t c memo united_states tax_court estate of frederick carl gloeckner deceased joseph a simone and douglas dillon co-executors petitioner v commissioner of internal revenue respondent docket no filed date r determined a deficiency in federal estate_tax liability r contends that decedent’s executors underreported the value of certain shares of stock in a closely_held_corporation that d held on the date of his death those shares were subject_to a restrictive agreement that obligated decedent’s executors to sell and the company to buy a certain number of shares r contends that the value of d’s shares is dollar_figure the executors contend that the value of those shares is dollar_figure which is the amount received by the estate pursuant to the restrictive agreement held the price term in the restrictive agreement does not control the value of the stock for federal estate_tax purposes held further the value of the stock for federal estate_tax purposes is dollar_figure james e daniels and steven d goldberg for petitioner drita tonuzi and cheryl a mcinroy for respondent memorandum findings_of_fact and opinion halpern judge respondent determined a deficiency in federal estate_tax liability of dollar_figure the sole issue remaining for decision is the value of certain shares of stock that frederick carl gloeckner decedent owned on the date of his death all section references are to the internal_revenue_code in effect at the time of decedent’s death and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some facts have been stipulated and are so found the stipulation of facts filed by the parties and accompanying exhibits is incorporated herein by this reference decedent decedent died testate on date the co-executors of decedent’s estate the estate are joseph a simone and douglas dillon collectively the executors decedent was survived by a nephew a niece a grandnephew and a grandniece his kin fred c gloeckner company fred c gloeckner co inc the company is a new york corporation organized in at least until the time of decedent’s death the principal_place_of_business of the company was in new york city at the time of decedent’s death he owned big_number shares of stock in the company big_number shares of common_stock big_number shares of 4-percent preferred_stock and big_number shares of 6-percent preferred_stock sometimes collectively decedent’s shares the company was in the business of selling horticultural products such as plants foliage bulbs seeds and supplies at wholesale the company did not sell cut flowers or other finished products at retail the redemption agreement on date the shareholders of the company were decedent gustav h poesch poesch and leonard j seiger seiger each shareholder owned both common_stock and 4-percent preferred_stock on that date those shareholders subscribed to an agreement restricting their rights to dispose_of their shares of stock in the company the redemption agreement the redemption agreement restricted the right of each subscriber to dispose_of his shares during his lifetime the parties agreed that if a shareholder decided to transfer any of his shares the company had the option for a period of months to purchase those shares that the shareholder wished to transfer they also agreed that if a shareholder ceased to be connected with the company for a reason other than death the company had the option to purchase all of that shareholder’s shares the option_price for the preferred shares was the shares’ par_value plus an amount equal to any accumulated but unpaid dividends the option_price for the common shares was dollar_figure a share the redemption agreement provided for yearly revaluations of the option_price for common shares joseph a simone joseph a simone simone went to work for the company in he had just graduated from college and his first job with the company was that of office boy simone continued his education after starting work with the company earning an mba from fordham university in also by simone was involved in every facet of the company’s operations subsequently he became an officer of the company simone was elected to the board_of directors of the company in or simone and decedent developed a close personal relationship decedent loaned simone money dollar_figure in and dollar_figure in a later year decedent named simone a beneficiary in wills executed by decedent between and the redemption agreements in decedent entered into an agreement restricting his rights and the rights of the executors of his estate to dispose_of his shares of stock in the company the redemption agreement at that time the stock of the company was held by decedent poesch and simone as follows the company issued the 6-percent preferred shares sometime continued common_stock shareholder number of shares percentage decedent big_number poesch simone preferred_stock number of shares number of shares shareholder of preferred of preferred decedent big_number big_number poesch big_number big_number f c g foundation big_number decedent strongly believed that the best interests of the company would not be served if it were owned and managed by outsiders including his family members decedent also believed that simone was the best candidate to be the chief executive of the company decedent’s plan of corporate succession was to have simone both own and manage the company at the time of the redemption agreement the company’s senior management consisted of decedent poesch and simone poesch refused to enter into a similar redemption agreement simone however did enter into a similar redemption agreement at the time of the redemption agreement decedent wa sec_1 continued after the redemption agreement was signed years old poesch wa sec_77 years old and simone wa sec_34 years old among other things the redemption agreement provided that upon decedent’s death the company would redeem from decedent’s estate a sufficient number of decedent’s shares to provide decedent’s executors with the funds necessary to pay death taxes funeral_expenses and administration_expenses the mandatory redemption the company had the option to purchase additional shares the optional redemption the redemption agreement also gave the company a right_of_first_refusal restricting decedent’s right to transfer his shares during his life when executed the redemption agreement did not contain any price terms in order to establish those price terms the parties agreed kpmg benchmark benchmark would appraise the value of the company’s shares the appraisal and that appraisal value would control the agreement’s price terms decedent did not further negotiate the price terms in the redemption agreement the values in the appraisal were later entered onto the redemption agreement those values were as follows common shares dollar_figure a share 4-percent preferred shares dollar_figure a share 6-percent preferred shares dollar_figure a share the redemption agreement provided that with respect to the mandatory redemption the company was required to pay the redemption price to the estate in a lump sum either in cash or by certified check with respect to the optional redemption and the right_of_first_refusal the company could either pay the entire purchase_price in cash or by certified check or pay the purchase_price in equal semi-annual payments over a period not to exceed years the will in simultaneously with entering into the redemption agreement decedent executed a new will the will decedent wished his kin to receive the assets of his estate other than his shares in the company he did not wish his kin to bear any portion of either the taxes on his estate or the expenses of administering the estate he wished simone to receive his common shares in the company the provisions of the will are consistent with decedent’s wishes in particular with respect to simone one provision of the will provides that decedent’s shares of stock in the company that are not redeemed pursuant to the redemption agreement pass to simone by another provision of the will decedent bequeaths dollar_figure to simone the gift simultaneously with decedent’s execution of the will he gave simone shares of common_stock in the company which represented a 4-percent ownership_interest in the company the sale on date the company redeemed all of poesch’s common_stock the sale the company redeemed poesch’s stock for dollar_figure a share that amount was to be paid in five equal annual installments with interest of percent poesch died prior to the trial of this case redemption of decedent’s stock decedent died on date under the redemption agreement the company was obligated to purchase from decedent’s estate sufficient shares to provide decedent’s executors with the funds necessary to pay death taxes and certain other obligations decedent’s assets other than his shares in the company had substantially appreciated in value to provide decedent’s executors with the funds necessary to pay death taxes and other expenses the company was required to redeem all of decedent’s shares the company however was insufficiently liquid to pay for all of those shares in a lump sum therefore on date the company and the estate entered into an agreement amending the redemption agreement the amendment the amendment allows the company to make installment payments in redemption of decedent’s shares the sherman appraisal respondent’s expert henry sherman sherman determined that the aggregate value of decedent’s shares in the company on date was dollar_figure sherman determined that on that date the value of each share of common 4-percent preferred and 6-percent preferred_stock was dollar_figure dollar_figure and dollar_figure respectively because he could find no acceptable comparable companies sherman did not analyze the values of comparable companies in determining the value of decedent’s shares sherman gave little or no weight to the sale also respondent instructed sherman not to consider the redemption agreement moreover sherman did not make a site inspection of the company’s premises interview the management of the company secure information about the company from potential outside sources such as suppliers customers competitors or financial institutions or obtain information about the company’s competitors finally the only information that sherman had on the industry in which the company did business consisted of retail sales data that was provided by a trade_association the company and the horticultural industry the company in date the company was not operated in the most profitable manner in order to maintain its sales levels the company relied to a significant extent on many slow- paying customers the company used antiquated methods for processing and tracking orders and accounts many of the company’s operations were not computerized and sales orders were recorded manually the company’s administrative offices were understaffed and because of the company’s new york city location it was difficult to recruit workers with a satisfactory knowledge of horticulture trends in the horticultural industry retail sales of horticultural products increased approximately dollar_figure million percent from to that rate constituted a decreased rate of growth from previous years some of the industry growth at the retail level came from sales of imported horticultural products because the company sold products only to wholesalers it did not necessarily benefit from retail growth in addition to foreign competition the company faced competition from mass merchandisers and discounters the growing presence of those competitors at the retail level exerted downward pressure on wholesale prices adversely affecting the company which sold to wholesalers finally the company did not make arrangements to secure exclusive sources of supply for its specialized products whereas the company’s competitors had made such arrangements those arrangements enabled the company’s competitors to command higher prices for their goods estate_tax_return the executors timely filed form_706 united_states estate and generation skipping transfer_tax return on that return the executors reported that the value of decedent’s shares was dollar_figure that was the amount_paid for the shares under the redemption agreement the executors elected alternate_valuation as provided for in sec_2032 value of decedent’s shares the value of decedent’s shares on the alternate_valuation_date was dollar_figure opinion i introduction a questions presented this case concerns the value for federal estate_tax purposes of certain shares of stock in fred c gloeckner co the company owned by decedent at the time of his death the executors of decedent’s estate valued those shares at dollar_figure on the estate_tax_return they filed in the statutory_notice_of_deficiency respondent determined that the value of the shares decedent’s shares was dollar_figure at trial however respondent conceded that the value of decedent’s shares was at most dollar_figure b arguments of the parties the executors claim that the value of decedent’s shares is the value stated in the estate_tax_return because that is the amount_paid by the company pursuant to the redemption agreement they argue that the redemption agreement established the fair_market_value of those shares because it was a binding agreement entered into for a valid business_purpose see 194_f2d_396 2d cir 82_f2d_166 2d cir 57_f2d_682 2d cir respondent argues that the redemption agreement does not establish the fair_market_value of decedent’s shares and that the fair_market_value is the value determined by respondent’s expert witness henry sherman sherman respondent argues that the redemption agreement does not establish the fair_market_value of decedent’s shares because the redemption agreement is not a binding contract under new york law sec_2703 requires that we disregard the redemption agreement and the price established by the redemption agreement cannot be trusted because the agreement is simply a substitute for a testamentary device c approach of the court we disagree with respondent’s arguments that the redemption agreement is not binding or that sec_2703 requires that we disregard the agreement we agree with respondent’s argument however that the redemption agreement is a substitute for a testamentary_disposition designed to pass decedent’s shares for less than full and adequate_consideration we do not agree with respondent that the value of decedent’s shares is the value determined by respondent’s expert we have found that the value of decedent’s shares on the alternate_valuation_date was dollar_figure ii the redemption agreement is a valid contract a introduction respondent argues that the redemption agreement is invalid under new york law for any of the three following reasons it was not supported by consideration the price term was originally left blank thus rendering the contract void for indefiniteness or as the controlling shareholder decedent was free to ignore its terms respondent has not convinced us that any of those reasons has merit b consideration given the preexistence of the redemption agreement respondent contends that decedent’s promises contained in the redemption agreement do not constitute legal consideration decedent’s promises under the redemption agreement however differ from decedent’s promises under the redemption agreement among other things the redemption agreement does not deal with the 6-percent preferred_stock which stock had not been issued in while the redemption agreement does we do not think that a new york court would find the agreement void for want of consideration cf 427_fsupp_500 s d n y holding the contract at issue invalid for want of consideration because one of the parties to that contract was already bound under a prior contract to perform acts identical to the acts that it agreed to perform under the contract at issue affd 636_f2d_1203 2d cir c open price term new york courts will enforce a contract where the parties leave the price term open provided that the parties intended to enter into a contract and the price can be determined objectively without the need for new expressions by the parties cobble hill nursing home inc v henry warren corp n e 2d n y the redemption agreement was enforceable because the price terms therein could be objectively determined by reference to the appraisal see in re mcmanus n y s 2d app div holding that a contract that restricted the transfer of closely held corporate stock was valid notwithstanding the open price term because the price could be computed in accordance with a formula contained in the agreement affd n e 2d n y d controlling shareholder finally respondent argues that decedent’s complete control_over the affairs of the corporation made the agreement meaningless and nonbinding during his lifetime respondent however offers no support for that assertion in the absence of evidence indicating that decedent simone or the company viewed the redemption agreement itself as something other than a valid and enforceable contract we will not ignore the redemption agreement see in re estate of spaziani n y s 2d sur ct new york courts will enforce restrictions on a shareholder’s right to dispose_of his stock respondent has proven no facts showing the invalidity of the redemption agreement e conclusion we find that the redemption agreement was a valid and enforceable contract under new york law iii sec_2703 is inapplicable with an exception not here relevant sec_2703 provides a general rule--for purposes of this subtitle the value of any property shall be determined without regard to-- any option agreement or other right to acquire or use the property at a price less than the fair_market_value of the property without regard to such option agreement or right or any restriction on the right to sell or use such property sec_2703 applies to any right or restriction created or substantially_modified after date omnibus budget reconciliation act of publaw_101_508 sec e a ii 104_stat_1388 because the executors elected alternate_valuation as provided for in sec_2032 we assume that decedent’s shares were valued for estate_tax purposes as of date respondent argues that in valuing decedent’s shares we should disregard the redemption agreement because of the amendment the redemption agreement was entered into before the effective date of sec_2703 the amendment however was entered into on date which with regard to amendments is after the effective date of sec_2703 nevertheless date also is a date after date the alternate_valuation_date as of that date date the redemption agreement was unamended sec_2703 is inapplicable iv redemption agreement not controlling a background sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2031 states the value of the gross_estate of the decedent shall be determined by including to the extent provided for in this part the value at the time of his death of all property real or personal tangible or intangible wherever situated sec_2032 provides that the value of the gross_estate may be determined as of a date that generally is months after the decedent’s death if the executor so elects the standard for valuation is fair_market_value sec_20_2031-1 estate_tax regs defines fair_market_value as the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts sec_2031 in particular addresses the valuation of stock not listed on an exchange courts have long held that with respect to stock in a closely_held_corporation the price term in a restrictive buy- sell or redemption agreement a restrictive agreement can fix the value of the stock for federal estate_tax purposes see 194_f2d_396 2d cir 82_f2d_166 2d cir 57_f2d_682 2d cir since the above three cases were decided the courts have developed a set of requirements for determining whether the price set forth in a restrictive agreement controls for purposes of the federal estate_tax recently we summarized those requirements in estate of lauder v commissioner t c memo it is axiomatic that the offering price must be fixed and determinable under the agreement in addition the agreement must be binding on the parties both during life and after death finally the restrictive agreement must have been entered into for a bona_fide business reason and must not be a substitute for a testamentary_disposition citations omitted sec_20_2031-2 estate_tax regs embodies the three elements of the lauder analysis even if the decedent is not free to dispose_of the underlying securities at other than the option or contract_price such price will be disregarded in determining the value of the securities unless it is determined under the circumstances of the particular case that the agreement represents a bona_fide business arrangement and not a device to pass the decedent’s shares to the natural objects of his bounty for less than an adequate_and_full_consideration in money or money’s worth in estate of lauder v commissioner supra we made clear that it is insufficient that an agreement serve a bona_fide business_purpose for the price set forth in the agreement to control the agreement also must not constitute a testamentary device id b business arrangement testamentary device we have no doubt that the redemption agreement served both business and testamentary purposes on brief the executors concede the following decedent had dual motives for the redemption agreement a succession plan for the company and an estate_tax plan to transfer the bulk of his assets to his kin free and clear of federal and state estate_taxes and administration_expenses moreover the executors admit decedent’s objective to perpetuate his company’s existence may have in theory reduced the incentive to achieve the highest possible price for his heirs nevertheless the executors insist there is no evidence in the record from which one could reasonably conclude as a factual matter that decedent was willing to sacrifice a higher purchase_price at the expense of his kin we agree with that statement so far as it goes it must be remembered however that the kin would suffer only if the agreement price for the shares was inadequate to fund death taxes and certain other expenses except to the extent necessary to fund those liabilities decedent’s common shares had been bequeathed to simone the relevant beneficiaries under the will are thus decedent’s kin and simone if we assume that decedent’s testamentary intent was to maximize the benefit to both groups so long as neither group benefited at the expense of the other then it is consistent also to assume that decedent had no interest in the shares being valued for estate_tax purposes at an amount greater than necessary to fund death taxes and certain other expenses indeed it is consistent to assume that decedent had an interest in not having the shares valued at an amount greater than necessary to satisfy those liabilities that is because a greater value would not benefit the kin while at the same time the resulting increase in the estate_tax would only further burden the company which was required to redeem the shares in an amount sufficient to fund the death taxes and other expenses and by the same token reduce the value of the bequest to simone who wa sec_52 years younger than decedent based on the foregoing analysis we believe that the inference fairly may be drawn that decedent entered into the redemption agreement for among other purposes a testamentary purpose viz to reduce the tax on his estate we are not persuaded to the contrary by the fact that simone entered into a similar agreement simone received the shares subject_to his agreement pursuant to decedent’s overall plan and simone likely took into account his own possible future benefit from ascribing to the shares a value that would be a low estate_tax_value in the decedent’s estate in estate of lauder v commissioner supra to determine whether we should disregard the inference that the agreement there in question was designed to serve a testamentary purpose we looked to whether the price to be paid for the decedent’s stock under the agreement reflected adequate_and_full_consideration in money or money’s worth as of the date the agreement was executed the burden is on the executors to prove that the price to be paid for decedent’s shares under the redemption agreement reflected adequate_and_full_consideration in money or money’s worth when the agreement was executed rule a the executors have failed to carry that burden the price terms in the redemption agreement were determined pursuant to the appraisal the appraisal was the subject of a motion in limine by respondent to exclude that document from evidence because of the executors’ failure to comply with rule f which concerns itself with expert witness reports respondent’s motion was granted and the appraisal was not received in evidence as an expert witness report simone testified that as of the time of decedent’s death and based in part of his review of the appraisal the value of the company was in the range of dollar_figure million although we found simone’s testimony to be forthright and it is generally accepted that an owner is competent to testify as to the value of his property eg juden v commissioner tcmemo_1987_302 affd 865_f2d_960 8th cir root v commissioner tcmemo_1981_330 o’rourke v commissioner tcmemo_1981_279 simone did not convince us that the prices set in the redemption agreement reflected adequate_and_full_consideration the weight to be given to the testimony of an owner of property as to the value of the property depends upon the owner’s knowledge experience_method of valuation and other relevant considerations e g root v commissioner supra o’rourke v commissioner supra in simone had less than a 1-percent ownership_interest in the company and that interest he obtained by gift his testimony as to value was based in part on the appraisal which is not in evidence as an expert witness report simone also stood to profit by a low estate_tax_valuation of the decedent’s shares we accord no weight to simone’s testimony as to what was adequate_and_full_consideration in on date the company redeemed all of poesch’s common_stock for dollar_figure a share that transaction occurred not long after decedent entered into the redemption agreement and for that reason might be considered some evidence of whether the price to be paid for the decedent’s stock under the redemption agreement reflected adequate_and_full_consideration in money or money’s worth as of the date of that agreement see eg 79_tc_938 for unlisted stocks near contemporaneous sales in the normal course of business are the best criteria of market_value poesch however owned only percent of the common_stock of the company no doubt therefore he was forced to accept some discount 101_tc_412 cases involving the valuation of minority holdings in close_corporations ordinarily consider a discount or discounts because the stock is a minority holding and is not publicly traded poesch did not testify since he died shortly after decedent we cannot determine from the evidence in the record how much discount poesch was forced to bear in other words we cannot work backwards from the dollar_figure a share accepted by poesch to an undiscounted value we are unpersuaded that the undiscounted value of poesch’s shares was dollar_figure the amount determined for the common shares under the redemption agreement although we have considered poesch’s sale in determining the value of decedent’s shares as of the alternate_valuation_date see infra section v we do not believe that that sale is persuasive evidence that the price to be paid for the decedent’s stock under the redemption agreement reflected adequate_and_full_consideration in money or money’s worth when the agreement was executed for the reasons stated and considering the record as a whole we find that the executors have failed to carry their burden of proving that the price to be paid for decedent’s shares under the redemption agreement reflected adequate_and_full_consideration in money or money’s worth as of the date of execution of the agreement v fair_market_value of decedent’s shares disregarding the redemption agreement we must determine the fair_market_value of decedent’s shares on the alternative valuation_date we discount much of simone’s testimony for reasons similar to those previously stated respondent has conceded that the value of decedent’s shares is no greater than dollar_figure we accept that concession and also find sherman’s opinion to be helpful in determining the fair_market_value of decedent’s shares we do not however completely agree with sherman because we find some weaknesses in his analysis of the value of decedent’s shares first sherman did not make an on-site inspection of the company or interview the company’s management second he could find no comparable companies on which to base his valuation third we believe that sherman did not adequately consider the effect of competition on the company’s value the company sold in the wholesale market the company was in a poor competitive position vis-a-vis its domestic competitors some of which were vertically integrated in addition sherman did not adequately analyze the impact of international competition on the company’s value in analyzing the conditions in the horticultural industry sherman only analyzed retail sales figures sherman however made no effort to determine the extent to which the growth in the horticultural industry’s retail sales was attributable to goods imported for retail_sale that issue is quite important to a proper determination of the company’s value a sharp increase in retail sales of imported goods could cause a sharp decrease in the company’s value because the company only sold products at the wholesale level finally sherman did not take into consideration the sale by poesch the sale was at a discount and we are unable to determine at how much of a discount see section iv supra nevertheless we do not believe that the sale should have been disregarded by sherman for the above reasons and considering the record as a whole we have found that the value of decedent’s shares on the alternate_valuation_date was dollar_figure we sustain respondent’s determination_of_a_deficiency to the extent consistent with our findings decision will be entered under rule


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date contact person identification_number telephone number employer_identification_number decedent this is in response to your ruling_request dated date requesting an extension for an additional five years as provided in sec_4943 of the internal_revenue_code i r c within which to dispose_of certain excess_business_holdings facts you are a revocable charitable_trust that has been recognized as exempt from federal_income_tax under sec_501 and classified as a private_foundation under sec_509 you received a distribution of stock from decedent's_estate on date1 the stock consisted of percent of the outstanding shares of eleven corporations the companies organized and operating in several states the stock the remaining stock in the companies was bequeathed to your sole trustee who is also the executrix in her personal capacity all of the stock has equal voting rights as a result of the distribution of stock you represent that your ownership_interest in companies constitutes excess_business_holdings under sec_4943 your initial five-year period for disposing of excess_business_holdings ends on date2 you describe the companies as an unusual mix of various health care and health care staffing businesses operating in several states you determined that the sale of all of the companies to a single purchaser would maximize the selling_price and had independent valuations of the companies conducted the companies expended substantial effort to respond to the appraiser's due diligence requests for documents and information the first appraiser delivered its report months after date1 the appraisal period during the appraisal period you concluded that revenue and salability would be substantially increased by changing the companies operational and marketing strategies these changes nearly tripled aggregate net_income in the second year after date1 but revenue began to decline in the third year net_income doubled the first year tripled second year and in the third year fell by one-third fourth year gross revenues fell to almost the first year amount fourth year aggregate net_income of the companies was a large loss you attribute much of the third and fourth year declines to the national economic downturn you deferred interviewing investment banking firms until two years after date1 which was about seven months after the end of the appraisal period to allow time for the new strategies to impact the bottom line and time for completion of the financial reports for the year which was necessary to market the companies you have agreed to sell companies to employees stock for one of the companies will be transferred to one employee_stock_ownership_plan and the stock for the remaining companies - transferred to a second employee_stock_ownership_plan together these transfers are the esop sales the esop sales are subject_to the various states’ approval and obtaining required purchaser licenses two of the states in which a company is located had imposed an month moratorium on license approvals while its legislature reorganized its licensing procedures one of the moratoriums was lifted and a new licensing scheme became effective one month prior to the expiration of the initial five-year period however the delays due to the moratoriums and resulting new licensing scheme further depresses the market for the companies you have represented that the employees of the purchasing esops other than your trustee who owns percent of the stock are not disqualified persons with respect to you within meaning of sec_4946 you submitted this disposition plan to the appropriate state attorney_general prior to submission of this ruling_request the attorney_general has acknowledged receipt of the plan if and when a response is received from the attorney_general you state that you will submit a copy to the internal_revenue_service the service in accordance with sec_4943 before the end of the initial five-year period for disposing of excess_business_holdings under sec_4943 you submitted a request to the service for an extension of five years to date3 to complete the required disposition ruling requested that pursuant to sec_4943 you are granted a five-year extension of the five-year period that would end on date2 in which it must dispose_of the stock that was originally acquired_by_bequest on date1 and constitutes excess_business_holdings under sec_4943 law sec_4943 imposes an excise_tax on the excess_business_holdings of any private_foundation in a business_enterprise sec_4943 provides that the term excess_business_holdings means with respect to the holdings of any private_foundation in any business_enterprise the amount of stock or other interest in the enterprise which the foundation would have to dispose_of to a person other than a disqualified_person in order for the remaining holdings of the foundation in such enterprise to be permitted holdings sec_4943 provides in pertinent part that if there is a change in the holdings in a business_enterprise which causes the private_foundation to have- ' a excess_business_holdings in such enterprise the interest of the foundation in such enterprise immediately after such change shall while held by the foundation be treated as held by a disqualified_person rather than by the foundation during the 5-year period beginning on the date of such change in holdings or b an increase in excess_business_holdings in such enterprise determined without regard to subparagraph a subparagraph a shall apply except that the excess holdings immediately preceding the increase therein shall not be treated solely because of such increase as held by a disqualified_person rather than by the foundation sec_4943 provides that the service may extend the sec_4943 period to dispose_of excess_business_holdings for an additional five years where there is a large gift or bequest of diverse business holdings or holdings with complex corporate structures if a the foundation establishes that i diligent efforts to dispose_of such holdings have been made within the sec_4943 period and ii disposition within the sec_4943 period has not been possible except at a price substantially below fair_market_value by reason of such size and complexity or diversity of such holdings b before the close of the sec_4943 period i the private_foundation submits to the secretary a plan for disposing of all of the excess_business_holdings involved in the extension and ii the private_foundation submits the plan described in clause i to the attorney_general or appropriate state official and submits to the secretary any response received by the private_foundation from the attorney_general or appropriate state official to such plan during the sec_4943 period and c the secretary determines that such plan reasonably can be expected to be carried out before the close of the extension period sec_53_4943-6 provides that in the case of an acquisition of holdings in a business_enterprise by a private_foundation pursuant to the terms of a will or trust the sec_4943 period in this section shall not commence until the date on which the distribution of such holdings from the estate_or_trust to the foundation occurs see sec_53_4943-5 for rules relating to the determination of the date of distribution pursuant to the terms of a will or trust analysis the case here a private_foundation acquires holdings in a business_enterprise other than by you have stipulated that you are subject_to sec_4943 which generally imposes a ten percent excise_tax on the value of excess_business_holdings of any private_foundation in a business_enterprise during any taxable_year which ends during the taxable_period generally under sec_4943 a private_foundation is permitted to hold percent of the voting_stock in a business_enterprise with any excess constituting excess_business_holdings however if as is purchase eg by bequest from a will which causes the foundation to have excess_business_holdings then the interest of the foundation in such business_enterprise shall be treated as held by a disqualified_person rather than the foundation for a five-year period beginning on the date such holdings were acquired by the foundation under sec_4943 under sec_4943 however the service may extend the initial five-year period for disposing of excess_business_holdings for an additional five years the extension period if the private_foundation establishes that i it made diligent efforts to dispose_of its holdings within the initial five-year period but were unable to do so because of the size and complexity of such holdings ii it submitted a plan for disposing of all excess_business_holdings in the five-year extension period and submitted such plan to the state attorney_general and iii the service determines that such plan can reasonably be expected to be carried out before the close of the extension period stock in the companies was distributed to you on date‘ starting the initial five-year period under sec_4943 during the first two years trustee engaged in a variety of activities for the marketing and sale of the companies eventually pursuing a strategy of esop sales the licensing moratoriums prevented the disposition of the stock during the last two years of the initial five-year period you and the esops have taken steps to advance the esop sales accordingly we conclude that you have made diligent efforts to dispose_of the stock within the initial five-year period as required by sec_4943 sec_4943 also requires that disposition within initial five-year period has not been possible except at a price substantially below fair_market_value by reason of such size and complexity or diversity of such holdings in the aggregate the companies operate in five states providing differing mixes of health care services each company targeted to narrow geographical markets serving a variety of entities and individuals with a variety of health care payors they are subject_to numerous county state and federal regulatory authorities two of which imposed moratoriums on licensing while all of the companies have in common the provision of health care services they operate in different geographical markets different counties within different states and in a highly regulated_industry subject_to many regulatory authorities with overlapping jurisdictions the moratoriums on licensing created such regulatory risk that no rational buyer would consummate a sale without a steep discount from otherwise fair_market_value importantly the moratoriums were temporary distortions of the market for sale of the companies accordingly we conclude that that disposition within initial five-year period has not been possible except at a price substantially below fair_market_value because in the aggregate the companies constitute jurisdictionally diverse business holdings sec_4943 requires that before the close of the initial five-year period i the private_foundation submits to the secretary a plan for disposing of all of the excess_business_holdings involved in the extension period and ii the private_foundation submits such plan to the attorney_general or other appropriate state official having administrative or supervisory authority or responsibility with respect to the foundation's disposition of the excess_business_holdings involved and submits to the secretary any response received by the private_foundation from the attorney_general or other appropriate state official to such plan during the initial five- year period includes the draft transaction documents for the esop sales and your representation that your you filed this request for private_letter_ruling prior to date2 the ruling_request plan has been submitted to the state attorney_general you represented that attorney_general has not notified you of any opposition to your plan accordingly you have satisfied the requirements of sec_4943 the final requirement under sec_4943 requires that your plan for disposition can reasonably be expected to be carried out before the close of the additional five-year extension period you state that buyer’s due diligence and transaction documents are substantially complete the sole extraordinary obstacle to closing is two states’ approval of the buyers’ application_for licenses you have represented that the buyers are using their best efforts to obtain the necessary state licenses accordingly the esop sales can be reasonably expected to be carried out before the close of the extension period thus based on the information submitted we have determined that your plan to dispose_of all of your holdings in companies within an additional five-year period can reasonably be expected to be carried out therefore we conclude that you meet the requirements under sec_4943 for an extension of five years to dispose_of companies ruling - based on the foregoing we rule as follows that pursuant to sec_4943 you are granted a five-year extension to date3 of the initial five- year period that would end on date2 in which to dispose_of the stock that was originally acquired_by_bequest on date1 and constitutes excess_business_holdings under sec_4943 this ruling will be made available for public inspection under 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 you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolved questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely theodore r lieber manager exempt_organizations technical group enclosure notice


internal_revenue_service number release date index number ----------------------- -------------------------- ---------------------------------------------- --------------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ----------------- telephone number --------------------- refer reply to cc fip b01 plr-133228-13 date date legend taxpayer bank a bank b bank c bank d state a state b state c date date date year year year year ---------------------------------------------- ------------------------ --------------------------------------------------- ---------------------------------------------------- --------------------------------- ------------------- ------------- ------------- --------------- --------------------------- ----------------- --------------------------- ------- ------- ------- ------- plr-133228-13 year a b c d e f ------- -------------- -------------- -------------- ------ ------ ----------- dear ----------------- this responds to a letter dated date submitted on behalf of taxpayer taxpayer requests a ruling under sec_856 of the internal_revenue_code code that patronage_dividends included in its gross_income under sec_1385 are excluded from its gross_income for purposes of sec_856 and c facts taxpayer elected to be treated as a real_estate_investment_trust reit for federal_income_tax purposes beginning with its taxable_year ended date taxpayer is a calendar_year taxpayer that uses the overall accrual_method of accounting taxpayer is a publicly held reit whose primary business is to own and manage timberlands for the production and sale of timber taxpayer regularly purchases timberlands in connection with its business of owning timberlands and growing timber in year taxpayer entered into a dollar_figurea term credit agreement year credit agreement the proceeds were used for the following purposes to acquire timberlands to repay debt consisting of a senior note and a senior mortgage from year senior notes from year that were used to acquire timberlands and a loan from year and to repurchase some taxpayer shares in year taxpayer borrowed dollar_figureb under a new term credit agreement current credit agreement the proceeds were used to repay the year credit agreement in full the remaining proceeds were used to repay borrowings outstanding under taxpayer’s line of credit which had been drawn down by dollar_figurec to purchase standing mature and near-mature timber located in states a b and c current credit plr-133228-13 agreement matures on date and had an interest rate of d percent as of date the interest rate on the current credit agreement is based on libor plus e percent the banks that entered into the credit agreement with taxpayer are farm_cooperatives subject_to taxation under sections that provide financing to their patrons and are subject_to regulation by the farm credit administration they include banks a b c and d taxpayer anticipates that in the future it may refinance these farm credit loans with new farm credit loans and or enter into additional new farm credit loans although the mechanics vary from lender to lender each year taxpayer expects to receive a patronage_dividend from each farm credit bank patronage_dividends are generally paid either in cash or in both cash and equity taxpayer represents that with respect to the patronage_dividends it expects to receive each will be a patronage_dividend within the meaning of the term provided in sec_1388 for federal tax purposes the patronage_dividends received by taxpayer are required to be included in gross_income pursuant to sec_1385 however for financial reporting purposes taxpayer represents that it reduces its interest_expense by the amount of patronage_dividends received during year taxpayer recorded dollar_figuref in expected patronage_dividends as reducing its interest_expense for financial reporting purposes law analysis sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation’s gross_income excluding gross_income from prohibited_transactions must be derived from sources that include dividends interest rents_from_real_property and gain from the sale_or_other_disposition of stock securities and real_property other than property in which the corporation is a dealer sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation’s gross_income excluding gross_income from prohibited_transactions must be derived from rents_from_real_property interest on obligations secured_by real_property gain from the sale_or_other_disposition of real_property other than property in which the corporation is a dealer dividends from reit stock and gain from the sale of reit stock abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees to make loans secured_by mortgages on real_property or to purchase or lease real_property gain from certain_sales or other dispositions of real_estate_assets and qualified_temporary_investment_income sec_856 provides that to the extent necessary to carry out the purposes of part ii of subchapter_m of the code the secretary is authorized to determine solely for purposes of such part whether any item_of_income or gain which - plr-133228-13 i does not otherwise qualify under sec_856 or c may be considered as not constituting gross_income for purposes of sec_856 or c or ii otherwise constitutes gross_income not qualifying under sec_856 or c may be considered as gross_income which qualifies under sec_856 or c sec_301 provides that in general except as otherwise provided in this chapter chapter of subtitle a of the code which chapter and subtitle include among other sections sec_301 sec_316 sec_317 sec_856 and sec_1388 a distribution_of_property as defined in sec_317 made by a corporation to a shareholder with respect to its stock shall be treated in the manner provided in sec_301 sec_301 provides in part that in the case of a distribution to which sec_301 applies that portion of the distribution which is a dividend as defined in sec_316 shall be included in gross_income sec_316 provides that for purposes of this subtitle subtitle a which subtitle as noted includes among other sections both sec_856 and sec_1388 the term dividend means any distribution_of_property made by a corporation to its shareholders-- out of its earnings_and_profits accumulated after date or out of its earnings_and_profits of the taxable_year computed as of the close of the taxable_year without diminution by reason of any distributions made during the taxable_year without regard to the amount of the earnings_and_profits at the time the distribution was made sec_316 provides in the flush language that except as otherwise provided in this subtitle every distribution is made out of earnings_and_profits to the extent thereof and from the most recently accumulated_earnings_and_profits the flush language provides further that to the extent that any distribution is under any provision of this subchapter subchapter_c of chapter of subtitle a of the code treated as a distribution_of_property to which sec_301 applies such distribution shall be treated as a distribution_of_property for purposes of this subsection sec_1388 provides that for purposes of subchapter_t the term patronage_dividend means an amount_paid to a patron by an organization to which part i of subchapter_t applies-- on the basis of quantity or value of business done with or for such patron under an obligation of such organization to pay such amount which obligation existed before the organization received the amount so paid and plr-133228-13 which is determined by reference to the net_earnings of the organization from business done with or for its patrons the flush language of sec_1388 provides that such term does not include any amount_paid to a patron to the extent that a such amount is out of earnings other than from business done with or for patrons or b such amount is out of earnings from business done with or for other patrons to whom no amounts are paid or to whom smaller amounts are paid with respect to substantially identical transactions the flush language provides further that for purposes of paragraph net_earnings shall not be reduced by amounts paid during the year as dividends on capital stock or other proprietary capital interests of the organization to the extent that the articles of incorporation or bylaws of such organization or other contract with patrons provide that such dividends are in addition to amounts otherwise payable to patrons which are derived from business done with or for patrons during the taxable_year sec_1385 provides in part that except as otherwise provided each person shall include in gross_income the amount of any patronage_dividend which is paid in money a qualified_written_notice_of_allocation or other_property except a nonqualified_written_notice_of_allocation and which is received by him during the taxable_year from an organization described in sec_1381 the legislative_history underlying the tax treatment of reits indicates that a central concern behind the gross_income restrictions is that a reit’s gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business patronage_dividends paid_by a subchapter_t cooperative are a return of earnings to its cooperative patrons based on the amount of business that the patron transacts with the cooperative the patronage_dividends paid_by a subchapter_t financing cooperative effectively reduce the costs that its patrons incur to borrow funds from the cooperative the amounts paid_by banks a b c and d represent earnings that those cooperatives are able to refund to taxpayer based on the average amounts that taxpayer borrowed from those banks during the prior year thus while taxpayer must include patronage_dividend income in its gross_income under sec_1385 the patronage_dividends taxpayer receives effectively reduce taxpayer’s interest_expense paid during the prior year under the facts of the instant case exclusion of these patronage_dividends from gross_income for purposes of sec_856 and c does not interfere with congressional policy objectives in enacting the income tests under those provisions plr-133228-13 conclusion accordingly pursuant to sec_856 we conclude that the patronage_dividends included in taxpayer’s gross_income under sec_1385 are excluded from its gross_income for purposes of sec_856 and c 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 copies of this letter are being sent to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely andrea m hoffenson assistant to branch chief branch associate chief_counsel financial institutions products cc


number release date id office uilc cca-618132-09 6662a from ------------------- sent thursday date pm to ----------------------- cc ------------------------- subject tax opinion question thanks -------- i found the language on my own too and i think your analysis is correct if i understand you are asking whether your tp may rely on a legal opinion to exempt him from the 6662a penalty for tax years ------- and ------- when you have determined that the reasonable_cause defense would not otherwise apply because the opinion does not comply with the requirements of sec_6664 the special rule states that sec_6664 shall not apply to the opinion of a tax advisor if - a the opinion was provided to the taxpayer before the date of the enactment of this act b the opinion relates to one or more transactions all of which were entered into before such date and c the tax treatment of items relating to each such transaction was included on a return or statement filed by the taxpayer before such date the only guidance i could find on the special rule is notice_2005_12 attached for your reference the notice does not discuss the special rule but does indicate that we are drafting regulations to address this issue and have requested comments related to the special rule specifically disqualified opinions i just spoke with the attorney assigned to these regs and she does not know of any published guidance that addresses this issue either she is looking into it but based on the timeframe for this response i told her that i would get back to you immediately and will follow up with you should she find something contrary to our plain language conclusion based on my research and discussion with her i feel comfortable with your conclusion that that c must apply to the return at issue otherwise the special rule would be redundant i understand that in your case a the opinion was provided before the enactment_date and b the transaction was entered into before the enactment_date however c the ------- and ------- returns were not filed by the taxpayer before the enactment_date therefore sec_6664 applies to tax years ------- and ------- if the opinion does not comply with the requirements of this section the taxpayer may not benefit from the reasonable_cause exception based on his reliance on this opinion please let me know if this answers your question notice i r b


internal_revenue_service number release date index numbers ----------------------- ----------------------------------- ----------------------------------------- ---------------------------- 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 b03 plr-153158-09 date date x ------------------------------------------------------------------------------------------------------ ----------------------- legend state -------- date --------------------- a ------------------------------------------------------------------------------------------------------ ------------------------- dear ---------------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under the laws of state on date a the sole shareholder of x intended that x elect to be treated as an s_corporation effective date however x’s form_2553 election by a small_business_corporation was not filed timely x represents that both x and a have reported their income consistent with x’s intended status as an s_corporation x requests a ruling that it will be recognized as an s_corporation effective date plr-153158-09 law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b the election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then the election is treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make an s_corporation_election thus we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective date within days following the date of this letter we rule that the election shall be treated as timely made a copy of this letter should be attached to form_2553 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 specifically no opinion is expressed or implied as to whether x is otherwise eligible to be an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative plr-153158-09 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely s leslie h finlow senior technician reviewer branch passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes cc


internal_revenue_service number release date index number -------------- ---------------------------------- ------------------------------------ ------------------------------------------ ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------------ telephone number ---------------------- refer reply to cc corp b05 plr-110218-14 date september legend parent llc llc sub pc pc ------------------------------------ -------------------------------- ------------------------ ---------------------------- ------------------------------------------------- ---------------------------- --------------------------------------------------- ------------------------------------------------- ---------------------------- --------------------------------- -------------------------------- ------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------ ----------------------------------------------------- ---------------------------------------------------- ------------------------ state a state b -------------- ------------ plr-110218-14 state c ---------------- shareholder --------------------------- profession -------------------------------------------------------------------------------------------------------------------------- ------ professional -------------------------------------------------------------------------------------------------------------------------- code a code b code c code d -------------------------------------------------------------------------------------------------------------------------- ---------- -------------------------------------------------------------------------------------------------------------------------- ---------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------- -------- -------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------- -------------------- first stock transfer restriction agreement second stock transfer restriction agreement director agreement -------------------------------------------------------------------------------------------------------------------------- ------------------------------------- professional director ----------------------- a b c d ---- ---- -- -- plr-110218-14 e f g -- --------- ---------------- dear ---------- this letter responds to your date request submitted by your authorized representatives for a ruling under sec_1504 of the internal_revenue_code the information provided in that letter and in later correspondence is summarized below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalties of perjury statements executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination facts parent a state a corporation is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return on a calendar_year basis the parent group parent wholly owns llc and llc wholly owns llc both llc and llc are state a limited_liability companies that are disregarded as entities separate from parent for u s federal tax purposes llc wholly owns sub a state a corporation and member of the parent group pc is a state b professional_corporation and is subject_to state b’s code a and code b pc is a state c professional_corporation and is subject_to state c’s code c and code d pc and pc collectively the pcs and individually a pc are engaged in profession code b and code d provide that pc and pc respectively may only engage in profession through one or more professionals under code b and code d the shares of corporations engaged in profession generally may only be issued to held by or transferred to professionals shareholder is a professional and is authorized to engage in profession in state b and in state c the pcs conduct the aspects of their respective businesses that constitute engagement in profession under the terms of support services agreements among sub on the one hand and pc or pc on the other which each have a term of a years each a support services agreement sub performs all administrative and support services including financial reporting billing and information systems support on behalf of the pcs in exchange for a fee sub also manages the pcs to the extent such management does not constitute engagement in profession plr-110218-14 shareholder and sub are parties to the director agreement pursuant to the provisions of the director agreement shareholder serves as professional director for the pcs and oversees and coordinates sub’s business objectives for the pcs sub has the right to terminate the director agreement without cause or penalty upon e day’s notice to shareholder the termination of the director agreement is a transfer event under each of the stock transfer restriction agreements shareholder paid dollar_figureb a nominal amount to acquire and holds legal_title to all of the issued and outstanding shares of the pcs sub shareholder and pc have entered into the first stock transfer restriction agreement with respect to pc and sub shareholder and pc have entered into the second stock transfer restriction agreement with respect to pc respectively collectively the stock transfer restriction agreements pursuant to the provisions of article c of the bylaws of pc the shares of pc are certificated and the share certificates are required to be endorsed with a legend in bold print noting inter alia that the shares of stock represented by the certificate are subject_to the first stock transfer restriction agreement pursuant to the provisions of article c of the bylaws of pc the shares of pc are certificated and share certificates are required to conspicuously note any restriction on the transfer of the shares to which pc is a party to the extent the restriction was in effect upon the issuance of the shares the stock transfer restriction agreements require all share certificates of the respective pcs to bear a legend noting inter alia that the shares underlying the certificate are subject_to the stock transfer restriction agreements the stock certificates for the issued and outstanding shares of stock in the pcs are issued in the name of shareholder and bear the required legends the bylaws of each of the pcs prohibit the transfer of stock in the respective pc other than in accordance with the relevant stock transfer restriction agreement and provide that any person who transfers holds or purports to exercise any rights or privileges with respect to any shares of stock in the respective pc in violation of the rights restrictions or provisions of the bylaws shall not have the right to vote receive dividends or enjoy or exercise any right or privilege as a holder of shares of stock in the pc the stock transfer restriction agreements prohibit shareholder from transferring or disposing of any shares of stock in the respective pcs except as provided in the stock transfer restriction agreements the stock transfer restriction agreements also prohibit shareholder from having a pc make a dividend or other distribution with respect to its stock or issue additional equity interests or rights to acquire additional equity interests and require shareholder to take all steps necessary to prevent the pcs from taking any such action furthermore shareholder is not permitted to consent to a liquidation or dissolution of a pc without the prior consent of sub plr-110218-14 the stock transfer restriction agreements mandate that upon the occurrence of certain events each a transfer event shareholder must transfer or will be deemed to transfer all of the shares of the relevant pc to a person or entity identified by sub the designated transferee any designated transferee will be a professional or entity permitted under code b or code d as applicable to directly hold the stock of the relevant pc a transfer event with respect to a pc includes but is not limited to i the transfer or attempt to transfer any shares of stock in the pc to a person other than a designated transferee ii shareholder ceasing to be a professional director for the pc iii the termination with or without cause of the pc’s support services agreement iv the filing of any petition for or other document causing or intended to cause judicial administrative voluntary or involuntary dissolution of the pc v shareholder either as a shareholder or director voting to issue more of the pc’s stock to any person vi shareholder either as a shareholder or director voting to amend or otherwise attempting to amend the pc’s articles of incorporation or bylaws vii shareholder either as a shareholder or director voting to declare a dividend on the pc’s shares viii shareholder ceasing to be a director on the corporate board_of the pc ix shareholder either as a shareholder or director voting to engage in or enter into any transaction providing for the sale mortgage lease or other_disposition of all or substantially_all of the pc’s property and assets or voting to adopt a plan of dissolution and or distribution of the assets of the pc or voting to adopt a plan of merger involving the pc x shareholder breaching a covenant set forth in article d of the relevant stock transfer restriction agreement for the pc xi shareholder breaching any agreement between shareholder and sub and xii shareholder’s notification to sub that shareholder desires to transfer all of the stock in a pc in the event sub decides to terminate pc 1’s or pc 2’s existence sub intends to carry out or to cause to be carried out the following steps to effect the termination i sub will effect a transfer event by terminating the director agreement resulting in shareholder ceasing to be professional director ii upon the creation of the transfer event and pursuant to the stock transfer restriction agreement shareholder will transfer or be deemed to transfer all of the shares of stock in the relevant pc to sub in exchange for the nominal amount ie dollar_figureb that shareholder initially paid to acquire legal_title to the pc shares and iii the relevant pc will be liquidated or merged into sub and all of its assets will be transferred to sub under section f of code b if pc were at any time to cease having a professional as a shareholder pc could operate as a corporation for profit organized under code a for the sole purpose of liquidation under section g of code d pc could merge with a domestic or foreign professional or business corporation provided that all of the shareholders of the disappearing and surviving corporations are qualified to be shareholders of the surviving corporation representations parent makes the following representations plr-110218-14 a b c d e f g the pcs have never declared nor paid any dividends nor made other distributions to any shareholder the pcs do not intend to declare or pay any dividends or make any other distributions to any shareholder except for distributions to sub or other members of the parent group in the event the pc shares or the pc shares are transferred to a designated transferee pursuant to a stock transfer restriction agreement such designated transferee will be required to execute a new stock transfer restriction agreement having terms substantially_similar to the existing stock transfer restriction agreement the legal arrangements created by the stock transfer restriction agreements are valid and legally enforceable under applicable law applicable law does not prohibit the beneficial_ownership_of_stock in pc by sub applicable law does not prohibit the beneficial_ownership_of_stock in pc by sub neither pc nor pc is a sec_501 tax-exempt corporation an insurance_company subject_to tax under sec_801 a foreign_corporation a corporation that has an election in effect under sec_936 a regulated_investment_company a real_estate_investment_trust a domestic_international_sales_corporation under sec_992 or an s_corporation ruling based on the facts and information submitted and the representations made we rule that both pc and pc are members of the affiliated_group within the meaning of sec_1504 of which parent is the common parent and will be permitted to join in the filing of a consolidated federal_income_tax return within the meaning of sec_1501 and sec_1502 and the regulations thereunder with the parent group sec_1504 revrul_84_79 1984_1_cb_190 caveats we express no opinion about the tax treatment of the arrangements under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the arrangements that are not specifically covered by the above ruling furthermore no opinion is expressed concerning the treatment of any arrangements in taxable years for which income_tax returns have already been filed plr-110218-14 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 _maury passman___________ maury passman chief branch office of associate chief_counsel corporate


department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc ita b04 conex-127572-10 o f f i c e o f t h e c h i e f c o u n s e l number release date uil the honorable lisa murkowski united_states senate washington dc dear senator murkowski i am responding to your date letter on behalf of your constituents ---- -------------------------- ----------------------- and ------------------------------ who asked whether they must include in gross_income payments they received from the alaska housing finance corporation ahfc for making energy efficiency improvements to their homes as part of the alaska home energy rebate program program the ahfc offers individuals payments of up to dollar_figure for making energy efficiency improvements to their homes the program requires a certified home energy rater to evaluate homes before and after the improvements the amount of the payment is based on the level of improvement in the energy efficiency of the home gross_income is income from whatever source derived except as otherwise provided by law sec_61 of the internal_revenue_code the code does not contain an exclusion from income for grants the ahfc makes under the program therefore recipients of program payments must include the payments in gross_income taxpayers receiving program payments may be eligible for a tax_credit of up to percent of the cost of qualified_energy_efficiency_improvements sec_25c of the code for purposes of this credit a taxpayer’s cost for the improvements is not reduced by the amount of any program payments conex-127572-10 i hope this information is helpful if you have any questions please contact me or ----------------- at --------------------- sincerely george j blaine associate chief_counsel income_tax accounting