t c summary opinion united_states tax_court thomas c pride sr petitioner v commissioner of internal revenue respondent docket no 13105-02s filed date thomas c pride pro_se edwina l jones for respondent dinan special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the taxable_year the issues for decision are whether petitioner is entitled to various itemized_deductions disallowed by respondent and whether petitioner received unreported interest_income some of the facts have been stipulated and are so found the stipulations of fact and the attached exhibits are incorporated herein by this reference petitioner resided in charlotte north carolina on the date the petition was filed in this case on petitioner’s federal_income_tax return for taxable_year petitioner reported adjusted_gross_income of dollar_figure and claimed total itemized_deductions of dollar_figure in the statutory_notice_of_deficiency respondent disallowed the following portions of the itemized_deductions claimed by petitioner on his return claimed disallowed mortgage interest dollar_figure dollar_figure charitable_contributions big_number employee business_expenses big_number big_number the employee_business_expense deduction claimed on the return is for expenses of dollar_figure reduced pursuant to the sec_67 limitation on miscellaneous_itemized_deductions respondent also determined that petitioner received unreported interest_income of dollar_figure a taxpayer generally must keep records sufficient to establish the amounts of the items reported on his federal_income_tax return sec_6001 sec_1_6001-1 e income_tax regs in the event that a taxpayer establishes that a deductible expense has been paid but is unable to substantiate the precise amount we generally may estimate the amount of the deductible expense bearing heavily against the taxpayer whose inexactitude in substantiating the amount of the expense is of his own making 39_f2d_540 2d cir we cannot estimate a deductible expense however unless the taxpayer presents evidence sufficient to provide some basis upon which an estimate may be made 85_tc_731 the first deduction in dispute is the deduction for mortgage interest mortgage interest generally is deductible under sec_163 subject_to the requirements of sec_163 petitioner argues that the dollar_figure disallowed by respondent represents interest he paid on a second mortgage petitioner however was unable to provide any substantiation for this second 1where petitioner has failed to provide the required substantiation as discussed in detail below the burden_of_proof does not shift to respondent pursuant to sec_7491 and instead remains on petitioner sec_7491 rule a mortgage or for the alleged payments made with respect thereto while we accept petitioner’s testimony that at some point in time he obtained a second mortgage on his residence petitioner’s uncorroborated testimony was insufficient to substantiate the existence of or payments on a second mortgage during we sustain respondent’s disallowance of the relevant portion of the mortgage interest_deduction sec_6001 sec_1_6001-1 e income_tax regs the second deduction in dispute is the deduction for charitable_contributions the dollar_figure portion of the deduction disallowed by respondent represents the portion of petitioner’s deduction that was claimed for noncash contributions subject_to various requirements and limitations charitable_contributions may be deducted under sec_170 in addition to the general substantiation requirements noted above deductions for charitable_contributions are allowed only if certain record- keeping requirements are met sec_170 sec_1_170a-13 income_tax regs with respect to noncash contributions taxpayers generally must obtain a receipt or other written record from the donee showing the name of the donee the date and location of the contribution and a description of the property contributed sec_1_170a-13 income_tax regs if obtaining a receipt is impractical the taxpayer must nonetheless keep reliable written records with respect to each item of donated property that include the information listed above id petitioner argues that he donated clothes and various household_items to goodwill the salvation army and the boys’ club however petitioner provided no written records concerning any donations and has provided this court with no method by which to ascertain with a reasonable degree of certainty what he contributed during we sustain respondent’s disallowance of the relevant portion of the charitable_contribution_deduction sec_170 sec_1_170a-13 income_tax regs see also sec_6001 sec_1_6001-1 e income_tax regs the final deduction in dispute is the deduction for employee business_expenses unreimbursed employee business_expenses generally may be deductible under sec_162 however the deduction is a miscellaneous itemized_deduction sec_67 a taxpayer’s miscellaneous_itemized_deductions are allowed only to the extent by which they exceed percent of the taxpayer’s adjusted_gross_income sec_67 petitioner argues that he incurred expenses for clothing which he was required to wear to his job subscriptions to various magazines union dues and attendance at work-related seminars he estimated that the magazine subscriptions were less than dollar_figure and that the union dues were roughly between dollar_figure and dollar_figure per year the clothing which petitioner was required to wear to work consisted of suits and other general business attire which petitioner typically wore only to work the clothing expenses_incurred by petitioner were for clothes of a type which can be worn outside of work a deduction may not be claimed for such expenses because they are nondeductible personal expenses rather than business_expenses even if the clothing was in fact used exclusively for work sec_262 85_tc_462 the general_rule concerning the deductibility of work_clothes under sec_162 is that they must be of a type specifically required as a condition_of_employment and not adaptable to general usage as ordinary clothing affd without published opinion 807_f2d_177 9th cir petitioner has failed to substantiate the bulk of the employee business_expenses for which he claimed a deduction although petitioner provided an estimate for two of the remaining items these items total only dollar_figure to dollar_figure and do not meet the 2-percent floor imposed by sec_67 we therefore sustain respondent’s disallowance of the employee_business_expense deduction sec_67 sec_6001 sec_1_6001-1 e income_tax regs the second issue for decision is whether petitioner received unreported interest_income respondent determined that petitioner received interest_income of dollar_figure from the internal_revenue_service during petitioner argues that he never received the check which allegedly contained this amount of interest we need not reach this issue because we have sustained respondent’s determination concerning the disallowed deductions petitioner’s taxable_income for is dollar_figure exclusive of the interest_income thus whether or not petitioner received dollar_figure in unreported income does not change petitioner’s tax_liability under the tax_tables promulgated by the secretary pursuant to sec_3 which impose the same amount of federal_income_tax liability on taxable incomes which are at least dollar_figure but less than dollar_figure reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------------------- ------------------------ -------------------------------- ---------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------------------- id no ------------- ----------------- telephone number ---------------------- refer reply to cc psi plr-115103-16 date november legend company state date date date date date date a b_trust trust trust period -------------------------------------------------------------------------------------------- ---------------------------------- -------------- --------------------- --------------------- ------------------ --------------------- ---------------------- -------------------- ------------------------ -------------------------------------------------------------------------------------------- ---------------------------------- -------------------------- -------------------------------------------------------------------------------------------- ------------------------ -------------------------------------------------------------------------------------------- ----------------------------------- --------------------------------------------------- dear --------------- this letter responds to a letter received by our office dated date submitted on behalf of company by its authorized representatives requesting rulings related to its s elections under sec_1362 of the internal_revenue_code facts plr-115103-16 company represents that it was incorporated on date under the laws of state and elected to be treated as an s_corporation effective date on date a and b owned all of the outstanding shares of company on date a and b transferred shares of company stock to trust a revocable_trust treated as a wholly-owned grantor_trust under sec_671 and sec_676 on date a died and trust ceased to be a grantor_trust with respect to a’s interests but continued to qualify as an eligible s_corporation shareholder under sec_1361 for the two year period beginning on the date of a’s death following a’s death trust continued to be a grantor_trust with respect to b’s interest effective date a’s shares of company stock were transferred to trust and trust company represents that trust and trust intended to be qualified subchapter_s trusts qssts described in sec_1361 as of date and thereafter however b the income_beneficiary failed to make qsst elections within the meaning of sec_1361 thereby causing company’s s_corporation_election to terminate on date company represents that the trustee of trust and trust failed to distribute currently all of its income to b on date trust distributed all of its undistributed_income to b company represents the trustee of trust plans to take remedial steps to distribute all undistributed_income to b had company's s_corporation_election not terminated on date the failure of the trust to distribute all of its income currently to the income beneficiaries would have terminated company's s_corporation_election further company learned that the distributions it made for period were not consistent with its governing instruments and could be construed as creating a second class of stock and thus could potentially have terminated its s_corporation_election effective beginning period company represents that each share of company stock has identical rights to liquidation proceeds and distributions under its governing documents and no provisions exist in its articles of incorporation by-laws or other agreement that varies these rights neither company nor its shareholders knew that disproportionate distributions could potentially terminate company’s s_corporation_election company represents that it has taken remedial steps to make corrective distributions to its shareholders to eliminate the cumulative amount of the disproportionate distributions made from company to its shareholders company further represents that the disproportionate distributions were inadvertent and company always intended to be an s_corporation company and its shareholders represent that at all times they intended company be an s_corporation company represents that company and its shareholders have plr-115103-16 filed their federal_income_tax returns consistent with having a valid s_corporation_election in effect for company company and its shareholders have agreed to make such adjustments consistent with the treatment of company as an s_corporation as may be required by the secretary law sec_1361 provides that the term s_corporation means with respect to any_tax year a small_business_corporation for which an election under sec_1362 is in effect for that year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such an election as timely made for the taxable_year and sec_1362 shall not apply sec_1361 provides that a qsst whose beneficiary makes an election under sec_1362 will be treated as a_trust described in sec_1361 and the qsst's beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst's s_corporation stock to which the election under sec_1362 applies under sec_1361 a beneficiary of a qsst may elect to have sec_1361 apply under sec_1361 this election will be effective up to days and two months before the date of the election sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one 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 beneficiary in the trust shall terminate on the earlier of the 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 that beneficiary and b all of the income with the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states plr-115103-16 sec_1_1361-1 provides that for purposes of sec_1361 and sec_1361 a substantially separate and independent share of a_trust within the meaning of sec_663 and the regulations thereunder is treated as a separate trust for a separate share which holds s_corporation stock to qualify as a qsst the terms of the trust applicable to that separate share must meet the qsst requirements stated in sec_1_1361-1 and ii sec_1_1361-1 provides that the current income_beneficiary of the trust must make the election under sec_1361 by signing and filing with the service_center where the corporation files its income_tax return the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides in part that a small_business_corporation may elect to be an s_corporation sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides in part that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 the secretary determines that the circumstances resulting in such ineffectiveness were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness steps were taken so that the corporation for which the election was made is a small_business_corporation and the corporation for which the election was made and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1361-1 of the income_tax regulations provides that a corporation that has more than one class of stock does not qualify as a small_business_corporation except as provided in sec_1_1361-1 relating to instruments obligations or arrangements treated as a second class of stock a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds differences in voting rights among shares of stock of a corporation are disregarded in determining whether a corporation has more than one class of stock thus if all shares of stock of an s_corporation have identical rights to distribution and liquidation proceeds the corporation may have voting and nonvoting common_stock a class of stock that may vote only on certain issues irrevocable proxy agreements or groups of shares that differ with respect to rights to elect members of the board_of directors plr-115103-16 sec_1_1361-1 provides that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds although a corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights any distributions including actual constructive or deemed distributions that differ in timing or amount are to be given appropriate tax effect in accordance with the facts and circumstances sec_1_1361-1 provides that except as provided in sec_1 b and relating to restricted_stock deferred_compensation plans and straight_debt in determining whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds all outstanding shares of stock of a corporation are taken into account conclusion based solely on the facts submitted and representations made we conclude that company's s_corporation_election terminated beginning on date when the stock in company was transferred to trust and trust because b failed to timely file the required qsst elections under sec_1361 had company’s s_corporation_election not already terminated we conclude that the failure of trust and trust to distribute all of its income as required by sec_1361 would have caused company’s s_corporation_election to terminate we further conclude that these terminating events were inadvertent within the meaning of sec_1362 this relief is contingent upon the income beneficiaries of trust and trust filing a qsst election for trust and trust effective date within days from the date of this letter a copy of this letter should be attached to the election in addition trust must within days of the date of this letter distribute to b all income required to be distributed under sec_1361 not previously distributed had company’s s_corporation_election not already terminated we further conclude that if distributions made by company to its shareholders that failed to comply with its operating documents caused company’s s_corporation_election to terminate the termination was inadvertent within the meaning of sec_1362 therefore company will be treated as an s_corporation effective the beginning of period and thereafter provided company’s s_corporation_election is not otherwise terminated under sec_1362 the shareholders of company must include their pro_rata shares of the separately_stated and nonseparately computed items of income or loss of company as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account plr-115103-16 any distributions made by company as provided in sec_1368 the failure to take the action described above shall cause this ruling to be null and void except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion regarding whether company is otherwise eligible to be an s_corporation or whether trust or trust meet the requirements of a qsst this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to company's authorized representatives sincerely faith p colson faith p colson senior counsel branch passthroughs special industries enclosures copy of letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to plr-112401-99 cc dom p si date date legend company state d1 d2 a b c dear this letter responds to your letter dated date on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted company a c_corporation established under the laws of state filed an election on d2 to be treated as an s_corporation effective d1 the first day of its fiscal_year its shareholders are a b and c however as of d1 company was ineligible to be an s_corporation due to a failure to timely file with state certain amendments to its articles of incorporation that were required to eliminate company's second class of stock company filed those amendments with plr-112401-99 state on d2 and currently has only one class of stock company and its shareholders agree to make any adjustments consistent with the treatment of company as an s_corporation that may be required law and analysis sec_1361 provides that the term s_corporation means a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have more than one class of stock sec_1362 provides that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 the secretary determines that the circumstances resulting in such ineffectiveness were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness such corporation shall be treated as an s_corporation during the period specified by the secretary we conclude that company's s_corporation_election was ineffective on d1 because company had a second class of stock and therefore was not a small_business_corporation under sec_1361 on d1 furthermore we rule that the ineffectiveness was inadvertent under sec_1362 under sec_1362 company will be treated as if it were an s_corporation from d1 and thereafter provided that its s election was otherwise valid and company has not terminated under sec_1362 during the period of ineffectiveness for the purposes of this ruling company will be treated as if its amended articles of incorporation filed on d2 were effective on d1 accordingly all of the shareholders of company in determining their respective income_tax liabilities during the period of ineffectiveness and thereafter must include the pro_rata share of the separately and nonseparately computed items of company as provided in sec_1367 and take into account any distributions made by company as provided by sec_1368 if company or any of company's shareholders fail to treat company as described above this ruling shall be null and void except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express no opinion whether company is plr-112401-99 otherwise qualified to be an s_corporation under a power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer this ruling is directed only to the taxpayer requesting it under sec_6110 it may not be used or cited as precedent sincerely yours jeff erickson assistant to the 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 alan e and harriet r lewis petitioners v commissioner of internal revenue respondent docket no filed date david r andelman and edward f fay for petitioners charles w maurer jr for respondent supplemental memorandum opinion wright judge this matter is before the court on respondent's motion for leave to file amendment to answer and petitioner's counter motion for summary_judgment both parties filed their respective motions after the court_of_appeals for the first circuit reversed our opinion filed at tcmemo_1992_391 and remanded the case to us for further proceedings in accordance this opinion supplements our opinion in lewis v commissioner tcmemo_1992_391 with that court's opinion 18_f3d_20 1st cir respondent seeks to amend her answer so as to raise for the first time before this court the affirmative defense of quasi-estoppel also known as the duty_of_consistency petitioners seek judgment as a matter of law on grounds that respondent has untimely raised such affirmative defense for the reasons set forth herein we grant respondent's motion and deny petitioners' motion background our initial opinion in this case filed at tcmemo_1992_ dealt with alan e lewis’ petitioner involvement in a series of complicated loan transactions throughout a 10-year period ending in these loan transactions involved domestic and foreign_corporations partnerships and trusts in which petitioner maintained ownership interests the series of loan transactions culminated in when a foreign_corporation controlled by petitioner indirectly transferred dollar_figure to a_trust also controlled by petitioner petitioners did not report the dollar_figure transfer on their federal_income_tax return for taxable_year petitioners did however report interest_income from the trust respondent determined that the trust at issue was a grantor_trust and the dollar_figure was income to such trust a deficiency noticed followed petitioners advanced three alternative arguments in their attack upon respondent's determination we analyzed petitioners' arguments and concluded with respect to each that they had failed to carry their burden_of_proof we held that the corporation which transferred the dollar_figure to the subject trust in had sufficient earnings_and_profits at the time of the transfer and that such transfer constituted a dividend distribution on appeal to the court_of_appeals for the first circuit petitioners argued that this court erroneously concluded that the controlled_foreign_corporation had sufficient earnings_and_profits in to support a finding that the dollar_figure was a dividend distribution the court_of_appeals agreed explaining that the record lacks adequate support for our conclusion the court_of_appeals however refused to hold that the dollar_figure at issue was properly excluded from petitioners' tax_return in remanding this matter to us for further proceedings the court_of_appeals explained that the doctrine_of quasi-estoppel or duty_of_consistency might operate to enable respondent to recoup taxes on the dollar_figure transfer accordingly the court_of_appeals instructed us to entertain the theory of quasi-estoppel 1in its opinion the court_of_appeals for the first circuit stated the duty_of_consistency seems to apply when the earlier taxpayer position amounts to a misstatement of fact not of law see eg 854_f2d_755 5th cir cert_denied 490_us_1065 beltzer f 2d pincite mayfair minerals inc v commissioner continued subsequent to the remand of the instant case both parties filed separate motions petitioners' motion seeks summary_judgment petitioners contend that we may not properly consider the issue of quasi-estoppel because quasi-estoppel is an continued f 2d 5th cir 229_f2d_376 6th cir 169_f2d_483 1st cir simple failure to report income is not a representation that such income has in fact not been received and does not without more furnish grounds for estoppel mertens supra sec dollar_figure where there is a mistake of law and no factual misrepresentations the doctrine_of consistency does not apply moreover the misstatement must be one on which the government reasonably relied in the sense that it neither knew nor ought to have known the true nature of the transaction mischaracterized by the taxpayer see herrington f 2d pincite mayfair minerals f 2d pincite ross f 2d pincite in this case it seems possible that petitioner made representations of key facts regarding the genuine business activities of the foreign controlled_corporation throughout the 1970's and the genuine intent on his and his partner’s part to repay the foreign controlled_corporation loans if such representations of fact were made then holding petitioner to them now might generate a tax_liability we stress however that we are uncertain about this matter since it has not been argued here and since factual history is at issue both the lewises and the commissioner should have a full opportunity to argue the issue before the tax_court we therefore vacate the tax court's judgment insofar as it is inconsistent with this opinion and we remand the case to the tax_court for further proceedings 18_f3d_20 1st cir vacating in part and remanding tcmemo_1992_391 affirmative defense which pursuant to rule is required to be specifically pleaded respondent's motion on the other hand seeks to permit the amendment of her answer in the instant case so as to include the affirmative defense of quasi-estoppel discussion before we address the substance of each motion it is important that we set out the current status of this case in our initial opinion we addressed each of petitioners’ three arguments and held for respondent on all three we cited petitioners’ failure to carry their burden_of_proof as the principal reason for such holdings the court_of_appeals rejected the analysis of our initial opinion but has instructed us to consider whether the doctrine_of quasi-estoppel operates to effect the same result to comply with the court’s mandate we will grant respondent’s motion to amend the pleadings our rules_of_practice and procedure in many respects parallel the federal rules of civil procedure rule a permits amendments to pleadings and provides that a party may amend a pleading once as a matter of course at any time before a responsive pleading is served otherwise a party may amend his pleading only by leave of court or by written consent of the adverse_party rule a further provides that leave to amend shall be given freely when justice so requires 2unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure this court has looked to cases decided under rule a of the federal rules of civil procedure for guidance on the interpretation of rule a 89_tc_1081 like rule a rule a of the federal rules of civil procedure mandates that leave to amend shall be given freely when justice so requires the decision of whether a motion to amend the pleadings should be granted is within the sound discretion of the court 401_us_321 371_us_178 the exercise of our discretion however must be controlled by sound reason and fairness 84_tc_985 petitioners maintain that rule requires a party to include in his or her pleadings any matter consisting of an avoidance or affirmative defense the underlying rationale for this rule is to provide the opposing party ample opportunity to address the related issues there is no doubt that estoppel and its various counterparts such as quasi-estoppel and equitable_estoppel are affirmative defenses within the meaning of rule petitioners however fail to properly consider rule or the appellate mandate in this case in appropriate circumstances we may permit the movant to amend the pleadings so as to include a previously omitted affirmative defense see flint v commissioner tcmemo_1991_405 lilley v commissioner tcmemo_1989_602 affd without published opinion 925_f2d_417 3d cir in fact in 103_tc_525 ndollar_figure we granted respondent's post-trial motion for leave to amend her answer so as to include the affirmative defense of quasi-estoppel under the circumstances of this case and in light of the instruction from the court_of_appeals we do not believe that petitioners will be unfairly prejudiced by the proposed amendment of the pleadings accordingly we grant respondent’s motion as we have granted respondent’s motion to amend her answer it is necessary that we deny petitioners’ motion for summary_judgment summary_judgment is intended to expedite litigation and avoid unnecessary costs 90_tc_678 summary_judgment is inappropriate if there remains an unresolved genuine issue as to a material fact rule b 90_tc_753 considering our ruling granting respondent’s motion for leave to amend a genuine issue remains unresolved hence summary_judgment is improper accordingly petitioners’ motion is denied to reflect the foregoing an appropriate order will be issued granting respondent’s motion and denying petitioners’ motion


internal_revenue_service department of the treasu washington dc soar o t i uniform issue list no contact person telefitbne niambe ' t ep ra t2 in reference to date may or attn legend employer a plan x state b employer c division d employer e dear - a this-is in response to a request for a private letter _ ‘ and and supplemented by correspondence ruling dated dated representative submitted on your behalf the federal tax consequences of you upon termination of your defined benefit pension_plan letter dated ruling_request relating to excise_tax imposed under sec_4980 of the code you withdrew the portion of your a proposed reversion of assets to which your authorized your request concerns ina in support of your ruling_request your authorized representative has presented the following facts employer a sponsors plan x as employer a -was formed in the laws of state b operating_foundation under sec_509 and sec_4942 employer a is classified as a private a defined benefit pension_plan a nonprofit corporation under of the page internal_revenue_code the code and is also classified as an exempt_operating_foundation under sec_4940 of the code employer a has been exempt from federal income_taxation under what is now sec_501 federal_income_tax laws of the code since the enactment of employer a operates various academic science conferences aids in the publishing of scientific studies and papers and makes research grants to university and college faculty members as well as funding high school science teacher programs in employer a established a retirement annuity plan in under which it purchased retirement annuity_contracts for its employees employer a established plan xx which has been amended and restated several times requirements for qualification under sec_40l a of the code employer a has not and could not have deducted any contributions to or derived any_tax benefit from plan x because employer a was tax exempt and incurred no unrelated_business_taxable_income after plan x meets the in the fiscal years ending in and employer a separate taxable subsidiary employer a has not received or generated any a reported unrelated_business_taxable_income and paid unrelated_business_income_tax with respect to division d d was transferred to employer c since unrelated_business_taxable_income and employer a no longer owns any interest in employer c financed income under sec_514 of the code in taxed as unrelated_trade_or_business unrelated_debt-financed_income was not affected by plan x because of the overfunded status of plan x required or permitted under the minimum_funding_rules and the full_funding_limit it were an item_of_gross_income derived from an the amount of the tax on this employer a did incur unrelated debt- no contributions were in division which is if plan x has not received any transfer of assets or liabilities from employer a's previous retirement annuity plan and contracts however plan x did provide for an offset of the new benefit amount by an amount projected to be paid under those annuity_contracts in employer e a non-profit corporation was established and spun off from employer a is not under common_control with employer a full corporate taxes employer e pays as part of the spin off of employer employer e was not and of30 page assets and liabilities of plan x were transferred to a pension_plan established by employer e beginning in employer a has annually made asset transfers under sec_420 of the code to a sec_401 h account to fund retiree health benefits the projected assets of plan x exceed the projected employer a proposes liabilities of plan x and actuarial projections indicate that the excess will continue to grow indefinitely to terminate plan x and use a portion of the assets in excess of the liabilities for employer a's tax-exempt charitable purposes employer a also intends to transfer a portion of the excess_assets to a replacement plan to maintain the current retirement formula for its employees the replacement plan would provide a benefit at that outset equal to the amount employees would have received had plan x continued to cover employees under the current benefit formula minus the amounts actually payable from annuity_contracts purchased for participants upon plan x's termination based on the above facts you request a ruling that the reversion of assets from the terminating plan x to employer a not subject_to unrelated business or other income_tax is sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable educational scientific or other specified exempt purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual and which does not engage in proscribed legislative or political activities sec_511 of the code provides for a tax on the unrelated_business_taxable_income of organizations described in code sec_401 and sec_501 which are exempt from federal income_taxation by reason of sec_501 of the code sec_512 provides in general that the term unrelated_business_taxable_income means the gross_income derived by any organization from any unrelated_trade_or_business as defined in sec_513 regularly carried on by the organization less certain deductions and subject_to modifications provided in subsection b sec_513 provides in relevant part that the term unrelated_trade_or_business means in the case of any o2 rage organization subject_to the tax imposed by sec_511 any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 sec_1_513-1 of the income_tax regulations provides for purposes of sec_513 the term trade_or_business that has the same meaning it has in sec_162 includes any activity carried on for the production_of_income from the sale_of_goods or performance of services and generally sec_1_513-1 of the regulations provides that in determining whether a trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued sec_1_513-1 of the regulations provides that gross_income derives from unrelated_trade_or_business within the meaning of sec_513 if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purpose for which exemption is granted d of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes other than through the production_of_income and it related for purposes of sec_513 of the code only if the causal relationship is a substantial one is substantially plan x was established by employer a to provide pension benefits for its employees administrative function that is part of employer a's overall operations termination of plan x are a one-time source_of_income based on the investment history of the plan that resulted in overfunding the funds that will revert to employer a upon the operation of plan x is an further plan x is not established or maintained by employer a for the production_of_income from the sale_of_goods or the performance of services within the meaning of sec_513 nor does the activity possess the characteristics required to af page accordingly we conclude that the asset reversion to constitute a trade_or_business within the meaning of sec_162 employer a following the termination of plan xx will not constitute unrelated_business_taxable_income under sec_512 a this ruling is based on the assumption the plan x is qualified under sec_401 of the code and its related trust is exempt under sec_501 of the code this ruling is directed only to the taxpayer that requested sec_6110 provides that it may not be used or cited it by others as precedent in accordance with a power_of_attorney on file in this office a copy of this ruling is being sent to your authorized representative sincerely yours aigned soycb b floyd joyce e floyd manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of letter notice of intention to disclose cc w w


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 b06 plr-131922-09 date november legend parent ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------- subsidiary ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- -------------------------------------- corp ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------- corp ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- -------------------------- date a -------------------- company official ------------------------------------------------------------------------------- --------------------------------------------------------------- plr-131922-09 dear ------------- this letter responds to letters dated date date date and date submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election parent is requesting an extension of time to file an election under sec_1 i of the income_tax regulations to apply the provisions described in sec_1 i ii ie sec_1_337_d_-2 to determine corp 2’s basis_adjustment in its subsidiary stock in connection with subsidiary’s deconsolidation from the parent consolidated_group on date a the election the material information is summarized below parent is the common parent of a consolidated_group corp and corp are members of parent’s consolidated_group immediately prior to date a corp and corp owned all the stock of subsidiary subsidiary was a member of parent’s consolidated_group until date a on which date subsidiary issued shares of its stock to the public in an ipo deconsolidating subsidiary an election under sec_1 i to determine the amount of the basis_reduction upon the deconsolidation of subsidiary was required to be filed with or as part of parent’s consolidated group’s income_tax return for the taxable_year that included date however for various reasons the election was not filed subsequently it was discovered that a valid election was not filed accordingly this request was submitted under sec_301_9100-3 for an extension of time to file a valid election sec_1 i provides in relevant part that in the case of a disposition or deconsolidation of stock of a subsidiary by a member before date a consolidated_group may determine the amount of the member’s allowable loss or basis_reduction by making an irrevocable election to determine which of the authorized provisions it uses in determining its loss disallowance and basis_reduction the regulations permit the taxpayer to apply the provisions of sec_1_337_d_-2 sec_1 i provides in relevant part that the election in sec_1 i ii must be made by including the statement required under sec_1 i with or as part of any timely filed including any extensions original return for a taxable_year that includes any date on or before date or with or as part of an amended_return filed before the date the original return for the taxable_year that includes date is due including any extensions filing a statement under sec_1 i satisfies the requirement to file a statement of allowed loss otherwise imposed under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than plr-131922-09 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 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections 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 sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 i therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent and company official explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file the election with respect to the deconsolidation of subsidiary from parent’s consolidated_group as described above the above extension of time is conditioned on parent’s consolidated group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely filed taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election plr-131922-09 late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayer however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 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 this letter_ruling pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives sincerely _______________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index number ----------------------------- ---------------------------------------------- -------------------------------------- ------------------- -------------------------- - department of the treasury washington dc person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b04 - plr-121099-03 date date legend decedent ------------------------- trust ----------------------------------------------------------------- ---------------------------------- daughter ----------------------------------------- daughter ------------------------------------------------- daughter ---------------------------------------------- daughter -------------------------------------------- son ------------------------------------------ grandchild --------------------------------------------------- grandchild --------------------------------------------- grandchild ----------------------------------------------------- grandchild ------------------------------------------------ grandchild -------------------------------------------------- grandchild ---------------------------------------------- grandchild -------------------------------------------------- grandchild --------------------------------------------- grandchild ------------------------------------------- grandchild ------------------------------------------ grandchild -------------------------------------------------- grandchild --------------------------------------------- grandchild ------------------------------------------------- grandchild ------------------------------------------------- grandchild --------------------------------------------- great-grandchild ------------------------------------- great-grandchild ------------------------------------------------ great-grandchild ------------------------------------------ great-grandchild ------------------------------------------------------- great-grandchild ------------------------------------------ great-grandchild ------------------------------------------ great-grandchild ------------------------------------------------------------- great-grandchild ----------------------------------------------------- great-grandchild --------------------------------------------- great-grandchild ------------------------------------------------------ great-grandchild ------------------------------------------------- great-grandchild --------------------------------------------------- great-grandchild ----------------------------------------------- great-grandchild --------------------------------------------------- great-grandchild ------------------------------------------------- great-grandchild ---------------------------------------------------- great-grandchild --------------------------------------------- great-grandchild ------------------------------------------------- date ------------------ date ------------------- date ----------------------- date ------------------- date ----------------- date -------------------- date -------------------------- date ------------------- year ------- company --------------- company ------------------------- company ------------------------------------------ state --------- statute ------------------------------------------------------ court ----------------------------------------------------------------------------- amount ------------- a -- b --- c --- dear -------------- this responds to your letter dated date and prior correspondence requesting rulings regarding the federal income gift and generation-skipping_transfer gst tax consequences of a proposed judicial modification of a_trust at the time of this ruling_request decedent has a children b grandchildren the facts submitted and representations made are as follows decedent created facts a revocable_trust trust on date for the benefit of his children and grandchildren trust was amended on date and amended and restated on date decedent died on date and pursuant to article v of the trust instrument trust became irrevocable on that date grandchild through grandchild b and c great-grandchildren great-grandchild through great-grandchild c under sec_2 of article iii of trust at decedent s death dollar_figure was set_aside in a agrandchildren s trust share and subdivided into equal shares for each of grantor s grandchildren with the exception of grandchild who was specifically excluded the net_income from each grandchild s share is required to be distributed at least annually to the grandchild for whom it was set_aside there is no provision made for distribution of principal of a grandchild’s share in addition in the event a grandchild dies before the termination of trust the income of the deceased grandchild’s share would accumulate because no provision is made for such a contingency upon trust’s termination a grandchild’s share will be distributed to the grandchild for whom it was set_aside or if he or she is not then living to the lineal_descendants of such deceased grandchild or if none such share will lapse and equally increase the remaining shares in the grandchildren’s trust share the remainder of trust’s assets were divided into five equal shares for each of the grantor s children daughter daughter daughter daughter and son the net_income from a child s share is required to be distributed at least annually to the child for whom it was set_aside there is no provision in the trust instrument for distribution of the principal of a child’s share in trust if a child dies before the termination of trust the net_income of his or her share would be distributed to those persons appointed by such child in his or her last will and testament in the event a child dies before the termination of trust and fails to appoint a person to receive the income from his or her share the income of the deceased child’s share would accumulate because no provision is made for that contingency upon termination the remaining principal and undistributed_income of a child’s share will be distributed to those persons appointed by such child in his or her last will and testament or in default thereof to the then living lineal_descendants of such deceased child per stirpes or if none to the then living lineal_descendants of decedent per stirpes of all of the decedent’s children or the expiration of twenty years from the date of decedent’s death pursuant to sec_4 of article iii trust will terminate on the latter of the death on schedule r of decedent’s form_706 united_states estate and generation- son is the trustee of trust as of date trust primarily consisted of amount starting in year decedent’s four daughters brought suit against the trustee for skipping transfer_tax return the executor allocated decedent’s dollar_figure million gst_exemption to trust which had assets of dollar_figure million set_aside under trust’s instrument you represent that there have been no additions to trust since decedent’s death shares of class b voting common_stock of company along with certain other assets breach of fiduciary duty as the sole trustee of trust since that time the parties have engaged in extensive litigation lengthy mediation and proposed settlement agreements the parties entered into a settlement agreement on date concurrent with this litigation additional disputes arose and separate litigation occurred with respect to daughter son individually and as trustee of trust company company and company a separate settlement agreement was reached to resolve those matters on date these settlement agreements along with a petition for reformation of trust in order to comply with the terms of those agreements was submitted to court for approval become illegal or impossible to fulfill or if because of circumstances not known to or anticipated by the settlor compliance with the terms of the trust would defeat or substantially impair the accomplishment of a material purpose of the trust or if a material purpose of the trust no longer exists upon the application of a trustee of the trust or any beneficiary a court at any time may modify the terms of a_trust which is not then revocable to a amend or change the terms of the trust including terms governing distribution of the trust income or principal or terms governing administration of the trust b terminate the trust in whole or in part c direct or permit the trustee to do acts that are not authorized or that are prohibited by the terms of the trust or d prohibit the trustee from performing acts that are permitted or required by the terms of the trust the taxpayer representatives assert in its petition for reformation of trust and appointment of trustees that court has the authority to modify the terms of trust pursuant to statute court order being entered state statute provides that if the purposes of a_trust have been fulfilled or have on date court approved the following modifications to trust subject_to a trust will be modified to provide that the separate and independent share in trust of each child and grandchild shall be held as a separate trust and that except with respect to a grandchild under twenty-five years of age each child and grandchild shall serve as trustee of his or her respective trust if a grandchild is under twenty-five such grandchild’s parent who is a lineal descendant of decedent shall serve as trustee until such grandchild attains the age of twenty-five each child and grandchild shall have the right to appoint an individual or bank or trust company to serve as a co-trustee of his or her separate trust and each child and grandchild shall have the right to name a successor trustee of his or her trust trust will be modified to provide that in the event a grandchild dies before termination of trust the income from that deceased grandchild’s separate trust shall be distributed until termination of trust to his or her lineal_descendants per stirpes or in default thereof to his or her then living siblings and the living lineal_descendants of his or her deceased siblings per stirpes or in default thereof the separate trust shall terminate and its assets shall be added to the other grandchildren’s separate trusts trust will be modified to provide that in the event a grandchild dies before termination of trust and leaves no living lineal_descendants his or her separate trust shall be distributed upon the termination of trust to such deceased grandchild’s then living siblings and the then living lineal_descendants of his or her deceased siblings per stirpes trust will provide that if a child is not living at the time of distribution of income from such child’s separate share and the child has not exercised his or her general_power_of_appointment then the income shall be distributed to his or her then living lineal_descendants per stirpes or in default there to the then living lineal_descendants of the decedent per stirpes rulings requested that son in his capacity as trustee of trust a child or a grandchild will not be treated for federal_income_tax purposes as the grantor of such child’s or grandchild’s separate trust created as a result of the judicial reformation of trust because the trustee and such child or grandchild consented to that action which will convert such child’s or grandchild’s separate and independent share in trust into a separate trust the judicial reformation of trust will not cause trust the separate shares of the children and grandchildren in trust or the children and grandchildren to realize gain_or_loss for federal_income_tax purposes that neither son in his capacity as trustee nor a child will be treated as having made a gift_for federal gift_tax purposes due to the judicial reformation of trust or the son’s consent in his capacity as trustee or a child’s consent thereto that a grandchild will not be treated as having made a gift_for federal gift_tax purposes to his or her lineal_descendants his or her siblings or the lineal_descendants of his or her deceased siblings because they could receive the income from such grandchild’s separate trust in the event that such grandchild dies before the termination of trust that a grandchild will not be treated as having made a gift_for federal gift_tax purposes to his or her siblings or the lineal_descendants of his or her deceased siblings because they could receive the remaining principal and undistributed_income of such grandchild’s separate trust upon the termination of trust in the event such grandchild dies before the termination of trust and leaves no living lineal_descendants that the judicial reformation of trust and subsequent termination of trust will not result in a gift_for federal gift_tax purposes occurring among the grandchildren because a grandchild’s contingent_remainder interest which would vest if another grandchild dies before the termination of trust leaving no living lineal_descendants becomes less likely to vest that the judicial reformation of trust and subsequent termination of trust will not result in a gift_for federal gift_tax purposes occurring between the great-grandchildren and the grandchildren and children because a great- grandchild’s contingent_remainder interest which would vest if a grandchild dies before the termination of trust becomes less likely to vest that a grandchild’s separate trust will have an inclusion_ratio of zero under sec_2642 of the internal_revenue_code provided that the grandchildren’s separate trust share has an inclusion_ratio of zero immediately before each share set_aside for a grandchild converts to a separate trust for such grandchild ruling_request no - grantor_trust sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_673 through specify the circumstances under which the grantor or a person other than the grantor is treated as the owner of a portion of a_trust based solely on the facts and representations submitted we conclude that the sec_1_671-2 provides that a gratuitous transfer is any transfer other sec_678 provides in general that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of to inclusive subject a grantor of a_trust to treatment as the owner thereof sec_1_671-2 of the income_tax regulations provides that for purposes of subchapter_j a grantor includes any person to the extent such person either creates a_trust or directly or indirectly makes a gratuitous transfer of property to a_trust than a transfer of property for fair_market_value a transfer of property to a_trust may be considered a gratuitous transfer without regard to whether the transfer is treated as a gift_for gift_tax purposes proposed judicial reformation of trust will not cause any of the separate trusts to be treated as grantor trusts or cause son in his capacity as trustee or any of the children or grandchildren of the decedent to be treated as the grantors or owners of any of the separate trusts ruling_request no - gain_or_loss derived sec_61 provides that gross_income includes gains derived from dealings in property property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property sec_1001 provides that except as otherwise provided in subtitle a the entire amount of the gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained sec_61 provides that gross_income means all income from whatever source sec_1001 provides that the gain from the sale_or_other_disposition of sec_1_1001-1 provides that the gain_or_loss realized from the conversion of revrul_69_486 1969_2_cb_159 involved two beneficiaries of a_trust who by in 499_us_554 the supreme the present case is distinguishable from revrul_69_486 because the assets of mutual agreement requested that the trustee distribute all of the trust corpus consisting of notes to one of the beneficiaries and all of the trust corpus consisting of common_stock to the other beneficiary the trust instrument as well as local law was silent regarding whether the trustee had the authority to make such a non-pro rata distribution_of_property in_kind because the trustee was not specifically authorized to make an allocation of specific property in_kind the beneficiaries were treated as having an absolute right to a ratable in-kind distribution revrul_69_486 treated the beneficiaries as receiving the notes and common_stock pro_rata followed by an exchange between the beneficiaries giving all of the common_stock to one and all of the notes to the other since in substance an exchange between the beneficiaries was deemed to occur revrul_69_486 held that the beneficiaries recognized gain under sec_1001 and sec_1002 trust currently allocated to the separate shares will convert into subtrusts in addition the proposed reformation of the trust will only occur if the reformation is expressly permissible under applicable state law and approved by a state court court addressed whether a sale_or_exchange has taken place that results in a realization of gain_or_loss under sec_1001 the court stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different consequently the court held that an exchange of mortgages constituted a realization event under sec_1001 because the exchanged interests - loans that were made to different obligors and secured_by different homes - were legally distinct entitlements have the same property interests and legal entitlements as they had before the judicial reformation of trust dividing each separate share in trust into a subtrust and distributing the assets of the separate shares to subtrusts will not materially affect the children s and grandchildren s interests because although each beneficiary will be entitled to receive income from only one subtrust the amount of the distributions will be the same as the amount that he or she would have been entitled to receive under trust additionally allowing each child and grandchild to serve as trustee of their subtrust is merely a change in the way that the new trusts are administered the reformation of trust will not otherwise change the legal entitlements and property interests of any beneficiary because the amounts that will be paid to the beneficiaries will continue to be controlled by the terms of trust and the children and grandchildren will be required to continue to exercise the same standard of fiduciary responsibility as the trustee previously exercised with respect to trust consequently the modification relating to trustees is not a material difference for purposes of sec_1001 or cottage savings in the present case the issue is whether the children and grandchildren would whether an agreement settling a dispute is effective for gift_tax purposes sec_2501 imposes a tax on the transfer of property by gift by an individual thus the judicial reformation of trust will not be considered a sale exchange or other_disposition of property of trust and the children and grandchildren will not realize income under sec_61 or gain_or_loss under sec_1001 ruling requests no and - gift_tax sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir thus state law must be examined to ascertain the legitimacy of each party’s claim a settlement that fairly reflects the relative merits and economic values of the various claims asserted by the parties and reaches a settlement that is within a range of reasonable settlements will not result in a transfer for gift_tax purposes law in applying these standards we conclude that the terms of the agreements as approved by the court order are within a range of reasonable settlements further the beneficial interests of the beneficiaries are the same both before and after the proposed transaction and accordingly no transfer of property will be deemed to occur for federal gift_tax purposes as a result of the modifications to trust we have examined the settlement agreements in the context of trust and state therefore based on the facts and representations we conclude as follows that neither son in his capacity as trustee nor a child will be treated as having made a gift_for federal gift_tax purposes due to the judicial reformation of trust or the son’s consent in his capacity as trustee or a child’s consent thereto that a grandchild will not be treated as having made a gift_for federal gift_tax purposes to his or her lineal_descendants his or her siblings or the lineal_descendants of his or her deceased siblings because they could receive the income from such grandchild’s separate trust in the event that such grandchild dies before the termination of trust that a grandchild will not be treated as having made a gift_for federal gift_tax purposes to his or her siblings or the lineal_descendants of his or her deceased siblings because they could receive the remaining principal and undistributed_income of such grandchild’s separate trust upon the termination of trust in the event such grandchild dies before the termination of trust and leaves no living lineal_descendants that the judicial reformation of trust and subsequent termination of trust will not result in a gift_for federal gift_tax purposes occurring among the grandchildren because a grandchild’s contingent_remainder interest which would vest if another grandchild dies before the termination of trust leaving no living lineal_descendants becomes less likely to vest that the judicial reformation of trust and subsequent termination of trust will not result in a gift_for federal gift_tax purposes occurring between the great-grandchildren and the grandchildren and children because a great- grandchild’s contingent_remainder interest which would vest if a grandchild dies before the termination of trust becomes less likely to vest ruling_request no - gst tax sec_2601 imposes a tax on every generation-skipping_transfer under ' a of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under ' b a of the act and ' b i of the generation-skipping_transfer_tax regulations the tax does not apply to any generation-skipping_transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under ' b ii any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under ' or if the settlor had died on date under sec_2602 the amount of tax imposed under sec_2601 is determined by multiplying the taxable_amount by the applicable_rate the taxable_amount of a taxable_distribution is the amount received by the transferee sec_2621 of a taxable_termination is the amount of property with respect to which there was a taxable_termination sec_2622 and of a direct_skip is the amount received by the transferee sec_2623 under sec_2641 the term applicable_rate means the product of the maximum_federal_estate_tax_rate in the year that the generation-skipping_transfer occurs and the inclusion_ratio under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer i sec_1 minus the applicable_fraction under sec_2642 in general the numerator of the applicable_fraction is the gst_exemption amount allocated to the property transferred and the denominator is the value of the property transferred under sec_2631 every individual is allowed a gst_exemption amount which may be allocated by the individual or the individual’s executor to any property with respect to which the individual is the transferor sec_2654 provides that for purposes of chapter substantially separate and independent shares of different beneficiaries in a_trust are treated as separate trusts sec_26_2654-1 provides that if a single trust consists solely of substantially separate and independent shares for different beneficiaries the share attributable to each beneficiary or group of beneficiaries is treated as a separate trust for purposes of chapter the phrase substantially separate and independent shares generally has the same meaning as provided in sec_1_663_c_-3 however a portion of a_trust is not a separate share unless such share exists from and at all times after the creation of the trust for purposes of this paragraph a a_trust is treated as created at the date of death of the grantor if the trust is includible in its entirely in the grantor’s gross_estate for federal estate_tax purposes further treatment of a single trust as separate trusts under this paragraph does not permit treatment of those portions as separate trusts for purposes of filing returns and payment of tax or for purposes of computing any other tax imposed under the code also additions to and distributions from such trusts are allocated pro_rata among the separate trusts unless the governing instrument expressly provides otherwise sec_26_2654-1 example illustrates a situation where t transfers dollar_figure to a_trust under which income is to be paid in equal shares for years to t’s child c and t’s grandchild gc or their respective estates the trust does not permit distributions of principal during the term of the trust at the end of the 10-year term the trust principal is to be distributed to c and gc in equal shares the shares of c and gc in the trust are separate and independent and therefore are treated as separate trusts the result would not be the same if the trust permitted distributions of principal unless the distributions could only be made from a one-half separate share of the initial trust principal and the distributee’s future rights with respect to the trust are correspondingly reduced t may allocate part of t’s gst_exemption under sec_2632 to the share held for the benefit of gc sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to the provisions of chapter if the settlement is the product of arm’s length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties’ assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes sec_26_2601-1 provides that a judicial construction of a governing instrument to resolve an ambiguity in the terms of the instrument or to correct a scrivener s error will not cause an exempt trust to be subject_to the provisions of chapter if the judicial action involves a bona_fide issue and the construction is consistent with applicable state law that would be applied by the highest court of the state sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer sec_26_2601-1 example considers a situation where a_trust is modified by decreasing the number of trustees the modification pertains to the administration of the trust and does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation than the person or persons who held the beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the modification will not subject the trust to the provisions of chapter no guidance has been issued concerning changes that may affect the status of trusts that are exempt from gst tax because sufficient gst_exemption was allocated to the trust to result in an inclusion_ratio of zero at a minimum a change that would not affect the gst status of a grandfathered trust should similarly not affect the exempt status of such a_trust trust was included in decedent’s gross_estate for federal estate_tax purposes based on the facts represented sufficient gst_exemption was allocated to the grandchildren’s separate shares of trust on decedent’s death for such shares to have an inclusion_ratio of zero under sec_2642 you have represented that no additions have been made to trust since decedent’s death the proposed judicial modifications to trust have been approved by court in order to comply with certain terms of various settlement agreements relating to extensive litigation among the parties in addition the trustee modification pertains to certain administrative provisions finally the modifications to trust do not shift a beneficial_interest in trust to any beneficiary who plr-121099-03 occupies a lower generation than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in the original trust that a grandchild’s separate trust will have an inclusion_ratio of zero under sec_2642 provided that the grandchildren’s trust share has an inclusion_ratio of zero immediately before each share set_aside for a grandchild converts to a separate trust for such grandchild accordingly based on the facts submitted and the representations made we rule except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code 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 a power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely yours by_________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc


o f f i c e o f c h i e f c o u n se l department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c date number info release date conex-128376-12 uil the honorable rick larsen ranking member subcommittee on coast guard and maritime transportation committee on transportation and infrastructure u s house of representatives washington dc dear mr larsen thank you for your letter to commissioner shulman dated date regarding the tax effects of certain proposed changes to the capital_construction_fund ccf program that the maritime administration administers title of the united_states_code chapter the ccf program assists owners of u s -flag vessels in accumulating capital to construct reconstruct or acquire vessels you said that competent individuals suggested that the maritime administration could enhance the ccf program’s effectiveness if it were to authorize using ccf funds to lease a vessel when the lease is the functional equivalent of a purchase you also asked about the federal_income_tax consequences including the effect on federal tax revenues that would result from this policy change on date we discussed this matter with ---------------------------------------------------- -------------------------------------------------------------------------------------------- as we understand it your primary concerns are whether a taxpayer can make qualified withdrawals from a capital_construction_fund for long-term_lease payments conex-128376-12 a long-term_lease is treated as a sale for federal_income_tax purposes sec_7518 of the internal_revenue_code the code provides that a qualified_withdrawal from a capital_construction_fund is one made under the terms of the agreement with the maritime administrator of the department of transportation but only if it is for the acquisition construction or reconstruction of a qualified_vessel the acquisition construction or reconstruction of barges and containers that are part of the complement of a qualified_vessel the payment of the principal on indebtedness incurred with the acquisition construction or reconstruction of a qualified_vessel or a barge or container that is part of the complement of a qualified_vessel sec_7518 does not address whether a long-term_lease is treated as an acquisition in determining whether an amount withdrawn from a capital_construction_fund is a qualified_withdrawal our understanding is that the department of transportation’s regulations provide that withdrawals from a capital_construction_fund used to make operating_lease payments cannot be qualified withdrawals because taxpayers must only use qualified withdrawals for costs that are capitalized for federal_income_tax purposes see title of the code_of_federal_regulations sections b and c generally for a taxpayer to have capitalized costs in a leased vessel for federal_income_tax purposes the lease must be treated as a sale whether a lease is treated as a sale for federal_income_tax purposes is a highly factual inquiry and a transaction can possibly be a lease for state law purposes and a sale for tax purposes or vice-versa the test for determining whether a transaction is a sale or lease is whether the benefits_and_burdens_of_ownership pass to the lessee numerous factors determine if the benefits_and_burdens_of_ownership pass to the lessee including whether the lessee has acquired an equity_interest in the property bears the risk of economic loss or physical damage to the property receives the profit from the operation retention and sale of the property has an option to purchase the property for a nominal price see 77_tc_1221 revrul_55_540 1955_2_cb_39 the transfer or retention of title to the underlying property is not determinative because of the factual nature of the inquiry the issue of whether a long-term_lease is treated as a sale for federal_income_tax purposes has resulted in substantial controversy conex-128376-12 between taxpayers and the internal_revenue_service for the same reason the internal_revenue_service has a policy of not providing private letter rulings to taxpayers who ask whether a particular lease constitutes a sale for tax purposes see revproc_2012_3 2012_1_cb_113 accordingly we think a policy that permits the use of ccf funds for leases that are treated as sales for federal tax purposes or for leases that are the functional equivalent of a purchase has the potential to create significant uncertainty and controversy for taxpayers ideally any legislative change to the ccf program to extend it to leases would include a clear statement of whether a withdrawal from a ccf to make a payment on a lease is a qualified_withdrawal for purposes of sec_7518 of the code finally as we explained to --------------- the internal_revenue_service does not calculate the revenue effects of proposed_legislation therefore we are unable to respond to your question about the effect on federal tax revenues of extending the use of ccf funds to leases i hope this information is helpful if you have further questions please call me at ---------------------or --------------------at -------------------- sincerely andrew j keyso associate chief_counsel income_tax accounting


department of the treasury internal_revenue_service washington d c v l l tax_exempt_and_government_entities_division ’ uniform issue list dec 5e- ten ae legend company a ceo b attorney d amount f date m date n date o ‘date p date q ira x ira y dear this is in response to your request for a letter_ruling dated date submitted by your authorized representative regarding the waiver of the 60-day rollover requirement as authorized under sec_408 of the internal_revenue_code the code with respect to the distribution of a stock certificate from ira x and the direct contribution of the cash resulting from the liquidation of the stock certificate into a new ira correspondence dated date supplemented the request page your authorized representative has submitted the following facts and representations ‘you held shares of company a stock in ira x company a formerly a publicly traded or ceo b to take the company private as part of the company reached an agreement in transition from a public company to a private company attorneys involved in the transaction were required to verify the ownership of company a you provided the attorneys with a letter from ira x’s custodian stating that ira x held big_number shares of company a stock however this letter was deemed unacceptable by the attorneys and the attorneys indicated that they must see the actual stock certificate in order to verify the shares in ira x you instructed your assistant to obtain and forward the stock certificate to attorney d the attorney for company a on date m which she did you represent that your intention in obtaining the stock certificate was simply to allow the attorneys to verify ownership of the stock you had no intention of taking a distribution of the stock from ira x and you were not aware that the stock certificate was titled in your name as opposed to ira x’s name until attorney d returned it to you approximately months later on date n after the 60-day rollover period had expired you were not aware that the transaction which was intended solely to allow the attorneys to verify ira x’s ownership of company a stock had resulted in a distribution from ira x you were not informed by ira x custodian or the attorneys that received the stock certificate that this transaction resulted in a distribution from ira x as soon as you noticed that the stock certificate was issued in your name and not the name of ira x you contacted the ira x custodian to inquire as to why the name on the stock certificate was not the name of your ira you were informed by ira x custodian for the first time that the transaction resulted in a distribution from ira x and that the 60-day rule applied you held the stock certificate until date o the new ira custodian ira y would not hold privately held stock thus on date p you sent the stock certificate to the transfer agent to be cashed in as part of company a’s conversion from a public company to a private company on date q upon receipt of the check of amount f received from the transfer agent you deposited such check directly into ira y based on the forgoing you request a ruling that the service waive the 60-day rollover requirement as authorized under sec_408 of the code with respect to the distribution of the company a stock certificate from ira x sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross ‘income distributee as the case may be in the manner provided under sec_72 of the code by the payee or sec_408 of the code defines and provides the rules applicable to ira_rollovers page sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code 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 distributions that occurred after date d i of the code are eligible for the waiver under section revproc_2003_16 ilr b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to 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 and documentation submitted by you indicates that you were not given proper guidance by the professionals ira custodian and attorneys involved in this transaction as to the proper handling of iras you never saw the stock certificate until when it was originally distributed from ira x and it remained with the attorneys for company a until after the 60-day rollover period expired the company a stock certificate distributed from ira x remained in certificate form from its distribution on date m until date p when it page was handed over to the transfer agent to be cashed in as part of company a’s conversion from a public company to a private company since the resulting cash received by you was contributed directly into a new ira you did not have the use of any cash with respect to the assets that were not rolled over within the 60-day period therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of the company a stock certificate from ira x and subsequent sale of stock for amount f provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount f will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 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 letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter has been 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 id - at - please address all correspondence to se t ep ra t t3 sincerely yours wees v frances v sloan’ manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc