internal_revenue_service national_office technical_advice_memorandum number release date date none not applicable tam-118347-05 cc ita b4 third party communication date of communication index uil no case-mis no ---------- --------------------------------------------------------- --------------- ------------------------ ----------------------------- taxpayer's name taxpayer's address ------------------------ ----------------------- ------------------------------------ ---------------- ------- ---------------- taxpayer's identification no year s involved date of conference legend tax_year date id-date date id-date date sub sub sub 2a sub 2b sub 2c sub 2d sub 2e ------- ---------------- ------------------ ------------------ ------------------ ---------------------- -------------------- ---------------------- --------------------------------------- ----------------------------------- ----------------- -------------------- --------------------------------------------------------- tam-118347-05 sub 2f sub 3a sub 3b sub 3c sub 3d sub 3e seller seller buyer buyer state a state b country c state d state e state f state g state h country j country k aa aaaa aaaaaa b bb bb1 bb2 bb3 bb4 bbbb bbbbbb --------------------------------------------------------------------------------------------------------------- cc -------------------------------------------- ------------------------------------------------ ------------------------------ --------------------- -------------------------------- ------------------------------------------- --------------- ----------- ----------------------------- --------------------- -------- ------------ ------------ ------------- ----------------- -------- ------ ------------------- ----------- ------------------ ------------------------- -------------------------------------------------------------------------- ---------- --------------- ----------------------------- -------------------------------- ----------------------------------- ----------------------------------- ------------------------- ------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ---------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ ---------- ------------------------------------------------------------------------------------------ cccccc dd -------------------------------------------------------------------------------------------------------- dd1 dd2 dd3 dd4 dd5 ------------------------------------------- ----------------------------------- -------------------------------------- --------------------- -------------------- cccc tam-118347-05 dddd ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------- dddddd ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------- patent x patent y -------------------------------------------------------------- ------------------------------------------------------------------------------------------ ----------------------------------------- ------ ----------------- ----------------- ------------------ ----------------- ------------------------------------------------------------------------------------------ xx dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree ------------------------------------------------------------------------------------------------------------------ dollar_figuref dollar_figureg dollar_figureh dollar_figurej ----------------- ----------------- ------------------ ----------------- issue s whether taxpayer’s transfers and acquisitions of intangible_property qualify as like- kind exchanges so that gain may be deferred under sec_1031 of the internal_revenue_code whether taxpayer’s transfer of intangible_property of a domestic entity and the acquisition of intangible_property of a foreign_entity qualifies as a like-kind_exchange under sec_1031 whether taxpayer’s exchanges of intangible_property complied with the identification requirements of sec_1031 and sec_1_1031_k_-1 of the income_tax regulations conclusion s taxpayer’s transfers and acquisitions of intangible_property qualify as like-kind_exchanges so that gain_or_loss is deferred only to the extent that the properties exchanged are of like_kind and the exchanges otherwise satisfy the requirements of sec_1031 the exchange of intangible_property by a domestic entity for the intangible_property of a foreign_entity does not qualify as a like-kind_exchange to the extent that the exchange is of property used predominantly within the united_states for property used predominantly outside the united_states as provided under sec_1031 tam-118347-05 with the exception of replacement_property acquired before the end of the identification period taxpayer did not properly identify replacement_property in accordance with the requirements of the sec_1031 and the regulations thereunder facts during tax_year taxpayer entered into four transactions involving the transfer and acquisition of tangible and intangible business_assets on its corporate_income_tax return for tax_year taxpayer claimed like-kind_exchange treatment under sec_1031 for transactions as described below involving the intangible assets on date taxpayer acting through sub 3a and sub 3c transferred the tangible and intangible assets pertaining to the business of sub to buyer buyer paid dollar_figurea for these intangibles sub researched designed manufactured and marketed aa for customers in the united_states and around the world sub was headquartered in state a and had facilities in state a state b and country c the standard industry classification sic code for sub was aaaa the current corresponding north american industry classification system naics code for sub is aaaaaa the intangible assets transferred were divided by taxpayer into five broad categories including patents trademarks including design marks and trade names designs and drawings software and trade secrets and know-how on date taxpayer acting though sub 3a and sub 3b transferred to buyer substantially_all of the assets of the bb and engineering service businesses of sub 2a sub 2b sub 2c sub 2d and sub 2e as well as certain assets of sub 3a and sub 2f the businesses and assets transferred to buyer are referred to collectively as sub buyer paid dollar_figurec for the intangible assets sub designed manufactured marketed tested and repaired bb used in certain types of industrial operations sub 2’s products and manufacturing operations were divided into four divisions bb1 bb2 bb3 and bb4 sub operated facilities in state d state e and state f the sic code for sub was bbbb the current corresponding naics code for sub is bbbbbb the intangible assets pertaining to sub transferred by taxpayer to buyer were divided by taxpayer into the same five broad categories described above including patents trademarks and trade names designs and drawings software and trade secrets also on date taxpayer acting through sub 3a and sub 3c acquired the assets and business operations of seller a firm engaged in the research design manufacture and marketing of highly-engineered cc in the united_states the intangible assets of seller were acquired for the total sum of dollar_figuref seller was headquartered in state g and had manufacturing plants in state g and state h the sic code for seller was cccc the current corresponding naics code for seller is cccccc the intangible assets acquired were divided by taxpayer into four broad categories including trademarks and trade names designs and drawings software and trade secrets and know-how tam-118347-05 on date taxpayer acting through sub 3a sub 3d and sub 3e acquired the assets of seller a manufacturer of dd the intangible assets of seller were acquired for the total sum of dollar_figuree seller 2’s products and manufacturing operations were split into two divisions one division was a leading producer of dd1 with manufacturing plants in country j and country k the other division was a leading producer of dd2 with facilities in country j and the united_states seller had a reputation for innovative engineering and manufacturing skills and was regarded as the industry’s technology leader in dd3 the sic code for seller was dddd the current corresponding naics code for seller is dddddd the intangible assets acquired were divided by taxpayer into four broad categories including patents designs and drawings software and trade secrets and know-how taxpayer claimed like-kind_exchange treatment on the disposition of the intangibles pertaining to sub and sub and the acquisition of the intangibles of seller and seller on its corporate_income_tax return for tax_year taxpayer did not claim like- kind exchange treatment with respect to any of the tangible assets involved in the above-described transactions for the date transfer of sub intangible assets for dollar_figurea and the date acquisition of seller intangible assets for dollar_figureb taxpayer claimed deferral of taxable gain based upon the exchange of two categories of intangible_property trademarks and trade names and trade secrets and know-how for the date transfer of sub intangible assets for dollar_figurec and the same-day date acquisition of seller intangible assets for dollar_figured taxpayer claimed deferral of taxable gain based upon the exchange of four categories of intangible_property trademarks and trade names designs and drawings trade secrets and know-how and software for the date transfer of sub intangible assets for dollar_figurec and the date acquisition of seller intangible assets for dollar_figuree taxpayer claimed deferral of taxable gain based upon the exchange of four categories of intangible_property patents designs and drawings trade secrets and know-how and software applicable law and analysis sec_1031 provides generally that no gain_or_loss shall be recognized on the exchange of property held for productive use in a trade_or_business or for investment if such property is exchanged solely for property of like_kind which is to be held either for productive use in a trade_or_business or for investment in the transactions described here the intangible assets disposed of by taxpayer and replaced by taxpayer were held and are now held by sub 3a thus for these transactions there is no question or concern about whether the entity that held the relinquished intangible_property is the same entity that is receiving the replacement intangibles tam-118347-05 sec_1_1031_a_-1 of the income_tax regulations provides in part that as used in sec_1031 the words like_kind have reference to the nature and character of the property and not to its grade or quality and that an exchange of one kind or class of property for a different kind or class is not a like-kind_exchange sec_1_1031_a_-2 provides in part that personal properties of a like_class are considered to be of like_kind for purposes of sec_1031 and an exchange of properties of a like_kind may qualify under sec_1031 regardless of whether the properties are also of a like_class in determining whether exchanged properties are of a like_kind