internal_revenue_service number release date index number ---------------------- -------------------------- -------------------------------- in re ------------------------- --------------------------------------- ------------------------------ department of the treasury washington dc third party communication date of communication month dd yyyy person to contact -------------------------- id no -------------- telephone number ---------------------- refer reply to cc psi b04 plr-116851-14 date october legend -------------------------------- -------------------------------------------------------- --------------------- --------------------------------------------------------- ------------------------------------ -------------------------------------------------------------------- grantor spouse grantor trust trust trust -------------------------------------------------------------- date date date date date date date date child taxpayers 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--------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- county -------------------------------------------- plr-116851-14 ---------------------- ----------------------------------------------------------------------------- farm agreement of sale ------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------------------- -------------------------------------------------- a v w x y z limited_partnership trustee trustee year -------------------- ---------- ---------- ----------------- ------------ ------------ ------------ ------------------------ -------------------------------- ------- dear ---------------- this letter responds to your authorized representative’s letter of date requesting rulings on the gift estate and generation-skipping_transfer gst tax consequences of a proposed transaction the facts and representations submitted are summarized as follows on date grantor established an irrevocable_trust trust for the benefit of himself spouse and his lineal_descendants grantor died on date and spouse died on date the corporate trustee of trust is trustee on date grantor established a revocable_trust trust for the benefit of himself on date grantor amended trust so that income was paid in equal shares to his daughter grantor 1’s spouse spouse and his son child for life in addition on date grantor released his right to further amend or revoke trust on date by court order trust as amended was divided into two irrevocable equal trusts one for the benefit of spouse and her descendants trust and one for the benefit of child and his descendants grantor died on date the corporate trustee of trust is trustee trust and trust and the trust beneficiaries of those trusts taxpayers are the parties requesting this ruling currently the beneficiaries of trust and trust are essentially the same trust provides that the trustees are to pay the net_income for the benefit of grantor 1’s issue share and share alike per stirpes trust terminates twenty-one years after the death of the survivor of grantor 1’s three children trust provides that the trustees are to pay the net_income to spouse’s issue per stirpes trust terminates twenty-one years after the death of the last surviving lineal descendant of grantor living at the time of grantor 2’s death plr-116851-14 trust and trust together own farm in county trust owns y acres and trust owns z acres the acreage in farm owned by trust and trust is generally contiguous however the acreage owned by each trust was acquired at different times so that some of the parcels owned by each trust are land-locked and access to these parcels from a public road is only possible via easements over acreage owned by the other trust the trustees of both trusts have decided it is in the best interest of trust and trust to sell the property in a coordinated sale the real_estate owned by each trust is subject_to various zoning and land use restrictions and is not currently serviced by public water and sewer the property is currently zoned for agricultural and residential use and for public land use farm has been on the market for several years since year the purchaser is limited_partnership which is owned by a who is a lineal descendant of both grantor and grantor and is the trustee of a_trust that is a current beneficiary of trust and a contingent beneficiary of trust a is a licensed real_estate broker and is a developer of residential real_estate in the area where farm is located the agreement of sale was negotiated by trustee of trust and trustee of trust with some input from the beneficiaries the trusts and a the purchaser were represented by separate counsel it is represented that the sale price is dollar_figurex which is consistent with two independent appraisals and recent land sales in the area upon completion of all closings trust will receive w percent of the purchase_price and trust will receive v percent of the purchase_price the sellers’ obligations are conditioned on trust and trust receiving approval of the sale from court the beneficiaries of trust and trust performing certain conditions in the event trust terminates prior to the closing of the sale the beneficiaries of trust and trust approving and ratifying the agreement of sale and the taxpayers receiving a favorable private_letter_ruling trust will terminate on date and trust will terminate at a much later date yet to be determined trust and trust were irrevocable prior to date it is represented that no additions have been made to trust or trust after date you have requested the following rulings the execution and or the carrying out of the terms of the agreement of sale and the exercise of any right obligation or remedy hereunder will not constitute an addition to either trust or trust or cause trust or trust to lose its gst tax exempt status under b a of the tax_reform_act_of_1986 or under sec_26_2601-1 of the generation-skipping_transfer_tax regulations and distributions from trust and trust will not be subject_to gst tax under sec_2601 of the plr-116851-14 internal_revenue_code provided that no additions actual or constructive are otherwise made to trust or trust the entering into the agreement of sale and the carrying out of the terms thereof will not cause any beneficiary of either trust or trust to make or be deemed to have made a taxable gift to any other beneficiary or to a the execution and or the carrying out of the terms of the agreement of sale will not cause any beneficiary to be required