internal_revenue_service number release date index number ------------------- ----------------------------- ----------------------------- --------------------------- ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number ------------------- refer reply to cc corp plr-115423-11 date date ty ------------- ty ------------- legend distributing controlled sub controlled d sub d sub trust --------------------------- ------------------------------- ------------------------- ------------------------------------------------------------------------ -------------------- ------------------------------- ------------------------ ------------------------ ------------------------------- ------------------------ ----------------------- ------------------------------- ---------------------- -- --------------------------- ------------------------------- ----------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ --------- ------------------------- plr-115423-11 trust trust foundation state a state b business a business b a b c d e f g h i j k l ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------- ------------------------ ----------------------------------- ------------------------- ----------------------------------------- ------------------------ ------------- ------------- ------------------------------------------------------------------------ ------------------------------ ---------------------------- ------------------------ ---- ------------------------- ------------------------ ------------------------ ------------------------- --- ---- ---- --------------- ------------------ ------------------------ plr-115423-11 m n o p q r s t u v w x y z aa bb cc dd ee ff gg hh ----------------------- --------------------- ------------------------ --------------------- -------------- --------------- ---- ------------------------- ------------------------------------ ------------ --------------- ---------------------- -- --------------- -- ------------------------------- ------ -------------- --------------- ---- ------------------------- ---- plr-115423-11 ii exchange ratio ------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------ dear ---------------- this letter responds to your letter dated date and subsequent correspondence in which you requested rulings regarding certain federal_income_tax consequences of a series of proposed transactions the proposed transactions the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the materials submitted in support of the request for rulings it is subject_to verification on examination in particular no determination has been made regarding whether the split-off defined below i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 of the internal_revenue_code_of_1986 and sec_1_355-2 or 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 distributing or controlled see sec_355 and sec_1_355-7 summary of facts distributing a state a corporation is a privately owned corporation and the common parent of an affiliated_group_of_corporations including d sub1 and d sub which file a consolidated federal_income_tax return the distributing group distributing is engaged directly and indirectly through members of its separate_affiliated_group as defined in sec_355 the distributing sag in business a approximately b percent of distributing’s outstanding common_stock is held by c shareholders or their estates corporations or partnerships owned by them or trusts formed on their behalf collectively the family shareholders the family shareholders include i trust ii trust and iii foundation trust trust trust discussed below and foundation together the charities the charities hold approximately hh percent of plr-115423-11 the stock of distributing the distributing group owns a percent of controlled sub controlled sub a publicly traded state a corporation is the common parent of an affiliated_group_of_corporations controlled sub has one class of common_stock outstanding which is held a percent by the distributing group consisting of d percent held by distributing e percent held by d sub and f percent held by d sub and approximately g percent by the public the public shareholders controlled sub has continuously owned all of the stock of controlled a state a corporation for more than five years in the proposed transactions described below controlled will become the owner of all of the stock of controlled sub controlled sub is engaged indirectly through members of its separate_affiliated_group as defined in sec_355 the controlled sub sag in business b financial information has been submitted that indicates that business a and business b each has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years proposed transactions for what are represented to be valid business purposes distributing has proposed the following steps be undertaken i ii d sub and d sub will each convert under state a law from a corporation to a limited_liability_company and will be treated as entities disregarded from their owner distributing for federal_income_tax purposes d sub and d sub will then transfer their controlled sub stock to distributing following the conversions and transfers distributing will directly own a percent of the shares controlled sub common_stock controlled will organize a wholly-owned state a limited_liability_company merger sub merger sub will merge with and into controlled sub with controlled sub surviving the merger as a wholly-owned subsidiary of controlled the merger- exchanges pursuant to or in connection with the merger-exchanges controlled will amend its certificate of incorporation to authorize three classes of common_stock controlled common_stock controlled class a common_stock class a shares and controlled class b common_stock class b shares distributing’s shares of controlled sub common_stock will be converted into an equal number in the aggregate of shares of class a shares class b shares and controlled common_stock the public shareholders’ shares of controlled sub common_stock will be converted into an equal number of shares of controlled common_stock and controlled sub’s shares of controlled will be converted into that number of shares of controlled common_stock so that controlled sub will own a number of shares of common_stock of controlled determined by reference to the value of controlled immediately before the plr-115423-11 iii merger-exchanges the hook_stock except for certain transfer restrictions the class a shares will be identical in all respects to shares of controlled common_stock including the right to cast one vote per share for the election of directors controlled common_stock together with the class a shares comprise the low- vote shares except for certain transfer restrictions the class b shares will be identical in all respects to the controlled common_stock except the class b shares will bear the right to cast ten votes per share solely for the election of directors the high-vote shares immediately after the merger-exchanges distributing will own shares of controlled stock representing approximately h percent of the voting power and a percent of the economic value of controlled the public shareholders will own shares of controlled stock representing approximately i percent of the voting power and g percent of the economic value of controlled and controlled sub will own hook_stock representing j percent of the voting power and economic value of controlled under applicable state law controlled sub will not be entitled to vote the hook_stock after the merger-exchanges controlled may transfer some or all of its assets and liabilities to controlled sub distributing will exchange shares of controlled common_stock class a shares and class b shares for outstanding shares of distributing common_stock held by certain family shareholders including the charities the exchanging distributing shareholders the exchange of controlled shares for distributing shares the split-off the controlled shares distributed in the split-off will represent k percent of the voting power and l percent of the economic value of controlled’s outstanding_stock the split-off would be treated as a distribution to which sec_355 applies if either distributing’s or the public shareholders’ acquisition of controlled resulting from the merger-exchanges is taken into account for purposes of sec_355 and this fact has been specifically considered in issuing ruling distributing will retain shares of controlled stock representing approximately ii percent of distributing’s economic_interest in controlled or m percent of the economic value and n percent of the voting power of controlled’s outstanding_stock the retained shares the charities and distributing will enter into an agreement pursuant to which in the split-off the charities will agree to exchange all their distributing common_stock for shares of controlled and certain other exchanging distributing shareholders may also enter into similar agreements to exchange some or all of their distributing common_stock for shares of controlled in each case based upon the exchange ratio all exchanging distributing shareholders with the exception of the charities are expected to receive solely high-vote shares the charities are expected to receive a combination of controlled common_stock class b shares and class plr-115423-11 iv v a shares exchanging distributing shareholders will receive cash in lieu of fractional shares of controlled stock at the same time as the split-off distributing expects to transfer the retained shares to one or more investment banks the investment banks in one or more exchanges in retirement of distributing indebtedness commercial paper or other short-term debt with a maturity of days or longer the distributing indebtedness which the investment banks acting as principals for their own account will have purchased from distributing at least fourteen calendar days prior to the initial debt exchange defined below pursuant to an exchange_agreement entered into by distributing and the investment banks no sooner than five days after the investment banks acquire distributing indebtedness distributing will agree with the investment banks to exchange an amount of retained shares in retirement of an amount of distributing indebtedness to be determined by the parties bargaining at arm’s length the initial debt exchange on the same day the exchange_agreement is executed the investment banks and other underwriters will sign an underwriting agreement with controlled and distributing to conduct a secondary public offering the first public offering of the controlled common_stock the investment banks expect to receive in the initial debt exchange distributing expects to close the exchange by transferring shares of controlled common_stock to the investment banks in exchange for the distributing indebtedness four business days after the execution of the exchange_agreement and the underwriting agreement this closing will in no event be less than fourteen calendar days after the investment banks purchase the distributing indebtedness from distributing in furtherance of the fiduciary duties of the trustees of the trusts to diversify the assets of the trusts the trusts will have the right to sell o shares but not more than r shares of controlled common_stock representing p percent by economic value of controlled in the first public offering the investment banks may enter into other arrangements with respect to the distributing indebtedness but neither distributing controlled nor any of their affiliates will be a party to such arrangements the investment banks have advised distributing that a there may be a limited market for controlled common_stock in the first public offering thereby limiting the amount of distributing indebtedness the investment banks would be willing to exchange for controlled common_stock in the initial debt exchange and b the terms of the first public offering may be improved if controlled agrees pursuant to a customary lockup agreement not to engage in a second public offering for q months following the first public offering unless the investment banks agree to a shorter period to the extent distributing does not exchange all of the retained stock in the initial debt exchange it may engage in additional debt exchanges with the investment banks in which the investment banks may be willing to purchase additional distributing indebtedness from distributing in plr-115423-11 contemplation of one or more additional underwritten offering s of controlled common_stock in which case the investment banks would consider with no legal_obligation to proceed effecting additional debt exchanges the follow-on debt exchanges and collectively with the initial debt exchange the debt exchanges if a follow-on debt exchange occurs the investment banks will sell the controlled common_stock received in such follow-on debt exchange to investors in an underwritten secondary public offering the second public offering immediately after such follow-on debt exchange the timing and terms of the exchange and underwriting agreements concerning any follow-on debt exchange would be similar to the timing and terms of the agreements governing the initial debt exchange as described in paragraph iv above regardless of whether a follow-on debt exchange occurs the charities will have the right to sell o shares of controlled common_stock representing p percent by economic value of controlled in the second public offering so long as the total number of shares of controlled common_stock sold by the charities including those sold in the second public offering does not exceed r shares the debt exchanges will in no event be executed later than s months after the split-off alternatively or in addition distributing may seek to sell the retained stock any retained stock not disposed of in the debt exchanges will be disposed of no later than five years after the split-off vi if a second follow-on debt exchange occurs the investment banks will sell the controlled common_stock received in such follow-on debt exchange to investors in an underwritten secondary public offering the third public offering immediately after such follow-on debt exchange regardless of whether a second follow-on debt exchange occurs the charities will have the right to sell an amount of additional shares of controlled common_stock in the third public offering such that the total shares of controlled common_stock disposed of by the charities including those sold in the third public offering will not exceed r shares vii under certain circumstances the charities have the right to cause a fourth underwritten secondary public offering the fourth public offering together with the first public offering second public offering third public offering and any index inclusion offering defined below the public offerings to dispose_of a number of shares of controlled common_stock such that the total shares of controlled common_stock disposed of by the charities in the public offerings does not exceed r shares the last public offering would occur at least twelve months before any demand offering defined below viii it is anticipated that as a result of increasing the public float of its shares controlled will be eligible for inclusion in t in the event of such inclusion controlled may also conduct an index inclusion offering an index inclusion plr-115423-11 ix x xi offering in which controlled the charities and or the investment banks would sell shares of controlled common_stock rather than selling controlled common_stock in the public offerings the charities may instead sell shares of controlled common_stock to one or more private investors which would be unrelated to distributing or controlled in connection with any sale a private investor may be required to enter into a governance agreement with controlled in which the investor would agree to vote its shares of controlled common_stock other than for the election of directors in accordance with the recommendations of controlled’s board_of directors if the charities are unable to sell r shares of controlled common_stock in the public offerings or to one or more private investors as described in paragraph ix above such unsold shares comprise the residual charity shares controlled is generally obligated to maintain a shelf registration_statement from the date upon which the underwriters’ lock-up for the last public offering expires until the second anniversary of the split-off the shelf registration would permit the charities to sell from time to time on an ongoing basis the residual charity shares in open market sales on the u at prices then prevailing in the market shelf sales all shelf sales would be made through a broker and would not involve an underwriting any acquisition of controlled stock pursuant to a shelf sale that is considered similar to a public offering within the meaning of sec_1_355-7 would cause the split-off to be treated as a distribution to which sec_355 applies if such acquisition was taken into account for purposes of sec_355 and this fact has been specifically considered in issuing ruling additionally the charities may request that controlled purchase the residual charity shares but controlled is under no obligation to make any such purchase the controlled stock distributed to the exchanging distributing shareholders in the split-off other than the shares to be sold by the charities in the public offerings in the shelf sales to controlled and or to private investors generally will not be transferable for two and one-half years following the split-off however transfers of controlled stock pursuant to an estate plan and disposition of controlled stock to pay estate_taxes will be permitted at any time the restrictions on transfer will lapse with respect to one-third of the shares of controlled stock or such greater number as determined by controlled held by the exchanging distributing shareholders on each of the two and one-half three and one-half and four and one-half year anniversaries each a lock-up release date of the split-off no more than v prior to each lock-up release date the charities will be entitled to request that controlled effect an underwritten secondary public offering of shares of controlled common_stock any such offering a demand offering the charities and the other exchanging distributing shareholders generally will be permitted to participate in these demand offerings with respect to a number of shares of controlled stock plr-115423-11 determined on a pro_rata basis based upon the number of shares of controlled stock held by such shareholder any acquisition of controlled stock pursuant to a demand offering would cause the split-off to be treated as a distribution to which sec_355 applies if such acquisition was taken into account for purposes of sec_355 and this fact has been specifically considered in issuing ruling if all of the shares to be released on each lock-up release date and requested to be included in a demand offering are not sold in a demand offering then the charities will be entitled to request that controlled maintain a shelf registration_statement under which holders of controlled stock may sell such shares distributing will reimburse controlled for certain out-of-pocket expenses of controlled sub incurred in connection with the proposed transactions eg legal fees investment banker fees costs of printing which expenses will not exceed dollar_figurew which is x percent of the value of distributing’s interest in controlled sub in the event that distributing lists its common_stock on a u s national securities exchange or comparable foreign exchange the charities will be entitled to an additional payment per share of distributing common_stock exchanged in the split-off which may be payable in cash or retained shares at the charities’ option the payment will be either i dollar_figurey per share if distributing lists its common_stock within z of the split-off or ii dollar_figureaa per share if distributing lists its common_stock within bb of the split-off xii xiii xiv during the five year period following the split-off pursuant to a governance agreement entered into with controlled an exchanging distributing shareholder that beneficially owns controlled stock representing cc percent or more of the voting power of controlled will not be permitted to i seek to affect the control of the management or policies of controlled or the controlled board_of directors ii seek to call a special meeting of the controlled shareholders iii nominate any person as a director of controlled iv propose any matter to be voted upon by the controlled shareholders v deposit any controlled stock into a voting_trust or vi subject any controlled stock to any agreement or arrangement with respect to the voting of such stock with a third party the governance restrictions xv controlled currently expects that following the consummation of the split-off and the initial debt exchange and in connection with the consideration of resolutions to be submitted to the controlled shareholders at the first regularly scheduled annual shareholders’ meeting of controlled following the split-off or at a special shareholders’ meeting of controlled following the split-off the controlled board_of directors will consider a proposal to convert the class b shares to class a shares on a share-for-share-basis subject_to the receipt of controlled shareholder approval a conversion of class b shares to class a shares would cause the split-off to be treated as a distribution to which sec_355 applies if the plr-115423-11 public shareholders’ acquisition of an increased voting interest in controlled that would occur in the event of a conversion is taken into account for purposes of sec_355 and this fact has been specifically considered in issuing ruling there will be no binding commitment by the controlled board_of directors to and there can be no assurances that the controlled board_of directors will consider the issue or resolve to present a conversion proposal to the controlled shareholders at that meeting or any subsequent meeting moreover there can be no assurances that if presented the controlled shareholders will approve a conversion proposal if such a conversion proposal is approved by the controlled board_of directors and presented to the controlled shareholders a vote by a majority of all three classes of controlled stock outstanding represented in person or by proxy at a shareholder meeting voting together as a single class with each share having one vote will be required for the proposal to be approved no controlled shareholder would have the right to cause the controlled board_of directors to consider a proposal to convert the class b shares to class a shares xvi the sole beneficiary of trust is foundation when trust terminates all of the assets held by trust are required by the governing trust agreement to be distributed to foundation the sole beneficiary of trust is trust when trust terminates all of the assets held by trust are required by the governing trust agreement to be distributed to trust the foundation’s acquisition of controlled stock from trust and trust 3’s acquisition of controlled stock from trust would cause the split-off to be treated as a distribution to which sec_355 applies if such acquisitions were taken into account for purpose of sec_355 and this fact has been specifically considered in issuing ruling xvii it is intended that distributing controlled and controlled sub will enter into or continue various agreements in connection with the proposed transactions that will result in continuing transactions between the parties including a merger and exchange_agreement registration agreement master services agreements and tax indemnity agreement representations the following representations are made with respect to the merger exchanges a no stock_or_securities of controlled will be issued for services rendered to or for the benefit of controlled in connection with the proposed transactions and no stock_or_securities of controlled will be issued for indebtedness of controlled that is not evidenced by a security or for interest on indebtedness of controlled which accrued on or after the beginning of the holding_period for the debt plr-115423-11 b c d e f g h i j k the transfer of controlled sub stock to controlled by the public shareholders is not the result of the solicitation by a promoter broker or investment house provided that a proxy solicitor may be engaged in connection with the vote of the public shareholders with respect to the proposed transactions the public shareholders and distributing will not retain any rights in the controlled sub stock transferred to controlled in the merger-exchanges any debt of the public shareholders or distributing relating to the controlled sub stock being transferred to controlled that is being assumed or to which such controlled sub stock is subject was incurred to acquire such controlled sub stock and was incurred when such controlled sub stock was acquired and the public shareholders and distributing are transferring all of the controlled sub stock for which the acquisition_indebtedness being assumed or to which such stock is subject was incurred the adjusted_basis and fair_market_value of the assets to be transferred by the public shareholders and distributing to controlled will in each instance be equal to or exceed the sum of the liabilities if any to be assumed by controlled plus any liabilities to which the transferred assets are subject the liabilities of the public shareholders and distributing to be assumed by controlled if any were incurred in the ordinary course of business and are associated with the assets to be transferred there will be no indebtedness created in favor of the public shareholders and distributing as a result of the transaction the merger-exchanges will occur under a plan agreed upon before the transaction and effectuated pursuant to agreements in which the rights of the parties are defined all exchanges that make up the merger-exchanges will occur on approximately the same date there is no plan or intention on the part of controlled to redeem or otherwise reacquire any controlled stock to be issued in the proposed transactions taking into account any issuance of additional shares of controlled stock any issuance of stock for services the exercise of any controlled stock_rights warrants or subscriptions a public offering of controlled stock and the sale exchange transfer by gift or other_disposition of any of the stock of controlled to be received in the merger-exchanges but excluding any transaction not taken into account under sec_351 the public shareholders and distributing will be in plr-115423-11 control of controlled within the meaning of sec_368 immediately after the merger-exchanges the public shareholders and distributing will each receive stock securities or other_property approximately equal to the fair_market_value of the property transferred to controlled or for services rendered or to be rendered for the benefit of controlled controlled has no plan or intention to terminate its existence and will use the property transferred ie the controlled sub stock to it directly or indirectly in a trade_or_business there is no plan or intention by controlled to dispose_of the transferred property other than in the normal course of business operations aside from the reimbursement of up to dollar_figurew of controlled sub’s out-of-pocket expenses by distributing each of the parties to the transaction will pay its or his her own expenses if any incurred in connection with the proposed transactions controlled 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 controlled will not be a personal_service_corporation within the meaning of sec_269a l m n o p q r the following representations are made with respect to the split-off and debt exchanges s t u v the indebtedness owed by controlled to distributing after the split-off if any will not constitute stock_or_securities the fair_market_value of the controlled stock to be received by each exchanging distributing shareholder will be approximately equal to the fair_market_value of the distributing stock surrendered by the shareholder in the split-off no part of the controlled stock to be distributed by distributing in the split-off will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing the five years of financial information submitted on behalf of business a as conducted by the distributing sag is representative of the present operations of plr-115423-11 w x y business a and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of business b as conducted by the controlled sub sag is representative of the present operations of business b and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted following the proposed transactions each of the distributing sag and the controlled sag will continue the active_conduct of its business independently and with its separate employees the split-off is motivated in whole or substantial part by one or more corporate business purposes i resolving the ongoing dispute between the charities and the management of distributing by fully redeeming the charities’ interest in distributing ii enhancing distributing’s credit profile iii enabling distributing’s management to focus all of its attention on managing distributing’s businesses iv allowing controlled additional strategic flexibility to pursue its business interests independent of distributing v enhancing controlled’s ability to use its stock as acquisition currency as a means of raising capital and for employee compensation vi removing regulatory limitations that affect controlled’s ability to expand its business vii rationalizing distributing’s employee compensation program and viii facilitating the inclusion of controlled in t the split-off is motivated in whole or substantial part by one or more of these corporate business purposes z the proposed transactions are not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled aa excluding any acquisitions of stock pursuant to the merger-exchanges the split- off shelf sales demand offerings conversion of class b shares to class a shares the foundation’s acquisition of controlled stock from trust and trust 3’s acquisition of controlled stock from trust the split-off is not part of a plan or series of related transactions within the meaning of sec_1_355-7 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 distributing or controlled including any predecessor or successor of any such corporation bb other than certain payments under the agreements described in paragraph xvii or incurred in the ordinary course no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of controlled stock plr-115423-11 cc except for certain payments that may be made in connection with the tax indemnity agreements and the master services agreement payments made in connection with all continuing transactions if any between members of the distributing group and members of the controlled_group will be for approximately fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length dd no two parties to the transaction will be investment companies as defined in sec_368 and iv ee for purposes of sec_355 immediately after the split-off no person determined after 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 split-off date ff for purposes of sec_355 immediately after the split-off 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 and sec_1_355-6 during the five-year period determined after applying sec_355 ending on the split-off date or ii attributable to distributions on 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 split-off date gg immediately after the transaction as defined in sec_355 either i neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 or ii no person will hold a percent or greater interest within the meaning of sec_355 in the stock of distributing or controlled who did not hold such interest immediately before the split-off hh cash payments made by distributing in lieu of fractional shares of controlled stock are for the purpose of avoiding the expense and inconvenience to controlled of issuing fractional shares and do not represent separately bargained for consideration the total cash consideration if any that will be paid in lieu of fractional shares of controlled stock will not exceed one percent percent of the total consideration that will be distributed to exchanging distributing shareholders in the split-off ii the business_purpose for distributing’s retention of the retained shares is to improve distributing's debt-equity_ratio to solidify its credit rating and to provide plr-115423-11 distributing with a source of cash for working_capital needs expansion and acquisitions jj kk ll two or fewer distributing executives will serve on controlled’s board_of directors after the split-off after the split-off there will be no other common officers or directors between distributing and controlled the retained shares will be disposed of as soon as a disposition is warranted but in any event no later than five years after the split-off distributing will vote the retained shares in the election of the members of the controlled board in proportion to the votes cast by all other shareholders of controlled mm the aggregate amount of distributing indebtedness exchanged for controlled common_stock in the debt exchanges will not exceed the weighted quarterly average of the distributing debt owed to unrelated third parties for the twelve month period ending upon the close of business on the last full business_day before the date on which the proposed transactions were first presented to distributing’s board_of directors nn the aggregate number of shares of controlled common_stock to be sold by the charities and the investment banks in the public offerings any sale to a private investor any shelf sale any sales of residual charity shares or any other sale of controlled stock prior to the second anniversary of the split-off is not expected to exceed approximately ee shares representing an approximately ff interest which is an economic value of less than percent in controlled oo to the knowledge of controlled sub prior to the split-off no exchanging distributing shareholder has acquired controlled sub stock pursuant to a plan or series of related transactions described in sec_355 with the split-off pp to the knowledge of distributing prior to the split-off no exchanging distributing shareholder has acquired distributing stock pursuant to a plan or series of related transactions described in sec_355 with the split-off qq the merger-exchange is a single isolated transaction and is not part of a plan to periodically increase the proportional interest of any shareholder in the assets or earnings_and_profits of controlled rr the exchanging distributing shareholders have no plan or intention to acquire by purchase or otherwise any shares of controlled stock following the split-off plr-115423-11 ss the number of shares of hook_stock immediately after the merger-exchanges will be determined by reference to the fair_market_value of controlled sub’s shares of controlled stock immediately before the merger-exchanges the charities have made the following representations with respect to the proposed transactions tt the sole beneficiary of trust is foundation a private_foundation within the meaning of sec_501 and sec_509 when trust terminates all of the assets held by the trust are required by the governing trust agreement to be distributed to foundation the sole beneficiary of trust is trust a public charity within the meaning of sec_501 and sec_509 when trust terminates all of the assets held by the trust are required by the governing trust agreement to be distributed to trust uu the trustees of trust and trust have a fiduciary duty under state b law to diversify the assets held by the trusts vv the assets owned by trust and trust mainly consist of shares of distributing stock ww each of trust and trust made an election under sec_645 to be treated and taxed as part of gg’s estate until the date that is six months after the final_determination of estate_tax liability in gg’s estate the administrative period all of the income of trust and trust during the administrative period qualifies for the charitable_set_aside deduction described in sec_642 regardless of whether such income is derived from the receipt of dividends or from the sale of shares xx after the administrative period it is the intention of the trustees of trust and trust consistent with their fiduciary duties to minimize income taxes to distribute all income of trust and trust derived from their shares of distributing and controlled stock to foundation and trust respectively in a manner that will qualify those distributions for the deduction described in sec_642 regardless of whether such income is derived from the receipt of dividends or from the sale of shares yy foundation and trust are exempt from income_taxation under sec_501 rulings based solely on the information submitted and the representations set forth above we rule as follows plr-115423-11 the merger-exchange sec_1 the exchange by the public shareholders and distributing of controlled sub stock for controlled stock pursuant to the merger-exchanges will qualify as a transaction described in sec_351 distributing will not recognize any gain_or_loss on the merger-exchanges sec_361 the public shareholders will not recognize any gain_or_loss on the merger- exchanges sec_351 controlled will not recognize any gain_or_loss on the merger-exchanges sec_1032 controlled’s basis in the controlled sub stock received in the merger-exchanges will be the same as controlled sub’s net asset basis within the meaning of treas reg sec_1_1502-31 subject_to the adjustments described in treas reg sec_1_1502-31 sec_1_1502-31 controlled’s holding_period of the controlled sub stock received by controlled in the merger-exchanges will include the period during which such property was held by distributing or the public shareholders as applicable sec_1223 the split-off the merger-exchanges followed by the split-off will be a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization under sec_368 distributing will not recognize income gain_or_loss upon the split-off and the debt exchanges sec_361 the exchanging distributing shareholders will not recognize income gain_or_loss upon the receipt of the controlled stock in the split-off sec_355 the aggregate basis of the controlled stock in the hands of each of the exchanging distributing shareholders after the split-off will equal the aggregate basis of the distributing common_stock surrendered by each of the exchanging distributing shareholders immediately prior to the split-off sec_358 the holding_period of the controlled stock received by each of the exchanging distributing shareholders in the split-off will include the holding_period of the plr-115423-11 distributing common_stock surrendered in exchange therefor provided that the distributing common_stock was held by each of the exchanging distributing shareholders as a capital_asset on the date of the split-off sec_1223 earnings and profit will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 payments made between any of distributing and controlled or their subsidiaries that i have arisen or will arise for a taxable_period ending on or before the split-off and ii will not become fixed and ascertainable until after the split-off will be treated as occurring immediately before the split-off cf 344_us_6 73_sct_71 97_led_6 1952_2_cb_136 revrul_83_73 c b an exchanging distributing shareholder that receives cash in lieu of a fractional share of controlled stock will recognize gain_or_loss measured by the difference between the basis of the fractional share received and the amount of cash received sec_1001 any gain_or_loss will be treated as capital_gain or loss provided that the fractional share of stock is held as a capital_asset on the date of the split-off sec_1221 and sec_1222 the hook_stock will be treated as part of a class of controlled stock entitled to vote rev_rul c b caveats 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 we express no opinion about the tax treatment of the proposed transactions under other provisions of the code and regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that is not specifically covered by the above rulings in particular we express no opinion regarding i ii whether the split-off satisfies the business_purpose requirement of sec_1_355-2 whether the split-off is being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 iii whether the split-off and an acquisition or acquisitions are 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 plr-115423-11 greater interest in distributing or controlled see sec_355 and sec_1 the federal_income_tax consequences of step xiii described above and the tax effects of the proposed transactions if the split-off is not completed prior to the effective date of final regulations or the effective date of temporary regulations under sec_355 iv v one or more rulings given in this letter deal with issues that may be addressed in subsequent published guidance see sec_11 of revproc_2010_1 2010_1_irb_1 regarding the circumstances including published guidance which may result in the revocation or modification of a ruling letter procedural matters this ruling letter is directed only to the taxpayers who requested it see sec_6110 which provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely mark j weiss reviewing attorney branch office of associate chief_counsel corporate


department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no --------------- ----------------- telephone number ---------------------- refer reply to cc psi b03 plr-123788-16 date date internal_revenue_service number release date index number ---------------------------------------- ------------------------------------------- ---------------------------- -------------------------------- -------------------------------------------- x ------------------------------------------- date ------------------- date ----------------------- a -------------------------- date ---------------------- date ---------------------- family_trust --------------------------------------------- ----------------------------------------------------- ------------------------------------------- trust --------------------------------------------- -------------------------------------------- ------------------------------------------- trust -------------------------------------- -------------------------------------------- dear ----------------- this responds to a letter dated date submitted on behalf of x by x's authorized representative requesting relief under sec_1362 of the internal_revenue_code the code plr-123788-16 facts according to the information submitted and representations made x was incorporated on date effective date x elected to be taxed as an s_corporation under sec_1362 of the code prior to date trust was a grantor_trust wholly owned by a and was an eligible shareholder of x on date a died and trust ceased being a grantor_trust upon’s a’s death the shares of x held by trust were transferred to trust and trust trust and trust qualified under sec_1361 as an eligible shareholders for two years from a’s date of death however timely elections to treat trust and trust as qualified subchapter_s trusts qsst after this period was not made trust and trust became an ineligible shareholders of x causing x's s_corporation_election to terminate effective date x represents that since date it has filed its federal_income_tax returns consistent with being an s_corporation x represents that its s_corporation_election termination was inadvertent and was not motivated by tax_avoidance or retroactive tax planning trust trust and x represent that trust and trust would have qualified as qssts since date and that they have filed returns consistent with this treatment further x represents that x and its shareholders will make any adjustments required as a condition of obtaining relief under the inadvertent_termination_rule as provided under sec_1362 of the code that may be required by the secretary law and analysis sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides in relevant part that for purposes of sec_1361 the following trusts may be shareholders of an s_corporation i a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states ii a_trust that was described in sec_1361 immediately before the death of the deemed owner and which continues in existence after such death but only for the 2-year period beginning on the day of the deemed owner’s death and iii a_trust to which stock has been transferred by a will but only for the 2-year period beginning on the day of the owner’s death sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 -- a such trust shall be treated as a_trust described in sec_1361 c a i b for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under paragraph is plr-123788-16 made and c for purposes of applying sec_465 and sec_469 to the beneficiary of the trust the disposition of the s_corporation stock by the trust shall be treated as a disposition by such beneficiary sec_1361 provides that a beneficiary of a qualified_subchapter_s_trust or his legal_representative may elect to have sec_1361 apply an election under sec_1362 shall be made separately with respect to each corporation the stock of which is held by the trust sec_1361 defines qualified_subchapter_s_trust as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary's death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to individual who is a citizen or resident_of_the_united_states sec_1_1361-1 provides that the election must be filed within the time requirements prescribed in sec_1_1361-1 for filing a qualified_subchapter_s_trust election generally within the 16-day-and-2-month period beginning on the day that the stock is transferred to the trust sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides in relevant part that if an election under sec_1362 or sec_1361 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder in such corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of such corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion plr-123788-16 based solely on the facts submitted and the representations made we conclude that x's s_corporation_election inadvertently terminated within the meaning of sec_1362 on date due to the trustee’s failure to make qsst elections for trust and trust pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and trust and trust will be treated as qssts from date this ruling is contingent upon within days from the date of this letter the trustee filing with the appropriate service_center elections to treat trust and trust as qssts effective as of date a copy of this letter should be attached to the qsst elections except as specifically ruled upon above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding x's eligibility to be an s_corporation or trust and trust 2’s eligibility to be qssts furthermore no opinion is expressed or implied as to the federal_income_tax consequences of the transfer of x shares from trust to trust and trust this ruling is directed only to the taxpayer that requested it according to sec_6110 this ruling may not be used or cited as precedent pursuant to the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives sincerely richard t probst senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c dec tax_exempt_and_government_entities_division uniform issue list tbh ht tb kk e e ex ee legend taxpayer a individual b individual c amount d plan e company m dear kk this is in response to a request submitted on your behalf by your authorized representative by letter dated date for a ruling to waive the day rollover requirement contained in sec_402 of the internal_revenue_code code the following facts and representation have been submitted under penalties of perjury to support the ruling_request individual b an employee of company taxpayer a was a participant in plan e m convinced taxpayer a to roll over amounts due him under plan e into an individual_retirement_arrangement ira at company m on date taxpayer a withdrew said amounts from plan e and received a lump sum distribution of amount d less federal withholding notify taxpayer a of the 60-day rollover period taxpayer a that taxes would be withheld from her distribution plan e is an arrangement defined in sec_457 of the code individual b also failed to advise individual b did not prior to the expiration of the 60-day rollover period prescribed in sec_402 a of the code on date taxpayer a who has an extensive history of health problems including esophageal cancer was admitted to a kak page hospital for exploratory surgery the effects of the surgery and treatments in combination with the mental anguish resulting from the recent loss of several close family members rendered her unable to consummate the rollover of her funds received from plan e within the 60-day period upon recovering from her surgery and treatment taxpayer a promptly contacted individual c on or about date individual c then promptly commenced legal research to ascertain if there was a basis for seeking a waiver of the 60-day rollover rule is still holding the funds received from the distribution from plan e taxpayer a upon receiving a waiver of the 60-day rollover rule taxpayer a will promptly deposit amount d into an ira at company m based on the facts and representations you request that the service waive the 60-day rollover requirement with respect to the distribution of amount b because the failure to waive such requirement would be against equity or good conscience under the provisions of sec_402 of the code sec_457 of the code provides that any amount of compensation deferred under an eligible_deferred_compensation_plan as defined in sec_457 of the code and any income attributable to the amounts so deferred shall be includible in gross_income only for the taxable_year in which such compensation or other income is paid to the participant or other beneficiary in the case of a plan of an eligible_employer described in sec_457 of the code and is paid or otherwise made available to the participant or other beneficiary in the case of a plan of an eligible_employer described in sec_457 of the code sec_457 and b of the code respectively describe eligible employer’ as a state political_subdivision of a state and any agency_or_instrumentality of a state or political_subdivision of a state and as any other organization other than a governmental_unit exempt from tax under this subtitle sec_457 of the code concerning rules applicable to rollovers from compensation plans of state and local governments and tax-exempt organizations provides in part that if any portion of the balance_to_the_credit of an employee is paid to the employee in an eligible_rollover_distribution within the meaning of sec_402 of the code and the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan described in sec_402 of the code then such distribution to the extent so transferred shall not be includible in gross_income for the taxable_year in which paid kee page sec_457 of the code provides that the rules of paragraphs through and of sec_402 of the code and sec_402 of the code shall apply for purpose of subparagraph a above sec_402 of the code provides in relevant part that an eligible_retirement_plan includes an individual_retirement_account described in sec_408 of the code or an individual_retirement_annuity described in sec_408 of the code in general sec_402 provides that except as provided in subparagraph b paragraph shall not apply to any transfer of a distribution made after the day following the day on which the distributee received the property distributed subparagraph b provides that the secretary may waive the 60-day requirement under subparagraph a where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only eligible rollover distributions that occurred after date code are eligible for the waiver under sec_402 of the revproc_2003_16 2003_4_irb_359 provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 or sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented by taxpayer a demonstrates a mistake on the part of individual b by not informing taxpayer a of the 60-day requirement in addition taxpayer a has demonstrated that she was unable to complete the transaction based upon her extensive hospitalization and accompanying mental anguish the failure to deposit amount d into an ira within the 60-day rollover period was beyond the reasonable control of taxpayer a and the failure to waive the 60-day requirement would be against equity or good conscience therefore pursuant to sec_402 of the code as made applicable to a plan described in sec_457 of the code under sec_457 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount d to an ira provided all other requirements of sec_402 of the code except the 60-day requirement kk page are met with respect to such contribution this amount will be considered a rollover_contribution within the meaning of sec_402 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this letter is being sent to your authorized representative in accordance with a power_of_attorney on file in this office if you wish to inquire about this ruling please contact d at please address all correspondence to sincerely yours trane uo maen frances v sloan manager technical group t3 employee_plans enclosures deleted copy of this letter notice of intention to disclose notice


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-121384-98 date date legend x state d1 requesting a ruling that x’s s_corporation status will be effective as of d1 this responds to your letter dated date written on behalf of x facts x was incorporated under state law on d1 x’s shareholders intended that x be a subchapter_s_corporation effective d1 however the s_corporation_election under sec_1362 of the internal_revenue_code was not timely filed s_corporation sec_1362 provides that a small_business_corporation may elect to be an law and analysis sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made cc dom p si plr-121384-98 sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for the taxable_year and effective as of the first day of its tax_year x’s s_corporation_election was not filed timely for the election to be effective as of its tax_year beginning on d1 nevertheless x has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 we conclude that x will be recognized as an s_corporation effective as of d1 x should file a completed form_2553 with a copy of this ruling attached reflecting its election of subchapter_s_corporation status as of d1 with the applicable service_center within days of the date of this letter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely signed daniel j coburn daniel j coburn assistant branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court george a and marysue coward petitioners v commissioner of internal revenue respondent docket no filed date steven b jacobs for petitioners alan e staines for respondent memorandum opinion goldberg special_trial_judge this case was assigned pursuant to sec_7443a and rule sec_180 sec_181 and sec_183 respondent determined deficiencies in and additions to petitioners' federal income taxes as follows unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure additions to tax additional interest sec sec sec sec sec year deficiency a a a c dollar_figure dollar_figure -- -- -- big_number -- -- -- big_number -- -- -- big_number -- -- -- big_number -- -- -- big_number -- -- -- big_number -- dollar_figure dollar_figure big_number -- big_number percent of the interest due to the underpayment_of_tax attributable to negligence or intentional_disregard_of_rules_and_regulations percent of the interest due with respect to any substantial_underpayment attributable to tax_motivated_transactions after concessions reflected in the stipulation of settled issues filed date the issue for decision is whether petitioners are entitled to an investment_tax_credit for the taxable_year and if so in what amount and whether they are entitled to any related carrybacks this case was submitted fully stipulated pursuant to rule the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners resided in fair oaks california at the in their stipulation of settled issues the partie sec_2 stipulated that exclusive of the investment_tax_credit issue there are deficiencies in petitioners' federal income taxes as follows taxable_year deficiency dollar_figure big_number big_number big_number big_number big_number big_number big_number the parties further stipulated that there are no additions to tax under sec_6653 sec_6653 sec_6653 and sec_6659 for any of the years in issue and that no part of the deficiencies is a substantial_underpayment for the purposes of computing interest payable with respect to such amounts pursuant to sec_6621 formerly sec_6621 time that they filed their petition the pertinent facts are summarized below george coward petitioner was an investor in washoe ranches ltd the partnership a limited_partnership formed to engage in the business of breeding cattle on date walter j hoyt iii as general_partner executed the certificate and articles of limited_partnership for the partnership mr hoyt signed the limited_partnership agreement on behalf of each of the limited partners including petitioner the agreement stated that it was executed on date the agreement was filed with the county of washoe nevada the partnership_agreement provided that each limited_partner would contribute cash to partnership capital in the amount set forth after his name no amount was shown on the agreement after any limited partner's name on date petitioner made his first and only capital_contribution to the partnership for the taxable_year in the amount of dollar_figure the partnership records show that capital contributions to the partnership from the six limited partners totaled dollar_figure for that taxable_year and all of the contributions were made on date on date petitioner signed an agreement to purchase units of the partnership for dollar_figure as his interest under the terms of the partnership_agreement the general_partner was not to contribute capital to the partnership the general_partner was responsible for managing the partnership in compensation the general_partner was to be allocated percent of the partnership profits the partnership_agreement in effect for provided that percent of the profits if any of the partnership were allocable to the limited partners under the same agreement percent of the assets and losses of the partnership if any were to be allocated to the limited partners each limited partner's profit or loss sharing ratio was to be determined by dividing his total capital contributions by the total capital contributions received from all of the limited partners according to the terms of the agreement a livestock bill of sale was executed by hoyt sons as seller transferring cattle to the partnership for a purchase_price of dollar_figure the bill of sale was dated date and provided the following the seller signing hereunder and residing in the county of harney state of oregon for valuable consideration in the amount of dollar_figure dollars the receipt whereof is hereby acknowledged and by these presents do es bargain and sell unto washoe ranches ltd purchaser the herein described livestock the following head of cattle were listed bred heifers heifer catch calf open heifers and open heifer walter j hoyt iii as general_partner executed a promissory note payable to hoyt sons in the principal_amount of dollar_figure walter j hoyt iii signed the note on behalf of the partnership and on behalf of each of six limited partners including petitioner as attorney-in-fact the partnership filed a form_1065 u s partnership return of income for the taxable_year ending date the return reports that the partnership started business on date the form_1065 shows total partnership capital of dollar_figure the schedules k-1 attached to the partnership return allocated the total purchase_price indicated on the january bill of sale as the basis of the cattle to the limited partners the basis of new investment_property with a life of or more years was reported as dollar_figure the cost of used investment_property with a life of or more years was reported as dollar_figure the schedules k-1 reflect the following partnership interests and allocations profit loss basis new cost used capital sharing sharing investment investment partner account ratio ratio property property daniel gallagher dollar_figure dollar_figure -0- william bingston big_number -0- george coward big_number -0- john d gaskins -- -- big_number -0- bobby d chiles -- -- big_number -0- alonzo corwin big_number big_number w jay hoyt iii -- -- -- totals big_number big_number big_number petitioner's sharing ratios were reported incorrectly on the schedule_k-1 for as of date petitioner's correct share of partnership capital was percent petitioners claimed investment_tax_credit basis for new property with a life of or more years in the amount of dollar_figure as their distributive_share of the partnership's investment_tax_credit basis on their federal_income_tax return filed for petitioners claimed an investment_tax_credit of dollar_figure for the year none of this amount was used to reduce petitioners' tax_liability for the taxable_year petitioners carried back the investment_tax_credit to taxable years and in the amounts of dollar_figure dollar_figure and dollar_figure respectively in the notice_of_deficiency respondent determined that petitioners had not established that they were entitled to the claimed investment_tax_credit respondent disallowed the credit and carrybacks as an initial matter on brief petitioners argue that our findings in bales v commissioner tcmemo_1989_568 are binding on the parties to this action under the theory of collateral_estoppel that case involved certain limited partners who invested in partnerships formed by walter j hoyt iii to engage in the business of breeding cattle collateral_estoppel is an affirmative defense which must be specifically pleaded rule collateral_estoppel precludes litigation by parties or their privies in a later suit on a different cause of action of issues of fact and law actually litigated and necessarily decided by a court in reaching a prior judgment 464_us_154 collateral_estoppel may apply to matters of fact matters of law or to mixed matters of law and fact 105_tc_141 respondent argues that petitioners improperly raised the collateral_estoppel defense for the first time in their brief in their petition petitioners asserted the following the facts upon which the petitioner relies as the basis of this case are as follows a the petitioner is a partner in a partnership that is either involved in or is closely related to seventeen partnerships whose business activities for and are now before this court in a consolidated case entitled bales v commissioner docket b the stipulation of the parties trial testimony and briefs filed by the parties in the bales case will provide this court with certain background facts about the petitioners' partnership business operations ownership cattle management agreements and legal status that are not stated herein petitioners' reference to bales v commissioner tcmemo_1989_568 is clear and we are aware that bales was not yet decided at the time they filed their petition however we do not believe that the allegations contained in the petition constituted an affirmative pleading that any factual or legal issues decided in bales were identical to those involved in this case for purposes of raising a defense of collateral_estoppel thus petitioners have not properly pleaded this defense and therefore it is waived gustafson v commissioner 97_tc_85 assuming petitioners had properly raised the doctrine_of collateral_estoppel petitioners bear the burden of proving this affirmative defense rule sec_39 sec_142 91_tc_14 for collateral_estoppel to apply an issue litigated and decided in the previous action must be identical with the issue presently before the court 440_us_147 90_tc_162 affd 904_f2d_525 9th cir petitioners have not established that the issue presented herein is identical to one of the issues presented in bales v commissioner supra the taxpayers in bales v commissioner supra were partners in several limited_partnerships which were organized by walter j hoyt iii to engage in the business of breeding cattle the issues presented in that case included whether purchases of breeding cattle by those partnerships were bona_fide transactions and if so whether such purchases were eligible for the investment_tax_credit the court held cattle are sec_38 property and therefore eligible for the credit sec_48 however the transactions involving washoe ranches ltd were not before the court in bales v commissioner supra there is no dispute that cattle are sec_38 property and that purchases of cattle may be eligible for the investment_tax_credit the issue in this case is whether cattle were acquired and placed_in_service by washoe ranches ltd in this issue is not identical to an issue litigated and decided in bales v commissioner supra nor has it been shown that petitioners are in privity with the taxpayers in bales thus respondent is not collaterally estopped from litigating the issue presented for decision in this case see also wolff v commissioner tcmemo_1994_196 in the alternative petitioners request that we take judicial_notice of our decision in bales v commissioner supra rule of the federal rules of evidence provides in part a scope of rule this rule governs only judicial_notice of adjudicative facts b kinds of facts a judicially noticed fact must be one not subject_to reasonable dispute in that it is either generally known within the territorial jurisdiction of the trial_court or capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned we may take judicial_notice of opinions of this court 87_tc_1016 and do so in this case however the mere fact that a court in one opinion makes findings_of_fact is not a basis for the same or another court in another proceeding to take judicial_notice of those findings and deem them to be indisputably established for purposes of the pending litigation id pincite9 as we have noted transactions involving washoe ranches ltd were not before the court in bales the findings of facts in bales v commissioner supra are not conclusive here respondent's determination is presumed to be correct and petitioners have the burden of proving entitlement to the claimed credit rule a 290_us_111 the burden_of_proof is not altered by submission of the case fully stipulated under rule rule b determining when a partnership is formed is a question of fact 87_tc_1279 for federal_income_tax purposes a partnership comes into existence when the parties to a venture join together capital or services with the intent of conducting presently an enterprise or business ' 91_tc_686 quoting sparks v commissioner supra pincite affd 893_f2d_656 4th cir a partnership is deemed to be formed as of the date that the first parties to the venture acquired their respective capital interests in such partnership sparks v commissioner supra pincite to qualify as a partner each party must contribute capital or services to the partnership id in determining a partner's investment tax basis with respect to partnership property the regulations provide each partner shall take into account separately his share of the basis of partnership new sec_38 property and his share of the cost of partnership used sec_38 property placed_in_service by the partnership during such partnership taxable_year sec_1 f income_tax regs as a general_rule each partner's share of the basis or cost of any sec_38 property shall be determined in accordance with the ratio in which the partners divide the general profits of the partnership sec_1 f i income_tax regs sec_48 defines new sec_38 property as sec_38 property acquired after date if the original_use of such property commences with the taxpayer sec_38 property acquired by purchase that is not new sec_38 property is considered used sec_38 property sec_48 the original_use of property is the first use to which the property is put whether or not such use corresponds to the use of such property by the taxpayer sec_1_48-2 income_tax regs see 93_tc_316 the amount of the investment_tax_credit may depend on whether the sec_38 property is new or used within the meaning of sec_48 sec_48 property generally is placed_in_service in the year in which such property is placed in a condition or state of readiness and availability for a specifically assigned function sec_1_46-3 income_tax regs in this case the evidence indicates that the partnership came into existence for federal tax purposes as of date the date on which the limited partners made capital contributions to the partnership up until that time the partnership was without capital and could not conduct business although the partnership_agreement was entered into on december for tax_year sec_48 provides the cost of used sec_38 property taken into account under sec_46 for any taxable_year shall not exceed dollar_figure this limitation applies at the partnership level and at the partner level sec_48 the amount of capital which each partner was to contribute to the partnership was left blank respondent argues that because the partnership did not exist at the time of the cattle purchase the partnership could not have engaged in the purchase and thus had no basis in the cattle therefore respondent argues petitioner received no distributive_share of basis in such cattle upon which petitioners can claim an investment_tax_credit petitioners counter that the cattle purchase was part of the pre-operating activities engaged in by walter j hoyt iii as general_partner petitioners argue that the partnership became a party to the transaction on formation we find petitioners' argument persuasive walter j hoyt iii was purporting to act on behalf of washoe ranches ltd when he entered into the cattle purchase washoe ranches ltd became a party to the transaction in date when the partnership accepted the cattle received as a result of the purchase and the partnership expressly accepted liability for petitioners rely on california law in support of their argument we do not understand california law to govern in this case as the record indicates that the partnership was formed as a nevada limited_partnership the partnership_agreement was filed with the county of washoe nevada and the principal offices of the partnership were located in nevada nothing in the record indicates that the partnership carried on its operations in california however we are persuaded that petitioners' position is consistent with nevada law the supreme court of nevada has held that such acceptance of the benefits of the transaction constitutes ratification of the contract see eg european motors ltd v oden p 2d nev the second restatement of agency the purchase_price thereof thus the partnership acquired the cattle by purchase and the partnership therefore had basis in the cattle equal to the cost sec_1012 respondent next argues that petitioners have failed to establish when the cattle were placed_in_service petitioners argue that it is not significant when the cattle were placed_in_service if it occurred within the taxable_year upon consideration we are not persuaded by either argument in its entirety the majority of the cattle was identified as bred heifers meaning these cows had been impregnated the average gestation period of cattle is approximately to months there is nothing in the record indicating what happened to the cattle during the months between the sale by hoyt sons and the acquisition of the cattle by the partnership for its breeding operations however given the considerable passage of time some if not all of the bred heifers must have given birth during this time and we believe this activity constitutes characterizes such acceptance as an adoption see restatement agency 2d sec_104 comment a for these purposes the labels are not significant the average gestation period for cattle is days with a variation range of days see new encyclopedia britannica gestation 15th ed it is generally accepted that courts may take judicial_notice of scientific facts which are commonly known and which may be found in encyclopedias dictionaries or other publications 77_tc_650 n original_use within the meaning of sec_48 thus petitioners have failed to establish that the original_use of these bred heifers commenced with the partnership therefore by definition they are deemed to be used sec_38 property when the partnership acquired them based on the record we find that the cattle were placed_in_service by the partnership on date the cows the majority of which had already been bred were in a state of readiness for their assigned function of breeding petitioner was a partner in the partnership at that time and thus petitioners are entitled to a distributive_share of the investment_tax_credit basis and cost for the purchase of the cattle for these purposes the partnership's cost of the bred heifers is limited to dollar_figure sec_48 in determining whether livestock acquired by a taxpayer is new or used_property for purposes of the credit the committee intends that livestock be treated in a manner consistent with that provided in the treasury regulations for other types of property property is considered new property for purposes of the credit if its original_use commences with the taxpayer the regulations provide that the term original_use means the first use to which property is placed whether or not the use corresponds to the use of the property by the taxpayer however where the property qualifies as a breeding or dairy animal it will normally be regarded as a new article at the time it is first used for these purposes that is at the time its suitability is established by the bearing of a calf or the giving milk assuming it has not been used for other purposes prior to that time s rept pincite 1972_1_cb_559 petitioner's sharing ratio is based upon his profits-sharing ratio percent of percent or percent we have considered all arguments by the parties and to the extent not discussed above find them to be irrelevant or without merit to reflect the foregoing decision will be entered under rule


t c summary opinion united_states tax_court million hussein petitioner v commissioner of internal revenue respondent docket no 21394-13s filed date million hussein pro_se michael s hensley for respondent summary opinion chiechi judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursu- hereinafter all section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure ant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency in petitioner’s federal_income_tax tax for his taxable_year of dollar_figure we must decide whether the dollar_figure that petitioner concedes he received during from the health human services agency of the county of san diego california is includible as nonemployee compensation in his gross_income for his taxable_year we hold that it is background some of the facts have been stipulated and are so found petitioner resided in california at the time he filed the petition during petitioner million hussein mr hussein was employed by sdh services west llc sdh services to perform housekeeping services in hospitals and by the san diego unified school district to serve food to students at school there are other issues self-employment_tax issues for petitioner’s taxable_year namely whether petitioner is liable for and entitled to a deduction in part for increased self-employment_tax attributable to the dollar_figure that petitioner concedes he received and that respondent claims is nonemployee compensation_for that year resolution of the self-employment_tax issues is computational in that our resolving whether that dollar_figure is includible as nonemployee compensation in petitioner’s gross_income for his taxable_year will resolve those issues in mr hussein submitted an application to the health human services agency of the county of san diego california san diego health human services for a family child care home license which that agency ap- proved during mr hussein worked as a caretaker for certain children his caretaking responsibilities for those children included transporting the children to and from school and entertaining them after school during the summer of mr hussein received a check for dollar_figure from san diego health human services for his caretaking activities sdh services issued to mr hussein form_w-2 wage and tax statement form_w-2 for his taxable_year that showed dollar_figure of wage income the san diego unified school district issued to mr hussein form_w-2 for his taxable_year that showed dollar_figure of wage income we shall refer collectively to the respective amounts of wage income shown in the respective forms w-2 that sdh services and the san diego unified school district issued to mr hussein for his taxable_year as form_w-2 wages mr hussein filed form_1040 u s individual_income_tax_return for his taxable_year return in that return mr hussein reported the form_w-2 wages mr hussein did not report in hi sec_2011 return the dollar_figure that he received during for his caretaking activities from san diego health human services respondent issued a notice_of_deficiency notice to mr hussein for his taxable_year in that notice respondent determined inter alia that mr hussein had failed to include in his gross_income dollar_figure of nonemployee compen- sation he had received during his taxable_year discussion mr hussein bears the burden of establishing that the determinations in the notice are wrong see rule a 290_us_111 in paragraph of the stipulation of facts that mr hussein and respondent signed more than three months before the trial in this case they stipulated during the tax_year petitioner received dollar_figure of nonemployee com- pensation from the county of san diego health human services agency in connection with his caretaking activities shortly before the court’s trial session in san diego california commenced on date mr hussein signed a decision document that respondent had prepared reflecting inter alia that paragraph of the parties’ stipulation of facts several days thereafter but before that trial session had begun mr hussein informed respondent’s counsel that he wanted to have a trial we must decide whether the dollar_figure that petitioner concedes he received during from san diego health human services for certain caretaking activities is includible as nonemployee compensation in his gross_income for his taxable_year before turning to our consideration of that issue we note that we found the testimony of mr hussein the only witness at trial to be in certain material respects vague confusing and or difficult to comprehend at trial respondent’s counsel gave petitioner a copy of the stipulation of facts that the parties had signed and that we had made part of the record at the beginning of trial respondent’s counsel directed petitioner to paragraph of that stipulation in which the parties had stipulated that d uring the tax_year petitioner received dollar_figure of nonemployee compensation from the county of san diego health human services agency in connection with his caretaking activities respondent’s counsel then asked mr hussein whether that stipulated paragraph was a true statement petitioner replied yes true statement i receive petitioner presented no evidence and made no argument at trial that leads us to conclude that justice requires that paragraph of the parties’ stipulation of facts be deemed stricken from that stipulation on the record before us we find that during petitioner received dollar_figure of nonemployee compensation from the county of san diego health human services agency in connection with his caretaking activities on that record we hold that petitioner is required to include that nonemployee compensation in his gross_income for his taxable_year to reflect the foregoing decision will be entered for respondent petitioner presented no evidence and made no argument at trial that he is entitled to deduct for his taxable_year certain expenses that he paid in carrying out his caretaking activities