_method of apportionment sec_1_861-9t sets forth the rules for determining the fair_market_value of a taxpayer’s assets under the fair_market_value_method corp a requests pursuant to sec_1_861-8t and sec_1_861-9t of the temporary regulations to be permitted to use the tax_book_value_method of asset valuation for purposes of apportioning interest_expense for tax years beginning on or after date o this change would conform corp a to the method of asset valuation used by corp b prior to the sec_351 exchange corp a has determined that valuing its assets using the tax_book_value_method would decrease complexity and reduce cost by avoiding the need to perform fair_market_value studies in addition using the tax book method would provide greater certainty of tax results and reduce the potential for disagreements with the service with respect to the fair_market_value of assets corp b and its subsidiaries have not valued their assets using the fair_market_value_method of asset valuation and corp a would incur considerable costs to value the corp b assets for purposes of such method of asset valuation based solely on the information submitted the representations made and the reasons plr-118045-00 given for this request corp a and its subsidiaries may change from the fair_market_value_method of asset valuation for purposes of apportioning interest_expense to the tax_book_value_method pursuant to sec_1_861-8t and sec_1_861-9t for the tax_year beginning on or after date o except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant sincerely anne o’connell devereaux assistant to the branch chief branch office of the associate chief_counsel international


department of the treasury internal_revenue_service washington d c commissioner tax_exempt_and_government_entities_division mar uniform issue list tep 2a t3 ra ee tae a eae tak ee kee tee e tae nee tae x legend taxpayer a ira x amount d amount e bank f bank s financial_institution p individual b individual m date date date date date date x we page dear this is in response to your request dated date as supplemented by correspondence dated date date and date submitted on your behalf by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested represents that on date he received a distribution of taxpayer a age amount d from his individual_retirement_arrangement ira ira x with bank s taxpayer a asserts that his failure to accomplish a rollover of amount d within the 60-day period prescribed by sec_408 of the code was due to an error committed by individual m of bank s which resulted in amount d being placed in a non-ira account where it remains taxpayer a represents that ira x matured on date upon the advice of individual m a financial advisor employed with bank s taxpayer a requested a distribution of amount d from ira x with the intent of rolling amount d into another ira after receiving the distribution on date he deposited amount d into an interim non-ira account with bank f following individual m’s advice on date he purchased a universal_life_insurance policy policy from bank s totaling amount e the policy was also maintained by bank s four days later taxpayer a learned of a substantial additional cost for the policy unrelated to the change in the tax qualified status of his investment which was unacceptable to him with the assistance of individual b an executive for bank s the policy was rescinded and amount e was returned to taxpayer a on date which he deposited into his savings account a non-ira account on date on date taxpayer a used amount d plus additional funds to purchase a cd with financial_institution p an affidavit submitted by individual m and other documentation submitted indicate that amount d was erroneously deposited into the series of non-ira accounts because individual m forgot that amount d had been distributed from an ira and that such error occurred through no fault of taxpayer a taxpayer a did not learn of the error until he received form 1099-r for the tax_year ending december after the 60-day rollover period had expired from bank s based on the facts and representations you request a ruling that the internal_revenue_service service waive the 60-day rollover requirement with respect to the distribution of amount d from ira x sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in wee page gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if-- i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization kk page incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation you submitted is consistent with your assertion that your failure to accomplish a timely rollover was caused by your reliance on the erroneous advice of individual b of bank s therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x you are granted a period of days from the issuance of this letter_ruling to contribute amount d requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount d will be considered a valid rollover_contribution within the meaning of sec_408 of the code into a rollover ira provided all other no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter expresses no opinion as to whether ira x satisfied the requirements of sec_408 of the code pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions please contact by phone at or fax at sincerely yours laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose ec x kk kk


t c summary opinion united_states tax_court rolly j and joann m sorrentino petitioners v commissioner of internal revenue respondent docket no 3288-00s filed date rolly j sorrentino pro_se randall l preheim for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 in effect when the petition was filed ’ the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency of dollar_figure in petitioners' federal_income_tax unless otherwise indicated section references hereafter are to the internal_revenue_code in effect for the year at issue the sole issue for decision is whether petitioners are liable for the alternative_minimum_tax amt under sec_55 some of the facts were stipulated those facts and the accompanying exhibits are so found and are incorporated herein by reference petitioners' legal residence at the time the petition was filed was wheat ridge colorado petitioners filed a joint federal_income_tax return for on which they reported taxable_income of dollar_figure based on the following gross_income items wages and salaries dollar_figure taxable interest_income dividend income schedule e real_estate loss big_number unemployment_compensation big_number nonemployee compensation big_number total income dollar_figure petitioners' return included a schedule a itemized_deductions in which they claimed itemized_deductions for the following the deficiency includes self-employment_tax under sec_1401 on self-employment_income of dollar_figure that petitioners reported as nonemployee compensation on their return but for which they paid no self-employment_tax petitioners conceded this issue at trial another adjustment in the notice_of_deficiency disallowed petitioners' child_care_credit under sec_24 in the amount of dollar_figure because of respondent's determination that petitioners were liable for the alternative_minimum_tax amt see sec_24 this adjustment will be resolved by the court's holding on the amt issue state and local_taxes paid s big_number