department of the treasury internal_revenue_service washington d c bpi ie ter ras t l 26l ow o0 fer yo - o o yosdollar_figure oo attention companya companyb company c companyd companye state m state n dear this is in response to your ruling_request dated date in which you request rulings regarding certain u s federal_income_tax consequences of the proposed conversion of company a a state m mutual_life_insurance_company into a stock corporation the conversion and the merger of company b a wholly-owned subsidiary of company c with and into company a the merger which will follow immediately after the conversion letters dated date and date supplemented the request company a is a mutual_insurance_company company a files a calendar_year consolidated federal_income_tax return for the affiliated_group of which it is the common parent company a reports its taxable_income on the accrual basis company a does not have any loss carry-forwards to company a organized under the laws of state m whose business is concentrated in life_insurance products company a offers a broad range of life_insurance and variable page annuity products and related_services for federal_income_tax purposes company a qualifies as a life_insurance_company taxable under part of subchapter_l of the code as a mutual_life_insurance_company company a has no authorized issued or outstanding capital stock pursuant to state m law and company a's articles of incorporation and by-laws company a's policyholders through the purchase of its insurance policies acquire both insurance coverage from and membership rights in company a the membership rights of policyholders consist principally of the right to vote in the election of directors of company a and the right to share in any residual_value of company a in the event that company a were to be liquidated each company a policyholder is entitled to one vote regardless of the number or size of the policies that he or she holds company c is a corporation organized under the laws of the state n it was formed in as a holding_company for company d and other companies that comprise the retirement savings operations of the company e group of companies company c is a leading provider of long-term savings and retirement products in the united_states the shares of class a common_stock of company c the company c class a shares are registered under the securities exchange act of as amended all the shares of class b common_stock of company c the company c class b shares are held by company e the company c class b shares held by company e currently represent approximately of the total number of outstanding shares of all classes of common_stock the company c class a shares and company c class b shares vote together as a single class on all matters with the company c class b shares having votes per share compared to one vote per company c class a share as a result company e currently holds in excess of of the voting power of company c company b will be formed as a state m corporation for the purpose of completing the merger prior to the effective date of the conversion and merger the effective date company b will be a wholly-owned subsidiary of company c company c will prior to the effective date contribute cash to company b in an amount equal to the total amount of cash and policy credits to be paid or funded by company c as consideration in the merger as discussed below company b will not have any other assets or liabilities company a sells various policies and contracts including certain tax advantaged products policyholders that hold policies that are in force on the date on which company a's board approves the plan of conversion will be eligible to receive consideration under the terms of the plan of conversion and the merger agreement it is anticipated that approximately eligible policyholders will be entitled to receive consideration under the terms of the plan of conversion and the merger agreement company a is expected to convert from a mutual_life_insurance_company to a stock company pursuant to a plan of conversion immediately following the conversion and pursuant to the same plan company b will merge with and into company a under the terms of an agreement and plan of merger dated among company c company b and company a the merger agreement in the conversion eligible policyholders of company a will be issued shares of voting common_stock of company a company a shares or for certain policyholders cash or policy credits with respect of the extinguishment of their membership interests in company a page eligible policyholders receiving cash or policy credits in the conversion will be those for whom the receipt of such consideration is mandatory under the terms of the plan of conversion and the merger agreement as described in more detail below company a shares issued in the conversion will be held by a conversion agent the conversion agent as stockholder of record on behalf of the eligible policyholders in the merger eligible policyholders of company a that received company a shares in the conversion will exchange those shares for company c class a shares or at their option and subject_to the limitations described in detail below cash or policy credits as used in the plan of conversion the term policy credit means consideration to be paid in the form of an increase in cash_value account value dividend accumulations face_amount extended term period or benefit payment as appropriate depending on the policy because state m law does not provide for demutualizations structured as reverse triangular mergers or permit the direct merger of a stock company into a mutual company it would not be possible for company a to become a wholly-owned subsidiary of company c through the merger of company b with and into company a without the prior conversion of company a from a mutual company to a stock company under state m law as a result it is necessary for company a to convert from a mutual_insurance_company to a stock corporation under state m law before company b can merge with and into company a as described above in addition because company a holds nontransferable licenses and policy form approvals necessary for the operation of its business and for other substantial business reasons company a must be the surviving entity in any merger state m law further provides that any such conversion and merger must be fair and equitable to the mutual company and its policyholders the plan of conversion including the merger must be approved by the commissioner of insurance of state m the commissioner who will approve the plan of conversion if after holding a public hearing thereon the commissioner determines that the plan of conversion complies with all provisions of state m law and is fair and equitable to the company and the policyholders of company a then before the conversion and the merger can become effective the plan of conversion must be put to a vote of members and approved by two-thirds of those who cast votes assuming these conditions are met company a expects the conversion and the merger to take effect in the first half of the principal purpose of the conversion is to convert company a from a mutual_life_insurance_company into a stock_life_insurance_company in order to enhance its strategic and financial flexibility to facilitate the acquisition of company a by company c and to make possible a distribution of value to eligible policyholders pursuant to the plan of conversion and the merger agreement on the effective date company a will be converted from a mutual_life_insurance_company into a stock company in accordance with the state m insurance_company mutual-to-stock conversion act as amended the conversion act immediately thereafter company b will merge with and into company a in accordance with the requirements of the conversion act and the applicable provisions of the state m business corporation law of it is anticipated that the following steps will occur on or prior to the effective date company c will make a capital_contribution in cash to company b in an amount equal to the excess of x the total amount of cash and policy credits that are to be paid or credited to page eligible policyholders in the transactions over y the total amount of cash and policy credits to be paid or funded by company a from its surplus as it existed prior to the conversion and merger the amount to be paid or funded by company a from its surplus as it existed prior to the merger will when added to the amount_paid or payable by company a in respect of costs and expenses_incurred in connection with the conversion and the merger be equal to of the value of company a as of the effective date without taking into account any diminution resulting from such costs and expenses company a will convert to a stock company under the plan of conversion eligible policyholders that are mandatory consideration recipients as defined below will receive cash or policy credits in respect of the extinguishment of their membership interests in the conversion the remaining eligible policyholders will be issued company a shares in respect of their membership interests in company a which will be evidenced by a single global certificate registered in the name of the conversion agent who will hold the shares on their behalf immediately following the conversion and under the terms of the plan of conversion the conversion agent will vote the company a shares in favor of the merger company b will merge with and into company a with company a as the surviving corporation the company a shares evidenced by the global certificate will be extinguished in exchange therefor eligible policyholders will be entitled to receive company c class a shares cash or policy credits determined as described below which it is expected will be transferred to eligible policyholders as soon as practicable following the effective date but in no event more than days after the effective date eligible policyholders who own the following types of policies mandatory policy credit policies will be required under the terms of the plan of conversion to receive policy credits in the conversion in exchange for their membership interests i a policy that is an individual_retirement_annuity contract ira within the meaning of sec_408 or sec_408a or a tax sheltered annuity_contract tsa within the meaning of sec_403 ' ii a policy that is an individual annuity_contract that has been issued pursuant to a plan qualified under sec_401 or sec_403 directly to the plan participant or iii a policy that is an individual life_insurance_policy that has been issued pursuant to a plan qualified under sec_401 or sec_403 directly to the plan participant the following eligible policyholders will be required under the terms of the plan of conversion to receive cash in the conversion in exchange for their membership interests i an eligible policyholder whose address for mailing purposes as shown on company a's records is located outside the united_states ii an eligible policyholder whose address for mailing purposes as shown on company a's records on the effective date is an address at which mail is undeliverable or deemed to be undeliverable in accordance with guidelines approved by the commissioner or page iii an eligible policyholder with respect to whom company a determines in good_faith to the satisfaction of the commissioner that it is not reasonably feasible or appropriate to provide consideration in the form that such eligible policyholder would otherwise receive eligible policyholders described in the preceding two paragraphs are referred to herein as mandatory consideration recipients all other eligible policyholders will be entitled to receive company a shares in the conversion which will be evidenced by the single global certificate issued to the conversion agent consideration in the conversion will be allocated among eligible policyholders in accordance with actuarial principles as described in the plan of conversion in the merger eligible policyholders who were issued company a shares in the conversion will exchange those shares for the right to receive company c class a shares cash or policy credits which will be transferred to them within no more than days following the merger eligible policyholders that own group annuity_contracts designed to fund benefits under a retirement_plan which is qualified under sec_401 or sec_403 of the code including a plan covering employees described in sec_401 that do not affirmatively elect to receive company c class a shares or cash in the merger will receive policy credits qualified_plan recipients in exchange for the company a shares held by the conversion agent on their behalf all other eligible policyholders will have the option of electing to receive cash rather than company c ciass a shares optional cash recipients and together with the qualified_plan recipients optional consideration recipients in exchange for the company a shares held by the conversion agent on their behalf it is possible that not all eligible policyholders expressing a preference for cash or optional policy credits in the merger will receive them instead the aggregate amount of cash and policy credits available will be limited as described in detail below if elections for cash and policy credits are over-subscribed available cash and policy credits will first be paid or credited to mandatory consideration recipients and will then be paid or credited sequentially to optional consideration recipients starting with electing eligible policyholders entitled to receive the smallest amount of consideration and continuing to electing policyholders receiving the largest amount of consideration at which all optional consideration recipients at that level of consideration can be paid with the available funds no policyholder will receive a combination of cash or optional policy credits and company c class a shares each company a share issued in the conversion to an eligible policyholder other than an optional consideration recipient will be exchanged in the merger for one company c class a share in a one for one exchange the amount of cash or value of policy credits received by each mandatory consideration recipient or optional consideration recipient in the conversion or the merger will be based on the number of company c class a shares such policyholder would have received if such policyholder had received company c class a shares in the merger and the average market_value of such company c class a shares for the consecutive trading days ending on the fifth trading day immediately preceding the effective date the amount of cash and value of the policy credits that may be paid or credited pursuant to the plan of conversion and the merger agreement in the aggregate will not exceed the sum of a the total amount_paid or credited that will be funded out of company a' s surplus as it existed prior to the merger which will be limited as described above plus b additional_amounts paid or credited with funds supplied by company c as a capital_contribution to merger sub which cannot exceed of the value of company a as of the page effective date after taking into account amounts paid or credited out of company a's surplus pursuant to clause a above the amount of cash and policy credits paid or credited will if necessary be further adjusted so that such amount will in no event exceed the amount necessary for special counsel to company a and special counsel to company c to deliver their opinions that the merger qualifies as a reorganization within the meaning of sec_368 all policies issued by company a and in force prior to the consummation of the plan of conversion will remain outstanding in accordance with their terms policy premiums and guarantees will not be affected by the consummation of the conversion and the merger nor will benefits payable under policies or policy values except in the case of policies whose holders will receive compensation in the form of policy credits policy dividends on participating policies will continue to be paid as declared - pursuant to the plan of conversion company a will for policyholder_dividend purposes only operate a closed block for the benefit of individual policies paying experience-based policy dividends the closed block for accounting purposes only assets of company a will be allocated to the closed block in an amount that produces cash flows which together with anticipated revenue from the closed block policies and contracts are expected to be sufficient to support the closed block policies including but not limited to provisions for payment of claims and certain charges and taxes and to provide for continuation of dividend scales payable for if the experience underlying such scales including the portfolio_interest rate continues and to allow for appropriate adjustments in such scales if such experience changes assets in the closed block remain as general account assets of company a and are fully subject_to the claims of creditors of company a like any general account assets _ the fair_market_value of company a stock received by its members together with the cash and policy credits will approximately equal the fair_market_value of the proprietary interests in company a except for company a shares to be exchanged in the merger company a has no plan to redeem or otherwise reacquire any of the stock to be issued in the recapitalization at the time of the recapitalzation company a will not have outstanding any warrants convertible securities or any other right that is convertible into any class of stock_or_securities of company a the recapitallization is a single isolated transaction and is not part of a plan to periodically increase the proportionate interest of any shareholder in the assets or earnings_and_profits of company a each of the parties to the recapitalization will pay its own expenses if any incurred in connection with the transaction company a is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 of the code based on the foregoing you request the following rulings for federal_income_tax purposes company a will have converted from a mutual company to a stock company prior to the merger of company b into company a as a result of the conversion the eligible policy holders of company a will receive cash policy credits or company a voting_stock in exchange for their membership interests the conversion of company a from a mutual_insurance_company to a stock insurance_company will constitute a recapitalization and therefore qualify as a reorganization page within the meaning of sec_368 of the code company a will be a party to the reorganization within the meaning of sec_368 of the code no gain_or_loss will be recognized by company a's eligible policyholders on the exchange of their membership interests solely for company a shares the basis of a company a membership interest is zero the basis of company a shares received in exchange for company a membership interests will equal the basis of company a membership interests surrendered therefor the holding_period of the company a stock received by a company a eligible policyholder will include the period the eligible policyholder held such company a membership interest surrendered in exchange therefor no gain_or_loss will be recognized by company a on the issuance of company a shares in exchange for company a membership interests the addition of policy credits to the mandatory policy credit policies and contracts owned by qualified_plan recipients pursuant to the plan of conversion will not be treated as a distribution under such retirement arrangements or a contribution to such retirement arrangements and consequently will not result in the imposition of a income_tax on distributions from qualified_retirement_plans pursuant to sec_72 b the per cent penalty tax on early distributions from qualified_retirement_plans pursuant to sec_72 c the per cent tax on excess_contributions to iras pursuant to sec_4973 or d the per cent tax on excess_contributions or excess_aggregate_contributions to certain tsas and qualified_plans pursuant to sec_4979 policy credits will not result in current taxable_income to the policyholders of mandatory policy credit policies or the qualified_plan recipients but will be includible in the taxable_income of the distributee in the taxable_year of actual distribution pursuant to sec_72 sec_72 or sec_402 as applicable policy credits will not be treated for purposes of sec_72 or sec_72 as part of the investment in the mandatory policy credit policies but will be treated for purposes of sec_403 and sec_408 as investment earnings under such policies attributable to the year such policy credits are added to such policies policy credits will not be treated as distributions to or contributions by qualified_plan recipients but will be treated as investment earnings under the applicable group_annuity_contract attributable to the year such policy credits are credited to such group annuity_contracts for purposes of sec_403 and the effective date provisions applicable thereto a pro_rata portion of the policy credits added to tsas to which contributions have been made pursuant to a salary reduction agreement will be treated as earnings attributable to such contributions and will be treated as credited under the tsas in the year such policy credits are added to the tsas pursuant to the plan of conversion the addition of policy credits to mandatory policy credit policies or contracts held by qualified_plan recipients pursuant to the plan of conversion will not constitute page designated distributions within the meaning of sec_3405 and will not be subject_to any withholding requirement under sec_3405 sec_368 a e of the code provides that the term reorganization means a recapitalization sec_368 of the code provides in part that the term party_to_a_reorganization includes a corporation resulting from a reorganization and both corporations in the case of a reorganization resulting from the acquisition by one corporation of stock or properties of another with respect to ruling requests one through six we conclude for federal_income_tax purposes company a will have converted from a mutual company to a stock company prior to the merger of company b into company a asa result of the conversion the eligible policyholders of company a will receive cash policy credits or company a voting_stock in exchange for their membership interests the conversion of company a from a mutual_insurance_company to a stock insurance_company will constitute a recapitalization and therefore qualify as a reorganization within the meaning of sec_368 of the code company a will be a party to the reorganization within the meaning of sec_368 of the code no gain_or_loss will be recognized by company a's eligible policyholders on the exchange of their membership interests solely for company a shares the basis of a company a membership interest is zero the basis of company a shares received in exchange for company a membership interests will equal the basis of company a membership interests surrendered therefor i e zero the holding_period of the company a stock received by a company a eligible policyholder will include the period the eligible policyholder held such company a membership interest surrendered in exchange therefor no gain_or_loss will be recognized by company a on the issuance of company a shares in exchange for company a membership interests sec_403 of the code provides generally that amounts contributed by certain tax-exempt employers to an annuity_contract purchased from an insurance_company by such an employer for an employee shall be excluded from the gross_income of the employee for the taxable_year of contribution and that the amount actually distributed to any distributee under such a contract shall be taxable to such distributee in the year distributed under sec_72 sec_403 imposes a limit on the maximum amount which may be contributed to a tax-sheltered annuity described in sec_403 on behalf of an employee in any taxable_year sec_403 provides that the provisions of sec_403 will not apply to an annuity unless requirements similar to the minimum distribution_requirements of sec_401 are met with respect to such annuity sec_403 provides that the provisions of sec_403 will not apply to an annuity unless under the annuity distributions attributable to contributions made pursuant to a salary reduction agreement may be paid only when the employee attains age separates from service dies or becomes disabled or in the event of hardship distributions in the event of hardship may not include income attributable to salary reduction contributions the distribution limitations of section page b do not apply to distributions attributable to assets held in the tax-sheltered annuity arrangement described in sec_403 as of the close of the last year beginning before date p l the tax_reform_act_of_1986 section e as amended by p l tamra sec_101 1a c sec_408 of the code defines an ira annuity as an annuity or endowment_contract which is issued by an insurance_company and which meets the requirements of sec_408 sec_408 imposes requirements similar to the distribution_requirements of sec_401 on distributions of the entire_interest of the contract owner sec_219 permits an individual taxpayer to deduct from gross_income amounts contributed to an ira subject_to the maximum annual deduction limitations specified in sec_219 sec_408 establishes the annual_limit on contributions and premiums to an ira sec_402 and sec_408 relating to rollover_contributions permit an individual taxpayer to purchase an ira using funds distributed from certain other plans subject_to certain requirements relating to the nature and amount of the distribution sec_408 provides that amounts paid or distributed from an ira shall be included in gross_income by the payee or distributee in the manner provided in sec_72 sec_72 of the code generally provides that gross_income includes any amount_received_as_an_annuity under an annuity endowment or life_insurance_contract sec_72 provides that any amount which is received under an annuity endowment or life_insurance_contract and is not received as an annuity i if received on or after the annuity_starting_date shall be included in gross_income and ii if received before the annuity_starting_date shall be included in gross_income to the extent allocable to income_on_the_contract and shall not be included in gross_income to the extent allocable to the investment_in_the_contract sec_72 defines the annuity_starting_date in part as the first day of the first period for which an amount is received as an annuity under the annuity_contract sec_72 provides that for purposes of sec_72 the investment_in_the_contract as of the annuity_starting_date is the aggregate amount of premiums or other consideration paid for the contract minus the aggregate amount received under the contract before such date to the extent that such amount was excludable from gross_income under this subtitle or prior income_tax law sec_72 provides that an amount shall be treated as allocable to income_on_the_contract to the extent that such amount does not exceed the excess of the cash_value of the contract immediately before the amount is received over the investment_in_the_contract at the time sec_72 provides in part that with certain exceptions an amount distributed from a_trust described in sec_401 which is exempt from tax under sec_501 or is received from a contract purchased by a_trust described in sec_401 purchased as part of a plan described in sec_403 or described in sec_403 that the proceeds shall be included in gross_income but only to the extent it exceeds the investment_in_the_contract sec_72 provides that the investment_in_the_contract as of any date is the aggregate amount of premiums or other consideration paid for the contract as of such date minus the aggregate amount received under the contract before such date to the extent such amount was excludable from income sec_72 of the code provides in part that if any taxpayer receives any amount from a qualified_retirement_plan as defined in sec_4974 prior to certain dates or the occurrence of certain events specified in sec_72 the taxpayer's tax for the taxable_year shall be increased by an amount equal to percent of the portion of such amount which is includible in gross_income page 2zoo2annks sec_4973 of the code imposes an excise_tax equal to percent of the amount of any excess_contribution to an ira this percent tax applies for each taxable_year of the ira owner during which such excess_contributions remain in such ira determined as of the end of the taxable_year an excess_contribution under sec_4973 is defined as a contribution in excess of the maximum amount that may be contributed to an ira sec_4979 of the code imposes an excise_tax equal to percent of the excess_aggregate_contributions under a tax-sheltered annuity plan described in sec_403 for a taxable_year excess_aggregate_contributions under sec_4979 are defined in part as the sum of the employer matching_contributions and employee contributions actually made on behalf of highly compensated employees within the meaning of sec_414 for a plan_year in excess of the maximum amount of such contributions permitted under the actual_contribution_percentage_test of sec_401 for such plan_year sec_401 of the code requires in part that the entire_interest of an employee under a qualified_retirement_plan be distributed beginning no later than april of the calendar_year following later of the calendar_year in which the employee attains age or the calendar_year in which the employee retires over the life or life expectancy of the employee or over the joint lives or joint life expectancy of the employee and a designated_beneficiary proposed income_tax regulations sec_1 a -1 provides in general that the amount required to be distributed under sec_401 for each calendar_year must be determined each year on the basis of the employee's and any designated beneficiary’s life expectancy and the value of the employee's benefit the proposed_regulations also provide that in the case of a benefit in the form of an individual_account the benefit used in determining the minimum distribution for a distribution calendar_year is the account balance as of the last valuation_date in the calendar_year immediately preceding the distribution calendar_year sec_3405 of the code requires the payor of a designated_distribution within the meaning of sec_3405 to withhold certain amounts from such distributions in general absent an election under sec_3405 to withhold certain amounts from such distributions in general absent an election under sec_3405 made by a recipient sec_3405 requires the payor to withhold on distributions from employer deferred_compensation plans iras and commercial annuities sec_3405 provides that in the case of an eligible_rollover_distribution as defined in sec_3405 the payor of such distribution shall withhold from such distribution an amount equal to percent of such distribution sec_3405 provides that the term designated_distribution does not include the portion of any distribution which it is reasonable to believe is not includible in gross_income central to our analysis of your submitted ruling requests is the question of whether or not membership interests in a mutual_insurance_company are within the stated plans in this regard any membership interests in a mutual_insurance_company which arise from the purchase of an insurance_contract are inextricably tied to the contract from the time of purchase these membership interests are created by operation of state law solely as a result of the policyholder's acquisition of the underlying contract from a mutual_insurance_company and cannot be transferred separately from that contract prior to conversion the membership interests have no determinable value apart from the insurance_contract itself further if the insurance_contract is surrendered by the policyholder or in the event an page insurance_contract is terminated by payment of benefits to the contract beneficiary these membership interests cease to exist having no continuing value the membership rights associated with the tax qualified retirement contracts are acquired as a direct result of tax-favored payments to a mutual_insurance_company indeed these membership interests cannot be obtained by any purchase separate from an insurance_contract issued by company a in view of the foregoing such interests are part of the tax qualified retirement contracts created pursuant to sec_401 sec_403 and sec_408 of the code respectively while it has been recognized that consideration received in a demutualization transaction is in exchange for a membership interest in a mutual_insurance_company and not from or under an insurance_contract such a distinction does not require the detachment of such consideration from the tax qualified retirement contracts which consists of both the contracts and all other interests which arise with the purchase of such a contract see revrul_71_233 1971_1_cb_113 rather contracts and the related membership interests must be viewed as part of a program of interrelated contributions and benefits which are retained within the plans cf income_tax regulation sec_1_72-2 the planned issuance of policy credits does not constitute a distribution to the annuitants the conversion of membership interests is a mere change in form of one element within the arrangement to another since the issuance of policy credits increases the accumulation value of the annuity_contracts the amounts in the policies are treated for purposes of sec_401 sec_403 sec_403 sec_408 sec_408 and of the code in the same manner as any other return of or return on an investment within the arrangements described above and are not regarded as having been received by the policyholder such amounts representing the policy credits will be considered as part of the respective balances to the credit of the employees in the plans under sec_402 sec_403 and sec_408 of the code only amounts paid or distributed under the applicable plans will be included in the gross_income of the distributee under the rules of sec_72 sec_72 dealing with the tax treatment of amounts_not_received_as_an_annuity provides for the inclusion of such amounts when received by the distributee as policy credits will be issued in exchange for membership interests such interests being held within the applicable plans no amount is treated as received by or includible in the gross_income of any policyholder under such plans for purposes of sec_72 the value of policy credits which will be added to the tax-qualified retirement contracts will not be regarded as part of the investment in the contracts an amount which under sec_72 consists of the aggregate amount of premiums or other consideration paid for the contract in addition as no amount is to be treated as having been distributed as a result of the conversion nor received by the tax-qualified retirement policyholders outside the plans the additional percent tax imposed by sec_72 does not apply likewise the planned issuance of policy credits does not constitute a contribution of such credits by the annuitants thus no excess_contributions can be attributed to the addition of these policy credits to the pension annuities sec_3405 of the code requires a payor to withhold income taxes on certain designated distributions as described in sec_3405 including distributions from or under an employer_deferred_compensation_plan an individual_retirement_plan or a commercial_annuity sec_6047 generally requires that the employer maintaining or the plan_administrator of a plan from which designated distributions may be made and any page person issuing a contract pursuant to which designated distributions may be made to report payments under the plan or contract the addition of policy credits within the tax-sheltered annuity arrangement described in sec_403 ira arrangement or other qualifying pian pursuant to the conversion does not result in the distribution of any amounts to individual policyholders within the meaning of sec_3405 and thus will not be subject_to any requirement to withhold or the reporting requirements under sec_6047 accordingly with respect to ruling requests seven through twelve we conclude the addition of policy credits to the mandatory policy credit policies pursuant to the plan of conversion will not i be treated as a distribution from such policy which is a tsa in violation of sec_403 that would cause such tsa to fail to qualify as tax-sheltered annuity described in sec_403 or ii be treated as a transaction described in sec_408 that could cause such policy which is an ira to become disqualified under sec_408 the addition of policy credits to the mandatory policy credit policies and contracts owned by qualified_plan recipients pursuant to the plan of conversion will not be treated as a distribution under such retirement arrangements or a contribution to such retirement arrangements and consequently will not result in the imposition of a income_tax on distributions from qualified_retirement_plans pursuant to sec_72 b the per cent penalty tax on early distributions from qualified_retirement_plans pursuant to sec_72 c the per cent tax on excess_contributions to iras pursuant to sec_4973 or d the per cent tax on excess_contributions or excess_aggregate_contributions to certain tsas and qualified_plans pursuant to sec_4979 policy credits will not result in current taxable_income to the policyholders of mandatory policy credit policies or the qualified_plan recipients but will be includible in the taxable_income of the distributee in the taxable_year of actual distribution pursuant to sec_72 sec_72 or sec_402 as applicable policy credits will not be treated for purposes of sec_72 or sec_72 as part of the investment in the mandatory policy credit policies but will be treated for purposes of sec_403 and sec_408 as investment earnings under such policies attributable to the year such policy credits are added to such policies policy credits will not be treated as distributions to or contributions by qualified_plan recipients but will be treated as investment earnings under the applicable group_annuity_contract attributable to the year such policy credits are credited to such group annuity_contracts for purposes of sec_403 and the effective date provisions applicable thereto a pro_rata portion of the policy credits added to tsas to which contributions have been made pursuant to a salary reduction agreement will be treated as earnings attributable to such contributions and will be treated as credited under the tsas in the year such policy credits are added to the tsas pursuant to the plan of conversion the addition of policy credits to mandatory policy credit policies or contracts held by qualified_plan recipients pursuant to the plan of conversion will not constitute page designated distributions within the meaning of sec_3405 and will not be subject_to any withholding requirement under sec_3405 the ruling that the conversion constitutes a recapitalization and therefore will qualify as a reorganization within the meaning of sec_368 is conditioned on company a being considered the same entity before and after the conversion under state m law no opinion is expressed regarding the merger see revproc_2002_3 sec_3 l r b this ruling is directed only to the taxpayer who requested it and applies only to plan x as proposed to be amended as of the date of this ruling sec_61 j of the code provides that this ruling may not be used or cited as precedent if you have any questions concerning these rulings please contact s id at _ please refer to t ep ra t3 a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office sincerely yours franeer bihere frances v sloan manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of letter notice of intention to disclose copy of letter to authorized representative cc


id office uilc cca_2010070713452537 ---------- number release date from ------------------- sent wednesday july pm to -------------------------------------------------------------------------------------------- cc ------------------------------------------------- subject re note that the new form_872 rev date has now replaced the form 872-i so the statute for assessing partnership items against a partner can be open via a form 872-i the current revision of the form_872 or because the --- partner did not file a u s return so that his statute is open indefinitely


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person contact number number release date se t eo ra t date date uil index legend m n p q date x dear -------------- under sec_501 of the internal_revenue_code as an organization described in sec_501 based on the information submitted we have concluded that you do not qualify for exemption under that section the basis for our conclusion is set forth below facts the date we consider to be the date of formation is sometime to years ago this is when the first of our group got together to discus its formation for tax purposes the date of formation would be the date we opened our checking account date x we have considered your application_for recognition of exemption from federal_income_tax you are an unincorporated association in a letter dated date you state that your mission statement as provided in your articles of association reads the m is a nonprofit association of master level q makers dedicated to the promotion of quality craftsmanship excellence in design and the pursuit of artistic vision our goal is to increase public awareness and appreciation of this time-honored art thereby expanding the market for handcrafted q and promoting the common interest of q makers in n your membership criteria as provided in your articles of association read these criteria though somewhat subjective still require prospective members to earn most of their living through q making they should make beautiful q and most importantly they should make it well in the past we discussed whether this was to be an organization of individual craftsmen or whether we would include larger businesses where the product wasn’t necessarily the result of the individual member’s own physical labor we decided that it is the quality of the final product or in the case of a larger business the quality of the whole line of promoted products that matters if the q this is the subjective part satisfies the majority of the members gathered for the jury if they feel the work being presented and promoted shows quality of craftsmanship excellence in design and the pursuit of artistic vision then the individual or business should be welcomed as members of the m we encourage all to apply if the group decides not to offer membership after the jury process we will provide a written explanation as to why not our hope being that the juried party will address our concerns and return a better q maker craftsman designer and be invited to join at a later date you are funded by dues collected from members annually you list the following activities in your application form websites brochure gallery shows promote custom q makers in n especially your members in your letter dated date you provided the following information about your web sites according to your application you create maintain and promote several web sites that the criteria for being included on the websites are that an individual be a dues paying member of the m four of the sites which we will continue to have hosted are outdated and will not be updated the individuals listed may or may not be current dues paying members of the m we have decided to keep hosting these sites for the time being because they continue to generate traffic and interest in our group we will not however spend any more money on changing their content the primary site p is the site that we now promote and which is current the primary web site p contains photographs and descriptions of work by various member q makers with links to the respective member’s web site and email address the web site also contains a members directory which lists each member’s physical postal web site and email addresses you promote q shows sponsored by galleries that feature the works of your members by sec_501 of the code exempts from federal income_taxation organizations described sec_1_501_c_6_-1 of the income_tax regulations provides that a business league is an you produce a brochure that is distributed to the public at all n state information centers the brochure lists each member and contains a state map that shows the approximate location of the member each member listing contains the member’s physical postal web site and email addresses means of postcard newspaper and radio advertising law in sec_501 sec_501 of the code describes business_leagues chambers_of_commerce real- estate boards boards_of_trade or professional_football_leagues not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual association of persons having some common business_interest the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit it is an organization of the same general class as a chamber of commerce or board_of trade thus its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons revrul_64_315 1964_2_cb_147 considers whether an association of merchants whose businesses constitute a shopping center and which expends its funds and engages exclusively in advertising in various newspapers and on television and radio in order to attract customers to the shopping center is entitled to exemption as an organization described in sec_501 of the code the organization’s activities consist of publication of an advertising newspaper shopping news advertising in other community publications and sponsorship of commercial advertising on television and radio the shopping news consists primarily of advertising by individual member merchants the part of the shopping news which advertises the shopping center as a whole also frequently lists the names of member merchants located within the shopping center most of the other advertising carried on in community publications contains the names of individual merchants also some of the radio and television commercials occasionally mention the name of a member merchant the ruling finds that the publication of a shopping news advertising in other publications and also by radio and television by which means the organization advertises the merchandise and names of its member merchants is the primary purpose and activity of the organization the ruling holds that such activity constitutes the performance of particular services for members rather than an activity directed to the improvement of business conditions generally accordingly the organization does not qualify for exemption under sec_501 of the code the tourist industry in its territory and which publishes a yearbook consisting largely of paid revrul_65_14 1965_1_cb_236 considers whether an organization formed to promote revrul_55_444 1955_2_cb_258 considers whether an organization composed of retail advertisements by members may qualify for exemption from federal_income_tax as a business league under sec_501 of the code the organization’s principal activity consists of publishing and distributing a tourist guidebook comprised largely of members' advertising it also conducts a program of advertising in newspapers and other media designed to attract tourists to the various vacation spots located in the trade territory of its members the income is derived primarily from the sale of tourist guidebooks and travel maps members' advertising in the tourist guidebook and membership fees the advertisements consist of a listing of the name and address of the member-advertiser and a description of the product sold or the service rendered by the advertiser the ruling finds that the publication of advertising matter containing listings of the names of individual members constitutes advertising for the individuals so advertised and is thus considered the performance of particular services for such individuals rather than an activity aimed at the improvement of general business conditions inasmuch as the principal activity of the instant organization is the publication of such advertising the ruling concludes that the organization does not qualify for exemption from federal_income_tax under sec_501 of the code as an organization described in sec_501 dealers which conducts an advertising campaign for the benefit of an industry as a whole qualifies for exemption from federal_income_tax as a business league under sec_501 of the internal_revenue_code membership in the organization is open to any person or association engaged in the retailing of products or equipment related to a particular industry the organization has endeavored to increase public acceptance of the industry's product for home use by advertising in newspapers on radio and television in the classified telephone directory by means of pamphlets etc the advertisements have stressed the economical and other desirable features of the product none of the advertising with the exception of one newspaper advertisement and a listing in the classified telephone directory contained the names of individual members in these two instances the space for the members' names was paid for by the individual members and not by the organization a substantial part of the advertising related to a 24-hour service which was supplied by contractors who were not members of the organization and which was available to all consumers regardless of whether or not they bought from a member most of the advertising contained the central phone number of the organization and some of the newspaper and radio advertisements urged consumers to buy from an organization member the ruling finds that the purpose of the advertising campaign conducted by the instant organization was not to make a profit or to render particular services to individual members the advertising was designed primarily for the improvement of conditions in the particular industry most of the benefits to members of the organization were indirect and accrued alike to members and other persons in the industry with respect to that part of the advertising which carried the names of members or urged consumers to buy from an organization member it may be said generally that such advertising constitutes the furnishing of particular services to members however in this case the advertising which carried the names of individual members or otherwise directly aided members represented only a minor portion of the total advertising expenditures and may be regarded as only incidental_or_subordinate to the main or principal purpose under these circumstances the advertising campaign conducted by the instant organization was primarily for the benefit of the industry as a whole accordingly the ruling holds that the organization in conducting its advertising campaign is engaged in activities directed to the improvement of business conditions of the particular industry as a whole as revrul_73_411 1973_2_cb_180 considers whether a shopping center merchants’ distinguished from the performance of particular services for individual persons and that it qualifies for exemption as a business league under sec_501 of the code association association whose membership is restricted to and required of the tenants of a shopping center and their common lessor and whose activities are directed to promoting the general business interests of its members qualifies as a business league or chamber of commerce under sec_501 of the code membership in the organization is mandatory under the terms of the tenants’ leases and no business concerns or firms or individuals other than tenants of the shopping center are permitted membership the ruling noting that the regulations define a business league as an association of persons having some common business_interest the purpose of which is to promote such interest states that the common business_interest of a chamber of commerce is usually the general economic welfare of a community membership is voluntary and open generally to all businesspersons and professionals in the community trade associations or business_leagues are similar to chambers_of_commerce except that they serve only the common business interests of the members of a single line_of_business or of the members of closely related lines of business within a single industry the ruling finds that membership in the association is not voluntary in the sense that members are free to join or not to join depending upon their interests as members of a business community instead membership is compulsory and limited solely to the owner and tenants of a shopping the ruling holds that the restriction of membership to the tenants and owner of the shopping center precludes the association from having the basic characteristics required to qualify the organization for exemption under sec_501 analysis advertise the names and products of your members rather than to promote the n q industry in general your principal activities consist of maintaining a web site and producing a brochure for distribution to the public your web site and brochure consist primarily of a listing of your member’s names and addresses and pictures of their products we find these activities to constitute the performance of particular services for individual persons similar to those of the organizations considered in revrul_64_315 and revrul_65_14 above therefore we do not find your activities directed to the improvement of business conditions in your industry in general as illustrated in revrul_55_444 above furthermore we note that membership is not freely open to all persons engaged in the production of handcrafted q rather you accord full membership only to selected applicants whose work and portfolio have been juried and approved by a quorum of members in attendance at a membership meeting consequently like the organization considered in revrul_73_411 above you lack an essential characteristic of a business league ie that membership be freely open to all persons engaged in a line_of_business conclusion based on the materials in your application file we find that your primary purpose is to accordingly you do not qualify for exemption as an organization described in section you have the right to protest this ruling if you believe it is incorrect to protest you should c of the code and you must file federal_income_tax returns submit a statement of your views to this office with a full explanation of your reasoning this statement signed by one of your officers must be submitted within days from the date of this letter you also have a right to a conference in this office after your statement is submitted you must request the conference if you want one when you file your protest statement if you are to be represented by someone who is not one of your officers that person will need to file a proper power_of_attorney and otherwise qualify under our conference and practices requirements if we do not hear from you within days this ruling will become final and a copy will be forwarded to the ohio tax exempt and government entities te_ge office thereafter any questions about your federal_income_tax status should be directed to that office either by calling a toll free number or sending correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions and do not intend to protest our denial of exempt status you should follow the instructions in notice shown below if you also disagree with our proposed deletions you should send your comments on the deletions with your protest statement and not to the address shown in notice in the event this ruling becomes final it will be made available for public inspection under if you decide to protest this ruling your protest statement should be sent to the address if you do not intend to protest this ruling and if you agree with our proposed deletions as internal_revenue_service te_ge se t eo ra t constitution ave n w washington d c shown in the letter attached to notice you do not need to take any further action are shown in the heading of this letter enclosure notice sincerely lois lerner director exempt_organizations rulings and agreements if you have any questions please contact the person whose name and telephone number