internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 4-plr-118250-99 date date re legend decedent spouse son son grandchild grandchild trust agreement initial corporate trustee successor corporate trustee county state year year year dear plr-118250-99 this is in response to your letter of date and prior correspondence requesting a ruling on the income gift and generation-skipping_transfer gst tax consequences of a proposed transaction facts decedent a resident of state died testate in year prior to survived by his spouse spouse and two sons son and son from a previous marriage son has two children grandchild and grandchild son and son are currently over age item fifth of decedent’s will provides that the residue of his estate is to be held in a_trust trust for the benefit of spouse and decedent’s two sons the general objectives of the trust are set forth in paragraph a of item fifth this section provides that the trustee is to pay spouse all of the trust’s net_income during her life the trustee may also use the corpus for spouse if the net_income is insufficient when taken with other income available to her from all sources known to the trustee to support and maintain her in her customary and usual standard of living following the death of spouse decedent’s children shall receive the balance of the trust estate paragraph b addresses the distribution of income and corpus from trust and provides that the trustee is authorized and empowered to pay all of the net_income and corpus in the event spouse is not the trustee at the time of the distribution to spouse paragraph c provides that upon the death of spouse the trustee is to divide the trust estate into as many equal shares as there are children of decedent then living and deceased children of decedent leaving issue then surviving one separate trust is established for the benefit of each child of decedent then living and one for the benefit of the surviving issue of each deceased child paragraph c provides for the distribution of income and corpus of each trust until the beneficiary or beneficiaries of each trust attain age twenty-five and complete their education the trustee shall pay to the beneficiary or beneficiaries or expend on the beneficiary’s behalf so much of the income and corpus as the trustee may deem advisable to provide properly for the beneficiary’s maintenance education welfare and comfort after the beneficiary or beneficiaries of each trust has attained the age of twenty-five years and competed his education the trustee shall pay to the beneficiary the entire share of the net_income of the trust until final distribution is made at the time the beneficiary attains the age of forty the trust shall terminate and the trustee is to distribute the entire balance of the trust to the beneficiary if there is more than one beneficiary of a single trust distribution shall be made at the time designated to each beneficiary of the specified fractional interest in his undivided_interest in the trust if any beneficiary has attained any of the respective ages at the time when the trust is directed to be set apart for such beneficiary the trustee is to distribute to such beneficiary such part or parts or all as the case may be of the trust plr-118250-99 instead of holding the property in trust as is directed to be distributed to such beneficiary upon attaining such respective ages paragraph c provides that in the event a beneficiary shall die after a separate trust fund has been set apart for the beneficiary’s benefit or beneficiary’s benefit and the benefit of another or others and before the entire share of the trust has been distributed to the beneficiary the trustee shall distribute the share of the trust or remainder thereof to the beneficiary’s issue surviving the beneficiary if any and if none then to decedent’s surviving grandchildren and to the issue of any deceased grandchild of decedent per stirpes however if at the time of distribution any such issue is an income_beneficiary of any trust established under the will the share of the beneficiary shall be added to the corpus of the trust fund as an integral part to be administered and distributed in accordance with all of the terms conditions and limitations applying thereto the initial trustees of trust were spouse decedent’s attorney and initial corporate trustee decedent’s attorney resigned as co-trustee in year and under paragraph d of article fifth of the will spouse and the initial corporate trustee served as trustees in year the initial corporate trustee was acquired by successor corporate trustee and successor corporate trustee became a co-trustee prior to the corporate acquisition of the initial corporate trustee spouse informed the initial corporate trustee son and son that she desired to renounce her right to receive any further income or corpus distributions from the trust spouse however specified that she would do so only if the renunciation of her right to receive income or corpus from the trust would not result in any_tax liability or other costs to her and the contingent interests of son 2's children would be protected it is unclear under the terms of the trust and applicable state law how the trust should be administered and disposed of if spouse renounces her lifetime right to receive trust income and corpus arguably as a result of spouse’s renunciation the trust would terminate immediately and the corpus would be distributed outright to son and son on the other hand under the terms of trust son and son are to receive the trust corpus only if they survive spouse if either fails to survive their share of corpus is to pass to or for the benefit of their descendants arguably after spouse’s renunciation the trust would continue until spouse dies at which time the corpus would be distributed to son and son if living and if not to or for the benefit of their descendants the parties have entered into an agreement agreement providing for the administration and disposition of the trust after spouse’s renunciation and for the payment of taxes incurred by spouse as a result of the transaction the parties to the agreement have filed a petition with the local probate_court requesting a deviation from the terms of decedent’s will and a modification and construction of the trust in a manner consistent with the terms provided in the agreement an attorney ad litem has been appointed to represent the minor and unborn beneficiaries plr-118250-99 paragraph of the agreement provides for the creation of a separate trust grandchildren’s trust for the benefit of existing descendants of son and son and all unborn or unascertained beneficiaries of trust paragraph a provides that during the life of spouse the successor trustee shall pay to any then living issue of son and son or expend on such issue’s behalf so much of the income and corpus as the successor trustee may deem advisable to provide properly for the issue’s maintenance education welfare and comfort as provided for in section c of article fifth of the will paragraph b provides that upon the death of spouse the trust shall be distributed or continued in trust in accordance with section c of article fifth of the will as if both son and son had predeceased spouse paragraph c provides that all other provisions of the will applicable to a_trust created under section c of article fifth of the will shall apply to the grandchildren’s trust under paragraph the grandchildren’s trust is to be funded with assets from trust having a fair_market_value at the date of funding equal to the then present_value of the interests of these beneficiaries the parties have represented that they have engaged a recognized authority to determine the actuarial value of these interests paragraph of the agreement provides for the administration of the balance of trust under paragraph c the term of the trust is revised as revised the trust is to continue until one year after the death of spouse the trustee is required to distribute all of the net_income of the trust in equal shares to son and son from the period beginning on the first day of the month following the final order of the local probate_court or at the election of the trustee the last day of the month in which the local probate_court enters the final order and ending on the date that is one year after the death of spouse paragraph a provides that the trustee shall distribute the sum of dollar_figure in equal shares of dollar_figure each to son and son within thirty days after the local probate_court issues a final order paragraph b provides that the trustee is to distribute the sum of dollar_figure in equal shares of dollar_figure each to son and son within thirty days after the expiration of three years from the date the court enters the final order paragraph d provides that if either son or son dies during spouse’s lifetime then from and after the date of death of either of them and during the remainder of the revised term the share of the income of the trust that would otherwise have been distributed to the deceased beneficiary shall instead be held in trust for or distributed to his descendants per stirpes as provided in section c of article fifth of the will however if he should leave no descendants then his share of the trust income shall be paid to his brother or if his brother is not then living shall instead be held in trust for or distributed to the descendants of his brother per stirpes paragraph e provides that at the end of the revised term the balance of trust shall be distributed in equal shares to son and son however if either of them has died before spouse’s death then his share shall be held in trust for or distributed to his descendants per stripes as provided in section c of article fifth of the will if the deceased individual leaves no descendants who are living at the end of the revised plr-118250-99 term his share shall pass to his brother if his brother is not living the share shall instead be held in trust for or distributed to the descendants of his brother per stirpes in the event neither son or son are living at the end of the revised term then the balance of the trust shall be distributed to the then living persons who would have constituted the heirs of decedent determined according to the laws of descent and distribution of state if decedent had died unmarried immediately after the end of the revised term without leaving any surviving descendants paragraph f provides that if either son or son dies during the revised term but after spouse’s death the successor trustee shall during the remainder of the revised trust term distribute his share of the undistributed_income of the trust that shall accrue during the remainder of the revised term and shall at the end of the revised term distribute his entire share of the trust as then constituted each in such amounts and manner outright or in lesser estate in trust or otherwise as he shall validly appoint by his last will and testament this power shall include the power to appoint by his last will and testament his entire share of the trust outright and free of any trust in favor of his own estate his own creditors or the creditors of his estate or any appointee or appointees without limitation and shall be exercisable by him alone and in all events with no power in any other person to appoint any part of his share of the trust if he does not fully exercise the power_of_appointment then to the extent he has not exercised that power_of_appointment the successor trustee shall hold or distribute his share of the trust in accordance with the preceding subparagraphs d and e paragraph deals with the tax consequences of the transaction paragraph a provides that son and son shall pay all federal gift and income taxes incurred by spouse that are attributable to spouse’s renunciation of her trust interests such that the gift will be treated as a net_gift for gift_tax purposes not later than march of the year following the year in which the gift is deemed made spouse shall furnish to the successor trustee son and son a calculation of the additional gift and income taxes payable by her as a result of the transaction on behalf of son and son the trust shall remit to her the total of the additional taxes if it is finally determined that the additional gift_taxes paid_by the trust son or son exceed the amount due spouse shall promptly submit to the internal_revenue_service a claim_for_refund and promptly pay the refund including interest to the person or persons who paid the excess the income_tax component of the amount_paid will be a liquidated amount and no subsequent adjustments of the liquidated amount are provided for under the agreement paragraph b provides that son and son shall pay spouse’s estate all additional federal_estate_taxes and state estate or inheritance taxes to which the estate is subject that are attributable to the transaction not later than months following the death of spouse the personal representative of her estate shall furnish the successor trustee son and son a calculation of the additional estate and inheritance taxes payable by the estate as a result of the transaction on behalf of son and son the trust shall remit to the personal representative of spouse’s estate the total of such additional taxes if following the payment of such amounts it is finally determined that plr-118250-99 additional estate or inheritance taxes are due by spouse’s estate as a result of the proposed transaction son and son shall pay the additional_amount to the personal representative of spouse’s estate upon demand if it is finally determined that the additional estate or inheritance taxes paid_by the trust son or son exceed the amount due spouse’s estate shall promptly submit to the internal_revenue_service a claim_for_refund and promptly pay the refund including interest to the person or persons who paid the excess in addition to the distributions referred to under paragraphs a and a the trust shall distribute for the benefit of son and son all amounts needed to discharge their obligation under paragraph b to reimburse the estate of spouse for all additional estate and inheritance taxes incurred by it the failure of the trust to make the distributions shall not affect the liability of son and son to the extent that any payment by or on behalf of son and son under paragraph b gives rise to a right to a refund of any_tax in favor spouse’s estate her personal representative shall take such reasonable steps as may be necessary to seek such refund provided that satisfactory arrangements are made with son and son to have son son and trust pay for all costs including attorney’s fees incident to such refund upon collection of such refund the personal representative shall remit same to the successor trustee or if the trust has terminated to son and son or to their successors in interest the parties to the agreement have requested the following rulings the gift that spouse will make under the proposed renunciation and agreement is the present_value of her life income_interest in the trust calculated under sec_7520 of the internal_revenue_code plus the value of her right to receive trust corpus less the gift_tax ie gift_tax paid net of any refund as provided in paragraph a of the agreement and income taxes to be paid under paragraph a of the agreement the gifts to son and son in the proposed transaction will qualify for the gift_tax_exclusion under sec_2503 as a gift of a present_interest to son and son neither son or son will be treated as making a gift_for federal gift_tax purposes as a result of the proposed transaction no part of the value of the trust or the grandchildren’s trust will be included in spouse’s gross_estate for federal estate_tax purposes except for the amount if any owed to her estate as reimbursement for estate inheritance or income taxes under paragraphs a and b of the agreement if either son or son predeceases spouse no part of the value of trust will be included in that son’s gross_estate for federal estate_tax purposes other than unpaid income and the amounts of trust corpus if any then due under paragraphs a and b of the agreement plr-118250-99 no part of the value of the grandchildren’s trust will be included in the gross_estate of either son or son for federal estate_tax purposes the current federal_income_tax imposed on spouse as a result of the proposed transaction will be calculated by treating the amount_of_the_gift and income taxes to be paid pursuant to paragraph a of the agreement net of any gift_tax refunds paid pursuant to paragraph a of the agreement as gain from the sale of a capital_asset spouse will not be treated as the owner of any part of the trust or the grandchildren’s trust for income_tax purposes the proposed transaction will not cause trust or any distributions from trust to be subject_to sec_2601 the grandchildren’s trust will be treated as a_trust that was created before date and therefore will not be subject_to the generation-skipping_transfer_tax under chapter of the code ruling_request sec_1 and sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2502 provides that the payment of the gift_tax is the liability of the donor sec_2503 provides that the term taxable_gifts means the total_amount_of_gifts made during the calendar_year less the deductions provided in subchapter_c sec_2503 provides generally that in the case of gifts other than gifts of future interests in property made to any person by the donor during the calendar_year the first dollar_figure adjusted for inflation as provided in sec_2503 of such gifts to such person shall not be included in the total_amount_of_gifts made during such year sec_25_2503-3 of the gift_tax regulations provides that the term future_interest includes reversions remainders and other interest or estates whether vested or contingent and whether or not supported by a particular interest or estate which are limited to commence in use possession or enjoyment at some future date or time sec_25_2503-3 defines a present_interest in property as an unrestricted right to the immediate use possession or enjoyment of property or the income from property such as a life_estate or term certain sec_2511 provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift sec_2512 provides that where property is transferred for less plr-118250-99 than adequate_and_full_consideration in money or money’s worth the amount by which the value of the property exceeds the value of the consideration is deemed a gift sec_25_2511-2 provides that the gift_tax is a primary and personal liability of the donor is an excise upon his act of making the transfer is measured by the value of the property passing from the donor and attaches regardless of the fact that the identity of the donee may not then be known or ascertainable sec_25_2512-5 provides that in general if the donor assigns or relinquishes an annuity life_estate remainder or reversion that the donor holds by virtue of a transfer previously made by the donor or another the value_of_the_gift is the value of the interest transferred under sec_7520 the value of any annuity any interest for life or a term of years or any remainder or reversionary_interest shall be determined under tables prescribed by the secretary see sec_25_7520-1 in 457_us_191 the court held that if a donor makes a gift transfer of appreciated_property that is conditioned upon the transferee’s payment of the resulting gift_tax the donor realizes gross_income to the extent that the gift_tax is paid_by the donee exceeds the donor’s adjusted_basis in the transferred property the court reasoned that when a donor makes a gift to a donee a debt to the united_states for the amount_of_the_gift tax is incurred by the donor when the donee agrees to discharge an indebtedness in consideration of the gift the person relieved of the tax_liability realizes an economic benefit in estate of weeden v commissioner 658_f2d_1160 9th cir the court held that the resulting income is realized by the donor at the time the donee pays the donor’s gift_tax liability rather than in the year of the gift transfer revrul_75_72 1975_1_cb_310 holds that if at the time of the transfer the gift is made subject_to a condition that the gift_tax is to be paid_by the donee or out of the transferred property then the donor receives consideration for the transfer in the amount_of_the_gift tax to be paid_by the donee thus under sec_2512 the value_of_the_gift is measured by the fair_market_value of the property passing from the donor minus the amount_of_the_gift tax to be paid_by the donee see also revrul_81_223 1981_2_cb_189 in this case spouse will renounce her right to receive trust income and corpus spouse’s relinquishment of these interests constitutes a gift_for gift_tax purposes under sec_2501 of the value of the relinquished interests the present_value of the relinquished income_interest is determined under sec_7520 the value of the relinquished right to receive trust corpus is a factual determination with respect to which we decline to rule see dollar_figure of rev_proc i 2001_1_irb_1 under the terms of the agreement the interests relinquished by spouse will pass to or for the benefit of son son grandchild and grandchild under paragraph plr-118250-99 a of the agreement as a condition for spouse’s transfer a fixed amount will be remitted to spouse determined by march 15th of the year following the year the gift is deemed made representing the gift_tax and additional income_tax imposed on spouse as a result of her gift see discussion in ruling_request below this amount remitted to spouse under the terms of the agreement will constitute consideration passing_to_spouse for the transfer therefore based on the facts submitted and representations made we conclude that the value of spouse’s gift resulting from the relinquishment of her income and corpus interests is the value of these interests in trust relinquished by spouse determined as discussed above reduced by the net amount remitted to spouse under paragraph a of the agreement as discussed above after spouse renounces her income and corpus interests in trust a bona_fide issue will be presented regarding the disposition of the trust corpus the agreement inter alia settles this dispute between son and son on one side and grandchild grandchild and the unborn heirs on the other side whether an agreement settling a dispute is effective for estate and gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party's claim if it is determined that each party has a valid claim the service must determine that the distribution under the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated we have examined the agreement in the context of the state court decisions that address the issue presented we have concluded that the proposed agreement pertaining to the disposition of the trust corpus after spouse’s renunciation is a product of arm’s length negotiation and fairly reflects the relative merits of the claims made by the parties to the dispute we believe that the agreement provides an allocation of the trust assets that is within a range of reasonable settlements considering the state court decisions that address the issues that is the interests to be received by the parties both as to the nature of the interests and their economic value are consistent with the relative merit of the claims asserted by the parties as discussed above under the terms of the agreement a separate trust will be established for the benefit of grandchild and grandchild further dollar_figure will be distributed immediately within days after the issuance of a final court order to son and son and trust income will be payable to son and son during spouse’s life in view of our determination above regarding the bona fides of the issues presented and the agreement settling the controversy we conclude that son and son will not be treated as making a gift as a result of the proposed transaction we further conclude that the interests received by son and son as a result of spouse’s gift to the trust will qualify for the gift_tax annual exclusion under sec_2503 as gifts of present interests plr-118250-99 ruling_request sec_4 and sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2033 applies generally to property that is owned outright by the decedent and that may be passed by the decedent’s will to the beneficiaries of the probate_estate the section does not apply to property interests that are extinguished at death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period that does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2038 provides generally that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent’s death in this case spouse will relinquish all of her interests in trust as discussed above we have concluded that the agreement constitutes the settlement of a bona_fide controversy between son and son on the one hand and grandchild grandchild and the unborn heirs on the other regarding the disposition of the trust corpus the agreement was the product of arm’s length negotiation and reflects the merits of the parties’ claims son and son will possess no interest with respect to grandchildren’s trust accordingly based on the information submitted and representations made we conclude that no part of the value of the trust or the grandchildren’s trust will be included in spouse’s gross_estate for federal estate_tax purposes except for the amount if any owed to her estate as reimbursement for estate inheritance or income taxes under paragraphs a and b of the agreement further if either son or son predeceases spouse no part of the value of trust will be included in that son’s gross_estate for federal estate_tax purposes other than unpaid plr-118250-99 income and the amounts of trust corpus if any then due under paragraphs a and b of the agreement finally no part of the value of the grandchildren’s trust will be included in either son 1's or son 2's gross_estate for federal estate_tax purposes ruling_request sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received sec_1001 provides that except as otherwise provided in subtitle a the entire amount of gain determined under sec_1001 on the sale_or_exchange of property shall be recognized the character of the gain will depend on the nature of the asset sold sec_1222 provides that long-term_capital_gain is gain from the sale_or_exchange of a capital_asset held for more than one year sec_1221 provides that the term capital_asset means property held by the taxpayer excluding certain types of property not apparently at issue in this case revrul_72_243 1972_1_cb_233 holds that the proceeds received by the life_tenant of a testamentary_trust in consideration for the transfer of her entire_interest in the trust to the remainderman are to be treated as an amount_realized from the sale_or_exchange of a capital_asset under sec_1222 and that the life tenant’s basis attributable to his life interest at the time of the sale is considered to be zero pursuant to sec_1001 see sec_1_1001-1 and b and c of the income_tax regulations in diedrich v commissioner cited above the supreme court held that a donor who makes a gift of property on the condition that the donee pay the resulting gift_taxes realizes taxable_income to the extent that the gift_taxes paid_by the donee exceed the donor’s adjusted_basis in the property the situation here is similar to that in diedrich except that in this case as well as donor’s gift_taxes the donor’s income taxes and incremental estate and inheritance taxes will be paid_by the donees or on the donees’ behalf under the facts presented here the amount_realized by spouse under sec_1001 will be the fair_market_value of the property she will receive ie the sons’ promise to pay her taxes and the undertaking by the trust to pay on sons’ behalf any incremental estate and inheritance_tax liability because under sec_1001 spouse’s adjusted_basis in the property she is transferring ie her life tenancy is to be considered to be zero the gain from spouse’s plr-118250-99 disposition of the property will be equal to the amount_realized under sec_1001 the entire amount of gain will be recognized under revrul_72_243 and diedrich spouse’s gain from the transfer of her entire_interest in the trust to the remaindermen will be treated as an amount_realized from the sale_or_exchange of a capital_asset under sec_1222 we conclude that the current federal_income_tax imposed on spouse as a result of the proposed transaction will be calculated by treating the amount_of_the_gift and income taxes to be paid pursuant to paragraph a of the agreement net of any refunds of such taxes paid pursuant to paragraph a of the agreement plus the value of the undertaking by the trust to pay on sons’ behalf any incremental estate and inheritance_tax liability imposed on spouse’s estate as a result of the transaction pursuant to paragraph b of the agreement as gain from the sale of a capital_asset ruling_request sec_671 provides that where it is specified in subpart e of part i of subchapter_j of chapter 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 other person those items of income deductions and credits against tax of the trust that 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 any remaining portion of the trust shall be subject_to subparts a through d sec_673 through specify the circumstances under which the grantor is regarded as the owner of a portion of a_trust sec_678 provides 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 sec_671 to inclusive subject a grantor of a_trust to treatment as the owner thereof based solely on the facts and representations submitted we conclude that the modification of trust pursuant to the application to modify trust made to the court will not cause spouse to be treated as the owner of any part of trust or the grandchildren’s trust under sec_671 though ruling requests and plr-118250-99 sec_2601 imposes a tax on every generation-skipping_transfer gst within the meaning of sec_2611 and sec_2612 made by a transferor defined in sec_2652 to a skip_person defined in sec_2613 section b a of the tax_reform_act_of_1986 the act vol c b and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the gst tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added under sec_26_2601-1 if an addition is made after date to an irrevocable_trust that is excluded from chapter under sec_26_2601-1 a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter if an addition is made the trust is thereafter deemed to consist of two portions a portion not subject_to chapter the non-chapter portion and a portion subject_to chapter the chapter portion each with a separate inclusion_ratio as defined in sec_2642 the non- chapter portion represents the value of the assets of the trust as it existed on date the applicable_fraction as defined in sec_2642 for the non- chapter portion is deemed to be and the inclusion_ratio is zero the chapter portion of the trust represents the value of all additions made to the trust after date the inclusion_ratio for the chapter portion is determined under sec_2642 the regulation further provides that a constructive_addition under sec_26_2601-1 is treated as an addition sec_26_2601-1 and c provide rules for determining the pro_rata portion of a generation-skipping_transfer that is subject_to gst tax where a post-date addition is made to a_trust that was irrevocable on or before date sec_26_2601-1 discusses constructive additions to trusts sec_26_2601-1 provides that where any portion of a_trust remains in the trust after the release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer under chapter or chapter the value of the entire portion of the trust subject_to the power that was released exercised or lapsed will be treated as an addition to the trust the creator of the power will be considered the transferor of the addition except to the extent that the release exercise or lapse of the power is treated as a taxable transfer under chapter or chapter in the latter case the transferor for purposes of chapter or chapter is the transferor for purposes of chapter sec_26_2601-1 example considers a situation where a pre- trust provides that the trustee shall distribute the entire income from the trust annually to t's spouse s during s's life at s's death the remainder is to be distributed to t and s's grandchild gc s also possesses a general_power_of_appointment over one-half of the trust assets on date when the value of the trust corpus is dollar_figure s died without having exercised the general power of plr-118250-99 appointment the value of one-half of the trust corpus dollar_figure dollar_figure x is included in s's gross_estate under sec_2041 and is subject_to estate_tax under chapter because the value of one-half of the trust corpus is subject_to tax under chapter with respect to s's estate s is treated as the transferor of that property for purposes of chapter see sec_2652 for purposes of the generation-skipping_transfer_tax the lapse of s's power_of_appointment is treated as if dollar_figure dollar_figure x had been distributed to s and then transferred back to the trust thus s is considered to have added dollar_figure dollar_figure x to the trust at the date of s's death because this constructive_addition occurred after date percent of the corpus of the trust became subject_to chapter at s's death 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 generation-skipping_transfer_tax under sec_26_2601-1 will not cause the trust to lose its exempt status the regulation provides that these rules are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 under sec_26_2601-1 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_2652 provides that the term transferor means in the case of any property subject_to the tax imposed by chapter the donor an individual shall be treated as transferring any property with respect to which the individual is a transferor in this case as discussed above spouse by renouncing her right to receive distributions of trust income and corpus is making a gift that is subject_to the gift_tax under chapter of the code further by declining to accept trust income and corpus she is otherwise entitled to receive spouse is making a constructive_addition to the trust that is similar to the constructive_addition illustrated in sec_26_2601-1 example accordingly spouse is treated as making a constructive_addition to trust after date of an amount equal to value of the interests in trust relinquished by spouse thus the transfer will cause a portion of the trust to become subject_to chapter in accordance with the rules contained in sec_26_2601-1 spouse will become the transferor of that portion of the trust sec_2652 plr-118250-99 therefore based on the information submitted and representations made we conclude that as a result of spouse’s transfer by renunciation a pro_rata portion of trust and distributions from trust including the distribution establishing the grandchildren’s trust and terminations of interests in property held in the trust will be subject_to the provisions of chapter such pro_rata portion is determined in accordance with sec_26_2601-1 b and c spouse is treated as the transferor for gst tax purposes of such pro_rata portion under sec_2652 accordingly a pro_rata portion of the distribution to the grandchildren’s trust will constitute a direct_skip under sec_2611 the remaining pro_rata portion of trust and distributions and terminations with respect to trust will remain exempt from the provisions of chapter in accordance with sec_26_2601-1 i b this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely yours associate chief_counsel passthroughs and special industries by george masnik chief branch enclosure copy for purposes cc


t c memo united_states tax_court gennaro and patricia labato petitioners v commissioner of internal revenue respondent docket no filed date gennaro labato pro_se on date this court filed its opinion in labato v commissioner tcmemo_2001_40 it was not until date that respondent submitted and the court filed a notice of bankruptcy which advised the court that on date petitioner patricia labato filed a petition with the u s bankruptcy court on date pursuant to u s c sec_362 the proceedings in this court were stayed as to petitioner patricia labato stayed as to petitioner gennaro labato and the court’s opinion was withdrawn by order on date respondent advised the court that on date the bankruptcy court granted the government’s motion to lift the automatic_stay as to petitioner patricia labato to permit the proceedings in this case to proceed on date this court lifted the automatic_stay as to petitioner patricia labato and the stay as to petitioner gennaro labato except for this footnote this opinion is unchanged from the previous opinion withdrawn by order dated date ross m greenberg for respondent memorandum opinion pajak special_trial_judge respondent determined a deficiency in petitioners' federal_income_tax in the amount of dollar_figure and a sec_6651 addition_to_tax in the amount of dollar_figure unless otherwise indicated 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 as admitted by petitioners in the stipulation of facts with respect to their untimely federal_income_tax return mrs labato underreported income from her employment by marriott international inc and totally omitted income from columbia park medical center petitioners failed to report some of their interest_income from a bank and each petitioner underreported social_security_benefits each received in respondent concedes that petitioners are not liable for the additional tax of dollar_figure on an early distribution from a qualified_pension this court must decide whether petitioners are liable for the addition_to_tax under sec_665l1 a for failure to timely file their tax_return some of the facts in this case have been stipulated and are so found petitioners resided in st cloud florida at the time they filed their petition gennaro labato petitioner was incarcerated from date to date petitioner claimed that when the time came to file their tax_return petitioner patricia labato mrs labato requested an extension of time to file because she was hoping that petitioner would be released from jail shortly thereafter petitioner was not released when anticipated mrs labato never received a response from the irs during petitioner's period of incarceration the irs was aware that he was being held in jail after his release from jail petitioner filed the return for on date respondent has no record of receiving from petitioners a request for an extension of time to file petitioners contend that petitioner's incarceration and his inability to gather documents were reasonable_cause for their failure to timely file their return respondent contends that petitioners had no reasonable_cause for failing to timely file their return sec_6651 imposes an addition_to_tax for failure_to_file a federal_income_tax return by its due_date determined with regard to any extension of time for filing previously granted the addition equal sec_5 percent for each month that the return is late not to exceed percent sec_6651 petitioners provided no evidence that they filed for an extension while respondent provided documentation establishing that an extension request was not received accordingly we find that petitioners never requested an extension even if petitioners had requested the extension of time to file they would have received an automatic 4-month extension which would have expired prior to the time the return was actually filed in this case sec_1 a income_tax regs to extend the time to file further petitioners would have had to request another extension petitioners did not claim they filed such an additional extension additions to tax under sec_6651 are imposed unless the taxpayer establishes that the failure_to_file timely was due to reasonable_cause and not willful neglect sec_6651 and reasonable_cause requires the taxpayer to demonstrate that he exercised ordinary business care and prudence 469_us_241 sec_301_6651-1 proceed admin regs willful neglect is defined as a conscious intentional failure or reckless indifference united_states v boyle supra pincite the mere fact that petitioner was incarcerated at the time his return was due is not reasonable_cause within the meaning of sec_6651 for his failure to timely file 74_tc_260 affd in part revd in part on other grounds and remanded 649_f2d_152 2d cir veto v commissioner tcmemo_1993_557 we also note that mrs labato was not incarcerated and could have filed on time petitioners failed to prove that they had reasonable_cause accordingly we find for respondent as to the addition_to_tax under sec_6651 decision will be entered under rule


department of the treasury internal_revenue_service washington d c date number release date cc intl br3 uilc internal_revenue_service national_office service_center advice memorandum for from joan m thomsen assistant to the branch chief cc intl br3 subject commuter green cards this service_center advice responds to your memorandum dated date issue what is the u s tax status of green cardholders who commute to work in the united_states but reside in canada or mexico commuter green cardholders conclusion a commuter green cardholder will be considered a u s resident for income_tax purposes until such time that their lawful permanent resident status has been revoked or administratively or judicially determined to have been abandoned facts the service_center became aware of and has requested clarification with regard to a statement contained in an immigration and nationalization service examination handbook ins handbook that suggests the internal_revenue_service irs treats commuter green cardholders differently from other green cardholders an excerpt provided by the service_center from the ins handbook states that commuter green cardholders are treated as nonresident_aliens for u s tax purposes notwithstanding that the alien has not made application_for or claimed such classification has not abandoned immigration status as an alien lawfully wta-n-110735-99 admitted for permanent residence and is still a lawful permanent resident_alien under the immigration laws our office was unable to locate a copy of the ins handbook to verify the statements we have been informed by the ins that the ins handbook is no longer used law and analysis permanent resident status for immigration purposes is represented by the receipt of an alien registration receipt card ins form i-551 commonly referred to as the green card the identical form i-551 is issued to both commuter green cardholders and other green cardholders commuter green cardholders are distinguished from other green cardholders by the fact that they reside in canada or mexico as opposed to the united_states and their resident status may be adjusted by the ins should they be absent from the united_states for a period greater than six months as opposed to one year in the case of ordinary green cardholders the ins considers all green cardholders to be lawful permanent resident aliens under u s immigration laws under sec_7701 of the internal_revenue_code an alien individual is considered a u s resident for income_tax purposes if the individual is either a lawful permanent resident_of_the_united_states the green_card_test or meets the substantial_presence_test sec_7701 of the code provides that an individual is considered a lawful permanent resident if the individual has the status of having been lawfully accorded the privilege under u s immigration laws of residing permanently in the united_states as an immigrant and such status has not been revoked and has not been administratively or judicially determined to have been abandoned a commuter green cardholder like any other green cardholder is considered a lawful permanent resident_of_the_united_states under u s immigration laws therefore the commuter green cardholder will be considered a u s resident for income_tax purposes until such time that their status has been revoked or administratively or judicially determined to have been abandoned accordingly the although a presumption of abandonment of residency status attaches if a green cardholder has been absent from the united_states for six months or one year the ins may not adjust the alien’s permanent resident status until certain administrative procedures including an exclusion hearing have been followed however where the cardholder voluntarily abandons their resident status by filing an application_for abandonment ins form i-407 no administrative procedures are required to be followed to adjust the alien’s status further commuter green cardholders are not eligible for naturalization a prerequisite requirement to naturalization is residency within the united_states for a period of - years wta-n-110735-99 statement in the ins handbook concerning the tax status of commuter green cardholders is erroneous the legislative_history to sec_7701 makes it clear that congress intended a green cardholder to remain a u s resident for tax purposes even if the ins no longer recognizes the validity of the green card because of the cardholder’s absence from the united_states for a certain period of time ie presumption of abandonment therefore a commuter green cardholder will be taxed as a u s resident until such person voluntarily abandons their resident status or until the ins has concluded its administrative procedures to adjust the green cardholder’s resident status if you have any further questions please call joan m thomsen assistant to the branch chief a n alien who comes to the united_states so infrequently that on scrutiny he or she is no longer legally entitled to permanent resident status but who has not officially lost or abandoned that status will be a resident for tax purposes the purpose of this requirement is to prevent aliens from attempting to retain an apparent right to enter or remain the in united_states while attempting to avoid the tax responsibility that accompanies that right general explanation of the deficit_reduction_act_of_1984 98th cong 2d sess


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date cc pa apjp b3 sca-151977-01 uilc internal_revenue_service national_office service_center advice memorandum for doug h rogers hq program manager office of interest and penalty administration attn oneida stephens linda e stiff director compliance wage_and_investment_division from curtis g wilson assistant chief_counsel administrative provisions and judicial practice cc pa apjp b3 subject discretion to abate interest on large erroneous refunds this memorandum responds to a request for significant advice dated date significant service_center advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent issue whether the internal_revenue_service service may abate the assessment of interest on an erroneous refund which exceeds dollar_figure conclusion the service has the authority to abate interest assessed on erroneous refunds exceeding dollar_figure discussion sec_6602 generally provides that any portion of an internal revenue tax which has been erroneously refunded and which is recoverable by suit pursuant to sec_7405 shall bear interest from the date of the payment of the refund see also sec_301_6602-1 sca-151977-01 in congress enacted sec_6404 to provide the commissioner additional flexibility in abating interest when interest had accrued because of the service’s own errors or delays h_r rep no 99th cong 2d sess s rep no 99th cong 2d sess sec_6404 states that the secretary shall abate an assessment of interest on any erroneous refund until the date demand for repayment is made unless the taxpayer or a related_party has in any way caused the erroneous refund or the erroneous refund exceeds dollar_figure although the secretary must abate interest on erroneous refunds that do not exceed dollar_figure the statute does not explicitly address whether the secretary has discretion to abate interest when an erroneous refund exceeds dollar_figure legislative_history can sometimes assist in ascertaining congressional intent where a statute is ambiguous 17_f3d_965 7th cir the legislative_history underlying sec_6404 does not provide an entirely unequivocal answer either it does however appear to give the secretary more flexibility than might be inferred from the statute itself by stating t he bill gives the irs the authority to abate interest but does not mandate that it do so except that the irs must do so in cases of certain erroneous refunds of less than dollar_figure h_r rep no 99th cong 2d sess s rep no 99th cong 2d sess emphasis added the legislative_history then goes on to state the committee believes that it is inappropriate to charge taxpayers interest on money they temporarily have because the irs has made an error consequently the irs may not charge interest on these erroneous refunds until the date it demands repayment of the money the committee intends that two limitations be placed on this rule first it is not to apply in instances in which the taxpayer or a related_party has in any way caused the overstated refund to occur second it is not to apply to any erroneous refund checks that exceed dollar_figure million h_r rep no 99th cong 2d sess pincite s rep no 99th cong 2d sess pincite emphasis added the conference committee report uses similar language stating that the rule requiring the abatement of interest on erroneous refund checks of dollar_figure million or less is only made applicable to erroneous refund checks of dollar_figure or less conf_rep no 99th cong 2d sess ii-810 ii-811 emphasis added in summary although the issue is not squarely addressed neither the statute nor the legislative_history explicitly the original dollar limitation set forth in both the house report and senate report was dollar_figure this amount was reduced to dollar_figure by the house-senate_conference committee conf_rep no 99th cong 2d sess ii-810 ii-811 see footnote supra sca-151977-01 preclude the secretary from exercising discretion to abate interest for erroneous refunds in excess of dollar_figure in the only case to consider this issue the government argued and the district_court agreed that the secretary was not required under sec_6404 to abate interest on an erroneous refund which initially exceeded dollar_figure united_states v egypt planting co u s t c cch big_number n d miss in egypt planting co the taxpayers received an erroneous refund of federal agricultural employment_taxes of dollar_figure and returned dollar_figure of that amount the taxpayers argued the service was required to abate interest on the remaining erroneous refund amount of dollar_figure since that amount was less than dollar_figure the government contended that the mandatory interest abatement rules were inapplicable to erroneous refunds exceeding dollar_figure the court found that although sec_6404 required abatement of interest on erroneous refunds of dollar_figure or less an erroneous refund that initially exceeded dollar_figure must bear interest pursuant to sec_301_6602-1 the court expressed some reservation about its conclusion the opinion stated that the combination of unclear abatement provisions along with the lack of regulations invites speculation and confusion but ruled on the side of caution in holding that no abatement was available the statutory language of sec_6404 is susceptible of two different constructions thus the limitations contained in that section might be read as barring any abatement of interest in the case of erroneous refunds that exceed dollar_figure or that are in any way caused by the taxpayer or a related_party on the other hand the limitations could be construed only to limit the type of erroneous refunds subject_to the mandatory interest abatement rules of sec_6404 on balance we believe that the latter interpretation more closely comports with congressional intent the legislative_history of sec_6404 as indicated above evidences a desire to afford the service authority to abate interest accrued because of service errors or delays it further expresses the intent that the service exercise this authority to abate interest in instances in which it issues an erroneous refund check while it did not instruct the service not to charge interest on the classes of erroneous refunds described in the limitations it would be inconsistent with the purposes underlying the statute to read those limitations as precluding the commissioner from exercising the authority to abate interest in such cases the parameters of the secretary’s discretion are not defined in sec_6404 but we intend shortly to issue formal guidance that will directly address that question in the interim the secretary should consider all the facts and circumstances relevant to determining whether abatement would be consistent with the legislative intent taxpayers who fail to return the erroneous refund for a significant period of time after they discover or reasonably should have discovered the error are less deserving of relief in such circumstances they contributed to the delay and they had the opportunity to profit from the service’s error the secretary might also consider whether the taxpayer returned the erroneous refund before the sca-151977-01 service notified the taxpayer of the error especially if there was a substantial delay between the issuance of the erroneous refund and notification by the service the secretary might want to consider the level of sophistication of the taxpayer which may indicate whether the taxpayer acted reasonably with respect to the error even an unsophisticated taxpayer would not merit relief however if they contributed in any way to the initial error by the service eg by filing a frivolous claim_for_refund please call of cc pa apjp b3 at if you have questions about this matter by curt g wilson assistant chief_counsel administrative provisions and judicial practice


internal_revenue_service number release date index number -------------------- ------------------------------- -------------------------------------------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-131270-09 date date legend company ----------------------------------------------------------------- ----------------------------------------------------------- -------------------- llc ----------------------------------------------------------- ------------------------- a ------------------------------------------------------------- ---------------- b ------------------------------------------------------------- ----------------- c ------------------------------------------------------------- --------------------- d ------------------------------------------------------------- -------------------- e ------------------------------------------------------------- ---------------- state a b c ------------- -------------------------- ---------------------- --------------------------- plr-131270-09 d ------------------------- dear ----------------- we received a letter dated date and subsequent correspondence submitted on behalf of company by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code this letter responds to that request facts company was formed on a under the laws of state company filed form_2553 election by a small_business_corporation to be treated as an s_corporation effective on b on c company transferred shares of company stock to llc which was owned by a b c d and e and treated as a partnership for federal tax purposes as a result of the transfer company had an ineligible s_corporation shareholder when it later became known that llc was an ineligible shareholder llc distributed to b c d and e their pro_rata shares of company stock on d llc which continued to hold a’s shares of company stock then became a disregarded_entity solely owned by a company represents that the circumstances resulting in the termination of company’s s_corporation_election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning 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 service law and analysis sec_1361 provides that for purposes of title_26 the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that for purposes of subchapter_s 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 an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small plr-131270-09 business corporation sec_1362 provides that any termination shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 or sec_1361 by any corporation a 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 or to obtain shareholder consents or b was terminated under sec_1362 or or sec_1361 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation for which the election was made or the termination occurred is a small_business_corporation or a qualified_subchapter_s_subsidiary as the case may be or b to acquire the required shareholder consents and the corporation for which the election was made or the termination occurred and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation or a qualified_subchapter_s_subsidiary as the case may be as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation or a qualified_subchapter_s_subsidiary as the case may be during the period specified by the secretary conclusions based solely on the facts submitted and representations made we conclude that company’s election to be treated as an s_corporation terminated on c when llc became an ineligible s_corporation shareholder we also conclude that the termination constituted an inadvertent termination within the meaning of sec_1362 accordingly company will be treated as continuing to be an s_corporation from c and thereafter provided that company’s s_corporation_election is not otherwise terminated under sec_1362 this ruling is contingent upon a b c d and e being treated as owning company stock held by llc in proportion to their ownership interests in llc on c and thereafter and upon company and all its shareholders treating company as having been an s_corporation for the period beginning on c and thereafter the shareholders of company must include their pro_rata shares of the separately_stated and nonseparately computed items of company as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by company as provided in sec_1368 if company or company’s shareholders fail to treat themselves as described above this ruling shall 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 plr-131270-09 in this letter specifically we express or imply no opinion regarding whether company is otherwise eligible to be treated as an s_corporation 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 under a power_of_attorney on file with this office we are sending a copy of this letter to company’s authorized representative sincerely s christine ellison chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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 tege eb ec plr-142745-05 date december ---------------------------- ----------------------------------- ---------------------------------------------- company a -------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- ----------------------------------------------------------------------------- company b company c individual d stock exchange sec_1 and ------------------------------------------------------------------------------------------------------------- country e f form g form h date date dear ------------------- -------------------------------------------------------------- --------------------- ------------------- -------------- ------------ ---------- ------ this is in response to a letter dated date submitted by your authorized representative requesting a ruling under sec_162 of the internal on date company b filed an annual report on form g with the sec plr-142745-05 revenue code specifically a ruling is requested that the deduction limitation of sec_162 does not apply to company a company a represents that it is an indirect wholly owned subsidiary of company b and that company a is the united_states parent of an affiliated_group_of_corporations which file a consolidated federal_income_tax return company a represents that company a and its affiliated subsidiaries are not publicly held corporations within the meaning of sec_162 and that it does not have any securities filing_requirements with the securities exchange commission sec company c and other entities controlled by individual d a citizen of country e collectively own f of the outstanding common shares of company b the remaining common shares of company b are publicly traded on stock exchange sec_1 and company a represents that company b is a publicly_held_corporation within the meaning of sec_162 and that company b is a foreign private issuer under c f_r section 240-3b-4 c company b did not provide a summary compensation table described in item b of regulation s-k under the securities exchange act of the exchange act as part of form g or as part of any exhibit attached thereto company a represents that on date company b furnished to the sec form h which contained a summary compensation table but not a summary compensation table described in item b of regulation s-k under the exchange act individuals including its highest paid employees expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business including a reasonable allowance for salaries or other compensation_for_personal_services actually rendered shall be allowed for applicable_employee_remuneration with respect to any covered_employee to the extent that the amount of such remuneration for the taxable_year exceeds dollar_figure any class of common equity securities required to be registered under sec_12 of the exchange act corporation includes an affiliated_group_of_corporations as defined in sec_1504 determined without regard to sec_1504 company a pays united_states taxes and deducts compensation paid to various sec_162 provides that for any publicly_held_corporation no deduction under sec_1_162-27 of the income_tax regulations a publicly held sec_162 defines publicly_held_corporation as any corporation issuing sec_162 allows a deduction for all of the ordinary and necessary sec_162 defines covered_employee as any employee of the taxpayer if plr-142745-05 as of the close of the taxable_year such employee is the chief_executive_officer of the taxpayer or is an individual acting in such capacity or the total compensation of such employee for the taxable_year is required to be reported to shareholders under the exchange act by reason of such employee being among the four highest compensated officers for the taxable_year other than the chief_executive_officer chief_executive_officer or an officer is determined pursuant to the executive compensation disclosure rules under the exchange act following language concerning the identification of covered_employee under sec_1_162-27 of the regulations whether an individual is the the preamble to the proposed_regulations under sec_162 contains the the regulations clarify which employees are covered employees for purposes of sec_162 the legislative_history to sec_162 provides that covered employees are defined by reference to sec rules governing executive compensation disclosure under the exchange act under the regulations an individual is generally a covered_employee if the individual’s compensation is reported on the summary compensation table under the sec’s executive compensation disclosure rules as set forth in item of regulations s-k c f_r under the exchange act however the regulations specifically provide that in order to be a covered_employee for sec_162 purposes an individual must be employed as an executive officer on the last day of the taxable_year thus only those employees who appear on a summary compensation table and who are also employed on the last day of the taxable_year are covered employees fed reg big_number date based on the facts submitted and provided no summary compensation table under item of regulations s-k under the exchange act is required to be filed by company a or company b we rule as follows no employees of company a are covered employees under sec_162 because their compensation is not required to be reported to shareholders under the exchange act therefore company a is not subject_to the disallowance rule_of sec_162 of the code this ruling does not apply to any member of company a’s affiliated_group that is required to file a summary compensation table under item of regulations s-k under the exchange act or such member’s subsidiaries 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 a copy of this letter must be attached to any income_tax return to which it is relevant plr-142745-05 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely william c schmidt senior counsel executive compensation branch_tax exempt government entities cc copy for purposes


t c memo united_states tax_court motrya olha mayewsky petitioner v commissioner of internal revenue respondent docket no filed date motrya olha mayewsky pro_se kelly r morrison-lee and scott a hovey for respondent memorandum findings_of_fact and opinion foley judge the issue for decision is whether petitioner is entitled to deduct amounts claimed as theft and casualty losses and as miscellaneous itemized expenses relating to and findings_of_fact petitioner timely filed her returns relating to and on each return petitioner claimed a dollar_figure million theft and casualty_loss relating to a stamp collection u s savings bonds and other personal_property on date respondent issued petitioner a notice_of_deficiency relating to and in which respondent disallowed itemized_deductions of dollar_figure dollar_figure and dollar_figure respectively and determined deficiencies of dollar_figure dollar_figure and dollar_figure respectively on date petitioner while residing in virginia filed her petition with this court opinion section allows a deduction for casualty and theft losses sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise sec_165 c on the returns relating to the years in issue petitioner deducted miscellaneous itemized expenses and exorbitant casualty and theft losses petitioner contends that her savings bonds stamp collection and other personal valuables were stolen and that her home was damaged by a flood there is no credible_evidence however these amounts were adjusted for computational limitations based on petitioner’s adjusted_gross_income unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect for the years in issue supporting petitioner’s contentions and claimed deductions in fact petitioner acknowledged that my putting dollar_figure million dollars each year from sic was just an estimated amount accordingly we sustain respondent’s determinations contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered for respondent pursuant to sec_7491 petitioner has the burden_of_proof with respect to the claimed deductions because she failed to introduce credible_evidence


internal_revenue_service number release date index numbers -------------------------------------------------- --------------------------------------------------- -------------------------------------------------- ------------------------------ department of the treasury washington dc person to contact ------------------ id no ------------- telephone number -------------------- refer reply to cc fip b03 - plr-132879-08 date date legend company a -------------------------------------------------- ---------------------------------------------------------------------- company b --------------------------------------------------------- company c ------------------------------------------------------------ ---------------------------------------------------------------------- state x ------------ state y ------------- state z -------- date date date ------------------ ------------------ -------------------- date ------------------- date -------------------------- date ------------------- date ---------------- date ------------------ date --------------------------- plr-132879-08 a --- dear ---- ------------- this responds to a letter dated date on behalf of company a and company c requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations to make an election under sec_856 of the internal_revenue_code to treat company c as a taxable_reit_subsidiary of company a facts company a was incorporated pursuant to the laws of state x on date company a uses an overall accrual_method of accounting and a calendar_year for federal_income_tax purposes company b is a limited_liability_company that was formed pursuant to the laws of state y on date company b uses an overall accrual_method of accounting and a calendar_year for federal_income_tax purposes company a is the sole managing general_partner of company b substantially_all of the assets of company a are held by and its operations are conducted through company b company a owns approximately a of company b through its general_partner and limited_partner interests company c was incorporated pursuant to the laws of state z on date company c uses an overall accrual_method of accounting and a calendar_year for federal income purposes company c is wholly owned by company b and is therefore indirectly owned by company a company a was formed for the specific purpose of making an election to be taxed as a reit for federal_income_tax purposes on date management engaged its tax advisor to prepare form 1120-reit in order to make a reit election for company a for its first tax_year that ended on date management inadvertently did not notify its tax advisor that company c had been formed on date it was discovered that form_8875 had not been filed to elect company c to be treated as a taxable_reit_subsidiary of company a upon discovery of the failure_to_file management requested its tax advisor to prepare a form_8875 and the form_8875 was filed on date with an effective date of date company a and company c submitted a request for a private_letter_ruling under sec_301_9100-1 of the regulations requesting a reasonable extension of time to file the joint election under sec_856 of the code to elect to treat company c as a taxable_reit_subsidiary of company a as of date plr-132879-08 company a and company c make the following additional representations the request for relief was filed by company a and company c before the failure to make regulatory elections was discovered by the service granting the relief requested will not result in company a and company c having a lower tax_liability in the aggregate for all years to which the regulatory election applies then that they would have had if the election had been timely made taking into account the time_value_of_money company a and company c did not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time they requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences company a and company c did not choose to not file the election law and analysis the ticket to work and work incentives improvement act of p l included a change for tax years beginning after date to the reit provisions of sec_856 this change allows a reit to form a taxable_reit_subsidiary that can perform activities that otherwise would result in impermissible_tenant_service_income the election under sec_856 is made on form_8875 taxable_reit_subsidiary election officers of both the reit and the taxable_reit_subsidiary must jointly sign the form which is filed with the irs service_center in ogden ut sec_856 of the code provides that a reit and a corporation other than a reit may jointly elect to treat such corporation as a taxable_reit_subsidiary to be eligible for treatment as a taxable_reit_subsidiary sec_856 provides that the reit must directly or indirectly own stock in the corporation and the reit and the corporation must jointly elect such treatment the election is irrevocable once made unless both the reit and the subsidiary consent to its revocation in addition sec_856 specifically provides that the election and any revocation thereof may be made without the consent of the secretary in announcement i r b the service announced the availability of new form_8875 taxable_reit_subsidiary election according to the announcement this form is to be used for tax years beginning after for eligible entities to elect treatment as a taxable_reit_subsidiary the instructions to form_8875 provide that the subsidiary and the reit can make the election at any time during the tax_year however the effective date of the election depends upon when the form_8875 is filed the instructions further provide that the effective date on the form cannot be more than months and days prior to the date of filing the election or months after the date plr-132879-08 of filing the election if no date is specified on the form the election is effective on the date the form is filed with the service sec_301_9100-1 of the regulations provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i sets forth rules that the internal_revenue_service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and representations made we conclude that company a and company c have satisfied the requirements for granting a reasonable extension of time to elect under sec_856 to treat company c as a taxable_reit_subsidiary of company a accordingly the form_8875 to treat company c as a taxable_reit_subsidiary of company a filed by company a and company c on date will be treated as timely filed and effective as of date this ruling is limited to the timeliness of the filing of the form_8875 this ruling’s application is limited to the facts representations code sections and regulations cited herein no opinion is expressed with regard to whether company a qualifies as a reit under subchapter_m of the code no opinion is expressed with regard to whether the tax_liability of company a and company c is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if plr-132879-08 the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect 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 request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely alice m bennett chief branch office of associate chief_counsel financial institutions products enclosures copy of this letter copy for sec_6110 purposes cc