c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date ---------------- number release date conex-120128-16 uil 4980h the honorable johnny isakson united_states senator one overton park suite cumberland boulevard atlanta ga attention dear senator isakson i am responding to an email from your office dated date about a concern raised by your constituent retired from the public sector and then worked full time or more hours per week in the private sector until date wrote that at that time due to the affordable_care_act his private sector employer adopted a policy restricting certain employees from working more than hours_of_service a week the policy his employer has adopted while we cannot comment on the specifics of some employers may have decided to restrict the number of hours employees may work to limit the number of its full-time employees sec_4980h of the internal_revenue_code as added by the affordable_care_act defines a full-time_employee solely based on that employee’s hours_of_service and requires an applicable_large_employer to provide minimum essential health coverage to at least percent of its full- time employees however the provision does not take into account other employees who do not work a minimum number of hours_of_service regardless of the reason sec_4980h provides that an applicable_large_employer may be required to pay an assessable payment if it does not offer health coverage to its full-time employees and at least one full-time_employee purchases coverage through the applicable exchange and receives the premium_tax_credit sec_4980h provides that an employee is a full-time_employee for this purpose if the employee averages at least hours_of_service per week during a given month sec_4980h provides that an questioned whether the affordable_care_act requires situation i understand that ------------------- ------------- --------------- ------------- ------------- conex-120128-16 applicable_large_employer generally is an employer who employed more than full- time employees or full-time equivalents during the preceding calendar_year sec_4980h provides for two assessable payments an applicable_large_employer could potentially be required to pay one but not both of these payments in any given calendar month in the following circumstances sec_4980h may apply if an applicable_large_employer fails to offer minimum essential health coverage to at least percent of its full-time employees and one of its full-time employees receives the premium_tax_credit for coverage purchased through the applicable exchange if this type of assessable payment applies the annual payment is dollar_figure adjusted annually multiplied by the total number of the employer’s full-time employees with certain adjustments sec_4980h may apply if the applicable_large_employer offers minimum essential health coverage to at least percent of its full-time employees but one or more full-time employees purchases coverage through the applicable exchange and receives the premium_tax_credit under sec_36b if this type of assessable payment applies the annual payment is dollar_figure adjusted annually multiplied by the total number of the employer’s full-time employees who receive the premium_tax_credit with certain adjustments as stated to avoid the potential application of the assessable payment under sec_4980h an applicable_large_employer must offer minimum_essential_coverage to at least percent of its full-time employees for purposes of meeting the percent threshold all full-time employees are included regardless of whether the full-time_employee has other coverage or has access to other coverage in contrast potential application of the assessable payment under sec_4980h relates only to those full-time employees entitled to a premium_tax_credit under sec_36b and an employee generally would not be eligible for a premium_tax_credit if the employee had other coverage not purchased on the applicable exchange or if the employer had made the employee and the employee’s dependents an affordable offer of minimum_essential_coverage providing minimum value as stated above the potential for an assessable payment under sec_4980h relates only to applicable large employers generally meaning employers that had or more full-time employees during the previous calendar_year in addition the potential for an assessable payment under sec_4980h relates only to the applicable large employer’s offers of coverage or lack of offers of coverage to its full-time employees my office only addresses matters related to the internal_revenue_code and cannot provide information on other potentially applicable laws i understand that your office also has contacted the u s department of labor dol regarding ------------------- concerns the dol may be able to provide you with additional information about other conex-120128-16 federal laws within its jurisdiction such as the employee_retirement_income_security_act_of_1974 i hope this information is helpful if you have questions please contact me at -------------- ------ -------------------- ------------------- or at sincerely victoria a judson associate chief_counsel tax exempt and government entities


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-106787-02 date date legend corporation a corporation b shareholders state date date dear this letter responds to a letter dated date and subsequent correspondence requesting a ruling under sec_301_9100-3 of the procedure and administration regulations that corporation a be granted an extension of time to file an election for corporation b to be a qualified_subchapter_s_subsidiary qsub of corporation a effective date plr-106787-02 facts shareholder incorporated corporation a on date and timely filed a form_2553 election by a small_business_corporation effective date on date shareholders transferred all of the stock of corporation b to corporation a and intended to cause corporation a to elect to treat corporation b as a qsub corporation a inadvertently failed to file timely form_8869 qualified_subchapter_s_subsidiary election law sec_1361 of the internal_revenue_code generally provides that an s_corporation is a small_business_corporation for which an election under sec_1362 is in effect sec_1361 provides the definition of a small_business_corporation for purposes of subchapter_s sec_1361 provides that in order to be a small_business_corporation a taxpayer cannot have as a shareholder a person other than an estate a_trust described in subsection c or an organization described in subsection c who is not an individual sec_1361 defines the term qualified_subchapter_s_subsidiary as a domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if an s_corporation holds percent of the stock of the corporation and that s_corporation elects to treat the subsidiary as a qsub the election is made by filing form_8869 sec_1_1361-3 of the income_tax regulations provides that an s_corporation may elect to treat an eligible subsidiary as a qsub by filing the from prescribed by the irs and that the election may be effective no more than two months and days prior to the date of the filing notice_2000_58 2000_2_cb_491 provides that form_8869 qualified_subchapter_s_subsidiary election should be used to elect qsub treatment sec_301_9100-1 generally permits the commissioner to grant a reasonable extension of time to make a regulatory election if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting the relief will not prejudice the interests of the government sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a notice published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the plr-106787-02 commissioner will use to determine whether to grant an extension of time to make an election further sec_301_9100-2 provides automatic extensions of time for making certain elections and sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests fo relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly corporation a is granted an extension of time of days from the date of this letter to make an election to treat corporation b as a qsub effective date corporation a should submit a properly completed form_8869 to the appropriate service_center with a copy of this letter a copy is enclosed for that purpose except for the specific rulings above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts described under any other provision of the internal_revenue_code specifically no opinion is expressed concerning whether corporation a is a valid s_corporation or whether its subsidiary_corporation b is otherwise eligible to be a qsub this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copies of this letter


internal_revenue_service number release date index number ------------------------ ------------- -------------------------------------------------- --------------------------------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc fip b03 plr-108049-11 date date legend legend taxpayer --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- state x ------------ company a company b company c llc llc llc llc llc llc llc llc a ------------------------------------------------------------- ----------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------ ----------------------------------------------- ------------------------------------------------ ------------------------------------------- --------------------------------------------- ---------------------------------------------- ---------------------------------------------- --------------------------------------------- ----- plr-108049-11 b c d e f g h i j k l m n o ---- ------ ------ ---- --------- ----- -- ---- -------- -- ---- ---- ---- ---- dear --------------- this responds to a letter dated date on behalf of taxpayer taxpayer requests rulings regarding the treatment under sec_856 of the internal_revenue_code code of easements over real_property acquired subject_to existing leases and the treatment under sec_856 and sec_856 of rent accrued and paid pursuant to such existing leases facts taxpayer is a newly formed state x corporation that currently holds no assets has no operations and has not elected under subchapter_m part ii of the code to be treated for federal_income_tax purposes as a real_estate_investment_trust reit plr-108049-11 taxpayer proposes to engage in the business of acquiring owning and leasing certain easements easements in to under and over certain real_property properties and to elect to be treated for federal_income_tax purposes as a reit company a company b company c and management group a group of natural persons who are involved in the management of llc collectively own a percent of llc the equity_interest of company a company b company c and management group in llc1 is b percent c percent d percent and e percent respectively taxpayer is owned a percent by llc llc also owns a percent of the membership interests in llc llc owns a percent of the membership interests in llc llc owns a percent of the membership interests in llc and llc llc also holds a percent of the membership interest in llc llc holds a percent of the membership interests in llc and llc in addition to owning the membership interests in llc and llc llc holds various other entity interests and investments llc llc llc and llc collectively the current easement holders presently are engaged in the business of acquiring owning and leasing easements over properties taxpayer represents that the details of this business are as described below before the easement is created the owner of the property owner enters into at least one lease agreement regarding the property lease with a wireless communication provider lessee the lessee enters into the lease to install towers antennas buildings fences gates and other equipment and facilities in connection with its wireless communication business each a cell phone tower taxpayer represents the following is a summary of the principal terms of a typical lease and that these terms are representative of the terms of all leases parties the owner and the lessee leased site the owner leases to the lessee a portion of the property consisting of f square feet including air space above such area and access to the nearest public road the site permitted use the lessee is permitted to use the site for the transmission and reception of communications signals and the installation maintenance and operation repair and replacement of communications fixtures on a g foot monopole and related equipment cables accessories and improvements which may include a support structure antennas plr-108049-11 equipment shelters or cabinets fencing and other items necessary to the successful use of the site term the initial term of a lease is h years which will automatically renew for h additional periods of h years each unless the lessee notifies the owner in writing at least i days prior to the expiration of the current h-year period rent during the first year of the term of the lease the lessee is required to pay dollar_figurej per month in rent to the owner during the second and subsequent years the amount of rent will increase by k percent over the amount of rent in the previous year the lessee has the right to sublet part of the site for additional communications facilities with the consent of the owner in the event of such a sublease the lessee will pay the owner l percent of the rent received by the lessee from the sublease as additional rent under the lease termination the lease may be terminated by either party on m days' written notice if the other party remains in default see below after the applicable cure periods default the lessee will be deemed to be in default if the lessee fails to pay rent for more than n days after receipt of written notice from the owner or the lessee fails to perform any other term or condition of the lease within m days after receipt of written notice by the owner however no default will be deemed as long as the lessee has commenced to cure the default within the specified period and provided that such efforts are prosecuted to completion with reasonable diligence the current easement holders enter into agreements with owners with respect to the properties easement agreements taxpayer represents that the easement agreements are representative of the agreements taxpayer will use when it engages in the business of acquiring owning and leasing easements pursuant to the terms of each easement agreement the owner grants the easement holder the easement which consists of the following an exclusive easement over a portion of the property that includes the site and cell phone tower exclusive easement and non-exclusive easements over areas that are necessary for a ingress to and egress from the exclusive easement and a publicly dedicated roadway b installation repair replacement improvement maintenance and removal of utilities providing service to the exclusive easement and the cell phone tower and c for sites located on building plr-108049-11 rooftops access to building risers conduits shafts raceways or other designated space to connect the lessee's equipment to other locations in the building additionally the owner transfers and assigns to the current easement holder all right title and interest of the owner in the leases accordingly the current easement holder takes the easements subject_to the leases becoming the landlord under each lease assuming responsibility for all of the obligations and liabilities of the owner and receiving the rent that the lessee otherwise would have paid to the owner the only obligations of the owner under the lease that are not assigned to the current easement holder are obligations relating to the ownership operation and use of the property the current easement holder has the unrestricted right to lease license transfer or assign in whole or in part to or permit the use of the easements and or its rights under the easement agreement by any third parties including communication service providers or tower owners or operators including the lessee often the lessee will sublease the site and cell phone tower to a sublessee sublessee and the sublessee will need space in addition to the site for the performance of its duties under the sublease in these cases the sublessee may request that the current easement holder lease it a portion of the easement outside the site upon the expiration of lease the current easement holder may enter into a new lease of its rights with respect to the property with any third party even before the expiration of a lease the current easement holder may enter into a new lease of a portion of its rights with respect to the property to the extent it is not subject_to a lease most easement agreements and easements are perpetual in duration as long as the easements remain in use but the easement agreement will terminate and the easements will expire if the easements are abandoned for more than h years for reasons other than casualty condemnation or act of god a small number of easement agreements and easements are long-term but not perpetual in duration generally about m to o years in consideration of the foregoing the current easement holder pays to the owner a purchase_price based on a fixed amount with some contingent elements taxpayer anticipates that the current easement holders will transfer the easements to taxpayer and that taxpayer will thereafter engage in the business of acquiring owning and leasing the existing easements received from the current easement holders as well as new easements and elect to be treated as a relt for federal_income_tax purposes law and analysis plr-108049-11 sec_856 provides that at least percent of a reit's gross_income must be derived from among other sources rents_from_real_property sec_856 provides that at least percent of a reit's gross_income must be derived from among other sources rents_from_real_property sec_856 provides that rents_from_real_property include subject_to exclusions provided in sec_856 a rents from interests_in_real_property b charges for services customarily furnished or rendered in connection with the rental of real_property whether or not such charges are separately_stated and c rent attributable to personal_property leased under or in connection with a lease of real_property but only if the rent attributable to the personal_property for the taxable_year does not exceed percent of the total rent for the tax_year attributable to both the real and personal_property leased under or in connection with the lease sec_856 provides that at the close of each quarter of its tax_year at least percent the value of a reit's total assets must be represented by real_estate_assets cash and cash items including receivables and government securities sec_856 provides that the term real_estate_assets for purposes of sec_856 means real_property including interests_in_real_property and interests in mortgages on real_property and shares or transferable certificates of beneficial_interest in other reits that meet the requirements of sec_856 through sec_856 provides that the term interests_in_real_property includes fee ownership and co-ownership of land or improvements thereon leaseholds of land or improvements thereon options to acquire land or improvements thereon and options to acquire leaseholds of land or improvements thereon but does not include mineral oil or gas royalty interests sec_1_856-3 of the income_tax regulations provides in part that the term real_estate_assets means real_property sec_1_856-3 provides that real_property includes land or improvements thereon such as buildings or other inherently permanent structures thereon including items which are structural_components of such buildings or structures in addition the term real_property includes interests_in_real_property local law definitions will not be controlling for purposes of determining the meaning of real_property for purposes of sec_856 and the regulations thereunder under the regulations real_property includes for example the wiring in a building plumbing systems central heating or central air-conditioning machinery pipes or ducts elevators or escalators installed in a building or other items which are structural_components of a building or other permanent structure the term does not include assets accessory to the operation of a business such as machinery printing press transportation equipment which is not a structural_component of the building office plr-108049-11 equipment refrigerators individual air-conditioning units grocery counters furnishings of a motel hotel or office building etc even though such items may be termed fixtures under local law revrul_71_286 1971_2_cb_263 considers whether air rights over real_property are considered interests_in_real_property and real_estate_assets within the meaning of sec_856 the term air rights is defined as the long-term leasehold or fee simple ownership of the space above the ground that a landowner can occupy or use in connection with the land plus necessary easements on the surface for support of structures erected in such air space the revenue_ruling holds that such air rights are considered interests_in_real_property and real_estate_assets within the meaning of sec_856 revrul_75_424 1975_2_cb_269 concerns whether various components of a microwave transmission system are real_estate_assets for purposes of sec_856 the system consists of transmitting and receiving towers built upon pilings or foundations transmitting and receiving antennae affixed to the towers a building equipment within the building and waveguides the waveguides are transmission lines from the receivers or transmitters to the antennae and are metal pipes permanently bolted or welded to the tower and never removed or replaced unless blown off by weather the transmitting multiplex and receiving equipment is housed in the building prewired modular racks are installed in the building to support the equipment that is installed upon them the racks are completely wired in the factory and then bolted to the floor and ceiling they are self-supporting and do not depend upon the exterior walls for support the equipment provides for transmission of audio or video signals through the waveguides to the antennae also installed in the building is a permanent heating and air conditioning system the transmission site is surrounded by chain link fencing the revenue_ruling holds that the building the heating and air conditioning system the transmitting and receiving towers and the fence are real_estate_assets the ruling further holds that the antennae waveguides transmitting receiving and multiplex equipment and the prewired modular racks are assets accessory to the operation of a business and therefore not real_estate_assets revrul_68_291 1968_1_cb_351 clarifying revrul_59_121 1959_1_cb_212 provides generally that the consideration received for the granting of an easement constitutes the proceeds from the sale of an interest_in_real_property and should be applied as a reduction of the cost or other basis of the portion of the land subject_to the easement see also revrul_54_575 1954_2_cb_145 as described above the taxpayer will acquire own and lease perpetual and long-term easements that are either exclusive easements over a portion of the property that includes the site and cell phone tower or non-exclusive easements over areas that are necessary for a ingress to and egress from the exclusive easement and a publicly dedicated roadway b installation repair replacement improvement maintenance and removal of utilities providing service to the exclusive easement and plr-108049-11 the cell phone tower and c for sites located on building rooftops access to building risers conduits shafts raceways or other designated space to connect lessee's equipment to other locations in the building the easements represent an interest_in_real_property within the meaning of sec_856 and sec_856 additionally the taxpayer will hold the easements subject_to the leases becoming the landlord under each lease assuming responsibility for all of the obligations and liabilities of the owner and receiving the rent that the lessee otherwise would have paid to the owner the only obligations of the owner under the lease that will not be assigned to the taxpayer are obligations relating to the ownership operation and use of the property taxpayer will not provide any services to lessees under the easements thus amounts paid_by the lessees to the taxpayer will qualify as rents_from_real_property under sec_856 conclusion based on the information submitted and representations made we conclude that an easement acquired by taxpayer under an easement agreement is an interest_in_real_property that qualifies under sec_856 as a real_estate asset and the amounts derived by the taxpayer under the terms of easement agreements pursuant to the leases are rents_from_real_property within the meaning of sec_856 this ruling’s application is limited to the facts representations code sections and regulations cited herein except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code specifically we do not rule on the following whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code and the federal tax consequences of the transaction or series of transactions by which the existing easements will be transferred contributed assigned or otherwise conveyed from the current easement holders to the taxpayer plr-108049-11 this ruling is directed only to the taxpayer who requested it sec_6110 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 your authorized representatives sincerely alice m bennett chief branch office of associate chief_counsel financial institutions products enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-120712-03 date date legend x a b state d1 dear this letter responds to a letter dated date and subsequent correspondence written on behalf of x by x's authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated under state law on d1 x's shareholders a and b intended for x to be an s_corporation as of d1 x's corporate minutes indicate that it was intended that x would elect to be an s_corporation however x's form_2553 election by a small_business_corporation was not filed timely x filed form_1120s u s income_tax return for an s_corporation for its taxable_year beginning d1 plr-120712-03 law and analysis 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 generally 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 sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or 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 the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for its failing to make a timely s election and that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective d1 within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes plr-120712-03 pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x's authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours james a quinn senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service index numbers number release date cc dom corp plr-108906-98 date re distributing_corporation w corporation x corporation z controlled esop state a plr-108906-98 chairman x institutional shareholder a y z r business a business b m q plr-108906-98 date a date c country v former corporation x ceo s t u dear this is in response to a letter dated date requesting a ruling as to the federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated date date date date date date and date distributing is the common parent of a consolidated_group and its stock is publicly traded on a national exchange it has one class of common_stock of which b shares are outstanding the largest shareholder of distributing owning in excess of percent of the distributing stock is esop which holds w percent of the stock outstanding the chief_executive_officer of distributing is chairman who holds x percent of the stock of distributing more than percent additionally certain shares of distributing’s common_stock are held by distributing employees subject_to a substantial_risk_of_forfeiture under sec_83 of the internal_revenue_code plr-108906-98 distributing has also two institutional shareholders that own more than percent of its outstanding_stock institutional shareholder a which owns y percent of the stock holds this stock partially on its own behalf partially on behalf of its employee pension and incentive savings plans and partially through five different mutual funds marketed by the company no one of these entities owns greater than percent of the distributing stock institutional investor b holds its distributing stock through two private investment partnerships it also holds distributing stock in a capacity as an investment_advisor each of the private investment partnerships which are operated independently hold less than percent of the distributing stock in its capacity as an investment_advisor institutional investor b has the power to vote and dispose_of more than percent of the stock on behalf of r clients nevertheless institutional investor b has a fiduciary duty to determine whether to buy sell or hold distributing stock on an individual client-by- client basis based solely on what is in the best interests of each particular client no one client of institutional investor b holds more than percent of the distributing stock distributing is a holding_company its principal first tier subsidiaries include corporation w a country v corporation corporation x and corporation z corporation x is a holding_company which owns all of the stock of corporation y distributing holds q percent more than percent of the corporation x stock while the remainder of the corporation x stock is publicly_held_corporation y the wholly-owned subsidiary of corporation x is directly engaged in business a corporations w and z are each directly engaged in business b corporation z has an outstanding intercompany loan from distributing in the amount of dollar_figurep due to mature on date a controlled is a holding corporation that has been created in connection with this transaction controlled has been created to hold the stock of corporations w and z which conduct business b employees of corporations x and y hold options to acquire u shares of stock in corporation x the holding_company parent of corporation y that expire on date b corporation x intends to enter into a lock-up registration rights and secured loan agreement with the holders of the expiring options the agreement will provide that the option holders will not exercise their options until date b which is subsequent to the date of the proposed spinoff in return corporation x agrees among other things to pay all of the sales expenses other than underwriting discounts in connection with the exercise of the options plr-108906-98 chairman does not hold any of the options in corporation x which expire on date b and accordingly will not participate in the offering former corporation x ceo died on date d the estate of former corporation x ceo currently holds options to acquire s shares of stock in corporation x of which t shares expire on date b and are included in the u shares described above financial information has been received which indicates that business a conducted by corporation y and business b conducted by corporations z and w have each had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years both business a and business b rely heavily on their separate highly skilled professional workforces management of distributing believes that equity-based compensation provides key employees with a proprietary interest in the growth of distributing further management believes that the current compensation plans are inadequate because they are tied to the performance of the consolidated_group rather than each business specifically distributing wants to create an employee_stock_ownership_plan for controlled which holds stock whose performance is directly linked to the performance of the business b business in order to accomplish this objective the following transaction is proposed step one step two corporation y will pay a dividend of between dollar_figurem and dollar_figuren to corporation x the corporation y dividend funds corporation x will in turn distribute the corporation y dividend funds to distributing and to the corporation x minority shareholders distributing will accelerate distributions for substantially_all of its employee participants in its nonqualified_deferred_compensation_plan and accelerate vesting in its profit sharing plan in addition it will accelerate vesting in matching_contributions in its employee_stock_purchase_plan and distribute all of the shares to participants all options which are not exercisable will be accelerated step three corporation z will repay its loan from distributing through a cash payment plr-108906-98 step four step five distributing will transfer certain assets the transferred assets to corporation z consisting of cash including the corporation y dividend funds in step one above as well as the cash payment from corporation z in step three above operating_assets and investments to corporation z in constructive exchange for corporation z stock the purpose for the transfer of cash and investments will be to meet certain regulatory capitalization requirements of business b thus these funds will be used in the business b business on a continuing basis distributing will then transfer certain of its business b operating_assets together with the corporation w and z stock to controlled in constructive exchange for stock of controlled and the assumption of certain related liabilities by controlled controlled will not be indebted to distributing after this step except to the extent of any liability arising out of the provision of certain services to controlled and with respect to tax allocation and indemnity agreements to be entered into by the parties step six step seven distributing thereafter will distribute all of the stock of controlled pro_rata to the distributing shareholders fractional shares if any will not be issued but will be paid in cash the distributing esop will be split into two esops one for distributing and one for controlled the distributing stock held by participants to be employed by controlled will be exchanged to the extent possible for controlled stock held in accounts of participants to be employed by distributing any amounts of distributing stock remaining in the controlled esop will be sold either in the market or to distributing or in the secondary public offering described below step eight controlled will adopt several of the employee stock incentive plans currently operated by distributing plr-108906-98 step nine corporation x will liquidate and transfer its assets to distributing in a transaction which is intended to qualify as a merger under state a law the minority shareholders of corporation x will receive shares of stock of distributing in the transaction fractional shares will be paid in cash by distributing to the minority shareholders step ten distributing will undertake a secondary public offering of its stock the purpose is to facilitate an orderly distribution of the shares subject_to the options which expire on date b additionally the estate of former corporation x ceo may exercise the additional non-expiring options to acquire the shares of stock and sell the stock in the secondary public offering finally any remaining distributing shares held by the controlled esop may be sold in the public offering the following representations have been made in connection with step four the transfer of assets from distributing to corporation z a b c d e no stock_or_securities will be issued for services rendered to or for the benefit of the transferee in connection with the proposed transaction no stock_or_securities will be issued for indebtedness of the transferee that is not evidenced by a security or for an interest on indebtedness of the transferee which accrued on or after the beginning of the holding_period of the transferor for the debt the transfer is not the result of the solicitation by a promoter broker or investment house the transferor will not retain any rights in the property transferred to the transferee 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 plr-108906-98 f g h i j k l m n the adjusted_basis and the fair_market_value of the assets to be transferred by the transferor to the transferee will in each instance be equal to or exceed the sum of the liabilities to be assumed by the transferee plus any liabilities to which the transferred assets are subject the liabilities of the transferor to be assumed by the transferee were incurred in the ordinary course of business and are associated with the assets to be transferred there is no indebtedness between the transferee and the transferor and there will be no indebtedness created in favor of the transferor as a result of the transaction the transfers and exchanges will occur under a plan agreed upon before the transaction in which the rights of the parties are defined all exchanges will occur on approximately the same date there is no plan or intention on the part of the transferee to redeem or otherwise reacquire any stock or indebtedness to be issued in the proposed transaction taking into account any issuance of additional shares of transferee stock any issuance of stock for services the exercise of any transferee stock_rights warrants or subscriptions a public offering of transferee stock and the sale exchange transfer by gift or other_disposition of any of the stock of the transferee to be received in the exchange the transferor will be in control of the transferee within the meaning of sec_368 the transferor will constructively receive stock securities or other_property approximately equal to the fair_market_value of the property transferred to the transferee or for services rendered or to be rendered for the benefit of the transferee the transferee will remain in existence and retain and use the property transferred to it in a trade_or_business plr-108906-98 o p q r s there is no plan or intention by the transferee to dispose_of the transferred property other than in the normal course of business operations each of the parties to the transaction will pay its own expenses if any incurred in connection with the proposed transaction the transferee will not be an investment_company within the meaning of sec_351 and sec_1_351-1 of the income_tax regulations the transferor is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of any such debtor the transferee will not be a personal services corporation within the meaning of sec_269a the following additional representations are made in connection with steps five and six the transfer of assets by distributing to controlled followed by the distribution of all of the stock of controlled by distributing a1 a2 the indebtedness owed by controlled to distributing after the distribution of controlled will not constitute stock_or_securities except to the extent that the receipt of shares of controlled stock by holders of shares of distributing restricted_stock with respect to such distributing stock may constitute compensatory income for federal_income_tax purposes no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any other capacity other than that of a shareholder of the corporation the total number of shares of controlled stock to be distributed in respect of the holders of distributing restricted_stock will constitute less than of the controlled stock outstanding immediately after the distribution a3 the five years of financial information submitted on behalf of corporation y’s active business is representative of that corporation’s present operations and with regard to such plr-108906-98 corporation there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of corporation w’s and corporation z’s active businesses is representative of each corporation’s present operation and with regard to each such corporation there have been no substantial operational changes since the date of the last financial statements submitted immediately after the transaction at least percent of the fair_market_value of the gross assets of distributing will indirectly consist of the stock and securities of corporation y a controlled_corporation that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the distribution at least percent of the fair_market_value of the gross assets of controlled will consist of the stock and securities of corporation w and corporation z controlled corporations that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 following the transaction corporation y corporation w and corporation z will each continue the active_conduct of its business independently and with its separate employees the distribution of the stock of controlled is carried out for the following corporate business purposes a4 a5 a6 a7 a8 to provide a direct equity_interest in a business of distributing to employees operating that business through the formation of an esop and other stock_option and purchase plans sponsored by controlled to improve the fit and focus of distributing’s business operations the distribution of the stock or stock and securities of controlled is motivated in whole or substantial part by one or more of the business purposes plr-108906-98 a9 there is no plan or intention by any shareholder who owns five percent or more of the stock of distributing and the management of distributing to its best knowledge is not aware of any plan or intention on the part of any particular remaining shareholder or security holder of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in or securities of either distributing or controlled after the transaction except for the disposition by the controlled esop of some or all of its shares of stock in distributing possible dispositions by chairman consisting of a gifts of stock of distributing or controlled to charitable organizations b gifts of stock of distributing or controlled to relatives c transfers of stock of distributing or controlled for estate_planning purposes to entities beneficially owned by such relatives or the donor or d cash sales of stock of distributing or controlled to satisfy personal cash needs or for portfolio risk management with any such dispositions or sales described in b and c other than to entities the assets and income of which would be treated as owned by chairman for federal_income_tax purposes and d consisting of simultaneous dispositions or sales of an equivalent number of shares of stock in each of distributing and controlled dispositions in a secondary public offering by i distributing employees of shares of distributing acquired following the transaction through the exercise of the expiring date b stock_options ii the estate of former corporation x ceo of shares of distributing acquired following the transaction through the exercise of the expiring date b stock_options and additional non-expiring options to acquire stock of corporation x and iii the controlled esop of any remaining distributing shares held therein