department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release date date date xxxxkxx xxxxxx xxxxxx xxxxxx xxxxxx contact person identification_number telephone number employer_identification_number xxxxxx uniform issue list legend z i xxxxxx xxxxkx dear this is in response to n's request for a ruling that certain proposed contractual relationships will not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code the code’ m is exempt under sec_501 of the code as an organization described in sec_501 and has been classified as an educational_organization under sec_509a and b a ii mis the trustee of a number of charitable_remainder trusts collectively the trusts’ and as trustee m is the legal owner of the trusts’ assets in addition m has a remainder_interest in each of the trusts n is one such charitable_remainder_trust in which m is trustee and remainder beneficiary as a result of the relationship with the trusts as both trustee and beneficiary m has a substantial interest in the value of each trust moreover the donors to the trusts have funded the trusts with the intention that m benefit substantially from the assets of the trusts and that the assets will be managed to achieve the greatest possible return on investment xxxxxx m's endowment is invested in traditional publicly traded assets and private investments m's private investments include international securities hedge funds private equity real_estate and fixed income assets much of the income earned by the portfolio consists of passive dividends interest and long and short-term_capital_gains but some income is debt-financed or otherwise treated as unrelated_business_taxable_income m proposes to create a contractual obligation pursuant to which it would issue a contract right to each of the trusts for a proportionate share of m's endowment the cumulative value of the shares would be the dollar value of the assets held by the individual trusts combined with the shares of the endowment held by the various departments and schools making up m's institution the contract right would entitle the trusts to receive periodic_payments based on the shares owned by each of the trusts the trusts would thereby be able to receive an investment return equal to that of the endowment m determines a payout rate on the endowment each year based in part on the endowment's investment performance m calculates the market_value of each endowment share on a monthly basis the market_value of each endowment share initially equals the value_of_the_gift or contribution to the endowment and is subsequently adjusted in accordance with the market_value of the endowment each department and division is entitled to an amount equal to the payout rate times the number of shares it holds m seeks to enable the trusts to invest in the endowment in a manner identical to m's departments or schools a_trust would acquire a share in the endowment which would give the trusts a contractual right against the university but no interest whatsoever in the underlying investment_assets of the endowment the shares would have the same value that m uses for internal accounting purposes the contract would provide that each trust would receive payments on the shares held by it equal to the payout rate m has established for the endowment with payouts made at least annually or more frequently as appropriate a_trust could choose either to reinvest part of the payout or redeem additional shares depending on its cash requirements the trusts will treat payouts as ordinary_income regardless of the character of the underlying income of the endowment whether capital_gain ordinary_income or return_of_capital and regardless of whether the payout is made entirely by distributions of income or in part by redemption of shares the trusts will treat redemptions of shares over and above receipt of the payout rate as generating long or short-term_capital_gain or loss depending on the holding_period of the redeemed shares under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment or any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m's business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have the right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of shares m is neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by m or for which xxxxxxk m is liable or responsible relating to the endowment or the underlying endowment assets and m would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to the endowment or the underlying endowment assets n has requested the following ruling the issuance of shares by m to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to n law sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by of such trade_or_business both computed with the modifications provided in section sec_12 it less the allowable deductions which are directly connected with the carrying on sec_512 of the code sets forth so-called modifications which are excluded from the computation of unrelated_business_taxable_income these modifications include dividends interest royalties rent from real_property and gain from the sale of property sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they 20u8i1 xxxxxx are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved revrul_69_528 1969_2_cb_127 describes an organization that was formed to provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code it receives funds from the participating exempt_organizations invests in common stocks reinvests income and realized appreciation and upon request liquidates a participant's interest and distributes the proceeds to the participant the rev_rul states that providing investment services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit tax-exempt organizations such activity would constitute unrelated_trade_or_business the rev_rul holds that the organization is not exempt under sec_501 if the services were regularly provided by one tax-exempt_organization for other as noted previously organizations described in sec_501 c of the code are subject_to tax on their unrelated_business_income under sec_511 in order for such an organization's income to be subject_to the unrelated_business_income_tax three requirement must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization’s exempt_purpose or function see sec_1_513-1 of the regulations 20u8i xxxxxxk analysis m proposes to enter into a contractual relationship with certain trusts that are charitable_remainder trusts in which m has an interest as a beneficiary and serves as trustee of the trust under such a contractual relationship each trust would receive payments on the shares held by it equal to the payout rate m establishes for its endowment with payouts made in accordance with the trust instruments a_trust would acquire shares from m's endowment which would give the trusts a contractual right against m but no interest whatsoever in the underlying investment_assets of the endowment the contract between m and the trusts would provide that the price of the shares would equal their value at the time of acquisition the shares would have the same value that m uses for internal accounting purposes consequently a_trust could choose either to reinvest part of the payout or redeem a portion of the shares depending on its cash requirements thus under the contractual relationship with m the trusts would have a right to the payout declared by m plus the right to redeem the shares at the value that m uses for internal accounting purposes generally an organization that otherwise qualifies for recognition of exemption under sec_501 of the code and provides investment services on a regular basis for a fee to other exempt or nonexempt organizations would be engaged in an unrelated_trade_or_business under sec_513 see revrul_69_528 supra such an activity would constitute a trade or business’ under sec_513 and sec_1_513-1 b of the regulations and would be regularly carried on under sec_512 and sec_1_513-1 thus if m charged a fee for investment management services provided to organizations unrelated to m or generated income from the management of the funds invested by such organizations these activities could result in unrelated_business_taxable_income under sec_512 here however m is not charging a fee for its services and not otherwise receiving income from the services it provides to the trusts thus under these circumstances m will not receive unrelated_business_taxable_income under sec_512 the fact that m will engage in the investment activity for the benefit of individuals who are co-beneficiaries of the trusts at the same time that it engages in investment activity for its own benefit as the remainder beneficiary limits the scope of the service provided to others and distinguishes it from a commercial venture as stated above under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment nor any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m's business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have any right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of the shares m is neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by m or for 2uu8 sec_1 xxxxxx which m is liable or responsible relating to the endowment or the underlying endowment assets and m would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to the endowment or the underlying endowment assets the trusts do not have a position of ownership in the underlying assets of m's endowment since the contractual relationship between m and the trusts is not in the nature of a partnership or agency the income earned by the trusts from the payout m establishes for the shares reflects ordinary_income and does not take on the character of the income of the underlying