home mortgage interest big_number charitable_contributions big_number job expenses and other miscellaneous deductions in excess of of adjusted_gross_income big_number total itemized_deductions dollar_figure petitioners’ tax prior to credits was dollar_figure respondent made no adjustments to either the income or the itemized_deductions on petitioners' return petitioners' return also included a form_6251 alternative minimum tax---individuals the form which reflected zero alternative_minimum_tax respondent determined that petitioners were liable for the amt sec_55 imposes a tax equal to the excess of the tentative_minimum_tax over the regular_tax the tentative_minimum_tax for noncorporate taxpayers is equal to percent of so much of the taxable_excess as does not exceed dollar_figure see sec_55 a the taxable_excess is that amount by which the alternative_minimum_taxable_income amti exceeds the exemption_amount see sec_55 a the exemption_amount for married couples filing a joint_return is dollar_figure see sec_55 amti equals the taxpayer's taxable_income for the year determined with the adjustments provided in sec_56 see sec_55 in calculating amti no deduction is allowed for miscellaneous_itemized_deductions or for state and local_taxes paid unless such amounts are deductible in determining adjusted_gross_income see sec_56 also no deduction for personal exemptions under sec_151 is allowed see sec_56 b eb petitioners incorrectly completed the form submitted with their return in calculating their liability for amt on part iii of the form petitioners correctly listed their exemption_amount as dollar_figure on line on line which subtracts the exemption_amount from the amti line petitioners listed dollar_figure which respondent corrected to dollar_figure an adjustment that favors petitioners line then provides the following directions tf line is dollar_figure or less dollar_figure or less if married_filing_separately multiply line by otherwise multiply line by and subtract dollar_figure dollar_figure if married_filing_separately from the result petitioners calculated the entry for line on the basis of the second sentence recited above in which they multiplied the amount on line by percent from which they subtracted dollar_figure the resulting amount which they listed on line was less than their tax_liability of dollar_figure shown on their form_1040 u s individual_income_tax_return thus since the tentative_minimum_tax was less than the tax shown on form_1040 petitioners entered -0o- on line amt in the notice_of_deficiency respondent calculated the amt a sec_26 percent of line without a reduction of dollar_figure this resulted in an amount on line that exceeded the tax shown on petitioners' form_1040 and this excess constitutes the amt determined in the notice_of_deficiency at trial rolly j sorrentino petitioner contended that line of the form is ambiguous as well as the instructions for calculation of the amounts for that line the court disagrees with petitioner sec_55 b a i and ii provides in pertinent part that the amount of the amt in the case of noncorporate taxpayers is the sum of i percent of so much of the taxable_excess as does not exceed dollar_figure plus ii percent of so much of the taxable_excess as exceeds dollar_figure since petitioners' taxable_excess was dollar_figure which is considerably less than dollar_figure the directions for line of the form in clear terms stated that petitioners' entry on line should have been percent of dollar_figure and the dollar_figure to be subtracted from the resulting calculation only applied if petitioners' taxable_excess had been dollar_figure or more the court finds no ambiguity as to this entry or the basis upon which the computation was to be made as directed on line of the form petitioners therefore erred in making their computation for the entry on line petitioners further contend they relied on the instructions the commissioner issued for the form the portion of the instructions petitioners rely on states general instructions purpose of form the tax laws give special treatment to some types of income and allow special_deductions for some types of expenses these laws enable some taxpayers with substantial economic_income to significantly reduce their regular_tax the purpose of the alternative_minimum_tax amt is to ensure that these taxpayers pay a minimum amount of tax on their economic_income use form_6251 to figure the amount if any of your amt petitioner argued that he and his spouse did not have substantial economic_income and therefore the amt was not intended to apply to them while there may be differences of opinion as to what constitutes substantial economic_income the short answer to petitioners' argument is that whatever amounts result from the computations provided for by the statute those amounts constitute the amt whether that amount is inequitable is a matter more appropriately left for congressional resolution 219_f3d_941 9th cir affg tcmemo_1998_395 moreover even if instructions are incorrect or misleading the commissioner is not bound by guidance he provides to assist taxpayers in filing tax returns where such guidance is contrary to the law 381_us_68 353_us_180 the court therefore sustains respondent reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


department of the treasury internal_revenue_service washington d c o f f ic e o f c h ief c o u n sel number info release date uil date attention dear i am responding to your date inquiry on behalf of your constituent wrote about the application of the segment tax to on-demand air charter flights in a recent technical_advice_memorandum tam issued by the irs i hope the following information is helpful to you the air transportation excise_taxes are user fees and the amounts collected are paid into the airport_and_airway_trust_fund the trust fund the trust fund uses these funds to plan construct develop operate and maintain the united states’ airport and airway system in addition the trust fund covers the portion of the department of transportation’s budget dealing with air transportation and air safety this includes over one-half of the operating costs of the federal aviation administration prior to the taxpayer_relief_act_of_1997 vol c b the act air transportation providers calculated the excise_tax on domestic air transportation solely as a percentage of the amount_paid for that transportation in addition providers of international air transportation beginning or ending in the united_states calculated an international_travel_facilities_tax as a fixed amount applicable to any amount_paid for that air transportation under the act the congress enacted legislation to decrease this percentage and add a new tax on each segment of taxable_transportation the act states the segment tax is imposed on the amount_paid for each domestic_segment of taxable_transportation in the context of commercial air transportation the segment tax applies to each passenger who pays any amount for a segment the term domestic_segment is defined as one takeoff and one landing which is taxable_transportation described in sec_4262 of the internal_revenue_code sec_4261 of the code the international_travel_facilities_tax is similar to the segment tax because both are calculated not as a percentage of the amount_paid but as a fixed