internal_revenue_service number release date index number 468a ----------------------------- --------------------------------------- -------------------------------- ---------------------------- ---------------------------- 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 b6 plr-129964-06 plr-129960-06 plr-129956-06 plr-129946-06 plr-129944-06 plr-129976-06 plr-129957-06 plr-129973-06 plr-129970-06 plr-129954-06 date date legend parent ---------------------------------- --------------------------------- ---------------------------------------------------------- -------------------------------------------------------- --------------------------------- ----------------------------------------- -------------------------------- ------------------------------------------ taxpayer a ------------------------------------------------------------ taxpayer b taxpayer c ------------------------------------------------------------ taxpayer d ------------------------------------------------------------ taxpayer e ------------------------------------------------------------ company state a state b plant director location commission a --------------------------------------------- ------ ------------------ -------------------------------------------------- -- --------------------------------------------------------------------------------- ---------------------- -------------- -------------------------------------------- plr-129964-06 commission b commission c commission d taxpayer f ----------------------------------------------------- ------------------------------------------- ---------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------------------------------------------- ----------------------------------------------- --------------------------------------- ----------------------------------------- -------------------------------------------------- taxpayer g ------------------------------------------------------------ taxpayer h ------------------------------------------------------------ taxpayer i ---------------------------------------------------------------------------------- taxpayer j ------------------------------------------------------------ x y z dear ---------------- the tax consequences of the transaction described below under sec_468a of the internal_revenue_code -------------------------- -------------------------- ------------------- this letter responds to your request dated date for various rulings on taxpayers represent the following facts and information relating to the ruling_request parent directly owns all of the outstanding common_stock of taxpayer b taxpayer c and taxpayer d taxpayer d owns all of the outstanding commons stock of taxpayer e taxpayers b c and d are electric public_utility companies engaged in the generation transmission distribution and sale of electric energy in state a taxpayer b c and d are subject_to the jurisdiction of commission a and commission b with respect to the nuclear decommissioning costs included in its cost of service for regulatory purposes taxpayer e is an electric public_utility company engaged in the generation transmission distribution and sale of electric energy in state b taxpayer e is subject_to the jurisdiction of commission d and commission b with respect to the nuclear decommissioning costs included in its cost of service for regulatory purposes taxpayer a is a newly-formed generation company and is a wholly-owned subsidiary of company which is wholly-owned by parent taxpayer b has an ownership_interest of-- --------percent in the plant taxpayer c has a -------percent ownership_interest and a ----- --------leasehold interest in the plant for a total interest of --------percent taxpayer d has a --------percent ownership_interest and a --------percent leasehold interest in the plr-129964-06 plant for a total interest of --------percent and taxpayer e has a --------percent ownership_interest in the plant plant is situated at location taxpayers b c d and e are severally obligated to pay all expenditures_for the construction operation and maintenance of plant and are entitled to the proportionate share of the electric power produced thereby taxpayers b c d and e have obligations to decommission the plant and have established several funds for that purpose taxpayer b has established taxpayer g as a fund qualified under sec_468a as well as one or more nonqualified funds taxpayer c has established taxpayer h as a fund qualified under sec_468a as well as one or more nonqualified funds taxpayer d has established taxpayer i as a fund qualified under sec_468a as well as one or more nonqualified funds taxpayer e has established taxpayer j as a fund qualified under sec_468a as well as one or more nonqualified funds taxpayers b c d and e have received revised schedules of ruling amounts through ------ on x taxpayer b contributed the entire 12-month ruling_amount specified in its most recent schedule of ruling amounts to taxpayer g on x taxpayer c contributed the entire 12-month ruling_amount specified in its most recent schedule of ruling amounts to taxpayer h on x taxpayer d contributed the entire 12-month ruling_amount it anticipated would be specified in its schedule of ruling amounts and which amount was later specified for ------ to taxpayer i on x taxpayer e contributed the entire 12-month ruling_amount specified in its most recent schedule of ruling amounts to taxpayer j on y taxpayer b and taxpayer e transferred their interests in plant to taxpayer a on y taxpayer c and taxpayer d transferred their interests in plant to taxpayer a except for those interests subject_to sale leaseback arrangements taxpayer a assumed certain obligations with respect to plant including the obligation to decommission plant also on y taxpayer b transferred taxpayer g as well as all nonqualified decommissioning funds relating to the plant to taxpayer a taxpayer c transferred taxpayer h as well as all nonqualified decommissioning funds relating to the plant to taxpayer a taxpayer d transferred taxpayer i as well as all nonqualified decommissioning funds relating to the plant to taxpayer a and taxpayer e transferred taxpayer j as well as all nonqualified decommissioning funds relating to the plant to taxpayer a the assets in taxpayers g h i and j were transferred to taxpayer f a fund established by taxpayer a and qualified under sec_468a the transfers of the interests in plant were approved by commission b and commission c as a result of the contributions of the entire ------- ruling amounts on x by taxpayer b to taxpayer g by taxpayer c to taxpayer h by taxpayer d to taxpayer i and by taxpayer e to taxpayer j excess_contributions were made to those funds on taxpayer d had applied for but not yet received its revised schedule of ruling amounts as of the submission of this ruling_request it has subsequently received this revised schedule plr-129964-06 z taxpayer a withdrew from taxpayer f the excess_contributions made by taxpayers b c d and e along with earnings on those excess_contributions from the day after x thru and including the day before z taxpayer has requested the following rulings requested ruling taxpayer a taxpayer b taxpayer c taxpayer d taxpayer e taxpayer f taxpayer g taxpayer h taxpayer i and taxpayer j will not recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of assets of taxpayer g taxpayer h taxpayer i and taxpayer j into taxpayer f and taxpayer f will have a basis in the assets received from taxpayers g h i and j equal to the basis of those assets immediately prior to the transfer requested ruling no portion of taxpayer g taxpayer h taxpayer i or taxpayer j is disqualified by receipt of the excess_contributions from taxpayer b taxpayer c taxpayer d and taxpayer e respectively and that no portion of taxpayer f is disqualified by the withdrawal of such excess_contributions and the earnings thereon law and analysis requested ruling sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law sec_1_468a-5 provides that an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant if a nuclear power plant is subject_to the ratemaking jurisdiction of two or more public_utility commissions and any such public_utility commission requires a separate fund to be maintained for the benefit of ratepayers whose rates are established or approved by the public_utility commission the separate funds maintained for such plant whether or not established and maintained pursuant to a single trust agreement shall be considered a single nuclear decommissioning fund sec_1_468a-6 provides rules applicable to the transfer of an interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund where certain requirements are met specifically sec_1_468a-6 provides that sec_1_468a-6 applies if-- plr-129964-06 immediately before the disposition the transferor maintained a qualified nuclear decommissioning fund with respect to the interest disposed of and immediately after the disposition-- i the transferee maintains a qualified nuclear decommissioning fund with respect to the interest acquired ii the interest acquired is a qualifying interest of the transferee in the nuclear power plant iii either a proportionate amount which could include all of the assets of the transferor’s qualified nuclear decommissioning fund is transferred to a qualified nuclear decommissioning fund of the transferee or the transferor’s entire qualified nuclear decommissioning fund is transferred to the transferee provided in the latter case or if the transferee receives all of the assets in the transferor’s qualified nuclear decommissioning fund but not the transferor’s qualified nuclear decommissioning fund that the transferee acquires the transferor’s entire qualifying interest in the plant and iv the transferee continues to satisfy the requirements of sec_1_468a-5 which permits an electing taxpayer to maintain only one qualified nuclear decommissioning fund for each plant sec_1_468a-6 provides that a disposition that satisfies the requirements of sec_1_468a-6 will have the following tax consequences at the time it occurs neither the transferor nor the transferor’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear decommissioning fund to the transferee’s qualified nuclear decommissioning fund or by reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor’s qualified nuclear decommissioning fund will not be considered a distribution of assets by the transferor’s qualified nuclear decommissioning fund neither the transferee nor the transferee’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear decommissioning fund to the transferee’s qualified nuclear decommissioning fund or by plr-129964-06 reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor’s qualified nuclear decommissioning fund will not constitute a payment or a contribution of assets by the transferee to its qualified nuclear decommissioning fund transfers of assets of a qualified nuclear decommissioning fund to which this section applies do not affect basis thus the transferee’s qualified nuclear decommissioning fund will have a basis in the assets received from the transferor’s qualified nuclear decommissioning fund that is the same as the basis of those assets in the transferor’s qualified nuclear decommissioning fund immediately before the distribution under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a former sec_468a and sec_1 468a- b provide that for purposes sec_468a and sec_1_468a-2 provide that a taxpayer that elects the requested ruling application of sec_468a may deduct in the taxable_year the election is made any payments made by the taxpayer to a qualified nuclear decommissioning fund in that year of sec_1_468a-2 the amount that a taxpayer may pay into a qualified nuclear decommissioning fund for any taxable_year shall not exceed the lesser_of the amount of nuclear decommissioning costs allocable to the fund which is included in the taxpayer's cost of service for ratemaking purposes for the taxable_year or the ruling_amount applicable to fund for that the taxable_year sec_1_468a-2 provides further that if the amount of cash payments made or deemed made to a qualified nuclear decommissioning fund during any taxable_year exceeds the limitation of sec_1 468a- b the excess is not deductible by the electing taxpayer sec_1_468a-5 prohibits a nuclear decommissioning fund from accepting any contribution for which a deduction is not permitted under sec_468a and sec_1_468a-2 sec_1_468a-5 provides that if at any time during a taxable_year of a nuclear decommissioning fund the fund does not satisfy the requirements of sec_1_468a-5 the service may in its discretion disqualify all or any portion of the fund as of the date that the fund does not satisfy the requirements of sec_1_468a-5 sec_1_468a-5 defines an excess_contribution for purposes of section plr-129964-06 sec_1_468a-2 provides that the amount of any cash payment made by an electing taxpayer to a qualified nuclear decommissioning fund on or before the 15th day of the third calendar month after the close any taxable_year shall be deemed made during that taxable_year if the electing taxpayer irrevocably designates the amount as relating to that taxable_year on its timely filed federal_income_tax return for that taxable_year 468a-5 c as the amount by which cash payments made or deemed made to a qualified nuclear decommissioning fund during any taxable_year exceed the payment limitation in former sec_468a and sec_1_468a-2 sec_1_468a-5 provides that a qualified nuclear decommissioning fund will not be disqualified under sec_1_468a-5 by reason of an excess_contribution or the withdrawal of that excess_contribution by an electing taxpayer if the amount of the excess_contribution is withdrawn by the electing taxpayer on or before the date prescribed by law including extensions for filing the return of the fund for the taxable_year for which the excess_contribution relates contribution as defined in sec_1_468a-5 by an electing taxpayer pursuant to the rules of sec_1_468a-5 shall not be included in the gross_income of the electing taxpayer conclusions sec_1_468a-2 provides that the amount of a withdrawal of an excess taxpayer a taxpayer b taxpayer c taxpayer d taxpayer e taxpayer f taxpayer g taxpayer h taxpayer i and taxpayer j will not recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of assets of taxpayer g taxpayer h taxpayer i and taxpayer j into taxpayer f and taxpayer f will have a basis in the assets received from taxpayers g h i and j equal to the basis of those assets immediately prior to the transfer with respect to the excess_contributions and the subsequent withdrawal of those excess_contributions the service will not disqualify any part of taxpayer g taxpayer h taxpayer i or taxpayer f as a result of these transactions the rulings contained in this letter are based upon information and representations submitted by the taxpayers 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 plr-129964-06 except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above effective date amendments were made to sec_468a by the energy tax incentives act of publaw_109_58 119_stat_594 regulations based on these amendments are being developed but have not yet been proposed the discussion above is based on the law in effect prior to date however this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_2007_1 2007_1_irb_1 however when the criteria in section dollar_figure of revproc_2007_1 2007_1_irb_50 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances this ruling is directed only to the taxpayers who requested it sec_6110 of the code provides 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 the taxpayer we are also sending a copy of this letter_ruling to the director pursuant to ' 468a-7 a a copy of this letter must be attached with the required election statement to the taxpayers' federal_income_tax return for each tax_year if any in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries


department of the treasury employer_identification_number contact person - id number contact telephone number vil internal_revenue_service p o box cincinnati oh number release date date date legend b program c year d year e year f dollars amount dear why you are receiving this letter this is our response to your date letter requesting approval of a set-aside under internal_revenue_code sec_4942 you’ve been recognized as tax-exempt under sec_501 of the code and have been determined to be a private_foundation under sec_509 our determination based on the information furnished your set-aside program is approved under internal_revenue_code sec_4942 as required under sec_4942 the set_aside amount must be paid within the 60-month period after the date of the first set-aside description of set-aside request among various endeavors you initiated the first b symposium a few years ago bringing together a group of promising young scholars from around the world to share their academic interests through presenting research papers from different sub-disciplines using an innovative methodology of preparing and distributing their research papers several months before the symposium and doing summaries of papers other than their own the result was a resounding success with eagerness from various corners to see a continuation of this kind of symposium you are planning a second b symposium in year c you plan to bring together a group of promising young scholars who are eager to explore and share new ideas new methodologies new perspectives and new disciplines through creative interactions thereby broadening their minds and widening their horizons to help save sufficient funds for the year c symposium you will set_aside funds you plan to set_aside f dollars in the year d as an initial establishment for the year c symposium and another f dollars in the year e all funds set_aside will be paid in year c therefore all amounts set_aside for this project will be paid not more than months after the date of the first set-aside in year d basis for our determination internal_revenue_code sec_4942 states that an amount set_aside for a specific project which includes one or more purposes described in sec_170 may be treated as a qualifying_distribution if it meets the requirements of sec_4942 sec_4942 of the code states that an amount set_aside for a specific project will meet the requirements of this subparagraph if at the time of the set- aside the foundation establishes that the amount will be paid within five years and either clause i or ii are satisfied sec_4942 of the code is satisfied if at the time of the set-aside the private_foundation establishes that the project can better be accomplished using the set-aside than by making an immediate payment sec_53_4942_a_-3 of the foundations and similar excise_taxes regulations provides that a private_foundation may establish a project as better accomplished by a set-aside than by immediate payment if the set-aside satisfies the suitability test described in sec_53_4942_a_-3 sec_53_4942_a_-3 of the foundations and similar excise_taxes regulations provides that specific projects better accomplished using a set-aside include but are not limited to projects where relatively long-term expenditures must be made requiring more than one year’s income to assure their continuity in revrul_74_450 1974_2_cb_388 an operating_foundation converted a portion of newly acquired land into a public park under a four-year construction_contract the construction_contract payments were to be made mainly during the final two years this constituted a specific project the foundation’s set-aside of all its excess earnings for four years was treated as a qualifying_distribution under internal_revenue_code sec_4942 what you must do code sec_4942 and the income attributable to your set_aside s will your approved set-aside s will be documented on your records as pledges or obligations to be paid_by the date specified the amounts set_aside will be taken into account to determine your minimum_investment_return under internal revenue also be taken into account in computing your adjusted_net_income under sec_4942 of the code additional information this determination is directed only to the organization that requested it internal_revenue_code sec_6110 provides that it may not be used or cited as a precedent please keep a copy of this letter in your records if you have any questions please contact the person listed in the heading of this letter sincerely stephen a martin director exempt_organizations rulings and agreements enclosure


t c memo united_states tax_court alex morgan foster petitioner v commissioner of internal revenue respondent docket no filed date alex morgan foster pro_se lloyd t silberzweig and debra k moe for respondent memorandum opinion dean special_trial_judge this case was assigned pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioner's federal_income_tax and an accuracy-related_penalty under sec_6662 in the amount of dollar_figure after concessions the issues for decision are whether the proceeds of a settlement entered into between petitioner and his former employer are excludable from income under sec_104 whether petitioner is liable for self-employment_tax under sec_1401 with respect to such proceeds and whether petitioner is liable for an accuracy- related penalty for negligence or disregard of rules or regulations pursuant to sec_6662 some of the facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated herein by this reference petitioner resided in danville california at the time he filed his petition background from date through date petitioner worked as an attorney for the legal department of american building maintenance industries inc hereinafter abmi during the period of his employment petitioner worked under the supervision of the general counsel to abmi harry kahn 2the parties have stipulated that during the taxable_year at issue petitioner received dividend income in the amount of dollar_figure received interest_income in the amount of dollar_figure and received additional capital_gains in the amount of dollar_figure and incurred ordinary and necessary business_expenses in the amount of dollar_figure hereinafter kahn petitioner's responsibilities consisted primarily of reviewing various service contracts within a short time of his hiring a strained relationship developed between petitioner and kahn as demonstrated by the record the two differed as to the need for a computerized management information system disagreed as to the proper means of settling a particular lease dispute and discussed a clash of personalities between petitioner and kahn's secretary on date kahn apprised petitioner that his performance at abmi was unsatisfactory shortly thereafter on date kahn fired petitioner on date petitioner sent two personal and confidential letters to david anacker hereinafter anacker the president and chief_executive_officer of abmi petitioner opined in both letters that kahn's termination of his employment had been wrongful under the law in support petitioner recounted the incidents listed previously and in pertinent part wrote that general counsel's action of termination came as a surprise in view of my short tenure the huge backlog which was worked off and the problems which were necessary to overcome to accomplish a smooth functioning of the legal department in my opinion i should have been given professional guidance if my work was not satisfactory time for me to make corrections and implementation of criticisms by general counsel should have been allowed before precipitous action such as termination i fear that irreparable harm has been done to my near term job hunting success it will be difficult at best to explain to prospective new employers such a short tenure at abmi given that i have already started to accrue damages such as lost wages i suggest you consider the following offer of settlement this is not to be construed as an admission of liability but merely as an offer of settlement a lump sum payment to me amounting to months salary and benefits ignoring deductions which would normally be made under payroll conditions should be paid to me forthwith in my opinion a court or jury would find at least one years salary would be in order as damages if it is found that general counsel breached an employment agreement to employ me shortly after his receipt of the date letters anacker instructed kahn to prepare a memorandum detailing the events surrounding petitioner's termination a copy of this memorandum was introduced at trial bearing the date date the memorandum essentially sets forth kahn's belief that petitioner had produced substandard work while at abmi kahn states therein that petitioner was given several opportunities to improve his performance but failed to do so at some point soon after kahn prepared his memorandum anacker met with petitioner during this meeting the two apparently reached an understanding regarding petitioner's grievances thereafter anacker had a proposed settlement agreement executed on behalf of abmi and sent to petitioner in relevant part the proposed agreement provided petitioner a lump- sum payment in the amount of dollar_figure to satisfy any and all claims known or unknown against abmi subsequent to his receipt of the proposed settlement agreement petitioner sent two additional personal and confidential letters to anacker on date in one of these letters petitioner stated that we discussed that this settlement would be in payment of my tort claim thereby making the settlement non- taxable this is very important to me in my opinion such a settlement can be made and therefore i must insist on such terms in the second letter petitioner wrote i have also revised the lump sum settlement amount pursuant to our conversations to account for deductions made from my last check moreover i have shortened the period that abmi would pay for my medical dental benefits in effect the gross number is dollar_figure less than a hundred dollar rounding bias in my favor clearly too a round number would be a great asset in beating an irs audit should i be challenged on date petitioner and anacker signed a final settlement agreement hereinafter the agreement in pertinent part the agreement provides that a conditions of agreement this agreement is based on the fact that foster may otherwise institute or continue actions or participate in actions against abmi arising from foster's employment or the severance thereof and or conduct affecting in any way their relationships to date foster and abmi desire to completely resolve and settle any and all such disputed claims foster may have against abmi the terms of this agreement set forth the full obligations of the parties the parties have no further obligations aside from those expressed in this agreement it is agreed and understood by the parties that neither the fact that settlement has occurred nor the fact that abmi provides consideration for the release of claims can be construed as an admission of any liability or wrongdoing on the part of abmi both parties expressly deny any liability to the other party the parties enter into this agreement in order to resolve disputed claims and to avoid unnecessary litigation no admission of liability of either party can be applied sic from foster's separation or the fact or terms of settlement consideration payable under the terms of this agreement shall be deemed by the parties as settlement of said disputed claim between the parties b terms of settlement abmi shall pay to foster the sum of twenty thousand dollars dollar_figure payable as set forth below settlement payment shall be paid to foster personally in four installments on date receipt of which is hereby acknowledged by p m and on the 15th day of the ensuing three months may june and july abmi may file an irs form_1099 if required_by_law for the installments required by this paragraph b the parties agree that upon execution by the parties to this agreement foster shall be an independent_contractor and may represent himself as of counsel to abmi permissive use of this title does not signify that foster is actually employed by abmi of counsel status shall terminate at the earliest of foster's permanent employment or date foster agrees to and hereby does voluntarily release and forever discharge abmi from any and all claims demands damages and actions and causes of every kind known or unknown arising out of or any way connected with foster's employment foster agrees that he will not continue institute or participate in any legal proceedings of any kind whatsoever in any forum agency court or tribunal against abmi occurring prior to the execution by the parties of this agreement claims as used herein shall include all actions claims and or grievances whether actual or potential known or unknown and specifically but not exclusively all claims which foster may have arising out of his employment or severance thereof all such claims are forever barred by this agreement regardless of the forum in which such claim s might be brought the parties expressly acknowledge that this agreement is intended to include all claims which foster does not know or expect to exist in his favor at the time of execution of this agreement which claims are hereby extinguished pursuant to the terms of the agreement petitioner received payments from abmi totaling dollar_figure during the taxable_year on or about date abmi issued to petitioner an internal_revenue_service irs form 1099-misc which reported nonemployee compensation paid to him in the amount of dollar_figure for petitioner reported the dollar_figure settlement received as gross_receipts or sales on schedule c of his federal_income_tax return he claimed as an offset against this amount a deduction for personal injury settlem sic in the amount of dollar_figure this deduction was claimed to reflect the judgment of petitioner's accountant that dollar_figure of the settlement was attributable to lost wages and that dollar_figure was attributable to tort like claims excludable under sec_104 petitioner now claims however that his method of reporting the settlement was erroneous and that the entire amount received should have been excluded from income under sec_104 exclusion of settlement proceeds respondent determined in the notice_of_deficiency that no part of the dollar_figure settlement was excludable from petitioner's income according to respondent petitioner has not established that this amount was received as damages on account of personal injuries as defined under sec_104 petitioner disagrees arguing that the settlement was meant to address a plethora of tort claims against abmi including wrongful termination of employment under california law retaliatory discharge first amendment claims malicious prosecution defamation disparagement trade libel emotional distress and national origin discrimination although sec_61 defines gross_income to include all income from whatever source derived an exception may be found under sec_104 and the regulations thereunder sec_104 provides that the amount of any damages received whether by suit or agreement on account of personal injuries or sickness is excludable from gross_income sec_1_104-1 income_tax regs provides that the term damages received whether by suit or agreement means an amount received other than workmen's_compensation through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution in determining whether a settlement payment was intended to compensate for personal injuries we are not concerned with the validity of the claims settled by the settlement or legal suit 58_tc_32 rather we focus on the nature of the matter settled id for purposes of sec_104 we look to state law here california law to decide the nature of a claim see 403_us_190 in a case such as this where the settlement lacks express language stating that the payment was made on account of personal injuries the intent of the payor in making the payment is the most important factor to be discerned 349_f2d_610 10th cir affg tcmemo_1964_33 this is a factual determination and is made based upon an examination of all the evidence seay v commissioner supra pincite petitioner argues that a host of tort claims were settled by his agreement with abmi petitioner has not demonstrated however that anacker as representative of abmi the payor was aware of such claims at the time the agreement was negotiated see galligan v commissioner tcmemo_1993_605 based on the record the most that can be said is that petitioner apprised anacker of a potential action for breach of the covenant of good_faith and fair dealing implied in a claimed employment contract with abmi even if we accept arguendo that petitioner's employment was not at-will and that there was a breach of an implied covenant the relief for such a breach is limited under california law to traditional contractual remedies see mundy 3california labor code sec west provides in relevant part an employment having no specified term may be terminated at the will of either party on notice to the other 4we note that even in the case of at-will employment tort remedies are available to an employee if he or she is terminated in contravention of public policy e g tameny v atlantic richfield co p 2d cal employer's continued v household finance corp 885_f2d_542 9th cir citing foley v interactive data corp p 2d sec_104 excludes only damages received on account of the prosecution or settlement of tort or tort type claims not the prosecution or settlement of economic rights arising out of a contract commissioner v schleier u s ____ 115_sct_2159 to the extent petitioner argues that the broad definition of a claim in the agreement with abmi covers potential claims for personal injuries thereby qualifying the settlement for exclusion under sec_104 we are not persuaded the existence of an agreement that contains a release of undisclosed or potential claims is not sufficient evidence in and of itself that the amounts paid under that agreement are eligible for sec_104 exclusion galligan v commissioner supra furthermore even if we were to set_aside the question of the payor's intent we find that based on the record petitioner's claims of tortious injury from his firing were motivated in this matter not by actionable injury to petitioner but rather by the tax advantage resulting to him for settlement on that ground knuckles v commissioner tcmemo_1964_33 affd 349_f2d_610 10th cir continued authority over its employee does not include the right to demand that the employee commit a criminal act to further its interests petitioner has failed to demonstrate however that it was ever the intent of the payor to settle such a claim based on the foregoing we find that the proceeds of petitioner's settlement with abmi are not excludable under sec_104 accordingly respondent is sustained on this issue self-employment_tax respondent determined in the notice_of_deficiency that due to adjustment to petitioner's schedule c income petitioner was liable for self-employment_tax under sec_1401 in the amount of dollar_figure in opposition petitioner argues that the settlement was excludable under sec_104 and therefore improperly reported by abmi as nonemployee income on irs form_1099 we find however that petitioner's arguments on this point are moot as we have already held for respondent on the question of whether the settlement was excludable from petitioner's income accordingly respondent is sustained on this issue as well sec_6662 penalty respondent determined an accuracy-related_penalty under sec_6662 with respect to petitioner's federal_income_tax return for negligence or disregard of rules or regulations in pertinent part sec_6662 imposes an accuracy-related_penalty equal to percent of the portion of an underpayment_of_tax that is attributable to negligence or disregard of rules or 5in computing petitioner's self-employment_income in the rule computation allowance will be made for respondent's concession that petitioner is entitled to schedule c deductions for in the amount of dollar_figure regulations sec_6662 c sec_6662 defines negligence as including any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and defines disregard as including any careless reckless or intentional disregard petitioner has conceded that he failed to report the receipt of interest dividends and capital_gains during the taxable_year petitioner seeks to avoid imposition of a penalty under sec_6662 for this omission by arguing that it was attributable to the late receipt of a form_1099 from merrill lynch we find this explanation to be self-serving and lacking credibility furthermore petitioner failed to offer any evidence as to why an amended_return was not filed to report this income once the form_1099 was received based on the record we also find that petitioner was negligent in reporting his receipt of the settlement from abmi accordingly respondent's determination of an accuracy- related penalty is sustained decision will be entered under rule


t c memo united_states tax_court bausch lomb incorporated and consolidated subsidiaries commissioner of internal revenue respondent petitioner v docket no filed date roger j jones kim marie k boylan andrew r roberson and sarah s sandusky for petitioner daniel a rosen for respondent memorandum opinion kroupa judge this partner-level matter is before the court on respondent’s motion to dismiss for lack of jurisdiction respondent issued a deficiency_notice determining a dollar_figure deficiency in petitioner’s federal_income_tax for a dollar_figure deficiency for and a dollar_figure deficiency for the deficiency_notice respondent also determined accuracy-related_penalties under section of dollar_figure for dollar_figure for and dollar_figure for the deficiencies and penalties flow from determinations in a notice of final_partnership_administrative_adjustment for tax years and the fpaa issued to wilmington partners lp wilmington the parties agree that the deficiency_notice adjusts only partnership items or affected items related to wilmington and that the partnership-level proceeding contesting the determinations in the fpaa wilmington partnership proceeding has not concluded petitioner argues however that the deficiency_notice is valid because the fpaa adjusts only partnership items and no fpaa was issued for the sole issue for decision is whether the deficiency_notice is invalid because it determines deficiencies and penalties that flow from the fpaa and the ongoing wilmington partnership proceeding has not been resolved we hold that the deficiency_notice is invalid and we do not have jurisdiction to redetermine the deficiency we shall therefore grant respondent’s motion 1all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated 2wilmington undertook restructuring transactions in that caused it to treat itself as terminated under sec_708 on date accordingly wilmington treated itself as having two separate tax years and filed two partnership returns for background the facts we recite are uncontested facts admitted in the petition respondent’s motion petitioner’s objection to respondent’s motion and the supporting memorandum or the exhibits attached to these documents petitioner is a corporation with its principal_place_of_business in rochester new york it is the common parent of an affiliated_group that filed a consolidated_return of income for a member of this group petitioner’s wholly owned subsidiary b l international holdings corp blihc was the majority partner of wilmington until the deficiencies determined in the deficiency_notice resulted from respondent’s disallowance of carryforward losses related to blihc’s sale of its interest in wilmington and correlative adjustments to credits and alternative_minimum_tax petitioner timely filed a petition to redetermine the adjustments in this deficiency_notice respondent filed a motion to dismiss for lack of jurisdiction and it is this motion that we address the adjustments in the deficiency_notice stem from a financing_transaction that respondent challenges in disallowing the carryforward losses respondent determined in the fpaa that blihc inflated its basis in wilmington as a result of the financing_transaction we now turn to that transaction petitioner engaged in a financing_arrangement in that created an influx of capital priced like debt to maintain petitioner’s favorable credit rating the financing_transaction involved blihc four banks wilmington and an unrelated partnership bobcat bobcat contributed approximately dollar_figure million in loan proceeds for its interest in the partnership blihc contributed a note the reset note and dollar_figure to wilmington in exchange for a partnership_interest blihc claimed a dollar_figure million basis the note’s face value in the reset note several entities controlled by petitioner also contributed operating businesses and cash in exchange for partnership interests in wilmington wilmington continued to hold operational businesses in when blihc sold a portion of its wilmington interest to an unrelated party for dollar_figure petitioner claimed a dollar_figure capital_loss related to the sale dollar_figure million capital_loss on its consolidated_return petitioner computed this loss using blihc’s basis in its sold wilmington interest that was attributable in part to blihc’s dollar_figure million claimed basis in the reset note petitioner also claimed capital_loss carryovers as a result of this sale in taxable years and respondent issued the fpaa to wilmington in response to petitioner’s claimed dollar_figure million capital_loss respondent made several determinations in the fpaa including a determination that the reset note had a zero basis at the time it was contributed to wilmington wilmington’s tax_matters_partner tmp filed a petition in the wilmington partnership proceeding at docket no which is currently pending respondent issued a deficiency_notice to petitioner for the taxable years separate from the deficiency_notice at issue in this case the determinations in both deficiency notices arise from respondent’s determination in the fpaa that blihc had a zero basis in the reset note rather than the dollar_figure million basis claimed petitioner filed a petition for redetermination of the deficiencies on the ground that respondent improperly adjusted the basis of the reset note in and we granted respondent’s motion to dismiss for lack of jurisdiction in an unpublished order at docket no bausch lomb i on date we concluded that the deficiency_notice was invalid because the determinations in that deficiency_notice all resulted from the determination in the fpaa that the reset note had a zero basis and the wilmington partnership proceeding had not concluded petitioner appealed our order dismissing bausch lomb i to the united_states court_of_appeals for the second circuit and the appeal is pending the issue presented in bausch lomb i is identical to the issue before us now we shall therefore grant respondent’s motion for the same reasons as further discussed discussion we must decide whether a deficiency_notice is valid if it determines deficiencies and penalties that flow from a previously issued fpaa and the partnership-level case contesting the fpaa’s determinations has not been resolved we hold that the deficiency_notice is invalid we begin with our jurisdiction this court is a court of limited jurisdiction and we may exercise jurisdiction only to the extent provided by statute sec_7442 114_tc_519 our jurisdiction to redetermine a deficiency in tax depends on a valid deficiency_notice and a timely filed petition gaf corp subs v commissioner supra pincite a taxpayer may generally file a petition for redetermination of a deficiency with this court after receiving a deficiency_notice sec_6213 special rules apply however for certain partnerships and their partners partnerships do not pay federal_income_tax but they are required to file annual information returns reporting the partners’ distributive shares of income deductions and other tax items sec_701 sec_6031 the individual partners then report their distributive shares of the tax items on their federal_income_tax returns see secs congress enacted the unified_audit and litigation procedures of the tax equity and fiscal responsibility act of tefra to provide consistent treatment of partnership items among partners in the same partnership and to ease the substantial administrative burden that resulted from duplicative audits and litigation see petaluma fx partners llc v commissioner t c __ __ slip op pincite the parties acknowledge that the tefra rules apply because the deficiencies arise from blihc’s status as a partner in wilmington a tefra partnership under sec_6231 accordingly we must analyze the jurisdictional issue presented under the specific tefra statutes and the related caselaw under the tefra rules partnership items are determined in partnership-level proceedings while nonpartnership_items are determined at the individual partner level sec_6221 97_tc_575 a partnership_item is any item required to be taken into account for the partnership’s taxable_year to the extent regulations specify it is an item more appropriately determined at the partnership level rather than the partner level sec_6231 partnership-level determinations also impact certain items of individual partners these are referred to as affected items and their resolution depends on partnership-level determinations sec_6231 87_tc_783 deficiency procedures apply to affected items that require partner-level determinations sec a a i this court does not have jurisdiction however to consider partnership items in a partner-level proceeding resulting from the issuance of a deficiency_notice 95_tc_560 further no assessment of a deficiency attributable to any partnership_item may be made until the partnership-level proceeding is completed sec_6225 see gaf corp subs v commissioner supra pincite accordingly a deficiency_notice adjusting affected items is generally invalid if it is issued before the conclusion of the partnership proceeding and we have no jurisdiction see gaf corp subs v commissioner supra pincite soward v commissioner tcmemo_2006_262 we now determine whether we have jurisdiction over the deficiency_notice petitioner acknowledges that the wilmington partnership proceeding is pending and that the deficiency_notice contains adjustments to partnership items and affected items related to blihc’s basis in the reset note petitioner argues however that blihc’s basis in the reset note was a partnership_item only in the year of contribution and therefore respondent adjusted the basis in the wrong years ie and petitioner further argues that the deficiency_notice is valid and we have jurisdiction because no fpaa was issued for the year of contribution petitioner attempts to make a back-door argument that the court in determining the validity of the deficiency_notice is required at the partner level to answer the substantive question of whether respondent adjusted blihc’s basis in the reset note in the wrong year or years we disagree respondent determined in the fpaa that the reset note had a zero basis at the time blihc contributed it to wilmington each of the adjustments in the deficiency_notice flows from this determination in the fpaa a partner’s basis in contributed_property is a partnership_item when the partnership needs to make a determination with respect to the partner’s basis for purposes of its books_and_records or for purposes of furnishing information to a partner 129_tc_30 see sec_301_6231_a_3_-1 c proced admin regs the critical element is that the partnership needs to make a determination with respect to the partner’s basis for the purposes stated and the partnership’s failure to actually make a determination does not prevent an item from being a partnership_item see sec_301_6231_a_3_-1 proced admin regs petitioner provides no authority for the argument that a partner’s basis in contributed_property is a partnership_item only in the year of contribution and we find none partnership items are defined to include a partner’s basis in contributed_property when a partnership must account for the partnership’s basis in the contributed_property for purposes of its books_and_records or for purposes of furnishing information to a partner sec_301_6231_a_3_-1 proced admin regs see also nussdorf v commissioner supra pincite accordingly the necessary facts are available only at the partnership level to determine whether the partnership was required to make a determination with respect to blihc’s basis in the reset note for these purposes 3a partnership determines its basis in contributed_property by making a preliminary determination of the partner’s basis in the property at contribution and then adjusting its basis in the property where subsequent events require petitioner’s argument that we must address at the partner level whether respondent adjusted blihc’s basis in the reset note in the wrong years is misplaced petitioner cites several cases where this court determined that we had jurisdiction to redetermine deficiencies attributable to affected items to support its argument see 127_tc_75 110_tc_172 102_tc_550 94_tc_853 gustin v commissioner tcmemo_2002_64 these cases are inapposite as no fpaas were issued in these cases and no partnership-level proceedings were pending here the related wilmington partnership proceeding is ongoing and there wilmington’s tmp is making the argument that the commissioner adjusted blihc’s basis in the reset note in the wrong years further the cases petitioner cites involved arguments by taxpayers that we lacked jurisdiction in deficiency proceedings because the deficiencies were attributable to partnership items rather than affected items the court determined in each case that the deficiencies were attributable to affected items but in doing so determined that the deficiencies were not attributable to partnership items these cases do not stand for the proposition that a partner may make a substantive argument at the partner level contesting the adjustment of a partnership_item in an fpaa we decide at the partnership level substantive arguments challenging whether items related to contributions or distributions are actually partnership items see dakotah hills offices ltd pship v commissioner tcmemo_1996_35 petitioner’s substantive argument that blihc’s basis in the reset note was adjusted in an improper year does not provide jurisdiction where none exists to determine a partnership_item in a partner-level case this court may exercise jurisdiction only to the extent expressly provided by statute and it may not enlarge upon that statutory jurisdiction see sec_7442 66_tc_61 see also rule further the remaining determinations in the deficiency_notice depend on the resolution of blihc’s basis in the reset note these determinations are affected items that cannot be litigated now but must wait until the wilmington partnership proceeding is finalized see 114_tc_519 n c f energy partners v commissio89_tc_741 we conclude that respondent improperly issued the deficiency_notice determining petitioner’s deficiencies and penalties related to blihc’s basis in the reset note before the decision of this court has become final in the ongoing wilmington partnership proceeding see gaf corp subs v commissioner supra pincite maxwell v commissioner t c pincite accordingly we hold that the deficiency_notice is invalid and there is no jurisdictional basis upon which the court may consider the adjustments in this case to reflect the foregoing an order of dismissal for lack of jurisdiction will be entered


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 b06 plr-105558-11 date date legend fund ------------------------------------------------------------ -------------------------------------------------- ---------------------------------------------------------------- interest dollar_figurex state x y dear -------------- ------------------------------------------------------ ------------- -------------- ---- this letter responds to the letter from your authorized representative dated date requesting a ruling that the interest as described below constitutes equity for federal_income_tax purposes fund is a closed-end management company that qualifies as a regulated_investment_company within the meaning of sec_851 of the internal_revenue_code assets of fund consist predominantly of debt instruments generating interest exempt from federal_income_tax and state_income_tax and other investments that are incidental to fund’s business of investing in such debt instruments fund’s common shares are listed on the new york stock exchange fund intends to issue the interest which will be similar to auction rate or remarketed preferred_stock ie auction_rate_preferred_stock except that the interest will have features intended to make it an eligible investment for money market funds under the plr-105558-11 securities and exchange commission’s rule 2a-7 c f_r 2a-7 issued under the investment_company act of the investment_company act in particular the interest will offer its holders the benefit of a liquidity facility that will be provided by a bank or other financial_institution the bank bank will not be related to fund under sec_267 or sec_707 of the code holders of the interest will be entitled to tender their shares of the interest for remarketing periodically or in the event of a failed remarketing for purchase by bank in either case at the liquidation preference of the interest plus accumulated but unpaid dividends the purchase_price each share of the interest will have a fixed liquidation preference of dollar_figurex and a dividend rate that will normally be reset every seven days each reset period a rate period fund will be able to pay dividends on the interest only if the dividends are duly declared by fund’s board_of directors the board and paid out of legally available funds as provided under state x law an unaffiliated remarketing agent the remarketing agent will be responsible for setting the dividend rate for each rate period the dividend rate for any particular rate period will be the lowest rate as determined by the remarketing agent which results in the interest on the first day of the rate period having a market_value equal to the purchase_price at no time however may the interest dividend rate exceed the maximum dividend rate the maximum rate calculated for each rate period in a manner spelled out in the organizational documents establishing the interest for any rate period in which bank holds interest acquired under the liquidity facility the dividend rate will be the maximum rate for any particular rate period the maximum rate will be the applicable_percentage the applicable_percentage of the applicable_base rate the applicable_base rate plus the applicable spread the applicable spread in general the applicable_percentage will vary depending on the long-term credit rating if any assigned to the interest and will also be adjusted upwards with respect to any part of any interest distribution that is characterized as taxable_income rather than as income exempt from regular federal_income_tax the applicable_base rate will vary depending on the length of the rate period and the applicable spread will vary depending on how long bank holds interest purchased under the liquidity facility if any the actual range of the applicable_percentage the applicable_base rate and the applicable spread will depend on market conditions at the time the interest is issued in no event will the maximum rate on the interest exceed a designated ceiling rate disregarding adjustments for any part of any interest distribution that is characterized as taxable_income rather than as tax-exempt_income as in the case of the applicable_percentage the applicable_base rate and the applicable spread the actual ceiling rate will depend on market conditions at the time the interest is issued fund may redeem interest shares at its option at any time interest shares must be redeemed either a as a whole on a specified date that is y years after issuance or b plr-105558-11 to the extent the asset coverage ratio ie the ratio of the value of fund’s assets to the aggregate liquidation preference of the interest falls below or higher asset coverage ratio that depending on market conditions may be established at the time the liquidity facility is entered into section a of the investment_company act effectively requires minimum asset coverage of with respect to closed-end fund preferred_stock fund like other closed-end fund issuers of preferred_stock may also be required to redeem interest in order to maintain asset coverage requirements imposed by nationally recognized statistical rating organizations nrsros in connection with their long-term ratings of the interest if any under nrsro guidelines fund may be required to maintain assets having in the aggregate a discounted value at least equal to a basic maintenance amount the discounted value of fund’s underlying assets is calculated based on credit ratings diversification and other criteria provided by the nrsros the basic maintenance amount equals the liquidation preference of the interest plus certain of fund’s accrued and projected obligations in addition as discussed below any interest shares acquired by bank pursuant to the liquidity facility and held by bank for a continuous period of at least six months during which period continuing efforts will be made to remarket the shares will be subject_to mandatory redemption by fund the redemption price for each interest share in each case will equal the purchase_price all redemptions of interest are subject_to applicable state x law restrictions on stock redemptions interest shareholders will have the option at any time to tender their interest for remarketing at the purchase_price on a specified purchase date the purchase date generally the purchase date will be any business_day that is not less than seven days after the interest shareholder delivers a notice of tender in addition the interest will be subject_to mandatory tender for remarketing by the remarketing agent at the purchase_price upon any of the following events the mandatory tender events a a failure by fund to make a scheduled payment of dividends on the interest b a failure by bank to maintain short-term debt ratings in one of the two highest ratings categories c a failure by fund to pay bank any liquidity fee due in advance by seven business days before the start of the month to which the fee relates if bank in its sole discretion provides written notice to fund that such failure will trigger a mandatory tender d the eighth day prior to the scheduled occurrence of an extraordinary corporate event with respect to bank e fund having obtained a liquidity facility with a party other than bank by the fifteenth day prior to the scheduled or other type of termination of the liquidity facility with bank f fund having provided notice of a proposed special rate period ie a rate period longer than fund’s ordinary seven-day rate period or g if the liquidation preference of the interest and fund’s other senior securities if any as defined in the investment_company act and certain other liabilities if any exceeds a designated percentage of the value of fund’s assets if bank in its sole discretion provides written notice to fund that such failure will trigger a mandatory tender an extraordinary corporate event with respect to bank means a dissolution of bank it also means the consolidation or merger of bank into another entity or the transfer of all or substantially_all of the assets of bank to another entity unless before the consolidation merger or plr-105558-11 transfer bank confirms that the surviving entity or transferee a will assume all of bank’s obligations under the liquidity facility and b have short-term debt ratings in one of the two highest categories based on fund’s experience and discussions with investors it is believed that the mandatory tender events described above represent situations in which interest holders will want to dispose_of their interest and will ordinarily do so through the remarketing mechanism by making these situations mandatory tender events fund is assuring investors that their interest shares will be remarketed or sold to bank in the event of a failed remarketing in these situations whether or not the investors are aware that situations have occurred investors are free to re-acquire the remarketed shares if they choose investors have come to expect such accommodations in respect of previously issued similar remarketed preferred securities as well as variable rate demand obligations issued by municipalities in each case the remarketing agent will use its best efforts to remarket any interest shares tendered a remarketing fails to the extent that any interest shares tendered for remarketing remain unsold on the purchase date in which case the interest shares will be delivered to bank for purchase under the liquidity facility in addition all outstanding interest shares must be tendered to and purchased by bank a mandatory purchase upon a failure to renew replace or extend the liquidity facility either with bank or another liquidity provider at least days before the liquidity facility is scheduled to terminate all current and future holders of interest will be designated third-party beneficiaries of the liquidity facility and will have the right to enforce the liquidity facility directly against bank even if bank purchases interest pursuant to the liquidity facility efforts to remarket the interest including both shares tendered by investors and shares purchased by bank will continue if bank holds any share of interest acquired pursuant to the liquidity facility for a continuous period of at least six months however fund will be required to redeem that share of interest from bank at a price equal to the purchase_price redemptions of bank’s interest by fund will be subject_to the state x law restrictions applicable to all stock redemptions except for the special redemption right provided to bank as liquidity provider neither bank nor any subsequent holder of interest will have any greater rights with respect to the interest than other holders of the interest under the terms of the liquidity facility or the terms of the interest and neither bank nor any subsequent holder of interest will have any greater rights with respect to the interest than other holders of the interest under state x law fund has requested a ruling that interest will be treated as equity for federal_income_tax purposes plr-105558-11 in connection with this submission fund makes the following representations a b c d e f g h fund is authorized under its corporate charter to issue interest the shares of interest as required by the investment_company act will rank on a parity with any other series of preferred shares of fund as to the payment of dividends and the distribution of assets upon dissolution liquidation or winding up of the affairs of fund interest will have preference with respect to the payment of dividends and as to the distribution of assets upon dissolution liquidation or winding up of the affairs of fund over the common shares of fund as described in the appropriate documents no holder of interest will have solely by reason of being such a holder any preemptive or other right to acquire purchase or subscribe for any common or preferred shares or other_securities of fund which it may hereafter issue or sell the holders of interest will be entitled to receive when as and if declared by or under the authority granted by the board out of funds legally available therefore and in preference to dividends and distributions on common shares of fund cumulative cash dividends and distributions on each share of such interest in the event of any liquidation dissolution or winding up of the affairs of fund whether voluntary or involuntary the holders of interest will be entitled to receive a liquidation distribution out of the assets of fund available for distribution to shareholders after fund satisfies claims of creditors but before fund makes any distribution or payment in respect of the common shares fund will redeem all shares of interest at a price per share described in the appropriate documents but only out of funds legally available therefore under state x corporate law as required by the investment_company act the holders of interest will possess voting rights that are at least as extensive as the voting rights possessed by holders of fund’s common shares based on the information submitted and the representations provided we rule that the interest will be treated as equity for federal_income_tax purposes the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed plr-105558-11 by an appropriate party while this office has not verified any of the material submitted in support of the request for a ruling 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 sincerely alfred c bishop jr branch chief branch corporate cc


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp b05-plr-102197-01 date date legend parent buyer sub parent’s company officer tax professional date a date b date c date d the following is a duplicate private_letter_ruling issued in response to your letter dated date the original private_letter_ruling was issued from our office on date you have stated that the original private_letter_ruling was mailed date but that due to internal misrouting of the mail you did not locate the letter until date you filed an amended_return on date to which you attached the original private_letter_ruling you are concerned that the service_center will reject your filing of the amended_return on the basis that it was not filed within days of date and are therefore requesting additional time in which to file this duplicate copy plr-102197-01 in a letter dated date a request was made for an extension of time under sec_301_9100-1 through of the procedure and administration regulations to make an election parent as the common parent of the consolidated_group of which sub was a member is requesting the extension to file a statement of allowed loss under sec_1 c of the income_tax regulations sometimes hereinafter referred to as the statement or the election for the taxable_year ending on date b additional information was received in a letter dated date the material information is summarized below parent is the common parent of a consolidated_group that has a calendar taxable_year and that uses the accrual_method of accounting sub was a wholly owned subsidiary of parent and sub was included in parent's consolidated federal_income_tax return on date a parent sold all of the stock of sub to buyer an unrelated corporation it is represented that parent deducted the loss on its return for its taxable_year ending on date b an election under sec_338 of the internal_revenue_code was not made with respect to the sale and the amount parent deducted was determined in accordance with sec_1 c on date c parent filed its return for its taxable_year ending on date b date c was the extended due_date of such return the statement was not attached to the return or otherwise filed sec_1 a provides that as a general_rule no deduction is allowed for any loss recognized by a member of a consolidated_group with respect to the disposition of stock of a subsidiary sec_1 a provides that a disposition means any event in which gain_or_loss is recognized in whole or in part sec_1 c as a general_rule allows a deduction for a loss disallowed by sec_1 a to the extent that it exceeds an amount determined by a specified formula sec_1 c provides that the loss allowed under sec_1 c applies only if a statement of allowed loss is filed with the taxpayer's return for the year of disposition parent as the common parent of the consolidated_group was required by sec_1 c to make and attach the statement to its return for the year of disposition in order to deduct the amount if any of the loss not disallowed on date c parent filed its return for its taxable_year ending on date b the taxable_year in which the sale occurred however for various reasons the statement was not filed on or about date d tax professional discovered that the statement had not been filed subsequently this request under sec_301_9100-1 for an extension of time to file the statement was submitted to the service the statute_of_limitations under sec_6501 has not run for parent's taxable_year that included the sale or any subsequent year under sec_301_9100-1 the commissioner has discretion to grant a reasonable 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 plr-102197-01 sec_301_9100-1 defines the term regulatory election as including an 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 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 in this case the time for filing the statement was fixed by the regulations ie sec_1 c therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the statement provided parent 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 information affidavits and representations submitted by parent's company officer and tax professional explain the circumstances that resulted in the failure to timely file the statement the information establishes that a tax professional was responsible for the statement that parent relied on the tax professional to timely file the statement and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations that have been made we conclude that parent acted reasonably and in good_faith in failing to timely file the statement 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 subject_to the below conditions we grant an extension of time under sec_301_9100-1 until days from the date_of_issuance of this letter for parent to file the statement with respect to the disposition of sub on date a as described above the above extension of time is conditioned on i the purported date a sale constituting a valid disposition within the meaning of sec_1 of sub's stock in the taxable_year ending on date b and ii the taxpayers' parent's any other member of parent's group buyer's and sub's tax_liability being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the district director's office 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 taxpayers' liability is lower sec_301_9100-3 plr-102197-01 parent must amend its return for its taxable_year ending on date b to attach to the return the statement and information set forth in sec_1 c in addition parent should attach a copy of this letter to the amended_return also parent must give a copy of the statement and this letter to the revenue_agent examining parent's consolidated_return for the taxable_year ending on date b we express no opinion as to whether parent's sale of sub stock to buyer on date a was an arm's length transaction whether the sale price represented fair_market_value whether parent recognized a loss on the sale if a loss was recognized on the sale the amount of the loss and if a loss was recognized on the sale the amount of the loss disallowed if any in addition no opinion is expressed as to the tax effects or consequences of filing the 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_9100-1 we relied on certain statements and representations made by the taxpayers and their employees however the district_director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours by branch chief branch


internal_revenue_service number release date index number ------------------------ --------------------- -------------------------------------- ------------------------------- - department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b07 - plr-149179-02 date date f g p a b c d e --------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------- --------------------------------------------- --------------------------------------------- ---------------------------------------------------------- ------------------------------------------------------ --------------------------------------------------------------- --------------------------------------------------------------------------------- legend ---------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ ------------------------------------------ --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- ------------------------------- -------------------- ----------------------- ------------------------------------- ------------------------- ----------------------------------------- ------------------------------ ----------------------- ------------------------------------------------------ ------------------------------------------------- ------ ------ ----- ------ --------------------------------------------------------------------------------- i j k l m n o q u v x y z aa bb h -- ---- -------------------------------- ------------------------- --------------------------- --------------------------- --------------------------- ----------------- --------------------------- --------------------------- cc dd date ---------date date date date date date date dear mr --------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of p and a jointly by their authorized representative requesting rulings under sec_29 and sec_702 of the internal_revenue_code the facts as represented by p and p s authorized representative are as follows p is a limited_liability_company formed for the purpose of acquiring relocating and operating three separate facilities for the production of solid synthetic_fuel from coal p acquired and relocated one synthetic_fuel facility facility to the x site on date p received plr-121906-00 which rules on issues similar to those addressed by this letter p seeks a confirmation of the rulings in light of the relocation of the facility from the x site to the v site the operation of the facility at the v site and p s plan to transfer the facility to a and to distribute its entire membership interest in a to certain of its members as described in the ruling_request and subsequent correspondence by p's authorized representative it is possible that p may not make the transfer or distribution noted in the prior sentence p is classified as a partnership for federal tax purposes the original members of p were b and c b holds a cc percent interest in p and is the managing member b and c are corporations that are wholly-owned subsidiaries of d d is engaged in a number of businesses directly and through affiliates including investments in the energy sector d is a wholly-owned subsidiary of e on date c sold its dd percent non-managing membership interest in p to affiliated corporations f y percent g z percent h aa percent and i bb percent for cash on date h and i merged into g a is a limited_liability_company that is wholly-owned by p a has not elected to be classified as a corporation for federal_income_tax purposes and therefore is disregarded as an entity separate from p following receipt by p of this private_letter_ruling p intends to transfer the facility and related contracts to a and to distribute its entire membership interest in a to b f and g after which time a will be classified as a partnership for federal_income_tax purposes whose partners are b f and g j entered into a construction_contract on date with a general contracting firm to build the facility the construction_contract was for a synthetic_fuel production facility for producing solid synthetic_fuel that was a aqualified fuel within the meaning of sec_29 p has provided an opinion of counsel that the construction_contract was a legal valid and binding obligation of j under applicable state law as of date in addition the construction_contract i provided for liquidated_damages of at least five percent of the contract_price ii included a description of the facility to be constructed iii provided for a completion date and iv provided for a maximum price p represents that the facility was placed_in_service within the meaning of sec_29 before date as described in the ruling_request and subsequent correspondence from p s authorized representative the facility consists of a high-speed mixer a ribbon blender and two pellet mills in the process by which synthetic_fuel is produced in the facility coal feedstock and a chemical reagent are mixed in the high-speed mixer and transported by gravity feed to the ribbon blender the ribbon blender provides additional blending and then distributes the mixture to the two pellet mills for final processing and delivery to the finished product conveyor belt the coal-based synthetic_fuel originally produced in the facility and other synthetic_fuel facilities by j was not commercially viable as a result j began using different chemical reagents to produce marketable synthetic fuels on date j sold the facility to p for a fixed dollar amount_paid in full in cash at closing the initial members of p b and c made capital contributions in cash to p in accordance with their ownership interests in an amount required to acquire and relocate the facility to the x site the members of p have made and will continue to make periodic cash capital contributions to p to pay operating costs with respect to the relocation and operation of the facility at the x site p entered into a number of auxiliary agreements with k l m and n k l m and n are unrelated to p p contracted with k to reassemble the facility at the x site p has represented that following the relocation of the facility to the x site the fair_market_value of the original property of the facility was more than percent of the facility s total fair_market_value the cost of the new property plus the value of the original property l the owner of the x site granted to p a lease at the x site to enable p to reassemble and operate the facility at the x site under the lease agreement p agreed to pay l a fixed monthly rent p entered into an agreement with l for the operation and maintenance of the facility l was subject_to the direction and control of p which had the sole authority to set production levels and make other strategic decisions l was paid a fixed fee which was reduced above a certain level of production per ton of synthetic_fuel produced subject_to a minimum annual operating fee and possible inflation adjustments every two years any capital costs associated with the facility were paid_by p and were required to be authorized by p pursuant to a coal feedstock purchase agency agreement m agreed to act as p s exclusive agent to arrange for the purchase by p of coal feedstock from third party suppliers under a synthetic_fuel purchase agreement m agreed to purchase all of the synthetic_fuel produced in the facility each year under the terms of the coal feedstock purchase agency agreement and synthetic_fuel purchase agreement if m did not arrange for the delivery of the entire supply of coal feedstock that it was required to arrange or did not purchase any portion of the synthetic_fuel it was required to purchase p was entitled to obtain coal feedstock from or sell synthetic_fuel to third parties pursuant to a separate agency agreement with n p could request that n act as its agent to arrange for the supply of any coal feedstock that m failed to deliver or arrange for the marketing of any synthetic_fuel that m failed to purchase in exchange for a fixed fee per ton of coal feedstock purchased or synthetic_fuel sold on date p terminated the coal feedstock purchase agency and synthetic_fuel purchase agreements with m and pursuant to the agency agreement between n and p requested that n arrange on p s behalf for the purchase of coal feedstock for use in the facility and the sale of synthetic_fuel produced in the facility p purchased coal feedstock and sold synthetic_fuel through n as its agent until date when it entered into new agreements with o pursuant to a coal feedstock purchase agency agreement between p and o o agreed to act as p s exclusive agent to arrange for the purchase by p of coal feedstock from third party suppliers under a synthetic_fuel purchase agreement o agreed to purchase a specified amount of the synthetic_fuel produced in the facility each year under the terms of the coal feedstock purchase agency agreement and synthetic_fuel purchase agreement if o did not arrange for the delivery of the entire supply of coal feedstock that it was required to arrange or failed to purchase any portion of the synthetic_fuel it was required to purchase p could have obtained coal feedstock from or sold synthetic_fuel to third parties both agreements between p and o expired on date p has relocated the facility from the x site to the v site with respect to the reassembly and operation of the facility at the v site p has entered into a number of auxiliary agreements with k u and q which are unrelated to p p plans to assign its rights under these agreements to a effective upon the transfer of the facility from p to a p contracted with k to reassemble the facility at the v site p has represented that following the relocation of the facility at the v site the fair_market_value of the original property of the facility will be more than percent of the facility s total fair_market_value the cost of the new property plus the value of the original property q owns v and has granted to p a lease at the site of v to enable p to reassemble and operate the facility under the lease agreement p agreed to pay q a fixed monthly rent p will also pay q a fee for assistance provided by q with respect to sales of synthetic_fuel to third parties pursuant to a coal feedstock purchase agency agreement q has agreed to act as p s exclusive agent to arrange for the purchase by p of coal feedstock from third party suppliers under a synthetic_fuel purchase agreement q agreed to purchase the synthetic_fuel produced in the facility up to a fixed amount each year under the terms of the coal feedstock purchase agency agreement and synthetic_fuel purchase agreement if q does not arrange for the delivery of the entire supply of coal feedstock that it is required to arrange or fails to purchase any portion of the synthetic_fuel it is required to purchase p may obtain coal feedstock from or sell synthetic_fuel to third parties p entered into an agreement with u for the operation and maintenance of the facility at the v site u is subject_to the direction and control of p which has the sole authority to set production levels and make other strategic decisions u is paid a fixed fee adjusted pursuant to a cost escalation provision per ton of synthetic_fuel produced in the facility any capital costs associated with the facility will be paid_by p and must be authorized by p p has represented that all sales of synthetic_fuel will be to unrelated persons p has supplied a detailed description of the process employed at the facility p also has indicated that from time to time several alternative chemical reagents identified in p s submissions may be used in the process as described the facility and the process implemented in the facility and the alternative chemical reagents used in the process meet the requirements of revproc_2001_34 2001_22_irb_1293 recognized experts in coal combustion chemistry conducted numerous tests on the fuel produced from coal feedstock using the process with each chemical reagent that was used in the facility at the x site or after relocation to the v site is or may be used at the v site and have submitted multiple reports in which the experts conclude that significant chemical changes take place with the application of the process to the coal the rulings issued in plr-121906-00 which you wish to be reconfirmed in this private_letter_ruling are as follows p both before and after its reconstitution with the use of the process and the chemical reagents will produce a qualified_fuel within the meaning of sec_29 both before and after p’s reconstitution the production of the qualified_fuel from the facility will be attributable solely to p entitling p to the sec_29 credit for the production of qualified_fuel from the facility that is sold to an unrelated_person the contract for the construction of the facility constitutes a abinding written contract in effect before date for purposes of sec_29 the sec_29 credit attributable to p may be passed through to and allocated among the members of p both before and after the reconstitution in accordance with the principles of sec_702 in accordance with each member s interest in p at the time the sec_29 credit arises for the sec_29 credit a member s interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel the acquisition of the facility by p will not affect the placed_in_service_date of the facility for purposes of sec_29 any termination of p under sec_708 arising from sales or exchanges of interests in p including the termination of p arising from the sale by c of its dd percent interest in p to f g h and i will not preclude p as reconstituted from taking the sec_29 credit for the production and sale of qualified_fuel to unrelated persons and if the facility was aplaced in service prior to date within the meaning of sec_29 the relocation of the facility to the x site or other location after date or replacement of parts of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property of the facility is more than percent of the facility s total fair_market_value at the time of the relocation or replacement the changes in facts since the issuance of plr-121906-00 are i the relocation of the facility from the x site to the v site ii the operation of the facility at the v site as described above and iii the plan to transfer the facility to a and to distribute all of p s interest in a to b f g h and i as described in the ruling_request and subsequent correspondence by p's authorized representative the rulings set forth in plr-121906-00 are not affected by these changed facts representative we conclude as follows accordingly based on the representations of p and p s authorized prior to any distribution by p of all the interests in a to b f and g p with the use of the process and the chemical reagents produces a aqualified fuel within the meaning of sec_29 prior to any distribution by p of all the interests in a to b f and g the production of the qualified_fuel from the facility is attributable solely to p entitling p to the sec_29 credit for the production of qualified_fuel from the facility that is sold to an unrelated_person the contract for the construction of the facility constitutes a abinding written contract within the meaning of sec_29 the sec_29 credit attributable to p may be passed through to and allocated among the members of p in accordance with the principles of sec_702 in accordance with each member s interest in p at the time the sec_29 credit arises for the sec_29 credit a member s interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel the acquisition of the facility by p any transfer of the facility by p to a and any distribution by p of all the interests in a to b f and g do not affect the placed_in_service_date of the facility for purposes of sec_29 any termination of p under sec_708 arising from sales or exchanges of interests in p including any termination arising from the sale by c of its dd percent interest in p to f g h and i does not preclude p as reconstituted from taking the sec_29 credit for the production and sale of qualified_fuel to unrelated persons and if the facility was aplaced in service prior to date within the meaning of sec_29 the relocation of the facility to the x site or other location including the relocation of the facility to the v site after date or replacement of parts of the facility after that date does not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property of the facility is more than percent of the facility s total fair_market_value at the time of the relocation or replacement we express no opinion on when the facility was placed_in_service requirements that the taxpayer i maintain sampling and quality control procedures that conform to astm or other appropriate industry guidelines at the facility that is the subject of this letter ii obtain regular reports from independent laboratories that have the conclusions drawn and rulings given in this letter are subject_to the analyzed the fuel produced in such facility to verify that the coal used to produce the fuel undergoes a significant chemical change and iii maintain records and data underlying the reports that taxpayers obtain from independent laboratories including raw ftir data and processed ftir data sufficient to document the selection of absorption peaks and integration points except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above specifically we express no opinion on when the facility was placed_in_service or how the partners interests in p are determined this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in this ruling see section dollar_figure of revproc_2003_1 2003_1_irb_1 however when the criteria in section dollar_figure of revproc_2003_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to p’s authorized representative sincerely yours joseph h makurath senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc