internal_revenue_service national_office technical_advice_memorandum date third party communication none date of communication not applicable tam-132334-04 number release date index uil no case-mis no ------------------- -------------------------------- ------------------ taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference legend legend ---------------------------------------------- -------------------------------------- ---------------------------- ---------------- --------------- ------------------ ------------------------------------------------------------------------------------------ ---------------- ------------------------------------------------------------- ------------------------ taxpayer y -------------------------------------------------------------------------------------------------------------- state z date date date date --------------------- ------------- --------- ------- ------- ------- ------- ------- ------------ ------------ --------------- --------------- date date date date date amount amount date date amount amount date date issue whether the taxpayer may use the very conservative reserve_method required only by connecticut that it used to compute its statutory_reserves in the annual statements filed in all states to compute federal tax_reserves for minimum guaranteed death_benefits associated with deferred variable_annuity contracts issued prior to the effective date of actuarial guideline xxxiv ----------------------------- --------------- --------------- -------------- ------------ -------- conclusion taxpayer may not use the very conservative reserve_method required only by connecticut that it used to compute its statutory_reserves in the annual statements filed in all states to compute federal tax_reserves for minimum guaranteed death_benefits associated with deferred variable_annuity contracts issued prior to the effective date of actuarial guideline xxxiv sec_807 requires that taxpayer calculate its tax_reserves using the carvm prescribed by the naic which is in effect on the date of the issuance of the contract where the naic is silent the taxpayer is required to calculate its tax_reserves using the prevailing state practice facts the taxpayer is a life_insurance_company within the meaning of sec_816 of the internal_revenue_code taxpayer is a member_of_an_affiliated_group that files a consolidated life nonlife return and is principally engaged in the sale of annuities the company does business in y states taxpayer was incorporated in state z which is the company’s state of domicile for statutory accounting purposes taxpayer issued deferred variable annuities to policyholders throughout date and continues to do so today the variable_annuity contract provides benefits that vary directly with the investment experience of the assets that back the contract assets backing variable annuities are maintained in a separate_account and the investment results of this account are reflected directly in the variable_annuity values statutory_reserves for the variable accumulation portion and the fixed portion that is subject_to market_value adjustments of these annuities are customarily reported on taxpayer’s separate_account annual_statement or green book reserves for any fixed accumulation portion of these annuities not subject_to market_value adjustments are customarily reported on taxpayer’s general account annual_statement or blue_book many of its issued policies contained a minimum guaranteed death_benefit mgdb for the variable accumulation portion of the policy these contract provisions provide that taxpayer would be liable if the policy value actually dropped below a certain amount and the policyholder died before the policy annuitized in such instances taxpayer would be required to pay a death_benefit to the beneficiary equal to the higher minimum guaranteed amount statutory_reserves for the minimum guaranteed death_benefit were reported on taxpayer’s annual_statement for its general account or blue_book for taxable years prior to date the taxpayer established mgdb reserves when the account value for a deferred variable_annuity subject_to carvm actually dropped below the mgdb for example if the mgdb for such a policy was and the actual account value wa sec_75 an mgdb reserve would be established in the blue_book to account for the risk measured by the difference computed using mortality and interest rate assumptions standard valuation law requires that reserves be established for minimum guaranteed death_benefits provided under variable_annuity contracts prior to the year in which ag became effective the methods of calculation of reserves for these variable_annuity benefits were not uniform throughout the industry however connecticut was the only state to require that such reserves be computed using a deemed drop in asset value rather than the actual asset value by letter of date connecticut’s insurance department had advised cfo’s and appointed actuaries of life and health insurance_companies licensed to do business in kenneth black jr and harold d skipper jr life_insurance 11th ed the state of a new requirement for non-incidental2 death_benefit statutory_reserves offered with variable annuities the new requirement involved an assumption that in computing these reserves the account value of the annuity be reduced by a deemed one third drop in asset value regardless of the type of assets that supported the policy’s account value so mgdb reserves for a deferred variable_annuity with a value that was supported by money market investments as well as mgdb reserves for a deferred variable_annuity with a value that was supported by investments in stock would both be computed by first making an assumption that the asset value at the end of the year had dropped by one third except for connecticut this method was not a specifically stated requirement of any other state for variable annuities sold by life and health insurance_companies doing business in them and filing annual statements with their insurance departments beginning in date for statutory_reserves and in date for tax_reserves in computing its end of the year reserves for mgdbs provided with deferred variable annuities issued prior to and during those years taxpayer used the statutory accounting_method required only by connecticut when employed for tax or statutory purposes this deemed one third drop in asset value increased both the number of instances in which a mgdb reserve was required as well as the size of those reserves taxpayer continued using this method for tax purposes until date for statutory purposes it changed to the method required by ag in date audits of tax years date and date are now closed at date and date taxpayer applied the connecticut requirement to all deferred variable_annuity policies offering this benefit and computed its reported tax_reserves for mgdbs as shown in the table below mgdb reserves computed with the connecticut requirement reserves reported on annual_statement exhibit tax_return form 1120l general acct schedule f at date amount amount at date amount the national association of insurance commissioners adopted actuarial guideline variable_annuity minimum guaranteed death_benefit reserves in september of beginning in for statutory accounting purposes life_insurance_companies were instructed to use this guideline to compute minimum guaranteed death_benefit reserves for all contracts issued on or after date if the application of ag the connecticut letter explains non-incidental death_benefits as follows death_benefits which at any time may exceed the greater of the sum of the premiums_paid guarantee of principal and the account value forgiveness of surrender charge shall be deemed to be a 'non-incidental' death_benefit examples of non-incidental benefits are death_benefits reset every years and death_benefits increasing by a year whether or not the current death_benefit exceeds that payable under an incidental death_benefit provision produced higher mgdb reserves than the company had otherwise established by their previously used interpretation in other words the minimum amount of mgdb reserves reportable on life and health insurance_company annual statements had to equal the amount computed using the requirements of ag the method of computing mgdb reserves under ag involved different deemed asset value drops than connecticut required instead of a one third drop in value for all assets regardless of the type of investment supporting the account ag required drop in value assumptions which varied from to depending on the type of assets supporting the account in addition to these new deemed drops in asset values ag required the use of assumptions that there were subsequent recoveries based on net assumed returns at rates that varied from to again depending on the type of assets supporting the account mgdb reserves computed using these assumptions required by ag would generally be lower than mgdb reserves computed using the one third drop assumption required by the state of connecticut and required in fewer instances the background section of ag states that its purpose is to interpret the standards for the valuation of reserves for minimum guaranteed death_benefits mgdbs included in variable_annuity contracts this guideline codifies the basic interpretation of the commissioners annuity reserve_valuation method carvm by clarifying the assumptions and methodologies which will comply with the intent of the standard valuation law in addition to requirements for assumptions for immediate value drops and subsequent recoveries at net assumed returns ag also interpreted the mortality standards to be applied to projected mgdbs in the reserve calculation the scope section of the guideline states that ag applies to variable_annuity contracts which provide a minimum guaranteed death_benefit that has the potential to exceed the account value whether or not the mgdb exceeds the account value on the valuation_date by contrast the connecticut requirement was applicable only to non- incidental mgdbs as defined in the date letter taxpayer computed its beginning and end of year date reported tax_reserves using the requirements and assumptions of ag for all policies regardless of date_of_issue this table summarizes the amounts thus reported mgdb reserves computed under ag schedule f at date amount at date amount reserves reported on tax_return form 1120l to summarize reported tax_reserves for all mgdbs associated with deferred variable annuities the following table shows the amounts reported on taxpayer’s tax returns for date with amounts computed using the connecticut method shown in bold print and amounts computed using ag shown in normal print summary table mgdb tax_reserves reported on form 1120l schedule f date amount date amount date amount date date amount amount the taxpayer has also begun to spread the difference between the end of year date mgdb reserves and beginning of year date mgdb reserves into income beginning in tax_year date and planned to continue this spread over ten years in accordance with sec_807 law and analysis the computation of reserve deductions with respect to life_insurance annuity and noncancellable and guaranteed renewable accident_and_health_insurance contracts is subject_to the rules set out in sec_807 of the internal_revenue_code sec_805 allows an insurance_company to take a deduction against taxable_income for increases in certain life_insurance_reserves more specifically sec_807 provides that if for any taxable_year the closing balance of the items described in subsection c which includes life_insurance_reserves exceeds the opening balance the excess is taken into account as a deduction under sec_805 by contrast if the opening balance exceeds the closing balance the excess is included in gross_income under sec_803 the methods of determining life_insurance_reserves for use in computing an insurance company's taxable_income are prescribed in sec_807 for this purpose the reserve for any contract generally is equal to the greater of a the net_surrender_value of such contract or b the amount of reserves otherwise determined under sec_807 in no event may the reserve for any contract exceed the amount taken into account with respect to that contract as of that time in determining the statutory_reserves reduced by any deferred and uncollected premiums taken into account in determining the statutory_reserves sec_807 flush language see also sec_809 and sec_811 sec_807 provides that the reserve for any contract must be determined by using a the tax_reserve_method applicable to such contract b the greater of-- i the applicable_federal_interest_rate or ii the prevailing_state_assumed_interest_rate and c the prevailing commissioners' standard tables for mortality and morbidity adjusted as appropriate to reflect the risks such as substandard risks incurred under the contract which are not otherwise taken into account in general the life_insurance_reserve rules of sec_807 are intended to limit the amount of an insurance company's reserves for purposes of computing increases and decreases to the minimum reserve which most states would require to be set_aside with respect to a contract unless the net_surrender_value of the contract is greater see h_r rep no 98th cong 2d sess pt pincite senate committee on finance 98th cong 2d sess deficit_reduction_act_of_1984 explanation of provisions approved by the committee on date vol comm print sec_807 of the code prescribes specific reserve methods for particular types of contracts where the naic did not provide specific guidance for the calculation of reserves for mgdbs taxpayer must use the prevailing state practice for annuity_contracts the prescribed reserve_method is the commissioners' annuities reserve_valuation method carvm as recommended by the national association of insurance commissioners naic that is in effect when the contract is issued see sec_807 the calculation of insurance reserves for state regulatory purposes is dictated by the standard valuation law svl the naic promulgates actuarial guidelines that supplement the svl for purposes of the insurer’s annual_statement which is filed with the state in which the insurer is subject_to state regulation by relying on the reserving methods recommended by the naic the life_insurance_reserve rules seek to minimize state by state variations in the methods used by insurance_companies to calculate deductible reserve additions see supplemental report of the committee on ways and means h_r rep no 98th cong 2d sess part senate committee on finance 98th cong 2d sess deficit_reduction_act_of_1984 explanation of provisions approved by the committee on date vol comm print thus as a general_rule a life_insurance_company calculates its life_insurance_reserves under sec_807 taking into account any factors specifically recommended by the naic if specific factors are not prescribed by the naic recommended method however the prevailing state practice or interpretation of that method should be considered for purposes of determining what factors can be taken into account in applying the computation method for tax purposes see senate committee on finance 98th cong 2d sess deficit_reduction_act_of_1984 explanation of provisions approved by the committee on date vol comm print the conference_report for the tax_reform_act_of_1984 1984_act indicates that in divergent practices existed among the states with respect to whether surrender charges should be taken into account in the computation of annuity reserves under carvm and that the matter was being considered by the naic for a recommendation the conference_report stated that if the naic in clarified what surrender charge factors are to be disregarded and not to reduce the amount of the reserve under carvm then that clarification would be considered to have been effective on the issue_date of the annuity_contracts this was an exception to the general_rule that the prevailing state interpretation of the naic recommended method as of the issue_date of the contract should be considered when determining how specific factors not prescribed by that method are applied for tax purposes see h_r conf_rep no 98th cong 2d sess 1984_2_cb_1052 the legislative committee reports accompanying the technical corrections title of the tax_reform_act_of_1986 indicate that the naic did not take action in to resolve the state differences as to how carvm should apply therefore the legislative committee reports state that annuity reserves should be revalued as of date based on the prevailing state interpretation of carvm at that time the legislative committee reports state that through the prevailing interpretation of carvm was that annuity reserves could be reduced by surrender charges whether or not contingent see s rep no 99th cong 2d sess vol c b in date the naic adopted actuarial guideline xxxiv variable_annuity minimum guaranteed death_benefit reserves ag interpreting the standards for the valuation of reserves for aminimum guaranteed death_benefits provided in variable_annuity contracts ag was effective on date for all contracts issued on or after date taxpayer acknowledges that sec_807 prohibits it from using this guideline for the contracts in question that were issued prior to the effective date of ag taxpayer also acknowledges that it must calculate its reserves for these contracts in accordance with the rules of sec_807 and that it must use the carvm as dictated by the naic in effect on the date_of_issuance of the contracts taxpayer argues however that prior to the issuance of ag34 carvm was silent as to the calculation of mgdb reserves for these contracts and that it thus was permitted to use connecticut's reserve_method to calculate its tax_reserves under sec_807 the practical effect of using connecticut's reserve_method was to increase reserves dramatically because of the greatly increased conservatism of the required one third drop in asset values carvm promulgated by the naic consists of the svl and the actuarial guidelines issued by the naic carvm was adopted as the minimum reserve standard for annuity_contracts as part of the amendments to the standard valuation law the development of carvm was spurred by the growing sales by the life_insurance industry of deferred_annuity contracts that had been designed to serve as cash accumulation vehicles through the crediting of current interest rates rather than to guarantee a stream of retirement income carvm as set forth in the standard valuation law provides as follows reserves according to the commissioners annuity reserve_method for benefits under annuity or pure endowment contracts excluding any disability and accidental death_benefits in such contracts shall be the greatest of the respective excesses of the present values at the date of valuation of the future guaranteed benefits including guaranteed nonforfeiture benefits provided for by such contract at the end of each respective contract_year over the present_value at the date of valuation of any future valuation considerations derived from future gross consideration required by the terms of such contract that become payable prior to the end of such respective contract_year national associate of insurance commissioners model insurance laws regulations and guidelines vol iv even if the carvm prescribed by the naic did not address benefits such as mgdbs the legislative_history requires that the taxpayer utilize the prevailing state practice or interpretation of carvm the term prevailing state practice with respect to any particular annuity contract's specific reserve methodology means the interpretation of reserve computation methodology that is accepted by a majority of states and which produces the minimum reserve for that particular annuity_contract see supplemental report of the committee on ways and means h_r rep no 98th cong 2d sess part taxpayer admits that the accepted methodology for calculating mgdb reserves in states was by valuing the assets at their current value without any drop in asset value connecticut was the only state that deviated from this practice the taxpayer argues because the other states accepted its higher connecticut reserve calculation on the annual statements filed with those states connecticut's one third asset value drop assumption meets the definition of a prevailing interpretation of carvm however because the primary interest of states is to prevent insolvency of insurance_companies all states would accept the higher reserves that resulted from using connecticut's method if the company’s surplus would support them thus merely because the states accepted taxpayer’s higher reserve calculations is of no consequence in deciding what the proper tax_reserves should be taxpayer was required to use the prevailing state practice of valuing the mgdb reserves using no drop in asset value taxpayer's usage of connecticut's reserve_method is contrary to the express legislative intent the connecticut methodology of calculating mgdb reserves was the most conservative methodology used in any of the states this methodology cannot be used for tax reserve calculations because that would be contrary to the congressional intent when it adopted the tax reserve calculation in the tax_reform_act_of_1984 the legislative_history regarding the life_insurance_reserve rules of sec_807 are intended to permit insurance_companies to utilize the minimum reserve which most states would require to be set_aside unless the net_surrender_value is greater see h_r rep no pt 98th cong 2d sess see senate committee on finance 98th cong 2d sess deficit_reduction_act_of_1984 explanation of provisions approved by the committee on date vol comm print connecticut's reserve calculation resulted in the highest reserve not the minimum state reserve required by most states and its usage was contrary to express congressional intent taxpayer may not use the extremely conservative method of one state to calculate its tax_reserves taxpayer argues that this decision should be determined by tam a prior technical_advice_memorandum issued to a different taxpayer sec_6110 states that u nless the secretary otherwise establishes by regulations a written_determination may not be used or cited as precedent sec_6110 thus prohibits the reliance upon a tam issued to a different taxpayer moreover tam differed factually from the present case in tam the graded interest rate method that the taxpayer sought to use resulted in a minimum reserve and was determined to be consistent with carvm and naic guideline ix-b that is diametrically opposite to the present case where taxpayer's usage of the extremely conservative reserving method of connecticut is neither the carvm prescribed by the naic nor the prevailing state practice or interpretation of carvm in fact the naic expressly rejected connecticut's method when ag was being developed because it was deemed to be too arbitrary and overly conservative see valuation actuary symposium proceedings session life and annuity valuation issues pp contrary to the graded interest rate method connecticut's reserve_method resulted in the maximum rather than the minimum reserve the naic rejected connecticut's extreme reserving method of reserving when it adopted ag connecticut borrowed the assumed drop in asset value methodology from its required method of reserving for mgdbs in variable life_insurance policies connecticut's methodology reflected the naic’s variable life_insurance model regulations that addressed reserve requirements for variable life policies prior to the model required that a variable life_insurance_policy provide a ‘minimum death_benefit in an amount at least equal to the initial face_amount of the policy so long as premiums are duly paid ’ a revision to the variable life_insurance model_regulation required that mgdb reserves for scheduled premium variable life policies be computed using a deemed one third drop or depreciation in the underlying separate_account asset values connecticut was one of a minority of states that had adopted regulations calling for a one third drop in asset values for mgdb reserves on both flexible premium and naic model_regulation service-date pincite scheduled premium variable life policies followed by a net investment return equal to the valuation interest rate in date a letter from the director of the connecticut insurance department’s examination_division notified insurance_companies licensed to do business in connecticut that they were to begin using its variable life minimum death_benefit reserve requirements in computing statutory_reserves for non-incidental variable_annuity death_benefits life_insurance policies including variable life_insurance policies are purchased for their death_benefits they protect against the risk of loss of income due to premature death annuities including variable annuities on the other hand are purchased to protect against the possibility of outliving one’s income to insurance_companies different risk factors are associated with each and different probability ie mortality tables are therefore used for life_insurance and annuities the risk profiles associated with variable life mgdbs and variable_annuity mgdbs are also different the one third drop in asset value utilized in the connecticut method was deemed to be a very arbitrary and overly conservative number for mgdb reserves the naic expressly rejected connecticut's method when ag was being developed because it was deemed to be too conservative see valuation actuary symposium proceedings session life and annuity valuation issues pp taxpayer's interpretation of sec_811 is incorrect and renders the provision a nullity taxpayer argues that sec_811 permits it to use its annual_statement reserve amounts for its federal tax_reserves taxpayer's interpretation of sec_811 is incorrect and ignores the express language of the statute sec_811 requires generally that all computations entering into the determination of a life_insurance company’s taxable_income be made under an accrual_method of accounting unless a combination of an accrual_method and another method other than a cash_method is permitted under regulations sec_811 also states to the extent not inconsistent with the preceding sentence or any other provision of this part all such computations shall be made in a manner consistent with the manner required for purposes of the annual_statement approved by the national association of insurance commissioners black and skipper pp floyd s harper and lewis c workman fundamental mathematics of life_insurance experience has shown that the rates of mortality for persons buying annuity_contracts are lower age by age than for those buying life_insurance contracts this apparently results from the fact that some persons base their selection of one or the other type of contract upon the knowledge that their own probabilities of dying are better or worse than average sec_811 thus requires first and foremost that the rules of tax reserving under sec_807 be followed only to the extent not inconsistent with the federal_income_tax accounting rules and other federal tax rules applicable to life_insurance_companies may computations be made in a manner consistent with the manner required for purposes of the annual_statement approved by the naic although the 1984_act carries over the historical definition of life_insurance_reserves as set forth in former sec_801 it substantially changed the impact of this definition on the amounts taken into account in computing life_insurance_company_taxable_income prior to the 1984_act the amount of life_insurance_reserves for which increases and decreases were recognized in computing taxable_income was based on the amount of the reserve liabilities reported on the insurance company's annual_statement for state regulatory reporting purposes while sec_807 still includes life_insurance_reserves as defined in sec_816 among the deductible reserve items the legislative committee reports indicate that this cross-reference was intended merely to identify the type of reserve for which increases and decreases were taken into account and was not intended to superimpose the requirement of proper computation of state law reserves for allowing increases in these reserves to be recognized see senate committee on finance 98th cong 2d sess deficit_reduction_act_of_1984 explanation of provisions approved by the committee on date vol comm print see also joint_committee on taxation staff general explanation of the tax_reform_act_of_1984 98th cong 2d sess rather under the 1984_act the amount of the life_insurance_reserves for which increases and decreases are recognized for tax purposes is prescribed regardless of the method employed by the insurance_company in its computation of statutory_reserves for purposes of the naic annual_statement according to the legislative committee reports the prescribed rules for computing life_insurance_reserves were intended to allow insurance_companies to recognize at least the minimum reserve that most states would require to be set_aside for the contract but no more unless the net_surrender_value for the contract was a greater amount see h_r rep no pincite s rep no pincite the legislative_history to the 1984_act also states the bill however takes a new approach by prescribing specific rules for computing life_insurance_reserves for tax purposes and as a consequence the amount of the deduction allowable or income includible in any taxable_year is prescribed regardless of the manner employed in computing state statutory_reserves see senate committee on finance 98th cong 2d sess deficit_reduction_act_of_1984 explanation of provisions approved by the committee on date vol comm print emphasis added thus under prior_law a company’s reserves were based on its statutory_reserves which were computed using assumptions under state law the result was a significant overstatement of liabilities in comparison to those measured under realistic economic assumptions congress concluded that a more accurate measure of liabilities for tax purposes can be achieved by imposing specific rules for the computation of tax_reserves that result in a reserve that approximates the least conservative smallest reserve which would be required under the prevailing law of the states see s print no vol pincite congress was afraid that r eliance on state law reserves to determine deductions or exclusions from income could create the potential for companies with greater available assets to establish larger reserves and thus obtain a tax advantage vis-à-vis companies with smaller amounts of surplus assets joint_committee on taxation staff and senate_finance_committee major issues in the taxation of life_insurance products policyholders and companie sec_33 j comm print jcs-48-83 date statutory accounting for reserves is the abuse congress sought to avoid by dictating the use of a federally prescribed reserve_method rather than being an anti-abuse measure sec_811 is a default provision which allows statutory accounting to be considered only where there is no federally prescribed method to follow taxpayer was required by the tax reserve computation rules of sec_807 to determine its tax_reserves for mgdbs for the contracts issued in date caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service number release date index number ------------------ ------------------------------------------------------ ------------------------------------------------- ---------------------------- re --------------------------------------------- ------------------------------------------------------- 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 plr-106360-17 date august legend decedent date x y z accounting firm dear --------------- ------------------------------------------------------ ----------------------- -------------- -------------- ------------ --------------------- this letter responds to the letter dated date and subsequent correspondence submitted by your authorized representative requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to make an allocation of decedent’s generation-skipping_transfer gst_exemption to a transfer to a_trust facts the facts and representations submitted are as follows decedent died testate on date item sec_4 and of decedent’s will created family_trust and marital trust both to be funded at decedent’s death family_trust received dollar_figurex in assets family_trust has gst tax potential it is represented that at the time of his death decedent had dollar_figurey in unused gst_exemption available and that no direct skips occurred at the time of decedent’s death plr-106360-17 accounting firm prepared and filed a timely form_706 united_states estate and generation-skipping_transfer_tax return with respect to decedent’s estate on schedule r generation-skipping_transfer_tax an allocation of dollar_figurez of decedent’s gst_exemption was made with respect to the family qtip_trust accounting firm failed to properly allocate dollar_figurex of decedent’s available gst_exemption to family_trust accordingly decedent’s estate requests an extension of time to allocate decedent’s available gst_exemption equal to dollar_figurex to family_trust law and analysis sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 defines the applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a gst is the excess if any of one over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption under sec_2631 allocated to the trust and the denominator of which is the value of the property transferred to the trust sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph plr-106360-17 sec_2642 provides that in determining whether to grant relief under sec_2642 the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-1 through sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute sec_301_9100-3 provides in part that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner 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 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied the executor is granted an extension of time of days from the date of this letter to allocate decedent’s available gst_exemption to family_trust the executor should make the allocation on a supplemental form_706 and filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the return 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 plr-106360-17 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 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 associate chief_counsel passthroughs special industries leslie h finlow by ______________________________ leslie h finlow office of associate chief_counsel senior technician reviewer branch passthroughs special industries enclosures copy of the letter copy for sec_6110 purposes cc


department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------------ telephone number fax number ---------------------- ---------------------- refer reply to cc ita b04 plr-116111-15 date date internal_revenue_service number release date index number ---------------------------- ------------------------------------- ----------------------------------------------------------- ----------------------------------- ------------------------------------------- tin ----------------- legend year ------- year ------- dear -------------- this is in reference to a form_1128 application to adopt change or retain a tax_year that the taxpayer filed requesting to adopt a taxable_year ending december effective december year the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in sec_301 of the regulations on procedure and administration the taxpayer's form_1128 requesting a change in accounting_period to a tax_year ending december was due before march year the information furnished indicates that the application_for the change in accounting_period was filed late because of an oversight or misunderstanding on the part of the taxpayer’s tax professional section of revproc_2002_39 2002_1_cb_1046 provides that a taxpayer must file a form_1128 no earlier than the day following the end of the first effective year and no later than the due_date not including extensions of the federal_income_tax return for the first effective tax_year sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the situation you present must be made under the rules of sec_301_9100-3 requests for relief subject_to 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 the granting of relief will not prejudice the interests of the government plr-116111-15 based on the facts and information submitted and the representations made we conclude that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and the taxpayer's late filed form_1128 requesting permission to change to a tax_year ending december effective for the short_period of december year is considered timely filed 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 specifically we express no opinion as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the form_1128 the form_1128 will be processed under the procedures of revproc_2002_39 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 alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling 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 donna j welsh senior technician reviewer branch office of associate chief_counsel income_tax accounting


date op-elep 1am i uniform issue list no torr rr ik bk rk rr rk or rk rrr kk ko er ee ek kek kk kr rh cums ee ee oe es beek eke ee ae eae ar aw me keke te legend church a congrega boo ri rr ek rr ek oe oe oe er ro isr i ar ke kr roar eo or rra rrr state university or em me ro ww rs rr rk kk rokr rrr aor or rr kk de rr plan xx se ii fi i ri i fbo ke roh rr i et rrr ker ek rk re re a ti ii i rh tek en ka ar rr rr rr kkk oe ee y additi authorized university auspices of anc devoted university promot with congre july supplemented an which your the above-named revenue code you have submitted the gregation founded under the on vowed to poverty b founded and provided the for mr state c ation in a manner consistent jues of church a ai succession of competent the purpose of to this end dk chek he ke he dk ie ee rk re t s e o s d n a c e m teact chur offe prof con came utio aent ort noth versity i remains a b strong ties to congregation eons’ education training fer nges discoveries and uthority over the institution’s management and operation the university’s by-laws confer tc its board_of trustees broad the by- laws provide that the university is everseen by a board_of trustees composed of n tess than five nor more than thirty-five members appoint the president of the have the power to uthorize the annual aegreess and cecice on other matter budget un x a authorize the three are adherents of currently of the hi trustees are members of the church a clergy and of members of congregation e the university is listed in the official directory of h the internal_revenue_service servi erganizations tisted or appearing in the off ren a are organizations described in section nited states it f code anc exempt from tax under section scliay sn furtherance of its stewardship over the university the board in of trustees has adopted and maintains plan certain university empioyees and the beneficiaries of those employees plan x was a qualified_plan meeting the requirements of sec_40 a its plan_administrator amended plan x composed cf two or more members replaced the university as the plan bomine strat and a retirement_plan committee committee in however the board_of trustees plan x listed the university as the board also passed a separate resolution service determined that the internal revenue for the benefit of prior to of the code he committee plan xx ol the committee’s sole purpose is the membership on the committee is limited to individuals who are adherents of pleasure of the board_of trustees t a rch a they serve at the church_plan within plan xx is deened to have been 4141e of the code and the rules of section aigie beginning on or after tt teeter ee eee a church_plan under section fer all years be th rn rr ek bh a ee qualify under section generaisy must among other r ix participation standards of section stand rds of sec_411 qualifi minimum_funding standards of eti however contains an exception for a church_plan as defined in sec_414le unless an election has been made in accord sec_410 a hn see sections c employees plan ach of these 4ii fe meet the the mini cade plans also 8b b and ‘ sec_414 a plan established and m beneficiaries by a chur churcnes which is exempr from cf the code ge ained for i a conver by pian as sec_414 a ef t it a church_plan if civil law corporation or otherwise the principal purpose treated as whether a or function of which is the ad program for the provision of retirement benefits or welfare benefits or both a convention er association of churches if such organizati is controlied by or associated with a church or a convention or association of churches istration or funding of a plan or is maintained by an organization for the employees of a church or that a plan will be art sec_414 b of the code provides employee of that an churches shall include an employee of civil law corporation or otherwise which is exempt from tax under sec_901 with a church or cf the code and which is controlled by or associated a church or convention or association of a convention or association of churches an organization whether sec_414 e c of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 shall be deemed the employer of any individual included as an employee under subparagraph b sec_414 e d of the code provides that an organization whether a civil law corporation or otherwise is associated with a church_or_convention_or_association_of_churches if the organization shares common religious bonds convention or association of churches and convictions with that church or if a th co re wa pe of the code provides in pertinent cart be sec_414 e plan intended te uurch plan requirements and corrects its failure within the tion period then that plan shall be deemed tc meet the ements of sec_414 ge and for all ent part that the term correction_period means the period for the year in which the correction sec_414 e c provides in fails to meet one or more of a church_plan prior years that e n n e s ror ro ar a kk a kk ke ek of 'erisal co applied as however secti cf the multiemploye pu january ub to quentzy was am lan amendment at section shat sect tion aon s enactment sa’ l fe y sec_407 b b cf mppaa was effective as of in order for an organiz convention or association of sec_414 e of the code employees are emplcyees or or association of any organizat employees if the sol of the code convention or administrati described ain e w p o y o q a e r f e_p e e b o b c o o n p e d t e f rh ati that net churches to have ‘that organization is employee t20on y o t y t h w f c m o r a c a f y o f o e f t h o o y m e b h_r e t c o o e r y m f o r o o o t c o f y a s o s w t t in this case congregation b under the auspices of church a teachings tenets and core values of church a teaching educa in in univers its mission cf providing excellent liberal arts craining in numer ous church a affiliated congregation established the ch a is religious congregation e n o w o s u t t o d o q p e_p a e t o o w m o o s t r y e k y e m q h e n e f o s o m s e w t i o o o o b b the university is chartered as a n nm state c and retains of trustees of those it t e n ies to cr moers ty arch a ot-for-pr h zs oug are membe and seven are thr ra e w t w y a’s clergy nivers ty aiso is sisted members of re members of ch b congregation directory of chu organization lis an organiza e w exempst from tax ur the church a of an é o s a f y t t o o o x o o h e b o b t q o w h o e w b o f e h t i a m e o r g a y t t e o y d w o o o e o d a c e_p an the officiat sec_5 ote clic mg an organi aso is asso f c or purposes of the institutional and philosophi a congregation b and the cniversi ty gives evid the organizations university is therefore associated a meaning of sec_414 ‘e d of the code and church_plan rules share common religious bonds th ch iong wh the fact zation ciated with t that close existed amon ence to the and convicts rch a within for purposes y t o h b eo corporation in fit its 35-member board_of church a eight rh arr ir rk kc ro a kok l a mpleyees a ser sectic hurch or conventi erefore that uni cyees under the rules nh a is considered to be the employ ees for purposes of sec_414 e ees of ef the sociati employe section c pf the cy of th as rt lo th uni ed that university employees are considered to be maining question is whether the plan x an organization controlled by or onvention or association of dd r churches ne snistration or nent benefits ction case until see kee blan x pro was its plan_administrator of 8s boarg of trustees amended plan x as th l the the committee’s sole anc serve at the pleasure cf three members of the is concluded that separate corporate resolution that established committee plan x a accord atte organization that is asso ted wi association of churches the prin is retirement benef or are considered the administration or funding ben a niversity’s y plan years currently is adminis a church or i purpose or plan or pla or both te ees se is the ittee are week oth it that the the gated a ement plan ration of s of church f trustees ing on or iduals who ere pl sf vlan however for years prior to the year in which the above- an namec the universi the the tion that die not meet th - te the church pl ri pla ars f the code to quirements but the plan's mentioned amendment was effective the administrator of plan xx a si requirements of sec_414 e sec_4i4 e meet one or more of sponsor corrects that failure correction_period then requirements of secticn year in whi was made and for all pri amended plan x to provid re committee and this amendment was adopted prior te any correction pericd that might amendment to plan x meets the re therefore plan x satisfies in which the amendment was adoptec and for subsequent years ail years dating back to eeke ere ang ending on or before accordingly the ments of sec_414 e he expiration of the be deemed to meet the this case the creation of a ch plan rules for the year a church_plan fails to por applied be p under the rules of l tte treme a eee fe oe he thee ag of sec_414 fe an organizetion th purpose or funeti plan providing re employees of church 2an x ein that plan x s geemed to meet the requ the principal church a is maint administration or funding of individuals deemed to be servic rules that yo ee the meaning of secti on e th he te ke plan x of the code is a church_plan within is x d code a we eemed nd x we r e b l o o r r e f t ations progr ams o o o r y c o o h o - o r c t r t c q h p o r o w u g t c o o e o m g oo have been a church_plan under section é of sec_4i4 e for all years and ending on ke kkh kkk alse scribed on under plan the m of ncinnati herein this rul co i ng expresses no opini n vtinues to satisfy the h sita the is qualified under sec_401 a anager of emrloyee plans of the code representatives in this office a has been ce with e a powe john swieca manager employee_plans technical group tax_exempt_and_government_entities_division n orized representat ive to disclose ents b deleted copy of this copy of cover letter notice


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 hw plr-134408-08 date date legend taxpayer -------------------------------------------------- ------------------------------------------------------ state ------------ county -------------------- trust ------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- plan ------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- dear ------------------- this is in reply to your letter dated date and subsequent correspondence in which you request various rulings on behalf of taxpayer with respect to plan and trust facts taxpayer is a school board that oversees the operation of the public schools in county taxpayer is a body politic and corporate existing under the laws of state as a body politic and corporate of state taxpayer is a political_subdivision of state taxpayer adopted plan as a means of providing health and welfare benefits to its retirees their spouses and eligible dependents taxpayer is the sole employer participating in plan taxpayer is authorized to amend_or_terminate plan plr-134408-08 plan provides benefits through insurance and self-insurance arrangements under plan taxpayer pays a portion of the premium for health_insurance_coverage for eligible retirees participants are responsible for the remainder of the premium taxpayer represents that there are no pre-tax salary reduction elections under the plan in addition taxpayer represents that plan does not permit a cash-out of unused amounts or a conversion of sick or vacation days to retiree health benefits participants may not salary-reduce to pay for any benefit taxpayer does not currently provide benefits to individuals who do not qualify as a spouse or as a dependent under sec_152 of the internal_revenue_code the code however if the taxpayer extends benefits to a non-spouse or non-dependents taxpayer will take reasonable steps to identify individuals who do not qualify as a spouse or dependent and include in the income of participants imputed_income relating to any such individual’s participation in plan plan provides that each benefit provided by taxpayer that is a self-insured medical expense reimbursement plan benefit shall comply with the nondiscrimination requirements of sec_105 of the code and the income_tax regulations thereunder taxpayer created trust to provide a vehicle for funding retiree benefits under plan the income of trust consists solely of contributions from taxpayer and investment_income trust assets will be used to pay for plan benefits and for the administration of trust in addition trust will establish and accumulate a reserve fund to pay for health and welfare benefits for future retirees private interests do not participate in the trust no part of trust may be diverted to purposes other than the exclusive benefit of the participants and their beneficiaries no part of the trust’s net_earnings may inure to the benefit of any private person the parties to the trust agreement are taxpayer and the trustees of trust the trustees are the persons currently serving as the chief financial officer the budget director and the finance director of the county public schools taxpayer may terminate trust at any time for any reason upon termination of trust the remaining assets of trust will be transferred to one or more trust funds to be used exclusively for the purpose of providing health and welfare benefits to the participants of plan in the event the assets are not transferred to such a_trust fund the assets will be transferred to taxpayer in no event will the assets be transferred to an entity which is not a state a political_subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 of the code law and analysis sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof plr-134408-08 in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of public_utilities or the performance of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign to properly conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the service determined that the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 of the code in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization trust provides health benefits to retired employees of taxpayer a political_subdivision of state providing health benefits to current and former employees constitutes the performance of an essential government function based upon revrul_90_74 and revrul_77_261 trust performs an essential_governmental_function within the meaning of sec_115 of the code the income of trust accrues to the taxpayer taxpayer is the sole participating employer in plan no private interests participate in or benefit from the operation of trust any distribution of remaining funds in trust to participating retirees upon the dissolution of the trust satisfies an obligation the taxpayer has assumed with respect to providing benefits to its employees the benefit to the participating employees their spouses and dependents is incidental to the public benefit see revrul_90_74 sec_6012 of the code provides in general that every trust having for a taxable_year any taxable_income or having gross_income of dollar_figure or more regardless of the amount of taxable_income shall make returns with respect to income taxes under subtitle a however no annual return is required to be filed by trust if income realized by trust is excluded from gross_income under sec_115 sec_7701 and sec_301_7701-4 of the procedure and administration regulations define trusts for purposes of sec_6012 sec_301_7701-4 provides in general that an plr-134408-08 arrangement will be treated as a_trust under the code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit in this case the taxpayer contributes money to the trust to provide health and welfare benefits for former employees their spouses and dependents trustees of trust are given responsibility to protect and conserve the trust’s assets for the beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint business for profit sec_61 of the code and sec_1_61-21 of the regulations provide that except as otherwise provided in subtitle a of the code gross_income includes compensation_for services including fees commissions fringe_benefits and similar items sec_106 of the code provides that gross_income of an employee does not include employer-provided coverage under an accident_or_health_plan sec_1_106-1 of the regulations provides that the gross_income of an employee does not include contributions which his employer makes to an accident_or_health_plan for compensation through insurance or otherwise to the employee for personal injuries or sickness incurred by him his spouse or his dependents as defined in sec_152 the employer may contribute to an accident_or_health_plan either by paying the premium or a portion of the premium on a policy of accident_or_health_insurance covering one or more of his employees or by contributing to a separate trust or fund including a fund referred to in sec_105 which provides accident and health benefits directly or through insurance to one or more of his employees however if the insurance_policy trust or fund provides other_benefits in addition to accident or health sec_106 applies only to the portion of the contributions allocable to accident or health benefits coverage provided under an accident_and_health_plan to former employees and their spouses and dependents is excludable from gross_income under sec_106 see revrul_62_199 1962_2_cb_32 revrul_82_196 1982_2_cb_53 sec_105 provides that except as otherwise provided in sec_105 amounts received by an employee through accident_or_health_insurance for personal injuries or sickness shall be included in gross_income to the extent such amounts are attributable to contributions by the employer which were not includible in the gross_income of the employee or are paid_by the employer sec_105 provides that except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical_expenses for any prior taxable_year gross_income does not include amounts referred to in subsection a if such amounts are paid directly or indirectly to the taxpayer to reimburse the taxpayer plr-134408-08 for expenses_incurred by him for the medical_care as defined in sec_213 of the taxpayer his spouse and his dependents as defined in sec_152 of the code based on the information submitted and representations made we conclude as follows trust income is derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 accordingly trust’s income is excludable from gross_income under sec_115 of the code trust is not required to file an annual income_tax return under sec_6012 of the code contributions paid to plan and payments made from plan which are used exclusively to pay for the accident or health coverage of retired employees and their spouses and dependents as defined in sec_152 of the code are excludable from the gross_income of retired employees and retired employees’ spouses and dependents under sec_106 and sec_105 of the code no opinion is expressed concerning the federal tax consequences of plan or trust under any other provision of the code other than those specifically stated herein in particular sec_3 of revproc_2007_3 i r b provides that the service will not issue a ruling concerning whether a self-insured_medical_reimbursement_plan satisfies the requirements of sec_105 for a plan_year accordingly no opinion is expressed concerning whether plan satisfies the nondiscrimination requirements of sec_105 of the code and sec_1_105-11 of the regulations 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 representative sincerely harry beker chief health and welfare branch office of associate chief_counsel division counsel tax exempt government entities


internal_revenue_service number release date index number ------------------------------------------------- --------------------------------- ----------------------------------- re ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-102527-16 date date legend decedent spouse date date ----------------------------------------------------- ------------------ -------------------------- --------------------------- dear --------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election plr-102527-16 it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during his lifetime you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis 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_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-102527-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner 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 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 plr-102527-16 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-102527-16 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 associate chief_counsel passthroughs special industries by lorraine e gardner lorraine e gardner senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court james l and barbara b purdy petitioners v commissioner of internal revenue respondent docket no 26679-08s filed date james l purdy and barbara s purdy pro_se matthew a houtsma for respondent kroupa judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court 1all section references are to the internal_revenue_code code and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated and this opinion shall not be treated as precedent for any other case respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax for the sole issue before this court is whether legal expenses_incurred by petitioner james purdy mr purdy are deductible as business_expenses on schedule c profit or loss from business or as unreimbursed employee business_expenses on schedule a itemized_deductions we find the legal fees are deductible as unreimbursed employee business_expenses on schedule a background some of the facts have been stipulated and are so found the stipulations of fact and settled issues and their accompanying exhibits are incorporated by this reference petitioners resided in montana at the time they filed the petition mr purdy is a financial adviser mr purdy began his career at d a davidson company d a davidson a regional financial consulting firm mr purdy was the top-producing broker for d a davidson establishing a substantial number of clients with assets worth approximately dollar_figure million mr purdy’s success led to a job offer from top-tier financial firm merrill lynch merrill mr purdy left d a davidson to work for merrill in julie mchenry ms mchenry joined mr purdy in his move to merrill ms mchenry had worked as an administrative assistant to mr purdy while at d a davidson though she had also assisted other brokers at the firm ms mchenry accepted a registered client associate position at merrill shortly after passing her series seven stockbroker examination ms mchenry never acted as a financial adviser at either d a davidson or merrill mr purdy and merrill entered into two different agreements both of which explicitly referred to his employment with merrill merrill provided mr purdy health and life_insurance as well as a k retirement_plan and withheld federal state and fica_taxes from his pay merrill paid him a salary and issued forms w-2 wage and tax statement to him for and mr purdy reported the wages from merrill and never filed a schedule c nor paid self-employment taxes related to his income from merrill in addition mr purdy claimed unreimbursed employee business_expenses on returns for the three years before the year at issue as a financial adviser for merrill merrill consistently treated mr purdy as an employee merrill provided him office space furniture clerical staff training and computer systems merrill had the right to review and conduct performance evaluations of mr purdy’s work merrill also retained the right to fire mr purdy mr purdy had a merrill email account and was featured on the company’s web site mr purdy held himself out to others as employed by merrill and used the company’s name to market himself to clients ms mchenry received benefits similar to mr purdy’s both d a davidson and merrill paid her wages and treated her as an employee ms mchenry received a salary that included a certain percentage of commissions from mr purdy and other brokers merrill and d a davidson also retained the right to fire her mr purdy became disenchanted with merrill after working for the firm for three years mr purdy claimed merrill failed to provide him with the fees and facilities promised in the initial employment agreement mr purdy hired an attorney and filed a personal claim for arbitration against merrill with the national association of securities dealers inc nasd dispute resolution group the claim alleged merrill had fraudulently induced mr purdy to leave his employment with d a davidson merrill subsequently fired mr purdy and ms mchenry mr purdy then filed another arbitration claim against merrill asserting wrongful termination and retaliatory discharge nasd awarded mr purdy dollar_figure for the first claim and dismissed his second claim merrill issued a w-2 for this payment and mr purdy reported the entire award as wages on petitioners’ income_tax return for mr purdy paid dollar_figure of this amount to his attorney during after being terminated from merrill mr purdy and ms mchenry established purdy-mchenry investments llp pmi a partnership providing financial advisory services mr purdy and ms mchenry signed a formal partnership_agreement and filed a partnership return on behalf of pmi mr purdy had not filed a tax_return or any partnership before pmi’s inception in petitioners deducted dollar_figure in legal expenses_incurred from mr purdy’s claim against merrill and reported only dollar_figure in gross_receipts on schedule c of their return for the gross_receipts represent interest_paid on the merrill award respondent disallowed the legal expenses deducted on schedule c but allowed a deduction on schedule a for unreimbursed employee business_expenses subject_to the percent of adjusted_gross_income floor under sec_67 petitioners timely filed a petition contesting the deficiency_notice discussion we must determine whether the legal fees mr purdy paid to successfully sue his former employer are deductible in full as ordinary and necessary business_expenses or whether they are deductible as unreimbursed employee business_expenses on schedule 2had the payment been made after date the effective date of sec_62 the payment might be deductible from gross_income in computing adjusted_gross_income a schedule a expenses are subject_to the percent of adjusted_gross_income floor and the alternative_minimum_tax sec_67 we begin with the burden_of_proof the commissioner’s determinations are generally presumed correct and the taxpayer bears the burden of proving otherwise rule a sec_7491 shifts the burden_of_proof to the commissioner in certain situations petitioners do not argue that the burden_of_proof shifts to respondent under sec_7491 and have not shown that the threshold requirements of sec_7491 were met in any event we decide the issues involving whether petitioners may deduct the legal expenses as business_expenses on schedule c on a preponderance_of_the_evidence standard and the burden_of_proof does not affect the outcome we now focus on the deductibility of legal expenses taxpayers may deduct all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business sec_162 legal expenses paid as ordinary and necessary expenses may be deductible on schedule c when the matter generating the expense arises from or is proximately related to a business activity other than employment test v commissioner tcmemo_2000_362 affd 49_fedappx_96 9th cir see 8_tc_130 a taxpayer generally must report on schedule a legal expenses attributable to the taxpayer’s service as an employee sec_62 102_tc_465 vacated on other grounds 84_f3d_433 5th cir 91_tc_352 test v commissioner supra the question becomes whether mr purdy was an employee of merrill mr purdy contends that he was never an employee of merrill instead mr purdy claims that he deducted the fees on schedule c because they resulted from a partnership with ms mchenry respondent counters that mr purdy was an employee at merrill and that no partnership existed between mr purdy and ms mchenry during mr purdy’s employment at merrill we now look to whether mr purdy was an employee whether an employer-employee relationship exists is a factual question determined by common_law principles 503_us_318 weber v commissioner 103_tc_378 affd 60_f3d_1104 4th cir the court considers the degree of control exercised by the principal over the details of the work which party invests in the facilities used in the work the opportunity of the individual for profit and loss whether the principal has the right to discharge the individual whether the work is part of the principal’s regular business the permanency of the relationship and the relationship the parties believe they are creating 862_f2d_751 9th cir affg 89_tc_225 shelley v commissioner tcmemo_1994_432 we apply these factors to the facts of this case merrill had the right to review mr purdy’s work as well as the right to forbid mr purdy from conducting any outside business without prior approval merrill also retained the right to discharge mr purdy and in fact did so merrill invested in the facilities in which mr purdy worked as well as purchased furniture and office supplies for mr purdy’s use mr purdy held himself out as an employee of merrill and was featured on the company’s web site the financial advising work mr purdy conducted was part of merrill’s regular business in addition the parties treated mr purdy as an employee the two agreements mr purdy signed consistently mentioned his employment with merrill merrill paid mr purdy a salary withheld federal and state taxes and issued mr purdy a w-2 every year mr purdy received benefits of the kinds an employee would receive including health insurance and a retirement_plan mr purdy reported the wages he earned as an employee consistently each year he was working at merrill and even reported the settlement award as wages despite having been fired at no time did he report any self-employment_income from merrill moreover he claimed unreimbursed employee business_expenses while he was working at merrill mr purdy’s tax returns during his tenure at merrill never included a schedule c related to his financial adviser activities and instead included his expenses related to his advising as unreimbursed employee business_expenses further ms mchenry testified that she and mr purdy were both employees of merrill accordingly we find and the record establishes that mr purdy was an employee of merrill moreover we are unconvinced that any partnership existed between mr purdy and ms mchenry petitioners argue that a partnership existed because of the fee- and commission-splitting arrangement between mr purdy and ms mchenry we are not persuaded both mr purdy and ms mchenry still received a salary from merrill and ms mchenry also received commissions from other financial advisers mr purdy and ms mchenry did not file a partnership return until after they had been fired from merrill the two agreements mr purdy signed with merrill did not mention any partnership and ms mchenry was not a party to either agreement further mr purdy made no mention of a partnership in his claim for fraudulent inducement nor in his claim for wrongful termination mr purdy cannot now claim that he was involved in a partnership so that he may deduct the legal expenses in full rather than as a percentage of adjusted_gross_income see estate of 268_f3d_553 8th cir affg tcmemo_2000_355 we find that mr purdy was not involved in a partnership with ms mchenry while he worked at merrill we find that mr purdy brought his claim as an employee of merrill and not in any trade_or_business other than his employment or in a partnership with ms mchenry accordingly we find that mr purdy incurred these legal fees as an employee not as an independent_contractor sole_proprietor or partner we therefore sustain respondent’s determination that the legal fees are deductible as unreimbursed employee business_expenses on schedule a we have considered all arguments made in reaching our decision and to the extent not mentioned we conclude that they are moot irrelevant or without merit 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 none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc tege eoeg teb presp-142921-06 date date dear ------------------ this letter is in response to your application_for an allocation of authority to issue --------- ----------------in clean renewable energy bonds crebs under sec_54 of the internal_revenue_code the code sec_54 of the code imposes a limitation of dollar_figure on the amount of crebs which may be issued to finance qualified projects the limitation sec_54 provides that the limitation is to be allocated by the secretary of treasury in such manner as the secretary deems appropriate except that no more than dollar_figure of the limitation may be allocated to finance qualified projects of qualified borrowers which are governmental bodies section of notice_2005_98 2005_52_irb_1211 provides that the limitation will be allocated among qualified projects for which a share of such limitation has been requested beginning with the project s requesting the smallest share in dollar amount and continuing with the project s requesting the next-smallest share until the total limitation has been exhausted however in the event that dollar_figure has been allocated to qualified projects of qualified borrowers that are governmental bodies the remaining shares of the limitation will be allocated under the methodology described in the previous sentence only to qualified projects of qualified borrowers that are not governmental bodies for purposes of allocating the limitation among projects all qualified projects located at the same site and owned by the same qualified_borrower are treated as a single project and each project is treated as requesting a single allocation an allocation of shares of the limitation cannot be made with respect to the project owned by the borrower listed in appendix a because such borrower is a governmental body and dollar_figure has already been allocated to applications requesting a smaller presp-142921-06 share of the limitation to finance qualified projects owned by qualified borrowers that are governmental bodies we appreciate your submission of the application_for our consideration and encourage you to continue to pursue your plans for constructing a clean renewable energy project sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-142921-06 appendix a borrower name project type project location amount requested