amount applicable to any amount_paid for the transportation revrul_72_309 1972_1_cb_348 shows how to calculate the international_travel_facilities_tax when the purchaser makes a single payment for a charter that revenue_ruling concluded that when an individual or organization pays a single amount for a charter implicit in the charter fee is an amount_paid for the transportation of each passenger actually on the flight the similar language in sec_4261 and sec_4261 supports the conclusion that the segment tax should apply in the same way as the international_travel_facilities_tax thus although the irs has not issued guidance on the segment tax specifically the guidance for the similar international_travel_facilities_tax clearly suggests the segment tax should also apply per passenger the per-passenger application means all users of the airport and airway system will share equally in the cost rather than commercial air passengers bearing a higher share of those costs than passengers in chartered aircraft the secretary_of_the_treasury can prescribe the extent if any to which any ruling applies without retroactive effect sec_7805 of the code the holding of a tam applies retroactively unless the secretary exercises this discretionary authority generally a tam will not apply retroactively where the irs has a contrary regulation or revenue_ruling on point or where the irs has issued an earlier tam or letter_ruling to the taxpayer about the same matter under consideration in the tam revenue_procedure 2001_1_irb_79 the irs has not issued any regulation or revenue_ruling on the segment tax thus because the irs had not issued a letter_ruling to the taxpayer before issuing the tam it would generally not be appropriate to apply the tam nonretroactively simply because the taxpayer disagreed with the position reached in that tam i recognize the application of the segment tax to each passenger may be the subject of disagreement however where taxpayers are unclear on the application of a particular tax they can request a letter_ruling rather than wait for published guidance from the irs the letter_ruling program provides guidance to taxpayers when they are unclear on the application of the code each year we announce the procedures for requesting a letter_ruling in the first revenue_procedure published in the internal_revenue_bulletin this year’s procedures are in revproc_2001_1 2001_1_irb_1 copy enclosed if you have any questions please contact me or sincerely associate chief_counsel passthroughs and special industries by richard a kocak chief branch enclosures


internal_revenue_service number release date index number ---------------------------------- ---------------------------- -------------------------------- --------------- -------------------------- department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b1 - plr-118226-03 date oct legend x state decedent trust trust trust trust trust trust trust trust d1 d2 ------------------------------------------- ------ ---------------------- ------------------------------------------------ ----------------------- ------------------------------------------------------ ----------------------- ----------------------------------------------------- ----------------------- -------------------------------------------------------- ----------------------- ---------------------------------------------------- ----------------------- ----------------------------------------------------- ----------------------- ---------------------------------------------- ----------------------- --------------------------------------------------- ----------------------- --------------------- ------------------------ --------------------------- d3 dear -------------- this responds to your letter dated date requesting a ruling that each of trust sec_1 through as reformed is a qualified_subchapter_s_trust qsst under ' d of the internal_revenue_code and is exempt for generation skipping tax gst purposes facts x is a c_corporation formed under the laws of state having single class of stock trust sec_1 through are x shareholders in order for x to elect to be an s_corporation trustees for trust sec_1 through petitioned the court in state to reform the trusts to comply with ' d if a favorable private_letter_ruling is issued in this case trust sec_1 through will each elect to be qssts the taxpayer has requested a ruling that trust sec_1 through as reformed will comply with ' d the taxpayer has also requested a ruling that the reformation trust sec_1 through as reformed will not affect the exempt status of those trusts for generation-skipping_transfer gst tax purposes on d1 prior to date decedent bequeathed an equal share of her residuary_estate to trust sec_1 and in addition to the residuary bequests decedent also exercised a general_power_of_appointment over property in a marital trust appointing such property to the testamentary trusts in equal shares decedent also exercised special powers of appointment over the testamentary trusts created by decedent s spouse benefiting each daughter appointing such property in equal shares to the testamentary trusts under the current terms of trust sec_1 and the trustees are to pay the entire net_income to the beneficiary for life the trustees also have discretion to pay trust corpus to the beneficiary to maintain such beneficiary s standard of living but limited to health education maintenance and support if the beneficiary is a trustee and pay trust corpus to the beneficiary s issue for support and education each daughter has a lifetime special power to appoint any remaining trust corpus to her issue trust sec_1 and will terminate upon the first to occur of the appointment of all corpus or death of the beneficiary when the last of the beneficiary s children reach the age of majority upon termination the trusts will distribute the corpus to the beneficiary s issue by right of representation the trustees have asked the court to reform trust sec_1 and to permit the trustees to distribute corpus solely to the beneficiary on d2 prior to date trust sec_3 through were formed under the laws of state as irrevocable testamentary trusts trust sec_3 through were formed under the laws of state as irrevocable inter_vivos trusts under the current terms of trust and trust the trustee has discretion to pay all or part of the net_income and corpus to the beneficiary and the beneficiary’s issue as the trustee determines is necessary for support education and maintenance the beneficiary has a testamentary special_power_of_appointment over the trust upon the death of the beneficiary the remaining trust corpus is to be distributed outright to descendants in equal shares by right of representation the trustees have asked the court to reform trust and trust to require that all trust income is payable annually to the beneficiary and to permit the trustees to distribute corpus solely to the beneficiary for support education and maintenance on d3 after date trust through were created the trust instrument provides that during the term of the trust all of the principal of the trust may be distributed solely to the beneficiary of the trust in certain circumstances the trust instrument also provides for the right to withdraw property from the trust to persons other than the beneficiary the trustees have asked to court to reform trust sec_5 through to provide only the beneficiary with rights to withdraw property as reformed each trust instrument will provide that in the event that any part of the corpus of a_trust consists of subchapter_s stock the trust instrument is intended to comply with the requirements of the internal_revenue_code ' d and that any provision of a_trust which is not in compliance with such requirements will be null and void as of the effective date that the trust becomes an s shareholder with the remaining provisions of the trust to be carried in effect it is also represented that no additions actual or constructive have been made to the trust sec_1 through after date law and analysis sec_1361 ruling sec_1361 defines an s_corporation as a small_business_corporation for which an election under ' a is in effect sec_1361 defines asmall business corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate other than a_trust described in ' c and other than an organization described in c who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a subchapter_s_corporation shareholder sec_1361 states that a qsst with respect to which a beneficiary makes an election under ' d will be treated as a_trust described in ' c a i and the qsst s beneficiary will be treated as the owner for purposes of ' a of that portion of the qsst s s_corporation stock to which the election under ' d applies under ' d a the beneficiary of a qsst may elect to have ' d apply under ' d d this election will be effective up to days and two months before the date of the election sec_1361 provides that a qsst is a_trust the terms of which require that i during the life of the current income_beneficiary there shall be only income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary s death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary in addition ' d b requires that the trust distribute all of its income within the meaning of ' b currently to one individual who is a citizen or resident_of_the_united_states based solely on the information submitted and the representations made we conclude that each of trust sec_1 through as reformed meet the definition of a qsst under ' d therefore provided that the beneficiaries make the proper elections under ' d for the trusts each trust will be treated as a_trust described in ' c a i revrul_93_79 1993_2_cb_269 provides that a state court order that reforms a_trust to meet the requirements of a qsst is recognized prospectively sec_2601 ruling sec_2601 imposes a tax on every generation-skipping_transfer under ' a of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under ' b a of the act and ' b i of the generation-skipping_transfer_tax regulations the tax does not apply to any generation-skipping_transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under ' b ii any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under ' or if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer sec_26_2601-1 example considers a situation where a_trust is modified to convert the income_interest into a unitrust_interest the grantor established an irrevocable_trust under the terms of which trust income is payable to a for life and upon a s death the remainder is to pass to a s issue per stirpes the court approves a modification to the trust that converts a s income_interest into the right to receive the greater of the entire income of the trust or a fixed percentage of the trust assets valued annually to be paid each year to a for life the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the modification in this example the modification can only operate to increase the amount distributable to a and decrease the amount distributable to a s issue in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the modification will not subject the trust to the provisions of chapter in the present case trust sec_1 through were irrevocable on date and it is represented that no additions actual or constructive have been made to the trusts after that date the proposed reformation will not result in a shift of any beneficial_interest to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the proposed reformation as in example the modification can only operate to increase the amount distributable to the respective beneficiary and decrease the amount distributable to any descendant of the beneficiary in addition the proposed reformation will not extend the time for vesting of any beneficial_interest beyond the period provided for in the trust instruments therefore based on the facts submitted and the representations made we conclude that the reformation of the trust sec_1 through will not cause any of the trusts to lose their exempt status for purposes of ' b a of the act and ' b i or cause any of the trusts or any distributions from the trusts to be subject_to generation-skipping_transfer_tax under ' accordingly after the proposed reformation each trust will continue to be exempt from the gst tax imposed under ' provided there are no additions to the trust after date federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed on whether x is a subchapter_s_corporation for federal tax purposes except as specifically set forth above no opinion is expressed concerning the this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that if may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely david r haglund senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes


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-135983-07 date date legend parent distributing controlled controlled controlled llc llc ----------------------------------------------------- ----------------------- ------------------------------- ----------------------- ----------------------- ------------------------------- ---------------------------------------------------- ----------------------- ------------------------------- --------------------------------------------------- ----------------------- ---------------------------------- --------------------- ----------------------- ------------------------------- --------------------------------- ----------------------- ------------------------------------------------ ------------------------------------ ---------------------- ------------------------------------------------ plr-135983-07 sub sub sub sub partnership regulator business j exchange state w state x state y state z day h a b c d ------------------------------------------------------------ ----------------------- ------------------------------- ---------------------------------- ----------------------- ------------------------------------------------ ------------------------------------- ----------------------- -------------------------- --------------------------------------- ----------------------- -------------------------- ------------------------------------ ----------------------- ------------------------------- -------------------------------------------------------------- ------------------------------ ------------------------------------ ------------- ------------- -------- -------------- ------------------ -- ---- -- -- -------- plr-135983-07 e f dear ------------------- -- -- -------- -- this letter responds to a request for rulings dated date regarding certain federal_income_tax consequences of a series of proposed transactions additional information was submitted in letters dated date date date and date the information submitted is summarized below the rulings contained in this letter are based upon facts and 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 material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has made no determination regarding whether the distributions described below i satisfy the business_purpose requirement of sec_1_355-2 ii are being used principally as a device for the distribution of the earnings_and_profits of any distributing or controlled_corporation see code sec_355 of the internal_revenue_code and sec_1_355-2 or iii are 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 or any of the controlled corporations see sec_355 and sec_1_355-7 facts parent a state w corporation is the common parent of a group of affiliated corporations that files a consolidated_income_tax_return the parent group the members of the parent group compute their u s federal_income_tax liability using the accrual_method of accounting and each member has a taxable_year ending on day h parent has only common_stock outstanding which is publicly traded and listed on the exchange among other interests parent directly owns all of the outstanding_stock in each of distributing a state x corporation and sub a state w corporation both of which are members of the parent group in addition parent wholly owns two state x limited_liability companies llc and llc each a business_entity as defined in sec_301_7701-2 of the procedure and administration regulations that is disregarded for tax purposes as separate from its owner llc wholly owns sub a state x limited_liability_company that has elected under sec_301_7701-3 of the procedure and administration regulations to be classified as plr-135983-07 an association taxed as a corporation for u s federal tax purposes sub and llc are the general_partner and limited_partner respectively of partnership a state x partnership sub and llc own a and b percent of partnership respectively distributing has owned all of the stock of sub and sub both of which are state y corporations for more than five years during which time each corporation has been a member of a distributing separate_affiliated_group within the meaning of sec_355 the dsag distributing has also owned for more than five years all of the outstanding common_stock of each of controlled a state x corporation controlled a state z corporation and controlled a state x corporation collectively the controlled corporations in addition to their outstanding common_stock each of controlled and controlled also has preferred shares of stock currently outstanding controlled has outstanding c classes of non-voting cumulative preferred_stock that is owned by various persons in the past five years controlled has redeemed d of its preferred_stock none of which was held by distributing controlled has outstanding e classes of non- voting cumulative preferred_stock that is owned by various persons in the past five years controlled has redeemed f of its preferred_stock none of which was held by distributing controlled has only had common_stock outstanding all of which is owned by distributing parent and its direct and indirect subsidiaries are engaged in business j both domestically and abroad distributing and its subsidiaries other than controlled controlled and controlled are engaged in business j in state y partnership is also engaged in business j in state y parent has supplied information indicating that each of the dsag controlled controlled and controlled has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years the proposed transactions for what are represented to be valid business purposes parent has proposed the following series of transactions the proposed transactions the recapitalizations i distributing will cause controlled to convert each class of its non-voting preferred_stock into voting preferred_stock with identical terms other than its voting rights recapitalization following recapitalization distributing will have control of at least of the total combined voting power of all classes of controlled stock entitled to vote and at least of the total number of shares of all other classes of stock of plr-135983-07 controlled recapitalization is intended to qualify as a reorganization under sec_368 ii distributing will cause controlled to convert each class of its non-voting preferred_stock into voting preferred_stock with identical terms other than its voting rights recapitalization following recapitalization distributing will have control of at least of the total combined voting power of all classes of controlled stock entitled to vote and at least of the total number of shares of all other classes of stock of controlled recapitalization is intended to qualify as a reorganization under sec_368 the spin-offs iii distributing will distribute all of the common_stock of the three controlled corporations to parent collectively the spin-offs distributing will not retain any stock in the controlled corporations after the spin-offs the transfer iv following the spin-offs parent will transfer all of the membership interests in llc and llc to distributing the transfer representations parent makes the following representations in connection with the proposed transactions in connection with the recapitalizations parent represents that a there is no plan or intention to alter the capital structure of controlled or controlled after the proposed transactions in connection with the spin-offs parent represents that b 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 distributing c the years of financial information submitted on behalf of the dsag is representative of the corporation’s present operation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted d the years of financial information submitted on behalf of controlled is representative of the corporation’s present operation and with regard to such plr-135983-07 corporation there have been no substantial operational changes since the date of the last financial statements submitted e the years of financial information submitted on behalf of controlled is representative of the corporation’s present operation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted f the years of financial information submitted on behalf of controlled is representative of the corporation’s present operation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted g following the transaction the dsag controlled and controlled will each continue the active_conduct of its business independently and with its separate employees and controlled will continue the active_conduct of its business through employees of sub h the distribution of the stock of the controlled corporations will be carried out for the following corporate business purposes to allow distributing to focus on its state y business j operations specifically after the spin-offs and the transfer distributing will own all of parent’s business j operations under the jurisdiction of regulator the distribution of the stock of the controlled corporations is motivated in whole or substantial part by this corporate business_purpose i the transaction is not used principally as a device for the distribution of the earnings_and_profits of distributing or the controlled corporations or both j for purposes of sec_355 immediately after the spin-offs no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote 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 spin-offs k for purposes of sec_355 immediately after the spin-offs no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of any of the controlled corporations’ stock entitled to vote or percent or more of the total value of shares of all classes of any of the controlled corporations’ stock 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 spin-offs or ii attributable to distributions on distributing stock_or_securities that were acquired by plr-135983-07 purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the spin-offs l distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction m no intercorporate debt will exist between distributing and the controlled corporations at the time of or subsequent to the distribution of the controlled corporations' stock n immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d i r b and as currently in effect sec_1_1502-13 as published by t d immediately after the spin-offs distributing and the controlled corporations will each continue to be a member of the parent group o at the time of the spin-offs distributing will not have an excess_loss_account in the stock of any of the controlled corporations p payments made in connection with all continuing transactions if any between distributing and the controlled corporations or solely among the controlled corporations will be based on terms and conditions arrived at by the parties bargaining at arm’s length q no two parties to the transaction are investment companies as defined in sec_368 and iv r the spin-offs are not part of a plan or series of related transactions within the meaning of sec_1_355-7 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 controlled controlled and controlled including any predecessor or successor of any such corporation s none of distributing controlled controlled and controlled is a disqualified_investment_corporation as defined in sec_355 in connection with the transfer parent represents that t no stock_or_securities will be issued for services rendered to or for the benefit of distributing in connection with the proposed transaction no stock_or_securities will be issued for indebtedness of distributing that is not evidenced by a security or for interest on indebtedness of distributing which accrued on or after the beginning of the holding_period of parent for the debt plr-135983-07 u the transfer is not the result of the solicitation by a promoter broker or investment house v w parent will not retain any rights in the property transferred to distributing the value of the stock received in exchange for accounts_receivable will be equal to the net value of the accounts transferred ie the face_amount of the accounts_receivable previously included in income less the amount of the reserve for bad_debts x any debt relating to the stock being transferred that is being assumed as determined under sec_357 was incurred to acquire such stock and was incurred when such stock was acquired and each transferor is transferring all of the stock for which the acquisition_indebtedness being assumed as determined under sec_357 was incurred y the fair_market_value of the assets to be transferred by parent to distributing will in each instance be equal to or exceed the sum of the liabilities to be assumed as determined under sec_357 by distributing z the liabilities of parent to be assumed as determined under sec_357 by distributing were incurred in the ordinary course of business and are associated with the assets to be transferred aa there is no indebtedness between distributing and parent and there will be no indebtedness created in favor of parent as a result of the transaction bb the transfers and exchanges will occur under a plan agreed upon before the transaction in which the rights of the parties are defined cc all exchanges will occur on approximately the same date dd there is no plan or intention on the part of distributing to redeem or otherwise reacquire any stock or indebtedness to be issued in the proposed transaction ee taking into account any issuance of additional shares of distributing stock any issuance of stock for services the exercise of any distributing stock_rights warrants or subscriptions a public offering of distributing stock and the sale exchange transfer by gift or other_disposition of any of the stock of distributing to be received in the exchange parent will be in control of distributing within the meaning of sec_368 of the code ff in connection with the transfer parent will be deemed to receive stock approximately equal to the fair_market_value of the property transferred to distributing or for services rendered or to be rendered for the benefit of the transferee plr-135983-07 gg distributing will remain in existence and retain and use the property transferred to it in a trade_or_business hh there is no plan or intention by distributing to dispose_of the transferred property other than in the normal course of business operations ii each of the parties to the transaction will pay its own expenses if any incurred in connection with the proposed transaction jj distributing is not and will not be an investment_company within the meaning of sec_351 and sec_1_351-1 kk neither parent nor distributing was or is under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock received in the exchange will not be used to satisfy the indebtedness of such debtor ll distributing is not and will not be a personal_service_corporation within the meaning of sec_269a mm immediately following the transfer the fair_market_value of the assets of distributing will exceed the sum of the distributing’s liabilities nn immediately prior to the transfer the fair_market_value of parent’s assets will exceed the sum of parent’s liabilities oo the fair_market_value of the assets transferred to distributing will exceed the parent’s aggregate tax basis in those assets immediately before the transfer rulings based solely on the information submitted we rule as follows with respect to the proposed transactions the distributions the spin-offs will be distributions described in sec_355 distributing will recognize no gain_or_loss upon the distribution of the common_stock of controlled to parent sec_355 distributing will recognize no gain_or_loss upon the distribution of the common_stock of controlled to parent sec_355 distributing will recognize no gain_or_loss upon the distribution of the common_stock of controlled to parent sec_355 plr-135983-07 parent will not recognize any gain_or_loss and no amount will be included in its income upon its receipt of the common_stock of controlled controlled and controlled from distributing sec_355 parent’s aggregate basis in the common_stock of controlled controlled and controlled and the stock of distributing will be the same as parent’s basis in the stock of distributing immediately before the spin-offs allocated among the common_stock of controlled controlled and controlled and the common_stock of distributing in proportion to the respective fair market values of each in accordance with sec_1_358-2 sec_358 b and c parent’s holding_period of the common_stock of controlled controlled and controlled received in the spin-offs will include parent’s holding_period of the shares of distributing with respect to which the spin-offs will be made provided that such shares are held as capital assets on the date of the spin-offs sec_1223 proper allocation of earnings_and_profits between distributing on the one hand and controlled controlled and controlled on the other hand will be made in accordance with sec_312 sec_1_312-10 and sec_1_1502-33 the transfer for u s federal_income_tax purposes as a consequence of llc and llc being disregarded from its owner for federal_income_tax purposes parent will be treated as directly transferring to distributing all of the stock of sub and a b interest in partnership treas reg no gain_or_loss will be recognized by parent upon the transfer of its interest in sub and partnership to distributing in constructive exchange for distributing stock sec_351 and sec_357 sec_1_1502-80 and revrul_80_323 1980_2_cb_124 the basis of parent’s stock in distributing after the spin-offs will be increased by the basis of parent’s interests in sub and partnership that was transferred to distributing subject_to appropriate adjustments sec_358 and d and sec_1_1502-32 no gain_or_loss will be recognized by distributing on the receipt of parent’s interests in sub and partnership in constructive exchange for shares of distributing stock sec_1032 plr-135983-07 the basis of each asset received by distributing will in each instance equal the basis of that asset in the hands of parent immediately before the transfer sec_362 the holding_period of each asset received by distributing in the transfer will in each instance include the period during which parent held that asset sec_1223 caveats no opinion is expressed about the federal tax treatment of the proposed transactions under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above ruling 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 transactions are used principally as a device for the distribution of the earnings_and_profits of distributing or any of the three controlled corporations see sec_355 and sec_1_355-2 or iii whether the proposed transactions are part of a plan or series of related transactions under sec_355 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter other than the specific rulings numbered through above with respect to the transfer no opinion is provided with respect to the treatment of or consequences resulting from the contribution of the partnership to distributing in the transfer no rulings are provided with respect to the recapitalizations this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling including but not limited to prop_reg sec_1_355-3 published in fed reg no date have not yet been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_2007_1 2007_1_irb_1 however when the criteria in section dollar_figure of revproc_2007_1 2007_1_irb_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-135983-07 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification upon examination cc ___________________________ steven j hankin senior technician reviewer branch office of associate chief_counsel corporate sincerely


internal_revenue_service number release date index no department of the treasury washington dc person to contact telephone number refer reply to plr-111796-00 cc intl b1 date date a date b date c country d dear this is in response to your representative’s letter dated date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of long-term_resident status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 a is a long-term_resident of the united_states within the meaning of sec_877 who intends to relinquish his u s lawful permanent resident status expatriate shortly after issuance of this private_letter_ruling a has been a citizen of country d during all of his life by reason of his birth on date b in country d a became a permanent resident_of_the_united_states and obtained his green card on date c a plans to expatriate to country d the country in which he was born on the date of a’s expatriation his net_worth will exceed the net_worth required under sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed under sec_877 and the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to plr-111796-00 avoid u s taxes page a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen or former long term-resident whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because a will become not later than the close of a reasonable period after his expatriation a resident fully liable to income_tax in country d the country where a was born a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission accordingly based on the facts submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 we further conclude that a will not be treated under sec_877 as having as one of his principal purposes of expatriating the avoidance of u s taxes because the information submitted clearly established the lack of a principal purpose to avoid taxes under subtitle a or b of the code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to his loss of permanent residence status or for taxable periods after his loss of permanent residence status under sections of the code other than plr-111796-00 page sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a’s representative sincerely yours ____________________ w edward williams senior technical reviewer branch office of the associate chief_counsel international cc director international international district operations op in d chief examination_division


department of the treasury internal_revenue_service washington d c date number release date cc ebeo tl-n-4712-99 uilc internal_revenue_service national_office field_service_advice memorandum for assistant chief_counsel employee_benefits and exempt_organizations cc ebeo from subject this field_service_advice is in response to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend taxpayer date date date year a year b_trust taxpayer’s representative issue whether penalties provided under sec_6662 of the internal_revenue_code should be asserted with respect to taxpayer’s claiming of deductions for contributions to the trust conclusion penalties should not be asserted as described in your draft memorandum because none of the grounds that you describe should be asserted as a basis for the disallowance of taxpayer’s deductions in connection with a sec_419 theory however it may be appropriate to assert the substantial_understatement_penalty with respect to year a facts law and analysis on date we received your october memorandum requesting review of a draft memorandum that you propose to send to the district_director concerning a pending examination of taxpayer you characterized your request as being for nsar nondocketed significant advice review as indicated on october by the it a branch of domestic field service the nsar procedures do not apply to a review of this type and we are treating your inquiry as a request for field_service_advice in the draft memorandum you indicate that the examination_division issued to taxpayer a form_5701 dated date proposing disallowance of taxpayer’s accelerated deductions for vacation pay for year a through year b of the various grounds for disallowance described in the form_5701 you discuss three failure of the