assets or debt-financed or unrelated_business_taxable_income m would pay any_tax owed on ubti earned by the endowment portfolio with no deduction taken against ubti for any payments made to the trusts in view of the foregoing we rule as follows the issuance of shares from m to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to n a charitable_remainder_trust this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power of attomey on file in this office a copy of this letter is being sent to n's authorized representatives a copy of this letter should be kept in its permanent records this ruling is directed only to the organization that requested it sec_61 k of the code provides that it may not be used or cited by others as precedent if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br 1-plr-133366-01 date oct x a a year year year year date date date date date this responds to a letter dated date and subsequent correspondence submitted on behalf of a requesting a ruling that the partners of x will not recognize pre-contribution gain under sec_704 or sec_737 as a result of the in-kind distribution of a assets on or after date that were contributed to the partnership on date because the assets were contributed pursuant to a written binding contract for the contribution of a fixed amount of property that was in effect on date and at all times thereafter before such contribution and thus qualified for transitional relief under section b of the taxpayer_relief_act_of_1997 facts plr-133366-01 the taxpayer represents the following facts in year trustor established trusts one for his wife and one for primary benefit of each of his four children there currently are eight year trusts remaining with trustor’s grandchildren as the sole current income beneficiaries each trust owns undivided_interest in a assets and substantial portfolio of investment securities and will terminate upon the earlier of the death of the grandchild or years after the death of the last child during the early year the corporate trustee became increasingly concerned that the orderly control of the a assets might be seriously disrupted if undivided interests passed out of the common_control upon the death of a third generation income_beneficiary and the resulting trust terminated in year the trustee decided to contribute all of the a assets to a partnership the partnership’s original limited_partnership agreement lpa was executed on date and obligated each of the partners to contribute their a assets to the partnership in exchange for limited_partnership interests due to the trustee’s concern that certain beneficiaries of the trusts would oppose the limited_partnership agreement the agreement was made contingent upon obtaining court approval it was also made contingent upon obtaining a ruling from the internal_revenue_service that the partnership was a partnership for federal tax purposes this requirement was subsequently eliminated as unnecessary after the promulgation of the regulations under sec_301_7701-1 through the state court litigation took several years to resolve ultimately on date the court entered an order requiring the trustee to execute a lpa substantially_similar to the amended and restated lpa previously submitted to the court although the amended and restated lpa contained numerous changes from the original lpa no change was made to the partners’ obligation_to_contribute their a assets to the partnership the court authorized the trustee to make further changes to the amended and restated lpa prior to the formation of the partnership subject_to the right of an interested_party to object and hearing by the court the final lpa which contained minor changes to the amended and restated lpa was executed by all parties on date the partnership was formed and the a assets were contributed to the partnership on date although the execution of the final lpa could have occurred any time after date date was chosen because that was the date on which interested trust beneficiaries the trustee and persons involved in managing the a assets have traditionally met in addition the trustee wanted to utilize the interim period to make sure that all administrative details were given proper attention including necessary changes to computer systems and accounting procedures date is prior to date and date is subsequent to it law and analysis plr-133366-01 section of the taxpayer_relief_act_of_1997 extended from to years the period during which precontribution gain is recognized if property contributed to a partnership is distributed in-kind the amendment applies to property contributed to a partnership after its date effective date it does not apply however to any property contributed pursuant to a written binding contract in effect on date and at all times thereafter before such contribution if such contract provides for the contribution of a fixed amount of property conclusion based solely on the facts submitted and the representations made we conclude that the partners of x had a binding contract in effect on date to contribute a assets to x accordingly we conclude that section of the taxpayer_relief_act_of_1997 does not apply and that a will not recognize pre-contribution gain under sec_704 or sec_737 as a result of the in-kind distribution of a assets on or after date except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code 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 sincerely david r haglund senior technician chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp 2-plr-100649-99 date date distributing controlled business a group a group b x y dear this letter responds to your date request for rulings on certain federal_income_tax consequences of a proposed transaction the information provided in that request is summarized below distributing conducts business a and is owned x percent by group a and y percent by group b plr-100649-99 financial information has been submitted indicating that distributing had gross_income and operating_expenses representing the conduct of an active business during each of the past five years the business_purpose for the proposed transaction is to enable the shareholder groups to each concentrate on that aspect of the business which is of the most interest to them and to remedy the shareholders’ inability to agree on the growth and continuation of the business operations by enabling the shareholders to do this the business currently operated by distributing will be more efficient and profitable by separating the current business of distributing pursuant to the plan_of_reorganization the assets will be better utilized and be more productive to allow group a and group b to go their own ways and cause their corporations to conduct business a in the way each group thinks best the following transaction has been proposed i distributing will transfer certain business a assets to newly formed controlled in exchange for of the issued and outstanding_stock of controlled the contribution ii distributing will distribute all of the controlled stock to the members of group a in exchange for all of the distributing stock held by each member of group a the distribution the taxpayer has made the following representations concerning the proposed transaction a the fair_market_value of the controlled stock received by each shareholder of distributing will be approximately equal to the fair_market_value of the distributing stock surrendered by the shareholder in the exchange b no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder the corporation c the five years of financial information submitted on behalf of distributing is representative of the corporation's present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted d following the distribution distributing and controlled will each continue independently and with its separate employees the active_conduct of its business e the distribution is being carried out for the purposes set forth above the distribution is motivated in whole or substantial part by one or more of these corporate business purposes plr-100649-99 f distributing is an s_corporation within the meaning of sec_1361 controlled will elect to be an s_corporation pursuant to sec_1362 on the first available date after the distribution and there is no plan or intent to revoke or otherwise terminate the s_corporation_election of either distributing or controlled g there is no plan or intention by the shareholders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock in either distributing or controlled after the distribution h there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the distribution other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 i there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the distribution except in the ordinary course of business j the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing each equals or exceeds the sum of the liabilities assumed by controlled plus any liabilities to which the transferred assets are subject and the liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred k no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution l no two parties to the transaction are investment companies as defined in sec_368 and iv of the internal_revenue_code m payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's-length n distributing neither accumulated its receivables nor made extraordinary payments of its payables in anticipation of the contribution and distribution based solely on the information submitted and the representations set forth above we rule as follows the transfer by distributing to controlled of certain business a assets in exchange for all of the common_stock of controlled followed by the distribution of all plr-100649-99 the controlled stock will constitute a reorganization under sec_368 of the code distributing and controlled will each be a_party_to_a_reorganization under sec_368 of the code distributing will recognize no gain_or_loss upon the transfer of certain business a assets to controlled in exchange for all of controlled’s stock and the assumption_of_liabilities as described above code sec_361 and sec_357 no gain_or_loss will be recognized by controlled on receipt of the assets in exchange for all the shares of controlled sec_1032 controlled’s basis in the distributing assets received by controlled in the transaction will be the same as the basis of such assets in the hands of distributing immediately before the transfer sec_362 controlled’s holding_period of the distributing assets received by controlled in the transaction will include the period during which distributing held the assets sec_1223 no gain_or_loss will be recognized to and no amount will be included in the income of the group a shareholders upon receipt of controlled stock in exchange for all of their distributing stock as described above sec_355 the basis of the controlled stock received by each member of group a will be the same as the basis of the distributing stock that member surrendered in exchange therefor sec_358 the holding_period of the controlled stock to be received by the shareholders of distributing as described above will include the period of the distributing stock surrendered in the exchange provided that such stock is held as a capital_asset by those respective shareholders on the day of the exchange sec_1223 distributing will recognize no gain_or_loss upon the distribution of all of its controlled stock to distributing shareholders as described above pursuant to sec_311 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 we express no opinion about the tax treatment of the transaction under any other section of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered in the above rulings this ruling is directed only to the taxpayer s requesting it sec_6110 of plr-100649-99 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 a copy of this letter must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely assistant chief_counsel corporate by lewis k brickates assistant to chief branch


office_of_chief_counsel internal_revenue_service memorandum number release date uilc date date cc pa cbs br3 preno-144821-02 to howard p levine special litigation assistant ct cc ct atl nas from joseph w clark chief branch collection bankruptcy summonses cc pa cbs br3 subject irs summonses and the family educational rights and privacy_act u s c sec_1232g ferpa legend none required you recently encountered a situation in which state university declined to produce records pursuant to the service’s administrative_summons issued under sec_7602 the university declined to produce the records because it believed ferpa barred it from doing so unless it received a document styled as an administrative subpoena ferpa contains an exception to its privacy requirements for records disclosed pursuant to a court order or a lawfully issued subpoena u s c sec_1232g b b you requested that we contact the department of education and seek its views regarding the status of an administrative_summons under ferpa we contacted the department of education’s family policy compliance office which administers ferpa and possesses subject matter expertise in that statute we were informed that the department of education has a long-standing position on this issue it has historically viewed an irs summons as a lawfully issued subpoena under ferpa thus an educational_institution can comply with an irs summons without a parent’s or student’s written consent for a release of records so long as that institution follows the requirements of c f_r a that regulation requires an educational_institution to make a reasonable effort to notify the parent or eligible_student of the order or subpoena in advance of compliance so that the parent or eligible_student may seek protective action the department of education provided us with a copy of the attached date letter which it provided to the service’s criminal investigation office in philadelphia that letter contains that department’s interpretation of the relevant ferpa provisions as they apply to irs summonses additionally the family policy compliance office has provided us with its electronic-mail address ferpa ed gov to which we can refer officials of educational institutions should they require informal advice concerning irs summonses as lawfully issued subpoenas under ferpa preno-144821-02 page we were pleased to assist you in this matter if you have questions or comments please contact at attachment


t c summary opinion united_states tax_court donald jerome fritz and donna fritz petitioners v commissioner of internal revenue respondent docket no 8948-07s filed date donald jerome fritz and donna fritz pro sese shawn l barrett for respondent gerber 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 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure and this opinion shall not be treated as precedent for any other case this matter was submitted under rule for summary_judgment on the question of whether petitioners are subject_to the alternative_minimum_tax amt summary_judgment is intended to expedite litigation and to avoid an unnecessary and expensive trial fla peach corp v commissioner 90_tc_678 summary_judgment may be granted with respect to a legal issue if there is no genuine issue as to any material fact and a decision may be rendered as a matter of law rule a and b 119_tc_252 98_tc_518 affd 17_f3d_965 7th cir the parties agree as to the material facts and that this matter is ripe for summary_judgment in a date notice_of_deficiency respondent determined a dollar_figure income_tax deficiency in petitioners’ income_tax the deficiency was not based on any adjustment to income or disallowance of a deduction for regular_tax purposes but instead was based solely on respondent’s application of the amt to petitioners’ tax computation in their petition petitioners challenged the application of the amt to their income_tax for their tax_year petitioners reported dollar_figure of adjusted_gross_income and dollar_figure of taxable_income included in their computations were dollar_figure in qualified taxable dividends dollar_figure of foreign tax_credits and net_capital_gain income of dollar_figure using those figures and the standard_deduction petitioners reported income_tax of dollar_figure respondent using the same figures computed a tentative_minimum_tax of dollar_figure this amount reduced by the dollar_figure of regular income_tax computed by petitioners results in an amt of dollar_figure the amt computation--petitioners’ first objection to the application of the amt is that it contravenes a statutory enactment of a 15-percent tax_rate on capital_gains petitioners assert that the application of the amt makes the effective rate on their capital_gain income slightly more than percent in their own words petitioners contend that the application of amt is rendered null and void because of this contravention sec_55 imposes the amt and sets forth the interrelated structure of the regular_tax capital_gains_tax and amt this section is abundantly complex but the computation of the correct amount of tax can be achieved by reference to sec_55 and related and referenced provisions of the internal_revenue_code in the context of this case the amt is computed by first computing the regular_tax without reference to the amt then the tentative_minimum_tax for married taxpayers filing jointly is computed at rates of percent of a specified tax_base up to dollar_figure and percent for the excess after reducing certain foreign tax_credits certain statutory adjustments are made in this case disallowance of the standard_deduction and exemptions see sec_55 and b e a dollar_figure amt exemption for joint filers is provided but the exemption is reduced by percent of alternative_minimum_taxable_income in excess of dollar_figure sec_55 a the tentative_minimum_tax is imposed on so much of the alternative_minimum_taxable_income as exceeds the exemption_amount in computing the amt there is a special computational provision for taxpayers with net capital_gains generally speaking the net_capital_gain income is multiplied by percent and the result is added to the tax on other income which is computed in the manner described above sec_55 following this computational provision petitioners’ amt is computed at dollar_figure which petitioners contend causes their net_capital_gain income to be taxed at an effective rate slightly greater than percent because of the disallowance of the entire amount of the standard_deduction and exemptions petitioners’ position would require a change to the statute that would apportion the disallowed items ultimately however respondent’s computation is in accord with the statutes and petitioners’ argument fails adequacy of the statutory notice of deficiency--petitioners contend that respondent’s explanations of and determination in the notice_of_deficiency are vague and inexact in particular petitioners allege that respondent’s explanation for the determination was that certain things in the form sec_1040 u s individual_income_tax_return and form_6251 alternative minimum tax--individuals appeared to justify application of the amt the notice however simply states that the item adjusted is the amt of dollar_figure although respondent’s determination in the notice is terse it appears sufficient to advise petitioners of the amount and nature of the determination see 814_f2d_1363 9th cir revg 81_tc_855 