to include in his or her taxable_estate trust assets owned by trust or trust unless such assets have been distributed to such person prior to his or her death ruling sec_2601 imposes a tax on each generation skipping transfer under a of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 the gst tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph sec_26_2601-1 b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust plr-116851-14 sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust trustees will seek court approval of the sale of farm trustees will join with all living beneficiaries of trust and trust in the proposed court proceeding the agreement of sale will only be binding on trust and trust if the trusts receive approval from court as part of the proceedings the trustees will petition the court to appoint a guardian and trustee ad litem to represent the interests of minor unborn and unascertained descendants of grantor and grantor in addition the agreement of sale is binding only if trust and trust receive from all beneficiaries of trust and trust ratification and approval of the agreement of sale as part of the court approval process court must determine that the agreement of sale is fair and reasonable which determination includes the determination that the price reflects a fair_market_value and that the other terms of the sale are reasonable in this case trust and trust were irrevocable prior to date therefore trust and trust are currently exempt from gst tax the agreement of sale and sale of farm is binding on trust and trust only if court approves the sale the execution and or the carrying out of the terms of the agreement of sale and the sale of farm are administrative in nature and will not shift a beneficial_interest in trust or trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to entering into the agreement of sale or the sale of farm further execution of the agreement of sale and the sale of farm does not extend the time for vesting of any beneficial_interest in trust or trust beyond the period provided for in the original trusts based on the facts submitted and the representations made we conclude that the execution and or the carrying out of the terms of the agreement of sale and the exercise of any right obligation or remedy thereunder will not constitute an addition to either trust or trust or cause trust or trust to lose its gst tax exempt status plr-116851-14 under b a of the tax_reform_act_of_1986 or under sec_26_2601-1 and distributions from trust and trust will not be subject_to gst tax under sec_2601 provided that no additions actual or constructive are otherwise made to trust or trust ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift and shall be included in computing the amount of the gifts made during the calendar_year sec_25_2512-8 of the gift_tax regulations provides that transfers reached by the gift_tax are not confined to those only which being without a valuable consideration accord with the common_law concept of gifts but embrace as well sales exchanges and other dispositions of property for a consideration to the extent that the value of the property transferred by the donor exceeds the value in money_or_money's_worth of the consideration given therefor however a sale exchange or other transfer of property made in the ordinary course of business a transaction which is bona_fide at arm's length and free from any donative_intent will be considered as made for an adequate_consideration in money_or_money's_worth trust and propose to sell acreage in farm it is represented that the trustees have obtained two independent appraisals on the value of farm and that the sales_price is consistent with the appraisals and other sales of land in the area the agreement of sale has been negotiated at arm’s length by the corporate trustees of trust and trust the beneficiaries of both trusts must consent to the sale the trusts and a the purchaser were represented by separate counsel to secure approval of court the trustees will have to demonstrate that the agreement of sale is fair reasonable and that the terms are arm’s length the trustees have a fiduciary duty to act in the best interests of all of the beneficiaries plr-116851-14 based on the facts submitted and the representations made and provided court approves the agreement of sale and finds the agreement of sale is fair reasonable and that the terms are arm’s length we conclude that the entering into the agreement of sale and the carrying out of the terms thereof will not cause any beneficiary of either trust or trust to make or be deemed to have made a taxable gift to any other beneficiary or to a ruling sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2035 provides that if the decedent transferred by trust or otherwise an interest in property or relinquished a power with respect to any property during the 3-year period ending on the date of the decedent's death and the value of the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the transferred interest or relinquished power had been retained by the decedent on the date of death the value of the gross_estate shall include the value of any property or interest therein that would have been so included sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_consideration in money_or_money's_worth by trust or otherwise under which the decedent has retained for his life or for any period not ascertainable without reference to the decedent's death or for any period which does not in fact end before the decedent's death - the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if the possession or enjoyment thereof can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of the reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of the property sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of the decedent's death to any change through the plr-116851-14 exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent's death in order for sec_2035 through to apply a decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth under which the decedent retained an interest in or power over the income or corpus of the transferred property in this case the corporate trustees of trust and trust propose to sell farm to limited_partnership owned by a in exchange for dollar_figurex the acreage in farm is an asset of each trust the beneficiaries are not transferring assets to trust trust or any other trust accordingly the