all_events_test lack of economic_substance and a grantor_trust theory on the basis of these three grounds your draft memorandum recommends the assertion of penalties against taxpayer specifically you recommend assertion of penalties for negligence and disregard of rules and regulations for all four years you also recommend assertion of the substantial_understatement_penalty for year a but not for the other years in view of the amounts involved you requested expedited review because of an agreement between examination and taxpayer to complete the examination by date and the need to provide taxpayer with an opportunity to respond to the assertion of penalties while the short time frame and the length of your draft memorandum preclude a detailed response please be assured that we have carefully considered all the points that you have raised we will be happy to work through these issues more thoroughly with you but based on your stated time frame we wanted to share our initial concerns with you quickly for the reasons that follow we conclude that none of the grounds you describe should be asserted as a basis for disallowance rather the correct ground for disallowance of taxpayer’s deductions is that because the trust is a welfare_benefit_fund under sec_419 of the code contributions to the trust are deductible no earlier than the year in which they are paid to the trust see sec_419 although we have not seen a copy of the form_5701 we assume this ground is also described in that document all_events_test you have suggested that the all_events_test is not satisfied with respect to taxpayer’s liability to make contributions to the trust either the trust is respected for tax purposes or it is not if the trust is respected there is no accrual issue because the regulations under sec_419 treat the requirements of sec_461 as having been satisfied to the extent that the otherwise applicable sec_419 requirements are met see sec_1_419-1t q a-10 d the real problem for the deduction is simply that the requirements are not met as noted above if the trust is not respected the issue is not accrual of the obligation_to_contribute to the trust but rather accrual of taxpayer’s underlying obligation to its employees to pay them the vacation pay that they have earned as we understand it that accrual is not in dispute economic_substance you have suggested that the trust and related contributions lacked economic_substance a representative of this office previously advised your office in a telephone conversation that an economic_substance argument should not be made in this case at that time we were evaluating whether such an argument should be asserted in vacation pay cases involving letters of credit we explained to the drafter of your memorandum that whatever the outcome of that evaluation an economic_substance argument should not be made here we have since concluded that an economic_substance argument should be asserted in letter-of-credit cases see revproc_99_26 1999_24_irb_38 but remain of the view that it should not be made here for reasons discussed below you have also suggested that the trust was not validly adopted because there was no board resolution authorizing taxpayer’s assistant treasurer to enter into the trust agreement when he signed it however we understand that there was a board resolution the following year retroactively ratifying his action we recommend against challenging the retroactivity of the ratification in view of his apparent if not actual authority at the time of signing and more generally a policy preference under erisa for respecting the validity of a_trust where protection of benefits is involved grantor_trust theory you have suggested that the trust is a grantor_trust under various provisions of subpart e of chapter j however the authority that you cite either predates the enactment of sec_419 and sec_419a or does not involve welfare_benefit funds as a general matter the rules of sec_419 and sec_419a of the code preclude a nonexempt trust that is a welfare_benefit_fund within the meaning of sec_419 from being treated as a grantor_trust because there are fundamental inconsistencies between the tax consequences under those sections and treatment of the employer as the owner of such a_trust under subpart e because none of these three grounds should be asserted as a basis for disallowance of taxpayer's accelerated deductions none of them provides a basis for asserting any penalties however in light of the sec_419 theory for disallowing the deductions it may be appropriate to assert the substantial_understatement_penalty for year a on the basis that the accelerated deduction is a tax_shelter_item the trust is a tax_shelter within the meaning of sec_6662 unless taxpayer can demonstrate that its principal purpose was something other than to accelerate a deduction if it is a tax_shelter the substantial_understatement_penalty would apply unless taxpayer reasonably believed that its treatment of the deduction was more_likely_than_not the proper treatment under the regulations applicable to that year taxpayer is permitted to satisfy the more_likely_than_not standard either on the basis of its own analysis or through good_faith reliance on the opinion of a professional tax adviser however taxpayer’s representative’s opinion letter will not suffice for this purpose because it did not even consider the more_likely_than_not standard therefore taxpayer would have to demonstrate that it met the standard on the basis of its own analysis case development hazards and other considerations in this regard please note that the practice whereby an employer pays various employee_benefits through its regular payroll system as an agent of an employee_benefit_plan and obtains reimbursement from the associated trust is neither uncommon nor in our opinion improper from a tax perspective we have reviewed the trust and it appears to be a typical erisa trust moreover taxpayer actually parted with significant assets when it made contributions to the trust and could not take them out of the trust except for payment of benefits to employees which is what the payments back to itself as agent actually were although the subject is not addressed in your draft memorandum we have considered whether penalties would be appropriate in light of the sec_419 theory for disallowing the deductions we have reviewed the opinion letter dated date that taxpayer received from taxpayer’s representative including the arguments based on the committee reports accompanying the repeal of sec_463 in although we disagree with the letter's conclusion we believe that taxpayer had substantial_authority for its return position relieving it of liability for penalties based on negligence or disregard of rules and regulations however it may be appropriate to assert the substantial_understatement_penalty for year a on the basis that the accelerated deduction is a tax_shelter_item as indicated above taxpayer may be unable to demonstrate that it met the more_likely_than_not standard on the basis of its own analysis if you have any questions concerning this memorandum or would like to discuss the issues further please feel free to call us at mary e oppenheimer assistant chief_counsel by mark schwimmer chief branch office of the associate chief_counsel employee_benefits and exempt_organizations