no inference is to be drawn from the fact that the properties are not of a like_class further under sec_1_1031_a_-2 depreciable tangible personal properties are of a like_class if they are either within the same general asset class as defined in sec_1 a - b or within the same product_class as defined in sec_1_1031_a_-2 sec_1_1031_a_-2 provides in part that a single property may not be classified within more than one general asset class or within more than one product_class in addition property classified within any general asset class may not be classified within a product_class a property's general asset class or product_class is determined as of the date of the exchange sec_1_1031_a_-2 generally provides that property within a general asset class consists of depreciable tangible_personal_property described in one of asset classes dollar_figure through dollar_figure and of revproc_87_56 1987_2_cb_674 these general asset classes describe types of depreciable tangible_personal_property used in many businesses sec_1_1031_a_-2 generally provides that property within a product_class consists of depreciable tangible_personal_property that is described in a 6-digit product_class within sector sec_31 sec_32 and sec_33 pertaining to manufacturing industries of the north american industry classification system naics set forth in executive office of the president office of management and budget north american industry classification system united_states naics manual as periodically updated sector sec_31 through of the naics manual contain listings of specialized industries for the manufacture of described products and equipment for this purpose any 6-digit naics product_class with a last digit of a miscellaneous category is not a product_class for purposes of this section if a property is listed in more than one product_class the property is treated as listed in any one of those product classes a property's 6-digit product_class is referred to as the property's naics code sec_1_1031_a_-2 provides that an exchange of intangible personal_property qualifies for nonrecognition_of_gain_or_loss under sec_1031 only if the exchanged intangible properties are of a like_kind no like classes are provided for intangible properties whether intangible personal_property is of a like_kind to other intangible personal_property generally depends on i the nature or character of the rights involved eg a tam-118347-05 patent or a copyright and ii the nature or character of the underlying property to which the intangible personal_property relates sec_1_1031_a_-2 provides that the goodwill and going_concern_value of a business is not of a like_kind to the goodwill and going_concern_value of another business sec_1_1031_a_-2 illustrates the application of this paragraph c with only the two following examples example taxpayer k exchanges a copyright on a novel for a copyright on a different novel the properties exchanged are of a like_kind example taxpayer j exchanges a copyright on a novel for a copyright on a song the properties exchanged are not of a like_kind thus as demonstrated by these examples both the nature or character of the rights involved and the nature or character of the underlying property must be of like_kind the service has long rejected any notion that taxpayers may treat the multiple assets of a business as a single property for like-kind_exchange purposes rather the determination of whether or the extent to which sec_1031 applies to an exchange of the assets of one business for the assets of another business requires an analysis of the underlying assets exchanged revrul_89_121 1989_2_cb_203 see also revrul_55_79 1955-1c b requiring separate computations to determine gain_or_loss of each asset constituting the sole_proprietorship sold by a taxpayer the asset- by-asset analysis is required to verify that the properties exchanged are of like_kind even small differences between similar properties are relevant in determining whether two properties are like_kind for example compare revrul_79_143 1979_1_cb_264 u s dollar_figure gold coins which are numismatic-type coins are not like_kind to south african krugerrand gold coins which are bullion-type coins with revrul_76_214 1976_1_cb_218 mexican 50-peso gold coins and austrian 100-corona gold coins both of which are official government restrikes and noncurrency bullion-type coins are like-kind see also 680_f2d_85 9th cir aff’g 76_tc_107 which held that u s double eagle dollar_figure gold coins and swiss francs are not property of like_kind because the latter were still currency representing an investment in the swiss economy while the former were numismatic- type coins when personal_property is concerned the service has been stricter in its determinations of what constitutes like-kind_property than for exchanges of real_property this position has withstood judicial scrutiny california federal life_insurance co pincite this strict approach to like-kind personal_property determinations also seems consistent with longstanding legislative policy for example in congress amended sec_1031 by adding subsection e which provides that for purposes of sec_1031 livestock of tam-118347-05 different sexes is not property of a like_kind the legislative_history of this provision suggests that congress intended that like-kind interpretations be strict insofar as personal_property is concerned see s rep no 91st cong 1st sess c b in the case of exchanges of intangible_property the standard for determining if intangible_property is of like-kind to other intangible_property is if anything still more rigorous than the standard for matching tangible_personal_property for example as noted above exchanged tangible personal properties are matched for sec_1031 purposes if they are at least of a like_class while for intangible_property like classes are not provided rather a two-pronged analysis is required under sec_1_1031_a_-2 which requires a matching of both i the nature or character of the rights involved and ii the nature or character of the underlying property to which the intangible personal_property relates the fact that like classes are not provided for intangible properties does not mean that the general asset classes under sec_1_1031_a_-2 and the product classes of sec_1_1031_a_-2 are ignored whenever possible the underlying tangible personal properties to which the intangible asset relates should be compared using the same general asset classes and product classes already afforded for testing whether personal properties are of like_class however as indicated in the regulations even if such a match is made the properties are not of like_kind unless the nature and character of the rights involved are also of the same nature or character patents under this methodology of using the general asset and product classes the task of determining whether patents are of like-kind becomes relatively straightforward sec_1_1031_a_-2 indicates that for purposes of sec_1031 the nature or character of rights under one patent are the same as the nature or character of rights under a different patent even if the underlying property may differ thus the first prong of the test under sec_1_1031_a_-2 is satisfied if a patent exists on both sides of the exchange in testing whether there is a match of the underlying property for purposes of satisfying the second prong of the like-kind test set forth in sec_1_1031_a_-2 matching by general asset class under sec_1_1031_a_-2 and the product classes of sec_1_1031_a_-2 is both reasonable and consistent with the income_tax regulations taxpayer however suggests a matching scheme that would group all patents into four broad classes of underlying property process machine manufacture and composition of matter these are the same categories used in united_states patent law for classifying intellectual_property that may be patented u s c sec_101 according to taxpayer a machine patent should be of like-kind to any other machine patent a patent on a process should be of like-kind to any other patent on any other process and so forth thus for example a patent for any machine or part of a machine such as for a new kind of an electronic component for a computer would be of like_kind to a patent for a hedge trimmer or a hair dryer or a helicopter rotor blade tam-118347-05 however we find no authority to support taxpayer’s method of matching of patents for sec_1031 purposes nor does taxpayer cite any in fact it would be inconsistent to require matching of tangible_personal_property by its naics code while ignoring naics when comparing underlying property for patents on the same item moreover the tax law with respect to like-kind_exchanges generally mandates specificity and the analysis of exchanges on an item-by-item basis rather than on a global basis revrul_89_121 the requirement of specificity is also demonstrated in the identification rules provided in sec_1_1031_k_-1 which are addressed later in this document therefore in determining which patents are of like_kind assuming that all patents involved in an exchange are either used predominantly in the united_states domestic patents or all used predominantly outside the united_states foreign patents the underlying property must be either of the same general asset class or the same product_class or otherwise of like_kind thus for example patents for bb1 bb2 bb3 and bb4 described within the bbbbbb naics code are not of like_kind to patents for dd1 dd2 and dd3 described within the dddddd naics code because the underlying property is not of like_class or of like_kind in contrast taxpayer proposed a match of relinquished patent x for replacement patent y the underlying properties on both patents have for their naics code dddddd and each was a component of a larger machine having a naics code of bbbbbb assuming that both the relinquished and the replacement properties at issue are either used predominantly within the united_states or used predominantly outside the united_states then patent x is of like_kind to patent y trademarks and trade names in its own submission taxpayer states that any trademark trade_name or design mark or presumably any service_mark serves the same marketing function which is to identify the ‘source of origin ’ bracketed language added thus it is taxpayer’s position that all marks and trade names exchanged in these transactions should be considered of like-kind for sec_1031 purposes in support of this contention taxpayer first argues that intangible assets properly registered with the united_states trademark office under the lanham act2 enjoy essentially the same legal protections therefore the nature and character of such rights are of a like_kind for example an owner of a federally registered design mark has the same legal right of recourse as an owner of a federally registered trade_name under the lanham act eligible design marks and eligible trade names both enjoy the same rights and privileges of