internal_revenue_service number release date index number ------------------ ------------------------ ------------------------------------- ------------------ ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no ---------- telephone number --------------------- refer reply to cc psi b05 plr-139580-09 date date legend taxpayer -------------------------------------------------------------------- ------------------------------------- state a -------------- dear ---------------- this is in response to a request for rulings dated august submitted by your authorized representative the rulings concern the interplay of the rules in subchapter_t of the internal_revenue_code concerning the taxation of cooperatives and their patrons and the calculation of the sec_199 deduction for certain cooperatives contained in sec_199 taxpayer is a farmers’ cooperative organized as a cooperative corporation under state a law taxpayer is a local grain marketing and farm supply cooperative it is headquartered in state a it serves farmers located predominately in a --- county area in southwestern state a taxpayer markets grain for its farmer members and for other patrons during ------- taxpayer’s grain sales were approximately dollar_figure------------------ principal commodities marketed in--------were corn and soybeans taxpayer also marketed some wheat and oats taxpayer provides a broad range of the farm supplies to its farmer members and other patrons - including petroleum products such as diesel_fuel propane heating oil and gasoline plant food fertilizers agricultural chemicals herbicides and pesticides feed and seed during ------- taxpayer’s farm supply sales totaled approximately dollar_figure----- -------- ---------- plr-139580-09 taxpayer’s members are farmers who do business with it taxpayer also does business with other patrons taxpayer pays patronage_dividends to members and other patrons who have consented to take patronage_dividends into account under the provisions of subchapter_t of the code during-------- taxpayer had --------members and paid patronage_dividends to approximately --------patrons including members and nonmembers the state a cooperative law applies to organizations formed or incorporated on a cooperative plan for a variety of purposes including for the purpose of conducting an agricultural dairy or marketing business state a statutes ----------------------------- the state a cooperative law requires that a cooperative distribute n et income in excess of dividends on capital stock and additions to reserves on the basis of patronage state a statutes section ----------------- the statute provides that the distribution shall be made at least annually state a statutes section ----------------- a distribution may be in cash capital stock credits allocated patronage equities revolving fund certificates or its own or other_securities state a statutes section ------ ----------------- taxpayer’s articles of incorporation provide that a ll of its activities shall be conducted strictly upon the cooperative plan and at cost and without profit to either this association or any member or stockholder as such article ii sec_1 more specifically article vi provides the association’s net savings from patronage in excess of additions to reserves and other deductions as more specifically defined and provided in the bylaws shall be distributed to its patrons at least annually on the basis of their patronage the articles of incorporation provide that taxpayer is organized with capital stock article v sec_1 two classes of stock are authorized common_stock with a par_value of twenty-five dollars dollar_figure per share and preferred_stock with a par_value of twenty-five dollars dollar_figure a share article iv sec_1 no shares of preferred_stock are outstanding common_stock is membership stock the articles of incorporation limit ownership of common_stock and therefore membership in taxpayer to producers i who reside in the territory served by this association ii who patronize this association and iii who have been approved by the board_of directors article v sec_3 each member is limited to only one vote in the affairs of this association article v sec_3 article v of taxpayer’s bylaws provides a detailed description of how taxpayer computes and pays patronage refunds article v sec_5 of the bylaws provides for the annual distribution of patronage_dividends plr-139580-09 the annual net savings from patronage less any deductions therefrom or exceptions thereto as determined by sec_4 of this article v shall be distributed annually except as hereinafter provided to the patrons of the association who consent to take into account patronage distributions from the association in the manner provided in sec_1385 said distributions shall be made on the basis of the respective patronage of said patrons in accordance with these bylaws and said patrons shall be notified thereof bylaws article v sec_5 article v sec_5 of taxpayer’s bylaws permits taxpayer to pay patronage_dividends based upon allocation units in making said distributions of patronage_dividends due regard may be given to the sources from which said savings accrue and separate allocations and distributions may be made for the various operations as separate divisions of the association taxpayer allocates patronage_dividends upon the basis of six allocation units one of the units is for its grain business and the net_earnings of that allocation unit are allocated based on bushels without regard to the kind of grain marketed taxpayer also has separate allocation units for petroleum feed agronomy miscellaneous merchandise and grain storage article v sec_5 of taxpayer’s bylaws authorizes taxpayer to pay patronage_dividends in cash or in capital stock stock credits allocated patronage equities revolving fund certificates and any other evidence of equity or by any combination thereof designated by the board_of directors patronage_dividends are normally paid in a combination of cash and revolving fund certificates the revolving fund certificates are qualified written notices of allocation as defined in subchapter_t of the code the ruling_request relates to taxpayer’s grain marketing activities taxpayer operates --------- grain elevators located throughout the territory it serves collectively the elevators have the capacity to store approximately ---------------bushels of grain ----- ------- of the elevators are located on rail lines --------- of the elevators are truck facilities taxpayer sells its grain to livestock producers grain processors ethanol producers and others for resale both domestically and in the export market taxpayer’s grain business consists of buying grain from patrons handling and storing the grain at its elevators and then selling the grain to terminal grain elevators grain processors feed lots grain exporters and others the issue in the ruling_request relates to the characterization for purposes of subchapter_t of the code and sec_199 of payments referred to in the ruling_request as grain payments that taxpayer makes to members and other patrons eligible to plr-139580-09 share in patronage_dividends when it acquires their grain for marketing on a patronage basis thus any payments to persons not eligible to share in patronage_dividends are not grain payments as that term is used in the ruling_request for purposes of the request the term grain payments also does not include patronage_dividends paid to members and other patrons of taxpayer with respect to grain marketed for them taxpayer does not operate on a pooling basis thus the patrons of taxpayer do not commit to deliver all of the grain they grow from specified acreage to taxpayer to be pooled with the grain of other patrons as would be the case if taxpayer operated like a pooling cooperative commodity price risk does not shift from taxpayer’s patrons to a pool at the time of harvest but rather remains with patrons until they decide to sell their grain to taxpayer for marketing all of taxpayer’s marketing proceeds are not shared equally on the basis of patronage and distributed in the form of harvest advances and progress payments with a final settlement after the pool closes as they would be if taxpayer pooled rather taxpayer pays each patron a market price for his or her grain that market price is determined without regard to the actual net_proceeds from marketing grain what that market price is depends upon where when and how a patron chooses to sell his or her grain to taxpayer payments are made in cash by check and occur throughout the year as patrons sell grain to taxpayer for marketing and are paid pursuant to the terms of their grain contracts after purchasing grain from patrons taxpayer then markets each patron’s grain along with the grain of all of its patrons in the manner that it judges will produce the best return after year end when net_earnings for the year have been determined taxpayer pays a patronage_dividend to its patrons with respect to the grain they market through taxpayer farmers historically have retained the decision of when and how to sell their grain they have also retained the option to sell their grain to a cooperative for marketing on a patronage basis or to a commercial grain company farmers have a variety of alternatives when they sell their grain to taxpayer the choices are similar to those offered farmers by commercial grain companies though commercial grain companies do not market grain on a patronage basis and do not pay patronage_dividends the basic choices available to a farmer selling grain to taxpayer or marketing on a cooperative basis are i to sell the grain for taxpayer’s current cash bid price ii to sell the grain to taxpayer using a forward_contract and iii to sell the grain to taxpayer using a deferred price or a deferred payment contract under each of these basic choices there are additional options available to farmers one way for a farmer to sell grain to taxpayer for marketing is to sell the grain to taxpayer and be paid the cash bid price typically a country elevator’s cash bid price plr-139580-09 for a commodity is the nearby futures price in a specified reference market where the commodity is actively_traded eg the chicago board_of trade or the minneapolis grain exchange plus or minus a fixed spread referred to as the basis set from time to time by the elevator based upon local market conditions thus the cash bid price at a country elevator reflects the condition of the overall market for grain the futures price and the condition of the local market for grain the basis an elevator’s cash bid price changes during the course of each day as the reference futures price fluctuates it also changes as the elevator adjusts the basis the bid price schedule at country elevators changes from hour to hour and day to day a farmer can deliver and sell grain to taxpayer at the cash bid price at the time of harvest delivering the grain directly from the field however it usually is not advantageous for farmers to sell then since prices often are lowest at harvest many farmers have the capacity to store grain on their farm and so can wait until later when they think that the cash bid price is right to deliver and sell their grain to taxpayer other farmers deliver grain to taxpayer for storage not for immediate sale the farmers retain ownership of the grain in the elevator and pay storage fees to taxpayer later when a farmer believes the cash bid price is right he or she can sell the grain to taxpayer for marketing on a cooperative basis a farmer has the option of entering into a forward_contract to sell his or her grain to taxpayer forward contracts call for delivery of a specified quantity and quality of grain at a specified location during a specified time period forward contracts can be entered into before the grain is planted while it is growing or after harvest while the grain is being stored on the farm or in an elevator forward contracts can be priced in a variety of ways many contracts provide for a fixed price referred to as a flat price farmers interested in entering into a forward_contract with taxpayer can determine the flat price taxpayer is willing to pay at any time at any of its locations for delivery at various times in the future from taxpayer’s bid schedules for grain for future delivery typically a country elevator’s bid price for future delivery is determined in a manner similar to the way the cash bid price is determined however when the bid price is for future delivery it is based upon the nearby futures price for the time specified for delivery plus or minus the basis set by the country elevator for that delivery month the bid price for future delivery changes during the course of each day as the specified reference_price fluctuates it also changes as the country elevator adjusts its basis farmers also can enter into forward contracts where the pricing is left open for future determination for instance the contracts may fix the basis and leave the futures price open to be determined based upon the futures price at the time chosen by the farmer before a specified date in the future alternatively the contracts may specify the futures price and leave the basis open to be determined based upon the elevator’s plr-139580-09 basis for delivery during the future month at the time chosen by the farmer before a specified date in the future some cooperatives use contracts which specify a minimum price that will be paid for the member’s grain giving the farmer the option to fix the price before a specified date in the future based upon a reference futures price leaving open the possibility that a price greater than the minimum price will be paid if futures prices go up farmers have the option to deliver grain to taxpayer leaving the determination of the price partly or wholly open contracts of this sort are called by various names - deferred price contracts delayed price contracts credit-sale contracts etc under a deferred price contract ownership of the grain passes from the farmer to taxpayer at the time of delivery farmers are given the opportunity to wait until later to price the grain when the farmer chooses to price the contract the cooperative’s then current bid price is used to fill the open price term once the price is determined the farmer member is paid some farmers prefer to sell their grain to taxpayer on a deferred payment basis grain sold on that basis might be delivered in october the price set at that time but with payment to be made in january ownership of the grain passes to taxpayer when the grain is delivered the variety of options available to farmers for selling their grain to taxpayer and other grain companies provide farmers with a great deal of flexibility farmers can lock in prices for their crops even before they are planted or while they are growing at any time if they think that the price is right by using flat price forward contracts some farmers prefer to do so after they can estimate the costs of production to lock in a reasonable margin if a farmer is happy with the futures price but not the basis the farmer can enter into a forward_contract that leaves the basis open if a farmer is happy with the basis but not the futures price the farmer can enter into a forward_contract that leaves the futures price open if a farmer wants the assurance of a minimum price the farmer can enter into a forward_contract that specifies a minimum price but leaves final pricing open such a contract can result in a higher price if the futures price increases or a guaranteed minimum price albeit somewhat lower than the farmer could otherwise have obtained if the futures price does not increase if farmers think that the cash price is low at the time of harvest they can harvest and store their crops while waiting for the price to improve alternatively they can deliver the crops and enter into a deferred price contract these choices are available to all farmers marketing their grain on a cooperative basis through taxpayer because of these choices two neighbors that market the same quantity and quality of a particular kind of grain through taxpayer during any year will receive different grain payments depending upon where when and how they sell their grain to taxpayer however they will receive the same patronage_dividends plr-139580-09 for the fiscal_year ended ------------------- taxpayer made grain payments to patrons eligible to share in patronage_dividends of approximately dollar_figure---------------- taxpayer has not paid patronage_dividends yet for the year but estimates that it will be paying patronage_dividends to patrons with respect to their grain of approximately dollar_figure------ ---------- taxpayer anticipates paying the patronage_dividends in cash and qualified written notices of allocation revolving fund certificates taxpayer has treated grain payments made in cash to members as purchases for tax purposes and reported them on schedule a line of its form 1120-c taxpayer has not reported the grain payments made in cash as per-unit retain allocations paid in money and therefore has not reported them on schedule a line 4b of its form 1120-c it has reported the patronage_dividends paid to patrons as a patronage_dividend paid in money and qualified written notices of allocation on schedule h line 3a of its form 1120-c because of this reporting grain payments paid in cash have entered into the determination for tax purposes of taxpayer’s cost_of_goods_sold for tax purposes as is customary in the grain business taxpayer values its grain inventories at year end at market for financial statement and tax purposes taxpayer did not add back grain payments in its sec_199 computations for prior years but it did add back patronage_dividends paid to patrons in--------taxpayer passed a portion of its sec_199 deduction through to patrons recent developments have caused taxpayer to reconsider how it should treat its grain payments for purposes of its sec_199 computation taxpayer is seeking confirmation that all grain payments to patrons that are paid in cash should be classified as per-unit retain allocations paid in money in prior years taxpayer has disregarded patronage_dividends paid in cash and qualified written notices of allocation for purposes of determining qualified_production_activities_income qpai and taxable_income for purposes of sec_199 of the code taxpayer plans to begin disregarding grain payments made to patrons for purposes of computing its qpai and its taxable_income it also is considering passing through to members all or a portion of its sec_199 deduction rulings requested grain payments to members and other patrons eligible to share in patronage_dividends constitute per-unit retain allocations paid in money within the meaning of sec_1382 of the code for purposes of computing its sec_199 domestic_production_activities_deduction taxpayer’s qualified_production_activities_income and taxable_income should pursuant to sec_199 of the code be computed without regard to any plr-139580-09 deduction for grain payments to members and other patrons eligible to share in patronage_dividends nonexempt subchapter_t cooperatives are permitted to exclude or deduct distributions to patrons that qualify as per-unit retain allocations or patronage_dividends provided the distributions other meet the requirements of subchapter_t of the code sec_1388 of the code defines the term per-unit_retain_allocation to mean any allocation by an organization to which part i of subchapter_t applies to a patron with respect to products marketed for him the amount of which is fixed without reference to net_earnings of the organization pursuant to an agreement between the organization and the patron per-unit retain allocations may be made in money property or certificates per- unit retain allocations paid in money and in property are excludable or deductible under sec_1382 of the code per-unit retain allocations paid in certificates are deductible under sec_1382 if the certificates are qualified if the certificates are nonqualified the cooperative is permitted a deduction under sec_1382 or a tax_benefit figured under sec_1383 when the certificates are later redeemed sec_1388 of the code provides that the term patronage_dividend means an amount_paid to a patron by a cooperative on the basis of the quantity or value of business done with or for such patron sec_1388 provides that a patronage_dividend is an amount_paid under an obligation that must have existed before the cooperative received the amount so paid sec_1388 provides that patronage_dividend means an amount_paid to a patron that is determined by reference to the net_earnings of the cooperative from business done with or for its patrons that section further provides that a patronage_dividend does not include any amount_paid to a patron to the extent that such amount is out of earnings other than from business done with or for patrons sec_1_1382-3 of the income_tax regulations states that income derived from sources other than patronage means incidental income derived from sources not directly related to the marketing purchasing or service activities of the cooperative association patronage_dividends may be paid in money property or written notices of allocation patronage_dividends paid in money and in property are excludable or deductible under sec_1382 of the code patronage_dividends paid in written notices of allocation are deductible under sec_1382 if the written notices of allocation are qualified if the notices are nonqualified the cooperative is permitted a deduction under sec_1382 or a tax_benefit figured under sec_1383 when the notices are later redeemed sec_1388 of the code provides that the term written_notice_of_allocation means any capital stock revolving fund certificate retain certificate certificate of plr-139580-09 indebtedness letter of advice or other written notice which discloses to the recipient the stated dollar amount allocated to him by the organization and the portion thereof if any which constitutes a patronage_dividend for cooperatives that use pooling revrul_67_333 1967_2_cb_299 provides that pool advances are treated as per-unit retain allocations and the final pool payment made after net_earnings have been determined is treated as a patronage_dividend under sec_199 of the code patrons that receive a qualified_payment from a specified agricultural or horticultural cooperative are allowed a deduction for an amount allocable to their portion of qpai of the organization received as a qualified patronage_dividend or per-unit_retain_allocation which is paid in qualified per-unit retain_certificates in particular sec_199 requires the cooperative to be engaged in the manufacturing production growth or extraction in whole or significant part of any agricultural or horticultural product or in the marketing of agricultural or horticultural products under sec_199 in the case of a cooperative engaged in the marketing of agricultural and horticultural products the cooperative is treated as having manufactured produced grown or extracted mpge in whole or significant part any qualifying_production_property marketed by the cooperative that its patrons have mpge this is known in the industry as the cooperative attribution rule in addition sec_199 requires the cooperative to designate the patron’s portion of the income allocable to the qpai of the organization in a written notice mailed by the cooperative to its patrons no later than the 15th day of the ninth month following the close of the tax_year under sec_1_199-6 of the regulations for purposes of determining a cooperative’s sec_199 deduction the cooperative’s qpai and taxable_income are computed without taking into account any deduction allowable under sec_1382 or c of the code relating to patronage_dividends per-unit retain allocations and nonpatronage distributions an agricultural or horticultural cooperative is permitted to pass-through to its patrons all or any portion of its sec_199 deduction for the year provided it does so in the manner and within the time limits set by sec_199 of the code when a cooperative passes-through all or any portion of the sec_199 deduction the cooperative remains entitled to claim the entire sec_199 deduction on its return provided that it does not create or increase a patronage tax loss but is required under sec_199 to reduce the deduction or exclusion it would otherwise claim under sec_1382 for per-unit retain allocations and patronage_dividends sec_199 of the code provides that a cooperative passes through an amount of its sec_199 deduction by identifying such amount in a written notice mailed to such person during the payment period described in sec_1382 sec_1382 provides that the payment period for a year is the period beginning with plr-139580-09 the first day of such taxable_year and ending with the fifteenth day of the ninth month following the close of such year sec_1_199-6 of the regulations provide that in order for a patron to qualify for the sec_199 deduction sec_1_199-6 requires that the cooperative identify in a written notice the patron's portion of the sec_199 deduction that is attributable to the portion of the cooperative's qpai for which the cooperative is allowed a sec_199 deduction this written notice must be mailed by the cooperative to its patrons no later than the 15th day of the ninth month following the close of the taxable_year the cooperative may use the same written notice if any that it uses to notify patrons of their respective allocations of patronage_dividends or may use a separate timely written notice s to comply with this section the cooperative must report the amount of the patron's sec_199 deduction on form 1099-patr taxable_distributions received from cooperatives issued to the patron while a cooperative is permitted to disregard per-unit retain allocations and patronage_dividends in its sec_199 deduction sec_1_199-6 of the regulations provide that a qualified_payment received by a patron of a cooperative is not taken into account by the patron for purposes of sec_199 sec_1_199-6 of the regulations defines the term qualified_payment to mean any amount of a patronage_dividend or per-unit_retain_allocation as described in sec_1385 or of the code received by the patron from a cooperative that is attributable to the portion of the cooperative’s qpai for which the cooperative is allowed a sec_199 deduction for this purpose patronage_dividends and per-unit retain allocations include any advances on patronage and per-unit retains paid in money during the taxable_year taxpayer is a specified agricultural or horticultural cooperative within the meaning of sec_199 of the code and sec_1_199-6 of the regulations it is an organization to which part i of subchapter_t applies ie it is a nonexempt_cooperative to which subchapter_t applies it is engaged in the marketing of agricultural or horticultural products ie grain as a specified agricultural or horticultural cooperative taxpayer is entitled to the benefit of sec_199 of the code and sec_1_199-6 of the regulations which permit such cooperatives to disregard deductions under sec_1382 and c for purposes of computing qpai and taxable_income for purposes of sec_199 sec_1382 provides deductions for per-unit retain allocations paid in money property and qualified per-unit retain_certificates as well as for patronage_dividends paid in money property and qualified written notices of allocation it also provides for deductions when nonqualified per-unit retain_certificates and nonqualified written notices of allocation are redeemed as a specified agricultural or horticultural cooperative taxpayer is entitled to the benefit of sec_199 and sec_1_199-6 which plr-139580-09 permit such cooperatives to disregard deductions under sec_1382 and c for purposes of computing qpai and taxable_income for purposes of sec_199 sec_1382 provides deductions for per-unit retain allocations paid in money property and qualified per-unit retain_certificates as well as for patronage_dividends paid in money property and qualified written notices of allocation it also provides for deductions when nonqualified per-unit retain_certificates and nonqualified written notices of allocation are redeemed taxpayer does not operate on a pooling basis taxpayer purchases grain from patrons and markets that grain the amount that each patron receives when he or she sells grain to taxpayer for marketing depends upon where how and when the patron chooses to sell that grain to taxpayer patrons are not required to deliver their grain to taxpayer they are free to sell as little or as much of their grain to taxpayer as they choose patrons have a number of options for determining how and when sales are made as a result two neighbors delivering the same amount of grain to taxpayer during any year will be paid different amounts for that grain depending upon where when and how they sell the grain to taxpayer however all patrons share in taxpayer’s net_earnings from grain operations in proportion to the number of bushels of grain they market through taxpayer those net_earnings are distributed after the end of each year in the form of patronage_dividends paid in cash and qualified written notices of allocation revolving capital the question presented by the ruling_request is whether the grain payments made by taxpayer to patrons for grain qualify as per-unit retain allocations paid in money within the meaning of sec_1388 of the code under sec_199 of the code and sec_1_199-6 of the regulations the answer to this question determines who gets to include the grain payments in the sec_199 computation if the grain payments to patrons are per-unit retain allocations paid in money then they should be added-back in taxpayer’s sec_199 computation and not included in the patrons’ sec_199 computations if the grain payments to patrons are not per-unit retain allocations paid in money then they should not be added-back in taxpayer’s sec_199 computation but should be included in the patrons’ sec_199 computations these results are the same whether taxpayer decides to keep or to pass-through all or a portion of its sec_199 deduction grain marketing cooperatives like taxpayer have never thought of their grain payments as per-unit retain allocations paid in money however taxpayer’s grain sec_1382 permits sec_521 cooperatives to claim deductions for certain dividends_paid on preferred_stock and for patronage-based distributions of nonpatronage income while taxpayer is a sec_521 cooperative it does not pay dividends on preferred_stock and it has not made patronage-based distributions of nonpatronage income and thus does not claim any deductions under sec_1382 of the code plr-139580-09 payments appear to meet the definition of per-unit retain allocations paid in money which are excludible or deductible under sec_1382 of the code the grain payments are made in cash so the paid in money requirement is met taxpayer’s grain payments also meet all the requirements of the definition of per-unit_retain_allocation contained in sec_1388 of the code which defines the term per-unit_retain_allocation to mean any allocation by an organization to which part i of this subchapter applies to a patron with respect to products marketed for him the amount of which is fixed without reference to the net_earnings of the organization pursuant to an agreement between the organization and the patron first taxpayer’s grain payments to a patron are paid pursuant to an agreement namely the particular agreement applicable to the method the patron uses to determine how and when his or her grain is sold to taxpayer second taxpayer’s grain payments to a patron are made with respect to products marketed for him namely the grain delivered by the member or other patron eligible to share in patronage_dividends for marketing by taxpayer as described above taxpayer markets the grain it acquires from members and other patrons and members and other patrons share in taxpayer’s net_earnings from its marketing activities in the form of patronage_dividends third the amount of the grain payments to each patron is fixed without reference to the net_earnings of taxpayer since at the time the payments are made taxpayer’s actual net_earnings for the year are neither known nor determinable while per-unit retains are often made on the basis of a specified amount per unit of product marketed what is important is that they not be made with respect to net_earnings revrul_68_236 1968_2_cb_236 provides that to constitute a per-unit_retain_allocation the allocation need not be made strictly on the basis of a specified amount per-unit of product marketed provided it is made with respect to products marketed for the patron and not with respect to the net_earnings of the organization whether an allocation meets the foregoing description will be a question of fact the fact that all members and other patrons eligible to share in patronage_dividends do not receive the same payments for their grain ie that taxpayer does not pool does not mean that grain payments should not be treated as per-unit retain allocations paid in money in 619_f2d_718 8th cir the eighth circuit_court of appeals characterized payments to farm service’s poultry growers as per-unit retain allocations paid in money even though they were determined under a formula that resulted in some poultry growers receiving more than others depending upon the efficiency of their operations and the market price of chickens when they delivered their chickens to farm service the tax_court in 70_tc_145 described the formula as follows the grower was paid_by petitioner for growing chickens based on the delivery weight to the processing plant less the weight of chickens condemned by the u s department of agriculture the formula under which the grower was paid also took into account variable market rates for full grown chickens and an efficiency factor that related the number of pounds of feed to the pounds of chickens produced the efficiency factor was figured into the grower's compensation because farm service supplied all chicken feed under the contract provisions established with each of the growers there was also a guaranteed minimum amount the grower would receive from the cooperative irrespective of wholesale market variations for example the contract in effect on date provided that ‘in no event will the grower member receive less than dollar_figure cents per pound less u s d a condemnation ’ on its books petitioner treated payments to its growers as a cost of production historically taxpayer has treated its grain payments as purchases not as per- unit retain allocations paid in money however how the payments have been reported should not obscure what they really are whether or not taxpayer is pooling is a moot issue for purpose of this ruling because its grain payments meet the definition of per-unit retain allocations paid in money in any event nothing in subchapter_t of the code limits the exclusion or deduction for per-unit retain allocations to cooperatives with pools sec_1_199-6 of the regulations provides that sec_1_199-6 is the exclusive method for the cooperative and its patrons to compute the amount of the sec_199 deduction the effect of these sections is that a cooperative such as taxpayer will compute the entire sec_199 deduction at the cooperative level and that none of the distributions whether patronage_dividends or per-unit retain allocations received from the cooperative will be eligible for sec_199 in the patron’s hands that is the patron may not count the qualified_payment received from the cooperative in the patron’s own sec_199 computation whether or not the cooperative keeps or passes through the sec_199 deduction accordingly the only way that a patron can claim a sec_199 deduction for a qualified_payment received from a cooperative is for the cooperative to pass-through the sec_199 amount in accordance with the provisions of sec_199 of the code and the regulations thereunder we note that to prevent a cooperative from deducting the per-unit retain allocations made in money or qualified certificates for the second time when the associated grain is sold the cost_of_goods_sold mechanism associated with inventory plr-139580-09 must be adjusted to reflect the deductions allowable under subchapter_t of the code specifically cooperatives need to include the per-unit retain allocations in inventory cost for purposes of making inventory and sec_263a of the code computations and then adjust the ending inventory and cost_of_goods_sold to prevent double deduction of the per-unit retain allocations the adjustments can be made to either the inventory or the line item deduction for the per-unit retain allocations in other words if the per-unit retain allocations are deducted on a deduction line in the cooperative's tax_return they should be removed entirely from the ending inventory and cost_of_goods_sold computed for the tax_year alternatively if the per-unit retain allocations are not deducted on a deduction line in the tax_return the per-unit retain allocations reflected in the ending inventory should be removed and included in the cost_of_goods_sold amount for that tax_year this procedure will allow the cooperative to deduct the per-unit retain allocations once while also preserving the integrity of its sec_263a calculation for reasons described above taxpayer’s grain payments meet the definition of per-unit retain allocations paid in money such per-unit retains are to be reported in box of form 1099-patr taxable_distributions received from cooperatives taxpayer should be entitled to disregard such payments in determining the amount of its sec_199 deduction accordingly we rule as requested that grain payments to members and other patrons eligible to share in patronage_dividends constitute per-unit retain allocations paid in money within the meaning of sec_1382 of the code for purposes of computing its sec_199 domestic_production_activities_deduction taxpayer’s qualified_production_activities_income and taxable_income should pursuant to sec_199 of the code be computed without regard to any deduction for grain payments to members and other patrons eligible to share in patronage_dividends the conclusions set forth in this ruling address only purchases that are per-unit retain allocations paid in money as they relate to grain marketed by the cooperative during the taxable_year and does not apply to purchases of grain that remain in inventory at year end no opinion is expressed or implied regarding the application of any other provision in the code or regulations plr-139580-09 this ruling is directed only to the taxpayer that requested it under sec_6110 of the code it may not be used or cited as precedent in accordance with a power_of_attorney filed with the request a copy of the ruling is being sent to your authorized representative sincerely yours paul f handleman paul f handleman chief branch office of the associate chief_counsel passthroughs special industries cc


department of the treasury internal_revenue_service washington d c apr t cp ke dollar_figure val hr 00-ov legend decedent a b cc d e custodian f trust g dear this letter modifies a private_letter_ruling number issued to you on date0n behalf of b c d and e concerning the federal income and estate_tax consequences of certain transactions under sec_408 and sec_401 of the internal_revenue_code with respect to individual_retirement_account ira_distributions following the death of decedent a the last paragraph on page shall be amended to read the estate_trust settlement process has progressed to a point where the first estate_trust distribution to the children can occur the successor trustees desire to split the single consolidated ira into four equal and identical iras except that each ira would be payable for the benefit of one of the four children of decedent a the trustees then desire to transfer each separate ira to each child of the deceased as part of the first trust g distribution each ira will continue to be held at custodian f page c-- -8 and be established as decedent a ira each child then proposes to continue the distribution format from each separate ira payable over the fixed life expectancy of the eldest child as elected by the successor trustees for all relevant times decedent a and the children are all u s citizens the accounting_period is the calendar_year and the accounting_method is the cash_basis subsequent to the transfers referenced herein each child will have the right to direct investments of his her ira name contingent beneficiaries in case of that child's death prior to the exhaustion of his her ira and accelerate distributions from that ira furthermore for purposes of this ruling letter the service notes that the child's rights to name contingent beneficiaries and accelerate distributions cannot conflict with the rights of the contingent beneficiaries named by the decedent the rest of the subject private_letter_ruling will remain in full force and effect if you have any questions concerning this ruling please contact at not a toll free number sincerely yours prmeyl ea frances v sloan manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of letter notice of intention to disclose copy of letter to authorized representatives


department of the treasury internal_revenue_service washington d c dec ago ep taltz tax_exempt_and_government_entities_division u ill xxxxxxxxxxx kxxkxkxxkxkkxk xxxxxxxxxxx attn xxxxxxx legend state a group b employees rrkk board c employer m ee plan x code s resolution t dear this letter is in reply to a request for a letter_ruling dated as supplemented by correspondence dated and submitted on your behalf by your authorized representative regarding the federal incomes tax treatment of certain contributions made to plan x under sec_414 of the internal_revenue_code code the following facts and representations have been submitted employer m a government employer and political_subdivision in state a established and created plan x for the benefit of group b employees plan x is codified in code s you represent that plan x meets the qualification requirements set forth under section - cpoonoon a of the code and the related trust is exempt from tax under sec_501 a of the code pursuant to section of plan x ail group b employees participating in plan x are required to contribute one percent of their gross monthly wages to plan x section of plan x further states that these contributions are made by payroll deduction on a per day basis excluding overtime on date board c under the signature of its president passed resolution t which amends article viii of plan x resolution t provides that employer m will pick up the required group b employees’ contributions member's required contributions in accordance with section of plan x resolution t also provides that the group b employees’ contributions although designated as employee contributions will effective date be paid_by employer m in lieu of contributions by the group b employees further resolution t provides that a group b employee will not have the option of choosing to receive the member's required contributions directly or to have them paid_by employer m to plan x section was added to plan x and provides that effective date employer m shall pick up each group b employee's required contributions no group b employee shall have the option of choosing to receive the required contributions directly or to have them paid_by employer m to plan x a corresponding reduction in the group b employee's salary shall be made in the amount of the picked up required_contribution the required contributions although designated as group b employee contributions are being paid_by employer m in lieu of contributions by the group b employee according to resolution t effective date all contributions made to plan x by group b employees are to be treated as pick up contributions based on the aforementioned facts and representations you have requested the following rulings that the required contributions to _ plan x which are picked up by employer m pursuant to the terms of sec_414 of the code do not constitute gross_income to group b employees for federal_income_tax purposes that the picked up contributions to plan x are not considered wages for group b employees for federal_income_tax withholding purposes sec_414 of the code provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to a plan described in sec_401 of the code established by a state government or political_subdivision thereof and are picked up by the employing unit xxxxxxxxxxx revrul_77_462 1977_2_cb_358 addresses the federal_income_tax treatment of contributions picked up by the employer within the meaning of sec_414 of the code in revrul_77_462 the employer school district agreed to pick up the required contributions of the eligible employees under the plan the revenue_ruling held that under the provisions of sec_3401 of the code the school district's picked-up contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages and no federal_income_tax withholding is required from employees’ salaries with respect to the said picked-up contributions the revenue_ruling further held that the school district’s picked-up contributions are excluded from the gross_income of employees until such time as they are distributed to the employees revrul_81_35 1981_1_cb_255 and revrul_81_36 1981_1_cb_255 provided guidance as to whether contributions will be considered as picked up by the employer both revenue rulings establish that the following two criteria must be satisfied the employer must specify that contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and the employee must not be given the option of choosing to receive the contributed amounts directly or to have them paid_by the employer to the plan furthermore it is immaterial for purposes of the application of sec_414 of the code whether the employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both revrul_87_10 1987_1_cb_136 provides that in order to satisfy revenue rulings and the required specification of designated employee contributions must be completed before the period to which such contributions relate ‘thus employees may not exclude from current gross_income designated employee contributions to a qualified_plan that relate to compensation earned for services prior to the date of the last governmental action necessary to effect the pick up in this case plan x satisfies the requirements of revrul_81_35 and revrul_81_ resolution t provides that employer m will pick up the required group b employees’ contributions member's required contributions in accordance with section of plan x resolution t also provides that the group b employees’ contributions although designated as employee contributions will be paid_by employer m in lieu of contributions by the group b employees further resolution t provides that a group b employee will not have the option of choosing to receive the member's required contributions directly or to have them paid_by employer m to plan x further section of plan x also meets the requirements of revrul_81_35 and revrul_81_36 section of plan x provides that employer m shall pick up each group b employee’s required contributions no group b employee shall have the option of choosing to receive the required contributions directly or to have paid_by employer m to plan x a corresponding reduction in the group b employee’s salary shall be made in the amount of the picked up required_contribution the required xxxxxxxxxxx de contributions although designated as group b employee contributions are being paid_by employer m in lieu of contributions by the group b employee therefore with respect to your first ruling_request we conclude that the required contributions made by the group b employees to plan x that are picked up by employer m pursuant to section of plan x and resolution t are picked up contributions within the meaning of sec_414 of the code and as such will not be includible in the gross_income of the group b employees until such amounts are distributed from plan x to the extent that these amounts represent contributions made by employer m these amounts will be includible in the gross_income of the group b employees or their beneficiaries in the year in such amounts are distributed to the extent that they represent amounts contributed by employer m with respect to your second ruling_request since we have determined that the picked up contributions made pursuant to section of plan x and resolution t are to be treated as employer contributions we conclude that these contributions are excepted from wages as defined in sec_3401 of the code for federal_income_tax withholding purposes therefore no withholding of federal_income_tax is required in the taxable_year in which they are contributed to plan x for purposes of the application of sec_414 of the code it is immaterial whether an employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both these rulings are based on the assumption that plan x meets the requirements for qualification under sec_401 of the code at the time of the proposed contributions and distributions no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act no opinion is expressed as to whether the contributions in question are paid pursuant to a salary reduction agreement within the meaning of sec_3121 of the code this ruling applies only if the effective date for the commencement of the pick up is no earlier than the later of the date resolution t was signed or the date the pick up as is put into effect this letter_ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling has been sent to your authorized representatives in accordance with a power_of_attorney on file in this office xxxxxxxxxxx if you have any questions please contact t ep ra t at sincerely yours signed joyce e floyd joyce e floyd manager employee_plans technical group tax exempt and government entitles division enclosures deleted copy of the letter notice


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 ita b06 plr-104112-12 date date in re request for extension of time to file form_3115 application_for change in method_of_accounting taxpayer courier date date dear ------------ -------------------------- ----------------------- --------------------------------------------------------- ---------------------- --------------------------- this letter responds to a letter dated date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations for taxpayer to file a form_3115 application_for change in method_of_accounting to change its method_of_accounting for lessee improvements abandoned at the termination of a lease beginning with the taxable_year beginning date and ending date year_of_change facts taxpayer represents that the facts are as follows taxpayer did not timely file the form_3115 under the provisions of revproc_97_ 1997_1_cb_680 for the year_of_change on date courier picked up the form plr-104112-12 at taxpayer’s office taxpayer instructed courier to mail the form_3115 by certified mail on date courier failed to mail the form_3115 on date ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-3 to file the form_3115 to change its method_of_accounting for lessee improvements abandoned at the termination of a lease beginning with the year_of_change law and analysis revproc_97_27 1997_1_cb_680 provides the general procedures under sec_446 of the internal_revenue_code and sec_1_446-1 of the income_tax regulations for obtaining the consent of the commissioner of internal revenue to change a method_of_accounting for federal_income_tax purposes sec_5 a of revproc_97_27 provides that a taxpayer changing a method_of_accounting pursuant to revproc_97_27 must file its form_3115 during the year_of_change under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusions 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 taxpayer is granted calendar days from the date of this letter to file the form_3115 to change its method_of_accounting for lessee improvements abandoned at the termination of a lease beginning with the year_of_change plr-104112-12 the ruling contained in this letter is based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the materials submitted in support of the letter_ruling request such material is subject_to verification on examination except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of any aspect of the facts described above under any other provisions of the code specifically no opinion is expressed or implied as to whether the commissioner will grant consent to taxpayer to make its change in accounting_method in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representatives we are also sending a copy of this letter to the appropriate operating division director this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely yours kathleen reed kathleen reed chief branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number --------------------- ------------------------------------ ------------------------------------------------------------ --------- ---- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ----------------- telephone number ---------------------- refer reply to cc psi plr-106232-15 date date legend x y date country ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ---------------------------- ------------------------------ ---------------------- ---------- dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts the information submitted states that x was formed under the laws of country on date x is wholly owned by y and represents that as of date it was a foreign_entity eligible to elect to be a disregarded_entity for u s federal tax purposes and at all times y intended x to be treated as a disregarded_entity x represents that it was not advised of the need to make an election for u s federal_income_tax purposes to be treated as a disregarded_entity as a result x failed to timely file a form_8832 entity classification election electing to be treated as a disregarded_entity for u s federal tax purposes effective date x represents that y consistently filed u s tax returns treating x as a disregarded_entity x also represents that granting relief will not prejudice the interests of the government and that hindsight is not involved in seeking relief to file a late election x plr-106232-15 further represents that such relief would not result in a lower tax_liability in the aggregate for all years to which the request applies as the owner of x properly reported the net_income of x on its return finally x represents that it acted reasonably and in good_faith law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and no more than months after the date the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic_extension of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for the regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when a taxpayer provides evidence to plr-106232-15 establish to the satisfaction of the commissioner that the taxpayer acted reasonable and in good_faith and granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of one hundred twenty days from the date of this letter to file form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter is attached for that purpose this ruling is contingent on the owners of x filing within days of this letter all required returns for all open years consistent with the requested relief to the extent appropriate these returns must include but are not limited to form_8858 information_return of u s persons with respect to disregarded entities such that the forms and returns reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as expressly set forth herein no opinion is expressed or implied concerning the federal tax consequences any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by david r haglund david r haglund branch chief branch passthroughs special industries enclosures copy of letter copy for purposes


internal_revenue_service number release date index number ---------------------------- ------------------------------------------------------------ ---------- ----------------------------------------------------- ----------------------- ----------------------------------- department of the treasury washington dc person to contact ---------------------------------------------- telephone number --------------------- refer reply to cc intl plr-157978-06 date date taxpayer sub ------------------------------------------------------------ ----------------------- ----------------------------------------------------------- --------------------------------------------------- ------------------------------------------------------------------------------- sub -------------------------------------------------------------------------------- sub ------------------------------------------------------------------------------- ---------------------------------------------------- ----------------------------------------------------- entity entity entity entity entity entity x year ------------------------- -------------------------- --------------------------------------- -------------------------------------------- ------------------------------------------------------- ----------------------------------- ----- ------- plr-157978-06 country a country b cpa firm dear ------------------- ---------------- --------------------- ------------------------- this is in response to a letter dated date from your authorized representative requesting an extension of time under sec_301_9100-3 for taxpayer to file elections and agreements under sec_1_1503-2t g i g i elections with respect to dual consolidated losses as defined in sec_1_1503-2 attributable the separate units described below and an extension of time to file rebuttal statements under sec_1_1503-2 additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process sub sec_1 through are members of taxpayer’s affiliated_group and are affiliated domestic owners of the separate units described below entity was formed in country a and has been classified as a partnership for u s income_tax purposes since its inception sub and sub each held an interest in entity during year the interests in entity are separate units as described in sec_1_1503-2 no dual consolidated losses are attributable to the interests in entity entity held x percent interests directly and indirectly in entitie sec_3 through during year during year entity formed in country a is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity held x percent interests in entitie sec_4 and during year during year entity formed in country a is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in country b that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual plr-157978-06 consolidated losses were attributable to entity branch during year no dual consolidated losses were attributable to the interests in entity entity formed in country b is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1 c entity has activities in country b that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch during year no dual consolidated losses were attributable to the interests in entity entity was formed in country a and was classified as a partnership for u s income_tax purposes during year sub and sub each held interests in entity during year the interests in entity are separate unites as described in sec_1_1503-2 no dual consolidated losses are attributable to the interests in entity entity held an x percent interest in entity during year entity formed in country b is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1 c entity has activities in country b that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch during year no dual consolidated losses were attributable to the interests in entity taxpayer sold the assets of entity branch entity branch and entity branch during year which gave rise to dual consolidated losses with respect to each branch at the time of the sale cpa firm advised taxpayer that the asset sale would constitute a presumptive dual_consolidated_loss triggering event pursuant to sec_1 g iii a cpa firm also advised taxpayer that taxpayer could avail itself of the triggering even rebuttal provision of sec_1_1502-2 nevertheless taxpayer’s tax department failed to include rebuttal statements with taxpayer’s year return in addition the g i elections submitted with respect to the year dual consolidated losses described above were prepared on the basis of the separate_unit that generated the loss instead of on the basis of the portion of such loss attributable to sub 1’s sub 2’s and or sub 3’s respective ownership portion of entity branch entity branch and entity branch taxpayer represents that these omissions and incorrect filings were unintentional and wholly inadvertent none of taxpayer’s separate units has ever been subject_to any foreign law that would deny it from using its losses expenses or deductions to offset income of another person because the dual_resident_corporation or separate_unit is also subject_to income_taxation by another country on its worldwide income or on a residence basis plr-157978-06 taxpayer represents that it filed this application_for relief before the internal_revenue_service discovered the failure_to_file the required g i elections or rebuttal statements sec_301_9100-3 sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the g i elections and rebuttal statements are regulatory elections as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file the corrected year g i elections described above with respect to the dual consolidated losses attributable to sub 1’s sub 2’s and or sub 3’s respective ownership portion of entity branch entity branch and entity branch in addition taxpayer is granted an extension of time of days from the date of this letter to file the rebuttal statements regarding the sale of the assets of entity branch entity branch and entity branch in year the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the election agreements sec_301_9100-1 for example a taxpayer that is subject_to mirror legislation enacted by a foreign_country may be ineligible to file election agreements pursuant to sec_1_1503-2 a copy of this ruling letter should be associated with the elections that are the subject of this ruling plr-157978-06 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to taxpayer’s authorized representatives sincerely _________________ john j merrick special counsel office_of_chief_counsel international enclosure


internal_revenue_service number info release date index number ----------------------------------------------------- --------------------------------- ----------------------------- --------------------------- department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b1 - genin-154653-04 date nov taxpayer ------------------------------------------------------ this responds to a letter dated date in which it was requested that we recognize taxpayer’s election to be an s_corporation effective for the tax_year a corporation which meets the definition of a small_business_corporation under sec_1362 of the internal_revenue_code may elect to be treated as an s_corporation in order for an s_corporation_election to be effective for the taxable_year in which it is made it must be made within the first two and one-half months of the corporation’s taxable_year sec_1362 if an s election is made after that time then the corporation will not be treated as an s_corporation until the taxable_year following the one in which the s election was filed sec_1362 an election made after the first two and one-half months of the taxable_year in which it is intended to be effective may be treated as effective if the secretary determines that there was reasonable_cause for the corporation’s failure to make a timely election sec_1362 our records indicate that form_2553 was not filed for the taxpayer’s behalf until date unfortunately we cannot grant relief under revproc_2003_43 because our records indicate that the taxpayer did not file its return within six months of the original due_date of the return in addition relief cannot be granted under revproc_97_48 because our records indicate that the return for the first taxable_year in which it was intended that taxpayer be an s_corporation was not timely filed relief for your late s_corporation may be obtained through a letter_ruling announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2004_1 copy enclosed in addition revproc_2004_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their tax_return for the most recent 12-month taxable_year qualify for a reduced user_fee in the amount of dollar_figure if you qualify for the reduced fee you must include a statement certifying your gross_income for the last 12-month taxable_year otherwise the higher fee will apply if you decide to submit a formal request for a private_letter_ruling please review appendix b of revproc_2004_1 and be certain to include all required procedural statements also include the proper user_fee and any documents that substantiate your intent to be an s_corporation from inception please refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room please contact -------------- at --------------------- not a toll-free call we hope that this information is helpful to you if you have additional questions s dianna k miosi sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures announcement revproc_2004_1