there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 other than as described in step nine above there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise a10 a11 plr-108906-98 a12 a13 a14 a15 a16 a17 a18 dispose_of the assets of either corporation after the transaction except in the ordinary course of business the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing each equals or exceeds the sum of the liabilities assumed by controlled plus any liabilities to which the transferred assets are subject the liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of controlled’s stock except payables incurred by distributing’s active business liabilities pursuant to tax allocation and indemnification agreements and in the ordinary course of its business in connection with services provided by controlled’s active business 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 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further distributing’s excess_loss_account with respect to the controlled stock if any will be included in income immediately before the distribution see sec_1_1502-19 payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to the transaction are investment companies as defined in sec_368 and iv for purposes of sec_355 immediately after the distribution no person will hold disqualified_stock under sec_355 in distributing or controlled possessing percent or more of the total combined voting power of all classes of distributing or plr-108906-98 a19 a20 a21 a22 controlled stock entitled to vote or percent or more of the total value of shares of all classes of distributing or controlled stock the distribution is not within the meaning of sec_355 part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled the gross assets of the trade_or_business of corporation w relied upon to satisfy the active_trade_or_business_requirement of sec_355 will have a fair_market_value equal to or greater than five percent of the total fair_market_value of the gross assets of corporation w the corporation conducting such trade_or_business the gross assets of the trade_or_business of corporation y relied upon to satisfy the active_trade_or_business_requirement of sec_355 will have a fair_market_value equal to or greater than five percent of the total fair_market_value of the gross assets of corporation y the corporation conducting such trade_or_business the gross assets of the trade_or_business of corporation z relied upon to satisfy the active_trade_or_business_requirement of sec_355 will have a fair_market_value equal to or greater than five percent of the total fair_market_value of the gross assets of corporation z the corporation conducting such trade_or_business a23 the controlled esop will be an entity exempt from federal_income_tax pursuant to sec_501 plr-108906-98 a24 the payment of cash in lieu of fractional shares of controlled will be solely for the purpose of avoiding the expense and inconvenience to controlled of issuing fractional shares and does not represent separately bargained-for consideration the total cash consideration to be paid in lieu of fractional shares of controlled stock will not exceed one percent of the total consideration that will be issued in the transaction to distributing shareholders the fractional share interests of each distributing shareholder will be aggregated and no distributing shareholder will receive cash in an amount equal to or greater than the value of one full share of controlled stock the following additional representations are made in connection with step nine above the liquidation of corporation x into distributing b1 distributing on the date of adoption of the plan_of_liquidation and at all times until the final liquidating_distribution is completed will be the owner of a least percent of the single outstanding class of corporation x stock b2 all distributions from corporation x to distributing pursuant to the plan of complete_liquidation will be made within a single taxable_year of corporation x b3 as soon as the first liquidating_distribution has been made corporation x will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders b4 corporation x will retain no assets following the final liquidating_distribution b5 corporation x will not have acquired assets in any nontaxable_transaction at any time except for acquisitions occurring more than years prior to the date of adoption of the plan_of_liquidation b6 other than as described above in step one no assets of corporation x have been or will be disposed of either by corporation x or distributing except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to adoption of the plan_of_liquidation b7 other than the cash dividend that will be paid prior to the liquidation as described in step one above the liquidation of corporation x will not be plr-108906-98 preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of corporation x if persons holding directly or indirectly more than percent in value of the corporation x stock also hold directly or indirectly more than percent in value of the stock in recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 of the code as modified by sec_304 b8 other than the cash dividend that will be paid prior to the liquidation as described in step one above prior to adoption of the liquidation plan no assets of corporation x will have been distributed in_kind transferred or sold to distributing except for i transactions occurring in the normal course of business and ii transactions occurring more than years prior to the adoption of the liquidation plan b9 corporation x will report all earned_income represented by assets that will be distributed to its shareholders such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc b10 the fair_market_value of the assets of corporation x will exceed its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately prior to the time the first liquidating_distribution is made b11 no intercorporate debt existing between distributing and corporation x has been canceled forgiven or discounted except for transactions that occurred more than years prior to the date of adoption of the liquidation plan b12 distributing is not an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code b13 the fair_market_value of the consideration received by distributing and by the minority shareholders for each share of corporation x stock will approximately equal the fair_market_value of that stock b14 the fair_market_value of the parent stock and other consideration received by each corporation x shareholder will be approximately equal to the fair_market_value of the corporation x stock surrendered in the exchange b15 all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the proposed liquidation of corporation x have been fully disclosed plr-108906-98 b16 there is no plan or intention for distributing the issuing_corporation as defined in sec_1_368-1 or to the best of the knowledge and belief of distributing’s management any person related as defined in sec_1_368-1 to distributing except to the extent those persons who were the direct or indirect owners of corporation x prior to the proposed transaction maintain a direct or indirect proprietary interest in distributing to acquire during the five year period beginning on the date of the proposed transaction with consideration other than distributing stock distributing stock furnished in exchange for a proprietary interest in corporation x in the proposed transaction either directly or through any transaction agreement or arrangement with any other person except for i the cash paid in lieu of fractional shares and ii purchases pursuant to corporation x’s existing repurchase program anticipated to be continued by distributing following the proposed transaction b17 during the five year period ending on the date of the proposed transaction a neither distributing nor any person related as defined in sec_1_368-1 to distributing will have acquired_corporation x stock with consideration other than distributing stock excluding exchanges by distributing of corporation x stock for a direct interest in the corporation x enterprise except for purchases pursuant to corporation x’s existing stock repurchase program b neither corporation x nor any person related as defined in sec_1_368-1 determined without regard to sec_1 e i a to corporation x will have acquired_corporation x stock with consideration other than distributing stock or corporation x stock except for purchases pursuant to corporation x’s existing stock repurchase program plr-108906-98 c no distributions will have been made with respect to corporation x stock except for i a cash dividend paid_by corporation x to distributing on date c at the time of the initial_public_offering of corporation x stock and ii the cash dividend to be paid_by corporation x to distributing and corporation x’s minority shareholders on or before the spinoff either directly or through any transaction agreement or arrangement with any other person b18 the aggregate value of any acquisitions redemptions or distributions described in paragraphs b16 and b17 will not exceed percent of the value without giving effect to the acquisitions redemptions or distributions of the proprietary interest in corporation x on the effective date of the proposed transaction based solely on the information submitted and on the representations set forth above it is held as follows as to step four no gain_or_loss will be recognized by distributing on the transfer to corporation z of the transferred assets and the assumption by corporation z of associated liabilities if any in constructive exchange for additional stock of corporation z sec_351 and sec_357 no gain_or_loss will be recognized by corporation z on the receipt of the transferred assets and the assumption by corporation z of associated liabilities if any in constructive exchange for additional corporation z stock sec_1032 the basis of the transferred assets to corporation z will be equal to the basis of such property in the hands of distributing immediately prior to the transfer sec_362 the holding_period of corporation z in the transferred assets will include the period during which such property was held by distributing sec_1223 the basis of the stock of corporation z held by distributing after the exchange will include the basis of the transferred assets in the hands of distributing at the time of the exchange sec_358 the holding_period of the stock of corporation z held by distributing after the exchange will include the holding_period of the transferred assets in plr-108906-98 the hands of distributing at the time of the exchange provided that such property was held by distributing as a capital_asset sec_1223 for purposes of subchapter_c of the code the circular_flow_of_cash between corporation z and distributing as described in steps three and four above will be disregarded and distributing will be considered as capitalizing the debt of corporation z based solely on the information submitted and on the representations set forth above it is held as follows as to steps five and six the transfer by distributing of certain of its assets including the corporation w and corporation z stock to controlled in constructive exchange for controlled stock and the assumption by controlled of associated liabilities followed by the distribution of all of distributing’s stock in controlled pro_rata to distributing’s shareholders will qualify as a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on its transfer of the assets to controlled in exchange for controlled stock and the assumption by controlled of associated liabilities sec_361 and sec_357 no gain_or_loss will be recognized by controlled on its receipt of the assets from distributing in constructive exchange for stock of controlled sec_1032 the basis of the assets received by controlled will equal the basis of the assets in the hands of distributing immediately before the transfer sec_362 the holding_period of the assets received by controlled will include the period during which these assets were held by distributing sec_1223 no gain_or_loss will be recognized by distributing on the distribution of controlled stock to distributing’s shareholders sec_361 no gain_or_loss will be recognized to and no amount will be included in the income of the shareholders of distributing upon the receipt of controlled stock including fractional share interests sec_355 plr-108906-98 the basis of the controlled stock in the hands of the distributing shareholders including fractional share interests will be allocated between the distributing stock and the controlled stock held by such shareholder after the transaction in proportion to their relative fair market values as provided by sec_1_358-2 sec_358 and b the holding_period of the controlled stock received by each distributing shareholder including fractional share interests will include the holding_period of the distributing stock on which the distribution is made provided the distributing stock is held as a capital_asset on the date of the distribution sec_1223 as provided by sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 and sec_1_1502-33 a shareholder entitled to a fractional share interest in controlled will recognize gain_or_loss on the receipt of cash in lieu of the fractional share interest equal to the difference between the cash received and the holder's basis in such interest sec_1001 provided the fractional share interest is a capital_asset in the hand of the exchanging holder such gain_or_loss will be capital_gain or loss to such holder subject_to the provisions and limitations of subchapter_p and chapter of the code based solely on the information submitted and on the representations set forth above it is held as follows as to step nine for federal_income_tax purposes the merger of corporation x into distributing pursuant to applicable state law will be a distribution by corporation x in complete_liquidation of corporation x within the meaning of sec_332 no gain_or_loss will be recognized to corporation x on the distribution of its assets to distributing and the assumption of its liabilities by distributing in complete_liquidation sec_336 and sec_337 no gain_or_loss will be recognized to distributing on receipt of the assets of corporation x and its assumption_of_liabilities of corporation x pursuant to the plan of merger and liquidation sec_332 distributing’s basis in the assets received from corporation x in complete_liquidation will be the same as the basis of those assets in the hands of corporation x immediately prior to the liquidation sec_334 plr-108906-98 distributing’s holding_period for the assets received in the complete_liquidation will include the period during which those assets were held by corporation x sec_1223 pursuant to sec_381 and sec_1 distributing will succeed to and take into account the items of corporation x described in sec_381 subject_to the conditions and limitations of sec_381 and c and the regulations thereunder the receipt of cash in lieu of a fractional share interest as described above will be treated under sec_302 as having been paid to the shareholder in redemption of the fractional share interest with respect to step nine the federal_income_tax treatment of the proposed transaction will be determined separately for the minority shareholders and for distributing and the liquidating subsidiary see sec_1_332-1 -5 revproc_99_3 i r b sec_3 provides that the internal_revenue_service will not rule on the qualification of a transaction under sec_368 the service does have however the discretion to rule on significant subissues that must be resolved to determine whether a transaction qualifies under this section the service will only rule on such subissues if they are significant and not clearly and adequately addressed by a statute regulation decision of the supreme court tax_treaty revenue_ruling revenue_procedure notice or other authority published in the internal_revenue_bulletin you have represented that to the best of the knowledge and belief of distributing’s management provided the continuity_of_interest requirement is met the merger of corporation x with and into distributing will constitute a reorganization within the meaning of sec_368 with respect to the minority shareholders of corporation x based solely on the information submitted and on the representation set forth above it is held as follows with respect to the minority shareholders as to step nine the requirement of sec_1_368-1 that there be a continuity_of_interest on the part of those who were the owners of the enterprise prior to the reorganization is satisfied under revrul_98_27 1998_22_irb_4 the principles of 324_us_331 or any formulation of the step_transaction_doctrine will not apply to any postdistribution restructuring described herein in any manner which would disqualify the distribution of controlled stock plr-108906-98 no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling is consummated sincerely yours assistant chief_counsel corporate by _____________________ howard w staiman assistant to the chief branch


t c memo united_states tax_court roxie lee jackson petitioner v commissioner of internal revenue respondent docket no filed date roxie lee jackson pro_se albert b kerkhove for respondent memorandum findings_of_fact and opinion marvel judge respondent determined the following deficiencies and additions to tax with respect to petitioner’s federal income taxes ‘a111 section references are to the internal_revenue_code in effect for the taxable years at issue and all rule references are to the tax_court rules_of_practice and procedure addition_to_tax year deficiency sec_6651 a dollar_figure dollar_figure after concessions ’ the sole issue for decision is whether the refund of overpayments made by petitioner in and is barred by the operation of sec_6511 and sec_6512 we hold that it is findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts is incorporated herein by this reference at the time the petition was filed petitioner resided in elkhorn nebraska petitioner failed to file timely federal_income_tax returns for the years and on date petitioner and his wife mailed their joint federal_income_tax return for to the internal_revenue_service service with a letter the date letter informing the service that they had not yet filed their federal_income_tax returns for and but that the returns would be completed shortly respondent concedes the deficiencies to the extent they exceed the amounts reported on petitioner and his wife’s federal_income_tax returns for and respondent also concedes the additions to tax the record does not disclose when the service received the return and letter although respondent concedes the service received the documents neither the return nor the april continued - - the letter stated further that petitioner and his wife anticipated each of the delinquent returns would show an income_tax refund of several thousand dollars and emphasized that petitioner and his wife did not owe any additional taxes for the years and the letter stated petitioner and his wife were due refunds for each year the letter referenced petitioner’s social_security_number and was sent on behalf of both petitioner and his wife only petitioner’s wife signed the letter however on date respondent mailed notices of deficiency for and to petitioner the notices of deficiency did not refer to the date letter petitioner filed a timely petition in response to the notices on date petitioner and his wife filed joint federal_income_tax returns for and with the internal_revenue_service center at kansas city missouri the and returns reported the following income_tax year withholding income_tax due overpayment dollar_figure dollar_figure dollar_figure big_number big_number big_number continued letter was introduced as an exhibit in this case by either party our findings_of_fact regarding the contents of the date letter are drawn from the testimony of petitioner and his wife which we concluded was credible respondent did not contest their description of the date letter q4e- respondent has accepted the returns as filed but disputes that petitioner and his wife have overpayments of tax allowable by law claiming that refunds of the overpayments for and are barred by sec_6511 and sec_6512 b opinion if a notice_of_deficiency is issued to a taxpayer for a particular taxable_period and the taxpayer files a timely petition in this court claiming an overpayment for that taxable_period that overpayment may be refunded only as provided in sec_6512 sec_6512 sec_301_6512-1 proced admin regs with respect to a taxpayer’s claim to an overpayment in a proceeding before this court the requirements of sec_6512 are jurisdictional 516_us_235 116_tc_31 n petitioner bears the burden of proving that his claimed overpayments are refundable under sec_6512 rule a sec_6512 provides that if the tax_court finds that the taxpayer has made an overpayment of income_tax for the same taxable_year in respect of which the commissioner determined a deficiency the court has jurisdiction to determine the amount of the burden_of_proof provisions of sec_7491 do not apply here because the examination in this case began before date internal_revenue_service restructuring reform act of publaw_105_206 sec 112_stat_726 the overpayment and the overpayment amount must be credited or refunded to the taxpayer after the decision has become final sec_6512 limits the amount of the credit or refund however sec_6512 provides that no credit or refund of any portion of the tax shall be allowed or made unless the tax_court determines as part of its decision that such portion was paid-- a after the mailing of the notice_of_deficiency b within the period which would be applicable under sec_6511 c or d if on the date of the mailing of the notice_of_deficiency a claim had been filed whether or not filed stating the grounds upon which the tax_court finds that there is an overpayment or c within the period which would be applicable under sec_6511 c or d in respect of any claim_for_refund filed within the applicable_period specified in sec_6511 and before the date of the mailing of the notice of deficiency-- which had not been disallowed before that date which had been disallowed before that date and in respect of which a timely suit_for_refund could have been commenced as of that date or in respect of which a suit_for_refund had been commenced before that date and within the period specified in sec_6532 no portion of either overpayment was paid within the period described in sec_6512 a or b in this case the overpayments in question were made before the date the notices of deficiency were mailed and outside the periods which would be -- - applicable under sec_6511 c or d if the claims for refund were deemed filed on the dates the notices of deficiency were mailed sec_6511 commissioner v lundy supra likewise sec_6512 b c and does not apply because petitioner’s alleged informal refund claim had not been disallowed before the date the notice_of_deficiency was mailed and because petitioner had not filed a timely refund_suit before the date the notice_of_deficiency was mailed the only provision of sec_6512 under which petitioner arguably qualifies is sec_6512 b c which requires proof that the taxpayer seeking a refund filed a timely refund claim that had not been disallowed before the date the notice_of_deficiency was mailed the arguments of the parties ordinarily if a taxpayer does not file his federal_income_tax return for a taxable_year before the commissioner mails a notice_of_deficiency for that same year any refund of income_tax for that taxable_year is limited to the taxes paid within years before the date the notice_of_deficiency is mailed commissioner v lundy supra see generally sec_6511 sec_6512 b b respondent contends that petitioner falls within this rule according to respondent petitioner is entitled to a an amendment to sec_6512 effective for tax years ending after date and thus inapplicable here extends the lookback period to years in some circumstances refund only if the taxes in question were paid during the period beginning on date and ending on date because the only payments petitioner made for and were attributable to federal_income_tax withholding and therefore are deemed by statute to have been made on date and respectively sec_6513 respondent contends that no portion of the claimed overpayments was paid during the applicable 2-year period petitioner argues however that he filed a timely refund claim under sec_6512 b c although petitioner did not file his federal_income_tax returns for and until after the notices of deficiency were mailed petitioner contends that the date letter qualified as an informal refund claim with respect to his overpayments for and and that his informal refund claim was filed within years of the dates the overpayments were deemed paid as required by sec_6511 petitioner implicitly argues that the date letter provided sufficient information to respondent to qualify as an informal refund claim and that an informal refund claim is a qualifying claim under sec_6512 respondent denies that petitioner filed an informal refund claim with respect to petitioner’s and overpayments the date letter although respondent could not locate the date letter and petitioner could not find a copy of it to introduce in evidence at trial respondent conceded that such a letter was sent and received and does not dispute the description of its contents given by petitioner and his wife at trial in the date letter petitioner and his wife provided a statement of the reasons they had not filed their returns for asserted their intention to file the returns for shortly and stated clearly that they did not owe any additional tax for any of the years the letter stated unequivocally that petitioner and his wife had overpaid their taxes for each of the years and that the irs owed them several thousand dollars for those years the letter was written by petitioner’s wife on behalf of herself and petitioner referenced petitioner and his social_security_number and was reviewed by petitioner before it was mailed it was attached to the delinguent joint federal_income_tax return of petitioner and his wife the return was signed under oath by both petitioner and his wife and claimed a refund of income_tax overpaid respondent subsequently refunded the overpayment to petitioner and his wife - respondent argues that the date letter petitioner mailed to the internal_revenue_service center did not qualify as a refund claim for several reasons the date letter did not satisfy the technical requirements for a formal refund claim petitioner did not sign the letter under penalties of perjury the date letter did not set forth in detail each ground upon which a claim_for_refund was being made or the exact basis for the claim under regulations promulgated by the secretary a properly prepared claim_for_refund formal refund claim must satisfy certain requirements sec_301_6402-2 and sec_301_6402-3 proced admin regs ’ although respondent correctly points out that the date letter does not satisfy the requirements of a formal ‘they include the following the claim must be in writing for taxes other than income_tax the claim must be on form_843 sec_301_6402-2 proced admin regs for income taxes any claim_for_refund must be made on the appropriate income_tax return or amended income_tax return sec_301_6402-3 proced admin regs the claim must set forth in detail each ground upon which a refund is claimed and facts sufficient to apprise the commissioner of the basis of the refund sec_301_6402-2 proced admin regs the claim must be verified by a written declaration that it is made under penalties of perjury id if a claim is executed by an agent of the taxpayer a power_of_attorney must accompany the claim sec_301_6402-2 proced admin regs with respect to income_tax and other taxes not relevant here a separate claim is required for each taxable_period sec_301_6402-2 proced admin regs refund claim the defects respondent identifies do not necessarily render the date letter ineffective as an informal refund claim it has long been recognized that a writing which does not qualify as a formal refund claim nevertheless may toll the period of limitations applicable to refunds if the writing is delivered to the service before the expiration of the applicable_period of limitations the writing in conjunction with its surrounding circumstances adequately notifies the service that the taxpayer is claiming a refund and the basis therefor and either the service waives the defect by considering the refund claim on its merits or the taxpayer subsequently perfects the informal refund claim by filing a formal refund claim before the service rejects the informal refund claim 314_us_186 involving a protest letter 289_us_373 involving a defective original claim 289_us_28 involving a defective original claim 288_us_89 involving a claim_for_refund of sweeping generality 288_us_62 involving a claim rejected as too general 283_us_269 283_us_258 involving a letter and executed waiver form am radiator standard sanitary corp v united_states ct_cl 318_f2d_915 the sparse record in this case establishes that the date letter notified respondent that petitioner believed he had overpaid his taxes for and and that he was entitled to a refund of those overpayments the date letter however contained no description of the basis for petitioner’s refund claim for a writing to qualify as an informal refund claim the writing evaluated with reference to the surrounding circumstances must give the commissioner adequate notice that the taxpayer is seeking a refund of taxes for specified years and of the basis for the claim the relevant inquiry therefore is whether under all the facts and circumstances petitioner gave sufficient notice of the basis for his refund claim to respondent so that respondent could investigate the claim and make a determination on the merits see eg turco v commissioner tcmemo_1997_564 in this case we are presented with a factual record that is so inadequate we cannot fairly conclude that petitioner made an informal refund claim neither the date letter nor petitioner’s jointly filed income_tax return for is an exhibit in this case although respondent agrees the date letter was sent and does not dispute that the contents of the date letter are as described by petitioner and his wife at trial the letter by itself does not provide the minimum information necessary to apprise respondent of the basis of petitioner’s claim the date letter contains no more than an unsupported assertion by petitioner and his wife that they believed they were entitled to refunds for and a writing evaluated with reference to its surrounding circumstances that provides no information about the basis of a taxpayer’s refund claim does not qualify as an informal refund claim because it does not give the commissioner notice fairly advising the commissioner of the nature of the taxpayer’s claim united_states v kales supra pincite petitioner bears the burden of proving that he is entitled to a refund of the overpayments he claims for and rule a because petitioner failed to prove that he made an informal refund claim and because the record establishes that spetitioner did not argue that the date letter coupled with his tax_return constituted his informal refund claim even if petitioner had made such an argument the record foreclosed any evaluation of the argument neither petitioner nor respondent introduced the return into evidence and petitioner did not testify as to the contents of the return without the return or some testimony regarding its contents in the record we simply cannot evaluate whether the facts giving rise to the overpayment which respondent refunded were substantially_similar to the facts generating the overpayments for and the only facts we can fairly find on this record are that the date letter provided notice to respondent that petitioner felt he was entitled to a refund for and and that the letter and the surrounding circumstances did not adequately notify respondent of the basis of the claim see 118_f3d_522 7th cir - - petitioner did not file a timely formal refund claim we must conclude that petitioner has failed to prove that he filed a gualifying refund claim as required by sec_6512 b c consequently we hold that petitioner is not entitled to a refund of his overpayments for and under sec_6512 b c we have considered the other arguments of the parties and to the extent not discussed above we conclude that the arguments are irrelevant moot or meritless to reflect the foregoing decision will be entered under rule


department of the treasury p o box - room cincinnati ohio employer_identification_number person to contact - id contact telephone numbers phone fax vil internal_revenue_service director exempt_organizations release number release date date date legend a state b name of public charity c name of historical property d name of county department t dollar_figureamount u dollar_figureamount v dollar_figureamount w date x date y date z date dear by letter dated date you requested a determination that a set-aside in the amount of dollar_figuret for the taxable_year ending date meets the requirements of sec_4942 and accordingly constitutes a qualifying_distribution under sec_4942 facts you are incorporated under the laws of the state of a are exempt from federal_income_tax under sec_501 of the code and are classified as a private non-operating foundation under sec_509 o b you wish to set_aside dollar_figuret for the purpose of a matching grant in support of a project of b a publicly_supported_organization exempt under sec_501 of the internal_revenue_code b preserves and provides upkeep for c an historically and architecturally significant structure which is part of a public park owned by d and maintains c public access and interpretation and will in time lead to a degradation of the property b has undertaken to restore the c property the total cost of the project is estimated to be dollar_figureu b and d have determined that basic flaws in the current buildings hinder b under an agreement with d manages by the terms of your agreement with b you shall make a matching grant of dollar_figuret one third of the estimated cost of the restoration project the remaining two thirds of the costs dollar_figurev will be funded by grants and donations to b through a fundraising campaign based on the matching grant the grant will be paid only if b has received eligible matching_contributions including binding pledges and in-kind contributions in an amount not less than dollar_figurev by a date on or before w the grant is also subject_to certain other conditions precedent including your approvals of the architect and architect’s plans and your satisfaction that b has sufficient funding to complete the restoration project as embodied in the plan the grant will be disbursed in a lump sum to b within days of its satisfaction of these conditions precedent no later than x and b will complete the project on or before z both dates being within months of y the date of the set-aside upon receipt of the funds from you b shall deposit the funds in a separate_account and subject_to the satisfaction of all conditions set forth in the agreement b may make disbursements from the account to pay reimbursable costs of the restoration project provided that unless otherwise agreed by you disbursements from the account shall be limited to one third of the total reimbursable costs incurred in connection with the restoration project as stated in the agreement b shall use the gift solely for reimbursable costs incurred in connection with the restoration project and for no other purpose prior to disbursement of any portion of the grant from the account b shall submit to you all contracts with vendors contractors and other suppliers and obtain your approval in writing no additions to the set-aside are planned law sec_4942 of the code defines qualifying_distribution as a any amount_paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled by the foundation or one or more disqualified persons or ii a private_foundation which is not an operating_foundation except as otherwise provided b any amount_paid to acquire an asset used directly in carrying out one or more purposes described in sec_170 sec_4942 of the code provides that for all taxable years beginning on or after date an amount set_aside for a specific project within one or more purposes of sec_170 may be treated as a qualifying_distribution if the amount meets the requirements of sec_4942 sec_4942 of the code provides that an amount set_aside for a specific project may be treated as a qualifying_distribution if at the time of the set-aside the foundation establishes to the satisfaction of the secretary the amount set_aside will be paid for the specific project within five years and the specific project is one that can better be accomplished by the set-aside of income than by the immediate payment of funds the suitability test sec_53_4942_a_-3 of the foundation and similar excise_tax regulations defines as a qualifying_distribution any amount set_aside within the meaning of paragraph b of sec_3 sec_53_4942_a_-3 provides that the amounts of income set_aside for a specific project for one or more of the purposes in sec_170 or sec_170 of the code may be treated as qualifying distributions for the tax_year s in which such amounts are set_aside but not in the tax_year in which actually paid if the requirements of sec_4942 and paragraph b are satisfied the requirements of paragraph b are satisfied if the foundation establishes to the satisfaction of the commissioner that the amount set_aside will be paid for the specific project within months after it is set_aside and i the set-aside otherwise meets the suitability test of sec_53_4942_a_-3 or ii the foundation satisfies the cash distribution test sec_53_4942_a_-3 of the regulations provides that the suitability test for a set-aside is met if the foundation establishes the specific project is one in which relatively long-term grants or expenditures must be made in order to assure the continuity of particular charitable projects or program-related investments or where grants are made as part of a matching grant program sec_53_4942_a_-3 provides that a private_foundation must obtain internal_revenue_service approval of its set-aside of income under the suitability test by applying before the end of the tax_year in which the amount is set_aside in revrul_77_7 1977_1_cb_354 the term specific project as defined in sec_53_4942_a_-3 of the excise_tax regulations was held to include a building project to be undertaken by a public charity unrelated to the foundation making the set-aside analysis you have sought timely approval of your set-aside of income in accordance with sec_53_4942_a_-3 i as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations your proposed set-aside will be for a specific project for one or more of the purposes in sec_170 of the code as in revrul_77_7 the specific project is a building project to be undertaken by a public charity unrelated to you the building project is in furtherance of educational_purposes within the meaning of in sec_170 you have represented that the amount set-aside for this specific project will be paid out within months from the set-aside as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations your project can better be accomplished by a set-aside of income than by the immediate payment of funds the specific project is one in which relatively long-term grants or expenditures must be made as part of a matching grant program your project therefore satisfies the suitability test as set forth in sec_4942of the code and sec_53_4942_a_-3of the regulations ruling based on the foregoing the set-aside of dollar_figuret for the taxable_year ending date meets the requirements of sec_4942 and accordingly constitutes a qualifying_distribution under sec_4942 we direct your attention to sec_53_4942_a_-3 of the regulations entitled evidence of set-aside this section provides that any set-aside approved by the internal_revenue_service shall be evidenced by the entry of a dollar amount in the books_and_records of a private_foundation as a pledge or obligation to be paid at a future date or dates further the amount of the set-aside must be taken into account in determining the foundation’s minimum_investment_return see sec_53 a - c of the regulations and any income attributable to a set-aside must be taken into account in computing adjusted_net_income see sec_53_4942_a_-2 of the regulations this ruling is based on the understanding there will be no material changes in the facts upon which it is based any changes that may have a bearing on your tax status should be reported to the internal_revenue_service this ruling does not address the applicability of any section of code or regulations to the facts submitted other than with respect to the sections described this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling letter is directed only to the organizations that requested them sec_6110 of the code provides that they may not be used or cited as precedent please keep a copy of this ruling letter in your permanent records copies of this letter have been sent to your authorized representatives if you have any questions about this ruling please contact the persons whose name and telephone number are shown above in the heading of this letter sincerely yours lois g lerner director exempt_organizations enclosure notice redacted copy of letter


third party communication date of communication month dd yyyy cca_2014011508450757 id uilc number release date from sent wednesday date am to cc bcc subject re telephone_excise_tax procedure issue -------- i agree by way of background the only reason the tetr procedure utilized the form sec_1040 was because it was cost effective the service was not in a position to create a new form to deal exclusively with the excise_tax however the excise_tax refund is unrelated to any income_tax indeed many taxpayers had their approved tetr refunds held up during the course of an audit of their ------ it modules to avoid this problem we advised some t ps to file on the later approved for this purpose form_843 so the only exception i take with your analysis is where you explain since the refund would be processed as part of the ------ consolidated income_tax account for the ---------------consolidated group although this might be true empirically if the request had been submitted on an 1120x it should not be the case legally fyi i am not an expert on consolidated_return issues so i am taking your word for the authority of ------------------------to independently file the claim even though it is part of the ------------------ consolidated_group i hope this helps regards --------------------------------------------------------------------------------------------------------------------------- --------------------------