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 plr-143695-10 date date legend foreign parent us parent distributing distributing controlled shareholder sub ---------------------------------------------- -------------------------------- ----------------------- ------------------------------- ----------------------- ------------ --------------- ------------------------------- -------------------------------------- ------------------------------- ----------------------- ---------------------------------------------------------- ----------------------------------- ----------------------- ------------------------------------------- ------------------------------- ----------------------- ----------------------------------- ------------------------------- ----------------------- --------------------------------------- ------------------------------- ----------------------- plr-143695-10 sub affiliate ---------------------------------------------------- ------------------------------- ----------------------- ------------------------------------ ------------------------------------------------ ----------------------- busine sec_1 --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------------------------------------------- busine sec_2 agreement assets --------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- ------------------------------------ -------------------- contracts --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------------------------------------------- date date date a b c dear -------------- ------------------------ --------------------------- ---------------------- -------- -- ---- this letter responds to your authorized representative’s letter dated date requesting rulings on certain federal_income_tax consequences of a proposed plr-143695-10 transaction that has since been consummated additional information was provided in letters dated date date date date date date and date the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the transactions described below i satisfy the business_purpose requirements of sec_1_355-2 of the income_tax regulations ii are being used principally as a device for the distribution of the earnings_and_profits of any distributing_corporation or controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii are parts of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in distributing distributing or controlled see sec_355 and sec_1_355-7 facts foreign parent indirectly owns all of the stock of us parent the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return the us parent group shareholder distributing distributing controlled sub sub and affiliate are all members of the us parent group prior to the transactions described below approximately a percent of the common_stock of distributing was owned by shareholder and was owned by shareholder for at least five years the remaining common_stock some of which was owned for at least five years and some of which was not was owned by other members of the us parent group distributing 2’s two classes of non-voting preferred_stock were also owned by other members of the us parent group although some non-voting preferred_stock of distributing was previously held by unrelated third parties such stock was redeemed on date subsequent to the redemption all of the shareholders of distributing were percent direct or indirect subsidiaries of foreign parent distributing was a direct wholly owned subsidiary of distributing engaged in busine sec_1 controlled was a direct wholly owned subsidiary of distributing engaged in busine sec_2 sub and sub were each direct wholly owned subsidiaries of controlled plr-143695-10 prior to the transactions described below controlled did not have any employees of its own but instead relied on the employees of distributing in conducting busine sec_2 distributing had ultimate managerial responsibility for the performance of controlled’s busine sec_2 immediately following the transactions described below ultimate managerial and supervisory responsibility for the performance of controlled’s busine sec_2 was shifted to affiliate certain functions related to the day-to-day management of busine sec_2 continue to be performed by employees of distributing under the agreement although the parties expect these functions will ultimately be transitioned to employees of affiliate transactions for what are represented to be valid business reasons the parties have undertaken the following transactions the transactions i on date each of sub and sub distributed newly issued shares of non-voting preferred_stock to controlled having a face_amount intended to be equal to approximately b to c percent of the fair_market_value of the respective issuer the preferred_stock distributions ii on date controlled distributed the common_stock of sub and sub to distributing but retained the non-voting preferred_stock of each such subsidiary iii on date controlled transferred assets to distributing and distributing assumed controlled liabilities with respect to the contracts steps i - iii together the preliminary steps iv on date distributing distributed all of the stock of controlled to distributing the spin-off v on date distributing distributed all of the stock of controlled to shareholder in exchange for a portion of the distributing common_stock held by shareholder the split-off representations the following representations have been made with respect to the preliminary steps plr-143695-10 a the non-voting preferred_stock of sub and sub issued in the preferred_stock distributions is not non-qualified preferred_stock described in sec_351 b the preferred_stock distributions are tax-free under sec_305 c controlled has no plan or intention to dispose_of the non-voting preferred_stock of sub and sub issued in the preferred_stock distributions d the total fair_market_value of the assets transferred by controlled to distributing immediately prior to the spin-off is approximately equal to the amount of controlled liabilities assumed by distributing with respect to the contracts the following representations have been made with respect to the spin-off e the indebtedness if any owed by controlled to distributing after the spin-off will not constitute stock_or_securities f no part of the consideration to be distributed by distributing will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing g the five years of financial information submitted on behalf of busine sec_1 conducted by distributing is representative of the present business operations of busine sec_1 and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted h the five years of financial information submitted on behalf of busine sec_2 conducted by controlled is representative of the present business operations of busine sec_2 and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted i other than for services provided by distributing to controlled under the agreement following the transaction distributing and controlled will each continue the active_conduct of its business independently and with its separate employees except in the case of controlled which will utilize the employees of affiliate plr-143695-10 j the spin-off is being carried out for the following corporate business purposes to separate busine sec_2 from busine sec_1 and reduce related potential detriment to distributing 2’s balance_sheet and to access busine sec_2 expertise that affiliate has developed in managing us parent’s other affiliates in busine sec_2 many of which are subsidiaries of shareholder the spin-off is motivated in whole or substantial part by these corporate business purposes k the spin-off is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both l for purposes of sec_355 immediately after the spin-off no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the spin-off m for purposes of sec_355 immediately after the spin-off no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the spin-off or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the spin-off n other than payables arising in the ordinary course of business no intercorporate debt will exist between distributing and its subsidiaries and controlled and its subsidiaries at the time of or subsequent to the spin-off o immediately before the spin-off items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d p payments made in connection with all continuing transactions if any between distributing and its subsidiaries and controlled and its subsidiaries will be plr-143695-10 for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length q the spin-off is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation r immediately after the spin-off either i no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in the stock of distributing or controlled who did not hold such an interest before the transaction or ii neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 s at the time of the spin-off no member of distributing 1’s consolidated_group will have an excess_loss_account in controlled’s stock or in the stock of any subsidiary of controlled the following representations have been made with respect to the split-off t the indebtedness if any owed by controlled to distributing after the split-off will not constitute stock_or_securities u the fair_market_value of the controlled stock to be received by shareholder will be approximately equal to the fair_market_value of the distributing common_stock surrendered by shareholder in the exchange v no part of the consideration to be distributed by distributing will be received by shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing w the five years of financial information submitted on behalf of busine sec_1 conducted by distributing a member of the distributing separate_affiliated_group as defined in sec_355 is representative of the present business operations of busine sec_1 and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted plr-143695-10 x the five years of financial information submitted on behalf of busine sec_2 conducted by controlled is representative of the present business operations of busine sec_2 and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted y other than for services provided by distributing to controlled under the agreement following the transaction distributing through distributing and controlled will each continue the active_conduct of its business independently and with its separate employees except in the case of controlled which will utilize the employees of affiliate z the split-off is being carried out for the following corporate business purposes to separate busine sec_2 from busine sec_1 and reduce related potential detriment to distributing 2’s balance_sheet and to access busine sec_2 expertise that affiliate has developed in managing us parent’s other affiliates in busine sec_2 many of which are subsidiaries of shareholder the split-off is motivated in whole or substantial part by these corporate business purposes aa the split-off is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both bb the effect of the split-off is not to provide a disqualified_person with a purchased_basis in the stock of controlled within the meaning of sec_1_355-6 cc other than payables arising in the ordinary course of business no intercorporate debt will exist between distributing and its subsidiaries and controlled and its subsidiaries at the time of or subsequent to the split-off dd immediately before the split-off items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d and as currently in effect sec_1_1502-13 as published by t d ee payments made in connection with all continuing transactions if any between distributing and its subsidiaries and controlled and its subsidiaries will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length plr-143695-10 ff gg the split-off is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation immediately after the split-off either i no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in the stock of distributing or controlled who did not hold such an interest before the transaction or ii neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 hh at the time of the split-off no member of distributing 2’s consolidated_group will have an excess_loss_account in controlled’s stock or in the stock of any subsidiary of controlled rulings based solely on the information and representations submitted we rule as follows regarding the spin-off no gain_or_loss will be recognized by distributing on its distribution of the controlled stock in the spin-off sec_355 no gain_or_loss will be recognized by and no amount will be included in the income of distributing upon its receipt of controlled stock in the spin-off sec_355 the basis of the stock of distributing and controlled in the hands of distributing after the spin-off will be the same as the basis of the distributing stock held by distributing immediately before the spin-off allocated in proportion to the fair_market_value of distributing and controlled in accordance with sec_358 and sec_1_358-2 sec_358 and c the holding_period of the controlled stock received by distributing in the spin-off will include the holding_period of the distributing stock with respect to which the spin-off was made provided that such distributing stock was held as a capital_asset on the date of the spin-off sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 plr-143695-10 based solely on the information and representations submitted we rule as follows regarding the split-off no gain_or_loss will be recognized by distributing on its distribution of the controlled stock in the split-off sec_355 no gain_or_loss will be recognized by and no amount will be included in the income of shareholder upon the receipt of controlled stock in the split-off sec_355 the basis of the controlled stock in the hands of shareholder immediately after the split-off will be the same as the basis of the distributing common_stock exchanged therefor sec_358 and sec_1_358-2 the holding_period of the controlled stock received by shareholder in the split-off will include the holding_period of the distributing common_stock surrendered by shareholder provided that such distributing common_stock was held as a capital_asset on the date of the split-off sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 caveats no opinion is expressed about the tax treatment of the transactions under other provisions of the code and regulations or on the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above rulings in particular this office has not reviewed any information pertaining to and has made no determination regarding i whether the spin-off or split-off satisfies the business_purpose requirement of sec_1_355-2 ii whether the spin-off or split-off is used principally as a device for the distribution of the earnings_and_profits of any distributing_corporation or controlled_corporation or both see sec_355 and sec_1_355-2 and iii whether the spin-off or split-off and an acquisition or acquisitions are part of a plan or series of related transactions under sec_355 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-143695-10 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _________________ russell p subin senior counsel branch office of associate chief_counsel corporate cc


internal_revenue_service number info release date uiln 25a date conex-162083-02 cc ita b4 attention dear i apologize for the delay in responding to your inquiry dated date on behalf of your constituent who wrote about education credits believes that a tax-free scholarship should not reduce the expenses that qualify for the credit he also suggests that we add textbooks lab fees and room and board to the definition of expenses that qualify for the credit the hope scholarship credit and the lifetime_learning_credit collectively called the education credit allow a credit against federal_income_tax for the qualified_tuition_and_related_expenses qualified expenses of the taxpayer spouse or certain dependents sec_25a of the internal_revenue_code the term qualified_tuition_and_related_expenses is defined in sec_25a as tuition and fees required for the enrollment or attendance of the student at an eligible_educational_institution a general principle of tax law is to disallow a double tax_benefit for the same expense to prevent a double tax_benefit qualified expenses for sec_25a do not include expenses covered by educational_assistance that the student or taxpayer does not have to include in his or her gross_income h_r conf_rep no 105th cong 1st sess thus in calculating the education credit if a student receives a tax-free scholarship for qualified expenses the student must reduce the amount of qualified expenses paid during the year by the amount of the scholarship however if the student can use the scholarship to pay non-qualifying expenses and the scholarship is not otherwise excluded from the student’s gross_income the student is not required to make the reduction under sec_25a qualified expenses include fees for books supplies and equipment used in study only if the student must pay these fees to the educational_institution thus if the amount_paid for textbooks or lab fees are required fees they are qualified expenses the congress has stated that c harges and fees associated with meals lodging and similar personal living or family_expenses are not included in the definition of qualified expenses h_r conf_rep no 105th cong 1st sess pincite thus to allow a credit for payment of room and board would contradict congressional intent i hope this information is helpful please call if you have any questions sincerely james l atkinson associate chief_counsel income_tax accounting


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom corp 1-plr-118301-98 date date re distributing controlled holding consub business d date a plr-118301-98 fsub9 country t date e aa country u country l country m country n country o fsub1 fsub2 fsub3 fsub4 fsub7 fsub8 plr-118301-98 fsub12 fsub13 fsub15 fsub16 fsub18 fsub19 fsub19a fsub21 fsub22 fsub23 fsub25 fsub27a fsub30 fsub32 plr-118301-98 fsub33 fsub34 fsub fd1 sub corporation date b date c month d ll mm nn oo pp plr-118301-98 qq rr ss tt uu vv ww xx yy bb cc dd ee date f ff plr-118301-98 gg country v date g hh z dear we respond to your letter dated date requesting a supplemental ruling to plr dated date prior ruling letter additional information was submitted in letters dated date date date and date the information submitted for consideration is summarized below in the prior ruling letter we issued rulings under sec_332 sec_355 and sec_368 and other code provisions with respect to a proposed distribution by distributing to its shareholders of all the stock of controlled and certain related transactions this transaction the transaction was consummated as of date a after consummation of the transaction however several issues have arisen incident to and after the transaction which compel the modification of and additions to the rulings given in the prior ruling letter these events and the modifications to the prior ruling letter are discussed seriatim below issue transfer of financing subsidiaries from controlled to consub since the consummation of the transaction controlled has attempted to obtain adequate financing arrangements to that end controlled has determined that it can significantly reduce its interest rate for such financing if controlled transfers the stock of other foreign subsidiaries to a domestic holding_company and makes a pledge of the holding_company stock in addition to reducing interest rates this stock transfer will avoid the need for preparing multiple legal pledge agreements in several jurisdictions plr-118301-98 accordingly controlled proposes that all or substantially_all of its interests in fsub1 fsub2 fsub3 fsub4 fsub7 fsub8 fsub13 fsub15 fsub16 fsub18 fsub19 fsub19a fsub22 fsub23 fsub25 fsub27a fsub30 fd1 and corporation the financing subsidiaries be transferred to consub a wholly-owned u s subsidiary of controlled as partial consideration for the fsub2 stock transferred by controlled to consub consub will issue to controlled a dollar_figureaa promissory note a de_minimis amount maturing on date g and bearing interest at the annual rate of hh percent the taxpayer_representative for distributing and controlled has represented that to the best of his knowledge and belief the proposed transfer of the financing subsidiaries stock by controlled to consub will qualify as a transaction described in sec_351 issue transfer of fsub9 stock from distributing to consub in the transaction distributing contributed the stock of various subsidiaries to controlled fsub9 a country t corporation was among the subsidiaries that distributing intended to transfer prior to the transaction however controlled was informed by its financial advisor that in order to obtain adequate financing after the spinoff it would need to pledge its stock in fsub9 such a direct pledge would have been problematic under country t law in order to satisfy country t law minimize country t transfer_taxes and still obtain financing it was proposed that in lieu of the transaction with respect to fsub9 described in the prior ruling letter the transaction would be effected as follows i distributing would transfer the fsub9 stock to consub in exchange for consub stock and a consub note maturing on date e with a face_amount of dollar_figureaa ii distributing would transfer its newly acquired consub stock to controlled in constructive exchange for controlled stock iii controlled would be distributed to the shareholders of distributing as described in the prior ruling letter the consub stock could then be pledged as collateral in the financing_arrangement this transfer of the fsub9 stock was consummated as described above on date a in connection with the transaction distributing and controlled have proposed that the above described transfer should be treated for tax purposes as if i distributing transferred the fsub9 stock to controlled in constructive exchange for additional controlled stock and the controlled notes transferred as part of the transaction ii controlled immediately retransferred such stock to consub in constructive exchange for additional consub stock and the consub note and iii the consub note was immediately retransferred by controlled to distributing the representative for distributing and controlled has represented that to the best of his knowledge and belief the deemed transfer of all of the fsub9 stock by controlled to consub qualified as a transaction described in sec_351 issue transfer of fsub2 to consub plr-118301-98 fsub2 a country o corporation was planned to be transferred from distributing to controlled prior to the transaction country o law requires that a corporation chartered in country o must have five shareholders of record further no one shareholder may hold more than bb percent of the outstanding_stock of the corporation prior to date f distributing held cc percent of the outstanding_stock while a former subsidiary of distributing held dd percent in fsub2 three minority shareholders hold de_minimis amounts of fsub2 stock on date f the former subsidiary was merged into distributing and its stock interest in fsub2 passed to distributing by operation of law therefore distributing now held a ff percent interest in fsub2 nevertheless the registration of such stock in country o was not changed after the merger in the prior ruling letter preliminary step ii p it was indicated that all of the fsub2 stock was to be transferred from distributing to controlled however since this would have violated country o law only ee percent of the stock was transferred to controlled an additional gg percent was transferred directly to consub as described in issue substantially_all of the remainder of the fsub2 stock will be transferred to consub the three minority shareholders continue to own their small amounts of fsub2 stock distributing and controlled have proposed that the above described transfer should be treated for tax purposes as if i distributing transferred ff percent of the fsub2 stock to controlled in constructive exchange for controlled stock and one of the controlled notes ii controlled immediately transferred gg percent of the fsub2 stock to consub in constructive exchange for consub stock the representative for distributing and controlled has represented that to the best of his knowledge and belief the deemed transfer of gg percent of the stock by controlled to consub qualified as a transaction described in sec_351 with respect to issue sec_1 and representation mm at pp of the prior ruling letter representation nn at p of the prior ruling letter and representation lll at pp of the prior ruling letter have been modified to take into account the additional facts discussed above as follows mm no assets of holding have been or will be disposed of by either holding or distributing except for the post-transaction discussed in the prior ruling letter transfer of the stock of the subsidiaries engaged in business d the business d subsidiaries by distributing to controlled and consub the taxable dispositions of stock interests in fsub21 and in country l country m and country n corporations dispositions in the ordinary course of business and dispositions occurring more than three years prior to the adoption of the plan of complete_liquidation plr-118301-98 nn except for the post-transaction transfer of the stock of the business d subsidiaries by distributing to controlled and consub the liquidation of holding will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of holding if persons holding directly or indirectly more than percent of the value of the holding stock also hold directly or indirectly more than percent of the value of the stock of the recipient corporation for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 lll the transfer or deemed transfer in the case of fsub sec_2 and by distributing to controlled of stock of the financing subsidiaries and fsub9 is in each instance not an exchange described in sec_354 or sec_356 additionally the following new representations are made with respect to the transfer of fd1 sub17 corporation fsub1 fsub2 fsub3 fsub4 fsub8 fsub9 fsub12 fsub15 fsub16 fsub18 fsub19 fsub19a fsub22 fsub23 fsub25 fsub30 the business d subsidiaries and dollar_figurez in cash and marketable_securities the transfer as of the date of the transaction a b c d e no stock_or_securities were issued for services rendered to or for the benefit of controlled in connection with the transfer no stock_or_securities were issued for indebtedness of controlled that is not evidenced by a security or for interest on indebtedness of controlled which accrued on or after the beginning of the holding_period of distributing for the debt the transfer was not the result of the solicitation by a promoter broker or investment house distributing did not retain any rights in the stock of the business d subsidiaries or the cash marketable_securities transferred to controlled at the time of the transfer there was no indebtedness between distributing and controlled there will be no indebtedness created in favor of distributing as a result of transfer other than i certain nominal promissory notes to be issued by controlled and ii debt obligations created in the ordinary course of business in accordance with the terms of agreements between distributing and controlled with respect to certain continuing relationships following the transfer none of the obligations of controlled under these arrangements will constitute stock_or_securities of controlled within the meaning of sec_355 of the internal_revenue_code plr-118301-98 f g h i j k l m n o p q the transfers and exchanges occurred under a plan agreed upon before the transaction in which the rights of the parties are defined all exchanges occurred on approximately the same date there was no plan or intention on the part of controlled to redeem or otherwise reacquire any stock or indebtedness to be issued in the transfer immediately after the transfers contemplated herein distributing will be in control of controlled within the meaning of sec_368 of the code distributing will constructively receive stock or other_property approximately equal to the fair_market_value of the property transferred to controlled controlled will remain in existence the property transferred will be used in a trade_or_business by controlled or a subsidiary of controlled there is no plan or intention by controlled to dispose_of the transferred property other than in the ordinary course of business operations each of the parties will pay its own expenses if any incurred in connection with the proposed transaction controlled is not an investment_company within the meaning of sec_351 of the code and sec_1_351-1 of the regulations distributing is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the transfer will not be used to satisfy the indebtedness of such debtor controlled is not a personal services corporation within the meaning of sec_269a of the code the deemed transfer of fsub9 stock by distributing to controlled in constructive exchange for controlled stock and in exchange for the a portion of the controlled notes is not part of an exchange described in sec_354 plr-118301-98 r s the deemed transfer of fsub9 stock by controlled to consub in constructive exchange for consub stock and in exchange for the consub note is not part of an exchange described in sec_354 any transfer of fsub2 stock to consub prior to date was not part of an exchange described in sec_354 issue retention of controlled shares by rabbi_trust on date b distributing established a rabbi_trust the trust for obligations under certain unfunded_deferred_compensation arrangements the trust was initially funded with ll shares of distributing common_stock at the time of the transaction the trust due to reinvested dividends held mm shares or oo percent of the total outstanding common_stock pursuant to sec_671 of the internal_revenue_code the trust was a grantor_trust and accordingly the shares of distributing stock held by the trust were treated for federal_income_tax purposes as if they were owned by distributing in the transaction the trust received nn shares of controlled stock as part of the spinoff under sec_671 these shares were deemed retained by distributing for federal_income_tax purposes the trustee of trust intended prior to the transaction to dispose_of the entire block of controlled stock as soon as practicable this intention was not feasible however because a thin trading market developed for controlled stock immediately after the spinoff on date c the trust sold pp shares of controlled stock during month d less than months after the transaction it sold the remaining shares in preparing the ruling_request for the prior ruling letter distributing’s taxpayer_representative did not know that the trust would be participating in the spinoff and therefore did not focus on the implications of the trust on the sec_355 spinoff as a result with respect to issue representation zz at pp of the prior ruling letter has been modified to take into account the additional facts discussed above as follows zz the management of distributing to its best knowledge is not aware of any plan or intention on the part of any shareholder or security holder of distributing to sell exchange transfer by gift or otherwise dispose_of any of the stock in or securities of either distributing or controlled after the transaction except for dispositions by the trustees of distributing’ sec_401 plan and retirement_plan qualified under sec_401 and controlled’ sec_401 plan dispositions of fractional shares of controlled stock deemed issued to distributing shareholders in transaction described in the prior ruling letter possible sales of plr-118301-98 controlled stock pursuant to the odd-lot program controlled will adopt after the transaction and dispositions of controlled stock received in the spinoff by the trust issue country u restructuring fsub12 was another of the subsidiaries transferred to controlled in the transaction currently controlled owns qq percent of the stock of fsub12 fsub12 holds rr percent of the stock of fsub13 and ss percent of fsub34 stock a subsidiary of fsub13 holds the remainder of the fsub13 stock fsub13 owns tt percent of the stock of fsub32 while the remainder is held by consub fsub13 also owns uu percent of the fsub33 stock fsub34 holds a parcel of land which is being offered for sale fsub35 is a country v corporation which is wholly-owned by the distributing consolidated_group controlled proposes the following transaction country u restructuring fsub35 will reincorporate in country u fsub35 will merge into fsub13 fsub12 will redeem its minority shareholders for cash and merge downstream into fsub13 if a purchaser is found for the fsub34 land the purchaser will be offered the opportunity to instead purchase the fsub34 stock in order to avoid the land transfer costs if the purchase occurs before the merger of fsub12 into fsub13 fsub34 will first merge upstream into fsub12 fsub34 will otherwise become a subsidiary of fsub13 pursuant to the downstream_merger as a result with respect to issue representation bbb at p of the prior ruling letter has been modified to take into account the additional facts discussed above as follows bbb there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation except for the merger of holding into distributing prior to transaction described in the prior ruling letter or to sell or otherwise dispose_of the assets of either corporation after the transaction except for i dispositions in the ordinary course of business and ii the possible disposition by controlled of the fsub12 stock as a result of the merger of fsub12 into fsub13 pursuant to the country u restructuring issue controlled odd-lot program plr-118301-98 in connection with the transaction approximately vv shareholders of distributing received less than shares of controlled stock these shareholders hold approximately ww shares of the total outstanding shares representing xx percent less than five percent of the outstanding controlled stock controlled recently decided to implement an odd-lot program as part of such program controlled will offer to purchase all of the shares owned by shareholders of record who own less than shares at a price determined with reference to the average trading price of the controlled stock for the approximately 60-day period during which the offer remains open issue minority stock ownership of fsub2 and fsub16 two of the subsidiaries transferred to controlled prior to the spinoff fsub2 as discussed in issue and fsub16 had and continue to have minority shareholders these minority shareholders hold yy percent or less of the stock a de_minimis amount the prior ruling letter based upon the facts submitted in the ruling_request incorrectly indicated that distributing owned percent of the stock of these subsidiaries the minority stockholders in these subsidiaries hold a de_minimis amount of the stock in order to comply with local law requirements provided the requirements of paragraph c of sec_1_367_b_-1 of the income_tax regulations paragraphs c and d of b -1 of the temporary regulations and all the conditions and requirements of sec_1_367_b_-4 through b -12 are satisfied the following rulings are substituted for rulings and as stated in the prior ruling letter in the transfer to controlled of the business d subsidiaries including fsub9 dollar_figurez in cash and marketable_securities and the assignment of all of the rights title and interest in and to certain trademarks used in business d in constructive exchange for controlled stock and in exchange for controlled notes distributing recognized gain but only in an amount not in excess of the fair_market_value of the controlled notes sec_351 no gain_or_loss was recognized by controlled on the receipt of the business d subsidiaries from distributing in constructive exchange for controlled stock and in exchange for controlled notes sec_1032 the basis of the business d subsidiaries which were received by controlled was equal to the basis of such property in the hands of distributing immediately prior to the transfer increased by the amount of gain recognized on the exchange sec_362 plr-118301-98 the holding_period of the assets received by controlled included the period during which such property was held by distributing sec_1223 no gain_or_loss will be recognized to distributing on the distribution of all of the controlled stock to distributing’s common shareholders including fractional share interests to which they may be entitled and any share purchase rights associated with the controlled stock sec_355 and revrul_90_11 c b a to the extent if any distributing recognizes gain on the transfer of the stock of any foreign_corporation to controlled or controlled recognizes gain on the transfer of any foreign_corporation to consub sec_1248 will apply to any gain recognized on the transfer b the earnings_and_profits of each transferred foreign_corporation to the extent attributable to such stock under sec_1_1248-2 or sec_1 whichever is applicable in excess of the amount of gain recognized if any to which sec_1248 was applicable as provided in ruling a above accumulated in taxable years of such foreign_corporation beginning after date during the period distributing held the stock of the foreign_corporation or was considered as holding the stock by reason of sec_1223 while such foreign_corporation was a controlled_foreign_corporation shall in each instance be attributable to such stock held by controlled or consub as appropriate sec_1_1248-1 sec_959 and sec_1248 based solely on the information submitted in this ruling_request and in connection with the prior ruling letter and on the representations set forth above we hold as follows the deemed retention of controlled stock by distributing through the trust was not in pursuance of a plan having as one of its principal purposes the avoidance of income_tax sec_355 distributing’s basis in the controlled stock deemed retained through the trust was equal to oo percent of distributing’s basis in all of the outstanding controlled stock immediately before the spinoff to be determined under the rules of sec_358 insofar as such controlled stock was acquired by distributing in constructive exchange for its transfer of assets to controlled the transfer of the fsub9 stock by distributing to consub in exchange for consub stock and the consub note followed by the transfer of consub plr-118301-98 stock from distributing to controlled will be treated for federal_income_tax purposes as if i distributing had transferred the fsub9 stock to controlled in constructive exchange for additional controlled stock and the controlled notes transferred as part of the transaction ii controlled had immediately retransferred the fsub9 stock to consub in constructive exchange for additional consub stock and the consub note and iii the consub note was immediately retransferred by controlled to distributing see revrul_77_449 1977_2_cb_110 distributing will be treated for federal_income_tax purposes as having transferred ff percent of the fsub2 stock to controlled in constructive exchange for controlled stock and one of the controlled notes followed by controlled’s deemed transfer of gg percent of the fsub2 stock to consub in constructive exchange for consub stock see revrul_77_449 1977_2_cb_110 except for the rulings substituted or modified specifically herein all other rulings in the prior ruling letter shall remain in full force and effect no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no rulings are requested and none are given whether the country u restructuring constitutes a series of tax-free reorganizations further no opinion is expressed whether gain if any that may be recognized by any of the foreign_corporations as a result of the country u restructuring described above results in subpart_f_income or could result in any subpart_f_income when taken in conjunction with the steps described in the prior ruling letter see section finally in accordance with the no-rule policy contained in revproc_99_3 1999_1_irb_105 sec_3 no opinion is expressed upon whether sec_351 applies to the deemed transfers of fsub9 and fsub2 from controlled to consub and the proposed transfer of the financing subsidiaries from controlled to consub this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter and the prior ruling letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling is consummated sincerely yours plr-118301-98 assistant chief_counsel corporate branch by _____________________ mark s jennings senior technician reviewer


internal_revenue_service number release date index number ----------------------------------------------- ------------------------- ---------------------------- --------------------------- ty ------- legend legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ---------------- ---------------------- telephone number --------------------- refer reply to cc ita b04 plr-149323-09 date date taxpayer hereafter parent sub region ------------------------------------------------- ----------------------------- ------------------------------------------- dear ----------- - this responds to your request for a private_letter_ruling dated date on whether gain from the exchange of certain emission credits may be deferred under sec_1031 of the internal_revenue_code facts parent is a ------------------------------------headquartered in region parent is also the common parent of a consolidated_group sub is a wholly owned subsidiary of parent and a member of parent’s consolidated_group the concentration of ground level ozone commonly known as smog in region often exceeds permissible air quality standards established by the environmental protection agency epa ground-level ozone is principally created by two types of pollutants nitrogen oxide nox and volatile organic compounds vocs nox is produced during combustion of natural_gas vocs are organic chemical compounds that evaporate under specific conditions parent and its subsidiaries create nox primarily during the process of -----------------------------------------------------------and create vocs primarily during the process of ---------------------------------------------------------------------------- --------------------------- the ------------------------------------------------------------- - was created to develop and implement air pollution control measures in region in an effort to improve the region’s air quality and bring the area into compliance with state and federal_law the --------- has plr-149323-09 established a program to review and control emissions in region under this program businesses that take measures to reduce their emissions of pollutants for example by installing emission reduction equipment may apply for and receive emission reduction credits credits credits are used by the holder to offset emissions that would otherwise exceed permitted levels each credit is a grant to the holder of the right to emit a specified amount of the pollutant per year for an indefinite period of time credits may be transferred temporarily or permanently credits for the purpose of reducing ozone are designated by the ----------as either nox credits or vocs credits apart from the underlying pollutant the terms and conditions of the two types of credits are identical nox credits may be used to offset vocs emissions and vocs credits may be used to offset nox emissions as long as the holder of the credits demonstrates that such use of the credits will not cause or contribute to a violation of state or federal air quality standards sub holds nox credits that were granted by the ----------when sub installed air emission reduction equipment on its ------------------- sub holds these credits for productive use in a trade_or_business or for investment parent anticipates the future need for vocs credits in order to meet emission standards related to ---- --------------------------------------------------------------- although nox reductions are far more desirable to the --------- than vocs reductions in achieving the air quality objectives the ----------has historically granted permission to use nox credits to offset vocs emissions however this interpollutant use of the credits is not economically optimal for parent because the nox credits are more valuable due to their relative scarcity from a business perspective parent would prefer to exchange nox credits for vocs credits held by unrelated third parties this would generally allow parent to emit a greater amount of vocs than if parent obtains authorization by the ----- --------- to use its nox credits to offset its vocs emissions sub possesses nox credits in excess of its needs to satisfy parent’s need for vocs credits parent proposes to cause sub to make a distribution of its nox credits to parent thereafter parent proposes to exchange the nox credits it acquired from sub for vocs credits held by unrelated third parties parent would then use the vocs credits to offset emissions from its trade_or_business parent’s basis in its sub’s stock exceeds the fair_market_value of the nox credits to be distributed by sub to parent law and analysis sec_1031 of the code provides that no gain_or_loss shall be recognized on the exchange of property held for productive use in a trade_or_business or for investment if plr-149323-09 such property is exchanged solely for property of like_kind which is to be held either for productive use in a trade_or_business or for investment sec_1_1031_a_-1 of the regulations provides in part that as used in sec_1031 the words like_kind have reference to the nature or character of the property and not to its grade or quality one kind or class of property may not be exchanged for property of a different kind or class under sec_1_1031_a_-2 intangible personal_property is of like_kind to other intangible personal_property only if the nature or character of the rights involved are of like_kind eg a patent is of like_kind to a patent and a copyright is of like_kind to a copyright and the nature or character of the underlying property to which the intangible personal_property relates is of like_kind for example an exchange of a copyright on a novel for a copyright on a different novel is a like-kind_exchange but an exchange of a copyright on a novel for a copyright on a song is not revproc_92_91 1992_2_cb_503 sec_3 q a provides that emission allowances are treated as like-kind_property for purposes of sec_1031 of the code therefore an exchange of emission allowances that would otherwise result in the recognition of gain_or_loss under sec_1001 is an exchange of like-kind_property that qualifies for nonrecognition treatment under sec_1031 provided the other requirements of sec_1031 are satisfied effectively nox credits and vocs credits are government licenses or permits and constitute intangible personal_property for federal_income_tax purposes see sec_197 accordingly the nox credits and vocs credits will be of like_kind if the nature or character of the rights involved and the nature or character of the underlying property to which the intangible personal_property relates are of like_kind both the nox credits and the vocs credits are rights granted by the --------- as part of its program to control air pollution in region the credits are distributed by the ----------- to businesses operating in region and enable the holder to emit a certain quantity of pollutant each year without penalty the terms and conditions of the credits are identical thus the nature and character of the rights involved are the same although nox and vocs are different chemical compounds they are both ozone- causing pollutants and controlling ozone is the primary purpose of the credits a sec_1 revproc_92_91 provides guidance in a question and answer q a format on certain federal_income_tax consequences of the air emission allowance program the program established pursuant to title iv of the clean air act amendments of pub_l_no 104_stat_2584 u s c sec_7651 et seq the act with respect to utilities non-utilities that elect to participate in the program and other persons that acquire hold or transfer sulfur dioxide emission allowances plr-149323-09 such the differences between the two chemical compounds insofar as they relate to the credits and the purposes for issuing the credits should be regarded as differences in grade or quality not nature or character as evidence that they are of the same nature or character the --------- rules make nox and vocs credits interchangeable when certain conditions are met furthermore both nox and vocs are emitted in the process of ------------------------------------------------- that nox credits are more valuable than vocs credits because of their relative scarcity indicates a difference in grade or quality between the two types of credits but not of their nature or character accordingly the vocs credits and nox credits are of like_kind conclusion sec_1 parent does not include the amount of the distribution of the nox credits received from sub in its gross_income see sec_1_1502-13 parent shall reduce its basis in the stock of sub by the amount of the distribution see sec_1_1502-32 sub’s gain under sec_311 with respect to the excess of the fair_market_value of the nox credits over sub’s basis in the credits shall not be taken into account upon the distribution of the nox credits to parent or upon parent’s exchange of those credits with a third party in an exchange qualifying under sec_1031 sub shall take the gain under sec_311 into account by reference to the vocs credits received in the sec_1031 exchange rather than the nox credits distributed to parent see sec_1_1502-13 and sec_1_1502-13 the nox credits and vocs credits are like-kind_property for purposes of sec_1031 of the code further parent is considered to have prior to the exchange held the nox credits for productive use in its trade_or_business thus neither parent nor sub will recognize gain_or_loss as a result of parent’s exchange of nox credits for vocs credits immediately following the distribution of such nox credits from sub provided all other requirements for deferral under sec_1031 not discussed herein are satisfied caveats except as expressly provided herein we express or imply no opinion 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative s plr-149323-09 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely michael j montemurro branch chief branch income_tax accounting cc


t c memo united_states tax_court regina b jackson petitioner v commissioner of internal revenue respondent docket no filed date regina b jackson pro_se roger w bracken for respondent memorandum findings_of_fact and opinion cohen chief_judge respondent determined deficiencies of dollar_figure and dollar_figure in petitioner's federal income taxes for and respectively and additions to tax for each year under sec_665l a and a after concessions the issues for decision are whether petitioner must include in taxable_income maryland state_income_tax refunds received in whether petitioner is entitled to additional deductions for charitable_contributions employee travel_expenses education expenses and job search expenses and whether petitioner is liable for the additions to tax determined by respondent unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in gaithersburg maryland at the time that she filed her petition during and petitioner was employed as a program analyst by the department of the air force in petitioner received a master's degree in general administration during petitioner took educational courses related to her attainment of the master's degree she received wage income of dollar_figure in and dollar_figure in she received interest_income of dollar_figure in and dollar_figure in from various financial institutions during petitioner received maryland state_income_tax refunds of dollar_figure for and dollar_figure for a total of dollar_figure on the returns she prepared for and petitioner claimed among other things the following items as deductions item mortgage interest dollar_figure dollar_figure real_estate_taxes big_number big_number state_and_local_income_taxes big_number big_number charitable_contributions by cash big_number big_number other than cash big_number travel_expenses big_number -- education -- big_number job search -- big_number during the years in issue petitioner incurred the following expenses which respondent has conceded are deductible on schedule a of her returns item mortgage interest dollar_figure dollar_figure real_estate_taxes big_number big_number state_and_local_income_taxes big_number big_number charitable_contributions -- in addition during and petitioner made cash contributions to her church petitioner requested an extension of time to date for filing her tax_return her return was not mailed before date petitioner did not send her or tax returns to the internal_revenue_service irs by certified or registered mail and did not obtain any other proof of mailing because the irs could not locate any returns filed by petitioner an irs auditor requested and received returns for these years which were signed and dated by petitioner date respondent determined that petitioner had failed to file timely returns for the years in issue that petitioner had income based on reports by payers and that petitioner was entitled to the standard_deduction for each year opinion petitioner bears the burden of proving that respondent's determinations are erroneous see rule a with the exception noted below however she has failed to present evidence from which we can conclude that she is entitled to exclude any income or deduct any expenses beyond the amounts previously conceded by respondent her testimony was vague and inconclusive notwithstanding the court's specific suggestion that the parties stipulate to additional documents after trial the only additional information submitted by petitioner led to respondent's conceding that petitioner contributed dollar_figure to the combined federal campaign in petitioner essentially asks us to accept the amounts claimed on her returns in the categories of those items remaining in dispute those returns however are not proof of the amounts reported on the returns moreover the stipulation specifically contradicts the correctness of some of the items claimed by petitioner she acknowledges wherein the petitioner provided respondent proof of itemized_deductions contained in the stipulation of facts filed in the court the respondent contended that other issues remained unsubstantiated by petitioner petitioner agreed with respondent's dispute that the remaining issues were not provided to respondent they were not available at the time petitioner provided testimony under oath before the court on the remaining issues in an effort to substantiate her itemized_deductions petitioner's testimony however failed to establish that the state_income_tax refunds that she received in were not includable in her taxable_income or that she incurred deductible expenses in the amounts that she claimed with respect to the state tax refunds she presented no evidence that the amounts deducted were not previously claimed as itemized_deductions consistent with her pattern for the years in issue she presented no evidence of actual payments of educational expenses or job search expenses it appears that the educational expenses at least in part led to her master's degree and are not deductible even if paid certain travel_expenses that she claimed apparently were eligible for reimbursement by her employer petitioner has provided us with no basis for allowing any deductions in these categories with respect to her contributions to a church she testified that she attended a church maybe every other sunday sometimes during the winter maybe once a month or every other month or so and i just drop in the basket maybe somewhere between dollar_figure and dollar_figure -- five and ten dollars --- and as far as tithes i don't faithfully put in percent tithes every pay_period i do put in percent tithes i can't attest to how frequently i do it -- maybe every month every other pay_period or so this testimony however does not justify the amounts that petitioner claimed respondent acknowledges that the testimony would support a deduction of dollar_figure per year for contributions to the church we agree and petitioner is entitled toa contribution deduction of dollar_figure in for petitioner is entitled to a contribution deduction of dollar_figure consisting of dollar_figure contributed to the church dollar_figure contributed to the combined federal campaign and dollar_figure in other contributions reflected in canceled checks that have been stipulated petitioner presented no evidence of noncash contributions and cannot be allowed any further deductions petitioner contends that she mailed her returns for and on date and date respectively she states that she can only speculate that her returns were improperly credited under a previous name mis-filed or lost by the irs in her posttrial memorandum petitioner asserts for the first time that the statute_of_limitations bars the notice for and that therefore all issues for that year are moot her statute_of_limitations claim is not timely see rule in any event we are not persuaded that petitioner's returns were filed as she asserts petitioner's testimony provided neither details nor corroboration that she mailed her returns on the dates that she claims to have mailed them her speculation as to possible misfiling or loss by the irs does not identify any alternative name that she has ever used or any reason to believe that returns for consecutive years filed months apart would have been misplaced petitioner presented no reliable evidence that she secured an extension of time to file her return or that she had reasonable_cause for belated filing of either return even by petitioner's account her returns were late because petitioner's returns were not timely even if mailed on the dates that she claims to have signed them sec_7502 which treats timely mailing as timely filing has no application to this case see maxon v commissioner tcmemo_1994_494 for purposes of the statute_of_limitations under sec_6501 or to avoid additions to tax under sec_6651 returns are filed only when they are actually received by the irs see 90_tc_947 boone v commissioner tcmemo_1997_102 diego investors-iv v commissioner tcmemo_1989_630 see also 174_f2d_386 4th cir affg 10_tc_1031 so far as the record reflects returns were not received by the irs prior to date after the notice_of_deficiency was sent and the petition in this case was filed the additions to tax under sec_6651 must be sustained the additions to tax under sec_6654 are mandatory absent exceptions not here applicable see 75_tc_1 to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number --------------------------------------------------- ------------------------------------------------------------ -------- ------------------------------ -------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc fip b04 plr-101325-19 date august taxpayer ------------------------------------------------------------------------------------ parent --------------------------------------------------------- dear ---------------- this letter responds to taxpayer’s request for a letter_ruling that the payment of certain investment advisory fees from an annuity_contract will not be treated as an amount received by the owner of that annuity_contract for purposes of sec_72 of the internal_revenue_code facts taxpayer is a life_insurance_company within the meaning of sec_816 taxpayer joins in the filing of a consolidated federal tax income_tax return with parent on a yearly calendar basis using an accrual_method of accounting taxpayer intends to offer three non-qualified deferred_annuity contracts referred to herein as the contract the contract will be issued to and owned by an individual or issued to and owned by a_trust or other entity as an agent for a natural_person within the meaning of sec_72 the owner the contract is an annuity_contract under the law of the jurisdiction where issued the contract qualifies for treatment as an annuity_contract for federal_income_tax purposes including by complying with the requirements of sec_72 one of the contracts is a variable_contract under sec_817 while two of the contracts are not variable plr-101325-19 contracts under sec_817 the contract is not part of any qualified_retirement_plan within the meaning of sec_4974 the contract is comprised of an accumulation_phase and a payout phase during the accumulation_phase the cash_value of the contract is credited with earnings or interest based on options the owner selects from a menu provided by taxpayer the options consistent with applicable nonforfeiture law the contract is designed for owners who will receive ongoing investment advice from an investment adviser the adviser on how to allocate the contract’s cash_value within the meaning of sec_72 among the available options the adviser is expected to take into account factors such as the owner’s personal risk tolerance and investment timeline the interest rate and market environment the menu of options available under the contract and the various other_benefits and features available under the contract the adviser will be an appropriately licensed professional who is in the business of providing investment advice in consideration for its advice the owner will authorize investment advisory fees the fees to be paid periodically to the adviser from the contract’s cash_value the authorization the fees will be determined based on an arms-length transaction between the owner and the adviser the fees will not exceed an amount equal to an annual rate of of the contract’s cash_value within the meaning of sec_72 determined at the time and in the manner provided in the authorization or other written_agreement with the adviser but in all events based on such cash_value during the period to which the fees relate the fees will compensate the adviser only for investment advice that the adviser provides to the owner with respect to the contract and not for any other services the fees will not result in any reduction in fees related to any other asset or for any other service taxpayer will pay the fees directly to the adviser during any period for which the authorization is in effect the contract will be solely liable for paying the fees and the fees will not be paid directly by the owner the owner will not have the right to direct payment of the fees for any other purpose or to any other person the adviser will not receive a commission for the sale of the contract from taxpayers requested ruling taxpayer requests a ruling that the fees taxpayer deducts from the contract’s cash_value and remit to the adviser will not be treated as an amount received by the owner of the contract for purposes of sec_72 plr-101325-19 law and analysis law sec_72 distinguishes between an amount_received_as_an_annuity under an annuity endowment or life_insurance_contract and an amount not received as an annuity under those contracts sec_1_72-1 of the income_tax regulations the regulations provides that amounts received as an annuity are amounts which are payable at regular intervals over a period of more than one full year from the date on which they are deemed to begin provided the total of the amounts so payable or the period for which they are to be paid can be determined as of that date see sec_1_72-1 and of the regulations any other_amounts to which the provisions of sec_72 apply are considered to be amounts_not_received_as_an_annuity sec_1_72-2 of the regulations provides that amounts are considered amounts received as an annuity only in the event that the following tests are met i they must be received on or after the annuity_starting_date as that term is defined in paragraph b of sec_1_72-4 of the regulations the first day of the first period for which an amount is received as an annuity under the contract ii they must be payable in periodic installments at regular intervals whether annually semiannually quarterly monthly weekly or otherwise over a period of more than one full year from the annuity_starting_date and iii except as indicated in subparagraph b of the regulations relating to variable_contracts the total of the amounts payable must be determinable at the annuity_starting_date either directly from the terms of the contract or indirectly by the use of either mortality tables or compound interest computations or both in conjunction with such terms and in accordance with sound actuarial theory sec_1_72-11 of the regulations describes amounts_not_received_as_an_annuity as any amount received under an annuity_contract if the amount i does not meet the requirements set forth in sec_1_72-2 of the regulations for amounts received as an annuity ii meets the requirements of sec_1_72-2 of the regulations for amounts received as an annuity but the annuity payments received differ in either amount duration or both from those originally provided under the contract or iii meets the requirements of sec_1_72-2 of the regulations for amounts received as an annuity but the annuity payments are received by a beneficiary plr-101325-19 after the death of an annuitant or annuitants in full discharge of the obligation under the contract and solely because of a guarantee sec_72 applies to any amount not received as an annuity under an annuity endowment or life_insurance_contract sec_72 provides that if any amount which is not received as an annuity is received on or after the annuity_starting_date it is included in gross_income sec_72 provides that if any amount which is not received as an annuity is received before the annuity_starting_date it is included in gross_income to the extent allocable to income_on_the_contract and is not included in gross_income to the extent allocable to the investment_in_the_contract analysis in this case the fees are integral to the operation of the contract during any period for which the authorization is in effect the owner will receive ongoing investment advice from the adviser with respect to the contract so that the owner may properly utilize the contract the adviser is expected to help the owner select options related to the contract taxpayer has represented that the fees will not serve as consideration for anything other than investment advice provided by the adviser in relation to the contract furthermore taxpayer has represented that the fees will not exceed an annual rate of of the contract’s cash_value based on the period in which the fees related based on taxpayer’s representations the fees will only be used to pay for investment advisory services relating to the contract because the contracts are designed to work with an adviser the contract is solely liable for the fees the fees do not constitute compensation to the advisor for services related to any assets of the owner other than the contract or any services other than investment advice services with respect to the contract therefore the fees are an expense of the contract not a distribution to the owner ruling based solely on the information submitted and the representations made the fees taxpayer deducts from the contract’s cash_value and remit to the adviser will not be treated as an amount received by the owner of the contract for purposes of sec_72 caveats the ruling contained in this letter is based upon information and representations taxpayer submitted accompanied by penalty of perjury statements executed by appropriate parties this office has not verified any of the material submitted in support of the ruling_request and it is subject_to verification on examination plr-101325-19 the ruling contained in this letter does not apply to any amount_paid by taxpayer that compensate the advisor for services related to assets other than the contract or for any services provided other than investment advice services with respect to the contract any such amount would be an amount received by the owner of the contract for purposes of sec_72 no opinion is expressed as to the tax treatment of the transaction under the provisions of any of the other sections of the code and regulations which may also be applicable thereto or to the tax treatment of any conditions existing at the time of or effects resulting from the transaction which are not specifically covered by the above rulings this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax return of taxpayers for the taxable_year in which the transaction covered by this ruling is consummated pursuant to a power_of_attorney on file in this office a copy of this ruling is being furnished to your authorized representatives sincerely john glover senior counsel branch associate chief_counsel financial institutions and products


internal_revenue_service number release date index number ----------------------------- -------------------- ------------------------------- re --------------------------------------- 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 b4 plr-104171-14 date date legend settlor grandchild trust date dear ---------------- ---------------------- ----------------------------- ------------------------- ---------------------------------------------------------------------------- ----------------------- ------------------ this letter responds to your letter dated date submitted on your behalf by your authorized representative requesting a ruling on application of sec_2041 of the internal_revenue_code facts settlor died on date grandchild is the beneficiary of trust a_trust created under article 9c of settlor’s last will paragraph of article 9c provides that during grandchild’s life the trustees of trust are to make discretionary payments of the net_income and principal to or for the benefit of grandchild and grandchild’s issue paragraph of article 9c provides that upon the death of grandchild the trustees of trust are to pay over the principal as then constituted and any accumulated or undistributed_income to such among settlor’s issue as grandchild shall validly appoint in grandchild’s last will any balance of trust remaining and not effectively appointed by grandchild in grandchild’s last will is disposed of pursuant to paragraph sec_2 and of article 9c of settlor’s last will plr-104171-14 rulings requested grandchild has requested the following rulings that the testamentary_power_of_appointment granted to grandchild in trust does not constitute a general_power_of_appointment within the meaning of sec_2041 and the existence exercise failure to fully exercise or partial or complete release of grandchild’s power to appoint the principal and any accumulated or undistributed_income of trust will not cause the value of the property in trust to be included in grandchild’s gross_estate under sec_2041 law and analysis sec_2041 provides that the value of the gross_estate includes the value of all property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 to inclusive for purposes of sec_2041 the power_of_appointment is considered to exist on the date of the decedent’s death even though the exercise of the power is subject_to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised sec_2041 provides with exceptions not relevant here that the term general_power_of_appointment means a power that is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_20_2041-1 of the estate_tax regulations provides that the term general_power_of_appointment as defined in sec_2041 means any power_of_appointment exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_20_2041-1 provides that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent’s estate or the creditors of his estate in this case grandchild may appoint by will the principal and accumulated or undistributed_income of trust to the class consisting of settlor’s issue because grandchild’s power_of_appointment is a testamentary power grandchild may not appoint any part of trust to grandchild or to grandchild’s creditors during grandchild’s life in addition based on the terms of trust the reference to such among settlor’s plr-104171-14 issue as a permissible class of appointees of grandchild’s testamentary power is properly viewed as not including grandchild’s estate or the creditors of grandchild’s estate after grandchild’s death accordingly based on the information submitted and the representations made we conclude that grandchild’s testamentary_power_of_appointment over the principal and accumulated or undistributed_income of trust does not constitute a general_power_of_appointment within the meaning of sec_2041 and the existence exercise failure to fully exercise or partial or complete release of grandchild’s power to appoint the principal and accumulated or undistributed_income of trust will not cause the value of the property in trust to be included in grandchild’s gross_estate under sec_2041 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 internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely melissa c liquerman chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ----------------------- -------------------------------- ------------------------------ ----------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number -------------------- refer reply to cc psi plr-118711-05 date september legend decedent spouse trust year year year date date dear --------------- ------------------------------------------------------- ------------------------------------------------- ------------------------------------- ------- ------- ------- ---------------------- ------------------- this letter is in response to a letter dated date from your authorized representative requesting a ruling that pursuant to revproc_2001_38 2001_1_cb_1335 the qualified_terminable_interest_property qtip_election made with respect to a credit_shelter_trust established under the terms of trust is a nullity for federal estate gift and generation-skipping_transfer_tax purposes the facts and representations submitted are summarized as follows decedent created trust a revocable inter_vivos_trust in year trust was amended in year and year decedent died on date survived by spouse and four children under the provisions of trust upon decedent’s death trust is to set_aside a sum which is equal to the largest amount that can pass free of federal estate_tax by reason of the unified plr-118711-05 credit against the estate and gift_tax the credit_shelter_trust and the remainder is to be distributed outright to spouse the trustee of the credit_shelter_trust is to distribute the net_income of the trust to spouse during spouse’s lifetime in convenient installments at least quarterly the trustee may also pay to spouse all or so much of the principal of the trust as in the trustee’s sole discretion is necessary for spouse’s medical_care maintenance and support taking into consideration other assets available to spouse spouse during spouse’s lifetime may invade the principal of the trust in favor of spouse in an amount not to exceed in the aggregate during any calendar_year the greater of five thousand dollars dollar_figure or five prevent of the principal of the trust upon the death of spouse the trustee is to divide the trust into equal shares to provide one share for each living child of decedent and one share for the then living lineal_descendants of each deceased child of decedent decedent's united_states estate and generation-skipping_transfer_tax return form_706 was timely filed on schedule m of the form_706 a qtip_election under sec_2056 was made with respect to the value of all property passing to the credit_shelter_trust no estate_tax liability was due spouse received an estate_tax closing letter on date it was subsequently discovered that the value of the property for which the qtip_election was made included the value of the property passing to the credit_shelter_trust the qtip_election with respect to the credit_shelter_trust was not necessary to reduce the estate_tax liability to zero spouse requests the following rulings the assets constituting the credit_shelter_trust under trust will not be includable in the gross_estate of spouse upon spouse’s death under sec_2044 spouse will not be treated as making a gift of the property under sec_2519 if spouse disposes of spouse’s income_interest with respect to the property in the credit_shelter_trust spouse will not be considered the transferor of the property in the credit_shelter_trust for generation-skipping_transfer_tax purposes in sec_2652 sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that except as limited by sec_2056 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides the general_rule that a marital_deduction is not allowed for an interest passing to the plr-118711-05 surviving_spouse that is a terminable_interest an interest is a terminable_interest if the interest passing to the surviving_spouse will terminate or fail on the lapse of time or on the occurrence of an event or contingency or on the failure of an event or contingency to occur and on termination an interest in the property passes to someone other than the surviving_spouse sec_2056 provides an exception to this terminable_interest_rule in the case of qualified_terminable_interest_property qtip for purposes of sec_2056 qualified_terminable_interest_property is treated as passing to the surviving_spouse and no part of the property is treated as passing to any person other than the surviving_spouse under sec_2056 qualified_terminable_interest_property is property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 provides that the election to treat property as qtip under sec_2056 is made by the executor on the return of tax imposed by sec_2001 the election once made is irrevocable sec_2044 and b provide generally that the value of the gross_estate includes the value of any property in which the decedent had a qualifying_income_interest_for_life and with respect to which a deduction was allowed for the transfer of the property to the decedent under sec_2056 sec_2519 and b provide that any disposition of all or part of a qualifying_income_interest_for_life in any property with respect to which a deduction was allowed under sec_2056 is treated as a transfer of all interests in the property other than the qualifying_income interest sec_2652 provides that in the case of property subject_to an election under sec_2056 the surviving_spouse will be treated as the transferor of the property for generation-skipping_transfer_tax purposes in the absence of a reverse_qtip_election under sec_2652 in general under revproc_2001_38 a qtip_election under sec_2056 will be treated as null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 where the election was not necessary to reduce the estate_tax liability to zero based on values as finally determined for federal estate_tax purposes the revenue_procedure provides an example where the decedent’s will provides for a credit_shelter_trust to be funded with an amount equal to the applicable_exclusion_amount under sec_2010 with the balance of the estate passing to a marital trust intended to qualify under sec_2056 the estate makes qtip elections with respect to both the credit_shelter_trust and the marital trust the qtip_election for the credit_shelter_trust was not necessary because no estate_tax would have been imposed whether or not the qtip_election was made for that trust see revproc_2001_38 sec_2 plr-118711-05 in this case the qtip_election with respect to the value of the property passing to the credit_shelter_trust was not necessary to reduce the estate_tax liability to zero that is the estate_tax liability would have been zero whether or not the election was made with respect to the trust accordingly we rule that the qtip_election with respect to the value of property passing to the credit_shelter_trust is null and void for purposes of sec_2044 sec_2056 sec_2519 and sec_2652 the property held in the credit_shelter_trust will not be includible in the gross_estate of spouse under sec_2044 and spouse will not be treated as making a gift under sec_2519 if spouse disposes of the income_interest with respect to that property further spouse will not be treated as the transferor of the property in the credit_shelter_trust for generation-skipping_transfer_tax purposes under sec_2652 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition we express or imply no opinion regarding the value of the property transferred to the trusts the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative each ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter