internal_revenue_service number release date index number ------------------------- -------------------------- ------------------------------ department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number -------------------- refer reply to cc fip b02 plr-146733-08 date legend taxpayer -------------------------------------------------------------------- ------------------------- employer -------------------------------------------------------------------- ---------------------------------------------------- company a state year year year year dear ---------------- ----------------------------- ---------- ------- ------- ------- ------- this is in reply to a letter dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations for taxpayer to file a written representation under sec_1_7872-15 of the income_tax regulations if this written representation under sec_1_7872-15 is considered timely filed and the other requirements under sec_1_7872-15 are plr-146733-08 satisfied then an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under sec_1_7872-15 facts employer is a state non-profit corporation established in year employer is a tax-exempt_organization under sec_501 of the internal_revenue_code_of_1986 as amended code in year employer met with a consulting team from company a to consult on matters relating to the retention and recognition of key employer employees the consulting team recommended and implemented employer’s split-dollar_life_insurance plan sdp company a intended for the sdp to be subject_to the regulations under sec_1_7872-15 the split-dollar regulations and designed the plan to utilize nonrecourse premium loans to the employee participants secured_by the policy the loans the loans were to each have a stated_interest rate equal to the applicable_federal_rate afr so as not to be below-market split-dollar loans under the split-dollar regulations in year taxpayer entered into a split-dollar_life_insurance arrangement the arrangement with employer as a participant in the sdp at the time taxpayer entered into the arrangement taxpayer had no prior experience with or knowledge of split- dollar life_insurance arrangements or sdps taxpayer was the borrower on the loan and the employer lent money to taxpayer to pay the premiums on the policy at the time the arrangement was entered into calculations prepared by company a projected that the proceeds of the insurance_policy securing the loan were expected to be sufficient to pay all interest and principal due on the loan company a was instrumental in implementing the sdp and the loans under the plan company a was responsible for drafting the documents advising taxpayer regarding the set-up of the arrangement and directing taxpayer regarding the many documents that required taxpayer’s signature taxpayer represents however that company a did not advise taxpayer regarding the resulting tax consequences if the payments on the loan were treated as contingent payments under the split-dollar regulations after the sdp was implemented employer contracted with company a to serve as the sdp’s third party administrator tpa as tpa company a was responsible for administering the sdp and providing employer and taxpayer with ongoing guidance related to the sdp taxpayer represents that because taxpayer lacked knowledge and experience with split-dollar_life_insurance arrangements taxpayer relied on company a’s information representations and conclusions regarding the arrangement plr-146733-08 taxpayer further represents that company a was aware of taxpayer’s reliance on its expertise regarding the arrangement prior to filing taxpayer’s year tax_return the return corresponding to the taxable_year in which employer made the first split-dollar loan to taxpayer under the arrangement taxpayer was not advised by company a that unless the parties to the arrangement filed a written representation pursuant to sec_1_7872-15 and ii of the regulations payments on the loan would be treated as contingent payments for purposes of the split-dollar regulations unbeknownst to taxpayer company a also failed to advise employer that employer and taxpayer were both required to file a written representation so that the loan payments would not be treated as contingent payments under sec_1_7872-15 since year taxpayer has filed tax returns as if the election had been made and the written representation had been filed pursuant to sec_1_7872-15 and ii in year employer informed taxpayer that employer’s new tpa discovered that a written representation should have been filed with both employer’s and taxpayer’s tax returns for the taxable_year in which the first loan was made employer further informed taxpayer that at the time the written representation was required to be filed employer was unaware of the requirement because prior tpas had failed to advise them to make such a filing employer explained the necessity of filing a written representation to ensure that payments on the loan were not treated as contingent payments and asked taxpayer to file an extension of time for filing the written representation as employer had done for itself taxpayer makes the following representations the granting of relief under sec_301_9100-3 would not result in taxpayer having a lower tax_liability in the aggregate for all years to which the election applies than taxpayer would have had if the election had been timely made taking into account the time_value_of_money taxpayer did not knowingly choose not to file the election taxpayer did not use hindsight in requesting relief finally taxpayer represents that it is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 in support of this requested ruling taxpayer has submitted the affidavits of taxpayer employer’s controller employer’s vice president of human resources and the owner of employer’s current tpa regarding the events that led to taxpayer’s failure to make the regulatory election pursuant to sec_1_7872-15 and ii law and analysis sec_1_7872-15 of the regulations provides that except as provided in sec_1_7872-15 if a payment on a split-dollar loan is nonrecourse to the borrower the payment is a contingent payment for purposes of sec_1_7872-15 plr-146733-08 sec_1_7872-15 provides that an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under sec_1_7872-15 if the parties to the split-dollar_life_insurance arrangement represent in writing that a reasonable person would expect that all payments under the loan will be made sec_1_7872-15 describes the time and manner requirements for providing the written representation required by sec_1_7872-15 sec_1 d ii provides in part that the written representation be signed by both the borrower and lender not later than the last day including extensions for filing the federal_income_tax return of the borrower or lender whichever is earlier for the taxable_year in which the lender makes the first split-dollar loan under the split-dollar_life_insurance arrangement sec_301_9100-1 defines election to include an application_for relief in respect of tax a request to adopt change or retain an accounting_method or accounting_period the term does not include an application_for an extension of time for filing a return under sec_6081 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulation or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 sets forth parameters for determining whether under particular facts and circumstances the commissioner will grant an extension of time for regulatory elections that do not meet the requirements for an automatic_extension under sec_301_9100-2 sec_301_9100-3 provides that when a taxpayer does not meet the requirements for an automatic_extension under sec_301_9100-2 the taxpayer must provide evidence satisfactorily establishing that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the government sec_301_9100-3 provides that subject_to sec_301_9100-3 a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer satisfies at least one of the following five criteria i the request for relief was made before the service discovered the failure to make the regulatory election ii the failure to make the election was due to intervening events beyond the taxpayer’s control iii after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied on the written advice of the service or v the taxpayer reasonably relied upon a qualified_tax professional including a tax professional employed by the taxpayer and that tax professional failed to make or failed to advise the taxpayer to make the election plr-146733-08 sec_301_9100-3 provides that a taxpayer has not reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was either i not competent to render advice on the regulatory election or ii not aware of all relevant facts sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably and in good_faith if taxpayer does one of the following i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and the subsequent tax consequences but chose not to make the election or iii uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and taxpayer’s representations we conclude that taxpayer has satisfied the requirements for granting a reasonable extension of time to file the written representation as required under sec_1 d i and ii taxpayer is therefore granted a period of time not to exceed days from the date of this letter to prepare and have both parties sign the written representation provided that the written representation is timely signed by both parties as required by this letter and filed with the taxpayer’s tax_return for year the written representation will be deemed effective for all years in which the arrangement has been in effect in accordance with sec_1_7872-15 a copy of the written representation should be attached to taxpayer’s tax_return for any subsequent taxable_year in which employer makes a split-dollar loan to taxpayer to which the representation applies except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code this ruling is limited to the timeliness of the filing requirement of the written representation under sec_1_7872-15 and ii no opinion is expressed with regard to whether taxpayer satisfied the other requirements under sec_1_7872-15 and ii the loan treatment requirements under sec_1_7872-15 or whether payments under the loan are otherwise noncontingent payments for purposes of sec_1_7872-15 no opinion is expressed with regard to whether the tax_liability of taxpayer is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s plr-146733-08 office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely david b silber david b silber chief branch office of associate chief_counsel financial institutions and products


internal_revenue_service number release date index number ----------------------------------------- -------------------------------- ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-105048-10 date date in re -------------------------------------------- --------------------------------------------------------- --------------------- legend ---------------------------- testator -------------------------------------- child a ----------------------------- child b --------------------------------------- child c -------------------------------- stock ------------------------------------------------------------------------------ stock trust ------------------------------------------------------------------------------ residuary_trust children’s agreement ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- state state a date date date date date date a b c d stock trust a residuary_trust a cite --------------------------------------------------------------------------------------------------- cite ------------------------------------------------------------------------------------------------------------------------ ------------------ ---------- -------------------- ------------------- -------------------------- ------------------------- ------------------------- ----------------------- ------ ------- ------ ------ ------------------------------------------------------------------------ --------------------------------------------------------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------------------------- plr-105048-10 ------------------------------------------------------------------------ ------------------------------------------------------ cite cite ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------- cite ------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ cite ------------------------------------------------------------------------ ------------------------------------------------------- cite cite ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- highest court highest court of state a state court state statute ------------------------------------------------------------------------------------------ --------------------------------------------- state governing statute a state governing statute b -------------------------------------------------- --------------------------------- state a statute ---- q ---- r s ---- ---- t -------- u -------- v x --------- ------ y z ------------ ------------------------------------------- ----------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------------------------- dear ------------ this responds to the date letter from your authorized representative requesting rulings on the income gift estate and generation-skipping_transfer gst tax consequences of a proposed settlement agreement the facts and representations are as follows testator died a resident of state on date he was survived by three children child a child b and child c the children five grandchildren the five grandchildren were then living there were no great-grandchildren at the time under articles third and eighth of testator’s will the will his shares of stock were to be held in trust the stock trust trust income was to be divided equally among the children on a child’s death the child’s income share was to be divided equally among the child’s then living children testator’s grandchildren the stock trust was to terminate twenty-one years after the death of testator’s last surviving grandchild plr-105048-10 when the principal would be divided equally per capita among testator’s then living great-grandchildren and deceased great-grandchildren whose then living descendants would take by representation under article twenty-second of the will the residue of testator’s estate was to be held in another trust the residuary_trust the residuary_trust provisions were identical to those of the stock trust except that the residuary_trust was to terminate when testator’s youngest great-grandchild reached age twenty-one the rule_against_perpetuities under the state rule_against_perpetuities in effect at testator’s death a bequest of a future_interest was void if considered prospectively at the testator’s death there was a possibility that the interest would not vest by the end of twenty-one years after the death of a life or lives in being at the testator’s death the permissible period a bequest to a class was void if there was a possibility that all the members of the class would not be ascertained and take vested interests within the permissible period a void specific_bequest passed to the testator’s residuary_estate if the testator’s disposition of the residuary_estate was void as well the residuary_estate passed as a reversion by intestacy cite in this case at testator’s death it was possible for the children to have additional children so that there could be grandchildren whose lives were not then in being this was the pivotal factor in determining whether his bequests of stock trust and residuary_trust income and remainders to his grandchildren and great-grandchildren violated the rule_against_perpetuities testator’s bequest of lifetime income interests to the grandchildren was to all of his grandchildren as a class a grandchild born after testator’s death would be part of the grandchildren’s class and would receive stock trust income_for_life based on this it was considered possible that not all of the grandchildren’s income interests would vest during lives in being at testator’s death testator’s bequests of remainders to his great-grandchildren were to vest only after all of testator’s grandchildren died the life of a grandchild born after testator’s death would also be a measuring life therefore at testator’s death it was possible that the time for vesting of the great-grandchildren’s remainders would be based on a life not in being at testator’s death accordingly the validity of these bequests was in doubt the bequests in the stock trust if void passed to the residuary_trust at testator’s death certain annuities were also created that have since terminated each trust considered herein ie stock trust and residuary_trust in the will and stock trust a and residuary_trust a under the children’s agreement provided for distribution of the remainder at the end of twenty-one years following the death of the last survivor of the persons whose lives measured the duration of that trust because the perpetuities issue in this case centers on the lives measuring a respective trust’s duration and not on the twenty-one year period following the death of the last survivor the twenty-one year period is hereafter assumed to be a part of each trust’s duration even though it is not specifically stated plr-105048-10 the bequests in the residuary_trust if void passed to testator’s intestate estate as a reversionary_interest the children’s agreement the children were testator’s heirs at law they acquired his property passing by intestacy consequently on date shortly after testator died the children entered into an agreement the children’s agreement revising the time when the great-grandchildren’s remainders were to vest under the children’s agreement the trusts were to terminate and the great-grandchildren’s remainders were to take effect on the death of the survivor of the children and five grandchildren that is lives in being at testator’s death the children’s agreement also changed the will’s pro_rata distribution of the stock trust and residuary_trust remainder to a per stirpes distribution on termination trust principal would be divided into three equal parts and distributed per stirpes under this revision the great-grandchildren descended from child a would share one third of the principal per stirpes those descended from child b would share a second third per stirpes and those descended from child c would share the last third per stirpes in all other respects the terms of the revised stock trust stock trust a and residuary_trust residuary_trust a were the same as those provided in testator’s will on a date before date testator’s shares of stock were transferred to stock trust a residuary_trust a was not funded it is represented that no additions have been made since then the litigation over more than x decades the trust beneficiaries and others have instituted actions for state court determinations regarding testator’s will and the children’s agreement specifically in cite the highest court of state highest court considered testator’s bequests of income interests to the grandchildren the court reasoned that under testator’s will a grandchild’s income_interest would vest when his or her parent child a child b or child c died thus the grandchildren’s class would necessarily close at the death of the last survivor of the children who were in being at testator’s death highest court held that therefore the bequest of lifetime income interests to the grandchildren as a class did not violate the rule_against_perpetuities the court held the stock trust created in the will to be valid through the lives of the grandchildren highest court then considered testator’s bequest of remainders to hi sec_3 testator’s bequest to the grandchildren though valid did not provide for distribution of a grandchild’s income share when the grandchild died before the trust ended on the death of the first grandchild to die on date the trustees petitioned the state court for instructions the state court held that based on testator’s intent a deceased grandchild’s children succeeded to the income share for the duration of the trust cite plr-105048-10 great-grandchildren the court reasoned that the grandchildren’s life estates preceded the remainders and the grandchildren’s class was not limited to lives in being at testator’s death because the remainders would take effect only after all of those including afterborn grandchildren died it was possible that the remainders would not vest within lives in being at testator’s death therefore highest court held the stock trust remainders to be void and illegal as violating the rule_against_perpetuities cite state statute the wait and see rule nearly y decades after highest court rendered its decision in cite the state legislature enacted state statute state statute provides a wait and see rule in determining whether a future_interest satisfies the rule_against_perpetuities or is void under the wait and see rule a future_interest does not violate the rule_against_perpetuities if actual events demonstrate that the interest did in fact vest by the end of the permissible period state statute applies retroactively to all interests heretofore created following the enactment of state statute highest court considered the statute’s retroactivity cite in the case before the court the trust was created many decades before state statute was enacted at the time of creation certain interests were void as violating the rule_against_perpetuities however highest court applied state statute’s wait and see rule to conclude in retrospect that the interests were not void and did not violate the rule_against_perpetuities as a result the courts of state now apply the wait and see rule retroactively to conclude that a future_interest that was void when created many years before state statute was enacted is not void because in hindsight it vested before the permissible period ended accordingly such otherwise void interests are retroactively sustained as not violating the rule_against_perpetuities cite however highest court has not yet addressed due process issues that may be presented by inference highest court also considered testator’s bequest of the residuary_trust remainders highest court in effect confirmed that the stock trust remainder and residuary_trust remainder passed by intestacy to the children however the court did not rule on how the remainder would pass to the great-grandchildren in contrast the legislature of state a enacted state a statute which like state statute retroactively applies a wait and see rule to determine whether a future_interest that was void at the time it was created before the state a statute was enacted did in fact vest during the permissible period highest court of state a refused to apply the wait and see rule retroactively despite the relevant language in state a statute instead that court addressed issues of constitutionality and held that state a statute could not be applied retroactively to destroy vested or substantive rights created before state a statute was enacted cite plr-105048-10 the actualities in this case no additional grandchildren were born after testator’s death the lives of the children and the five grandchildren were all in being at testator’s death all of the children have died the last survivor of the five grandchildren died on date at the time there were z great-grandchildren of testator the trust will terminate twenty-one years after date which is date of testator’s z great-grandchildren a descended from child a b descended from child b and c descended from child c if the wait and see rule is applied to validate testator’s bequest of remainders to his great-grandchildren the principal would be divided into z equal shares and distributed under the will alternatively if testator’s disposition of the remainders is considered void the principal would be divided into three equal shares and distributed per stirpes under the children’s agreement the portion of a one-third share distributable to a great-grandchild would depend on the framework of the family line ie child a’s child b’s or child c’s to which that great-grandchild belongs great-grandchildren’s litigation there is a substantial difference between what a great-grandchild would receive in a per capita distribution and what he or she would receive in a per stirpes distribution on date the great-grandchildren benefitting from a per capita distribution the per capita parties instituted their action in state court for adjudication on the distribution of the stock trust remainder the great-grandchildren benefitting from a per stirpes distribution the per stirpes parties opposed the suit and also requested adjudication in addition an action was instituted concerning the distribution of income during the twenty-one year period state court combined the proceedings to consider the income and principal issues together cite over a d-year period guardians ad litem were appointed there was extensive discovery counsel filed three voluminous sets of briefs and the court heard two days of oral arguments the per capita parties argued that the wait and see test of state statute now applies under that test testator’s the will’s disposition of the stock trust remainder does not violate the rule_against_perpetuities therefore the stock trust principal is distributable per capita to testator’s living great-grandchildren and deceased great-grandchildren whose living descendants would take by representation the per stirpes parties argued that the highest court’s determinations were final and those rulings can not now be constitutionally impaired by a later-in-time state statute or judicial_ruling because highest court determined the remainders in the will to be void they passed as reversionary interests by intestacy to the children as such the remainders passed per stirpes under the children’s agreement plr-105048-10 some parties argued that trust income should be distributed per stirpes through the roots of the children for the duration of the stock trust others argued that the income is distributable per capita the court encouraged the parties to explore ways to resolve their differences through negotiation and compromise rather than through continued litigation among the potential outcomes regarding trust principal was a judicial_ruling that i ii iii principal is distributable per capita on date under the terms of the stock trust in the will or principal is distributable per stirpes on date under the terms of the children’s agreement or principal was distributable as of the last surviving grandchild’s death under the residuary_trust in the will which vested or will vest in the takers under the residuary_trust among the potential outcomes regarding trust income was a judicial_ruling that iv v vi income is distributable per stirpes from the death of the last surviving grandchild to date under either the will or the children’s agreement or income is distributable per capita from the death of the last surviving grandchild to date under the will or the children’s agreement or all rights to receive stock trust income terminated when the last surviving grandchild died at which time the stock trust principal was distributable under the residuary_trust of the will the great-grandchildren’s settlement agreement the parties negotiated extensively at the outset they agreed that the issues could be settled using a fractional difference settlement based on an assessment of the relative strengths of their adverse positions under the general framework of the compromise the great-grandchildren’s settlement agreement the ggc agreement provides for the stock trust principal to be divided into z separate shares based on the number of testator’s then living great-grandchildren and deceased great-grandchildren with then living children the share of a deceased great-grandchild will be divided per stirpes among that great-grandchild’s living descendants for purposes of describing the ggc agreement the stock trust and stock trust a are considered to be the same trust plr-105048-10 the stock trust assets will be divided in accordance with certain percentages the formula of the compromise provides for a q per stirpes r per capita fractional difference as to income and an s per stirpes t per capita fractional difference as to principal after the division into separate shares u of each great-grandchild’s share will be distributed outright to the great-grandchild if living or if the great-grandchild is deceased to his or her living descendants per stirpes the remaining v of each share will continue in trust for such great-grandchild or such descendants until the termination_date date each share will be a separate trust the respective great-grandchild or deceased great-grandchild’s descendants will be the sole beneficiary of the share for distributions of income and principal a sophisticated algorithm taken to thirteen decimal places will be used in the pro_rata division and outright distributions the division will take into account both the market_value and respective tax bases of the assets the ggc agreement was presented to state court for consideration the state court approved the settlement and ordered the division and distribution of the stock trust as set forth in the ggc agreement the ggc agreement is subject_to a favorable ruling from the internal_revenue_service you have asked for the following rulings the terms of the ggc agreement will not cause distributions from the stock trust or the continuing separate settlement trusts to become subject_to the generation-skipping_transfer_tax the terms of the ggc agreement will not cause any party to the agreement to make a gift to any other party to the ggc agreement the terms of the ggc agreement will not cause any party to the agreement to be required to include trust assets in his or her gross_estate unless such assets are distributable or have been distributed to such party prior to his or her death the terms of the ggc agreement will not cause any party to the agreement to realize income from the sale_or_exchange of any trust assets or interests ruling generation-skipping_transfer gst tax sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable plr-105048-10 on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to chapter if the settlement is the product of arm's length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties' assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes in this case the stock trust was irrevocable on date further it is represented that there have been no actual or constructive additions to the stock trust after date accordingly the stock trust is exempt from gst tax under sec_26_2601-1 the terms of the ggc agreement including the proposed division of the stock trust into separate shares and partial distributions of principal are the result of a settlement of substantial issues between the per capita parties and the per stirpes parties these issues have been tenaciously litigated over more than x decades highest court rendered opinions regarding these trusts many years ago however state statute has since been enacted with retroactive effect and highest court has affirmed state statute’s retroactive application to a similarly-created trust in light of this that court’s earlier determinations of the issues in this case are now in question we conclude that the ggc agreement constitutes a settlement of bona_fide issues concerning the provisions of the stock trust and its administration we also conclude that the terms of the ggc agreement are the product of arm's length negotiations they represent a compromise between the positions of the parties and reflect the parties' assessments of the relative strengths of their positions we further conclude that the ggc agreement is within the range of reasonable outcomes under the governing instruments and the applicable state law addressing the issues resolved in the ggc agreement accordingly based upon the facts submitted and the representations made we rule that plr-105048-10 the division of the stock trust into the z separate great-grandchildren’s trusts and the distributions to the living great-grandchildren and the descendants by representation of a deceased great-grandchild made in accordance with the ggc agreement will not cause the stock trust the continuing separate stock trusts or the distributions as described above to be subject_to the generation-skipping_transfer_tax ruling gift_tax issue sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in him or her no power to change its disposition whether for his or her own benefit or for the benefit of another the gift is complete sec_25_2511-1 provides that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax whether an agreement settling a dispute is effective for gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party's claim if it is determined that each party has a valid claim the service must determine that the distribution under the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated the proposed settlement is a mediated settlement and is based on arm's length negotiations among all the parties all interested parties who hold or may hold an interest in the trusts including any minors and unborn heirs have been represented in the negotiations as discussed above the ggc agreement represents the resolution of a bona_fide controversy between the parties the terms of the ggc agreement are the product of arm's length negotiations and represent i a compromise between the positions of the per capita parties and the per stirpes parties and ii reflect the parties' assessments of the relative strengths of their positions plr-105048-10 we further conclude that the ggc agreement is within the range of reasonable outcomes under the governing instruments and applicable state law accordingly based on the facts submitted and representations made we conclude that the terms of the ggc agreement as described above will not cause any of the beneficiaries to have made a taxable gift_for purposes of the federal gift_tax under sec_2501 ruling estate_tax issue 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_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of death sec_2035 provides that if the decedent transferred an interest in property or relinquished a power with respect to any property during the 3-year period ending on the date of death and the value of the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the interest or power had been retained by the decedent on the date of death then the value of the gross_estate includes the value of the property or interest that would have been so included sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period that does not in fact end before his death possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income from the property sec_2037 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona fine sale for adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend or revoke or plr-105048-10 where the decedent relinquished any such power during the 3-year period ending on the date of the death sec_2041 provides that the value of the gross_estate shall include the value of all property with respect to which the decedent possessed a general_power_of_appointment at the time of death sec_2041 defines the term general_power_of_appointment as a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate in order for sec_2035 through to apply a decedent must have made a transfer of property or an interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth under which the decedent retained an interest in or power over the income or corpus of the transferred property as discussed above the ggc agreement represents the resolution of a bona_fide controversy between the parties it is a settlement of bona_fide issues and is the product of arm's length negotiations it reflects the parties' assessments of the relative strengths of their positions no great-grandchild or deceased great-grandchild’s descendants by representation has made a transfer to the stock trust or to any other great-grandchild by reason of the settlement agreement accordingly based upon the facts submitted and representations made we conclude that the terms of the ggc agreement will not cause any party to the agreement to have made a transfer within the meaning of sec_2035 through however once the ggc agreement becomes effective any trust property actually distributed or receivable by a beneficiary or his or her assignee would generally be included in the beneficiary’s federal transfer_tax base see eg sec_2033 sec_2041 sec_2501 ruling income_tax issue sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for plr-105048-10 other_property differing materially either in_kind or in extent is treated as income or loss sustained 499_us_554 addresses the issue of whether a sale_or_exchange that has taken place results in the realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court in cottage savings u s pincite concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite in the present case state governing statute a allows the court for cause shown to authorize the division of a_trust into two separate trusts on such terms and conditions and with such notice as the court directs in addition state governing statute b gives trustees the power to distribute in cash or in_kind or partly in each and allocate particular assets in proportionate or disproportionate shares in this case the court order approving the ggc agreement orders the division and distribution of the stock trust as set forth in the ggc agreement accordingly the court approved the non-pro rata distributions called for in the ggc agreement and further authorized the trustees to make the necessary transfers and assignments of the unconverted investment securities t herein awarded in_kind accordingly the submission concludes that the distribution scheme in this case is authorized by state law we agree the stock trust will be divided into z trusts on a non pro-rata basis under the state statutes cited above the court has the authority to authorize the trustees to make this type of non pro-rata apportionment thus the proposed division and distribution of the stock trust assets among the z trusts will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries within the meaning of cottage savings accordingly based upon the facts submitted and representations made we conclude that the division of the stock trust into the z great-grandchildren’s trusts will not result in the recognition of gain_or_loss under sec_1001 by the stock trust any beneficiary of the stock trust or any separate great-grandchild’s trust the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal revenue plr-105048-10 code are in effect during the period at issue 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 sincerely yours leslie h finlow acting senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosure copy for purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b04-plr-110103-02 date june in re legend decedent date date date date dear this letter is in response to your letter dated date requesting a ruling granting decedent’s estate an extension of time under sec_301_9100-1 of the procedure and administration regulations to make the alternate_valuation election pursuant to sec_2032 of the internal_revenue_code facts decedent died on date on date the co-executors of decedent’s estate timely filed form_4768 an application_for extension of time to file the united_states estate and generation-skipping_transfer_tax return form_706 on date the extended due_date to file form_706 the co-executors of decedent’s estate filed form_706 the co-executors engaged qualified and experienced estate_tax counsel and an experienced certified_public_accountant to assist them in administering decedent’s assets and preparing the required returns the certified_public_accountant failed to make a determination as to the value of decedent’s assets as of the alternate valuations date as a result the co-executors were not advised to make the alternate_valuation election when the co-executors realized that the alternate_valuation election under sec_2032 should have been made they prepared and submitted a supplemental estate_tax_return on date electing the alternate_valuation_date as reflected on the supplemental return the alternate_valuation election results in a decrease in the value of the gross_estate and the amount of federal estate_tax due_date is not more than one year after the time prescribed by law including extensions for filing the estate_tax_return plr-110103-02 law and analysis sec_2032 provides that the value of the gross_estate may be determined if the executor so elects by valuing all the property included in the gross_estate as follows in the case of property distributed sold exchanged or otherwise_disposed_of within six months after the decedent’s death such property shall be valued as of the date of distribution sale exchange or other_disposition in the case of property not distributed sold exchanged or otherwise_disposed_of within six months after the decedent’s death such property shall be valued as of the date six months after the decedent’s death any interest or estate which is affected by mere_lapse_of_time shall be included at its value as of the time of death instead of the later date with adjustment for any difference in its value as of the later date not due to mere_lapse_of_time sec_2032 provides that no election under sec_2032 may be made with respect to an estate unless such election will decrease the value of the gross_estate and the sum of the estate_tax imposed and the generation-skipping_transfer_tax imposed with respect to property includible in the decedent’s gross_estate reduced by credits allowable against such taxes sec_2032 provides that an election under sec_2032 shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable under sec_2032 no election may be made under sec_2032 if such return is filed more than one year after the time prescribed by law including extensions for filing such return under sec_301_9100-1 of the procedure and administration regulations the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 plr-110103-02 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301 a in this case the standards of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently an extension of time is granted until date for making an election under sec_2032 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 s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer 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 paul f kugler associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------- -------------------------------------------- ------------------------------------ ----------------------------- - department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b03 - plr-167859-03 date july legend x ----------------------- ------------------------- ----------------------- ---------------------- a d1 d2 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ state ------------ dear ------------ this letter responds to your letter dated date and subsequent correspondence written on behalf of x requesting a ruling under ' b of the internal_revenue_code facts x was incorporated under state law on d1 and x's sole shareholder a intended for x to be an s_corporation effective d2 however x's form_2553 election by a small sec_1362 provides that if a an election under sec_1362 is made for sec_1362 provides that an election under sec_1362 may be made by a sec_1362 provides that a small_business_corporation may elect to be an s plr-167859-03 business corporation was not filed timely x requests a ruling under sec_1362 that it will be recognized as an s_corporation effective for the taxable_year beginning d2 law and analysis corporation 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 fifteenth day of the third moth 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 such election is made after the 15th day of the 3d month of the taxable_year and on or before the 15th day of the 3rd month of the following taxable_year then such election shall be treated as made for the following taxable_year any taxable_year determined without regard to sec_1362 after the date prescribed by this subsection for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply conclusion established reasonable_cause for its failing to make a timely election and 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 containing an effective date of d2 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is an s_corporation for federal tax purposes based on the facts submitted and representations made we conclude that x has except as expressly provided herein we express or imply no opinion concerning this ruling is directed only to the taxpayer who requested it sec_6110 plr-167859-03 provides that it may not be used or cited as precedent cc ---------------------------------- sincerely yours ------------------------------ -------------------- ------------- ------------------------- --------------------------------------------------------------- ------------------------------------ -------------------------- s christine ellison chief branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number 6050w ---------------------------- ----------------------------------------------- -------------------------------- in re ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number -------------------- refer reply to cc pa plr-101506-12 date july dear -------------------------------------------------------- this is in response to your ruling_request submitted by your authorized representative concerning the federal_income_tax reporting requirements for your wholly-owned subsidiary ---------------------------------------------------------------- company x under sec_6050w of the internal_revenue_code code and the regulations thereunder specifically you would like a ruling that company x i is not the entity that makes payment in settlement of the reportable_transactions described in this ruling_request ii as the tax-reporting designee of a non-u s payor that does not have to report payment transactions or obtain additional documentation because its payees are foreign persons they do not have a u s address and as to whom the non-u s payor does not know nor has reason to know is a u_s_person company x does not have to report such payment transactions iii as the tax-reporting designee for a non-u s payor with a potential sec_6050w reporting obligation company x may rely on such non-u s payor’s determination in ii that a payee is a foreign_person and therefore no information_return need be filed with respect to that payee and no additional documentation need be collected as to the payee’s foreign status iv as the tax-reporting designee for a non-u s payor with a potential sec_6050w reporting obligation company x does not have the obligation under the code or the regulations to obtain documentation to prove foreign_person status in the event a payee has a u s address or the entity has reason to know that a payee is a u_s_person v as the tax-reporting designee for a non-u s payor with a potential sec_6050w reporting obligation company x may rely on documentation collected by the entity to plr-101506-12 prove foreign_person status in the event a payee has a u s address or the non-u s payor has reason to know that a payee is a u_s_person vi as the tax-reporting designee for a non-u s payor with a potential sec_6050w reporting obligation company x may collect documentation to prove foreign_person status of a payee and the non-u s payor may rely on such documentation vii as the tax-reporting designee for a non-u s payor with a potential sec_6050w reporting obligation company x would not be liable for any penalties for failure to report or inaccurately reporting because the non-u s payor did not possess the appropriate documentation even though company x prepares and submits the information returns facts company x is a provider of ---------------------------------------------------------- services for consumers merchants financial institutions government agencies and multi-national corporations located in the united_states and internationally company x acts as -------- -------------------------------------------------------------- between for example merchants and card issuers settling purchases made by consumers with a credit card company x operates in two business segments north america and international company x is incorporated in the united_states ---------------------------------------------------------------------- ----------------------------------------------------------------------- payment networks many credit cards are processed through one of the major payment networks such as - ---------------- and ------ these major payment networks have certain prerequisites an entity must satisfy in order to be able to access the payment network and process credit card transactions connected to the payment network’s credit cards generally an entity must either i be a member of the applicable_payment network or ii it must have an agreement with a member of the payment network sponsorship bank ------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- in addition to membership to the payment network an entity seeking to provide processing services must have a bank identification_number bin the bin is assigned by the payment network in order to identify members and allow accurate identification and routing of the applicable transactions for credit approval in ---------- entities that are not a member of a payment network or members that are not financial institutions must have a contract with a ------------- financial_institution that is a member of the applicable_payment network and has the requisite bins bin banks since it is plr-101506-12 not a financial_institution company x has contracts with bin banks to allow company x to route transactions to the payment network systems in order to initiate the actual transfer of funds to merchants in ---------- company x has established depository and clearing relationships with ------------- financial institutions company x’s two primary depository and clearing relationships are with the ----------- --------------------------------- and the ------------- ----------------------------------------------- ----- --------- and ------- will be referred to in this ruling_request as settlement banks the depository and clearing relationships with the settlement banks allow company x to ultimately clear and settle card transactions with merchants that have been routed through the payment networks via the bin banks for funding approval------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ the parties to the agreements with company x’s merchants ------------ agreement vary depending on the payment network for ---------------- payment transactions the --- ------------ agreement consists of three parties the merchant company x and the settlement bank in these agreements both company x and the settlement bank have a contractual obligation to pay the merchant in settlement of its credit card transactions for ------ payment transactions the ------------ agreement consists of two parties the merchant and company x in these agreements company x has the contractual obligation to pay the merchant in settlement of its credit card transactions company x’s agreement with the settlement banks makes clear that company x is designated to undertake all reporting audit compliance and related procedures including the reporting of funding related to the settlement of all payment network credit card transactions that company x processes company x’s role in card transactions company x is the -------------------------------- between merchants the payment networks and the settlement banks when a merchant accepts a credit card as payment company x captures the card and transaction information and routes it to the appropriate payment network the payment network forwards the payment authorization request to the card issuer the card issuer makes a determination on whether to authorize payment for the transaction based on the cardholder’s account information and relays that response to the merchant’s terminal via the same communication network plr-101506-12 if payment has been authorized company x sends instructions to the appropriate payment network the payment network transfers the transaction information to the card issuer the card issuer will then send the appropriate funds through the payment network to the settlement bank company x then creates a merchant funding file for the settlement bank and submits it to the settlement bank the settlement bank then submits the merchant funding file to initiate payment to the merchant ultimately the merchant’s designated bank account is funded the appropriate amount law and analysis sec_6050w and payment_card transactions sec_6050w of the code as enacted by the housing assistance tax act of requires payment settlement entities to file an information_return for each calendar_year with respect to payments made in settlement of reportable_payment transactions with participating payees sec_1_6050w-1 sec_6050w covers two types of transactions payment_card transactions and third party network transactions a payment_card_transaction is any transaction in which a payment_card is accepted as payment by a participating_payee sec_1_6050w-1 a payment_settlement_entity in the payment_card context is a merchant_acquiring_entity sec_1_6050w-1 the code and regulations define a merchant_acquiring_entity as the bank or other organization with the contractual obligation to make payments to participating payees in payment_card transactions id if there is more than one entity that qualifies as a payment settlement entity-because more than one entity has the contractual obligation to make payments in settlement of payment_card transactions-then only the payment_settlement_entity that in fact makes payment in settlement of the reportable_payment_transaction has the obligation to report sec_1_6050w-1 the regulations state that a payment_settlement_entity makes a payment in settlement of a reportable_payment_transaction if the payment_settlement_entity or electronic payment facilitator submits the instruction to transfer funds to the account of the participating_payee sec_1_6050w-1 sec_6050w puts forth a special rule in the event an electronic payment facilitator epf makes payments in settlement of reportable_payment transactions on behalf of the payment_settlement_entity sec_6050w in that scenario the code and the regulations make clear that the epf must report in lieu of the payment_settlement_entity the epf need not have any agreement or arrangement with the participating_payee nor does payment have to come from the epf’s account importantly the epf is liable for any penalties for failing to comply with sec_6050w reporting the transactions described above are payment_card transactions that are subject_to reporting under sec_6050w the merchants with whom company x has ------------ plr-101506-12 agreements accept credit cards as payments for their transactions with consumers company x’s designation under the regulations varies based on the parties to the ------- ------------ agreement in agreements where both company x and a settlement bank are parties to the agreement with the merchant both company x and the settlement bank satisfy the definition of merchant_acquiring_entity which is the payment_settlement_entity for purposes of payment_card transactions sec_6050w sec_1 6050w- b as discussed if there are multiple entities that qualify as payment settlement entities with respect to a reportable_payment_transaction then the payment_settlement_entity that in fact makes payment in settlement of the reportable_payment transaction- defined as submitting the instructions to transfer funds to the account of the participating payee-is obligated to report under sec_6050w sec_1_6050w-1 sec_1_6050w-1 the settlement bank is the entity that submits the instructions to initiate payment to the merchant in agreements where company x is the only party with a contractual obligation to pay the merchant company x is the exclusive merchant_acquiring_entity and the payment_settlement_entity for those transactions in these cases however company x contracts with a settlement bank to make payments in settlement of the reportable_payment transactions on behalf of company x as discussed above the card issuer will send the appropriate funds to the settlement bank company x will then prepare the merchant funding file for the settlement bank the settlement bank acting as an electronic payment facilitator is the entity that submits the instructions to transfer payment to the merchant sec_1_6050w-1 sec_1_6050w-1 example foreign address and designation rules another relevant factor for determining the existence of a reporting obligation is the status of the payee the code makes clear that reporting is necessary for reportable payments made to a participating_payee sec_6050w sec_6050w provides that except as provided in regulations or other guidance the term participating_payee does not include any person with a foreign address the regulations provide two separate rules for determining whether a person has a foreign address depending on whether the payor is a u_s_payor or a non-u s payor the regulations impose documentation requirements on payors in instances where there is doubt as to whether a payee has a foreign address and is therefore a foreign_person not subject_to reporting after publication of the regulations the internal_revenue_service service published notice_2011_71 which provides interim guidance relating to the rules u s and non-u s payors need to follow when determining whether a person has a foreign address notice_2011_71 2011_2_cb_233 the primary purpose of notice_2011_71 was to relax the documentation requirements for u s payors in certain contexts plr-101506-12 under the regulations a non-u s payor does not have to report payment transactions to a payee that does not have a u s address as long as the non-u s payor neither knows nor has reason to know that the payee is a u_s_person if a payee does have a u s address the non-u s payor may treat the payee as a foreign_person if it obtains the documentation requirements put forth in sec_1_1441-1 sec_1_6050w-1 in light of the changes put forth under notice_2011_71 a u_s_payor needs to report payment transactions made outside the u s to an offshore_account only if i there is a u s address associated with the participating_payee whether a residence address or correspondence address ii the payment_settlement_entity has standing instructions to direct the payment to a bank account maintained in the united_states iii the participating_payee submits for payment in u s dollars or iv the payment_settlement_entity knows or has reason to know that the participating_payee is a u_s_person if any of the first three criteria are present the u_s_payor may still show that a payee is a foreign_person by obtaining the documentation put forth in notice_2011_71 the regulations also provide a transition rule for contracts entered into before date a payment_settlement_entity that is a u_s_payor is not required to report payments made to a participating_payee with a foreign address as long as the u_s_payor neither knows nor has reason to know that the payee is a u_s_person effectively applying the same reporting standards applicable to non-u s payors for this purpose a renewal of such a contractual obligation will not result in a new contractual obligation unless there is a material modification of the contractual obligation despite being a payment_settlement_entity or electronic payment facilitator under the code and regulations the regulations allow for such parties to designate by written_agreement any other person to satisfy the reporting requirements of sec_6050w sec_1_6050w-1 designation however does not relieve the party with the reporting obligation from penalties for failing to comply with sec_6050w id the ruling_request states that company x is a u_s_payor and that the settlement banks are non-u s payors accordingly the settlement banks do not have to report-under the non-u s payor rules-payment transactions for merchants that do not have a u s address and for which the settlement banks neither know nor have reason to know that the merchant is a u_s_person as the settlement banks’ non-u s payor designee company x may rely on settlement banks’ determination that a merchant is a foreign_payee see sec_1_6050w-1 additionally because company x is merely the designee and not the entity with the sec_6050w reporting obligation under the code company x does not have an obligation under sec_6050w to obtain documentation necessary to establish that a payee is a foreign_person plr-101506-12 because company x is merely the designee and not the entity with the sec_6050w reporting obligation under the code company x also may rely on documentation collected by settlement bank for purposes of establishing that a payee is a foreign_person because the settlement bank has the sec_6050w reporting obligation company x may collect documentation to establish that a payee is a foreign_person and settlement bank may rely on such documentation that reliance however does not relieve the settlement bank from any liability for reporting failures sec_1_6050w-1 company x as the designee for sec_6050w reporting is not liable for any penalties for failing to report or inaccurately reporting because the settlement bank did not possess the appropriate documentation as discussed above a designation does not relieve the party with the reporting obligation from liability for any reporting failures sec_1_6050w-1 sec_1_6050w-1 example conclusion i company x is not the entity that makes payment in settlement of the reportable_transactions described in this ruling_request and therefore does not have a sec_6050w reporting obligation ii company x as the tax-reporting designee of a non-u s payor that does not have to report certain payment transactions nor obtain documentation as to the foreign_person status of certain payees does not have to report such payment transactions iii company x as the tax-reporting designee for a non-u s payor with a potential sec_6050w reporting obligation may rely on such non-u s payor’s determination that a payee is a foreign_person when determining whether an information_return needs be filed with respect to that payee iv company x as the tax-reporting designee for a non-u s payor with a potential sec_6050w reporting obligation does not have the obligation under the code or the regulations to obtain documentation to prove foreign_person status in the event a payee has a u s address or the non-u s payor has reason to know that a payee is a u_s_person v company x in its role as the tax-reporting designee for a non-u s payor with a potential sec_6050w reporting obligation may rely on documentation collected by the non-u s payor to prove foreign_person status in the event a payee has a u s address or the u_s_payor has reason to know that a payee is a u_s_person vi company x in its role as a the tax-reporting designee for a non-u s payor with a potential sec_6050w reporting obligation may collect documentation to prove plr-101506-12 foreign_person status of a payee and the non-u s payor may rely on such documentation but the non-u s payor is still liable for any reporting failures vii company x in its role as a the tax-reporting designee for a non-u s payor with a potential sec_6050w reporting obligation would not be liable for any penalties for failure to report or inaccurately reporting because the non-u s payor did not possess the appropriate documentation even though company x prepares and submits the information returns these conclusions are based exclusively on the information provided and the representations made by the requestor this letter_ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent charles a hall senior technician reviewer branch procedure administration cc


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend x name y specialists u region v region z specialty b dollars amount c number d number e number f dollars amount dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provided in code sec_117 description of your request your letter indicates you will operate a scholarship program called x letter catalog number 58263t your purpose is to improve the quality of life through investments in healthcare by providing support to the development of primary care providers in your state the purpose of x is to support the growth and development of y by awarding two scholarships in the amount of b dollars recipients must be enrolled in their first semester of a z program who have demonstrated the potential for development into a highly capable clinical professional concern with the total welfare of the society of which he she is an active_participant intention to practice in primary care in u or v upon completion of school and training you will promote x to c schools with z programs who will each be invited to nominate one candidate for a scholarship to be eligible to be nominated and receive a scholarship a candidate must e e e e e e reside in one of d counties in u or reside in one of e counties in v show a verifiable connection to the community such as having graduated from a high school or college there or having a familial relationship with a legal resident intend to practice primary care medicine after the completion of school other connections will be considered on a case by case basis but should be cleared by your executive director prior to submission of the nomination demonstrate academic performance that satisfies the minimum requirements for the particular z program for which they have applied show financial need demonstrate a capacity for leadership communication and humanity have at least three years of clinical practice experience before entering the z program furthermore candidates may only be nominated by one school each of the eligible schools will complete a nomination form for their candidate which will be e-mailed to each of the eligible schools they will submit the form along with the needed letters of recommendation the candidate’s application_for the program and other required attachments by the nomination deadline in addition the candidate must complete specific pages and sign the document the nominating official must also sign the form an independent selection committee consisting of persons who are leaders in their chosen profession and civic life will review the application packets and will interview each nominee the committee will then rank the nominees based on how they have satisfied the eligibility criteria the highest-ranking nominee will be offered the first scholarship and the next highest-ranking nominee will be offered the second scholarship in addition the school whose nominee is awarded a scholarship must accept the scholarship by a predetermined deadline if the acceptance is not submitted by the deadline then the scholarship will go to the next highest-ranking nominee moreover the schools whose nominees are not selected will be awarded a one-time stipend for f dollars to be applied letter catalog number 58263t to their nominee’s tuition school gets to keep the stipend if the nominee fails to follow through with enrollment the you will pay half of the scholarship to the recipient’s school at the beginning of the one fourth of the scholarship will be paid recipient’s second semester on their behalf before the beginning of the second year and the other one fourth of the scholarship will be paid the first business_day the following calendar_year the scholarship is not transferable to another school if the scholarship recipient does not continue enrollment at the nominating school future scholarship payments will be discontinued you will retain complete records that will include all information you obtained to evaluate the qualifications of the nominees they will also contain the identification of the nominees including any relationship of any nominee to you or to an officer or director of yours the purpose and amount of each grant the terms of payment of each grant and any additional information obtained by you as part of the application if you determine that all or any part of a scholarship is not being used to further the purposes of the grant you will take one or more of the following actions as required and appropriate withhold payments to the extent possible during the period of investigation take steps to recover the grant funds and or ensure restoration of diverted funds to the purposes of the grant withhold further payments until the diverted funds are in fact recovered or restored obtain assurances from the scholarship recipient and or the school that future diversions will not occur and require the scholarship recipient and or the school to take extraordinary precautions to prevent future diversions basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 e other conditions that apply to this determination e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request e this determination applies only to you it may not be cited as a precedent letter catalog number 58263t e e e e you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records lf you have questions please contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements letter catalog number 58263t