federal trademark protection in addition taxpayer asserts that the second prong of the like-kind test for intangible_property in sec_1_1031_a_-2 which relates to the underlying property is also satisfied the lanham act applies to a word name symbol or device or any the lanham act is codified a sec_15 u s c at sec_1051 - tam-118347-05 combination thereof thus a registered trademark may refer to any item that is within one of those categories in this case all of the exchanged trademarks at issue were in the last category ie a combination of words names symbols or devices under taxpayer’s analysis any mark or trade_name is of like-kind regardless of use appearance form or origin we disagree the term trademark has been generally defined as a device used by a merchant to identify its goods or services and to distinguish them from those of others roger e schechter john r thomas intellectual_property the law of copyrights patents and trademarks hornbook series westlaw and west group similarly the term trade_name is generally understood to mean a name word or phrase employed by one engaged in business as a means of identifying its products business or services and of establishing good will ballentine’s law dictionary 3d ed trademarks and trade names are we believe a component of a larger asset either of goodwill or of going concern or both sec_1_1060-1 provides that goodwill is the value of a trade_or_business attributable to the expectancy of continued customer patronage this expectancy may be due to the name or reputation of a business or any other factor sec_1_1060-1 also defines going_concern_value as the additional value that attaches to property because its existence is an integral part of an ongoing business activity going_concern_value includes the value attributable to the ability of a trade_or_business or a part of a trade_or_business to continue functioning or generating income without interruption notwithstanding a change in ownership in view of the volume of litigation concerning the infringement of registered marks and trade names all based on the fundamental premise that each mark or trade_name is unique and of importance to the promotion of the goods services or enterprises they may represent it seems disingenuous for anyone to assert that all marks and trade names are alike clearly they are not since they are so closely related to if not a part of the goodwill and going_concern_value of a business it is our view that trademarks and trade names should not be considered of like-kind under sec_1031 unregistered intellectual_property in the case of unregistered intellectual_property taxpayer claimed like-kind_exchange treatment by matching exchanged properties by the following categories designs and drawings trade secrets and secret know how and software these categories of property are not protected through registration in the manner of patents or trademarks however this genre of intangible_property embodies various rights and privileges of a proprietary nature to a trade_or_business and is protected from unauthorized disclosure under state enactments of the uniform trade secrets act the federal enactment of the economic espionage act of u s c making misappropriation of trade secrets a federal crime and the common_law tam-118347-05 the nature or character of the proprietary rights associated with a particular type of unregistered intellectual_property is similar to those of any other type of unregistered intellectual_property unregistered intellectual_property is generally protected if it satisfies two criteria secrecy maintained through the reasonable diligence of the holder of the information and commercial value derived from not being generally known see schecter supra pincite citing restatement third of unfair competition sec_39 there is no limit to the number or variety of forms of proprietary information that may be protected as trade secrets under this body of law the case law in this area describes many of the known forms including customer lists marketing data bid price information technical designs manufacturing know-how computer programs and chemical formulae id pincite citing restatement third of unfair competition sec_39 cmt d federal_law lists additional forms of unregistered intangible properties as included within the meaning of the term ‘trade secret ’ ie financial business scientific technical economic or engineering information including patterns plans compilations program devices formulas designs prototypes methods techniques processes procedures programs or codes whether tangible or intangible and whether stored compiled or memorialized physically electronically graphically photographically or in writing u s c in view of the commonality of legal protections afforded to unregistered intangible_property generally it is apparent that the proprietary information exchanged by taxpayer designs and drawings trade secrets and secret know-how and software satisfy the first prong of the test set forth in sec_1_1031_a_-2 for determining if intangible properties exchanged are of like_kind the rights of taxpayer to the proprietary information at issue are of the same nature and character provided that they are trade secrets within the meaning of the law taxpayer urges that the second prong of the test that the underlying property be of the same nature or character should be treated as satisfied if the proprietary information is grouped in the same general categories suggested in the uniform trade secrets act namely a formula pattern compilation program device method technique or process in support of its argument taxpayer suggests the following as specific examples of matches of relinquished and replacement unregistered intellectual_property in the transactions at issue example one relinquished unregistered intellectual_property process - b selection programs property is engineering calculations software which consists of various spreadsheets and other programs designed to reduce the time required to perform complicated engineering calculations tam-118347-05 replacement unregistered intellectual_property process - general design formula and programs property is engineering calculations software which consists of various spreadsheets and other programs designed to reduce the time required to perform complicated engineering calculations example two relinquished unregistered intellectual_property manufacture - drawings information stored in print room and warehouse xx drawing vault information properties are examples of unregistered manufacturing innovations that are maintained either electronically or in hard copy in design libraries the libraries are either physically locked or protected through the use of an electronic password replacement unregistered intellectual_property manufacture - dd4 design dd5 design properties are examples of unregistered manufacturing innovations that are maintained either electronically or in hard copy in design libraries the libraries are either physically locked or protected through the use of an electronic password taxpayer’s argument that unregistered intangibles satisfies the second part of the intangible like-kind_property test in sec_1_1031_a_-2 if the exchanged properties are in the same broad category corresponds almost precisely with taxpayer’s approach for matching patents within the four groups of machine process manufacture and composition of matter for the same reasons that we rejected taxpayer’s theory with respect to patents we must also reject the same theory as applied to unregistered intangible properties there is no basis in law for adopting broad categories for purposes of satisfying the like- kind test under sec_1_1031_a_-2 and taxpayer does not cite any such authorities also such broad categories would permit the matching of very different kinds of property interests beyond the scope and intendment of sec_1031 for example the drawing or unpatented design for a coated gas welding rod is not similar to the drawing or unpatented design for a wind turbine the underlying property for the former is a coated gas welding rod and of the latter a wind turbine the naics code for a coated gas welding rod is the naics code for a wind turbine is if the difference in naics codes for objects whose designs are patented is sufficient to prevent two patents from being of like_kind the result should not differ just because the designs are neither patented nor registered accordingly it is our conclusion that the unregistered intellectual_property exchanged by taxpayer is not of like_kind unless the specific tam-118347-05 underlying properties to which the unregistered intangibles relate are within the same general asset class or the same product_class foreign intangibles sec_1031 provides that personal_property used predominantly within the united_states and personal_property used predominantly outside the united_states are not property of a like_kind sec_1031 provides that in the case of personal_property relinquished in the exchange predominant use is determined by its use in the two-year period ending on the date of the relinquishment sec_1031 provides that in the case of property acquired in the exchange predominant use is determined by its use during the two-year period beginning on the date_of_acquisition in the present case through sub 3a taxpayer exchanged part of the intangibles of sub a company based in the united_states for the intangibles of seller a country j- based company taxpayer argues that sec_1031 is inapplicable to exchanges of intangible personal_property because such property lacks a physical or geographical location therefore it is not confined to any one location at any given time given this quality taxpayer asserts that intangible_property is not capable of being used predominantly in one location in or out of the united_states however the physical location of intangible personal_property is not necessarily relevant to the question of where it is used under sec_1031 real_property located in the united_states is not of like_kind to real_property located outside the united_states thus location is relevant as to real_estate but not as to personal_property accordingly even if an intangible has no definite location it does not follow that the situs of predominant use cannot be determined taxpayer also notes that according to the legislative_history underlying sec_1031 the provision was added because congress believed that the depreciation and other rules applicable to foreign- and domestic-use property are sufficiently dissimilar so as to treat such property as not ‘like-kind’ property for purposes of sec_1031 h_r rep no pincite taxpayer argues that since foreign intangibles are not depreciated by any different mode than domestic intangibles under sec_197 there is no basis for denying like-kind treatment for exchanges of domestic for foreign intangibles however sec_1031 makes no distinction between tangible and intangible personal_property the plain language of the statute must be followed unless some obvious and relevant circumstance exists that plainly demonstrates that such construction and we recognize that this rationale will not apply to unregistered intangible_property or trade secrets for which the underlying property is something other than manufactured goods or other tangible_personal_property within a general asset or product_class for purposes of making those determinations an item by item comparison is required tam-118347-05 application of the statute would violate the intent of congress we do not see any such circumstance in this case next taxpayer argues that the term use is ambiguous since it is not defined in sec_1031 therefore taxpayer suggests references to other code provisions and law sources to determine its meaning in the context of sec_1031 one source suggested is sec_865 which sources income from the sale of personal_property asset to the residence of its owner another source urged is sec_1033 which defers gain_or_loss by election of a taxpayer whose property is involuntarily converted taxpayer observes that the term use as applied in sec_1033 which applies when involuntarily converted property is replaced with other_property similar_or_related_in_service_or_use may supply an acceptable construction of the term in the sec_1031 context taxpayer argues that in applying sec_1033 in the case of an owner-user courts developed the functional test in which the actual physical uses of the converted property and the replacement_property were compared see eg 208_f2d_757 4th cir which held that when an owner of property replaced_property held for rent to others with rental property the owner’s relationship to the properties rather than the tenant’s use determines the outcome 303_f2d_326 2d cir and revrul_64_237 1964_2_cb_319 in liant records the second circuit suggested that a court should compare the extent and type of the lessor’s management activity the amount and kind of services rendered to the lessees with respect to the property and the nature of the business risks connected with the properties f 2d pincite taxpayer thus argues that the same principles applied under sec_1033 should be applied under sec_1031 to determine the predominant use of the intangible because - sub 3a has been the active manager of the intangible_property licensed to others and it has managed these intangibles in the united_states licensing of intangibles is analogous to leasing tangible_property and sec_1031 and sec_1033 are similar in purpose and their application hinges on an interpretation of the term use thus the essence of taxpayer’s argument is that sub 3a used all relinquished intangible properties in the united_states by managing the licensing of such property from the united_states so too sub 3a will manage or use all replacement intangible assets in the united_states by managing the licensing from the united_states however we do not agree with taxpayer’s underlying premise that it is necessary to resort to sec_865 sec_1033 or any other law source to construe the meaning of the term use although sec_1031 does not define the word use the language of the statute is not ambiguous it is well settled that the legislature’s failure to define commonly-used tam-118347-05 words does not create ambiguity because the words in the statute are deemed to have their ordinary understood meaning 36_f3d_1565 fed cir see also 116_tc_87 word not defined by statute construed in accord with ordinary common meaning one common definition of use which is consistent with its context in sec_1031 is the legal enjoyment of property that consists of its employment occupation exercise or practice webster’s ninth new collegiate dictionary in the present case the intangible assets are used where they are enjoyed that is the location of the use of the intangible asset can be determined by where the property is licensed to be enjoyed in this case with respect to the intangible assets of seller acquired by sub 3a sub 3a granted sub 3d a country j company a worldwide license to i use the technical information and to practice inventions referenced by the patents in furtherance of the manufacture of the products at the facilities of the company and ii to use the trademarks and copyrights in furtherance of the marketing and sale of the products since the agreement grants a license to be used in furtherance of the manufacture of the products at the facilities in furtherance of the marketing and sale of products and since the facilities are located in country j we believe that the intangibles are being used predominantly in country j taxpayer has not established that the intangibles in question are being used predominantly in the united_states accordingly for this particular exchange the properties received are not like-kind to the property transferred deficiencies in compliance with the identification requirements the final issue for our consideration involves whether taxpayer properly identified replacement_property in the exchanges described in this case as stated above on date taxpayer transferred the intangible assets pertaining to sub to buyer for dollar_figurea on id-date taxpayer identified the intangible assets of seven companies as prospective replacement properties for the intangible assets sold on date having a total estimated value of dollar_figureg which is an amount well in excess of percent of the value of dollar_figurea taxpayer ultimately acquired only the intangible assets of seller within the categories trademarks and trade names and trade secrets and know-how valued at dollar_figureb which is an amount that is less than percent of dollar_figureg also as stated above on date taxpayer transferred the intangible assets pertaining to sub to buyer for dollar_figurec also on date taxpayer acquired certain intangible assets from seller worth dollar_figured and those assets were designated as part of the replacement_property for the intangible assets pertaining to sub within the four categories of trademarks and trade names designs and drawings trade secrets and know- we note however that one of the subsidiaries of sub sub 2b specifically is also a country j company thus to the extent if any that sub used both the relinquished intangible_property and the replacement intangible_property predominantly in country j for the requisite periods sec_1031 will not prevent the characterization of the replacement_property as of like_kind to the relinquished_property tam-118347-05 how and software on id-date taxpayer identified the intangible assets of more companies as prospective replacement properties for the intangible assets sold on date having a total estimated value of dollar_figureh which is an amount that is more than percent of the value of dollar_figurec on date taxpayer acquired certain intangible assets of seller one of the identified companies for dollar_figuree which taxpayer designated as replacement_property for the intangible assets pertaining to sub within the four categories of patents designs and drawings trade secrets and know-how and software the total value of the property acquired by taxpayer and designated to replace the intangible assets pertaining to sub is dollar_figurej which is an amount less than percent of dollar_figureh sec_1031 provides that any property received by the taxpayer shall be treated as property which is not like-kind_property if such property is not identified as property to be received in the exchange on or before the day which i sec_45 days after the date on which the taxpayer transfers the property relinquished in the exchange the identification period sec_1_1031_k_-1 provides in part that any replacement_property that is received by the taxpayer before the end of the identification period will in all events be treated as identified before the end of the identification period in all other cases replacement_property is identified before the end of the identification period only if the requirements of sec_1_1031_k_-1 - are satisfied sec_1_1031_k_-1 provides generally that replacement_property is identified only if it is designated as replacement_property in a written document signed by the taxpayer and hand delivered mailed telecopied or otherwise sent before the end of the identification period to either the person obligated to transfer the replacement_property to the taxpayer or any other person involved in the exchange other than the taxpayer or a disqualified_person such as a qualified_intermediary sec_1_1031_k_-1 provides that replacement_property is identified only if it is unambiguously described in the written document or agreement real_property generally is unambiguously described by a legal description street address or distinguishable name eg mayfair apartment building personal_property generally is unambiguously described if it is described by a specific description of the particular type of property for example a truck generally is unambiguously described if it is described by a specific make model and year sec_1_1031_k_-1 provides that the taxpayer may identify more than one replacement_property however regardless of the number of relinquished properties transferred by the taxpayer as part of the same deferred_exchange the maximum number of replacement properties that the taxpayer may identify is - a three properties without regard to the fair market values of the properties the 3-property rule or tam-118347-05 b any number of properties as long as their aggregate fair_market_value as of the end of the identification period does not exceed percent of the aggregate fair_market_value of all the relinquished properties as of the date the relinquished properties were transferred by the taxpayer the 200-percent rule sec_1_1031_k_-1 provides in part that if as of the end of the identification period the taxpayer has identified more properties as replacement properties than permitted by sec_1_1031_k_-1 the taxpayer is treated as if no replacement_property had been identified the preceding sentence shall not apply however and an identification satisfying the requirements of sec_1_1031_k_-1 will be considered made with respect to - a any replacement_property received by the taxpayer before the end of the identification period and b any replacement_property identified before the end of the identification period and received before the end of the exchange but only if the taxpayer receives before the end of the exchange_period identified replacement_property the fair_market_value of which is at least percent of the aggregate fair_market_value of all identified replacement properties the 95-percent rule sec_1_1031_k_-1 provides that for purposes of applying the 3-property rule the 200-percent rule and the 95-percent rule all identifications of replacement_property other than identifications or replacement_property that have been revoked in the manner provided in sec_1_1031_k_-1 are taken into account for example if in a deferred_exchange b transfers property x with a fair_market_value of dollar_figure to c and b receives like-kind_property y with a fair_market_value of dollar_figure before the end of the identification period under sec_1_1031_k_-1 property y is treated as identified by reason of being received before the end of the identification period with respect to additional replacement properties b will meet the identification requirements for such properties if b i identifies two additional replacement properties of any fair_market_value ii identifies any number of replacement properties with an aggregate fair_market_value of dollar_figureor less of iii identifies any number of replacement properties at any fair_market_value as long as at least percent of the value of all identified replacement properties is acquired before the end of the exchange_period in accordance with sec_1_1031_k_-1 taxpayer has complied with the requirements for identification only for its acquisition of the intangible assets of seller for dollar_figured within the four categories of trademarks and trade names designs and drawings trade secrets and know-how and software all of taxpayer’s other identifications fail to comply with the regulatory requirements for identification of replacement_property taxpayer identified as replacement_property the intangible assets of more than three companies violating the three property rule identified replacement_property having a fair_market_value in excess of percent of the value of the relinquished_property tam-118347-05 violating the 200-percent rule and acquired less than percent of the aggregate fair_market_value of all the identified replacement_property violating the 95-percent rule in addition in each instance the written identifications were not specific as is required by sec_1_1031_k_-1 each identification only included the following the name of the seller a very general description of the property ie intellectual_property including but not limited to patents trademarks copyrights software know-how designs and other intellectual_property assets as may be owned licensed by or leased by the seller and the estimated value there are no descriptions of the underlying property pertaining to any of these intangible assets in view of these deficiencies no proper identification occurred except as to the replacement_property received within the identification period under sec_1031 and sec_1_1031_k_-1 replacement_property that is not otherwise timely and specifically identified is not of like_kind regardless of any similarity of its nature or character to the property relinquished in the exchange caveat a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 1-plr-127460-02 date june legend x state d1 dear this responds to your letter dated date requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 under the law of state the shareholder of x intended that x be treated as an s_corporation effective on d1 but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective d1 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 sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months plr-127460-02 of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely s carolyn h gray carolyn gray acting assistant to the branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


of f i c e of c h i ef c ou n sel department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date number info release date conex-111448-10 uil the honorable robert c byrd united_states senator west king street suite martinsburg wv attention ------------------ dear senator byrd this letter responds to your enquiry dated date on behalf of your constituent ------------------------------- ------------- ask whether his purchase of a residence qualifies for the long-time resident homebuyer credit generally sec_36 of the internal_revenue_code provides a refundable tax_credit to certain first-time homebuyers and long-time residents for the purchase of a principal_residence the amount of the credit is percent of the purchase_price of the residence up to a maximum credit of dollar_figure for first-time homebuyers or up to a maximum credit of dollar_figure for long-time residents sec_36 allows a long-time resident homebuyer credit for purchases of principal residences on or after the statute’s effective date date --------------states that he and his wife purchased their residence in date before the effective date therefore their purchase does not qualify for the credit the law does not give the internal_revenue_service the authority to relax the statutory effective date administratively conex-111448-10 i hope this information is helpful if you have any questions please contact ---------------- --------------------at --------------------- sincerely george j blaine associate chief_counsel income_tax and accounting


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b1-plr-159440-02 date date legend x h w llc x y date date date date dear this responds to your letter dated date on behalf of x requesting inadvertent termination relief under sec_1362 of the internal_revenue_code plr-159440-02 facts you have represented that the facts are as follows x filed a timely election under sec_1362 to be treated as an s_corporation effective date on date h contributed his shares to llc llc a state limited_liability_company with members was an ineligible shareholder w held a x interest in llc and h held the remaining y interest on date x’s accountant became aware that llc was an ineligible s_corporation shareholder on date h transferred all of his interest in llc to w law and analysis sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate and other than a_trust described in sec_1361 who is not an individual sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate and other than a_trust described in c who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 provides that if an election under sec_1362 by any corporation was terminated under paragraph or of sec_1362 the secretary determines that the termination was inadvertent no later than a reasonable period of time after discovery of the event resulting in the termination steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the terminating event the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary the committee reports accompanying the subchapter_s_revision_act_of_1982 explain sec_1362 as follows if the internal_revenue_service determines that a corporation's subchapter_s_election is inadvertently terminated the service can waive the effect of the terminating event for any period if plr-159440-02 the corporation timely corrects the event and if the corporation and the shareholders agree to be treated as if the election had been in effect for such period the committee intends that the internal_revenue_service be reasonable in granting waivers so that corporations whose subchapter_s eligibility requirements have been inadvertently violated do not suffer the tax consequences of a termination if no tax_avoidance would result from the continued subchapter_s treatment in granting a waiver it is hoped that taxpayers and the government will work out agreements that protect the revenues without undue_hardship to taxpayers it is expected that the waiver may be made retroactive for all years or retroactive for the period in which the corporation again became eligible for subchapter_s treatment depending on the facts s rep no 97th cong 2d sess 1982_2_cb_718 h_r rep no 97th cong 2d sess 1982_2_cb_730 conclusion based solely on the facts submitted and the representations made we conclude that x's election to be an s_corporation terminated on date because llc was an ineligible shareholder we also conclude that the termination of x's s_corporation_election was inadvertent within the meaning of f consequently we conclude that x will be treated as continuing to be an s_corporation beginning date and thereafter unless x's s election otherwise terminates under sec_1362 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed as to whether x’s original election to be an s_corporation was valid under sec_1362 plr-159440-02 this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely s dianna k miosi dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


id office uilc cca-724160-08 ----------------------------- number release date from -------------------- sent to------------------------------------- cc thu pm subject re do you have a minute to answer a question about social_security_tax contributions to the thrift_savings_plan are not includable in income at the time of contribution but are subject_to fica tax at the time of contribution distributions from the thrift_savings_plan are not subject_to fica there is no nonduplication rule that applies to tsp if fica was not paid at the time of contribution as is required distributions from the plan still are not subject_to fica the nonduplication rule only applies to nonqualified_deferred_compensation the tax treatment of thrift_savings_plan contributions is addressed in sec_7701 - those sections essentially say that tsp is to be treated like a qualified_plan under a and contributions to the plan are not includable in income merely because they are elective sec_7701 says that nothing in paragraph j shall be construed to provide that basic_pay contributed to tsp is not included in the term wages for purposes of a because tsp is like a 401_k_plan i think the provision that makes contributions to tsp subject_to fica is sec_3121 pub says at page that elective_deferrals including elective contributions to tsp are not included in wages subject_to income_tax at the time contributed however they are included in wages subject_to social_security and medicare taxes


department of the treasury internal_revenue_service washington d c cg tax_exempt_and_government_entities_division may ae uniform issue list t-lp-fa t3 attention legend company a company b company c company d company e company f corporation g investment manager m plan w plan x plan y pian z page dear this is in response to your request for a ruling dated date submitted by your authorized representative in which you ask for several rulings under sec_401 a e a and e of the internal_revenue_code the code correspondence dated date date date and date supplemented the request plan x was originally adopted by company b a subsidiary of company c as plan w effective company b merged its two profit-sharing_plans plan y and plan z into plan x plan x is qualified under sec_401 of the code and consists of a cash_or_deferred_arrangement described in sec_401 and a employee_stock_ownership_plan esop component’ that is intended to qualify under sec_4975 plan x acquired shares of company c which constituted qualifying employer_securities within the meaning of sec_4975 with the proceeds of exempt loans made by company c company c shares were acquired by pian x prior to these exempt loans when plan x was a tax_credit_employee_stock_ownership_plan trasop as defined in sec_409 the trasop portion of the esop component company c shares acquired by plan x with the exempt loan proceeds constitute the non-trasop portion of the esop component in addition on henrennnee the disposition date company a acquired company c the transaction the transaction was structured as a merger of company a's acquisition subsidiary_corporation g into company c followed by mergers of two of company c’s subsidiaries company b and company d into company c and a merger of company c into company a share of company c common_stock including each share held by plan x was converted into a right to receive cash in the amount of dollar_figure in connection with these mergers on the disposition date each outstanding as of the disposition date plan x held approximately shares of company c common_stock including approximately shares of company c common_stock that were held as collateral in pian x's suspense_account and approximately shares of company c common_stock that were allocated to participant accounts under plan x as of the disposition date over of the assets of plan x’s esop component were invested in company c common_stock thus immediately following the disposition date plan x held approximately dollar_figure in cash dollar_figure of which was credited to plan x's suspense_account with respect to unallocated shares of company c common_stock that were tendered on the disposition date and dollar_figure of which was credited to participant accounts under plan x with respect to allocated shares of company c common_stock that were tendered on the disposition date in connection with the transaction the second amendment to plan x was adopted under the provisions of the second amendment plan x's definition of company was changed from company c to company a effecting a change in plan x's definition of employer_securities from the common_stock of company c to the common_stock of company a as a page result of the transaction after the disposition date shares of company a common_stock constitute qualifying employer_securities under sec_4975 of the code in addition the second amendment to plan x provides that i cash received by plan x with respect to shares of company c common_stock allocated to participant accounts under plan x on the disposition date is to be reinvested by the plan x trustee in company a common_stock and ii cash received by plan x with respect to unallocated shares of company c common_stock held in plan x's suspense_account on the disposition date is to be reinvested by the plan x trustee in shares of company a common_stock which are to serve as collateral for plan x's outstanding loan based on the market_value of the company a common_stock reinvestment of the cash received by plan x pursuant to the transaction would require the purchase of approximately shares of company a common_stock during the reinvestment_period the cash proceeds described in i and ii were placed in a money market fund company a has engaged investment manager m to provide discretionary investment management services with respect to pian x assets that represent the proceeds of the sale of company c common_stock to develop and execute a program of prudent management pursuant to which such proceeds will be reinvested in shares of company a common_stock over a reasonable period of time and in a manner that minimizes market impact and that is in accordance with applicable securities laws the reinvestment plan based on the investment manager's conclusions it was estimated that approximately days would be required after the disposition date to reinvest in shares of company a common_stock the cash received by pian x in connection with the transaction factors that investment manager m considered in reaching this conclusion included without limitation i company a's market capitalization ii historical average daily trading volume of company a common_stock iii estimated future trading activity of company a common_stock iv market fluctuations due to economic monetary and general market conditions that may occur during the execution of the reinvestment pian and v trading days versus calendar days on etiatesenes calendar days following the disposition date the investment manager m completed the implementation of the reinvestment plan by reinvesting in company a common_stock the proceeds that plan x received in exchange for company c common_stock based on the foregoing you request the following rulings the shares of company a common_stock acquired by plan x with the proceeds of the sale of shares of company c common_stock that were acquired by plan x before date will be deemed to have been acquired before date so that such shares of company a common_stock will not be subject_to the diversification rules of sec_401 of the code provided that the reinvestment of such proceeds in shares of company a common_stock is accomplished within days of the disposition date or within an extended period approved by the commissioner pursuant to the fourth ruling_request set forth below page plan x participants who receive distributions of company a common_stock from plan x following the disposition date will receive net_unrealized_appreciation treatment on such distributions pursuant to sec_402 of the code and the net_unrealized_appreciation on company a common_stock acquired by plan x with proceeds of the sale of shares of company c common_stock will be calculated using the basis of company c common_stock at the disposition date without regard to any interim investments of the proceeds of such sale of shares of company c common_stock provided that the reinvestment of such proceeds in shares of company a common_stock is accomplished within dollar_figure days of the disposition date or within an extended period approved by the service pursuant to the fourth ruling_request set forth below to the extent plan x reinvests the proceeds of the sale of shares of company c common_stock in shares of company a common_stock the trasop and non-trasop portions of the esop component of plan x will continue to be considered invested primarily in employer_securities provided that the reinvestment of such proceeds in shares of company a common_stock is accomplished within days of the disposition date or within an extended period approved by the commissioner pursuant to sec_1_46-8 of the income_tax regulations as ruled upon in the fourth ruling_request as set forth below pursuant to question and answer of notice_88_56 c b sec_402 of the code and sec_1_46-8 of the regulations respectively for purposes of ruling requests one two and three with respect to sec_401 sec_402 sec_409 and sec_4975 of the code respectively the reinvestment_period will commence on the disposition date and end days later with respect to your first ruling_request sec_401 of the code generally provides in regards to an esop within the meaning of sec_4975 ora trasop within the meaning of sec_409 that any employee who has attained age and completed ten years of participation in an employee stock ownership pian is entitled annually to direct diversification of at least percent of the participant's account balance in the employee_stock_ownership_plan percent in the sixth year the diversification requirement is effective with respect to shares acquired by the employee_stock_ownership_plan after date pursuant to question and answer of notice_88_56 employer_securities acquired by an employee_stock_ownership_plan or a tax_credit_employee_stock_ownership_plan after date will be deemed for purposes of sec_401 of the code to have been acquired by or contributed to the employee_stock_ownership_plan on or before date under certain circumstances one such circumstance is when cash or other assets derived from the disposition of employer_securities pursuant to a corporate_reorganization or acquisition attempt whether or not successful which are used to purchase other employer_securities will be treated as acquired by or contributed to the employee_stock_ownership_plan on or before date if the period between the disposition and the reinvestment does not exceed days or such longer period as may be granted by the commissioner under rules similar to those of sec_1_46-8 of the regulations page in the present case the cash derived from the sale of company c common_stock including the company c stock purchased prior to date pursuant to a corporate acquisition will be reinvested in shares of company a common_stock thus with respect to your first ruling_request we conclude that the shares of company a common_stock acquired by plan x with the proceeds of the sale of shares of company c common_stock that were acquired by plan x before date will be deemed to have been acquired before date so that such shares of company a common_stock will not be subject_to the diversification rules of sec_401 of the code provided that the reinvestment of such proceeds in shares of company a common_stock is accomplished within days of the disposition date or within an extended period approved by the commissioner pursuant to the fourth ruling_request set forth below with respect to your second ruling_request sec_402 of the code provides generally that the amount actually distributed to any distributee by any employees’ trust described in sec_401 which is exempt from tax under sec_501 shall be taxable to him in the year in which so distributed under sec_72 relating to annuities sec_402 provides generally that the amount actuaily distributed to any distributee shall not include net_unrealized_appreciation in securities_of_the_employer_corporation see sec_402 and b sec_1_402_a_-1 i of the regulations states that the amount of net_unrealized_appreciation in securities_of_the_employer_corporation which are distributed by the trust is the excess of the market_value of such securities at the time of distribution over the cost or other basis of such securities to the trust sec_402 of the code provides that the term securities_of_the_employer_corporation includes securities of a parent or subsidiary_corporation as defined in subsections e and f of sec_424 of the employer_corporation sec_402 of the code provides that for purposes of sec_402 in the case of any transaction to which this subsection applies the determination of net_unrealized_appreciation will be made without regard to such transaction pursuant to sec_402 included among the transactions covered by sec_402 is any disposition by a plan trustee of employer_securities in which the proceeds are used to acquire employer_securities within days or such longer period as the secretary may prescribe except that this shall not apply to any employee with respect to which a distribution of money was made after such disposition and before such acquisition in this case the proceeds of the disposition of shares of company c common_stock are being used by the plan x trustee to acquire shares of company a common_stock accordingly we conclude with respect to your second ruling_request that plan x participants who receive distributions of company a common_stock from plan x following the disposition date will receive net_unrealized_appreciation treatment on such distributions pursuant to sec_402 of the code and the net_unrealized_appreciation on company a common_stock acquired by plan x with proceeds of the sale of shares of company c common_stock will be calculated using the basis of company c common_stock as of the disposition date without regard to any interim investments of the proceeds of such sale of shares of company page c common_stock provided that the reinvestment of such proceeds in shares of company a common_stock is accomplished within days of the disposition date or within an extended period approved by the service pursuant to the fourth ruling_request set forth below with respect to your third ruling_request sec_4975 of the code provides in part that the term employee_stock_ownership_plan esop means a defined_contribution_plan which is a stock_bonus_plan which is qualified or a stock bonus and a money purchase pian both of which are qualified under sec_401 and which are designed to invest primarily in qualifying employer_securities sec_4975 of the code provides that the term qualifying_employer_security means any employer_security within the meaning of sec_409 sec_409 states that the term employer_securities means common_stock issued by the employer or by a corporation which is a member of the same controlled_group within the meaning of sec_1563 determined without regard to sec_1563 and sec_1563 which is readily_tradable on an established_securities_market trasops are described in sec_409 in part as defined contribution plans which are designed to invest primarily in employer_securities sec_1_46-8 of the regulations provides that the requirement that a trasop be designed to invest primarily in employer_securities is a continuing obligation therefore a transaction changing the status of a corporation as an employer may require the conversion of certain plan assets into other_securities sec_1_46-8 of the reguiations also provides that cash or other assets derived from the disposition of employer_securities held by a trasop must be reinvested in employer_securities not later than the 90th day following the date of disposition however the commissioner may grant an extension of the period for reinvestment in employer_securities depending on the facts and circumstances of each case based on the facts of this case we believe that it is appropriate also to apply this period of reinvestment for the non-trasop shares held in plan x in addition to the trasop shares held in plan x accordingly with respect to your third ruling_request we conclude that to the extent plan x reinvests the proceeds of the sale of shares of company c common_stock in shares of company a common_stock the trasop portion of the esop component of plan x will continue to be considered invested primarily in employer_securities as required by sec_409 of the code and sec_1_46-8 of the regulations provided that the reinvestment of such proceeds in shares of company a common_stock is accomplished within days of the disposition date or within an extended period approved by the commissioner pursuant to the fourth ruling_request set forth below we also rule that the non-trasop portion of the esop component of plan x will continue to be considered be treated as being invested primarily in employer_securities for purposes of sec_4975 provided that the reinvestment of such proceeds in shares of company a commen stock is accomplished within days of the disposition date or within an extended period approved by the commissioner pursuant to the fourth ruling_request set forth below page with respect to your fourth ruling_request after careful analysis of the facts considered by the investment manager we have determined that a day extension of the day period under question and answer of notice_88_56 sec_402 and sec_1_46-8 is reasonabie thus with respect to your fourth ruling_request we conclude that for purposes of ruling requests one two and three with regard to sec_401 sec_402 and sec_409 and sec_4975 of the code respectively the applicable reinvestment_period will commence on the disposition date and end days thereafter the above rulings are based on the assumptions that plan x is otherwise qualified under sec_4975 sec_409 and sec_401 of the code as applicable and that the related trust is tax-exempt under sec_501 at the time of the relevant transactions please note that plan x's compliance with the applicable_requirements of code sec_401 sec_409 and sec_4975 is subject_to verification upon audit by the appropriate key district_office of the service we also note that the department of labor has jurisdiction with respect to the provisions of part of title of the employee_retirement_income_security_act_of_1974 erisa including the requirement in erisa sec_404 that fiduciaries discharge their duties prudently therefore we express no opinion in regard to such issues if you have any questions regarding this private_letter_ruling please contact jes oar ioe id no wt rey at hk eek not a toll free number pursuant to a power_of_attorney on file in this office a copy of this letter_ruling is being sent to your authorized representative sincerely yours paras doen frances v sloan manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of letter notice of intention to disclose cc


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-164987-01 date date legend x a state d1 dear this letter responds to a letter dated date from your authorized representative requesting on behalf of x a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 as evidenced in x's organizational minutes x's sole shareholder a decided to elect s_corporation status for x however x's form_2553 election by a small_business_corporation was not filed timely x requests a ruling under sec_1362 that it will be recognized as an s_corporation effective for the taxable_year beginning d1 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 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 if an s election is made after the first two and one-half months of a plr-152661-01 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 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 conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for its failing to make a timely 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 containing an effective date of d1 for the election 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 a copy is enclosed for that purpose 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 an s_corporation for federal tax purposes pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative 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 sincerely christine ellison chief branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court lindsey c nelson petitioner v commissioner of internal revenue respondent docket no filed date lindsey c nelson pro_se amy dyar seals for respondent memorandum opinion powell special_trial_judge respondent determined deficiencies in petitioner's federal income taxes and accuracy- related penalties pursuant to sec_6662 a in the following amounts section references are to the internal_revenue_code in effect for the years in issue and rule references are to the tax_court rules_of_practice and procedure year deficiency dollar_figure big_number big_number penalty dollar_figure big_number big_number at the time the petition was filed petitioner resided in greensboro north carolina the deficiencies result from the inclusion in income of funds embezzled by petitioner's wife linda in the respective amounts of dollar_figure in dollar_figure in and dollar_figure in and the disallowance of losses in the respective amounts of dollar_figure in dollar_figure in and dollar_figure in claimed on the returns from a bookkeeping business operated by linda the sole issue is whether petitioner is entitled to relief as a so-called innocent spouse pursuant to sec_6013 the facts may be summarized as follows petitioner and linda married in they had a child in petitioner had worked as a general superintendent for several construction companies petitioner dropped out of college in but went back in the fall of as a full time student majoring in civil engineering with a stipend that included tuition and books linda worked full-time as a bookkeeper accountant for datanet services inc datanet and essentially supported the family linda was approximately years old during petitioner was apparently a few years older from the beginning petitioner and linda had financial difficulties in they sought protection under chapter of the bankruptcy code the bankruptcy plan required them to pay dollar_figure per month during and linda received wages in the amounts of dollar_figure dollar_figure and dollar_figure respectively petitioner's employment was sporadic he had income in the amounts of dollar_figure for and dollar_figure for during when petitioner reentered college linda began embezzling funds from datanet she embezzled dollar_figure dollar_figure and dollar_figure during and respectively these funds were spent on food clothing rent furniture and other living_expenses including expenses for petitioner's education petitioner and linda took vacations to the beach each year and also a trip to colorado linda was arrested in date and convicted on date petitioner and linda filed joint federal_income_tax returns for each of the years in issue reporting wages discussed above petitioner and linda did not report the amounts embezzled from datanet petitioner and linda deducted losses from the alleged accounting service operated by linda these losses were fictitious respondent determined that the embezzled funds constituted gross_income and disallowed the losses respondent also determined that accuracy-related_penalties for negligence were due petitioner does not contest any of the adjustments but rather contends that he is entitled to relief of liability under the so-called innocent spouse provisions contained in sec_6013 sec_6013 permits a husband and wife to file a joint income_tax return when a joint_return is filed both spouses become jointly and severally liable for the entire tax sec_6013 a spouse may be relieved of liability however if the following requirements of sec_6013 are satisfied the taxpayer and his or her spouse file a joint_return for the taxable_year there is a substantial_understatement of tax attributable to grossly_erroneous_items of the latter spouse the taxpayer establishes that in signing the return he or she neither knew nor had reason to know of the substantial_understatement taking account of all the facts and circumstances it is inequitable to hold the taxpayer liable for the deficiency in tax resulting from the substantial_understatement and the understatement exceeds percent of the taxpayer's adjusted_gross_income for the preadjustment year if such adjusted_gross_income is dollar_figure or less an understatement is substantial if it exceeds dollar_figure sec_6013 petitioner bears the burden of proving all five conditions of sec_6013 have been satisfied rule a 662_f2d_220 4th cir affg in part and revg in part tcmemo_1980_353 it is undisputed that petitioner filed a joint_return for each of the years in issue and that there were substantial understatements on those returns attributable to linda's activities the dispute then focuses on whether petitioner knew or had reason to know of the understatements and whether it is inequitable to hold petitioner liable for the deficiencies lack of actual knowledge is not sufficient to qualify for innocent spouse relief petitioner must establish that he had no reason to know of the understatements whether petitioner had reason to know of the understatements depends on whether a reasonable person in his circumstances could be expected to know that income had not been reported and that erroneous deductions had been claimed at the time the returns were signed 93_tc_355 whether a duty to inquire into the propriety of the return arises depends on the taxpayer's education level involvement in family business and financial affairs presence of expenditures that appear lavish or unusual and the culpable spouse's evasiveness or deceit concerning the couple's finances 18_f3d_1521 11th cir revg tcmemo_1991_463 petitioner contends that he neither knew nor had reason to know about linda's defalcations from datanet it is unnecessary to decide whether or not petitioner actually knew of the unreported income and bogus deductions because he clearly had reason to know of those items during these years petitioner and linda received and spent over dollar_figure embezzled from datanet at the same time they received gross_income from wages in the amount of approximately dollar_figure there were no savings and they spent approximately dollar_figure during the with regard to the return petitioner obviously knew that that return was not correct the return was signed by petitioner on date linda was indicted in date and pled guilty and was convicted on date years in issue the amounts embezzled constituted percent of that amount it is simply ludicrous for a person who was a mature full-time college student to say that he had no reason to know that something was not awry with this situation it may be that he did not know exactly where the money came from but surely he was aware when the returns were filed that they spent more than they were reporting on their returns the same is true concerning the deductions claimed for the alleged accounting business petitioner knew that linda worked full-time during and she either was pregnant or had a baby there is no evidence that remotely suggests that linda's alleged accounting business was a reality finally while it is perhaps unnecessary to discuss whether it would be inequitable to hold petitioner liable for the deficiencies see sec_6013 we note that petitioner is in a poor position to make such a claim in making this observation we consider inter alia whether petitioner significantly benefited from the understatement beyond normal support and whether petitioner has been divorced 93_tc_434 sec_1 b income_tax regs petitioner may be in the process of being divorced and while married to linda he may not have enjoyed a lavish lifestyle but he clearly did not live the life of a full-time_student and the lifestyle that he did enjoy was due in no small part to linda's defalcations furthermore after linda was convicted the only person who survived with any benefit was petitioner his college education had been paid for during this period he may not have walked away with many tangible benefits but he did receive that great intangible benefit we believe therefore that it is not inequitable to hold petitioner liable for the tax_liabilities decision will be entered for respondent


id office uilc cca_2010121613373516 -------------- number release date from ---------------------- sent thursday date pm to ---------------------- cc ----------------------------------- subject re sec_7122 intersect question ------ - please see below our responses to your questions our responses are based on the facts you provided and the assumption you asked us to make that the form_843 was mailed in ------- but we highly doubt that assumption should be made 2-since no limitations_period applies to a request for an abatement of penalties on form_843 sec_7502 does not apply thus the form_843 will be deemed filed on the date of receipt by the service -------------------- 3-the amendments to sec_6702 including the increased amount of the penalty took effect on date when the service first issued a list of frivolous positions see notice_2007_30 pub_l_no div a title iv sec_407 the amended statute imposing a higher penalty applies to submissions made after the list came out if the taxpayer mailed the form in ------- the list did not then exist and we believe it would be inappropriate to apply the higher penalty to the taxpayer 4-we note that congress did not give the secretary authority to reduce the penalty until the amendments which would not apply to this case as explained in above 5-yes we agree no limitations_period applies to the sec_6702 penalty when only a purported return but not an actual return is filed please let me know if you have any other questions ----------------------- -------------- -------------------


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 b01 plr-105058-18 date date legend -------------------------------------------------------------------------------------------------- ---------------------------------- ---------------------------------------- ---------------------------------------------- ----------------------------------------------------- -------------------------------------------------------------------------- x a b c d e state -------------- n ---- date -------------------------- date --------------------------- dear -------------- this letter responds to a letter dated date submitted on behalf of x by its authorized representative requesting a ruling under sec_7704 of the internal_revenue_code code plr-105058-18 facts the information submitted states that x was organized on date as a limited_partnership under the laws of state and is classified as a partnership for federal_income_tax purposes x is a publicly_traded_partnership x has a controlling indirect equity_interest in a b c d and e entities organized under the laws of a foreign_country that are classified as corporations for u s federal tax purposes the foreign entities x represents that the foreign entities are controlled_foreign_corporations and recent changes to sec_965 discussed below could cause a one-time subpart_f_income inclusion for x’s taxable_year ending date that may cause x to fail to satisfy the percent qualifying_income test in sec_7704 x further represents that without regard to any potential income inclusions pursuant to sec_965 over n of x’s income is considered qualifying_income under sec_7704 law and analysis sec_951 provides in pertinent part that if a foreign_corporation is a controlled_foreign_corporation for an uninterrupted period of days or more during any taxable_year every person who is a united_states_shareholder as defined in sec_951 of such corporation and who owns within the meaning of sec_958 stock in such corporation on the last day in such year on which such corporation is a controlled_foreign_corporation shall include in his gross_income for his taxable_year in which or with which such taxable_year of the corporation ends his pro-rata share of the corporation’s subpart_f_income on date sec_965 was amended by an act to provide for reconciliation pursuant to titles ii and v of the concurrent resolution on the budget for fiscal_year p l to provide that for the last taxable_year of a deferred_foreign_income_corporation that begins before date the subpart_f_income of the corporation as otherwise determined for such taxable_year under sec_952 shall be increased by the greater of the accumulated_post-1986_deferred_foreign_income of such corporation determined as of date or the accumulated_post-1986_deferred_foreign_income of such corporation determined as of date sec_7704 provides that except as provided in sec_7704 a publicly_traded_partnership will be treated as a corporation sec_7704 provides that the term publicly_traded_partnership means any partnership if interests in that partnership are traded on an established_securities_market or interests in that partnership are readily_tradable on a secondary market or the substantial equivalent thereof sec_7704 provides that sec_7704 does not apply to a publicly_traded_partnership for any taxable_year if such partnership meets the gross_income plr-105058-18 requirements of sec_7704 for the taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence sec_7704 provides in relevant part that a partnership meets the gross_income requirements of sec_7704 for any taxable_year if percent or more of the gross_income of the partnership for the taxable_year consists of qualifying_income sec_7704 provides that if a partnership fails to meet the gross_income requirements of sec_7704 the secretary determines that such failure was inadvertent no later than a reasonable_time after the discovery of such failure steps are taken so that such partnership once more meets such gross_income requirements and such partnership agrees to make such adjustments including adjustments with respect to the partners or to pay such amounts as may be required by the secretary with respect to such period then notwithstanding such failure such entity shall be treated as continuing to meet such gross_income requirements for such period conclusion based on the facts submitted and the representations made we conclude that if x failed to meet the gross_income requirements of sec_7704 for its period ending date solely because of the sec_965 subpart_f_income inclusion then such failure was inadvertent within the meaning of sec_7704 therefore pursuant to sec_7704 x will be treated as continuing to meet such gross_income requirements for the period ending date and thereafter provided x otherwise does not fail the requirements of sec_7704 except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether x otherwise meets the percent gross_income requirement of sec_7704 in any taxable_year for which this ruling may apply furthermore no opinion is expressed as to whether the sec_965 subpart_f_income inclusion is qualifying_income under sec_7704 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that this letter may not be used or cited as precedent plr-105058-18 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 s ______________________________ caroline e hay assistant to the branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes