internal_revenue_service number release date index numbers ----------------------------- ---------------------------------------- ----------------------------------------------------- -------------------------------- ------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc corp b04 plr-145221-04 date date - legend --------------------------------------------------------- -------------------------------------------------- ------------------------------------------------ distributing ---------------------------------------------------------------------------- -------------------------------------------------------------------- distributing ---------------------------------------------------------------------------- -------------------------------------------------------------------- sub ----------------------------------------------------------------------------- -------------------------------------------------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- sub ------------------------------------------------------------------------------------ -------------------------------------------------------------------- sub ----------------------------------------------------------------------------------------- -------------------------------------------------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------- ------------------------------- ------------------------------------------------ ---------------------------------------------------- ------------------------------------ --------------------------------------------- ----------------------------------------------------------------------- plr-145221-04 sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- sub ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------- -------------------------------------------------------------------- controlled -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- sub ------------------------------------------------------------------------------- -------------------------------------------------------------------- accounts business a business b business c business d a b c d e f ---------------------------------------- ------------------------------ --------------------------- ------------------------- ---------------- ----------- -------- -------- -------- -------- -------- ---- ---- ---- -- ---- plr-145221-04 g h i j dear -------------- this letter responds to your date request for rulings regarding certain federal_income_tax consequences of a series of proposed transactions collectively the proposed transaction the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process moreover this office has made no determination regarding whether any distribution described below i satisfies the business_purpose requirement of sec_1 b of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of any distributing_corporation or controlled_corporation see sec_355 of the internal_revenue_code and sec_1_355-2 and iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest in the distributing_corporation or any controlled_corporation see sec_355 and sec_1_355-7t summary of facts sub is a closely_held_corporation that has outstanding common and preferred distributing is a closely_held_corporation that has outstanding class a common_stock distributing is the common parent of an affiliated_group that files a consolidated_return distributing 2’s group includes wholly owned sub sub wholly owns sub and sub stock sub is the common parent of an affiliated_group that files a consolidated_return sub 4’s group includes first tier wholly owned sub sub conducts business c and business d through subsidiaries and disregarded entities additionally sub owns a percent of distributing common_stock and b percent of distributing preferred_stock c percent of sub d percent of sub and e percent of sub common_stock and f percent of sub preferred_stock the remaining shares of sub sub and sub are owned by sub 4’s shareholders sub sub sub sub sub and sub hold the remaining shares of sub has one class of common_stock and one class of non-voting preferred plr-145221-04 distributing in amounts less than a percent of the common_stock and b percent of the preferred_stock distributing is the common parent of an affiliated_group that includes sub and files a consolidated_return distributing is engaged in business a and business b through subsidiaries and disregarded entities stock outstanding distributing owns g percent of sub common_stock sub owns h percent of sub 9’s common_stock the remaining i percent of sub common_stock is owned by an employee_trust the public owns all of sub non-voting preferred_stock sub conducts business b conducted by sub business b as conducted by sub and business c and business d as conducted by sub through subsidiaries and disregarded entities has in the case of each named entity had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years financial information has been submitted indicating that business a as proposed transaction for what are represented as valid business reasons distributing proposes the following series of transactions the proposed transaction i distributing will recapitalize its stock by amending its organizational documents to permit it to have two classes of common_stock outstanding class a and class b which will be held pro_rata by the shareholders the class b stock will be issued to distributing 2’s current shareholders in a ratio to reflect the current value of distributing 2’s direct and indirect interest in business a as compared to business b ii iii distributing will transfer all of its sub stock to a newly formed domestic subsidiary controlled in exchange for all of the controlled stock and the assumption by controlled of distributing liabilities contribution sub will form a wholly-owned single member limited_liability_company that will be disregarded for federal_income_tax purposes under sec_301_7701-3 llc-1 sub will merge into llc-1 the sub merger iv distributing will form a wholly-owned single member limited_liability_company that will be treated as a disregarded_entity for federal_income_tax purposes under sec_301_7701-3 llc-2 sub will merge into llc-2 under applicable state law merger pursuant to the merger sub shareholders will receive distributing class a and class b common_stock plr-145221-04 v distributing will form a wholly-owned single member limited_liability_company that will be treated as a disregarded_entity for federal_income_tax purposes under sec_301_7701-3 llc-3 sub will merge into llc-3 liquidation vi distributing will form a wholly-owned single member limited_liability_company that will be treated as a disregarded_entity for federal_income_tax purposes under sec_301_7701-3 llc-4 sub will merge into llc-4 liquidation vii distributing will form three wholly-owned single member limited_liability companies each of which will be treated as a disregarded_entity for federal_income_tax purposes under sec_301_7701-3 llc-5 llc-6 and llc-7 sub will merge into llc-5 sub will merge into llc-6 and sub will merge into llc-7 under applicable state law each merger respectively merger merger and merger pursuant to merger merger and merger sub sub and sub 8’s shareholders will each receive distributing class a and class b common_stock viii distributing will form a wholly owned single member limited_liability_company that will be treated as a disregarded_entity for federal_income_tax purposes under sec_301_7701-3 llc-8 sub will merge into llc-8 the sub transaction ix distributing will contribute the sub stock acquired from sub to distributing in constructive exchange for distributing common_stock contribution x xi distributing will contribute the sub stock acquired from distributing in the previous step above to controlled in constructive exchange for controlled common_stock contribution sub will amend its organizational documents to provide its non-voting preferred_stock with the right to vote the vote will be less than j of the total voting power of all classes of stock entitled to vote xii distributing will transfer all of its membership interest in llc-2 and llc-6 to distributing in constructive exchange for distributing common_stock and the assumption by distributing of distributing liabilities contribution xiii distributing will distribute all of the controlled stock to distributing distribution plr-145221-04 xiv distributing will distribute all of the controlled stock to its shareholders in exchange for their distributing class b stock_distribution distribution and distribution collectively the distributions representations a b c d e f g h i j k the following representations are made with respect to the sub merger the merger of sub into llc-1 will be pursuant to state law no sub stock will be issued so sub has no plan or intention to reacquire any of its stock issued in the sub merger sub has no plan or intention to sell or otherwise dispose_of the assets acquired in the sub merger except for i merger ii dispositions made in the ordinary course of business and iii transfers described in sec_368 the liabilities of sub assumed by sub and the liabilities to which the transferred assets are subject were incurred by sub in the ordinary course of its business and are associated with the assets transferred following the sub merger sub and distributing will continue the historic_business of sub or use a significant portion of sub 5’s historic_business asset in a business either directly or indirectly through distributing sub and sub will each pay their respective expenses if any incurred in connection with the sub merger no intercorporate indebtedness exists or will exist between sub and sub that was issued acquired or will be settled at a discount no two parties to the sub merger are investment companies as defined in sec_368 and iv the fair_market_value of the sub assets transferred to sub will equal or exceed the sum of the liabilities assumed by sub plus the amount of liabilities if any to which the transferred assets are subject the total adjusted_basis of the assets of sub transferred to sub will equal or exceed the sum of the liabilities assumed by sub plus the amount of liabilities if any to which the transferred assets are subject sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 plr-145221-04 at least percent of the proprietary interest in sub will be preserved within the meaning of sec_1_368-1 by reason of an exchange of sub stock held by sub for a direct interest in the sub enterprise the following representations are made with respect to merger the fair_market_value of the distributing stock and other consideration received by sub shareholders will approximately equal the fair_market_value of the sub stock surrendered in merger at least percent of the proprietary interest in sub will be exchanged for distributing stock and will be preserved within the meaning of sec_1 e except for the exchange of distributing class b stock in distribution distributing has no plan or intention to reacquire any of its stock issued in merger distributing has no plan or intention to sell or otherwise dispose_of any of the assets of sub acquired in merger except for i dispositions made in the ordinary course of business and ii transfers described in sec_368 the liabilities of sub assumed by distributing and the liabilities to which the transferred assets are subject were incurred by sub in the ordinary course of its business and are associated with the assets transferred following merger distributing will continue the historic_business of sub or will use a significant portion of sub 4’s historic_business_assets in a business either directly or indirectly through distributing distributing sub and the sub shareholders will pay their respective expenses if any incurred in connection with merger there is no intercorporate indebtedness existing between distributing and sub that was issued acquired or will be settled at a discount no two parties to merger are investment companies as defined in sec_368 and iv the fair_market_value of the sub assets transferred to distributing will equal or exceed the sum of the liabilities assumed by distributing plus the amount of the liabilities if any to which the transferred assets are subject l a b c d e f g h i j plr-145221-04 k l a b c d e f g h i j the total adjusted_basis of the sub assets transferred to distributing will equal or exceed the sum of the liabilities to be assumed by distributing plus the amount of the liabilities if any to which the transferred assets are subject sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 the following representations are made with respect to merger the fair_market_value of the distributing stock and other consideration received by sub shareholders will approximately equal the fair_market_value of the sub stock surrendered in merger at least percent of the proprietary interest in sub will be exchanged for distributing stock and will be preserved within the meaning of sec_1 e except for the exchange of distributing class b stock in distribution distributing has no plan or intention to reacquire any of its stock issued in merger distributing has no plan or intention to sell or otherwise dispose_of any of the assets of sub acquired in merger except for i dispositions made in the ordinary course of business and ii transfers described in sec_368 the sub liabilities assumed by distributing and the liabilities to which the transferred assets are subject were incurred by sub in the ordinary course of its business and are associated with the assets transferred following merger distributing will continue the historic_business of sub or will use a significant portion of sub 6’s historic_business_assets in a business distributing sub and the sub shareholders will pay their respective expenses if any incurred in connection with merger there is no intercorporate indebtedness existing between distributing and sub that was issued acquired or will be settled at a discount no two parties to merger are investment companies as defined in sec_368 and iv the fair_market_value of the sub assets transferred to distributing will equal or exceed the sum of the liabilities assumed by distributing plus the amount of liabilities if any to which the transferred assets are subject plr-145221-04 k the total adjusted_basis of the sub assets transferred to distributing will equal or exceed the sum of the liabilities assumed by distributing plus the amount of liabilities if any to which the transferred assets are subject l sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 the following representations are made with respect to merger a b c d e f g h i the fair_market_value of the distributing stock and other consideration received by sub shareholders will approximately equal the fair_market_value of the sub stock surrendered in merger at least percent of the proprietary interest in sub will be exchanged for distributing stock and will be preserved within the meaning of sec_1 e except for the exchange of distributing class b stock in distribution distributing has no plan or intention to reacquire any of its stock issued in merger distributing has no plan or intention to sell or otherwise dispose_of any of the sub assets acquired in merger except for i dispositions made in the ordinary course of business and ii transfers described in sec_368 the sub liabilities assumed by distributing and the liabilities to which the transferred assets are subject were incurred by sub in the ordinary course of its business and are associated with the assets transferred following merger distributing will continue the historic_business of sub or will use a significant portion of sub 7’s historic_business_assets in a business either directly or indirectly through distributing distributing sub and the sub shareholders will each pay their respective expenses if any incurred in connection with merger no intercorporate indebtedness exists or will exist between distributing and sub that was issued acquired or will be settled at a discount no two parties to the transaction are investment companies as defined in sec_368 and iv plr-145221-04 the fair_market_value of the sub assets transferred to distributing will equal or exceed the sum of the liabilities assumed by distributing plus the amount of liabilities if any to which the transferred assets are subject the total adjusted_basis of the sub assets transferred to distributing will equal or exceed the sum of the liabilities assumed by distributing plus the amount of the liabilities if any to which the transferred assets are subject sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 the following representations are made with respect to merger the fair_market_value of the distributing stock and other consideration received by sub shareholders will approximately equal the fair_market_value of the sub stock surrendered in merger at least percent of the proprietary interest in sub will be exchanged for distributing stock and will be preserved within the meaning of sec_1 e except for the exchange of distributing class b stock in distribution distributing has no plan or intention to reacquire any of its stock issued in merger distributing has no plan or intention to sell or otherwise dispose_of any of the sub assets acquired in the transaction except for i dispositions made in the ordinary course of business and ii transfers described in sec_368 the sub liabilities assumed by distributing and the liabilities to which the transferred assets are subject were incurred by sub in the ordinary course of its business and are associated with the assets transferred following merger distributing will continue the historic_business of sub or will use a significant portion of sub 8’s historic_business_assets in a business distributing sub and the sub shareholders will each pay their respective expenses if any incurred in connection with merger no intercorporate indebtedness exists or will exist between distributing and sub that was issued acquired or will be settled at a discount j k l a b c d e f g h plr-145221-04 i j k l a b c d no two parties to merger are investment companies as defined in sec_368 and iv the fair_market_value of the sub assets transferred to distributing will equal or exceed the sum of the liabilities assumed by distributing plus the amount of the liabilities if any to which the transferred assets are subject the total adjusted_basis of the sub assets transferred to distributing will equal or exceed the sum of the liabilities assumed by distributing plus the amount of the liabilities if any to which the transferred assets are subject sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 the following representations are made with respect to liquidation distributing on the date of adoption of the plan_of_liquidation of sub into distributing and at all times until the final liquidating_distribution is completed will be the owner of at least percent of the single outstanding class of sub stock no shares of sub stock will have been redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub all distributions from sub to distributing pursuant to the plan of complete_liquidation will be made within a single taxable_year of sub as soon as the first liquidating_distribution has been made sub will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders e sub will retain no assets following the final liquidating_distribution f g h sub will not have acquired assets in any nontaxable_transaction at any time except for acquisitions occurring more than three years before the date of the adoption of the plan_of_liquidation no sub assets have been or will be disposed of by sub or distributing except for dispositions in the ordinary course of business and dispositions occurring more than three years before the adoption of the plan_of_liquidation the liquidation of sub into distributing will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also plr-145221-04 hold directly or indirectly more than percent in value of the stock in recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rule_of sec_318 as modified by sec_304 before the adoption of the plan_of_liquidation no sub assets will have been distributed in_kind transferred or sold to distributing except for transactions occurring in the normal course of business and transactions occurring more than three years before adoption of the plan_of_liquidation sub will report all earned_income represented by assets that will be distributed to distributing such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc the fair_market_value of the sub assets will exceed its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately before the time the first liquidating_distribution is made distributing is not an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code i j k l m all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to liquidation have been fully disclosed n immediately before liquidation items of income gain loss deduction or credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d and as currently in effect sec_1_1502-13 as published by t d o on the date of liquidation there will be outstanding intercorporate debt owed by distributing to sub debt apart from debt there is no intercorporate debt existing between distributing and sub and none has been cancelled forgiven or discounted except for transactions that occurred more than three years before the date of adoption of the liquidation plan or alternatively if such date is later except for transactions occurring before the date distributing initially acquired sub the following representations are made with respect to liquidation a distributing on the date of adoption of the plan_of_liquidation of sub into distributing and at all times until the final liquidating_distribution is completed will be the owner of at least percent of the single outstanding class of sub stock plr-145221-04 b no shares of sub stock will have been redeemed during the three years preceding the adoption of the plans of complete_liquidation of sub c d all distributions from sub to distributing pursuant to the plan of complete_liquidation will be made within a single taxable_year of sub as soon as the first liquidating_distribution has been made sub will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders e sub will retain no assets following its final liquidating_distribution f g h i j k l sub will not have acquired assets in any nontaxable_transaction at any time except for acquisitions occurring more than three years before the date of the adoption of the plan_of_liquidation no sub assets have been or will be disposed of by sub or distributing except for dispositions in the ordinary course of business and dispositions occurring more than three years before the adoption of the plan_of_liquidation the liquidation of sub into distributing will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent in value of the stock in recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rule_of sec_318 as modified by sec_304 before the adoption of the plan_of_liquidation no sub assets will have been distributed in_kind transferred or sold to distributing except for transactions occurring in the normal course of business and transactions occurring more than three years before the adoption of the plan_of_liquidation sub will report all earned_income represented by assets that will be transferred to its shareholder such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc the fair_market_value of the sub assets will exceed its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately before the time the first liquidating_distribution is made distributing is not an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code plr-145221-04 m all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to liquidation have been fully disclosed n immediately before liquidation items of income gain loss deduction or credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d and as currently in effect sec_1_1502-13 as published by t d o on the date of liquidation there will be outstanding intercorporate debt owed by sub to distributing as successor to sub debt apart from debt there is no intercorporate debt existing between distributing sub and sub and none has been cancelled forgiven or discounted except for transactions that occurred more than three years before the date of adoption of the liquidation plan or alternatively if such date is later except for transactions occurring before the date sub initially acquired sub the following representations are made with respect to the sub transaction should the transaction be treated as a reorganization under sec_368 a the merger of sub into llc-8 will be pursuant to state law b c d e f g no distributing stock will be issued so distributing has no plan or intention to reacquire any of its stock issued in the sub transaction distributing has no plan or intention to sell or otherwise dispose_of the assets of sub acquired in the transaction except for i dispositions made in the ordinary course of business ii the distributions and iii transfers described in sec_368 the sub liabilities assumed by distributing and the liabilities to which the transferred assets are subject were incurred by sub in the ordinary course of its business and are associated with the assets transferred following the sub transaction distributing will continue the historic_business of sub or use a significant portion of each historic_business asset in a business either directly or indirectly through controlled sub and distributing will each pay their respective expenses if any incurred in connection with the sub transaction no intercorporate indebtedness exists or will exist between distributing and sub that was issued acquired or will be settled at a discount plr-145221-04 h no two parties to the transactions are investment companies as defined in sec_368 and iv the fair_market_value of the sub assets transferred to distributing will equal or exceed the sum of the liabilities assumed by distributing plus the amount of the liabilities if any to which the transferred assets are subject the total adjusted_basis of the sub assets transferred to distributing will equal or exceed the sum of the liabilities assumed by distributing plus the amount of the liabilities if any to which the transferred assets are subject sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 i j k l at least percent of the proprietary interest in sub will be preserved within the meaning of sec_1_368-1 by reason of an exchange of sub stock held by distributing for a direct interest in the sub enterprise the following representations are made with respect to the sub transaction should the transaction be treated as a liquidation under sec_332 a distributing on the date of the adoption of the plan of complete_liquidation of sub into distributing and at all times until the final liquidating_distribution is completed will be the owner of at least percent of the single outstanding class of sub stock b c d no shares of sub stock will have been redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub all distributions from sub to distributing pursuant to the plan of complete_liquidation will be made within a single taxable_year of sub as soon as the first liquidating distributions occur sub will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders e sub will retain no assets following its final liquidating_distribution f sub will not have acquired assets in any nontaxable_transaction at any time except for acquisitions occurring more than three years before the date of the adoption of the plan_of_liquidation g no assets of sub have been or will be disposed of by either sub or distributing except for dispositions in the ordinary course of business and plr-145221-04 dispositions occurring more than three years before the adoption of the plan_of_liquidation except for the transfers after the merger in contribution and contribution the liquidation of sub will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent in value of the stock in recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rule_of sec_318 as modified by sec_304 before the adoption of the plan_of_liquidation no sub assets will have been distributed in_kind transferred or sold to distributing except for transactions occurring in the normal course of business and transactions occurring more than three years before the adoption of the plan_of_liquidation sub will report all earned_income represented by assets that will be distributed to its shareholder such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc the fair_market_value of the sub assets will exceed its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately before the time the first liquidating_distribution is made distributing is not an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code h i j k l m all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the sub transaction have been fully disclosed n immediately before the sub transaction items of income gain loss deduction or credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d and as currently in effect sec_1 as published by t d o on the date of the sub transaction there will be outstanding intercorporate debt owed by sub to sub debt apart from debt there is no intercorporate debt existing between distributing sub and sub and none has been cancelled forgiven or discounted except for transactions that occurred more than three years before the date of adoption of the liquidation plan or alternatively if such date is later except for transactions occurring before the date sub initially acquired sub plr-145221-04 contribution the following representations are made with respect to contribution and a b c d e f no stock_or_securities will be issued for services rendered to or for the benefit of distributing in connection with contribution and contribution and no stock_or_securities will be issued for distributing indebtedness that is not evidenced by a security or for interest on distributing indebtedness which accrued on or after the beginning of the holding_period of distributing for the debt the transfer is not the result of the solicitation by a promoter broker or investment house distributing will not retain any rights in the property transferred to distributing the adjusted_basis and the fair_market_value of the assets to be transferred by distributing to distributing will in each instance equal or exceed the sum of the liabilities assumed within the meaning of sec_357 by distributing the distributing liabilities to be assumed within the meaning of sec_357 by distributing were incurred in the ordinary course of business and are associated with the assets to be transferred there is no indebtedness between distributing and distributing and there will be no indebtedness created in favor of distributing as a result of contribution or contribution g the transfers and exchanges will occur under a plan agreed upon before the transaction in which the rights of the parties are defined h all exchanges will occur on the same date i j there is no plan or intention on the part of distributing to redeem or otherwise reacquire any stock or indebtedness to be issued in contribution or contribution taking into account any issuance of additional shares of distributing stock any issuance of stock for services the exercise of any distributing stock_rights warrants or subscriptions a public offering of distributing stock and the sale exchange transfer by gift or other dispositions of any of the stock of distributing to be received in the exchange distributing will be in control of distributing within the meaning of sec_368 plr-145221-04 k distributing will receive stock securities or other_property approximately equal to the fair_market_value of the property transferred to distributing l distributing will remain in existence and retain and use the property transferred to it in a trade_or_business except for the sub stock which will be transferred to controlled m each of the parties to the transaction will pay its own expenses if any incurred in connection with contribution and contribution distributing will not be an investment_company within the meaning of sec_351 and sec_1_351-1 distributing is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of such debtor distributing will not be a personal_service_corporation within the meaning of sec_269a the following representations are made with respect to contribution contribution and distribution the accounts owed by sub to distributing and its affiliates after distribution will not constitute stock_or_securities no part of the consideration distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a distributing shareholder the five years of financial information submitted for business a business c and business d represents the present operations of each respective business and regarding each there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted for business b as conducted by sub is representative of the corporation’s present operation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted immediately after distribution at least percent of the fair_market_value of the gross assets of controlled will consist of the stock of sub a controlled_corporation that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 n o p a b c d e plr-145221-04 f following distribution distributing and controlled will each continue the active_conduct of its business independently and with its separate employees g h i j k l distribution is being carried out for the following corporate business purposes avoidance of regulatory interference with the conduct of business a facilitate financing of business b on more advantageous terms to divide the risks of business b from business a to allow expansion of business b to permit cost savings for business b and to facilitate expeditious compliance with changes to federal laws and regulations distribution is motivated in whole or substantial part by one or more of these corporate business purposes distribution is not used principally as a device for the distribution of the earnings_and_profits of either distributing or controlled or both the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing equals or exceeds the sum of the liabilities assumed within the meaning of sec_357 by controlled the liabilities assumed within the meaning of sec_357 in distribution were incurred in the ordinary course of business and are associated with the assets being transferred no intercorporate debt will exist between distributing and controlled at the time of or after distribution immediately before distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before publication of t d and as currently in effect sec_1_1502-13 as published by t d further distributing 1’s excess_loss_account with respect to the controlled stock if any will be included in income immediately before distribution m payments made in connection with all continuing transactions between distributing and controlled following distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length n no two parties to the transaction are investment companies as defined in sec_368 and iv plr-145221-04 distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7t pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in either distributing or controlled including any predecessor or successor of any such corporation for purposes of sec_355 immediately after distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on distributing stock that were acquired by purchase as defined by sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution for purposes of sec_355 immediately after distribution no person determined by applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution the following representations are made with respect to distribution the accounts owed by sub to distributing and its affiliates after distribution will not constitute stock_or_securities the fair_market_value of the controlled stock to be received by each holder of distributing class b stock will be approximately equal to the fair_market_value of the distributing class b stock surrendered by the shareholder in the exchange no part of the consideration distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of distributing shareholder immediately after distribution at least percent of the fair_market_value of the gross assets of controlled will consist of the stock of sub a controlled_corporation that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 o p q a b c d plr-145221-04 e f g h i j k l the five years of financial information submitted for business b as conducted by sub is representative of the corporation’s present operation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted immediately after distribution at least percent of the fair_market_value of the gross assets of distributing will consist of the stock of distributing a controlled_corporation that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 the five years of financial information submitted for business a business c and business d represents the present operations of these businesses and regarding each there have been no substantial operational changes since the date of the last financial statements submitted following distribution distributing either directly or indirectly through distributing and controlled will each continue the active_conduct of its business independently and with its separate employees distribution is being carried out for the following corporate business purposes avoidance of regulatory interference with the conduct of business a facilitate financing of business b on more advantageous terms to divide the risks of business b from business a to allow expansion of business b to permit cost savings for business b and to facilitate expeditious compliance with changes to federal laws and regulations distribution is motivated in whole or substantial part by one or more of these corporate business purposes distribution is not used principally as a device for the distribution of the earnings_and_profits of either distributing or controlled or both no intercorporate debt will exist between distributing or controlled at the time of or after distribution immediately before distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before publication of t d and as currently in effect sec_1_1502-13 as published by t d further distributing 2’s excess loss accounts with respect to the controlled stock if any will be included in income immediately before distribution m payments made in connection with all continuing transactions between distributing and controlled following distribution will be for fair market plr-145221-04 n o p q value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to the transaction are investment companies as defined in sec_368 and iv distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7t pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in either distributing or controlled including any predecessor or successor of any such corporation for purposes of sec_355 immediately after distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on distributing stock that were acquired by purchase as defined by sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution for purposes of sec_355 immediately after distribution no person determined by applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of distribution rulings based solely on the information submitted and representations set forth above provided the sub merger qualifies as a statutory merger under applicable state law sub 5’s merger into llc-1 will constitute a reorganization within the meaning of sec_368 sub and sub will each be a_party_to_a_reorganization within the meaning of sec_368 we rule as follows sub merger plr-145221-04 no gain_or_loss will be recognized by sub on the transfer of sub 5’s assets to sub in constructive exchange for sub common_stock and the assumption by sub of sub liabilities sec_361 and sec_357 no gain_or_loss will be recognized by sub on the receipt of assets of sub in constructive exchange for sub common_stock and the assumption_of_liabilities by sub of sub sec_1032 the basis of sub assets in the hands of sub will be the same as the basis of such assets in the hands of sub sec_362 the holding_period of sub assets received by sub will include the period during which the assets were held by sub sec_1223 sub will succeed to and take into account as of the close of the date of the sub merger the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder except to the extent that sub has earnings_and_profits reflected in sub 4’s earnings_and_profits sub will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the sub merger sec_381 and sec_1_381_c_2_-1 any deficit in the earnings_and_profits of sub and sub will be used only to offset earnings_and_profits accumulated after the date of the sub merger sec_381 merger merger merger and merger provided merger merger merger and merger collectively the mergers each qualify as a statutory merger under applicable state law each merger into llc-2 llc-5 llc-6 and llc-7 respectively will constitute a reorganization within the meaning of sec_368 distributing sub sub sub and sub will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized in each instance by distributing and sub sub sub or sub on the transfer of their respective assets to distributing in exchange for distributing common_stock and the assumption by distributing of the liabilities of sub sub sub and sub sec_361 and sec_357 no gain_or_loss will be recognized by distributing on the receipt of assets of sub sub sub and sub in exchange for distributing common_stock and the assumption_of_liabilities by distributing of each of sub sub sub and sub as described above sec_1032 plr-145221-04 the basis of the assets of sub sub sub and sub in the hands of distributing will be the same as the basis of such assets in the hands of each of sub sub sub and sub sec_362 the holding_period of the assets of sub sub sub and sub received by distributing will include the period during which the assets were held by each of sub sub sub and sub sec_1223 distributing will succeed to and take into account as of the close of the date of each of merger merger merger and merger the items of sub sub sub and sub respectively described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder except to the extent that sub sub sub and sub have earnings_and_profits reflected in distributing 2’s earnings_and_profits distributing will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of sub sub sub and sub as of the date of each of the mergers sec_381 and sec_1_381_c_2_-1 any deficit in the earnings_and_profits of distributing sub sub sub and sub will be used only to offset earnings_and_profits accumulated after the date of the mergers sec_381 no gain_or_loss will be recognized by the shareholders of sub sub sub and sub on the exchange of their sub sub sub and sub stock for distributing stock in merger merger merger and merger sec_354 the basis of the distributing stock received by each shareholder of sub sub sub and sub in each of merger merger merger and merger will equal the basis of the sub sub sub and sub stock surrendered by that shareholder in exchange therefor sec_358 the holding_period of the distributing stock received by each shareholder of sub sub sub and sub in each of merger merger merger and merger will include the holding_period of the sub sub sub and sub stock surrendered by that shareholder in exchange therefor sec_1223 liquidation and liquidation liquidation and liquidation will each constitute a complete_liquidation of each of sub and sub under sec_332 and sec_1_332-2 except as provided in the succeeding sentence no gain_or_loss will be recognized by distributing sub and sub as a result of liquidation and liquidation sec_332 sec_337 sec_337 sec_336 however items of income plr-145221-04 gain loss and deductions with respect to debt and debt will be taken into account as required by the applicable intercompany_transaction regulations distributing 2’s basis in each asset received from sub and sub in liquidation and liquidation will be the same as the basis of that asset in the hands of sub and sub immediately before liquidation and liquidation sec_334 distributing 2’s holding_period in each asset received from sub and sub in liquidation and liquidation respectively will include the period during which that asset was held by sub and sub sec_1223 distributing will succeed to and take into account the items of sub and sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 and sec_1_381_a_-1 except to the extent sub and sub 2’s earnings_and_profits are reflected in distributing 2’s earnings_and_profits distributing will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of sub and sub as of the date of liquidation and liquidation respectively sec_381 and sec_1_381_c_2_-1 and sec_1_1502-33 any deficit in earnings_and_profits of sub or sub will be used only to offset earnings_and_profits accumulated after the date of liquidation and liquidation sec_381 sub transaction no gain_or_loss will be recognized by sub in the sub transaction no gain_or_loss will be recognized by distributing in the sub transaction the basis of each asset received by distributing in the sub transaction will equal the basis of that asset in the hands of sub immediately before the sub transaction the holding_period of each asset received by distributing in the sub transaction will include the period during which sub held that asset contribution and contribution no gain_or_loss will be recognized by distributing on the transfer of assets to distributing in constructive exchange for distributing stock and the assumption by distributing of the related liabilities as a result of contribution and contribution sec_351 and sec_357 plr-145221-04 no gain_or_loss will be recognized by distributing on the receipt of assets from distributing as a result of the exchanges in contribution and contribution sec_1032 the basis of the distributing stock held by distributing will be increased by the basis of the assets transferred to distributing in contribution and contribution reduced by the amount of the liabilities assumed by distributing sec_358 and sec_358 the basis of the assets transferred by distributing in contribution and contribution to distributing will equal the basis of those assets in the hands of distributing immediately before contribution sec_362 the holding_period of the assets received by distributing as a result of the exchanges in contribution and contribution will include the holding_period of the assets in the hands of distributing sec_1223 contribution contribution and distribution contribution and contribution followed by distribution will qualify as a reorganization under sec_368 distributing and controlled each will be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing on contribution and contribution sec_357 sec_357 sec_361 no gain_or_loss will be recognized by controlled on contribution and contribution sec_1032 the basis of each asset received by controlled in contribution and contribution will equal the basis of that asset in the hands of distributing immediately before its transfer sec_362 the holding_period of each asset received by controlled in contribution and contribution will include the period during which distributing held that asset sec_1223 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of distributing on receipt of controlled stock in distribution sec_355 the holding_period of the controlled stock received by distributing will in each instance include the holding_period of the distributing stock on which plr-145221-04 distribution is made provided the distributing stock is held as a capital_asset on the date of distribution sec_1223 no gain_or_loss will be recognized by distributing on distribution sec_361 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_312 sec_1_1502-33 and sec_1_312-10 distribution no gain_or_loss will be recognized by distributing on distribution sec_355 no gain_or_loss will be recognized by and no amount will be included in the income of the holders of distributing class b stock on the receipt of controlled stock in distribution sec_355 and the aggregate basis of the controlled stock received by each holder of distributing class b stock pursuant to distribution will be equal to such holder's adjusted_basis in the shares of distributing class b stock exchanged therefor sec_358 the holding_period of the controlled stock received by each distributing class b shareholder in distribution will include the holding_period of the distributing class b stock surrendered in exchange therefor provided the distributing class b stock is held as a capital_asset on the date of distribution sec_1223 as provided sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_312 sec_1_312-10 and sec_1_1502-33 following distribution controlled and its direct and indirect subsidiaries that are includible corporations under sec_1504 and satisfy the ownership requirements of sec_1504 will be an affiliated_group_of_corporations entitled to file consolidated federal_income_tax returns with controlled as the common parent caveats no opinion is expressed about the tax treatment of the proposed transaction under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed and none was requested regarding plr-145221-04 i whether distribution or distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether distribution or distribution is used principally as a device for the distribution of the earnings_and_profits of distributing distributing or controlled see sec_355 and sec_1_355-2 iii whether any distribution described above and an acquisition or acquisitions are part of a plan or series of related transactions under sec_355 iv the tax treatment of the recapitalizations described in the proposed transaction steps i and xi above v whether any entity described as a disregarded_entity actually qualifies as a disregarded_entity under sec_301_7701-3 procedural statements this ruling is directed only to the taxpayer who requested it sec_6110 a copy of this letter must be attached to the federal_income_tax return of each provides that it may not be used or cited as precedent party involved in the proposed transaction for the taxable_year in which the proposed transaction is completed sent to your authorized representative under the power_of_attorney on file with this office a copy of this letter is being sincerely ___________________ richard k passales senior counsel branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index numbers --------------------- ------------------- ------------------------------------------------------------ -------- ---------------------------------------------- -------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b01 plr-135096-17 date january legend x ----------------------------------------------------- -------------------- d1 country -------------------- -------------- dear ----------------- this is in response to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d1 however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes x represents that it acted reasonably and in good_faith and that the interests of the government will not be prejudiced by granting relief x represents that all of its tax returns will be filed consistently with the requested relief x further represents that no hindsight is involved in seeking the relief requested plr-135096-17 law and analysis sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d1 x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form this ruling is contingent on the owners of x filing within days of this letter all required returns for all open years consistent with the requested relief these returns may include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations ii forms plr-135096-17 return of u s persons with respect to certain foreign_partnerships and iii forms information_return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter_ruling should be attached to any such returns 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely holly porter associate chief_counsel passthroughs special industries david r haglund by _____________________________ david r haglund branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date cc pa cbs br2 gl-802136-00 uilc memorandum for district_counsel rocky mountain district from kathryn a zuba chief branch collection bankruptcy summonses subject choice of law in offers in compromise this memorandum responds to your request for advice dated date this document may not be cited as precedent issue when the service compromises with one party to a joint_and_several tax_liability which state’s law governs for purposes of determining the effect of such compromise on the liability of the other joint obligor conclusion the effect of a compromise on the obligations of other parties who are jointly and severally liable for the taxes compromised is governed by the law of the state of residence of the compromising taxpayer background the internal_revenue_code permits married individuals to elect to file a joint_return for income taxes see sec_6013 if a married couple elects to do so liability for the tax_liabilities of the year covered by the return is joint_and_several see sec_6013 as a joint as several debt the service may collect the entire debt from either spouse or may choose to reach a compromise with one spouse or the other you have asked what law governs for purposes of determining how compromise with one spouse will affect the liability of the non-compromising spouse the internal_revenue_manual instructs offer specialists to take the steps necessary where appropriate to preserve the government’s right to collect from other individuals liable for the tax_liability that is the subject of the compromise_agreement see irm to determine what effect compromise with one spouse will have on the liability of the other spouse the manual relies on the law of the state in which the offer proponent resides see irm based upon the rule followed in the particular jurisdiction the manual provides collateral agreements which are to be secured as gl-802136-00 additional consideration for the compromise in states which follow the common_law rule which releases co-obligors from liability upon compromise with one liable party pattern_letter p-229 is to be secured see irm exhibit in states where the express reservation of the right to proceed against the taxpayer who is not a party to the compromise will protect the government pattern_letter p-230 is to be secured see irm exhibit in states where neither collateral_agreement will effectively preserve the government’s ability to collect from the non-compromising party the collection potential of both spouses must be considered in determining the adequacy of a particular offer see irm your memorandum of april 24th raises the possibility that some law other than that of the offer proponent’s state of residence may govern for purposes of determining the effect of a compromise on the liability of a taxpayer who is jointly and severally liable for the same taxes for instance you cite the rule that the place of contract formation regardless of the residency of the parties may govern for this purpose under this rule the contract is formed where the last act is done which is necessary to form the contract and bind the parties alternatively you cite the rule that the law of the place of performance governs in a contract for the payment of money this rule would hold that the place of payment is considered the place of performance law analysis agreements to compromise federal tax_liabilities have generally been interpreted by the courts by applying contract principles see 372_f2d_352 3d cir 303_f2d_1 5th cir when it becomes necessary for courts to settle a dispute between the service and a taxpayer regarding the interpretation or effect of a compromise those courts have often relied upon state law contract principles for the rule_of decision see eg 176_fsupp_932 d neb generally courts have applied the law of the state where the taxpayer resides id it does not appear that this assumption as to which law applies has been subject_to any serious challenge when it has been necessary for such disputes to be submitted to the courts your memorandum questions this assumption particularly in light of the fact that the compromise process will now frequently involve acts in several different states as your memorandum points out an offer may now be submitted in one state accepted in another and provide that payments must be sent to a third both of the rules you have cited-place of formation and place of performance-would likely have yielded the same result when the service’s functions were more localized now however application of either of those rules may yield a different result than the place of residence rule which the internal_revenue_manual assumes will govern both of the rules you have cited have ample support in both commentaries and case law see am jur 2d conflicts of laws and cases cited therein however the uncertainties you have pointed out when contracts involve formation or performance across state lines have led most courts to favor the significant gl-802136-00 relationship rule see restatement second conflict of laws sec_188 am jur 2d conflicts of laws sec_86 under this rule the law of the forum which has the most significant contacts with the subject matter of the contract is held to govern id facts such as where the contract was formed or where performance is required are but two of the relevant considerations and may be resorted to if the significant relationship rule does not yield a definitive answer see 65_f3d_314 3d cir law of place of making controls unless another state had dominant relationship with parties and issues am jur 2d conflicts of laws sec_104 contract to repay money lent governed by place of payment unless another state has more significant relationship to contract in the case of compromise of federal tax_liabilities the service’s assumption that the law of the taxpayer-proponent’s state of residence will govern is reasonable in light of this rule the service generally will accept an offer to compromise when the amount offered reasonably reflects what could be collected by other means see policy statement p-5-100 to determine what could be collected through other means the service must first rely on state law to determine the nature of a taxpayer’s interest in property see 363_us_509 having done so the service can then determine whether that interest is subject_to the federal_tax_lien and thus subject_to levy by the service see sec_6321 sec_6331 state law plays a particularly important role in many of the states of your district as a determination of what could be collected and applied to the tax debt will often require consideration of state community_property_laws we believe that these factors together with the fact of the taxpayer’s domicile weigh heavily in favor of the rule the service has assumed will govern in the event it is necessary to later determine how compromise has effected the status of other parties liable for the taxes at issue conclusion we conclude that for purposes of determining the effect of compromise on the liabilities of other parties who are jointly and severally liable for the taxes at issue the law of the state with the most significant relationship to the contract will govern we agree with the offer_in_compromise handbook’s conclusion that this will generally be the state of residence of the proponent of the offer if you have any questions please contact the attorney assigned to this case at cc assistant regional_counsel gl western region


t c memo united_states tax_court dieter stussy petitioner v commissioner of internal revenue respondent docket no filed date dieter stussy pro_se angeligue m neal for respondent memorandum opinion goldberg special_trial_judge this matter is before the court on respondent’s motion to strike portions of the petition filed pursuant to rule the issue raised by the motion is whether portions of petitioner’s attachment to his petition unless otherwise indicated section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure should be stricken as frivolous immaterial nonjusticiable and or incomprehensible and as violating the reguirements of rule b a hearing was conducted in los angeles california at the hearing petitioner orally moved to have the case dismissed for lack of jurisdiction asserting that the notice_of_deficiency is invalid at the conclusion of the hearing the court took both motions under advisement background respondent determined a deficiency in petitioner’s federal_income_tax for the taxable_year in the amount of dollar_figure the cover page of the notice_of_deficiency shows a deficiency amount of dollar_figure for the taxable_year however all of the information contained in the explanatory statements accompanying the notice shows the computation of the deficiency amount of dollar_figure respondent simply made a dollar_figure typographical error on the face of the notice resulting from the transposition of the last two digits in the deficiency amount the notice_of_deficiency included the following documents a cover letter titled notice_of_deficiency a form_870 waiver_of_restrictions_on_assessment_and_collection of deficiency in tax and acceptance of overassessment waiver statement a form 4089-a notice_of_deficiency statement a form_5278 petitioner’s attachment to his petition is made a part of the petition statement--income tax changes a statement titled explanation of adjustments and a statement titled schedule a-itemized deductions in the explanation of adjustments respondent described in detail the following adjustments made to petitioner’s tax_return contributions of dollar_figure deducted on schedule a were disallowed for lack of substantiation miscellaneous other expenses of dollar_figure deducted on schedule a were disallowed for lack of substantiation failure to establish that the expense was ordinary and necessary and failure to establish that the expense gualifies as a miscellaneous other expense pursuant to the internal_revenue_code code other miscellaneous deductions of dollar_figure for sec_691 expense deducted on schedule a were disallowed for lack of substantiation and failure to establish that the expense qualifies as an other miscellaneous deduction pursuant to the code and interest_expense of dollar_figure deducted on schedule c was disallowed for lack of substantiation failure to establish that the expense was ordinary and necessary and failure to establish that the expense gualifies as interest pursuant to the code on the statement----income tax changes respondent increased petitioner’s taxable_income by the disallowed amounts described above and revised petitioner’s taxable_income for the year at issue in accordance with the revised taxable_income respondent q4e- determined an increase in petitioner’s income_tax of dollar_figure the increased income_tax amount of dollar_figure was also reflected on the waiver statement and the notice_of_deficiency statement petitioner filed a petition with the court attaching an page statement that included a detailed explanation of disagreement with respondent’s determinations and a request for a finding that the notice_of_deficiency is invalid on its face respondent filed a motion to strike portions of the petition requesting the court to strike various sentences in paragraph sec_1 through of petitioner’s statement attached to the petition respondent asserts that the language sought to be stricken in the petition is not proper does not comply with the rules and makes frivolous vague and immaterial allegations and assertions with no factual basis petitioner’s opposition to respondent’s motion to strike portions of the petition was filed claiming respondent’s motion has no merit petitioner claims that each paragraph in the petition contains a clear and concise assignment of error committed by respondent further petitioner contends that respondent misinterprets rule b to require that each and every sentence of the petition be enumerated and asserts that respondent moves to strike portions of the petition solely on that misunderstanding - - discussion petitioner’s oral motion to dismiss for lack of jurisdiction we first consider petitioner’s oral motion to dismiss for lack of jurisdiction due to an invalid notice_of_deficiency if we sustain petitioner’s motion finding the notice to be invalid the court will lack jurisdiction to hear this case and respondent’s motion to strike will become moot accordingly the court’s jurisdiction over this matter is resolved initially the united_states tax_court is a court of limited jurisdiction see sec_7442 under sec_6213 the court has jurisdiction to redetermine deficiencies determined by the commissioner the court’s jurisdiction over deficiency proceedings is contingent upon the issuance of a valid notice_of_deficiency and a timely filed petition see rule a c 429_f2d_38 9th cir 93_tc_22 thus a valid notice_of_deficiency and a timely petition are essential to our deficiency jurisdiction and we must dismiss any case in which one or the other is not present monge v commissioner supra pincite a notice_of_deficiency is intended to serve two purposes 81_tc_42 it is intended to notify a taxpayer that a deficiency has been determined against the taxpayer and provide the taxpayer with the -- - opportunity to petition this court for a redetermination of that deficiency id in 814_f2d_1363 9th cir revg 81_tc_855 the court_of_appeals for the ninth circuit held that respondent must consider information relating to a particular taxpayer before respondent can be said to have determined a deficiency with respect to that taxpayer for purposes of determining whether the notice_of_deficiency provides sufficient information to apprise the taxpayer that the commissioner has determined a deficiency in tax a notice_of_deficiency includes the cover page and all attached pages and documents smith v commissioner tcmemo_1979_16 if a notice_of_deficiency otherwise fulfills its purpose we have held that a mathematical error in the notice will not invalidate the notice where the taxpayer is not misled by the error see myers v commissioner tcmemo_1981_84 see also smith v commissioner supra despite a trivial transposition error on the cover page of the notice_of_deficiency petitioner was adequately informed of the income_tax and issues in controversy by the notice_of_deficiency the petition indicates that petitioner was not misled by the transposition error rather petitioner was fully aware of the typographical error’s existence the notice_of_deficiency was not misleading and put petitioner on notice that - j- respondent had determined a deficiency in his federal_income_tax for the year at issue we attach no credence to petitioner’s argument that he was misled by such an insignificant error petitioner cites scar v commissioner supra and 80_tc_34 affd in part and vacated in part 756_f2d_1430 9th cir for the proposition that a lsingle deficiency must be found for the notice_of_deficiency to be valid petitioner’s interpretation of both of these cases is misplaced in scar the taxpayers received a notice_of_deficiency that disallowed a loss deduction from a partnership in which the taxpayers owned no interest further the notice computed a tax due using the highest marginal tax_rate at the time in considering whether the notice_of_deficiency was valid the court_of_appeals for the ninth circuit held that a notice_of_deficiency is invalid if it is clear from the notice itself that the commissioner had not reviewed the taxpayers’ return or otherwise made a determination_of_a_deficiency with respect to the taxpayers’ liability for the particular taxable_year scar v commissioner supra pincite the courts applying scar have limited the rule established in the case to its specific facts see 998_f2d_1514 9th cir affg in part and revg in part tcmemo_1990_380 clapp v commissioner f 2d --- - 9th cir simply stated the rule set forth in scar applies in the narrow set of circumstances where the notice_of_deficiency on its face reveals that respondent failed to make a determination see 90_tc_110 here the facts are in no way analogous to the facts in scar respondent did review petitioner’s tax_return and made adjustments to petitioner’s schedule a and schedule c based on those adjustments respondent determined a deficiency in tax for the tax_year at issue the transposition error on the cover page does not affect the validity of the notice furthermore the holding in foster is inapplicable here and does not stand for the proposition asserted by petitioner see foster v commissioner supra additionally petitioner cites wilson v commissioner tcmemo_1997_515 and violette v commissioner tcmemo_1994_ for the proposition that a typographical error ina critical place on the notice_of_deficiency is sufficient to invalidate the notice petitioner’s interpretation incorrectly broadens the holding in each case to encompass all typographical errors the error in each of those cases was in the address to which the deficiency_notice was mailed and was deemed sufficient to affect delivery of the notice the facts in each case are therefore easily distinguishable from the facts here --- - we find the transposition error in the notice_of_deficiency to be inconsequential and hold that the notice_of_deficiency is valid consequently we deny petitioner’s oral motion to dismiss for lack of jurisdiction respondent’s motion to strike portions of the petition pursuant to rule respondent moves to strike various portions of the petition as frivolous vague and immaterial allegations and assertions with no factual basis page sec_2 and of respondent’s motion identify the specific portions of the petition which respondent seeks to strike we need not detail each specific statement sought to be stricken as petitioner was properly served and is aware of respondent’s position under rule this court upon timely motion by a party or upon the court’s own initiative at any time may order stricken from any pleading any insufficient claim or defense or any redundant immaterial impertinent frivolous or scandalous matter a motion to strike matter from a pleading will be granted only if the moving party establishes that the matter has no possible bearing upon the subject matter of the litigation and that prejudice will result to the moving party if the motion is not granted 81_tc_999 a petition must contain clear and concise assignments of -- - each and every error which the petitioner alleges to have been committed by the commissioner in the determination of the deficiency and clear and concise lettered statements of the facts on which petitioner bases the assignments of error rule b and the portions of the petition which respondent seeks to strike include various code sections regulations public laws a revenue_ruling and several cases from this court and other federal courts in addition the petition includes petitioner’s opinions arguments legal theories and conclusions we have read the petition and find that the matter which respondent seeks to strike from the petition has no possible bearing upon the subject matter of the litigation the objectionable material does not contain assignments of errors or statements of facts as required by the rules see rule b and the language used is immaterial and impertinent to a properly pled petition petitioner is not prejudiced in any way by striking this language with the language stricken any justiciable assignment of error or statement of fact on which petitioner relies remains in the petition additionally petitioner is free to raise legal arguments cite authority and draw conclusions therefrom at the proper time striking the matter from the petition is warranted by rule sec_34 sec_40 and sec_52 cf 74_tc_516 accordingly respondent’s motion to strike the language from the petition will be granted and our order will specify what portions of the petition are to be stricken to reflect the foregoing an appropriate order will be issued


internal_revenue_service number info release date index number --------------------------------- ------------------------------------------ ------------------------ ------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number -------------------- refer reply to cc psi b01 genin-143186-04 date date taxpayer ----------------------------------------- dear -------------- ein ---------------- we are responding to your submission of form_2553 on behalf of the above captioned taxpayer generally to obtain relief for a late filing of form_2553 election by a small_business_corporation the taxpayer needs to request a private_letter_ruling from the national_office the information submitted to our office is insufficient for us to process a private_letter_ruling request announcement provides guidance on seeking relief for late s_corporation elections the procedures for requesting a private_letter_ruling are set out in revenue_procedure rev_proc copy enclosed requests for letter rulings must be accompanied by an appropriate amount of the user_fee the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their tax_return for the most recent 12-month taxable_year qualify for a reduced user_fee in the amount of dollar_figure if the taxpayer qualifies for the reduced fee the ruling_request must include a statement certifying the taxpayer’s gross_income for the last 12-month taxable_year otherwise the higher fee will apply for details please refer to appendix a of revproc_2005_1 if the taxpayer decides to submit a formal request for a private_letter_ruling please review appendix b of revproc_2005_1 and be certain to include all required procedural statements also include the proper user_fee and any documents that substantiate the taxpayer’s intent to be an s_corporation from the time of the desired effective date requests for letter rulings should be sent to the following address genin-143186-04 internal_revenue_service attn cc pa lpd dru p o box ben franklin station washington dc for general tax information concerning small businesses please go to www irs gov smallbiz which is dedicated to providing information to small_business taxpayers and educating small_business owners on their tax responsibilities we hope that the above information proves helpful sincerely dianna k miosi branch chief branch passthroughs special industries enclosure ------------------------


number release date u i l control number tam-116472-99 cc ita b5 internal_revenue_service national_office technical_advice_memorandum date chief appeals_office taxpayer’s name taxpayer’s address taxpayer’s ein years involved date of conference legend p p1 p2 p3 p4 p5 m h a1 a2 partnership bank bonds note d1 d2 d3 d4 d5 d6 d7 d8 d9 d10 d11 dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg dollar_figureh issues whether p exchanged the installment_obligation resulting in capital_gain income of dollar_figurec in d8 and dollar_figureh in d7 under the provisions of sec_1031 of the internal_revenue_code whether p exchanged the installment_obligation resulting in capital_gain income of dollar_figurea in d7 under the provisions of sec_1031 of the internal_revenue_code code whether p constructively received dollar_figurea in d9 from collection of the installment_obligation as provided by sec_451 of the internal_revenue_code conclusion p did not exchange the installment_obligation resulting in capital_gain income of dollar_figurec in d8 and dollar_figureh in d7 under the provisions of sec_1031 of the internal_revenue_code p did not exchange the installment_obligation resulting in capital_gain income of dollar_figurea in d7 under the provisions of sec_1031 of the internal_revenue_code code p did not constructively receive dollar_figurea in d9 from collection of the installment_obligation as provided by sec_451 of the internal_revenue_code facts p is a parent company that owns numerous other corporations on d1 p sold its interest in certain corporations to h for the stock sold p received cash and note from h the face_amount of note was dollar_figurea note was due on d9 but terms of the note provided it could be prepaid at up to dollar_figuref per year following the first anniversary date or prepaid in larger amounts with months written notice to p note was secured_by an irrevocable letter_of_credit dated d1 the letter_of_credit was in turn secured_by mortgages on the property owned by the corporations sold to h p elected to report the sale on the installment_method the entire dollar_figurea is a deferred gain taxable in the year of receipt of payment h approached p in d5 about removing the mortgages on the property securing the letter_of_credit on d6 h and p entered into an agreement pursuant to which h transferred dollar_figurea to bank as a result the letter_of_credit securing note was now secured_by a compensating cash deposit with bank as opposed to mortgages on h’s property on d2 approximately years later p as a first step in transferring note to partnership transferred note and the underlying letter_of_credit to p1 a newly formed subsidiary of p approximately a week later on d3 p1 transferred note and the underlying letter_of_credit to a newly formed partnership partnership the partners of partnership were p1 m a1 and a2 a1 and a2 each contributed dollar_figureb to partnership for their respective partnership_interest also on d3 the following transactions occurred partnership contributed dollar_figurec to p2 a newly formed corporation in exchange for all the stock in p2 p2 loaned the dollar_figurec to p3 a wholly-owned subsidiary of p p3 loaned dollar_figured to p and also loaned dollar_figuree to p4 a wholly owned subsidiary of p p3 subsequently contributed the p4 loan to the capital of p4 p4 used the dollar_figuree received from p3 to pay off an inter-company debt it had to p accordingly eight days after the cash contribution to partnership by a1 and a2 and on the same day that the note and the letter_of_credit were contributed to partnership the dollar_figurec that partnership had transferred to p2 as a purported equity contribution ended up with p following the contribution of dollar_figurec by partnership to p2 the assets of partnership consisted of note the underlying letter_of_credit dollar_figureg invested in bonds and an equity_interest in p2 partnership’s sole activity has been collecting the payments made on note and the interest payment from bonds on d11 and d10 p and h entered into negotiations whereby the note was extended to d10 and d7 respectively for the years following partnership’s contribution to p2 through the tax_year d7 p2 conducted no activity and had no earnings partnership received no economic benefit from its investment in p2 partnership’s earnings through d7 were derived solely from note and the investment in bonds on d4 years after the formation of partnership note and the underlying letter_of_credit were distributed to a1 and a2 in liquidation of their respective interests in partnership also in the same year m’s interest in partnership was liquidated and a new partner p5 a wholly-owned subsidiary of p was admitted to partnership at the end of d7 the partners of partnership were p1 and p5 wholly-owned subsidiaries of p at the end of d7 the only assets held by partnership were its investment in p2 and an investment account with a brokerage firm with a value of dollar_figureh the intent of the parties that formed partnership as evidenced by the action of the parties and by the partnership_agreement was to minimize the economic risk of a1 and a2 and to provide the dollar_figurec that would ultimately be transferred to p law sec_1031 of the internal_revenue_code provides no gain_or_loss shall be recognized on the exchange of property held for productive use in a trade_or_business or for investment if such property is exchanged solely for property of like_kind which is to be held either for productive use in a trade_or_business or for investment sec_1031 provides if an exchange would be within the provisions of subsection a of sec_1035 of sec_1036 or of sec_1037 if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain but also of other_property or money then the gain if any to the recipient shall be recognized but in an amount not in excess of the sum of such money and the fair_market_value of such other_property sec_1_451-1 of the treasury regulations provides that gains profits and income are to be included in gross_income for the taxable_year in which they are actually or constructively received by the taxpayer unless includible for a different year in accordance with the taxpayer’s method_of_accounting under an accrual_method of accounting_income is includible in gross_income when all the events have occurred which fix the right to receive such income and the amount thereof can be determined with reasonable accuracy sec_1_451-2 of the regulations provides that a taxpayer constructively receives income in the taxable_year during which it is credited to his account set apart for him or otherwise made available so that he may draw upon it at any time or so that he could have drawn upon it during the taxable_year if notice of intention to withdraw had been given analysis with respect to the first two issues the appeals officer initially argues that the series of events that occurred in d8 was a sham_transaction with no business_purpose or economic_substance accordingly p should be viewed as having exchanged note for the loan proceeds received from p3 and the loan repayment received from p4 in d8 as well as the assets in the brokerage firm investment account p acceded to in d7 in the first issue the officer argues that this resulted in gain in those two years to the extent of the amounts received therein in the second issue the officer argues that all of the gain accrued in d7 the year the exchange was completed as a statutory framework to support these arguments the appeals officer cites to sec_1031 the officer notes that sec_1031 provides that gain shall be recognized on the exchange of property that is not like_kind thus his reliance on sec_1031 appears to be an attempt to treat the amounts received by p as boot however it is unclear what other_property was exchanged under sec_1031 the treatment provided in sec_1031 for property received in an exchange that is not of like_kind applies only when other_property that is of like_kind is also exchanged the facts as developed do not establish that other_property qualifying for nonrecognition_of_gain_or_loss under sec_1031 was also exchanged accordingly we are unable to agree with the officer’s argument on the first two issues the appeals officer’s last argument is that p constructively received dollar_figurea in d9 from collection of the installment_obligation as provided by sec_451 we do not believe the doctrine_of constructive receipt is applicable in this case sec_1_451-2 of the regulations provides that a taxpayer constructively receives income in the taxable_year during which it is credited to his account set apart for him or otherwise made available so that he may draw upon it at any time or so that he could have drawn upon it during the taxable_year if notice of intention to withdraw had been given on d10 p and h entered into negotiations that extended the due_date of note until d7 therefore on d9 the note was not due and payable in this case taxpayer was unable to draw upon the security for the standby_letter_of_credit until h failed to make payment on the note at maturity prior to that time the dollar_figurea was not credited to taxpayer’s account set apart for him or otherwise made available so that it could have drawn upon it during the taxable_year the end