beneficiaries are not transferors for purposes of sec_2036 sec_2037 or sec_2038 based on the facts submitted and the representations made we conclude that the execution and or the carrying out of the terms of the agreement of sale will not cause any beneficiary to be required to include in his or her taxable_estate trust assets owned by trust or trust unless such assets have been distributed to such person prior to his or her death 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 except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue plr-116851-14 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely _____________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures 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 plr-121797-98 date date distributing sub sub sub partnership controlled business a business b period c country d e plr-121797-98 f g h i j k consultant we respond to your date request for rulings on certain federal_income_tax consequences of a series of proposed transactions distributing and its affiliates were the subject of rulings on prior transactions during period c the prior ruling letters summary of facts publicly traded distributing is the common parent of a consolidated_group engaged in business a distributing was formed during period c as part of a transaction that qualified under sec_355 of the internal_revenue_code distributing or its predecessors have wholly owned directly or indirectly sub sub and sub for more than five years sub and sub are domestic corporations sub is a country d corporation engaged in business a sub and sub together own an e percent interest in domestic_partnership controlled a domestic_corporation conducts business b and has only class a stock outstanding this stock is owned f percent by distributing g percent by sub h percent by partnership and the rest by the public and other persons unrelated to distributing distributing or its predecessors and its affiliates have owned i shares of controlled stock for more than five years the old shares distributing also owns warrants to acquire additional controlled stock we have received financial information indicating that business a of distributing and business b of controlled each has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years plr-121797-98 because business a and business b are substantially different businesses their present relationship creates managerial systemic and other problems the managements of distributing and controlled have therefore decided based on the advice of consultant and other information to separate business a and business b proposed transactions to accomplish this separation distributing proposes the following series of transactions i sub will a transfer all of its assets except the controlled stock to a newly formed domestic limited_liability_company the llc and b merge into distributing under state law the liquidation it is intended that the llc be disregarded for u s federal tax purposes ii the old shares will be converted into class b shares of controlled as follows a distributing will form a new state b corporation transitory b distributing will transfer the old shares to transitory in exchange for all of the transitory stock and c transitory will merge into controlled in exchange for issuance of class b shares to distributing on a share-for-share basis altogether the recapitalization the class b shares will have the right to elect percent of the controlled board_of directors and will represent j percent of the fair_market_value of controlled iii distributing will distribute the controlled class b shares to the shareholders of distributing pro_rata the distribution in lieu of fractional controlled shares the distribution agent will aggregate all such share interests sell the aggregated shares and remit the proceeds to the shareholders entitled to fractional shares iv distributing and partnership will sell their controlled class a shares and controlled warrants as quickly as is feasible following the distribution either to third parties or to controlled before the distribution controlled will have distributed k dollars in cash to the holders of its class a and class b shares pro_rata the prior distribution liquidation representations the taxpayer has submitted the following representations concerning the liquidation a distributing on the date of adoption of the plan_of_liquidation and at all times plr-121797-98 until the final liquidating_distribution is completed will be the owner of percent of the single outstanding class of sub stock b no shares of sub stock will have been redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub c all distributions from sub to distributing pursuant to the plan of complete_liquidation will be made within a single taxable_year of sub d as soon as the first liquidating_distribution has been made sub will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets to distributing e sub will retain no assets following the final liquidating_distribution f sub will not have acquired assets in any nontaxable_transaction within the past three years g no assets of sub have been or will be disposed of by either sub or distributing i except as described herein ii except for dispositions in the ordinary course of business and iii except for dispositions occurring more than three years before adoption of the plan_of_liquidation h the liquidation of sub will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of sub if persons who hold directly and indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent in value of the stock in recipient for this representation ownership will be determined by applying the constructive_ownership rules of sec_318 as modified by sec_304 i before adoption of the liquidation plan no assets of sub will have been distributed in_kind transferred or sold to distributing except for i transactions occurring in the normal course of business and ii transactions occurring more than three years before adoption of the liquidation plan j sub holds no assets representing earned but unreported income k the fair_market_value of the assets of sub will exceed its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately before the time the first liquidating_distribution is made l other than intercompany items incurred in the ordinary course of business there is no intercorporate debt existing between distributing and sub and none has plr-121797-98 been canceled forgiven or discounted m distributing is not an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code n all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the liquidation have been fully disclosed recapitalization representations the taxpayer has submitted the following representations concerning the recapitalization o controlled and distributing each will pay its own expenses in connection with the recapitalization p the fair_market_value of the controlled stock held by each controlled shareholder immediately following the recapitalization will approximately equal the fair_market_value of the controlled stock held by the shareholder immediately before the recapitalization q controlled is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 r there is no plan intention or formal or informal understanding to change the capital structure of controlled to eliminate the two-tiered voting structure of the class a and class b shares of controlled established in the recapitalization distribution representations the taxpayer has submitted the following representations concerning the distribution s none of the class b shares distributed by distributing will be received by a shareholder of distributing as a creditor employee or in any capacity other than that of a shareholder of distributing t the five years of financial information submitted for business a of distributing and business b of controlled represents in each case its present operations and with regard to each business there have been no substantial operational changes since the date of the last financial statements submitted u following the distribution distributing and controlled will each continue the active_conduct of its business independently and with its separate employees plr-121797-98 v the distribution is being undertaken to permit the management of business a and the management of business b each to focus more completely on the activities of its own business the distribution is motivated in whole or substantial part by this corporate business_purpose w there is no plan or intention by any shareholder who owns five percent or more of the distributing stock and the management of distributing to its best knowledge is not aware of any plan or intention on the part of any particular remaining shareholder of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in either distributing or controlled after the distribution x 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 i purchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 ii possibly the purchase by controlled of some or all of the controlled class a shares to be retained by distributing and partnership and iii possibly intermittent acquisitions by controlled of its class a stock from a pre-existing public shareholder pursuant to a pre-existing contractual relationship not expected to exceed one percent of the controlled stock y 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 any of the assets of either corporation after the distribution except in the ordinary course of business z no indebtedness will exist between distributing and controlled at the time of or after the distribution aa payments made in any continuing transactions 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 bb the payment of cash in lieu of fractional shares of controlled stock is solely for the purpose of avoiding the expense and inconvenience to controlled of issuing and maintaining fractional shares and will not represent separately bargained-for consideration the method used for handling fractional shares is designed to limit the amount of cash received by any one shareholder to less than the value of one full share of controlled class b stock cc the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled entitled to vote or stock possessing percent or more of the total value of all classes of stock of either distributing or plr-121797-98 controlled liquidation rulings based solely on the information submitted and the representations set forth above we rule as follows on the liquidation for federal_income_tax purposes the merger of sub into distributing will be treated as a distribution by sub of all its assets to distributing in complete_liquidation under sec_332 sec_1_332-2 of the income_tax regulations no gain_or_loss will be recognized by distributing on its receipt of the sub assets in the liquidation sec_332 no gain_or_loss will be recognized by sub as a result of the liquidation sec_336 and sec_337 the basis of each sub asset in the hands of distributing will equal the basis of that asset in the hands of sub immediately before the liquidation sec_334 the holding_period of each sub asset received by distributing will include the period during which sub held the asset sec_1223 distributing will succeed to and take into account the items of sub described in sec_381 subject_to the provisions and limitations of sec_381 and c and the regulations thereunder sec_381 and sec_1_381_a_-1 distributing will succeed to and take into account the earnings_and_profits of sub as of the date of the merger of sub into distributing sec_381 and sec_1_381_c_2_-1 any deficit in earnings_and_profits of distributing or sub will be used only to offset earnings_and_profits accumulated after the date of the merger of sub into distributing sec_381 recapitalization rulings based solely on the information submitted and the representations set forth above we rule as follows on the recapitalization the recapitalization will be treated as an exchange by distributing of its old shares for controlled class b shares and will qualify as a reorganization under sec_368 controlled will be a_party_to_a_reorganization within the meaning of sec_368 plr-121797-98 no gain_or_loss will be recognized by distributing as a result of the recapitalization sec_354 the basis of the controlled class b shares received in the recapitalization will equal the basis of the old shares surrendered in exchange therefor sec_358 the holding_period of the controlled class b shares received in the recapitalization will include the period during which the old shares surrendered in exchange therefor were held provided the old shares were held as a capital_asset on the date of the exchange sec_1223 distribution rulings based on the information submitted and the representations set forth above we rule as follows on the distribution no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the distributing shareholders as a result of the distribution sec_355 no gain_or_loss will be recognized by distributing as a result of the distribution sec_355 the aggregate basis of the distributing shares and the controlled class b shares in the hands of each distributing shareholder after the distribution will equal the aggregate basis of the distributing shares in the hands of the distributing shareholder immediately before the distribution sec_358 and sec_1_358-1 this basis will be allocated between the distributing shares and the controlled class b shares in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 and sec_358 the holding_period of the controlled class b shares received by the distributing shareholders in the distribution will include the holding_period of the distributing shares on which the distribution is made provided that the distributing shares are held as capital assets on the date of the distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 if cash is received by a distributing shareholder in lieu of a fractional share of controlled stock gain_or_loss will be recognized by the shareholder measured by the difference between the basis of the fractional share interest as determined in ruling above and the amount of cash received if the fractional share qualifies as a capital_asset in the hands of the shareholder the gain_or_loss will be a capital_gain or plr-121797-98 loss subject_to the provisions and limitations of subchapter_p of chapter of the code sec_1221 and sec_1222 miscellaneous rulings based solely on the information submitted and the representations set forth above we rule as follows on the prior distribution and the prior ruling letters the prior distribution will be included in the gross_income of each controlled shareholder to the extent that the prior distribution is out of controlled’s accumulated_earnings_and_profits or out of controlled’s current_earnings_and_profits through the close of the year in which the prior distribution occurs sec_301 and sec_316 if the amount distributed on a controlled share exceeds the earnings_and_profits of controlled attributable to that share the prior distribution will be applied against and reduce the adjusted_basis of that share sec_301 if the amount distributed on a controlled share exceeds its attributable earnings_and_profits and its adjusted_basis the excess will be taxable to the holder as capital_gain sec_301 the proposed transactions will not adversely affect the prior ruling letters which will remain in full force and effect caveats we express no opinion on the tax effects of the transactions under any other provisions of the code or regulations or the tax effects of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above rulings procedural statements this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer affected by this ruling letter should attach a copy of the letter to its federal_income_tax return for the taxable_year in which the transactions covered by the letter are completed plr-121797-98 under a power_of_attorney on file in this office a copy of this ruling letter will be forwarded to the taxpayer sincerely yours assistant chief_counsel corporate by wayne t murray senior technician reviewer branch


internal_revenue_service number release date index number ------------------------------- -------------------------------- -------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-147685-08 date april -------------------------- -------------------------- ------------------------------------------------------------------------------------------ legend donor a donor b_trust ------------------------------------------------------------------------------------------------------------ ----------------------- date ------------------------- date ------- year ----------------------- dollar_figurea dollar_figureb ------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------- gift 1-a gift 1-b gift 2-a ------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------- gift 2-b ------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- dear --------------------------- this responds to your representative’s letter of date and subsequent correspondence requesting an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to allocation of generation-skipping_transfer gst_exemption to a_trust the information and representations state that on date donor a and donor b who are spouses created the trust for the benefit of their descendants donor a and donor b each transferred dollar_figurea ie gift 1-a and gift 1-b respectively to the trust on date donors relied on their professional advisors to prepare the returns reporting these gifts plr-147685-08 however due to miscommunication among the advisors no gift_tax returns were filed in the following year year donor a and donor b each transferred dollar_figureb gift 2-a and gift 2-b respectively to the trust each timely filed a gift_tax_return reporting the gift however no gst_exemption was allocated to the gifts on the returns the time for assessing the tax for these gifts has since expired donor a and donor b request an extension of time to allocate his or her gst_exemption to his or her respective gifts made to trust on date and in year they will each file a gift_tax_return reporting their respective gift to trust on date in computing the gift_tax to be paid for that gift each will treat his or her gift made in year as having been made prior to date that is donor a will treat gift 2-a as made before gift 1-a likewise donor b will treat gift 2-b as made before gift 1-b in this way the unified_credit already applied against the tax on the gifts made in year will be taken into account before any unified_credit may be applied against the tax on the gifts made on date sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides the method for determining the inclusion_ratio sec_2631 in effect at the time of the transfer provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 provides that an allocation of gst_exemption to property transferred during the transferor's lifetime other than in a direct_skip is made on form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c b a the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of plr-147685-08 sec_2001 and b such allocation shall be effective on and after the date of such transfer sec_2642 provides that the secretary shall by regulation prescribe the circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 the regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2624 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 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 or sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with g b and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax plr-147685-08 professional failed to make or advise the taxpayer to make the election with respect to donor a’s and donor b’s request for relief based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore donor a is granted an extension of time of sixty days from the date of this letter to allocate his available gst_exemption to his gifts made on date and in year likewise donor b is granted an extension of time of sixty days from the date of this letter to allocate her available gst_exemption to her gifts made on date and in year the allocations will be effective as of the date of each transfer the allocations should be made on supplemental form sec_709 for each year in which there was a transfer and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the returns 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 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely curt g wilson associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of the letter


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 b02 plr-119105-06 date date ----------------------- ----------------------- ty year ending -------------- ty year ending -------------- ------------------------------------------------------------ legend taxpayer ------------------------------ ------------------------------------------------------------------ ----------------------------------------------------------- date date company official dear -------------- taxpayer requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election taxpayer is requesting an extension to file an election under sec_1_1502-21t of the income_tax regulations to relinquish the entire carryback period for the consolidated_net_operating_loss cnol of the consolidated_group of which taxpayer was the common parent for the tax_year ending date the material information is summarized below cnol in the tax_year ending date no portion of the cnol for the year ending date was carried back to offset taxable_income recognized in any_tax year of any consolidated_group ending prior to date no corporation which was a member of the taxpayer’s consolidated_group at any time during the tax_year ending date had a separate_return_year within the meaning of sec_1_1502-1 at any time during the carryback period taxpayer was the common parent of a consolidated_group which sustained a this letter responds to a letter dated date submitted on behalf of subsequent to date the date that the return was filed it was discovered that a plr-119105-06 taxpayer intended to relinquish the entire carryback period for the cnol on its tax_return for the tax_year ending date the return was timely filed consistent with a valid election having been made however for various reasons a valid election was not filed valid election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file a valid election the period on limitations on assessment under sec_6501 has not expired for the taxable_year for which the election should have been made or for any subsequent year relinquish the carryback period with respect to a cnol for any consolidated_return_year the election is made in a separate statement entitled this is an election under sec_1_1502-21 to waive the entire carryback period pursuant to sec_172 for the insert consolidated_return_year cnols of the consolidated_group of which insert name and employer_identification_number of common parent is the common parent sec_1_1502-21t provides that the statement must be filed with the group’s income_tax return for the consolidated_return_year in which the cnol arises sec_1_1502-21t provides that a consolidated_group may elect to under ' c the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-1 defines a 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_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under ' will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a in this case the time for filing the election is fixed by the regulations ie sec_1_1502-21t therefore the commissioner has discretionary authority under ' to grant an extension of time for taxpayer to file the election provided taxpayer shows it acted reasonably and in good_faith the requirements of plr-119105-06 and are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by taxpayer and company official explain the circumstances that resulted in the failure to timely file a valid election the information establishes that taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election and that the interests of the government will not be prejudiced if relief is granted see ' b v based on the facts and information submitted including the representations made we conclude that taxpayer has shown it acted reasonably and in good_faith the requirements of and are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under ' until days from the date on this letter for taxpayer to file the election with respect to the relinquishment of the entire carryback period for the cnol for the tax_year ending date as described above the above extension of time is conditioned on the taxpayer group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the amount of any_tax liability a determination thereof will be made upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers tax_liability is lower sec_301_9100-3 taxpayer should file the election in accordance with sec_1_1502-21t taxpayer’s return must be amended to attach the election required by sec_1 21t b i a copy of this letter must be attached to such return alternatively if the amended_return is filed electronically this requirement may be satisfied by attaching to that return a statement that provides the date and control number of the letter_ruling we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in this ruling for purposes of granting relief under ' we relied on certain statements and representations made by the taxpayers however all essential facts should be verified in addition notwithstanding that an extension is granted under ' to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent plr-119105-06 pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives sincerely _____________________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc