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 plr-134645-13 date january --------------------------------------- legend taxpayer ---------------------------------------------------- company a company b company c company d company e company f company g company h company i company j company k company l location a location b state a additive additive date date a b c d e f g h -------------------------------------------------- ------------------------------------------------ ------------------------------------------------ ----------------------------------------------------- -------------------------------------------------- -------------------------------------------- ---------------------------------------------------- ------------------------- ----------------------------------------------- ------------------------------------------------------------------------- ----------------------- -------------------------------------- ---------------------------- ------------------ -------------- ---------------------- -------------------------------------- --------------------------- --------------------------- ----- --------------- ---- ---- ---- ---- ---- ---- plr-134645-13 ---- ---- ----- i j k research center ----------------------------------------------------------- energy center test reports --------------------------------------------------------------------------------- ------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------- dear --------------- this is in response to your request for rulings submitted by your authorized representative concerning the federal_income_tax consequences of the transaction described below background taxpayer is a state a limited_liability_company that is classified as a partnership for federal tax purposes taxpayer is a calendar_year taxpayer and employs the accrual_method of accounting for both book and tax purposes the sole members of taxpayer are company a a state a limited_liability_company and company i company a is a wholly owned disregarded_entity of company b company b is a wholly-owned subsidiary of company c and has elected to be taxable as a corporation for federal tax purposes company c is wholly owned by company d which is wholly owned by company e company c is engaged in the business of developing and managing various energy-related projects throughout the united_states including backup power generation projects power-house operations cogeneration facilities coke batteries and similar energy-related projects company e is the holding_company for a number of operating companies engaged in energy-related businesses company e is also the parent company of company f a regulated public electric utility other subsidiaries of company e sell coal and coal transportation services throughout the united_states company e and its affiliates are calendar-year taxpayers and employ the accrual_method of accounting for book and tax purposes company g is a wholly owned indirect subsidiary of corporation h a publicly traded state a corporation company h is the common parent of an affiliated_group of plr-134645-13 corporations including company g that join in the filing of a consolidated federal_income_tax return company g formed company i to acquire a membership interest in taxpayer company i is disregarded as a separate_entity from company g for federal_income_tax purposes the facilities taxpayer constructed a facility consisting of two parallel independent production lines each individually a facility and collectively the facilities that are designed to produce refined_coal product the facilities are located at energy center company j owns and operates energy center energy center is composed of one coal-fired generating unit with an electric generating capacity of approximately a megawatts energy center consumes approximately b tons of coal a year all of the product is used as a fuel at energy center to produce steam for the generation of electricity taxpayer contracted with a contractor to design engineer and construct the facilities certain material handling equipment and a building to enclose the facilities and equipment mechanical completion of the facilities was achieved on date taxpayer assumed care custody and control of the facilities from the contractor on that same day mechanical completion included the completion of all mechanical and electrical equipment necessary to the operation of the facilities for the production of refined_coal after a brief start-up and testing_period the facilities began production of the product on date description of the process the process for production of refined_coal currently employed at the facilities involves the mixing of proprietary chemicals additives with feedstock coal prior to combustion the process the patent for the process is owned by company k and is licensed to taxpayer test results described herein have shown that when mixed with coal the proprietary additives result in reduced nox so2 and mercury emissions during combustion different chemicals are targeted at specific pollutants based on the characteristics of the feedstock coal burned at the energy center taxpayer has chosen a combination of additives that target the reduction of nox and mercury in the case of nox taxpayer understands that additive is believed to cause a portion of the nox to adhere to or react with the additive so that it can be captured and is not emitted in the case of mercury taxpayer understands that additive is believed to react with the elemental mercury in the feedstock coal so that it is converted into a chemical species of mercury mercury oxide that can be effectively captured by particulate control devices emissions reduction testing plr-134645-13 company d engaged research center to conduct tests on behalf of taxpayer at its pilot-scale combustion furnace ctf to determine the emission reductions associated with burning the product compared to the feedstock coal company d has been working with research center for several years in order to investigate and understand the ability of the additives to reduce emissions the research center report described below states the ctf has been extensively used to research and investigate sox and nox emissions and the transformation of toxic trace metals hg mercury as and pb during the combustion of coal and other fuels or waste materials that are representative of those produced in industrial and full scale pulverized coal-fired boilers for purposes of qualifying the product produced at the facilities research center conducted several pilot-scale combustion tests at its ctf specifically research center conducted tests on four blends of feedstock coals of the type typically burned at the energy center because the facilities were not yet operational at the time of that test research center reports that it mixed the coal and additives in a manner consistent with the mixing that would occur at the facilities the test reports state that each of the four test results indicate that the refined_coal samples achieved the required reductions in both nox and total mercury emissions both determined on a lb btu basis to satisfy the requirements of at least nox reduction and at least mercury reduction test reports states that it is expected that qualifying emissions reductions reported would be achieved at full scale when utilizing the additive levels tested to produce the refined_coal for all location a-location b blends containing at least c location a subbituminous coal tested coal energy center currently burns a blend of subbituminous coal from a number of mines in the location a and bituminous coal from location b energy center uses a blend of location a and location b coals to generate electricity and taxpayer intends to produce the product using a blend of location a and location b coals variations in the coal blend result from the supply and availability of the location a and location b coals and the needs of energy center company d requested that research center test blends of location a and location b coal that represent the range of location a and location b coal blends to be used by taxpayer to produce product that will be burned to produce steam at energy center the coal blend contains at least c location a and no more than d location b coal accordingly research center tested a e location a coal f location b coal blend a g location a coal h location b coal blend a i location a coal j location plr-134645-13 b coal blend and a c location a coal d location b coal blend in each case research center states that the refined_coal produce d with each coal blend met the required emission reduction requirements when compared to the feedstock coal the test reports state that it is expected that qualifying emissions reductions reported would be achieved at full scale when utilizing the additive levels tested to produce the refined_coal for all location a and location b blends containing at least c location a subbituminous coal accordingly for purposes of this ruling letter the term tested coal refers to a blend of coals containing at least c location a and no more than d location b coal taxpayer expects to continue to operate with the blends and additive levels discussed in the test reports which would be consistent with long-term patterns for coal consumed by the energy center samples will be taken for redetermination testing within six months after the last emissions test satisfying the qualified_emission_reduction requirement thereafter within six months after such date another set of samples will be taken for redetermination testing in each case samples of feedstock and samples of refined_coal will be obtained from the facilities using automatic samplers alternatively taxpayer may request that research center prepare samples of refined_coal for redetermination testing by mixing feedstock coal and additives in a manner consistent with the mixing that would occur at facilities initially taxpayer will collect and test samples from each facility and test each set of samples separately if the testing results from both samples demonstrate satisfaction of the qualified_emission_reduction requirement and substantially_similar results taxpayer plans to collect samples for redetermination testing alternating between the two facilities although taxpayer does not currently anticipate making changes to its coal feedstock or additive levels additional testing will be conducted prior to i adding coal from any other coal rank to the facilities’ coal feedstock mix ii changing the percentages of the coal feedstock blend ie using less than c location a coal or more than d location b coal in the location a location b coal blend or iii changing the minimum levels of additives such testing will include testing of samples at the endpoints of the new coal feedstock blend and at intermediate blends between the endpoints as the qualified expert advises is necessary to conclude that a qualified emissions reduction would be expected for any combination within the limits of the blend in the case of a change in additive levels tests will be run at the new minimum levels of additive as the qualified expert advises is necessary to conclude that a qualified emissions reduction will be expected for the new levels of additive in addition in the future taxpayer may collect and test weekly samples of feedstock and product to determine the sulfur and mercury content of the samples if such samples are collected a rolling six-month average of the laboratory analyses would be computed to determine whether there has been a change_of the sulfur or mercury content by more than ten percent plr-134645-13 agreements under the company k license agreement company k granted a license to taxpayer to use the process the term of the company k license agreement is through the date that the sec_45 tax_credit is no longer available for the facilities’ production unless earlier terminated for cause as set forth in the company k license agreement taxpayer has entered into various agreements with company j with respect to the installation and operation of the facilities at a portion of the energy center site site taxpayer has the right to place the facilities on the site pursuant to a license and services agreement that agreement provides taxpayer with the rights necessary to place the facilities at the site as well as support services such as utility connections necessary to operate the facilities in addition the agreement allows taxpayer to operate the facilities under certain permits and approvals issued to company j taxpayer has entered into a coal handling and consulting agreement with company j under which company j provides certain coal preparation and handling services in addition because of company j’s expertise in the coal markets company j assists and advises taxpayer in procuring coal and transportation services under the coal handling and consulting agreement taxpayer has entered into a refined_coal supply agreement with company j under which company j purchases all of its requirements for coal and coal-based fuel from taxpayer taxpayer has entered into an operation and maintenance agreement with an affiliate of company e to operate and maintain the facilities in addition such affiliate has entered into another operation and maintenance agreement with company l to provide the labor necessary for the operation and maintenance of the facilities taxpayer entered into a coal feedstock purchase agreement with company j under which taxpayer will purchase the coal feedstock for the facilities from company j rulings requested the refined_coal produced by using the process constitutes refined_coal within the meaning of sec_45 of the code provided that such refined_coal is from feedstock coal that is the same rank as the tested coal and provided further that the refined_coal satisfies the qualified_emission_reduction test stated in sec_45 of the code plr-134645-13 provided that the feedstock coals used to produce refined_coal during any determination_period are from the same coal source regions and of the same rank as the tested coal all feedstock coal that satisfies that criteria shall be treated as feedstock coal of the same source and rank for purposes of section dollar_figure of notice_2010_54 2010_40_irb_403 regardless of the mine from which such feedstock coal is purchased testing by research center for qualified emissions reduction as set forth in its test reports satisfies the requirements of notice_2010_54 pilot scale testing conducted at research center or a similar pilot-scale combustion testing facility under notice_2010_54 and subsequent permitted laboratory testing as required for a redetermination described in section a or b of notice to satisfy the qualified_emission_reduction test of sec_45 of the code may be relied upon pursuant to section b of notice_2010_54 the redetermination requirement of section dollar_figure of notice_2010_54 may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal on average do not vary by more than ten percent below the bottom of nor more than ten percent above the top of the range of sulfur and mercury content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of section dollar_figure of notice_2010_54 the results set forth by research center or a similar pilot-scale combustion testing facility in a redetermination test report for production may be relied upon after the date of testing even if the report is not received until after the six-month period specified in section i of notice_2010_54 provided a facility was placed-in-service prior to date within the meaning of sec_45 relocation of a facility to a different location or replacement of a part of a facility will not result in a new placed-in-service date for purposes of sec_45 provided that the fair_market_value of the original property is more than percent of the facility’s total fair_market_value at the time of relocation or replacement law and rationale process and testing of refined_coal sec_45 of the code generally provides a credit against federal_income_tax for_the_use_of renewable or alternative resources to produce electricity or fuel for the generation of steam sec_45 of the code provides that in the case of a producer of refined_coal the credit available under sec_45 of the code for any taxable_year shall be increased by an amount equal to dollar_figure5 per ton of qualified refined_coal i produced_by_the_taxpayer at a refined_coal_production_facility during the 10-year period beginning on the date that the facility was originally placed_in_service and which plr-134645-13 is ii sold by the taxpayer to an unrelated_person during such 10-year period and such taxable_year for purposes of sec_45 of the code section dollar_figure of notice_2010_54 provides that the term refined_coal means a fuel which -- i is a liquid gaseous or solid fuel including feedstock coal mixed with an additive or additives produced from coal including lignite or high carbon fly ash including such fuel used as a feedstock ii is sold by the taxpayer with the reasonable expectation that it will be used for purpose of producing steam and iii is certified by the taxpayer as resulting when used in the production of steam in a qualified_emission_reduction section dollar_figure of the notice provides that the term qualified_emission_reduction means in the case of refined_coal produced at a facility placed_in_service after date a reduction of at least twenty percent of the emissions of nitrogen oxide and at least of the emissions of either sulfur dioxide or mercury released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of date in the case of production at a facility placed_in_service before date a reduction of at least percent of the emissions of nox and at least percent of the emissions of either so2 or mercury released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of date sec_45 of the code generally provides that the term refined_coal_production_facility means a facility which is placed_in_service after date and before date section dollar_figure of notice_2010_54 generally provides that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as defined in sec_613 a c or i if performed by the mine owner or operator accordingly in determining whether a qualified_emission_reduction has been achieved the emissions released when burning the refined_coal must be compared to the emissions that would be released when burning the feedstock coal feedstock coal is the product resulting from processes that are treated as mining and are actually applied by a taxpayer in any part of the taxpayer’s process of producing refined_coal from coal sec_613 of the code describes treatment processes that are not considered as mining unless they are provided for in sec_613 or any necessary or incidental to a process provided for in sec_613 any cleaning process such as a process that uses ash separation dewatering scrubbing though a centrifugal pump spiral concentration gravity concentration flotation application of liquid hydrocarbons or alcohol to the surface of the fuel particles or to the feed slurry provided such cleaning plr-134645-13 does not change the physical or chemical structure of the coal and drying to removed free water provided such drying does not change the physical or chemical identity of the coal will be considered as mining section of the notice provides in part that emissions reduction may be determined using continuous emission monitoring system cems field testing section a provides in part that cems field testing is testing that meets all the following requirements i the boiler used to conduct the test is coal-fired and steam-producing and is of a size and type commonly used in commercial operations ii emissions are measured using a cems iii if epa has promulgated a performance standard that applies at the time of the test to the pollutant emission being measured the cems must conform to that standard iv emissions for both the feedstock coal and the refined_coal are measured at the same operating conditions and over a period of at least hours during which the boiler is operating at a steady state at least percent of full load v a qualified_individual verifies the test results in a manner that satisfies the requirement of section b section of the notice provides that methods other than cems field testing may be used to determine the emissions reduction if a method other than cems field testing is used the service may require the taxpayer to provide additional proof that the emission reduction has been achieved the permissible methods include a testing using a demonstration pilot-scale combustion furnace if it established that the method accurately measures the emission reduction that would be achieved in a boiler described in section a a i and a qualified_individual verifies the test results in a manner that satisfies the requirements of section c i ii v and vi of the notice b a laboratory analysis of the feedstock coal and the refined_coal that complies with a currently applicable epa or astm standard and is permitted under section b i or ii section of the notice provides that a taxpayer may establish that a qualified_emission_reduction determined under section dollar_figure applies to production from a facility by a determination or redetermination that is valid at the time the production occurs a determination or redetermination is valid for the period beginning on the date of the determination or redetermination and ending with the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of feedstock coal that occurs after the date of such determination or redetermination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination section of the notice provides that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure must use a method that meets the requirements of section in any other case the redetermination plr-134645-13 requirement may be satisfied by laboratory analysis establishing that - a the sulfur s or mercury content of the amount of refined_coal necessary to produce an amount of useful energy has been reduced by at least percent percent in the case of facilities placed_in_service after date in comparison to the s or mercury content of the amount of feedstock coal necessary to produce the same amount of useful energy excluding any dilution caused by materials combined or added during the production process or b the s or mercury content of both the feedstock coal and the refined_coal do not vary by more than percent from the s and mercury content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of the notice finally section dollar_figure of the notice provides that the certification requirement of sec_3 c of the notice is satisfied with respect to fuel for which the refined_coal credit is claimed only if the taxpayer attached to its tax_return on which the credit is claimed a certification that contains the following a a statement that the fuel will result in a qualified emissions reduction when used in the production of steam b a statement indicating whether cems field testing was used to determine the emissions reduction if cems field testing was not used to determine the emissions reduction a description of the method used a statement that the emissions reduction was determined or redetermined within the six months preceding the production of the fuel and that there have been no changes in the source or rank of feedstock coal used or in the process of producing refined_coal from the feedstock coal since the emissions reduction was determined or was most recently determined and a declaration signed by the taxpayer in the following form under penalties of perjury i declare that i have examined this certification and to the best of my knowledge and belief it is true correct and complete addition or improvement to an existing facility sec_45 of the code provides that a refined_coal_production_facility must be placed_in_service within certain timeframes for purposes of the refined_coal credit allowable with respect to steel_industry_fuel the facility or any modification to the facility must be placed_in_service before date for purposes of the refined_coal credit allowable with respect to refined_coal other than steel_industry_fuel the facility must be placed_in_service after date and before date section dollar_figure of the notice provides that the year in which property is placed_in_service is determined under the principles of sec_1_46-3 of the regulations ie when the property is placed in a condition or state of readiness and availability for a specifically assigned function section dollar_figure of the notice provides that a refined_coal_production_facility will not be treated as placed_in_service after date if more than percent of the facility’s total value the cost of the new property plus the value of the used_property is attributable to property placed_in_service on or before date the notice also states that the irs will not issue private letter rulings relating to when a refined_coal_production_facility has been placed_in_service plr-134645-13 rulings with respect to the first issue the process starts with several chemical additives added to the feedstock coal prior to its combustion in a furnace the additives provide the chemical structure that result in the reduction of emissions from nox and mercury during combustion section dollar_figure of the notice provides generally that a qualified_emission_reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as further defined in the code if performed by the mine owner or operator sec_613 describes certain treatment processes that are not considered as mining unless they are provided for in sec_613 or are necessary or incidental to a process provide for in sec_613 of the code for example of the notice provides in part that any cleaning process such as the application of liquid hydrocarbons or alcohol to the surface of the fuel particle or to the feed slurry provided such cleaning does not change the physical or chemical structure of the coal will be considered mining in the instant case the process is not a mining process further section dollar_figure of the notice clarifies sec_45 of the code and specifically provides that refined_coal includes feedstock coal mixed with an additive or additives thus additive processes which mix certain chemicals or other additives with the coal in order to achieve emission reductions may qualify for the production_tax_credit for refined_coal additionally section dollar_figure defines comparable coal as coal that is of the same rank as the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal accordingly we conclude that the coal produced by using the process constitutes refined_coal within the meaning of sec_45 of the code provided that the refined_coal i is produced from feedstock coal that is the same source or rank as the tested coal and ii satisfies the qualified_emission_reduction test stated in sec_45 of the code with respect to the second issue the emissions profile of the refined_coal product is compared to the emissions profile of either the feedstock coal or a comparable coal predominantly available in the market place as of date section dollar_figure of the notice provides that a comparable coal is defined as coal that is of the same rank as the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal section dollar_figure provides that a determination or redetermination of a qualified emissions reduction is valid until the occurrence of the earliest of the following events six months have passed since the date of such determination or redetermination a change in the source or rank of feedstock coal that occurs after the date of such determination or redetermination or a change in the process of producing refined_coal that occurs after the date of such determination or redetermination in the instant case research center has tested various blends of location a and location b coals ranging from k location a to c location a d location b coals accordingly we conclude that provided that the feedstock coals during any determination_period are from the same coal source regions and of the same rank as tested coal all feedstock coal that satisfies that criteria shall be treated as plr-134645-13 feedstock coal of the same source or rank for purposes of section dollar_figure of notice_2010_54 regardless of the mine from which such feedstock coal is purchased with respect to the third and fourth issues section of the notice provides that any permissible testing method provided for in the notice can be used in emission testing for any pollutant that is a taxpayer can use different testing methods for each of nox so2 or mercury provided the method used for any pollutant is a permissible method section provides that an emission test establishing a qualified_emission_reduction qualifies the refined_coal for a six-month period provided there is no change in the process for producing the refined_coal or in the source or rank of the feedstock coal therefore a taxpayer must redetermine the emission reductions to qualify for the succeeding six-month period using one or more approved methods section provides that in the context of redetermination that the redetermination requirement may be satisfied by laboratory analysis establishing either that i the sulfur or mercury content of the amount of refined_coal necessary to produce an amount of useful energy has been reduced by at least in the case of facilities placed_in_service after date in comparison to the sulfur or mercury content of the amount of useful thermal energy excluding any dilution used by materials combined or added during the production process or ii the sulfur or mercury content of both the feedstock coal and the refined_coal do not vary by more than from the sulfur or mercury content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of the testing methods for emissions reductions in section dollar_figure of the notice in the instant case company d engaged research center to conduct test at its ctf to determine the emission reductions associated with burning the refined coals product compared to the feedstock for purposes of qualifying the refined_coal produced at the facilities research center conducted pilot-scale combustion tests at its ctf in its test reports on the blend of feedstock coals burned at energy center because the facilities were not yet in service research center mixed the coal and additives in a manner consistent with the mixing that would occur at the facilities in test reports research center conducted tests on feedstock and refined_coal product samples collected from and produced by the facilities in test reports the research center reported that the test results indicated that the blend of coal and additives achieved the required emissions reductions the test results in test reports indicated that the refined_coal samples achieved the required emissions reductions based on the foregoing we conclude that i testing by research center for qualified emission reductions as set forth in its test reports satisfies the requirements of notice_2010_54 taxpayer may establish a qualified_emission_reduction through testing by research center at its combustion research facility or similar pilot- scale combustion testing facilities under notice_2010_54 and ii pursuant to section of notice_2010_54 the redetermination requirement of section dollar_figure of notice_2010_54 may be satisfied by laboratory analysis establishing that the sulfur and mercury plr-134645-13 content of both the feedstock coal and the refined_coal on average do not vary by more than ten percent below the bottom of nor more than ten percent above the top of the range of the sulfur and mercury content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of section dollar_figure of notice_2010_54 with respect to the fifth issue it is intended that taxpayer will engage in redetermination testing every six months or more frequently if required pursuant to notice_2010_54 however research center is not always able to issue the written report required by section a of notice_2010_54 within the six month period thus although redetermination testing is completed within the six month period the report may be received after the six month period nonetheless research center advises taxpayer of the results of the redetermination testing before the six month anniversary of its previous test even if the detailed written report is not finalized after such six month anniversary nevertheless the delay by the research center in issuing its report cannot be indefinite accordingly we conclude that the results set forth by the research center in a redetermination test report for production may be relied upon after the date of testing even if the report is not received until after the six month period specified in section i of notice_2010_54 so long as taxpayer receives the written report within days from the date of testing however the redetermination of qualified emissions reduction must occur during the earliest of the events described in section dollar_figure of notice_2010_54 regardless of the time of the actual receipt of research center’s test report with respect to the sixth issue we understand that a facility may be relocated to another location in the future in that case all of the essential components of the facility will be relocated and retained similarly during the life of a facility it may be necessary to replace certain major components in the event of relocation of a facility or replacement of a component there should be no change in the placed_in_service_date of a facility so long as the test described in dollar_figure of the notice has been met based on the foregoing we conclude that provided a facility was placed_in_service prior to date within the meaning of sec_45 relocation of a facility to a different location after date or replacement of part of a facility after that date will not result in a new placed_in_service_date for a facility for purposes of sec_45 provided the fair_market_value of the original property is more that percent of facility’s total fair_market_value the cost of the new property plus the value of the used_property at the time of relocation or replacement this ruling expresses no opinion about any issue not specifically addressed in this ruling letter including whether any person has sold refined_coal to an unrelated_person or when the facility was placed_in_service in particular we express or imply no opinion that the taxpayer has sufficient risks and rewards of the production activity to qualify as the producer of the refined_coal the service may challenge an attempt to transfer the credit to a taxpayer who does not qualify as a producer including plr-134645-13 transfers structured as partnerships sales or leases that do not also transfer sufficient risks and rewards of the production activity in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives a copy of this ruling must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent we are sending a copy of this letter_ruling to the industry director sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs special industries


department of the treasury internal_revenue_service washington d c mar sin eo-r3b employer_identification_number legend dear sir or madam this is in response to a letter dated date requesting rulings under sec_507 on the internal_revenue_code and other provisions of the code concerning your the foundation’s proposed termination of private_foundation_status the foundation has requested the following rulings as of the date of the filing of the notice of termination of private_foundation_status pursuant to sec_507 of the code and sec_1_507-1 of the regulations the foundation will be deemed to have ceased to exist for purposes of subchapter_f of chapter and chapter and to have been reconstituted as a newly organized entity that will not qualify as an organization described in sec_501 if the foundation terminates its status as a private_foundation under sec_507 of the code the service will exercise its authority under sec_507 to abate the tax imposed by sec_507 after the date of the filing of the notice under sec_507 of the code chapter will not apply to the foundation accordingly the sale of assets of the foundation as described herein will not be subject_to tax on self-dealing under sec_4941 after the date of filing the notice under sec_507 of the code the foundation will not be required to file annual information returns pursuant to sec_6033 dollar_figure the foundation was incorporated in x for educational_purposes specifically the foundation educates children through research seminars and conferences publishing literature curriculum enrichment and the training of teachers the foundation is exempt under sec_501 of the code a private_foundation within the meaning of sec_509 and is a private_operating_foundation within the meaning of sec_4942 since the foundation’s inception it has received substantially_all of its funds from n has contributions and interest-free loans from its founder and foundation_manager n and publishing revenues the foundation has a patent application pending for its o recently concluded that the foundation’s publishing activities can no longer generate enough income to be self-supporting if it must operate within the constraints applicable to tax exempt_organizations consequently the foundation’s board_of directors has proposed that it terminate its private_foundation_status by filing a notice of such termination with the service under sec_507 of the code and requests that the amount of tax due under sec_507 be abated pursuant to sec_507 the foundation will then sell its assets less the loans payable to n at fair_market_value as determined by means of an independent appraisal to a general business corporation controlled by n that will take over the foundation's publishing activities as a for-profit taxable enterprise it is expected that most of the purchase_price will be represented by the assumption of promissory notes payable to n after the sale the foundation will adopt a pian of liquidation and distribute any remaining assets to one or more unrelated charitable organizations described in sec_507 of the code sec_507 of the code and sec_1_507-1 of the income_tax regulations provide that except as provided in sec_507 the status of any organization as a private_foundation shall be voluntarily terminated only if such organization notifies the secretary at such time and in such manner as the secretary may by regulations prescribe of its intent to accomplish such termination and either such organization pays the tax imposed by subsection c or any portion not abated under subsection g or has the entire amount of such tax abated under subsection g sec_507 of the code provides that there is imposed on each organization which is referred to in subsection a a tax equal to the lower_of - - the amount which the private_foundation substantiates by adequate_records or other corroborating evidence as the aggregate tax_benefit resulting from the sec_501 status of such foundation or the value of the net assets of the foundation 3f sec_507 of the code provides that the secretary may abate the unpaid portion of the assessment of any_tax imposed by subsection c or any liability in respect thereof if the private_foundation distributes all of its net assets to one or more organizations described in sec_170 other than in clauses vii and viii each of which has been in existence and so described for a continuous period of at least calendar months sec_509 of the code provides that unless otherwise excepted organizations recognized as exempt under sec_501 of the code are classified as private_foundations sec_509 provides generally that once an organization is classified as a private_foundation it shall be treated as a private_foundation until such status is terminated under sec_507 sec_4941 a of the code imposes a tax on the disqualified_person on each act of self-dealing between a disqualified_person and private_foundation sec_4941 of the code imposes a tax on the private_foundation manager who participated in the act of self-dealing for which a self-dealing_tax was imposed under sec_4941 a sec_4941 of the code imposes additional self-dealing taxes unless the self dealing acts are corrected sec_4941 and b of the code provides that the term self-dealing means any direct or indirect sale_or_exchange or leasing of property between a private_foundation and a disqualified_person sec_4941 d e of the code states that the term self-dealing means any direct or indirect transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4946 of the code includes substantial contributors foundation managers and business entities that are controlled by disqualified persons as disqualified persons sec_6033 of the code requires private_foundations to file annual information returns sec_1_507-1 of the regulations indicates that a voluntary termination of private_foundation_status under sec_507 of the code does not relieve a private so foundation and or any of its disqualified persons of any liability for taxes under chapter of the code sec_1_507-9 of the regulations provides that no tax that is imposed under the provisions of chapter of the code shall be abated under sec_507 which concerns the abatement of termination_tax under sec_507 ruling termination of private_foundation_status pursuant to sec_507 of the code requires both notice to the service and payment of the tax imposed by sec_507 or abatement of the tax pursuant to sec_507 the foundation has asked for abatement under sec_507 sec_507 permits abatement in cases where a private_foundation transfers all of its net assets to one or more public_charities described in sec_170 other than in clauses vii and viii the foundation has represented that this transfer will not occur by or on the date its files the notice of termination on the date the foundation proposes to submit its notice of intent to terminate it would not have paid the termination_tax imposed by sec_507 in addition after the date the foundation submits its notice to terminate but before the date the foundation distributes its net assets to charities described in sec_507 the foundation will sell its assets to a corporation controlled by n after the foundation completes this sale of assets it will then distribute its net assets to charities described in sec_507 charities will not occur by or on the date the foundation submits its notice of intent to terminate the commissioner would not have the discretion to abate the termination_tax under sec_507 on the date the foundation submits its notice of intent to terminate thus on the date the foundation submits its notice it would not have paid the sec_507 tax nor would the tax be abated therefore on the date foundation files the notification it would not have terminated its private_foundation_status under sec_507 and it would still be treated as a private_foundation under sec_509 subject_to the chapter requirements since the transfer of all its net assets to appropriate public ruling the foundation requested in ruling_request two that the service rule that if the foundation terminates is status as a private_foundation under sec_507 of the code the service will exercise its authority under sec_507 to abate the termination_tax imposed by sec_507 in ruling_request one the foundation asked that the service rule that the termination is effective on the date it submits its notification of intent to terminate its private_foundation_status however under the facts of the proposed transaction on the date the foundation submits its notice of intent to terminate its private_foundation_status it would not have terminated its private j ki foundation status nor would the foundation have met the criteria for abatement specified in sec_507 because it would not have distributed its net assets to public_charities therefore ruling_request two involves a hypothetical situation accordingly pursuant to section dollar_figure of revproc_2001_4 ilr b the service declines to issue a ruling on this issue section dollar_figure of revproc_2001_4 may decline to issue a ruling when appropriate in the interest of sound tax_administration or on other grounds whenever warranted by the facts and circumstances of a particular case in addition the service pursuant to ruling as discussed in response to ruling_request one at the time of the proposed sale of the foundation’s assets the foundation would not have terminated its private_foundation_status and would still be subject_to the requirements of sec_4941 of the code furthermore the substance of the proposed transaction described above is the sale of the foundation's assets to a disqualified_person this would clearly be an act of self-dealing as defined in sec_4941 of the code subjecting the business_entity controlled by n and n separately as foundation_manager to self-dealing taxes under sec_4941 and further the business_entity and n would be subject_to additional taxes under sec_4941 b unless the self-dealing act is corrected in addition under sec_1_507-1 and -9 a of the regulations any future termination under sec_507 would not negate any_tax assessed pursuant to sec_4941 ruling as discussed in response to ruling_request one on the date the foundation files the notice described in sec_507 of the code it would not have terminated its private_foundation_status and would still be subject_to the annual filing_requirements of sec_6033 these rulings are based on the understanding that there will be no material changes in the facts upon which they are based these rulings are directed only to the organizations that requested them sec_6110 of the code provides that they may not be used or cited by others as precedent these rulings do not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described cte please keep a copy of this ruling in your permanent records sincerely oo robert c 4arp manager exempt_organizations technical group r jr fs


internal_revenue_service department of the treasury washington dc index number number release date person to contact telephone number refer reply to cc dom p si - plr-112977-99 date date x a d1 year dear this letter responds to a letter dated date and subsequent correspondence requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a the sole shareholder and president of x represents that a intended to begin operations as an s_corporation beginning in year x’s first taxable_year however a was unaware of the due_date for filing an s_corporation_election and x’s tax preparer and x’s attorney each believed the other would file a form_2553 election by a small_business_corporation thus a form_2553 was not timely filed by x for year sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's first mr robert j william sec_2 taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code 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 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours branch h grace kim assistant to the chief office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------- --------------------------------- ------------------------ ---------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc corp b03 plr-103394-05 date may -------------------------- -------------------------- --------------------------- --------------------------------- -------------------------------------------------------- taxpayer ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------ corp x ------------------------------------------------------------ date date date tax professional ---------------------------------------------------------------------------------- company official -------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- dear ------------ taxpayer an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the extension is being requested for taxpayer to file an election under sec_1_1502-21 of the income_tax regulations to relinquish the entire carryback period for the consolidated_net_operating_loss cnol of the consolidated_group of which taxpayer was the common parent for the tax_year ending date additional information was submitted in letters dated march this letter responds to a letter dated date requesting on behalf of ---------------------------------- ---------------- taxpayer was the common parent of a consolidated_group which sustained a the election to waive the carryback period was required to be filed by date taxpayer represents that it is not attempting to alter a return position taken for plr-103394-05 march and date the material information submitted for consideration is summarized below cnol in the tax_year ending date on date taxpayer acquired of the common_stock of corp x corp x was the common parent of a consolidated_group and upon corp x’s acquisition corp x and its subsidiaries became members of the taxpayer consolidated_group other than corp x and its subsidiaries no member of the taxpayer consolidated_group in the tax_year ending date had a separate_return_year within the meaning of sec_1_1502-1 within the carryback period it has been represented that none of the cnol from the tax_year ending date has been carried back nor will be carried back to a prior tax_year of the taxpayer consolidated_group a prior tax_year of the corp x consolidated_group nor any other prior tax_year however for various reasons a valid election was not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file a valid election the period of limitations on assessment under sec_6501 has not expired for the taxable_year for which the election should have been filed or for any subsequent taxable_year which a penalty has been or could be imposed under sec_6662 at the time taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested group may elect to relinquish the carryback period with respect to a cnol for any consolidated_return_year the election is made in a separate statement entitled this is an election under sec_1_1502-21 to waive the entire carryback period pursuant to sec_172 for the insert consolidated_return_year cnols of the consolidated_group of which insert name and employer_identification_number of common parent is the common parent sec_1_1502-21 provided that the statement must be signed by the common parent and filed with the group’s income_tax return for the consolidated_return_year in which the cnol arises extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of under sec_301_9100-1 the commissioner has discretion to grant a reasonable sec_1_1502-21 provided for the year at issue that a consolidated sec_301_9100-1 defines the term regulatory election as including an information affidavits and representations submitted by taxpayer tax in this case the time for filing the election is fixed by the regulations ie plr-103394-05 time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 sec_1_1502-21 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for taxpayer to file the election provided taxpayer establishes it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government professional and company official explain the circumstances that resulted in the failure to timely file a valid election the information establishes that taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 and v based on the facts and information submitted including the representations that have been made we conclude that taxpayer has established it acted reasonably and in good_faith in failing to timely file the election the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-3 until days from the date on this letter for taxpayer to file the election with respect to the relinquishment of the entire carryback period for the cnol for the tax_year ending date as described above tax_liability and its members’ separate tax_liabilities if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been made timely taking into account the time_value_of_money no opinion is expressed as to any corporation’s tax_liability for the years involved a determination thereof will be made upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the tax_liability is lower sec_301_9100-3 taxpayer’s return must be amended to properly make the election a copy of this letter should be attached to the amended_return the above extension of time is conditioned on taxpayer’s consolidated group’s taxpayer should file the election in accordance with sec_1_1502-21 no opinion is expressed as to the tax effects or consequences of filing the plr-103394-05 election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayer and its representatives however all essential facts must be verified in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply provides that it may not be used or cited as precedent sent to your authorized representative pursuant to a power_of_attorney on file in the office a copy of this letter is being this letter is directed only to the taxpayer who requested it sec_6110 sincerely _ken cohen_____________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


department of the treasury washington d c t er rats tax_exempt_and_government_entities_division uniform issue list feb legend taxpayer a bank m individual j financial_institution t amount s amount r amount q amount f amount d amount t amount k amount l plan y _ account m ira x dear this is in response to a request dated date as supplemented by correspondence dated date submitted on your behalf by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_402 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that she received a distribution from plan y totaling amount r taxpayer a asserts that her failure to accomplish a rollover of amount k a portion of amount r within the 60-day period prescribed by sec_402 was due to the failure of financial_institution t to follow taxpayer a’s instructions taxpayer a further represents that the remainder of the distribution from plan y amount d has not been used for any other purpose taxpayer a was an employee at bank m but lost her job due to a bank merger and decided to take a distribution from her former employer' sec_401 plan plan y _ taxpayer a had a telephone conversation with individual j a on november representative of financial_institution t plan y’s third party administrator taxpayer a informed individual j that she needed amount s and told individual j that she wanted amount k the remainder of her account minus an offset for an outstanding plan_loan amount q rolled over to an individual_retirement_account ira taxpayer a understood that the distribution of amount s and the loan offset of amount q would be taxable_income to her individual j set up two accounts for taxpayer a one was a regular brokerage account account m and the other was an ira account ira x individual j did not make it clear to taxpayer a that only amount f a small percentage of the amount instructed to be rolled over was being transferred to ira x with the balance of the distribution amount d being transferred to the regular brokerage account taxpayer a subsequently received a form 1099-r from plan y for a gross distribution of amount r and a taxable_amount of amount t taxpayer a was unaware that financial_institution t failed to follow her instructions until her tax_return_preparer informed her that she owed amount l in tax because the amount she intended to rollover from her account with plan y was not rolled over to ira x financial_institution t to follow taxpayer a’s instructions taxpayer a asserts that the failure to roll over the amount k distribution within the day period prescribed by sec_408 of the code was due to the failure of showing page based on the facts and representations you request a ruling that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_402 of the code with respect to the distribution of amount k from plan y sec_402 of the code provides that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution and the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 of the code states that such rollover must be accomplished within days following the day on which the distributee received the property an individual_retirement_account constitutes one form of eligible_retirement_plan sec_402 of the code provides that an eligible_rollover_distribution shall not include any distribution to the extent such distribution is required under sec_401 of the code sec_402 of the code provides in relevant part that the secretary may waive the 60-day requirement under sec_402 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_402 of the code sec_401 of the code provides the rules for governing direct transfers of eligible rollover distributions’ sec_1_401_a_31_-1 of the income_tax regulations question and answer-15 provides in relevant part that an eligible_rollover_distribution that is paid to an eligible_retirement_plan in a direct_rollover is a distribution and rollover and not a transfer of assets and liabilities since the distribution occurred revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed - page4 the information presented and documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover was caused by the failure of financial_institution t to follow taxpayer a’s instructions therefore pursuant to sec_402 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount k from plan y taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount k into a rollover ira provided all other requirements of sec_402 of the code except the 60-day requirement are met with respect to such contribution amount k will be considered a rollover_contribution within the meaning of sec_402 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter 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 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you have any questions please contact se t ep ra t3 please address all correspondence to sincerely yours pk bet - laura b warshawsky manager employee_plans technical group deleted copy of ruling letter notice of intention to disclose enclosures


internal_revenue_service number release date index number ---------------------------- ------------- ------------------------------ ------------------------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc fip b03 plr-113798-10 date date legend trust subsidiary subsidiary parent lp1 lp2 company advisor law firm accounting firm state x date date date date date date date date date a b c ------------------------------ ------------------------ ---------------------------------- -------------------------------------------------- ---------------------------------- ------------------------------------------------ -------------------------------- ------------------------ ------------------------------------ ------------------------ ------------------------------------ ------------------------ ------------------------------------------- ---------------------------- --------------------------------- ---------------- ------------- -------------------- ------------------------ ------------------------ ------------------------- ------------------------ ------------------- --------------------------- ------------------------ --------------------- ------ ------ ----- plr-113798-10 dear ----------------- this responds to a letter dated date on behalf of trust subsidiary and subsidiary requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make elections under sec_856 of the internal_revenue_code to treat each of subsidiary and subsidiary as a taxable_reit_subsidiary of trust effective as of date facts parent originally was formed as company a state x limited_liability_company on date and subsequently was converted into a state x limited_partnership on date lp1 and lp2 are state x limited_partnerships each formed on date trust a state x corporation was formed on date it has elected to be treated for federal_income_tax purposes as a real_estate_investment_trust reit subsidiary and subsidiary are state x corporations each formed on date trust and parent are owned primarily by institutional investors trust owns approximately a percent of the limited_partnership interests of each of lp1 and lp2 parent owns the remaining percentage approximately b percent of the limited_partnership interests of each of lp1 and lp2 lp1 owns c percent of all the issued and outstanding shares of subsidiary lp2 owns c percent of all the issued and outstanding shares of subsidiary advisor acts as operational advisor to trust subsidiary and subsidiary trust subsidiary and subsidiary represent they relied on law firm and accounting firm to ensure proper entity formation and related filings for subsidiary and subsidiary law firm was engaged to render legal advice regarding the reit structure and taxation and prepare all the documents in connection with the formation of subsidiary and subsidiary accounting firm was engaged to provide audit and tax services including the preparation of tax returns for subsidiary and subsidiary trust subsidiary and subsidiary represent that they intended elections be made under sec_856 of the internal_revenue_code to treat each of subsidiary and subsidiary as a taxable_reit_subsidiary of trust effective as date but the elections were not made due to confusion as to whether advisor law firm or accounting firm would make the elections on their behalf trust subsidiary and subsidiary represent that they and advisor intended the elections be made but did not know the specific procedure for making the elections trust subsidiary and subsidiary represent that they and advisor assumed that either accounting firm would make the elections in connection with filing the annual tax returns of each of subsidiary and subsidiary or law firm would advise trust subsidiary and subsidiary as to the specific steps required to make the elections plr-113798-10 trust subsidiary and subsidiary represent that law firm believed trust subsidiary and subsidiary or accounting firm would make the elections and that accounting firm believed law firm would make the elections for elections under sec_856 of the internal_revenue_code to treat each of subsidiary and subsidiary as a taxable_reit_subsidiary of trust to be effective as of date the date by which the forms taxable_reit_subsidiary election were due to be filed was date but the elections were never filed each of subsidiary 1's and subsidiary 2's initial tax_return for the taxable_year ended date was due on or before date on date accounting firm sent law firm a message requesting copies of the taxable_reit_subsidiary elections for subsidiary and subsidiary which message prompted the discovery that there was no record of making these elections upon this discovery trust subsidiary and subsidiary submitted this request for an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make elections under sec_856 of the internal_revenue_code to treat each of subsidiary and subsidiary as a taxable_reit_subsidiary of trust effective as of date in support of their representations above trust subsidiary and subsidiary submitted with their request affidavits signed under penalties of perjury from appropriate representatives of trust subsidiary subsidiary law firm and accounting firm trust subsidiary and subsidiary make the following additional representations the request for relief was filed by trust subsidiary and subsidiary before the failure to make regulatory elections was discovered by the service granting the relief requested will not result in trust subsidiary and subsidiary having a lower tax_liability in the aggregate for all years to which the regulatory election applies then that they would have had if the election had been timely made taking into account the time_value_of_money trust subsidiary and subsidiary did not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time trust subsidiary and subsidiary requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences trust subsidiary and subsidiary did not choose to not file the elections plr-113798-10 law and analysis the ticket to work and work incentives improvement act of p l included a change for tax years beginning after date to the reit provisions of sec_856 this change allows a reit to form a taxable_reit_subsidiary that can perform activities that otherwise would result in impermissible_tenant_service_income the election under sec_856 is made on form_8875 taxable_reit_subsidiary election officers of both the reit and the taxable_reit_subsidiary must jointly sign the form which is filed with the irs service_center in ogden ut sec_856 of the code provides that a reit and a corporation other than a reit may jointly elect to treat such corporation as a taxable_reit_subsidiary to be eligible for treatment as a taxable_reit_subsidiary sec_856 provides that the reit must directly or indirectly own stock in the corporation and the reit and the corporation must jointly elect such treatment the election is irrevocable once made unless both the reit and the subsidiary consent to its revocation in addition sec_856 specifically provides that the election and any revocation thereof may be made without the consent of the secretary in announcement i r b the service announced the availability of new form_8875 taxable_reit_subsidiary election according to the announcement this form is to be used for tax years beginning after for eligible entities to elect treatment as a taxable_reit_subsidiary the instructions to form_8875 provide that the subsidiary and the reit can make the election at any time during the tax_year however the effective date of the election depends upon when the form_8875 is filed the instructions further provide that the effective date on the form cannot be more than months and days prior to the date of filing the election or months after the date of filing the election if no date is specified on the form the election is effective on the date the form is filed with the service sec_301_9100-1 of the regulations provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i sets forth rules that the internal_revenue_service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have plr-113798-10 acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and representations made we conclude that trust subsidiary and subsidiary have satisfied the requirements for granting a reasonable extension of time to elect under sec_856 to treat each of subsidiary and subsidiary as a taxable_reit_subsidiary of trust effective as of date trust subsidiary and subsidiary have days from the date of this letter to make the intended elections this ruling is limited to the timeliness of the filing of the forms this ruling’s application is limited to the facts representations code sections and regulations cited herein no opinion is expressed with regard to whether trust qualifies as a reit or whether subsidiary or subsidiary otherwise qualifies as a taxable_reit_subsidiary under subchapter_m of the code no opinion is expressed with regard to whether the tax_liability of trust subsidiary and subsidiary is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director's office will determine such tax_liability for the years involved if the director's office determines that such tax_liability is lower that office will determine the federal_income_tax effect the ruling contained in this letter is based upon information and representations submitted by trust subsidiary and subsidiary and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-113798-10 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 alice m bennett chief branch office of associate chief_counsel financial institutions products enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service 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 b2 plr-127038-09 date date x state a trust1 trust2 d1 d2 d3 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ---------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ------------------------------------------------ ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ---------------------- dear ----------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting inadvertent invalid election relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated under the laws of state on d1 and elected to be an s_corporation effective d2 trust1 was a shareholder of x on d2 but trust1 was an invalid s_corporation shareholder therefore x’s s_corporation_election on d2 was invalid x represents that trust1 qualified to elect to be treated as an electing_small_business_trust esbt under sec_1361 but an esbt plr-127038-09 election was not made on d3 trust1 sold its x shares to trust2 it is represented that trust2 is a wholly-owned grantor_trust under sec_671 and sec_677 a grantor_trust is a valid s_corporation shareholder under sec_1361 x represents that the circumstances resulting in x’s invalid s_corporation_election were inadvertent and not motivated by tax_avoidance or retroactive tax planning x further represents that x has filed returns consistent with x’s status as an s_corporation x and its shareholders have agreed to make such adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which it was made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the event resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 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 circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election was not effective on d2 because trust1 was not an eligible shareholder of x we also conclude that x’s ineffective s election on d2 was inadvertent within the meaning of sec_1362 therefore we conclude that x will be treated as an s_corporation for the period from d2 provided that x’s s_corporation_election was otherwise valid and was not otherwise terminated under sec_1362 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed regarding x’s eligibility to be an s_corporation or whether trust2 is a_trust permitted as a shareholder of an s_corporation under c 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 plr-127038-09 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representatives sincerely melissa c liquerman branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court stephen l and colleen atwood petitioners v commissioner of internal revenue respondent docket no filed date stephen l and colleen atwood pro sese james f prothro for respondent memorandum findings_of_fact and opinion thornton judge respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax and an accuracy- related penalty in the amount of dollar_figure pursuant to sec_6662 unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure the issues remaining for decision are whether petitioners are taxable on distributions totaling dollar_figure from the termination of a life_insurance_policy and an endowment_policy whether petitioners are entitled to deduct interest on amounts borrowed against these two policies and whether petitioners are liable for an accuracy-related_penalty for a substantial_understatement_of_income_tax findings_of_fact the parties have stipulated some of the facts which are so found the stipulation of facts with attached exhibits is incorporated herein by this reference when they petitioned the court petitioners were married and resided in dallas texas in petitioner husband purchased a single_premium_life_insurance policy from first colony life_insurance co first colony paying a single premium of dollar_figure on date petitioner wife purchased a single premium endowment_policy from national western life_insurance co national western paying a single premium of dollar_figure petitioners stipulated that they failed to report taxable interest_income in the amount of dollar_figure on their joint federal_income_tax return each of the policies permitted the owner to borrow generally up to the amount of policy cash_value using the policy as security each contract required_payment of a specified rate of interest on amounts borrowed with any accrued but unpaid interest to be added to the loan and to bear interest at the same rate each contract provided for the termination or lapse of the policy when the total loan including unpaid interest exceeded the policy cash_value the value of the single premium accumulated with interest less certain specified charges because of financial hardship and in order to pay personal living_expenses petitioners each borrowed the maximum allowable amounts against their policies they each failed to completely repay these loans or interest thereon resulting in the termination of each policy in when first colony terminated petitioner husband’s policy his outstanding loan balance exclusive of certain unpaid interest was dollar_figure the policy had a cash_value of dollar_figure and a cash_surrender_value of dollar_figure dollar_figure minus dollar_figure upon termination first colony sent petitioner husband a check in the amount of the cash_surrender_value dollar_figure first colony also issued petitioner husband a form 1099-r reflecting a taxable gain of dollar_figure which the company computed as the cash_value of dollar_figure less his investment_in_the_contract of dollar_figure when national western terminated petitioner wife’s policy her outstanding loan balance was dollar_figure national western issued petitioner wife a form 1099-r reflecting a taxable gain of dollar_figure which the company computed as the outstanding loan balance of dollar_figure less her investment_in_the_contract of dollar_figure on their joint federal_income_tax return petitioners reported no taxable_distributions from their terminated insurance policies respondent determined that petitioners had income of dollar_figure from the first colony policy and dollar_figure from the national western policy opinion in general with exceptions not applicable here any amount which is received under a life_insurance_contract or endowment_contract before the annuity_starting_date and which is not received as an annuity is included in gross_income to the extent it exceeds the investment_in_the_contract sec_72 a c the investment_in_the_contract is defined generally as the aggregate amount of premiums or other consideration paid for the contract less aggregate amounts previously received under the contract to the extent they were excludable from gross_income sec_72 the derivation and computation of the amounts reported on the forms 1099-r by first colony and national western upon termination of petitioners’ policies are not in dispute the only issue is whether these amounts are includable in petitioners’ gross_income as amounts received within the meaning of sec_72 noting that very little cash was paid directly to them upon cancellation of the policies petitioners argue that the amounts at issue represent merely paper transactions on the books of the insurance_companies they argue that in borrowing against the policies they were borrowing their own money and that capitalized_interest on the loans merely increased their investments in the contracts we disagree petitioners’ insurance contracts by their terms treated the policy_loans including capitalized_interest as bona_fide indebtedness for federal_income_tax purposes their policy_loans constituted true loans rather than cash advances and were not taxable_distributions when received see minnis v commissioner 71_tc_1049 the capitalized_interest on these loans is properly treated as part of the principal of this indebtedness see allan v commissioner subsequent to the decision in minnis v commissioner 71_tc_1049 which dealt specifically with loans under an annuity_contract congress enacted sec_72 which generally treats loans under annuity_contracts as taxable_distributions tax equity and fiscal responsibility act of publaw_97_248 96_stat_544 loans under life_insurance contracts and endowment contracts other than modified endowment contracts are excepted from this treatment see sec_72 t c advances for interest that were added to the nonrecourse mortgage principal pursuant to the terms of the mortgage constituted a true debt obligation affd 856_f2d_1169 8th cir when petitioners’ policies terminated their policy_loans including capitalized_interest were charged against the available proceeds at that time this satisfaction of the loans had the effect of a pro tanto payment of the policy proceeds to petitioners and constituted income to them at that time see minnis v commissioner supra pincite dictum caton v commissioner tcmemo_1995_80 dean v commissioner tcmemo_1993_226 a contrary result would permit policy proceeds including previously untaxed investment returns to escape tax altogether and finds no basis in the law petitioners argue that if the distributions on the terminated insurance policies are taxable then they should be allowed an offsetting deduction for interest_paid on the policy_loans deductions are a matter of legislative grace and petitioners bear the burden of showing that they are entitled to the claimed deductions rule a 503_us_79 sec_163 generally allows as an interest_deduction all interest_paid or accrued within the taxable_year on indebtedness as an exception to this general_rule however in the case of a taxpayer other than a corporation sec_163 generally disallows any deduction for personal_interest defined to include any interest_expense that does not fall within one of the five categories listed in sec_163 these categories may be described generally as trade_or_business interest investment_interest interest used to compute passive_income or loss qualified_residence_interest and interest payable on certain deferred estate_tax payments petitioners have presented no evidence to show that the interest_expenses in question fall within any of these five enumerated categories to the contrary petitioner husband testified at trial that he borrowed against his life_insurance_policy for no other reason than to live in the absence of a job on brief petitioners reiterate that this was their reason for borrowing against their policies we conclude therefore that the interest_expense in question was nondeductible personal_interest relying on an exception in sec_264 petitioners argue that their interest_expenses are not subject_to disallowance under sec_264 which generally disallows interest deductions on indebtedness incurred or continued to purchase or carry a single_premium_life_insurance_endowment_or_annuity_contract it appears that neither the general_rule of sec_264 certain amounts paid in connection with insurance contracts continued sec_264 nor the cited exception applies to the case at hand because we have concluded that the interest in question continued a general_rule --no deduction shall be allowed for-- any amount_paid or accrued on indebtedness incurred or continued to purchase or carry a single_premium_life_insurance_endowment_or_annuity_contract except as provided in subsection c any amount_paid or accrued on indebtedness incurred or continued to purchase or carry a life_insurance endowment or annuity_contract other than a single premium contract or a contract treated as a single premium contract pursuant to a plan of purchase which contemplates the systematic direct or indirect borrowing of part or all of the increases in the cash_value of such contract either from the insurer or otherwise c exceptions --subsection a shall not apply to any amount_paid or accrued by a person during a taxable_year on indebtedness incurred or continued as part of a plan referred to in subsection a -- if such amount was paid_or_accrued on indebtedness incurred because of an unforeseen substantial loss of income or unforeseen substantial increase in his financial obligations there is no evidence in the record that the loans in question were incurred or continued to purchase or carry single_premium_life_insurance or endowment contracts within the meaning of sec_264 moreover the exception contained in sec_264 pertains only to plans referred to in sec_264 which specifically excludes single premium contracts was nondeductible personal_interest under sec_163 however the issue is moot we hold therefore that petitioners are taxable on distributions from their terminated policies in the amount of dollar_figure and are not entitled to deductions for interest_paid on their policy_loans substantial_understatement_of_income_tax respondent also determined an accuracy-related_penalty under sec_6662 for a substantial_understatement of tax for taxable_year sec_6662 imposes a 20-percent penalty on the portion of an underpayment_of_tax attributable to among other things a substantial_understatement_of_income_tax which is defined as an understatement that exceeds the greater of percent of the tax required to be shown or dollar_figure sec_6662 petitioners reported total_tax of dollar_figure and understated their tax in the amount of dollar_figure therefore there was a substantial_understatement of tax any understatement is reduced to the extent that it is attributable to an item that was adequately disclosed and has a reasonable basis or for which there was substantial_authority for its tax treatment sec_6662 notwithstanding that petitioners were issued forms 1099-r indicating taxable_distributions upon termination of their insurance policies petitioners made no disclosure on their return of the relevant facts affecting their exclusion of these amounts from gross_income see sec_6662 petitioners have established no substantial_authority for excluding these amounts from income accordingly we sustain respondent’s imposition of the accuracy-related_penalty to reflect the foregoing respondent decision will be entered for


date cor-115883-00 internal_revenue_service number info release date uil the honorable rod blagojevich u s house of representatives washington d c dear mr blagojevich thank you for your letter of date signed by you and a number of your colleagues encouraging the internal_revenue_service to immediately readjust the business standard mileage rate to reflect the recent increase in gasoline prices you note that the increased cost has particularly burdened self-employed taxpayers who use automobiles for business purposes gasoline prices we realize increased gasoline prices are an economic burden however the cost of gasoline is only one part of the business standard mileage rate which includes fixed and operating automobile costs these costs include depreciation or lease payments maintenance and repairs insurance and license and registration fees in addition to gasoline and oil less than one-third of the cents per mile rate comes from the cost of gasoline and oil thus an immediate adjustment in the rate taking into account the recent increase in gasoline prices might not be significant setting the business standard mileage rate the rate is a national average amount determined by an annual study performed by an independent_contractor who is an expert in the cost analysis of business use of automobiles the contractor uses recent data from each state on the component costs of operating the most popular automobiles the contractor then combines this data to achieve a national composite cents-per-mile rate advantages of using the business standard mileage rate reducing a taxpayer’s record-keeping burden is the principal advantage of using the rate gasoline prices rise and fall during the year but taxpayers may continue to use the same rate without having to keep records of actual expenses although rising gasoline prices can be a disadvantage for taxpayers who use the rate falling prices can work to their advantage for example although gasoline prices fell in for all of and through date taxpayers were able to use the rate that reflected the earlier higher prices taxpayer’s options to deduct the ordinary and necessary expenses of using an automobile for business purposes a taxpayer must substantiate the cost date place and business_purpose of each use of the automobile by adequate_records for the cost the taxpayer has two options substantiate actual cost by keeping records or by other_sufficient_evidence use the business standard mileage rate using the rate gives approximate not actual costs taxpayers can deduct the actual business_expenses of using a personally-owned automobile and this may be advantageous when automobile costs are rising publication travel entertainment gift and car expenses contains further information on how taxpayers should substantiate expenses i have enclosed the relevant pages from that publication i am sending a similar letter to your colleagues i hope this information is helpful please call me at or robert a berkovsky at if you have any questions sincerely charles o rossotti enclosure