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 b04 plr-118736-12 date august internal_revenue_service number release date index number --------------------- ------------ --------------------------- ------------------------------ in re ------------------------------------ legend legend decedent ------------------------ dear --------------------- this responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file a form_8939 allocation of increase in basis for property_acquired_from_a_decedent to make the sec_1022 election and to allocate basis provided by sec_1022 of the internal_revenue_code code to eligible_property transferred as a result of decedent’s death the facts and representations submitted are as follows decedent died in the executor for decedent’s estate retained a tax professional to advise him on estate_tax matters including the necessity to file a form_8939 the executor of decedent’s estate is requesting an extension of time pursuant to sec_301_9100-3 to file the form_8939 to make the sec_1022 election and to allocate basis provided by sec_1022 to eligible_property transferred as a result of decedent’s death law and analysis sec_1022 provides that property_acquired_from_a_decedent who died after date is treated as transferred by gift and the basis of the person acquiring the property from such a decedent is the lesser_of the adjusted_basis of the decedent or the fair_market_value of the property at the date of the decedent's death sec_1022 provides in general that the basis_of_property under sec_1022 is increased by basis increase that is allocated to the property sec_1022 provides in general that basis increase is the portion of the aggregate basis increase that is allocated to the property plr-118736-12 sec_1022 and c provide that the aggregate basis increase is dollar_figure and that the aggregate basis increase is increased by-- i the sum of the amount of any capital_loss_carryover under sec_1212 and the amount of any net_operating_loss_carryover under sec_172 that would but for the decedent’s death be carried from the decedent’s last taxable_year to a later taxable_year of the decedent plus ii the sum of the amount of any losses that would have been allowable under sec_165 if the property acquired from the decedent had been sold at fair_market_value immediately before the decedent’s death sec_1022 provides that in the case of property that is qualified spousal property the basis of such property under sec_1022 as increased under sec_1022 is increased by spousal property basis increase allocated to the property sec_1022 provides in general that spousal property basis increase is the portion of the aggregate spousal property basis increase which is allocated to the property sec_1022 provides that the aggregate spousal property basis increase is dollar_figure sec_1022 provides in general that the basis_of_property acquired from a decedent may be increased under sec_1022 or c only if the property was owned by the decedent at the time of death sec_1022 describes property that is considered to be owned by the decedent at the time of death sec_1022 provides that the basis adjustments under sec_1022 and c shall not increase the basis of any interest in property above its fair_market_value in the hands of the decedent as of the date of the decedent's death sec_1022 provides in general that the executor is to allocate the basis adjustments under sec_1022 and c on the return required by sec_6018 and that any allocation made may be changed only as provided by the secretary sec_1022 describes property that is considered to be acquired from the decedent for purposes of sec_1022 subtitle a of title v of the economic_growth_and_tax_relief_reconciliation_act_of_2001 p l stat enacted sec_2210 which made chapter the estate_tax inapplicable to the estate of any decedent who died in and chapter the generation skipping transfer gst tax inapplicable to generation-skipping transfers made in on date tax relief unemployment insurance reauthorization and job creation act of truirjca p l stat became law and sec_301 of truirjca retroactively reinstated the estate and gst taxes however sec_301 of truirjca allows the executor of the estate of a decedent who died in to elect to apply the code as though sec_301 of truirjca did not apply with respect to chapter and for property acquired plr-118736-12 or passing from a decedent within the meaning of sec_1014 thus sec_301 of truirjca allows the executor of the estate of a decedent who died in to elect not to have the provisions of chapter apply to the decedent’s estate but rather to have the provisions of sec_1022 apply the sec_1022 election notice_2011_66 2011_35_irb_184 section i a provides that the executor of the estate of a decedent who died in makes the sec_1022 election by filing a form_8939 on or before date notice_2011_76 2011_40_irb_479 extended the due_date of the form_8939 and thus the election from date to date notice_2011_66 section i d provides that the internal_revenue_service will not grant extensions of time to file a form_8939 and will not accept a form_8939 filed after the due_date except in four limited circumstances provided in section i d under this section of notice_2011_66 an executor may apply for relief under sec_301_9100-3 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore the executor of decedent’s estate is granted an extension of time of days from the date of this letter to make the sec_1022 election on a form_8939 and allocate additional basis to eligible_property as provided by sec_1022 a copy of this letter should be attached to the form_8939 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 provides that it may not be used or cited as precedent plr-118736-12 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 james f hogan james f hogan chief branch passthroughs special industries enclosures copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c office_of_chief_counsel date cc el d br4 gl-510451-98 uilc number release date internal_revenue_service national_office chief_counsel_advice memorandum for edward f peduzzi associate district_counsel cc ner pen pit from chief branch disclosure litigation cc el d david l fish subject migration study contract between pennsylvania department of revenue and third party this office has reviewed the proposed migration study contract between pennsylvania department of revenue and a third party our comments follow federal tax information protected under sec_6103 may be provided to pennsylvania department of revenue pursuant to sec_6103 for purposes of and only to the extent necessary in the administration of pennsylvania tax laws under the terms of the proposed migration study contract pennsylvania department of revenue would redisclose specified items of the federal tax information that it receives under sec_6103 to its third party contractor pursuant to sec_6103 and implementing sec_301_6103_n_-1 for use by the third party contractor in performing the migration study contract pennsylvania department of revenue is authorized to redisclose federal tax information obtained under sec_6103 in connection with the contractual procurement of services for purposes of tax_administration as defined in sec_6103 sec_6103 n and sec_301_6103_n_-1 therefore provided the proposed migration study contract is a contract for procurement of services for sec_6103 explicitly permits a state tax agency to disclose to sec_6103 contractors such representatives shall not include any individual who is the chief_executive_officer of such state or who is neither an employee or legal_representative of such agency body or commission nor a person described in subsection n id emphasis added gl-510451-98 purposes of pennsylvania tax_administration pennsylvania department of revenue may in accordance with sec_301_6103_n_-1 redisclose sec_6103 protected federal tax information to its contractor to the extent necessary in connection with the procurement or performance of such services disclosures will be treated as necessary only if the procurement or performance of such services cannot otherwise be reasonably properly or economically carried out or performed without such disclosures sec_301_6103_n_-1 disclosures pursuant to sec_6103 in conjunction with sec_6103 are conditioned on the intended recipient establishing maintaining and complying with such security and safeguard conditions and requirements as the internal_revenue_service service deems necessary or appropriate to protect the confidentiality of federal tax information and to prevent disclosures in a manner not authorized by sec_6103 in conjunction with sec_301_6103_n_-1 sec_301_6103_n_-1 each such contract shall provide that such person and officers and employees of the person shall comply with all such applicable conditions and restrictions as may be prescribed by the service moreover each officer and employee of a contractor to whom federal tax information is or may be disclosed under the authority of sec_6103 in conjunction with sec_6103 n -1 a must be notified in writing of the use they may make of such information of their obligation to protect such information from unauthorized disclosure or use and of the penalties for unauthorized disclosure or use of such information sec_301_6103_n_-1 accordingly it is critical that the proposed contract clearly identify the specific third party s with whom a state tax agency intends to contract which third party will be subject_to such notification requirements the service may take such actions as are deemed necessary to ensure that all requirements or conditions including notification security and safeguard requirements of disclosure pursuant to sec_6103 in conjunction with sec_6103 are or will be satisfied including suspension of further sec_6103 disclosures to the state tax agency sec_301_6103_n_-1 similarly the service has authority to preclude disclosures to contractors or to proposed contractors where it is not satisfied the required safeguards are being or will be met or if the service is not satisfied that the contractual language meets the regulatory requirements or otherwise considers such language to be deficient as to protection of tax data


id office uilc cca-788320-08 ---------- number release date from -------------------- sent tuesday date am to ------------------------ cc ---------------------------- subject re information for securing info from dept of labor darn i thought i already sent this to you just found it in my drafts hi ------i think this might have something to do with the neece decision but that decision involved a financial_institution as defined by the right to financial privacy_act even with a bank if the bank voluntarily turns over information irs doesn't need a summons i agree that if there is a fed state agreement that's all they need hope that helps ------------------------------------------------------ ------------------------------------------------------ ----------


internal_revenue_service number release date index number ----------------------------- ------------------------- ---------------------------- ---------------------------- in re --------------------------- -------------------------------------------- ---------------------------- department of the treasury washington dc person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc psi b07 - plr-111615-04 date date legend p w x y z a b c d e f location state date date date date date date date date date date date amount amount w x --------------------------- ----------------------- ----------------------------------------------- ----------------------- ----------------------------------- ------------------------------------ --------------------------------------- ---------- ------------------------------------- ----------------------------------------------------------- --------------------------------------------------------- ----------------------------- --------------------------------------- ----------------------------------------- ------------ ------------------- ------------------------- -------------------------- -------------------------- ------------------------- -------------------------- -------------------------- --------------------- -------------------------- -------------------------- ----------------------- -------------- -------------- ---- ---- plr-111615-04 y z a -- ---- -- dear ---- this letter is in response to your letter on behalf of p dated date requesting rulings under sec_29 of the internal_revenue_code the facts as represented by p and p’s authorized representative are as follows p received plr-100240-98 on date plr-111447-00 on date and plr-126688-03 on date prior rulings which ruled on the issues addressed by this letter p seeks a confirmation of the rulings in light of the sale of an interest in p to w p is a delaware limited_liability_company taxable as a partnership p owns and operates the facility for producing a solid synthetic_fuel from coal the product using the process described below the facility was constructed by p the facility is a secondary coal recovery system facility designed by a the facility consists of three production lines each of which consists of a briquetter that is fed by its associated mixer and each of which is capable of being operated independently because each production line is capable of being operated independently and can independently produce synthetic_fuel each independent production line may be treated as a separate facility the facility was constructed pursuant to a construction_contract entered into by a and b on date a assigned to p all of its rights and obligations under the construction_contract with respect to one facility on date b contracted with c to perform the procurement assembly and installation services under the construction_contract p provided an opinion of counsel that the construction_contract constituted a binding written contract under applicable state laws prior to date and at all time thereafter through completion of the contract on date p received a favorable determination from the district_director for the state district that the facility was placed_in_service prior to date on date x purchased an interest in p from d pursuant to a purchase agreement as amended on date y purchased the remaining interest in p from a on date pursuant to a purchase agreement effective date x sold a z interest in p to its subsidiary z pursuant to an agreement for purchase of membership interest in exchange for the z interest in p z paid to x an amount of cash at closing and z is obligated to make certain fixed and variable payments to x for the period from the sale until the closing of the transaction on date described below z owned z of the interests in p and x and y owned an x and y interest respectively in p plr-111615-04 p relocated the facility to a site in location the site which is owned by e an affiliate of f in connection with the relocation of the facility most major components of the facility directly necessary to produce a qualified_fuel were relocated to the site certain equipment included in the original construction was scrapped or sold and not relocated in connection with the relocation p also installed certain equipment that is not directly necessary for the production of qualified_fuel such as a maintenance building office trailer shower locker trailer and coal and material handling equipment following the relocation the fair_market_value of the original property included in the facility is more than percent of the facility's total value the cost of the new equipment included in the facility plus the value of the original property p has entered into a synthetic_fuel and coal supply agreement with e under which e agreed to purchase a minimum of amount tons of synthetic_fuel a year and to use commercially reasonable efforts to purchase up to amount tons of synthetic_fuel a year if e does not satisfy its purchase obligation or the production of synthetic_fuel exceeds e's requirements p can sell synthetic_fuel to third parties p has represented that all sales of synthetic_fuel will be to unrelated persons on date x agreed to sell a w interest in p to w following the closing of the sale w will own w x will own a y will own y and z will own z of p in exchange for the w interest in p w will pay to x an amount of cash at closing and w is obligated to make certain fixed and variable payments to x following that sale w x y and z will make periodic capital contributions to p to enable it to pay its operating costs and other obligations a proforma attached to the ruling_request demonstrates that project expenses are projected to exceed revenues p has supplied a detailed description of the process employed at the facility p also has proposed that from time to time one of four alternative chemical reagents may be used in the process for the production of product as described the facility and the process implemented in the facility including the chemical reagents meet the requirements of revproc_2001_34 2001_22_irb_1293 a recognized expert in coal combustion chemistry has performed numerous tests on the coal used at the facility and the product produced at the facility and has submitted reports in which the expert concludes that significant chemical changes take place with the application of the process to the coal including the alternative chemical reagents p with use of the process expects to maintain a level of chemical change in the production of synthetic_fuel that is determined through similar analysis by experts to be a significant chemical change the rulings issued in prior rulings which you wish to be reconfirmed in this private_letter_ruling are as follows p with use of the enumerated process will produce a qualified_fuel within the meaning of sec_29 plr-111615-04 the contract for the construction of the facility constitutes a binding written contract in effect before date within the meaning of sec_29 production from the facility will be attributable solely to p within the meaning of sec_29 and p shall be entitled to the sec_29 credit for qualified_fuel from the facility that is sold to an unrelated_person the sec_29 credit attributable to p may be allocated to the members of p in accordance with the members' interests in p when the credit arises for the sec_29 credit a member's interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel a termination of p under sec_708 will not preclude the reconstituted partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons because the facility was placed_in_service prior to date within the meaning of sec_29 relocation of the facility to a different location after date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of the facility's total fair_market_value at the time of relocation because the facility was placed_in_service prior to date within the meaning of sec_29 relocation of one or more of the independent production lines of the facility to a new location will not result in a new placed_in_service_date for the facility or an independent production line for purposes of sec_29 provided all essential components of the independent production line are retained and the production output of the independent production line is not significantly increased at the new location the change in facts since the issuance of prior rulings is the proposed sale of an interest in p to w as described above the above rulings are not affected by the sale of an interest in p to w as described in the ruling_request ruling requests and sec_29 allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer the credit for the taxable_year is an amount equal to dollar_figure adjusted for inflation multiplied by the barrel-of-oil_equivalent of qualified_fuels sold plr-111615-04 sec_29 defines qualified_fuels to include liquid gaseous or solid synthetic fuels produced from coal including lignite including such fuels when used as feedstocks in revrul_86_100 1986_2_cb_3 the internal_revenue_service ruled that the definition of the term synthetic_fuel under sec_48 and its regulations are relevant to the interpretation of the term under sec_29 former sec_48 provided a credit for the cost of equipment used for converting an alternate_substance into a synthetic liquid gaseous or solid fuel revrul_86_100 notes that both sec_29 and former sec_48 contain almost identical language and have the same overall congressional intent namely to encourage energy conservation and aid development of domestic energy production under sec_1_48-9 of the income_tax regulations a synthetic_fuel differs significantly in chemical composition as opposed to physical composition from the alternate_substance used to produce it coal is an alternate_substance under sec_1_48-9 consistent with its private_letter_ruling practice that began in the mid 1990’s the service in revproc_2001_30 provided that taxpayers must satisfy certain conditions in order to obtain a letter_ruling that a solid fuel other than coke produced from coal is a qualified_fuel under sec_29 revproc_2001_30 as modified by revproc_2001_34 2001_1_cb_1293 the revenue_procedure requires taxpayers to present evidence that all or substantially_all of the coal used as feedstock undergoes a significant chemical change to meet this requirement and obtain favorable private letter rulings taxpayers provided expert reports asserting that their processes resulted in a significant chemical change in announcement 2003_30_irb_222 the service announced that it was reviewing the scientific validity of test procedures and results presented of significant chemical change in expert reports in announcement i r b the service announced that it had determined that the test procedures and results used by taxpayers were scientifically valid if the procedures were applied in a consistent and unbiased manner however the service concluded that the processes approved under its long standing ruling practice and as set forth in revproc_2001_30 did not produce the level of chemical change required by sec_29 nevertheless the service announced that it recognized that many taxpayers and their investors have relied on its long standing ruling practice to make investments therefore the service announced that it would continue to issue rulings on significant chemical change but only under the guidelines set forth in revproc_2001_30 as modified by revproc_2001_34 this ruling is provided to p and its members consistent with announcement and the service’s long standing ruling practice accordingly based on the expert test results submitted by p and its members we conclude that the synthetic_fuel produced at the facility using the described process and specified chemical reagents is a solid synthetic_fuel produced from coal constituting a qualified_fuel within the meaning of sec_29 because p will own the facility and operate and maintain the facility plr-111615-04 through its agent we conclude that p will be entitled to the sec_29 credit for the production of the qualified_fuel from the facility that is sold to an unrelated_person ruling_request sec_29 and f provide that sec_29 applies with respect to qualified_fuels which are produced in a facility placed-in-service after date and before date and which are sold before date sec_29 modifies sec_29 in the case of a facility producing qualified_fuels described in sec_29 sec_29 provides that for purposes of sec_29 a facility shall be treated as placed-in-service before date if the facility is placed-in-service before date pursuant to a binding written contract in effect before date sec_29 provides that if the facility is originally placed-in-service after date sec_29 shall be applied by substituting date for date a contract is binding only if it is enforceable under local law against a taxpayer and does not limit damages to a specified amount eg by use of a liquidated_damages provision a contract provision limiting damages to an amount equal to at least five percent of the total_contract_price for example should be treated as not limiting damages the construction_contract executed prior to date includes such features as a description of the facility to be constructed a completion date and a maximum price the contract also provides that damages shall not be less than six percent of the total_contract_price p provided an opinion of counsel that the contract is binding under applicable law therefore the contract is a binding written contract for purposes of sec_29 ruling_request sec_29 allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer sec_7701 provides that taxpayer means any person subject_to any internal revenue tax generally under sec_7701 the term person includes an individual a_trust estate partnership_association company or corporation sec_702 provides that each partner determines the partner's income_tax by taking into account separately the partner's_distributive_share of the partnership's other items of income gain loss deduction or credit to the extent provided by regulations prescribed by the secretary sec_1_702-1 provides that the distributive_share is determined as provided in sec_704 and sec_1_704-1 plr-111615-04 sec_704 provides that a partner's_distributive_share of income gain loss deduction or credit is except as otherwise provided in chapter of subtitle a of title_26 determined by the partnership_agreement sec_704 provides that a partner's_distributive_share of income gain loss deduction or credit or item thereof is determined in accordance with the partner's_interest_in_the_partnership determined by taking into account all facts and circumstances if the partnership_agreement does not provide as to the partner's_distributive_share of income gain loss deduction or credit or item thereof or the allocation to a partner under the agreement of income gain loss deduction or credit or item thereof does not have substantial economic_effect sec_1_704-1 provides that allocations of tax_credits and tax_credit recapture except for sec_38 property are not reflected by adjustments to the partners' capital accounts thus these allocations cannot have economic_effect under sec_1_704-1 and the tax_credits and tax_credit recapture must be allocated in accordance with the partners' interests in the partnership as of the time the tax_credit or credit recapture arises if a partnership expenditure whether or not deductible that gives rise to a tax_credit in a partnership_tax_year also gives rise to valid allocations of partnership loss or deduction or other downward capital_account adjustments for the year then the partners' interests in the partnership with respect to such credit or the cost giving rise to it are in the same proportion as the partners' respective distributive shares of the loss or deduction and adjustments see sec_1_704-1 example identical principles apply in determining the partners' interests in the partnership with respect to tax_credits that arise from receipts of the partnership whether or not taxable based on the information submitted and the representations made we conclude that the sec_29 credit attributable to p may be allocated to the members of p in accordance with the members' interests in p when the credit arises for the allocation of the sec_29 credit a member's interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel ruling_request sec_708 provides that a partnership shall be considered as terminated if within a twelve-month period there is a sale_or_exchange of percent or more of the total interest in partnership capital and profits sec_1_708-1 provides that if a partnership is terminated by a sale_or_exchange of an interest the following is deemed to occur the partnership contributes all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership and immediately thereafter the terminated partnership distributes interests in the new partnership to the purchasing partner and the other remaining partners in proportion to their respective interests in the terminated partnership in liquidation of the terminated partnership either for the continuation of the business by the new plr-111615-04 partnership or for its dissolution and winding up sec_1_708-1 applies to terminations of partnerships under sec_708 occurring on or after date as discussed above the placed-in-service deadline in sec_29 and sec_29 must be read as applying to when the facility is first placed_in_service within the applicable dates the placed-in-service deadlines contained in sec_29 and sec_29 focus on the facility and not the taxpayer owning the facility accordingly the determination of whether a facility has satisfied the placed-in-service deadline under sec_29 and sec_29 is made by reference to when the facility is first placed_in_service not when the facility is placed_in_service by a transferee taxpayer therefore we conclude that a termination of p under sec_708 will not preclude the reconstituted partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons ruling_request to qualify for the sec_29 credit p's facility must be placed-in-service before date pursuant to a binding written contract in effect before date while sec_29 does not define placed-in-service the term has been defined for purposes of the deduction for depreciation and the investment_tax_credit property is placed-in-service in the taxable_year the property is placed in a condition or state of readiness and availability for a specifically assigned function sec_1_167_a_-11 and sec_1_46-3 of the income_tax regulations placed-in-service has consistently been construed as having the same meaning for purposes of the deduction for depreciation and the investment_tax_credit see revrul_76_256 1976_2_cb_46 as discussed above p received a favorable determination from the district_director for the state district that the facility was placed_in_service prior to date revrul_94_31 1994_1_cb_16 concerns sec_45 which provides a credit for electricity produced from certain renewable resources including wind the credit is based on the amount of electricity produced_by_the_taxpayer at a qualified_facility during the 10-year period beginning on the date the facility was originally placed_in_service and sold by the taxpayer to an unrelated_person during the taxable_year revrul_94_31 holds that for purposes of sec_45 a facility qualifies as originally placed_in_service even though it contains some used_property provided the fair_market_value of the used_property is not more than percent of the facility's total value the cost of the new property included in the facility plus the value of the used_property revrul_94_31 describes a windfarm that consists of an array of wind turbines towers pads transformers roadways fencing on-site power collection systems and monitoring and meteorological equipment notwithstanding that the windfarm consisted of all of these items the ruling concludes that the facility for purposes of sec_45 is confined to the property on the windfarm necessary for the production of electricity from wind_energy emphasis added the present situation is similar to plr-111615-04 revrul_94_31 thus for purposes of determining the facility's total fair_market_value at the time of relocation or replacement the facility consists of the process equipment directly necessary for the production of the qualified_fuel starting at the immediate input of the coal and chemical reagents to the pug mills or mixers including any coal hoppers and reagent tanks directly feeding the pug mills or mixers through the output from the briquetters or other forming equipment including output hoppers if any hence the facility's total fair_market_value includes the process equipment such as pugmills or mixers the briquetters or other forming equipment the equipment necessary to interconnect such equipment the electrical instrumentation control systems and auxiliaries related to such equipment including the structures that house such electrical instrumentation and control systems the foundation platform s for the above- referenced equipment and an appropriate allocation of the engineering project management overhead and other costs assignable to the relocation of such equipment and construction the facility's total fair_market_value does not include costs associated with the purchase and installation of equipment that supports the operation of the facility but is not directly necessary for the production of the qualified_fuel such as coal beneficiation or preparation equipment eg crushers screens dryers or scales other material handling or conveying equipment eg stacking tubes transfer towers storage bunkers mobile equipment or conveyors certain site improvements eg fencing lighting earthwork paving separate office and bathhouse trailers for facility personnel and buildings if a building for purposes of sec_168 of the code sampling and quality control are necessary for operational control of a production facility however a particular type of sampling equipment generally is not necessary for the production of qualified_fuel thus the costs of sampling equipment are excluded from the facility's total fair_market_value unless the particular sampling equipment is necessary for operational control of the facility consistent with the holding in revrul_94_31 because p's facility was placed_in_service prior to date within the meaning of sec_29 relocation of the facility to a different location or replacement of part of the facility after date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of the facility's total fair_market_value at the time of relocation or replacement the cost of the new equipment included in the facility plus the value of the used_property ruling_request to qualify for the sec_29 credit p's facility must be placed_in_service before date pursuant to a binding written contract in effect before date while sec_29 does not define placed_in_service the term has been defined for purposes of the deduction for depreciation and the investment_tax_credit property is placed_in_service in the taxable_year the property is placed in a condition or state of readiness and availability for a specifically assigned function sec_1_167_a_-11 and sec_1_46-3 of the income_tax regulations placed_in_service has consistently been construed as plr-111615-04 having the same meaning for purposes of the deduction for depreciation and the investment_tax_credit see revrul_76_256 1976_2_cb_46 p received a favorable determination from the district_director for the state district that the facility was placed_in_service prior to date revproc_2001_30 2001_19_irb_1163 provides that a facility including one of multiple facilities located at the same site may be relocated without affecting the availability of the credit if all essential components of the facility are retained and the production capacity of the relocated facility is not significantly increased at the new location p has represented that the facility is designed with three separate and independent production lines so that each line can be operated as a separate_unit to produce synthetic_fuel p has represented that all of the major components of the production line would be relocated if the production line is relocated to a new site p has also represented that relocation of one or more production lines to another site would require the duplication of relatively minor components and site specific items involved in the relocation of any facility such as site preparation paving foundations area lighting and utilities based on the information submitted and the representations made we conclude that p may relocate one or more of the independent production lines provided the major or essential components of the independent production line are retained and the production output of the relocated production line is not significantly increased at the new location the production output is the amount of qualified_fuel including the production of a briquetted fuel product that can reasonably be expected to be actually produced by each facility using the prevailing practices in the industry regarding the performance of maintenance with regard to the various pieces of equipment in the facility reasonable allowances for shutdowns for repairs and or replacement of parts etc conclusions accordingly we conclude as follows p with the use of the enumerated process and the specified chemical reagents will produce a qualified_fuel within the meaning of sec_29 the contract for the construction of the facility constitutes a binding written contract in effect before date within the meaning of sec_29 production from the facility will be attributable solely to p within the meaning of sec_29 and p shall be entitled to the sec_29 credit for qualified_fuel from the facility that is sold to an unrelated_person plr-111615-04 the sec_29 credit attributable to p may be allocated to the members of p to consist of w x y and z in accordance with the members' interests in p when the credit arises each such member will take into account its allocated share of the sec_29 credit in computing its tax_liability and for the allocation of the sec_29 credit a member's interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel a termination of p under sec_708 will not preclude the reconstituted partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons because the facility was placed_in_service prior to date within the meaning of sec_29 relocation of the facility to a different location after date or replacement of part of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of the facility's total fair_market_value at the time of relocation or replacement because the facility was placed_in_service prior to date within the meaning of sec_29 relocation of one or more of the independent production lines of the facility to a new location after date will not result in a new placed_in_service_date for the facility or an independent production line for purposes of sec_29 provided all essential components of the independent production line are retained and the production output of the independent production line is not significantly increased at the new location the conclusions drawn and rulings given in this letter are subject_to the requirements that the taxpayer i maintain sampling and quality control procedures that conform to astm or other appropriate industry guidelines at the facility that is the subject of this letter ii obtain regular reports from independent laboratories that have analyzed the fuel produced in such facility to verify that the coal used to produce the fuel undergoes a significant chemical change and iii maintain records and data underlying the reports that taxpayer obtains from independent laboratories including raw ftir data and processed ftir data sufficient to document the selection of absorption peaks and integration points except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in this ruling see section dollar_figure of revproc_2004_1 2004_1_irb_1 plr-111615-04 however when the criteria in section dollar_figure of revproc_2004_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to p sincerely s joseph h makurath senior technician reviewer office of associate chief_counsel passthroughs special industries cc ---------------------------


internal_revenue_service national_office technical_advice_memorandum date tam-109310-00 cc intl b1 number release date index uil no case mis no district_director taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend a issue whether the export_clause of the united_states constitution art cl bars the internal_revenue_service from imposing the insurance premium excise_tax on a policy of insurance providing a mission risk guarantee against failure of a launched satellite conclusion an insurance_policy providing a mission risk guarantee against failure of a launched satellite is not exempt from the tax imposed by sec_4371 under the export_clause of the constitution because such policy does not insure goods in export transit facts a an insurance broker arranged for the issuance of several insurance policies by foreign insurers covering the launching of satellites into outer space a typical satellite launch insurance_policy provides for a mission risk guarantee against the partial failure constructive total failure or total failure of the launched satellite the typical policy states that a total failure occurs if the spacecraft does not arrive at its designated orbital location within days after launch or is completely destroyed or is otherwise rendered incapable of operation constructive total failure occurs if the actual or tam-109310-00 projected condition of the launched spacecraft days after launch is such that a performance multiplier is a certain amount or less or if the satellite is unable to transmit and or receive in any one of the primary conus beams partial failure occurs if the actual or projected condition of the launched spacecraft days after launch is such that a performance multiplier is between certain amounts coverage is also provided if the launched spacecraft is neither a successfully operating spacecraft nor a total failure but days after launch has less than a certain number of days of estimated remaining life coverage typically begins when the engines of the launch vehicles ignite for purposes of the launch and can continue until the satellite separates from the launch vehicle or up to five years after launch the typical policy does not allocate premiums between the launch phase and the in-orbit phase the insured parties are private entities that own the satellite for its entire useful_life a paid the excise_tax for insurance premiums under these policies pursuant to sec_4371 a filed a claim_for_refund of excise_taxes paid for the quarters ending and for quarter a claims that imposition of the excise_tax under sec_4371 is unconstitutional based on the united_states supreme court decision in 517_us_843 a claims that the launching of a satellite is an export for purposes of the export_clause because an export is any article which leaves the united_states regardless of whether or not the article arrives in a foreign_country a further claims that even assuming that the article must arrive in a foreign_country outer space which is not under the jurisdiction of any sovereign should be treated as a foreign_country law and analysis the export_clause of the united_states constitution art cl states that n o tax or duty shall be laid on articles exported from any state casualty insurance policies are taxable under sec_4371 or sec_4371 if issued by a foreign_insurer_or_reinsurer and issued to for or in the name of an insured a foreign_insurer_or_reinsurer is defined in sec_4372 as an insurer or reinsurer who is inter alia a foreign_corporation the term insured is defined in sec_4372 as a domestic_corporation or partnership or an individual resident_of_the_united_states against or with respect to hazards risks losses or following the supreme court’s opinion in international business machines the service issued notice_96_37 1996_2_cb_208 setting forth procedures for requesting a refund of insurance premium excise_taxes based on the court’s holding that the tax imposed by sec_4371 of the internal_revenue_code_of_1986 may not be applied to premiums_paid with respect to insurance covering risks associated with goods actually in export transit from the u s a filed its claim pursuant to notice_96_37 tam-109310-00 liabilities wholly or partly within the united_states or a foreign_corporation foreign_partnership or nonresident individual engaged_in_a_trade_or_business_within_the_united_states against or with respect to hazards risks losses or liabilities within the united_states the insured under the policies in issue are corporations organized in the united_states and thus are insureds under sec_4372 in united_states v international business machines corp the united_states supreme court held that the export_clause of the united_states constitution prohibits the assessment of nondiscriminatory federal taxes on goods in export transit u s pincite in doing so the court found that the excise_tax under sec_4371 as applied to casualty insurance issued by a foreign insurer to cover shipments of ibm’s products to its foreign subsidiaries was unconstitutional as the tax on insurance premiums was equivalent to taxes on the export goods themselves the supreme court refused to overrule its earlier opinion in 237_us_19 which had held that the export_clause prohibits imposition of a stamp tax on policies covering marine risks in thames mersey the court concluded that casualty insurance is an integral part of exportation in international business machines the government conceded that the court’s opinion in thames mersey covered the issue in the case however the government asked that the issue be re-examined since its underlying premise had been rejected in cases involving the commerce2 and import-export3 clauses and those clauses have historically been interpreted in harmony with the export_clause the supreme court however held that although it had rejected the reasoning behind the early commerce clause and import-export clause cases the differences in the language of the export_clause meant that shifts in the supreme court’s view of the commerce and import- export clauses did not govern its interpretation of the export_clause u s pincite- and the dissenting opinion looked to the text and the history of the export_clause to argue that the clause makes no mention of and has no bearing on taxes on services like insurance provided to exporters because the insurance service is not exported u s pincite the dissent noted that the debates at the constitutional convention focused on taxes on exported goods such as tobacco flour and rice not u s const art cl the commerce clause provides the congress shall have the power to regulate commerce with foreign nations and among the several states u s const art cl the import-export clause provides no state shall lay any imposts or duties on imports or exports tam-109310-00 services u s the dissent also noted that the majority’s opinion complicates the administration of sec_4371 by requiring some accommodation such as a proration of tax if a foreign insurer’s policy covers the domestic leg of a journey for all of a domestic company’s shipment of a certain type of merchandise or if a policy is taken out on a single shipment but part of the shipment is delivered in the united_states and part abroad u s the issue in international business machines is distinguishable from the issue in this case there was no dispute in international business machines that ibm exported property within the meaning of the export_clause in contrast the issue in this case is whether the launch of a communications satellite and its orbit of the earth during a period of years constitutes an article exported from any state the supreme court did not define the term export in international business machines since neither party to the litigation disputed that the policies covered goods being exported although there are cases that attempt to define the term export and whether an article needs to arrive in a foreign_country to be exported none of these cases is directly on point because none of them discuss satellite launches however the cases are instructive as to the fundamental requirements of an exportation of property in the constitutional sense sec_48_0-2 defines export for purposes of chapter sec_31 and sec_32 of the code as the severance of goods from the mass of things belonging to this country with an intention of uniting them to the mass of things belonging to some foreign_country the definition of export in sec_48_0-2 of the regulations is derived from the supreme court’s opinion in 190_us_143 this case involved a federal statute that allowed a credit for an import duty when an article subject_to such duty are used in the production of an article in the united_states and the resulting article is exported from the united_states the issue was whether a lubricating oil that was produced in part from an imported article on which duty was imposed was exported when such oil was used in connection with the operation of a ship leaving a u s port and bound for a foreign port in concluding that the oil was not exported the supreme court observed the following see eg 340_us_511 30_f3d_635 5th cir 8_fsupp2d_877 ct int’l trade see eg 228_us_525 907_f2d_1338 2d cir note however that sec_4371 is contained in chapter of the code tam-109310-00 the word export as used in the constitution and laws of the united_states generally means the transportation of goods from this to a foreign_country as the legal notion of emigrating is a going abroad with an intention of not returning so that of exportation is a severance of goods from the mass of things belonging to this country with an intention of uniting them to the mass of things belonging to some foreign_country or other citation omitted the issue in 183_us_151 was whether a federal statute imposing a tax on goods imported into puerto rico as applied to goods originating in the united_states is an impermissible tax or duty on exports the supreme court observed the following at page it is not too much to say that so far as our research has extended neither the word export import or impost is to be found in the discussion on this subject in reference other than foreign_commerce without some special form of words to show that foreign_commerce is not meant it follows that the word export should be applied only to goods exported to a foreign_country emphasis added in upholding the constitutionality of the tax on goods imported into puerto rico from the united_states the court concluded that such goods were not exported for purposes of the export_clause in part because puerto rico is not a foreign_country see also 181_us_283 in which involved a federal stamp tax imposed on bills of lading for property exported from the united_states in declaring the tax to be an unconstitutional violation of the export_clause the court also reflected its view that an export is the shipment of goods from the united_states to a foreign_country in the normal course of commerce as follows a bill of lading or some written instrument of the same import is necessarily always associated with every shipment of articles of commerce from the ports of one country to those of another the necessities of commerce require it emphasis added fairbank at page the supreme court’s definition of the term export in swan finch co was relied on in 163_f3d_855 4th cir the latter case involved a federal statute that bans exports to iran and the issue was whether a shipment of articles from the united_states to a third-country dubai and subsequently to iran constituted an export that is banned by the statute in discussing various interpretations of the term export the fourth circuit noted the following these definitions vary in specificity but all make clear that exportation tam-109310-00 involves the transit of goods from one country to another for the purpose of trade nearly a century ago the supreme court declared that the word ‘export’ as used in the constitution and laws of the united_states generally means the transportation of goods from this to a foreign_country citation omitted throughout this history exportation has consistently meant the shipment of goods to a foreign_country with the intent to join those goods with the commerce of that country emphasis added ehsan at page where congress or a federal_agency has acted on the subject of satellite launches it has acted to exempt the launching of space vehicles from the definition of an export the commercial space launch act u s c explicitly provides that satellite launches are not exports for purposes of the export control law section f of the act provides launch not an export - a launch vehicle or payload that is launched is not because of the launch an export for purposes of a law controlling exports commerce department export administration regulations pincite c f_r pt similarly define export to exclude a launch of a launch vehicle and payload for purposes of controlling export state department regulations pincite c f_r sec_120 a under the arms export control act u s c state that a launch vehicle or payload shall not by reason of the launching of such vehicle be considered an export the tariff act u s c 1484a states that articles launched from the united_states that return from space will not be considered an importation thus whenever the congress or a federal_agency has dealt with the issue it has determined that a satellite launch is not an export moreover the facts in international business machines are distinguishable from the facts in this case international business machines involved policies insuring shipments of products that were manufactured by the taxpayer to its foreign subsidiaries the products in international business machines were clearly goods in export transit title changed after the goods cleared customs in the foreign_country the policies in this case provide for a mission risk guarantee against the failure of a launched satellite during its launch and in-orbit phases in outer space which may continue up to five years after launch title to the satellite does not change hands the insured parties are private entities that own the satellite for its entire useful_life this case is more akin to insuring a ship or a truck on its way from the united_states to another destination and its continued performance rather than insuring goods in export transit tam-109310-00 imposition of the federal premium excise_tax on an insurance_policy covering the launch and subsequent orbit of a communications satellite does not in our view violate the export_clause of the constitution neither a launch rocket nor a satellite is an article being exported from the united_states since neither is entering the stream of commerce where they will be severed from the mass of goods belonging to the united_states and transferred to the mass of goods belonging to a foreign_country at no time is there a transfer of title to or ownership of the rocket or satellite thus the issue in this case is distinguishable from the issue in international business machines where it was not disputed that goods were being exported from the united_states moreover imposition of the federal premium excise_tax on an insurance_policy covering the launch and subsequent orbit of a communications satellite does not impinge on the purposes advanced by the founding fathers for the export_clause who were concerned with the fear that a congress controlled by the northern states could strangle the southern economy by levying an oppressive tax on exports as stated in 340_us_511 w hen the tax is on activities connected with the export or import the range of immunity cannot be so wide the broader definition which appellant tenders distorts the ordinary meaning of the terms and create a zone of tax immunity never before imagined we conclude that premiums on insurance providing a mission risk guarantee against failure of a launched satellite is not exempt from tax under sec_4371 because the policy does not insure goods in export transit for purposes of the export_clause caveat no opinion is expressed on as to whether the launching of a satellite constitutes the export of property or use of property without the united_states under any other federal tax provision a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent david m messer the harbor_maintenance_tax all dredged up and no place to go tulsa j comp intl


estate of clyde w turner sr deceased w barclay rushton executor petitioner v commissioner of internal revenue respondent docket no filed date p filed a motion for reconsideration of our memorandum opinion estate of turner v commissioner tcmemo_2011_209 estate of turner i in estate of turner i decedent d transferred property to a family limited_partnership flp in exchange for limited and general_partnership interests d transferred portions of the limited flp interest as gifts during his lifetime in estate of turner i we held that the inter_vivos transfer of property to the flp was subject_to sec_2036 among other arguments the estate contends that under d’s will the surviving spouse’s right to the pecu- niary marital bequest allows the surviving_spouse to receive assets equal to the amount necessary to reduce the estate_taxes to zero and because of the application of the marital_deduction under sec_2056 the estate has no estate_tax deficiency held d’s estate is not entitled to claim the marital_deduction with respect to the flp interest or the assets this opinion supplements our previously filed opinion estate of turner v commissioner tcmemo_2011_209 verdate 0ct jun jkt po frm fmt sfmt v files turner sheila estate of turner v commissioner attributable to the flp interest that d gave as gifts during his lifetime charles e hodges ii for petitioner caroline r krivacka and beth a nunnink for respondent supplemental opinion marvel judge in a timely filed motion for reconsider- ation motion pursuant to rule the estate of clyde w turner sr clyde sr requests the court to reconsider its memorandum opinion estate of turner v commissioner tcmemo_2011_209 estate of turner i in estate of turner i we held among other things that clyde sr ’s inter_vivos transfer of property to turner co was subject_to sec_2036 and that the values of those transferred assets are included in the value of his gross_estate the estate requests that we reconsider and or supple- ment our findings and opinion in connection with the application of sec_2036 the estate also contends that the court did not consider and should decide its alternative position-that even if sec_2036 applies the estate has no estate_tax deficiency because it is entitled to an increased marital_deduction equal to the increased value of the gross_estate respondent has filed an objection to the estate’s motion generally reconsideration under rule is intended to correct substantial errors of fact or law and allow the introduction of newly discovered evidence that the moving party could not have introduced by the exercise of due dili- gence in the prior proceeding 110_tc_440 this court has discretion to grant a motion for reconsideration but will not do so unless the moving party shows unusual circumstances or substan- tial error id see also 87_tc_164 reconsideration is not the appropriate forum for rehashing previously rejected legal arguments or tendering new legal theories to reach the end result desired unless otherwise indicated rule references are to the tax_court rules_of_practice and pro- cedure and section references are to the internal_revenue_code code in effect at relevant times the estate originally raised this argument in posttrial briefs but we did not decide it on the assumption that it was more appropriately resolved in the rule computation process because the parties do not agree regarding the issue and the issue must be resolved we decide it in this supplemental opinion verdate 0ct jun jkt po frm fmt sfmt v files turner sheila united_states tax_court reports by the moving party estate of quick v commissioner t c pincite i application of sec_2036 we adopt the findings_of_fact in estate of turner i for con- venience and clarity we repeat the necessary facts below clyde sr resided in georgia when he died testate on feb- ruary estate of turner i slip op pincite w barclay rushton is the executor of the estate id mr rushton resided in georgia when the petition on behalf of the estate was filed id in early clyde sr his wife jewell h turner jewell and their two grandsons marc and travis turner met with attorneys from the law firm of stewart melvin frost id pincite on date clyde sr and jewell established turner co a georgia limited_liability partnership id pincite the assets they contributed to the partnership consisted of cash shares of common_stock of regions bank shares of other banks certificates of deposit and assets held in securi- ties accounts such as preferred_stock and bonds id pincite the partnership_agreement listed several purposes for cre- ating turner co but the agreement was modeled on a standard form that stewart melvin frost used when drafting partnership agreements id pincite in turner co maintained investment accounts at the gms group morgan keegan and wachovia securities and a checking account at united community bank the gms and wachovia account statements reflect no change in the securities held between date and clyde sr ’s death in date id pincite the morgan keegan account statements reflect a handful of asset purchases and sales id turner co made no trades in any of its investment accounts between date when clyde sr became seri- ously ill and his death id pincite the estate contended that the turners created turner co for at least one of the following legitimate and significant nontax reasons to consolidate their assets for manage- ment purposes and allow someone other than themselves or their children to maintain and manage the family’s assets for future growth pursuant to a more active and formal invest- ment management strategy to facilitate resolution of verdate 0ct jun jkt po frm fmt sfmt v files turner sheila estate of turner v commissioner family disputes through equal sharing of information and to protect the family assets and jewell from rory crumley rory the turners’ grandson with addiction problems and rory from himself we concluded that the objective facts in the record failed to establish that there was a legitimate and significant nontax reason for formation of turner co that clyde sr retained an interest in the transferred assets and that the purpose of turner co was primarily testa- mentary see estate of turner i slip op pincite we also concluded that none of the assets contributed to turner co required active_management or special protection nor did clyde sr have a distinct investment philosophy that he hoped to perpetuate id pincite we held that sec_2036 includes the values of the transferred property in clyde sr ’s gross_estate id pincite the estate requests that we reconsider several findings_of_fact and our conclusion with respect to the application of sec_2036 in the estate’s view once we do so it becomes clear that the estate provided credible_evidence to shift the burden_of_proof to respondent under sec_7491 on the issue of whether clyde sr had a legitimate and significant nontax purpose for the formation of turner co however as we stated in estate of turner i slip op pincite and as we observed in 131_tc_185 in a case where the standard of proof is the prepon- derance of the evidence and the preponderance of the evi- dence favors one party we may decide the case on the weight of the evidence and not on an allocation of the burden_of_proof we shall not reconsider our conclusion regarding the application of sec_7491 we now turn to the estate’s contentions regarding the application of sec_2036 first the estate contends that our statement that w e are particularly struck by the implausibility of petitioner’s assertion that tax savings resulting from the family limited_partnership were never dis- cussed during a meeting is an erroneous and unfair characterization of the estate’s position and is contrary to stipulated facts the estate relies on the testimony of mr coyle the turners’ attorney who testified that the law firm presented the turners with a tax planning option with alleg- edly superior tax benefits however the turners’ rejection of verdate 0ct jun jkt po frm fmt sfmt v files turner sheila united_states tax_court reports another tax planning vehicle does not establish a nontax rea- son for the creation of turner co the estate also mistakenly contends that respondent’s lack of objection to certain of its proposed findings_of_fact creates binding stipulations that the court must find as relevant facts although we have on occasion deemed the lack of objec- tion to a proposed finding of fact to be a concession that it is correct except to the extent that it is clearly inconsistent with the opposing party’s brief see fankhanel v commis- sioner tcmemo_1998_403 aff ’d without published opinion 205_f3d_1333 4th cir estate of freeman v commissioner tcmemo_1996_372 we find facts on the basis of the record as a whole and we are not obligated to find facts that we do not consider relevant or necessary to our holdings the estate has pointed to no instance where we found or failed to find facts inappropriately or erroneously second the estate asks us to take into account various other facts regarding the nontax purposes for the formation of turner co including the facts regarding marc’s role in handling his grandparents’ finances and bookkeeping the turners’ concern regarding management of their assets dis- putes among family members and the timing of the transfer of assets to turner co the estate has failed to dem- onstrate any unusual circumstances or substantial errors of fact or law that would justify reconsideration of our opinion and the findings_of_fact contained therein third the estate asks us to reconsider the holding that consolidated asset management generally is not a significant nontax purpose for forming a limited_partnership except for assets requiring active_management or special protection as we discussed in estate of turner i we previously have held that consolidated asset management may be a legitimate and significant nontax purpose estate of schutt v commissioner tcmemo_2005_126 see also 133_tc_340 however consolidated asset management generally is not a significant nontax purpose where a family limited_partnership is ‘just a vehicle for changing the form of the investment in the assets a mere asset container ’ estate of turner i slip op pincite quoting estate of erickson v commissioner t c memo as we concluded in estate of turner i there was no signifi- verdate 0ct jun jkt po frm fmt sfmt v files turner sheila estate of turner v commissioner cant nontax reason for the formation of turner co on the facts of this case and we shall not reconsider our conclusion fourth the estate asks us to reconsider our statement that the turners’ concern regarding asset management could have been readily addressed without transferring the assets to a family limited_partnership estate of turner i slip op pincite the estate points out that t o the extent some other potential alternative exists taxpayers are free to choose between alternative structures as they see fit and not in a way that maximizes tax revenue however a taxpayer’s freedom of choice is subject_to various statutory and judicial limitations for example in the context of the bona_fide sale exception to sec_2036 one limitation is the existence of a legitimate and significant nontax reason for the creation of the partnership as we held in estate of turner i we are not persuaded on the basis of the record as a whole that such a purpose existed when turner co was formed we also reject the estate’s invitation to reconsider our conclusion regarding the role that turner co allegedly had in protecting rory from himself and jewell from rory we fail to see how transferring assets to a limited partner- ship and then granting a portion of the limited_partnership_interest to a_trust for the benefit of rory provided any mean- ingful additional protection of family assets because rory had no ownership_interest in any of the assets before the creation of the partnership structure in estate of turner i we considered and addressed the estate’s arguments witnesses’ testimony and documentary_evidence the estate has not demonstrated any manifest error of fact we will therefore deny the motion regarding the application of sec_2036 ii the marital_deduction issue the estate contends that even if sec_2036 applies the estate has no estate_tax deficiency because clyde sr ’s will allows the estate to claim an increased marital_deduction we disagree the facts pertinent to our consideration of this issue are as follows in upon the formation of turner co clyde sr and jewell each contributed assets with a fair_market_value of dollar_figure total value of dollar_figure to turner verdate 0ct jun jkt po frm fmt sfmt v files turner sheila united_states tax_court reports co in exchange they each received a general partner- ship interest and a limited_partnership_interest by date clyde sr transferred of his lim- ited partnership_interest in turner co as gifts to family members on the date of his death he owned a general_partnership interest and a limited_partnership_interest in turner co as we stated in estate of turner i the parties appear to agree that turner co ’s net asset value as of the date of clyde sr ’s death was dollar_figure because of the discounts for lack of marketability and lack of control the estate reported that the general partner- ship interest had a value of dollar_figure and that the limited_partnership_interest had a value of dollar_figure the estate reported that an limited_partnership_interest was allocated to the surviving_spouse and an interest was allocated to a bypass_trust clyde sr ’s estate claimed a marital_deduction of dollar_figure of which dollar_figure pertained to the interest in turner co that passed to jewell in estate of turner i we held that under sec_2036 the assets that clyde sr transferred to turner co must be included in his gross_estate estate of turner i slip op pincite the estate contends that under clyde sr ’s will the surviving spouse’s right to the pecuniary marital bequest requires that the surviving_spouse receive assets equal to the amount necessary to reduce estate_taxes to zero the marital_deduction formula provision of clyde sr ’s will reads as fol- lows if jewell survives me and if there is a federal estate_tax in effect at the time of my death i give devise and bequeath to her cash securities or other_property of my estate undiminished by any estate inheritance succession death or similar taxes having a value equal to the maximum marital_deduction as finally determined in my federal estate_tax pro- ceedings less the aggregate amount of marital deductions if any allowed for such tax purposes by reason of property or interests in property passing or which have passed to my said wife otherwise than pursuant to the provisions of this item provided however the amount of this bequest shall be reduced by the amount if any needed to increase my taxable in his computation for entry of decision submitted to the court after we filed estate of turn- er i respondent calculated the deficiency using turner co ’s net asset value of dollar_figure respondent states that for the rule computation he used the lower amount set forth in the notice_of_deficiency because that amount is to the estate’s benefit these findings_of_fact supplement our findings_of_fact in estate of turner i verdate 0ct jun jkt po frm fmt sfmt v files turner sheila estate of turner v commissioner estate for federal estate_tax purposes to the largest amount that after allowing for the unified_credit against the federal estate_tax and the state_death_tax_credit against such tax will result in the smallest if any federal estate_tax being imposed on my estate the term maximum mar- ital deduction shall not be construed as a direction by me to exercise any election respecting the deduction of estate administration_expenses the determination of the estate_tax_valuation date or any other tax election which may be available under any_tax laws only in such manner as will result in a larger allowable estate_tax_marital_deduction than if the con- trary election had been made my executor shall have the sole discretion to select the assets which shall constitute this bequest in no event how- ever shall there be included in this bequest any asset or the proceeds of any asset which will not qualify for the federal estate_tax marital deduc- tion and this bequest shall be reduced to the extent that it cannot be cre- ated with such qualifying_assets my executor shall value any asset selected by my executor for distribution_in_kind as a part of this bequest at the value of such asset at the date of distribution of such asset respondent disagrees that the will provision allows the estate to claim an increased marital_deduction generally applying sec_2036 in the context of a family limited_partnership raises a twofold problem for the marital_deduction calculation the first problem which is not at issue in this case arises because appraisals of partnership interests use various discounts such as discounts for lack of marketability and lack of control when sec_2036 applies it pulls undiscounted assets that the decedent transferred to the partnership into the gross_estate the estate however claims on the return the marital_deduction using a dis- counted value of the partnership_interest pertaining to those assets to the extent the partnership_interest passes to the surviving_spouse in some cases the internal_revenue_service has taken the position that even when sec_2036 applies the marital_deduction is measured by the value of what actually passes to the surviving_spouse which is a dis- counted partnership_interest and not by the value of the underlying assets 133_tc_340 estate of shurtz v commissioner tcmemo_2010_21 this produces a mismatch between values for the gross_estate inclusion and the marital_deduction cal- culation however this type of mismatch is not present in we faced a problem of a mismatch between the values of assets for the purpose of inclusion in the gross_estate and for the purpose of calculating the marital_deduction in 133_tc_340 and estate of shurtz v commissioner t c memo continued verdate 0ct jun jkt po frm fmt sfmt v files turner sheila united_states tax_court reports this case respondent allowed an increased marital_deduction that he calculated on the basis of the value of assets trans- ferred in exchange for the partnership interests that clyde sr held at death rather than on the basis of the discounted values of the general and limited_partnership interests that clyde sr owned at death to the extent that they passed to jewell the estate recognizes that and we leave this mis- match problem for another day the second type of problem caused by the application of sec_2036 arises when a decedent transfers a portion of the partnership_interest during his lifetime as a gift to some- one other than the spouse on the estate_tax_return the estate claims a marital_deduction for the partnership_interest that passes to the surviving_spouse but sec_2036 pulls assets underlying the partnership_interest into the gross_estate including assets pertaining to the transferred partner- ship interest although under sec_2036 assets underlying the partnership_interest transferred as a gift are included in the gross_estate neither those assets nor the corresponding partnership_interest passes to the surviving_spouse this type of mismatch is at issue in this case in estate of turner i we concluded that sec_2036 applied to the transfer of assets to the limited_partnership and sec_2036 caused the inclusion of the assets transferred to the partnership in clyde sr ’s gross_estate a portion of those assets includes assets underlying the partnership_interest that clyde sr transferred as a gift because clyde sr no longer owned the limited_partnership_interest at his death our holding that sec_2036 requires the inclusion of the underlying assets in his estate means that the gross_estate includes assets that clyde sr had for example in estate of black v commissioner t c pincite we stated that if the fair_market_value of the stock that the decedent contributed to the partnership rather than the fair_market_value of the decedent’s interest in the partnership was includable in his gross_estate under sec_2036 we had to decide whether the marital_deduction to which mr black’s estate is entitled under sec_2056 should be computed according to the value of the partner- ship interest that actually passed to mrs black or according to the value of the underlying stock apportionable to that interest see also estate of shurtz v commissioner tcmemo_2010_21 however in those cases we held that sec_2036 did not apply because the transfers of assets to the family limited_partnerships met the bona_fide sale exception see estate of black v commissioner t c pincite estate of shurtz v commissioner tcmemo_2010_21 ac- cordingly the issue became moot and the estates computed the marital deductions according to the value of the partnership interests that actually passed to the surviving spouses see es- tate of black v commissioner t c pincite estate of shurtz v commissioner tcmemo_2010_21 verdate 0ct jun jkt po frm fmt sfmt v files turner sheila estate of turner v commissioner already transferred before his death on the marital deduc- tion side however the estate claimed on the return the dis- counted value of the partnership_interest that passed to the surviving_spouse respondent contends that the estate may not claim a marital_deduction for the assets or the partner- ship interest that clyde sr transferred as gifts during his lifetime the estate however contends that under the formula mar- ital deduction clause of the will quoted above see supra pp the estate may recalculate the marital_deduction and claim the marital_deduction for the assets underlying the partnership_interest the estate argues that even if sec_2036 applies the will requires the estate to increase the value of the marital gift in the estate’s view sec_2036 applies a legal fiction for purposes of calculating the gross_estate and for consistency the marital_deduction can also be increased to reflect that fiction the estate argues that it would be inconsistent to conclude that clyde sr retained a right to possess or enjoy assets he contributed to the partnership and at the same time ignore the values of those assets included in the gross_estate under sec_2036 in calculating the marital_deduction respondent disagrees that the code allows the estate to increase the marital_deduction in that manner he deter- mined that t he taxable items are the portion of turner co lp which was gifted as it does not go to the spouse respondent contends that clyde sr no longer owned the assets underlying the transferred partnership_interest or the partnership_interest itself and therefore he could not pass either to jewell respondent contends that although sec_2036 pulls the assets into the estate the assets do not qualify for the marital_deduction we must decide whether the estate may apply the marital_deduction formula provision to increase the amount of the marital_deduction for the in the notice_of_deficiency respondent increased clyde sr ’s taxable_estate by the net asset value of the property transferred to turner co but made a corresponding reduction to the adjusted_taxable_gifts in the opening brief the estate also claims that the marital_deduction would not be reduced by the amount of the federal estate_tax liability because clyde sr ’s will requires that the mar- ital gift be undiminished by the estate_tax the estate did not raise this aspect of the calcula- tions in the motion and we understand the estate either to have abandoned the argument or to have adopted respondent’s suggestion in the reply brief that any dispute on this point be re- solved in the context of the rule computation verdate 0ct jun jkt po frm fmt sfmt v files turner sheila united_states tax_court reports assets that are part of the gross_estate yet do not actually pass to the surviving_spouse we turn to the relevant code sections generally an estate may deduct from the value of the gross_estate the value of property which passes or has passed_from_the_decedent_to_his_surviving_spouse see sec_2056 sec_20_2056_a_-1 estate_tax regs the value of the interest must be includ- able in the decedent’s gross_estate sec_2056 respondent relies on sec_2056 and interprets it as limiting the deduction to the value of the property actually passing to the surviving_spouse the statutory definition of the term passing is found in sec_2056 and is very broad sec_2056 provides that f or purposes of this section an interest in property shall be considered as passing from the decedent to any per- son if he or she receives it by will intestate_succession dower or elective share right_of_survivorship transfer by the decedent at any time the exercise or in default on nonexer- cise of a power_of_appointment or pursuant to a life insur- ance beneficiary designation see also sec_20_2056_c_-1 estate_tax regs under the regulations a property interest is considered as passing to the surviving_spouse only if it passes to the spouse as beneficial_owner sec_20_2056_c_-2 estate_tax regs emphasis added neither the partnership_interest that clyde sr transferred by gift nor the underlying assets passed or could pass to jewell as a beneficial_owner and under sec_20_2056_c_-2 estate_tax regs such property interests are not considered as passing to the surviving_spouse accordingly under sec_2056 the estate may not deduct from the value of the gross_estate an amount equal to the value of either the transferred partnership_interest or the underlying assets the structure of the applicable regulations see sec_20_2056_c_-1 sec_20_2056_c_-2 and sec_20_2056_c_-3 estate_tax regs supports our conclusion sec_20_2056_c_-1 estate_tax regs contains general rules for determining the person to whom any property interest passed_from_the_decedent sec_20_2056_c_-2 estate_tax regs defines the phrase passed_from_the_decedent_to_his_surviving_spouse as dis- cussed above sec_20_2056_c_-3 estate_tax regs defines the regulations contain a number of exceptions not relevant in this case verdate 0ct jun jkt po frm fmt sfmt v files turner sheila estate of turner v commissioner the phrase passed_from_the_decedent to a person other than his surviving_spouse as any property interest which under the definition of sec_20_2056_c_-1 estate_tax regs is considered as having passed_from_the_decedent and which under the rules of sec_20_2056_c_-2 estate_tax regs is not considered as having passed_from_the_decedent_to_his_surviving_spouse sec_20_2056_c_-3 estate_tax regs also provides that i t is immaterial whether the property interest which passed_from_the_decedent to a person other than his surviving_spouse is included in the decedent’s gross_estate these regulations read as a whole suggest that irrespective of whether property is included in the decedent’s gross_estate property that passed to a person other than a surviving_spouse cannot also be considered as passing to the surviving_spouse because clyde sr transferred the under- lying assets to the partnership and then transferred the por- tions of the limited_partnership_interest as gifts during his lifetime any property interest in either the partnership_interest transferred to persons other than jewell or the assets underlying that interest could not and did not pass to jewell for purposes of sec_2056 therefore the estate may not recalculate the marital_deduction to include the transferred partnership_interest or the underlying assets in reaching our conclusion we also take into account the place of the marital_deduction in the overall structure of the wealth transfer system generally 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_2051 defines the taxable_estate as the value of the gross_estate less applicable deductions the marital_deduction under sec_2056 is one such applicable deduction the policy behind the marital_deduction rule is that property passes untaxed from the first spouse to die to his or her sur- viving spouse but then is included in the estate of the sur- viving spouse 109_tc_290 aff ’d without published opinion 212_f3d_600 11th cir the marital_deduction therefore does not eliminate or reduce the tax on the transfer of marital assets out of the marital unit but permits deferral until the death of or gift by the surviving_spouse as follows from the foregoing allowing a marital_deduction with respect to an asset to the estate of the first spouse to verdate 0ct jun jkt po frm fmt sfmt v files turner sheila united_states tax_court reports die presupposes that the surviving_spouse if she does not consume the asset would include it in the transfer_tax base subject_to applicable exemptions either when she makes a gift of the property during her lifetime or upon her death cf sec_2033 sec_2511 estate of letts v commissioner t c pincite accordingly if clyde sr ’s estate claims a marital deduc- tion for the partnership_interest clyde sr gave as gifts during his lifetime or the underlying assets the marital_deduction presupposes that jewell would include values of the transferred partnership_interest or the underlying assets in the gift_tax base if she gives them as gifts or her estate would have to include them in her gross_estate upon her death jewell could not consume the assets attributable to the partnership_interest that clyde sr transferred as gifts because she never owned them she also could not transfer it as gifts because the partnership_interest clyde sr trans- ferred as gifts did not pass to her as beneficial_owner see sec_20_2056_c_-2 estate_tax regs lastly jewell would not include the partnership_interest that clyde sr had trans- ferred as gifts during his lifetime or the assets attributable to it in her gross_estate because none of the code provisions would require her to do so the general inclusion section sec_2033 provides the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2034 through require the inclusion of several narrowly defined classes of assets none of which would apply to the assets we are considering allowing a marital_deduction for the transferred partnership_interest or the assets would allow them to leave the marital unit without a transfer_tax either at the death of the first spouse or upon the transfer by gift or at the death of the second spouse the rationality of the estate and gift_tax regimes regarding the marital_deduction in sec_2056 sec_2044 and sec_2519 sec_2056 provides an exception to the general_rule that a marital_deduction is not allowed for terminable_interest property passing from a illustrated is also after clyde sr ’s death on date jewell authorized the establishment of four separate partnerships one for each of her surviving children and one for trey and rory jewell was a limited_partner and a general_partner in each partnership turner co was dissolved effective date verdate 0ct jun jkt po frm fmt sfmt v files turner sheila estate of turner v commissioner decedent to his or her surviving_spouse see sec_2056 sec_2056 provides an exception to the terminable_interest_rule for qualified_terminable_interest_property qtip it allows a marital_deduction for qtip to the estate of the first spouse to die although the surviving_spouse receives only an income_interest and not the remainder and has no control_over the disposition of the remainder after the death of the surviving_spouse sec_2044 requires that the value of his or her gross_estate include the value of qtip sec_2519 is similar to sec_2044 but it addresses lifetime transfers of qtip by the surviving_spouse but for these sections the qtip remainder never actually owned by the surviving_spouse would not be included in a transfer_tax base by the surviving_spouse or her estate sec_2044 and sec_2519 therefore ensure that tax- ation of the transfer of the qtip remains consistent with the basic policy of the marital_deduction namely that either gift_tax or estate_tax applies subject_to the applicable exemp- tions when the property leaves the marital unit if we were to accept the estate’s position jewell’s estate would not be required to include in the gross_estate the values of assets that jewell did not actually own but with respect to which a marital_deduction was allowed to clyde sr ’s estate there is no code provision similar to sec_2044 and sec_2519 that would require adding such assets into her transfer_tax base the lack of such a provision would allow the assets to leave clyde sr and jewell’s marital unit without being taxed thereby frustrating the purpose and the policy underlying the marital_deduction although the for- mula of clyde sr ’s will directs what assets should pass to the surviving_spouse the assets attributable to the trans- ferred partnership_interest or the partnership_interest itself are not available to fund the marital bequest their disposi- tion to the donees occurred during clyde sr ’s lifetime but is a terminable_interest is an interest passing from a decedent to his or her surviving_spouse that will end on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur sec_2056 the terminable_interest_rule denies a mar- ital deduction if an interest passing to the surviving_spouse is a terminable_interest an interest in such property passes from the decedent to someone other than his or her surviving_spouse for less than full and adequate_consideration and the third person will possess or enjoy the property after the termination or failure of the interest passing to the surviving_spouse id the estate of the surviving_spouse or the surviving_spouse as applicable may recover the applicable transfer_tax from qtip recipients see sec_2207a verdate 0ct jun jkt po frm fmt sfmt v files turner sheila united_states tax_court reports deemed delayed until clyde sr ’s death by our holding that sec_2036 applies because the property in question did not pass to jewell as beneficial_owner we reject the estate’s position and hold that the estate may not rely on the formula of clyde sr ’s will to increase the marital_deduction because we did not address the marital_deduction issue in estate of turner i we supplement estate of turner i con- sistent with the foregoing we have considered the remaining arguments of both parties for results contrary to those expressed herein and to the extent not discussed above find those arguments to be irrelevant moot or without merit for the above reasons an appropriate order will be issued f verdate 0ct jun jkt po frm fmt sfmt v files turner sheila