we also note that in addition to specifying the nature and amount of the adjustment the deficiency_notice was accompanied by a statement of income_tax examination changes wherein respondent provided petitioners with a detailed computation of the deficiency including a complete comparison of the amounts reported on petitioners’ return and the amounts computed or determined by as a result of other computational adjustments the net amount of additional tax due is dollar_figure respondent under those circumstances we hold that the notification to petitioners was sufficient equitable estoppel--petitioners’ final argument is that respondent’s instruction booklets and forms are misleading and do not portend the results in this case--an increased deficiency due to the application of the amt in particular petitioners contend that respondent’s instructions and literature regarding the amt state that the purpose of the amt is to increase the proportion of income subject_to tax whereas the additional tax in this case was due to the exclusion of the standard_deduction and personal exemptions and not to taxing capital_gains at a rate greater than percent because of this alleged discrepancy petitioners argue that they should not be subject_to the amt in effect petitioners’ argument is one of equitable_estoppel for estoppel to apply however petitioners must show a false representation or misleading silence an error in a statement of fact ignorance of the true facts reasonable reliance on the statement and adverse effect caused by the statement see 104_tc_13 modified 104_tc_417 affd 140_f3d_240 4th cir petitioners have not shown and or alleged sufficient facts and information to meet the essential requirements for the petitioners make this argument in broad terms and do not reference specific instructions or explanations that illustrate or support their contention application of estoppel accordingly we give no further consideration to this argument petitioners’ position in this case misses the point they contend that the net result of the amt computation is an effective rate on their capital_gains greater than percent in reality the tax on the capital_gains was limited to percent and the additional tax was attributable to the elimination of preferences this court recently addressed a similar situation in 129_tc_175 in weiss the deficiency in amt resulted from the elimination of miscellaneous_itemized_deductions and personal exemptions for purposes of computing alternative_minimum_taxable_income and not because the rate_of_tax on net_capital_gain was higher under the amt than under the computational regimen id pincite we have found that respondent correctly followed the statute in reaching the determination that petitioners have a dollar_figure income_tax deficiency due to the application of the amt therefore we are compelled to rule for respondent to reflect the foregoing respondent’s motion for summary_judgment will be granted and decision entered for respondent


t c memo united_states tax_court frank c verbeck jr petitioner v commissioner of internal revenue respondent docket no filed date frank c verbeck jr pro_se mark a weiner for respondent memorandum opinion dawson judge this case was assigned to special_trial_judge larry l nameroff pursuant to sec_7443a of the code1 and rule sec_180 sec_181 and sec_183 the court agrees with and all section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge nameroff special_trial_judge this case is before us on respondent's motion to dismiss for failure to state a claim and to impose a penalty under sec_6673 respondent determined deficiencies in petitioner's federal income taxes and additions to tax as follows year deficiency additions to tax sec_6651 sec_6654 dollar_figure big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number dollar_figure the adjustments giving rise to the above deficiencies and additions to tax are based upon the failure of petitioner to file income_tax returns and report his income for the subject years the nature of the unreported income determined by respondent in the two notices of deficiency is nonemployment compensation in all years plus imputed_income for the years through based upon bureau of labor statistics the gist of petitioner's allegations in his petition is that the commissioner and or_his_delegate has erroneously and arbitrarily concluded that frank c verbeck jr is a citizen_of_the_united_states and liable for the taxes levied by the united_states congress the commissioner arbitrarily and erroneously determined that petitioner received income and the united_states tax_court lacks the authority to render a decision in this case because it is not an article iii court under the constitution and therefore without jurisdiction petitioner makes further allegations in the petition which are common in tax_protester petitions regarding the allegedly unconstitutional nonapportioned direct_tax the applicability of the administrative_procedure_act and the method in which he was selected for audit as well as the audit techniques utilized by respondent in her motion to dismiss respondent contends that the petition fails to allege clear and concise assignments of error in respondent's deficiency determination in violation of rule b further respondent contends that the petition fails to allege clear and concise lettered statements of fact on which petitioner bases the assignments of error in violation of rule b the court scheduled a hearing on the motion for date in los angeles california on that date petitioner did not appear but instead filed a statement in lieu of appearance petitioner alleges that he is an american citizen but not a u s citizen petitioner's address set forth in the petition is in sun valley california pursuant to rule c in the rule c statement petitioner challenged the personam jurisdiction of this court and made further tax_protester allegations which need not be repeated herein petitioner has been here before in connection with his and tax years verbeck v commissioner tcmemo_1995_14 affd without published opinion 70_f3d_122 9th cir in that case we dismissed a similar petition for failure to state a claim and required petitioner to pay a dollar_figure penalty pursuant to sec_6673 in that case and in the instant case petitioner made tax_protester arguments that have been heard by this court on many occasions and rejected see eg 76_tc_1027 affd 696_f2d_1234 9th cir brayton v commissioner tcmemo_1989_664 affd without published opinion 923_f2d_861 9th cir as before the short answer to petitioner's arguments is that he is not exempt from federal_income_tax see 82_tc_403 a judgment on the pleadings is appropriate where petitioner raises no justiciable issues see abrams v commissioner supra pincite brayton v commissioner supra petitioner has failed to raise any issue with regard to the amount of his income or deductions or the correct amount of his tax_liability including the additions to tax accordingly he has not raised any justiciable issues and respondent's motion to dismiss will be granted sec_6673 authorizes this court to impose a penalty in favor of the united_states in an amount not to exceed dollar_figure whenever it appears that the taxpayer's position in a proceeding is frivolous groundless or instituted primarily for delay petitioner's actions are clearly frivolous indeed his only apparent reason to file a petition with this court to challenge our jurisdiction was to delay assessment and collection of his income_tax liabilities accordingly we will require petitioner to pay to the united_states a penalty of dollar_figure pursuant to sec_6673 an appropriate order and 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 corp b06 plr-134034-11 date february legend legend distributing ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------------------------- distributing ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------- controlled ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------- sub ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- sub --------------------------- ------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- sub ----------------------------- ------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- sub ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ------------------------ plr-134034-11 sub --------------------------- ------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------- sub ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ------------------ sub ------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------- ----------------------------------------------------- sub ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ---------------------------- sub ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------- llc --------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ---------------- pship pship corp business a business b business b1 b1 properties business b2 ------------------------------- --------------------------------- ---------------------------- ---------------------------------- ---------------------------------------- ------------------------------------------------------ ---------------------------------- ------------------------------------------------------ b2a properties -------------------------------------- ---------------------------------------------------------------------------------------------------- plr-134034-11 b2b properties state a state b state c shareholder a shareholder b shareholder c shareholder d date date date date date date date date a b c ----------------- ------------------------------------------------------ ------------- --------- -------- ------------------------------------------- ----------------------------------------------------- ---------------------- -------------------------- ----------------------------------------------------- ----------------------------------------------------- ------------------------------ ------------- ------------------- ---------------- ------------------ ---------------------- -------------------- ----------------------- ---------------- ---------------- ---- ---- -------- plr-134034-11 d e f g h ------ ------ ----------------- ------------------- ------------------ dear ------------------ this letter responds to your date request for rulings on certain federal_income_tax consequences of the proposed transactions as defined below the information provided in that request and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether either of the distributions described below i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of a distributing_corporation or a controlled_corporation or both see sec_355 of the internal_revenue_code as amended and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in a distributing_corporation or a controlled_corporation see sec_355 and sec_1_355-7 summary of facts publicly traded distributing is the common parent of an affiliated_group of domestic corporations that files a consolidated federal_income_tax return the distributing group and is engaged through its subsidiaries in business a and business b including business b1 and business b2 the outstanding capital stock of distributing consists only of a single class of common_stock based on publicly available securities information only shareholder a shareholder b shareholder c and plr-134034-11 shareholder d held five percent or more of the common_stock on date the remaining shares of distributing are widely held and publicly traded distributing is a holding_company and has no assets other than all outstanding shares of distributing common_stock distributing a state a corporation owns of the interests in sub a state a corporation controlled a newly formed state a corporation and llc a state a limited_liability_company disregarded as separate from distributing for federal tax purposes under sec_301_7701-3 llc holds most of the assets used in business a sub owns a a-percent interest in pship a partnership for federal tax purposes the remaining b percent interest in pship is owned by corp an unrelated company controlled wholly owns sub a state b corporation sub a state b corporation and sub a state a corporation sub and sub engage in business b1 sub manages business b1 and sub owns and operates the b1 properties sub acts as the holding_company for subsidiaries engaged in business b2 sub wholly owns sub a state c_corporation sub a state a corporation sub a state c_corporation and sub a state a corporation sub owns and manages the b2a properties sub wholly owns sub a state a corporation sub sub and sub own a c-percent limited_partnership_interest a d-percent general_partnership interest and a e-percent limited_partnership_interest respectively in pship a state c limited_partnership pship owns and manages all of the b2b properties distributing previously entered into intercompany loan agreements with sub and sub in which distributing provided loans to sub and sub to fund their working_capital and for other corporate business purposes distributing and the members of its separate_affiliated_group as defined in sec_355 the distributing sag are engaged in business a principally through distributing and llc distributing and the members of its separate_affiliated_group the distributing sag are engaged in business a principally through llc and its subsidiaries and controlled and the members of its separate_affiliated_group the controlled sag are engaged in business b including business b2 principally through sub sub and sub financial information has been submitted indicating that business a and business b2 each has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years the proposed transactions will separate business a from business b i to permit the distributing senior management to focus solely on business a and the controlled management to focus solely on business b thereby a allowing each business to pursue its own distinct opportunities and growth plans and b eliminating internal plr-134034-11 competition for capital and other inherent managerial and operational conflicts ii to permit controlled to adopt a debt and capital structure more suitable for a growth- oriented company and thereby enhance its ability to raise capital including through stock issuances needed to take advantage of significant growth opportunities and iii to provide each business with a key_employee compensation program that relates solely to the performance of the business for which the key employees are responsible collectively the corporate business purposes proposed transactions to achieve the corporate business purposes distributing proposes the following series of transactions proposed transactions some of which have already been completed i ii iii iv v vi vii on date distributing contributed all of the sub sub and sub stock and certain other assets associated with business b to newly formed controlled in exchange for all of the controlled stock controlled and its subsidiaries the controlled_group between date and date distributing refinanced its third party debt through llc the llc financing and controlled the controlled financing and together with the llc financing the refinancings on date the net_proceeds from the llc financing approximately f and the controlled financing approximately g totaling h were distributed by llc the llc distribution and controlled the controlled distribution to distributing distributing then used the controlled distribution to pay down debt owed by distributing to unrelated third parties the third party debt the balance of the third party debt was paid off using the llc distribution on date distributing contributed certain trademarks associated with business b1 to controlled together with step i the contribution on date distributing contributed certain real_estate associated with business a to llc sub will transfer its a-percent interest in pship to llc intercompany debt owed between distributing and sub and sub will be paid off before the internal distribution in step viii plr-134034-11 viii distributing will distribute all of the controlled stock to distributing the internal distribution ix x before the external distribution in step x any excess_loss_account in the stock of an entity leaving the distributing group other than controlled will be eliminated by merger or other means distributing will distribute all of the controlled stock to its shareholders distributing shareholders pro_rata the external distribution and together with the internal distribution the distributions no fractional shares of controlled stock will be issued in the external distribution instead all fractional shares of controlled stock that distributing shareholders otherwise would be entitled to receive will be aggregated by a transfer agent and as soon as practicable following the effective time of the external distribution will be sold at the prevailing price on the nasdaq global market any of the distributing shareholders entitled to receive a fractional share of controlled stock will be entitled to receive a cash payment in an amount equal to the shareholder’s proportionate interest in the net_proceeds from the open market sale in connection with the proposed transactions the distributing group and the controlled_group will enter into a variety of agreements collectively the continuing transactions involving transitional services the transitional agreements and contingent obligations that arose before the distributions including those related to tax_liabilities the contingent agreements distributing intends to exchange before the external distribution all outstanding vested stock_options for distributing common_stock for an equivalent value of unrestricted shares of distributing common_stock at the same time distributing intends to exchange all outstanding unvested stock_options for distributing common_stock for an equivalent value of restricted shares of distributing common_stock the new restricted_stock together with the existing distributing restricted_stock the distributing restricted_stock as holders of distributing common_stock both restricted and unrestricted the former option holders will receive shares in controlled upon the external distribution in the same manner and proportion as all other distributing shareholders a holder of distributing restricted_stock will receive in the external distribution shares of controlled common_stock subject_to the same terms and restrictions that apply to the distributing restricted_stock controlled restricted shares the above-mentioned transactions involving restricted_stock will be referred to as the restricted_stock transactions representations plr-134034-11 distributing makes the following representations regarding the contribution and internal distribution a b c d e f any indebtedness owed by controlled or any entity controlled directly or indirectly by controlled to distributing or any entity controlled directly or indirectly by distributing after the internal distribution will not constitute stock_or_securities no part of the consideration distributed by distributing in the internal distribution will by received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing distributing and controlled will each treat all members of its sag as defined in sec_355 as one corporation in determining whether the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business are satisfied the five years of financial information submitted for business a conducted by the distributing sag and for business b2 conducted by the controlled sag is representative of the present operations of each business and there have been no substantial operational changes in either business since the date of the last financial statements submitted neither business a conducted by the distributing sag nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the internal distribution the distributing sag will have been the principal_owner of the goodwill and significant assets of business a and the distributing sag will continue to be the principal_owner following the internal distribution neither business b2 conducted by the controlled sag following the contribution nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the internal distribution distributing and its subsidiaries all members of the distributing sag will have been the principal owners of the goodwill and significant assets of business b2 following the internal distribution controlled and its subsidiaries all members of the controlled sag following the contribution will be the principal owners plr-134034-11 g h i j k l m n o apart from the continuing transactions controlled through sub and its subsidiaries all members of the controlled sag will continue the active_conduct of business b2 independently and with its separate employees following the internal distribution apart from the continuing transactions the distributing sag will continue the active_conduct of business a independently and with its separate employees following the internal distribution the internal distribution will be carried out to facilitate the external distribution which is being undertaken to accomplish the corporate business purposes the internal distribution is motivated in whole or substantial part by the corporate business purposes the internal distribution will not be used principally as a device for the distribution of the earnings_and_profits of controlled or distributing or both except as described above there is no plan or intention to liquidate any member of the distributing sag engaged in business a or any member of the controlled sag engaged in business b2 to merge any member of either sag with any other entity or to sell or otherwise dispose_of the assets of any member after the internal distribution except in the ordinary course of business controlled will not assume any liabilities within the meaning of sec_357 in the contribution the total adjusted_basis and the fair_market_value of the assets transferred by distributing to controlled in the contribution each will equal or exceed the total amount of any liabilities assumed as determined under sec_357 by controlled the total fair_market_value of the assets transferred by distributing to controlled in the contribution each will equal or exceed the total amount of any money and the fair_market_value of any other_property within the meaning of sec_361 received by distributing and transferred to its creditors in connection with the reorganization any liabilities assumed as determined under sec_357 by controlled in the contribution will have been incurred in the ordinary course of business and will be associated with the assets transferred the total fair_market_value of the assets transferred to controlled in the contribution will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with the contribution ii the amount of any liabilities owed to controlled by plr-134034-11 distributing that are discharged or extinguished in connection with the contribution and iii the amount of any cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in connection with the contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the contribution the aggregate fair_market_value of the assets distributing transfers to controlled in the contribution will equal or exceed the aggregate adjusted_basis of those assets distributing will neither accumulate its receivables nor make extraordinary payment of its payables in anticipation of the contribution and internal distribution no two parties to the internal distribution are investment companies as defined in sec_368 and iv at the time of the internal distribution distributing will not have an excess_loss_account in the stock of controlled or the stock of any direct or indirect subsidiary of controlled immediately before the internal distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and-14 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published in t d further any excess_loss_account that distributing has in the controlled stock or the stock of any direct or indirect subsidiary of controlled will be included in income immediately before the internal distribution to the extent required by regulations see sec_1_1502-19 distributing will not have an excess_loss_account in the controlled stock or the stock of any direct or indirect subsidiary of controlled apart from debt arising in the continuing transactions and intercompany loans or other obligations that have arisen or will arise in the ordinary course of business no intercorporate debt will exist between controlled or any entity controlled directly or indirectly by controlled and distributing or any entity controlled directly or indirectly by distributing at the time of or after the internal distribution p q r s t u v payments made in connection with all continuing transactions including the continuing transactions between controlled or any entity controlled directly plr-134034-11 w x y z or indirectly by controlled and distributing or any entity controlled directly or indirectly by distributing will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arms length for purposes of sec_355 immediately after the internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the internal distribution for purposes of sec_355 immediately after the internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the internal distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the internal distribution the internal distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in controlled or distributing including any predecessor or successor of either corporation immediately after the transaction as defined in sec_355 i no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled ii if any person holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 such person will have held such interest in such corporation either directly or through attribution immediately before the internal distribution or iii neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 aa the controlled distribution paid_by distributing to its creditors will not exceed the weighted quarterly average of the distributing debt owed to third parties for the 12-month_period ending on the close of business on or about plr-134034-11 date the last full business_day before the date on which the distributing board_of directors initially discussed the potential separation of business b from business a distributing makes the following representations regarding the external distribution bb any indebtedness owed by controlled or any entity controlled directly or indirectly by controlled to distributing or any entity controlled directly or indirectly by distributing after the external distribution will not constitute stock_or_securities cc except for controlled restricted shares that holders of distributing restricted_stock will receive the restricted_stock distribution no part of the consideration distributed by distributing in the external distribution will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing in no event will the restricted_stock distribution represent more than percent of the controlled stock distributed in the external distribution dd distributing and controlled will each treat all members of its sag as defined in sec_355 as one corporation in determining whether the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business are satisfied ee the five years of financial information submitted for business a conducted by the distributing sag and for business b2 conducted by sub and its subsidiaries all members of the controlled sag following the contribution is representative of the present operations of each business and there have been no substantial operational changes in either business since the date of the last financial statements submitted ff neither business a conducted by the distributing sag nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the external distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the external distribution the distributing sag will have been the principal_owner of the goodwill and significant assets of business a and will continue to be the principal_owner following the external distribution gg neither business b2 conducted by the controlled sag following the contribution nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the external plr-134034-11 distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the internal distribution distributing and its subsidiaries all members of the distributing sag will have been the principal owners of the goodwill and significant assets of business b2 following the internal and external distributions controlled and its subsidiaries all members of the controlled sag following the contribution will be the principal owners hh apart from the continuing transactions the distributing sag will continue the active_conduct of business a independently and with its separate employees following the external distribution ii jj kk ll apart from the continuing transactions controlled through sub and its subsidiaries all members of the controlled sag following the contribution will continue the active_conduct of business b2 independently and with its separate employees following the external distribution the external distribution will be carried out for the corporate business purposes the external distribution is motivated in whole or substantial part by the corporate business purposes the external distribution will not be used principally as a device for the distribution of the earnings_and_profits of controlled or distributing or both there is no plan or intention to liquidate any member of the distributing sag engaged in business a or any member of the controlled sag engaged in business b to merge any member of either sag with any other entity or to sell or otherwise dispose_of the assets of any member after the external distribution except in the ordinary course of business mm distributing will neither accumulate its receivables nor make extraordinary payment of its payables in anticipation of the external distribution nn immediately before the external distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and -14 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published in t d further any excess_loss_account that distributing has in the controlled stock or the stock of any direct or indirect subsidiary of controlled will be included in income immediately before the external distribution to the extent required by regulations see sec_1_1502-19 at the time of the external distribution distributing will not have an excess_loss_account in the plr-134034-11 stock of controlled or the stock of any direct or indirect subsidiary of controlled oo apart from debt arising in the continuing transactions and intercompany loans or other obligations that have arisen or will arise in the ordinary course of business no intercorporate debt will exist between controlled or any entity controlled directly or indirectly by controlled and distributing or any entity controlled directly or indirectly by distributing at the time of or after the external distribution pp payments made in connection with all continuing transactions including the continuing transactions between controlled or any entity controlled directly or indirectly by controlled and distributing or any entity controlled directly or indirectly by distributing will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arms length qq rr for purposes of sec_355 immediately after the external distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the external distribution for purposes of sec_355 immediately after the external distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the external distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in section in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the external distribution ss the external distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in controlled or distributing including any predecessor or successor of either corporation plr-134034-11 tt immediately after the transaction as defined in sec_355 no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in controlled or distributing uu the receipt by distributing shareholders of cash in lieu of fractional shares of controlled stock resulting from the open market sale of these shares will be solely for the purpose of avoiding the expense and inconvenience to controlled of issuing fractional shares and does not represent separately bargained-for consideration it is intended that the total cash consideration received by the distributing shareholders from the open market sale of their fractional shares will not exceed one percent of the total consideration that will be distributed in the external distribution it is also intended that none of the distributing shareholders will receive cash in an amount equal to or greater than the value of one full share of controlled stock further neither controlled nor distributing is aware of any overall plan within the meaning of sec_355 to acquire an ownership_interest in controlled through the purchase of bundled controlled shares sold in connection with the issuance of cash in lieu of fractional shares vv neither distributing nor controlled will have been a u s real_property holding corporation as defined in sec_897 at any time during the five-year period preceding the external distribution ww neither distributing nor controlled will be a u s real_property holding corporation as defined in sec_897 immediately after the external distribution rulings based solely on the information submitted and the representations set forth above we rule as follows the contribution followed by the internal distribution will be a reorganization under sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 except for gain that will be recognized by distributing in an amount equal to the amount by which the controlled distribution exceeds the amount of the adjusted bases of the assets contributed by distributing to controlled in the contribution reduced by the amount of the liabilities assumed within the meaning of sec_357 no gain_or_loss will be recognized by distributing on the contribution sec_361 sec_361 sec_361 and sec_357 plr-134034-11 no gain_or_loss will be recognized by controlled on the contribution sec_1032 the basis of each asset received by controlled in the contribution will equal the basis of that asset in the hands of distributing immediately before the contribution plus the amount of gain recognized in ruling above properly allocated among the assets received by controlled in the contribution sec_362 the holding_period of each asset received by controlled in the contribution will include the period during which distributing held that asset sec_1223 no gain_or_loss will be recognized by distributing on the internal distribution sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of distributing on the internal distribution sec_355 immediately following the internal distribution the basis that distributing had in a share of distributing stock before the internal distribution will be allocated between the share of distributing stock with respect to which the internal distribution is made and the share of controlled stock received with respect to the share of distributing stock in proportion to the fair_market_value of each sec_358 and c sec_1_358-2 the holding_period of the controlled stock received by distributing in the internal distribution will include the holding_period of the distributing stock on which the internal distribution is made provided the distributing stock is held by distributing as a capital_asset on the date of the internal distribution sec_1223 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 any payments between distributing and controlled that are made following the internal distribution pursuant to the contingent agreements regarding obligations that i have arisen or will arise on or before the internal distribution either for a taxable_period ending on or before the internal distribution or for a taxable_period beginning before but ending after the internal distribution and ii will not have become fixed and ascertainable until after the internal distribution will be treated as occurring immediately before the internal distribution cf 344_us_6 73_sct_71 97_led_6 1952_2_cb_136 revrul_83_73 c b plr-134034-11 no gain_or_loss will be recognized by distributing on the external distribution sec_355 no gain_or_loss will be recognized by and no amount will be included in the income of any of the distributing shareholders on the external distribution sec_355 however see caveat vii below immediately following the external distribution the basis that each of the distributing shareholders had in a share of distributing stock before the external distribution will be allocated between the share of distributing stock with respect to which the external distribution is made and the share of controlled stock received with respect to the share of distributing stock including any fractional share interest in controlled stock to which the shareholder may be entitled in proportion to the fair_market_value of each sec_358 and c sec_1_358-2 the holding_period of the controlled stock received by each of the distributing shareholders in the external distribution including any fractional share interest in controlled stock to which the shareholder may be entitled will include the holding_period of the distributing stock on which the external distribution is made provided the distributing stock is held by the shareholder as a capital_asset on the date of the external distribution sec_1223 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and treas sec_1_312-10 and sec_1_1502-33 following the external distribution controlled will not be a successor of distributing for purposes of sec_1504 therefore controlled and its direct and indirect subsidiaries that are includible corporations under sec_1504 and satisfy the ownership requirements of sec_1504 will be members of an affiliated_group_of_corporations entitled to file a consolidated federal_income_tax return with controlled as the common parent the receipt by each of the distributing shareholders of cash in lieu of fractional shares of controlled stock will be treated for u s federal_income_tax purposes as if the fractional shares had been distributed to such shareholder as part of the external distribution and then had been disposed of by such shareholder for the amount of such cash in a sale_or_exchange the gain_or_loss if any determined using the basis allocated to the fractional shares in ruling and the holding_period attributed to the fractional shares in ruling plr-134034-11 will be treated as a capital_gain or loss provided the stock was held as a capital_asset by the selling shareholder sec_1001 any payments between distributing and controlled that are made following the external distribution pursuant to the contingent agreements regarding obligations that i have arisen or will arise on or before the external distribution either for a taxable_period ending on or before the external distribution or for a taxable_period beginning before but ending after the external distribution and ii will not have become fixed and ascertainable until after the external distribution will be treated as occurring immediately before the external distribution cf 344_us_6 73_sct_71 97_led_6 1952_2_cb_136 revrul_83_73 c b caveats no opinion is expressed about the tax treatment of the proposed transactions under other provisions of the code and regulations or on the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular this office has not reviewed any information pertaining to and has made no determination regarding i ii whether the distributions satisfy the business_purpose requirement of sec_1_355-2 whether the distributions are used principally as a device for the distribution of earnings_and_profits of distributing distributing controlled or a combination thereof iii whether the distributions are part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in a distributing_corporation or a controlled_corporation see sec_355 and sec_1_355-7 iv v the federal_income_tax treatment of the refinancings the federal_income_tax treatment of payments for any services that may be rendered at cost under the transitional agreements vi whether distributing 1’s contribution of certain trademarks to controlled will constitute a transfer of property for purposes of sec_351 and vii the federal_income_tax consequences of the transactions involving the former option holders and the restricted_stock transactions including the plr-134034-11 impact under sec_83 of the distributions to the holders of distributing restricted_stock procedural statements this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling letter must be attached to any income_tax return to which it is relevant alternatively any taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to the returns that provides the date and control number of this letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representatives sincerely _mary e goode_________________ mary e goode senior counsel office of associate chief_counsel corporate cc


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 ita b02 plr-150818-12 date february ty ------- legend p ----------------------------------- c -------------------------------------- advisor --------------------------- date1 ------------------------ date2 ----------------------- date3 ---------------------------- taxable year1 ------- dear ------------------ this ruling is in response to a letter dated date1 submitted on your behalf by your authorized representative the letter requests an extension of time for p and its wholly-owed subsidiaries listed on the attachment c to file a form_3115 application_for change in accounting_method to automatically change their method_of_accounting to deduct repair and maintenance_costs not required to be capitalized under sec_263 of the internal_revenue_code and unit_of_property determinations for retirements of depreciable tangible_property pursuant to the provisions of revproc_2011_14 2011_4_irb_330 for the taxable_year beginning date2 year_of_change the request is based on sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations facts for the taxable year1 c internally prepared its consolidated federal_income_tax return and engaged advisor to prepare a form_3115 to implement the above-referenced plr-150818-12 accounting_method change c timely filed form_7004 application_for automatic_extension of time to file certain business income_tax information and other returns for its taxable year1 return extending the due_date for such return to date3 due to an unusual series of events c failed to file by date3 its taxable year1 return with the attached original form_3115 filed under section a i of revproc_2011_14 2011_4_irb_330 c represents that the copy of the form_3115 required to be filed by section a ii b of revproc_2011_14 was timely filed with the ogden office applicable law revproc_2011_14 provides the procedures by which a taxpayer may obtain automatic consent to change a method_of_accounting described in its appendix a taxpayer complying with all the applicable provisions of this revenue_procedure has obtained the consent of the commissioner to change the taxpayer’s method_of_accounting under sec_446 of the internal_revenue_code and the regulations thereunder section a of revproc_2011_14 provides that a taxpayer changing a method_of_accounting pursuant to revproc_2011_14 must complete and file a form_3115 in duplicate section a i provides that the original must be attached to the taxpayer’s timely filed including extensions original federal_income_tax return for the year_of_change section a ii b provides that for certain applications a copy of the form_3115 with signature must be filed with the ogden office no earlier than the first day of the year_of_change and no later than when the original is filed with the federal_income_tax return for the year_of_change sec_301_9100-1 through provide the standards the commissioner uses to determine whether to grant an extension of time to make a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines the term regulatory election as 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_9100-1 further provides that an election includes a request to adopt change or retain an accounting_method plr-150818-12 sec_301_9100-3 provides that requests 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 and c provide standards for determining whether a taxpayer has acted reasonably and in good_faith and whether the interests of the government will be prejudiced if relief is granted sec_301_9100-3 imposes special rules for accounting_method regulatory elections the section provides in relevant part that the interests of the government are deemed to be prejudiced except in unusual and compelling circumstances if the accounting_method regulatory election for which relief is requested requires an adjustment under sec_481 or would require an adjustment under sec_481 if the taxpayer changed to the method_of_accounting for which relief is requested in a taxable_year subsequent to the taxable_year the election should have been made conclusion the taxpayer’s election is a regulatory election as defined in sec_301 b because the due_date of the election is prescribed in revproc_2011_14 based solely on the facts and representations submitted including an affidavit we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly an extension of time is hereby granted for c to file an original form_3115 requesting permission to change their method_of_accounting to deduct repair and maintenance_costs not required to be capitalized under sec_263 and unit_of_property determinations for retirements of depreciable tangible_property under revproc_2011_14 with an amended consolidated federal_income_tax return for the taxable_year beginning date2 the extension shall be for a period of days from the date of this letter_ruling please attach a copy of this letter_ruling to the form_3115 when it is filed except as expressly provided herein no opinion is expressed or implied concerning the federal_income_tax consequences of any aspect of any transaction or item discussed or referenced in this ruling including whether c is eligible to file the form_3115 at issue under revproc_2011_14 whether c meets the requirements of revproc_2011_14 and whether the proposed method_of_accounting is a permissible method_of_accounting further this letter_ruling does not grant an extension of time for filing c’s consolidated federal_income_tax return for taxable year1 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 accompanied by a penalty of perjury statement executed by an plr-150818-12 appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination in accordance with a of revproc_2013_1 2013_1_irb_1 we are issuing a single letter_ruling to the parent_corporation that is requesting the identical ruling under sec_301 for an extension of time to file a form_3115 for an identical change in method_of_accounting for multiple members of a consolidated_group in accordance with the provisions of a power_of_attorney on file with this office we are sending a copy of this letter to the taxpayer’s authorized representatives sincerely norma c rotunno senior technician reviewer branch office of associate chief_counsel income_tax accounting cc


internal_revenue_service number release date index number ---------------------------------------- --------------------------------------- -------------------- -------------------------- legend x department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-108372-05 date date ---------------------------------------- ----------------------- ------------------ ------------------ d state dear ------------- correspondence submitted on behalf of x requesting relief under ' b of the internal_revenue_code this responds to your letter dated date and related facts x was incorporated on d under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a plr-108372-05 corporation s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to ' a or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under ' a effective d x has however established reasonable_cause for not making a timely election and is entitled to relief under ' b conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center 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 mailed to your authorized representative sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes cc