t c memo united_states tax_court lillie m petty petitioner v commissioner of internal revenue respondent docket no filed date lillie m petty pro_se thomas d yang for respondent memorandum opinion pajak special_trial_judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue this court must decide whether petitioner had unreported gambling income and whether the inclusion of such income reduced petitioner’s earned_income_credit some of the facts in this case have been stipulated and are so found petitioner resided in chicago illinois at the time she filed her petition sec_7491 does not apply because this case involves legal issues on form_1040 u s individual tax_return for taxable_year petitioner reported dollar_figure in wage income petitioner did not report any other income petitioner also claimed head_of_household filing_status two dependency_exemptions and the standard_deduction petitioner claimed the earned_income_credit eic in the amount of dollar_figure respondent received five forms w-2g certain gambling winnings for taxable_year four from hollywood casino aurora in the amounts of dollar_figure dollar_figure dollar_figure and dollar_figure respectively and one from showboat marina casino partnership in the amount of dollar_figure for a total of dollar_figure from these forms w-2g respondent determined that petitioner had unreported gambling income of dollar_figure for taxable_year accordingly respondent increased petitioner’s adjusted_gross_income to dollar_figure and decreased petitioner’s eic by dollar_figure sec_61 provides that gross_income includes all income from whatever source derived unless excludable by a specific provision of the code no specific code section excludes gambling winnings from gross_income sec_165 allows gambling_losses but only to the extent of gambling winnings petitioner stipulated that she received gambling winnings in the amount of dollar_figure during taxable_year in the notice_of_deficiency respondent allowed petitioner a deduction for itemized_deductions including gambling_losses equal to her gambling winnings we find that the unreported dollar_figure of gambling winnings is includable in petitioner’s adjusted_gross_income for the taxable_year as a result petitioner’s adjusted_gross_income was properly increased from dollar_figure to dollar_figure there is no argument or evidence from petitioner that she was in the trade_or_business of gambling thus her gambling_losses are deductible only as itemized_deductions not from gross_income in arriving at adjusted_gross_income her gambling winnings therefore result in a dollar-for-dollar increase to her adjusted_gross_income torpie v commissioner tcmemo_2000_168 sec_32 allows an earned_income_tax_credit to eligible individuals sec_32 provides that the allowable credit shall be phased out if the modified_adjusted_gross_income or if greater the earned_income of the taxpayer for the taxable_year exceeds a prescribed amount sec_32 defines modified_adjusted_gross_income as adjusted_gross_income determined without regard to adjustments not relevant here there is no provision in sec_32 that excludes gambling income from modified_adjusted_gross_income or allows the deduction of gambling_losses in arriving at modified_adjusted_gross_income unfortunately for petitioner the eic is based upon modified_adjusted_gross_income as defined for sec_32 we have verified that respondent’s computation of the earned_income_credit is correct based on the inclusion of petitioner’s gambling winnings as part of her modified_adjusted_gross_income we conclude that the increase in petitioner’s modified_adjusted_gross_income decreased her eic and resulted in the deficiency in issue we have no choice but to sustain respondent’s determination decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc te_ge eb hw plr-124772-02 date legend company dear this responds to your ruling_request dated date on your behalf of the company that certain educational benefits provided to employees of the company are part of an educational_assistance program described in sec_127 of the internal_revenue_code the code the company established an educational_assistance_plan the plan that is intended to provide benefits under sec_127 to all regularly employed full and part-time employees of the company with six months of continuous service prior to the course or program start date full and part-time employees include all individuals working or more hours per week on a regular basis who are in good standing with the company and are not currently on unpaid leaves of absence except individuals under the family_and_medical_leave act or military leave who remain eligible for benefits employees who enroll in an educational course must maintain their status as full or part-time employees during the term of the course in order to remain eligible to participate in the plan the company reserves the right to change or terminate the plan without prior notice if the plan is terminated all courses previously approved will be reimbursed but the company will not approve any more applications a participant desiring to receive benefit under the plan must submit a written request to the plan_administrator at least days prior to course registration upon completion of the course the participant is required to provide original receipts for all items for which he or she seeks reimbursement the amount reimbursed is reduced by any financial assistance scholarship or any other financial benefit derived from public or private programs that apply toward educational costs the participant must also attain a grade of c or better in order to receive benefits under the plan if an application to participate in the plan is denied the plan provides a procedure through which the participant may plr-124772-02 appeal the denial the plan provides that during the calendar_year an employee is permitted to receive reimbursement for no more than two courses a semester or five courses per year up to the statutory dollar limitation of sec_127 this reimbursement covers educational_assistance described in sec_127 and sec_1_127-2 of the income_tax regulations the plan provides that the company shall contribute the amount required to pay educational benefits out of the general assets of the company at the time the benefits are to be paid there is no special fund out of which the benefits are paid nor are participants required to make a contribution as a condition of receiving benefits the plan states that not more than percent of the benefits paid_or_incurred each year under the plan for educational courses shall be attributable to principal percent shareholders or owners of the company in accordance with sec_127 of the code you represent that the company has provided reasonable notification of the availability and terms of the plan to all eligible employees through e-mail postings at bulletin boards and the company's intranet website based on the foregoing you request rulings that all payments under the plan are excluded from the gross_income of participating employees under sec_127 of the code and that all payments by the company under the plan are deductible by the company under sec_162 of the code as ordinary and necessary business_expenses sec_127 provides that the gross_income of an employee does not include amounts paid or expenses_incurred by the employer for educational_assistance to the employee if the assistance is furnished pursuant to a program which is described in sec_127 sec_127 requires a separate written plan of the employer for the exclusive benefit of the employees to provide such employees with educational_assistance sec_127 and sec_1_127-2 of the regulations provide that the program shall benefit employees who qualify under a classification set up by the secretary not to be discriminatory in favor of employees who are officers owners or highly compensated or their spouses and dependents who are themselves employees however a program shall not be considered discriminatory because members of the prohibited_group in fact utilize the program to a greater degree than eligible employees who are not within the prohibitive group or because with respect to a course of study for which benefits are otherwise available successful completion of the course attaining a particular course grade or satisfying a reasonable condition_subsequent such as remaining employed for one year after completing the course are required or considered in determining the availability of benefits plr-124772-02 sec_127 provides that not more than percent of the amounts paid_or_incurred by the employer for educational_assistance during the year may be provided for the class of individuals who are shareholders or owners or their spouses or dependents each of whom on any day of the year owns more than percent of the stock or of the capital or profits interest in the employer sec_127 provides that a program must not provide eligible employees with a choice between educational_assistance and other remuneration includible in gross_income sec_127 states that a program referred to in sec_127 is not required to be funded sec_127 requires that reasonable notification of the availability and terms of the program must be provided to eligible employees based on the information submitted representations made and authorities cited we conclude that the plan qualifies as an educational_assistance program as described in sec_127 of the code payments made under the plan are excluded from the gross_income of the employees under sec_127 of the code as employer-provided educational_assistance all payments by the company under the plan are deductible by the company under sec_162 of the code as ordinary and necessary business_expenses except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or items 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 sincerely harry beker chief health welfare branch office of division counsel associate chief_counsel tax exempt government entities enclosure copy for section purposes


t c no united_states tax_court sdi netherlands b v f k a sdi international b v petitioner v commissioner of internal revenue respondent docket no filed date p was the licensee of a bermuda corporation sdi bermuda of worldwide rights to use computer_software p in turn licensed those rights for use in the united_states to a u s_corporation sdi usa p received royalties from sdi usa as well as from other licensees p paid specified percentages of the royalties it received from its licensees to sdi bermuda p sdi usa and sdi bermuda were members of a group of corporations under common_control held the two licenses were separate and distinct from each other with the result that the royalties paid to p by sdi usa did not retain their u s source character as part of the royalties paid_by p to sdi bermuda consequently they were not income received from sources within the united_states by sdi bermuda within the meaning of sec_881 a i r c so as to subject p to withholding_tax as provided in sec_1441 and sec_1442 i r c arthur d pasternak douglas r cox and jeffrey a fiarman for petitioner karen e chandler and kristine a roth for respondent opinion tannenwald judge respondent determined deficiencies in federal withholding taxes and additions to tax as follows year deficiency dollar_figure big_number big_number big_number additions to tax sec_6651 dollar_figure big_number big_number big_number the issue in dispute is whether petitioner a corporation organized under the laws of the kingdom of the netherlands is liable for withholding taxes on royalties paid to a bermuda corporation and additions to tax for failure_to_file form sec_1042 for each of the years in issue all the facts have been stipulated the stipulation of facts and attached exhibits are incorporated herein by this reference all section references are to the internal_revenue_code in effect for the years in issue and rule references are to the tax_court rules_of_practice and procedure background petitioner is a foreign_corporation organized in under the laws of the kingdom of the netherlands petitioner was formerly known as sdi international b v and prior to that as software design dervis b v petitioner is the successor in business to software design sebas b v a foreign_corporation organized in under the laws of the kingdom of the netherlands at the time of filing the petition petitioner maintained its principal office in rotterdam the netherlands during the years in issue petitioner was a member_of_an_affiliated_group of companies the sdi group whose members designed manufactured marketed and serviced commercial systems software for use on ibm mainframe computers worldwide sdi ltd a corporation organized under the laws of bermuda is the parent company of the sdi group during the years in issue petitioner was a wholly owned subsidiary of sdi antilles a netherlands antilles corporation which was a wholly owned subsidiary of sdi ltd the sdi group also included sdi bermuda ltd sdi bermuda a corporation organized under the laws of bermuda which during the years in issue was a wholly owned subsidiary of sdi ltd reference to petitioner and other corporations who are members of the sdi group herein includes predecessor corporations sdi usa inc sdi usa a corporation organized under the laws of the state of california was during the years at issue a wholly owned subsidiary of petitioner petitioner also had subsidiary corporations in germany france and the united kingdom a brochure used by the sdi group for the years in issue describes sdi ltd as the corporate office of the sdi group and petitioner sdi usa and other members of the sdi group as marketing offices of the sdi group sdi ltd provided management services to certain of its direct and indirect subsidiaries for which such subsidiaries paid it management fees royalty payments made by petitioner during the years in issue petitioner licensed from sdi bermuda pursuant to a license agreement dated date bermuda license agreement the worldwide rights to certain commercial systems software for use on ibm mainframe computers the software the bermuda license agreement granted petitioner a nonexclusive license to use or to market the use of on a worldwide basis all of the software and any and all industrial and intellectual_property rights sdi ltd had or would acquire from the effective date of the agreement3 in exchange for certain royalty payments the agreement further provided that petitioner shall specifically have the right to grant sublicenses and agents for the right to use and to market the use of any and all marketing rights granted to petitioner under the terms of the agreement the agreement was valid for an indefinite period and could be unilaterally terminated by either party on months' written notice the bermuda license agreement contained no express reference to the united_states with respect to royalties the bermuda license agreement provided the royalties payable to sdi bermuda by petitioner under this agreement are fixed pincite of the net amount of all of the royalties due to petitioner by all persons entities and institutions which petitioner sublicensed any of the rights licensed to petitioner under this agreement sublicensees the aforementioned net amount is the amount that remains after the deduction of the withholding_tax on royalties to be withheld when the sublicensees of petitioner or agents of petitioner pay the royalties due to the petitioner the aforementioned percentage of will be increased if the net amount of royalties received by petitioner exceeds in a specific accounting_period the following amounts in dutch florins the record does not explain how or from whom sdi ltd known in l986 as castle investments ltd acquired its existing rights but it is clear that at least some of them had been previously owned by petitioner's predecessor but not if petitioner's royalty receipts exceed then the percentage for that portion to be paid on will be dfl dfl percent all royalties payable to sdi bermuda under this agreement shall be due within days from the moment that the royalties to be paid_by the sublicensees shall be due to petitioner all royalties payable to sdi bermuda under this agreement will be paid_by petitioner at the option of the petitioner in the same currency or in u s dollars in which the royalties due to petitioner are payable petitioner shall annually provide sdi bermuda with a survey of all royalties due by the sub-licensees and pay sdi bermuda in accordance with sub sec_8_1 hereof any additional payments due to sdi bermuda pursuant to subsection shall be made immediately after the approval of the annual accounts of petitioner sdi bermuda has the right to have a representative examine petitioner's accounts petitioner made royalty payments to sdi bermuda pursuant to the bermuda license agreement during the years in issue in the following amounts dollar_figure big_number big_number big_number the above payments constituted the following percentages of the total worldwide royalty payments received by petitioner with respect to the software year total royalty percentage payments received dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number royalty payments received by petitioner from sdi usa during the years in issue petitioner was a party to an exclusive license agreement with sdi usa dated date and as modified from time to time regarding the use and licensing of the software in the united_states the u s license agreement sdi usa was responsible for the direct marketing and sales of the software in the united_states the u s license agreement provided in part in consideration for the payment of the royalties provided hereunder and the performance of the other terms and conditions hereof by sdi usa petitioner hereby grants and transfers to sdi usa upon the terms and subject_to the conditions hereinafter set forth the exclusive right and license during the term hereof to have disclosed to it by petitioner and to exploit use and lease and otherwise obtain the benefit of the software within the territory at the time this agreement was executed petitioner was known as software design sebas b v later known as software design dervis b v and sdi usa was known as software design inc this exclusive license shall include i the right to sublicense to others the use and lease of the software within the territory subject however to the terms and conditions of this license and ii this license shall also include the right and as hereinafter provided the obligation of sdi usa to provide or to provide for the exclusive maintenance servicing and repair of the software within the territory the territory of this license shall mean and be restricted to the continental_united_states hawaii and alaska petitioner agreed not to license the software for use or to compete directly or indirectly with sdi usa's exploitation of the software in the united_states during the term of its license to sdi usa until date the agreement provided that sdi usa would pay to petitioner an annual royalty equal to fifty percent of the annual gross revenues of sdi usa from leasing and sublicensing of the software without any deductions therefrom except rebates discounts and sales or value added taxes the u s license agreement was modified in date to provide that sdi usa would pay petitioner a royalty equal to fifty percent of the gross billable or invoiced revenues of sdi usa with regard to all products licensed herein or further in l986 these rights became exclusive only as between petitioner and sdi usa and were otherwise subject_to the nonexclusive worldwide rights that petitioner acquired at that time licensed in the future without any deductions therefrom except rebates or sales or value added taxes petitioner received royalty payments pursuant to the u s license agreement from sdi usa during the years in issue in the following amounts dollar_figure big_number big_number big_number respondent mailed notices of deficiency to petitioner one for and and one for on date the parties have stipulated the amounts of royalties received by petitioner from sdi usa and paid_by petitioner to sdi bermuda as a consequence it appears that these amounts if subject_to_withholding tax would produce deficiencies greater than those determined in the notices of deficiency for and and a lesser amount for respondent has made no specific request for any increased deficiencies increased deficiencies discussion sec_6214 provides that this court has jurisdiction to determine an increased deficiency if claim therefor is asserted at or before the hearing or a rehearing under the circumstances herein where the amounts upon which the mathematical calculation of the withholding_tax is based have been stipulated by the parties and where the issue upon which the liability for both the original and the increased deficiencies depends is the same we think that respondent has made a timely claim for the increased deficiencies and see no reason to preclude our consideration of such increases see 90_tc_498 cf 84_tc_985 indeed as we understand petitioner's position it does not oppose such consideration except in the context of its contention that the burden_of_proof should in any event be shifted to respondent under rule a burden_of_proof petitioner argues that the notices of deficiency refer only to sec_1441 so that reliance by respondent on sec_1442 constitutes a new_matter on which respondent has the burden_of_proof under rule a that burden_of_proof would according to petitioner require respondent to prove that during the years in issue sdi bermuda was not engaged_in_a_trade_or_business_within_the_united_states or if so engaged that the royalties received from petitioner by sdi bermuda were not effectively connected with such trade or business7 if sdi bermuda were so see also brown v commissioner tcmemo_1996_325 cf wicker v commissioner tcmemo_1993_431 affd without published opinion 50_f3d_12 8th cir petitioner makes a further reference to placing the burden of continued engaged and the royalties so connected no withholding would be necessary see sec_1441 sec_1442 and b a sec_1_1442-2 sec_1_1441-4 income_tax regs initially we deal with petitioner's position in respect of the burden_of_proof without regard to the increases in deficiencies for and in this connection we note that the fact that the case has been fully stipulated does not alter the application of the burden_of_proof rules rule b 95_tc_82 affd on other grounds 943_f2d_22 8th cir in 92_tc_1084 revd on other grounds 916_f2d_110 3d cir we set forth the following frame of reference for determining what is new_matter within the meaning of rule a rule a provides that the burden_of_proof is on petitioner except that in respect of any new_matter increases in deficiency and affirmative defenses pleaded in his answer it shall be upon the respondent a new position taken by respondent is not necessarily a new_matter if it merely clarifies or continued proof on respondent in respect of the absence of income from insurance includable under sec_842 a reference which under the circumstances herein we think is irrelevant we also note that for purposes of this proceeding respondent does not contend that petitioner maintained an office or place of business in the united_states engaged in trade_or_business_within_the_united_states or received income effectively connected with the conduct_of_a_trade_or_business within the united_states develops respondent's original determination without requiring the presentation of different evidence being inconsistent with respondent's original determination or increasing the amount of the deficiency 77_tc_881 the notices of deficiency herein provide in pertinent part the payments you made to nonresident_aliens in the amounts shown are subject_to the withholding rate provided by sec_1441 of the internal_revenue_code since you did not withhold the tax and did not establish that the recipient of the payments paid the united_states tax you are liable for the tax that should have been withheld we think that sec_1441 which imposes the withholding_tax on nonresident_alien individuals and foreign_partnerships was cited only for the rate_of_tax applied by respondent respondent cited no section for the source of the deficiencies nor indeed was respondent required to do so 78_tc_646 the language of the notices did not directly or by necessary inference exclude a claim under sec_1442 which imposes the withholding_tax on foreign_corporations and upon which respondent proceeds herein moreover sec_1442 makes reference to and incorporates sec_1441 so that reference to sec_1441 is entirely appropriate in a proceeding under sec_1442 see 102_tc_515 beyond this the very elements of sec_1442 upon which petitioner relies to shift to respondent the burden_of_proof ie the burden of proving that sdi bermuda was not engaged in trade_or_business_within_the_united_states or if so engaged that the royalties were not effectively connected with such trade_or_business are also present in the application of sec_1441 see also sec_1_1442-2 and sec_1_1441-4 income_tax regs compare sec_1442 b with sec_1441 c thus there is no inconsistency in applying sec_1442 rather than sec_1441 herein since similar evidence is involved in providing a basis for determining whether or not a taxpayer is exempt from withholding under either section inconsistency and the absence of a need for different evidence are critical elements in sec_1442 provides b exemption --subject to such terms and conditions as may be provided by regulations prescribed by the secretary subsection a shall not apply in the case of a foreign_corporation engaged in trade_or_business_within_the_united_states if the secretary determines that the requirements of subsection a impose an undue administrative burden and that the collection of the tax imposed by sec_881 on such corporation will not be jeopardized by the exemption sec_1441 provides c exceptions -- income connected with united_states business --no deduction or withholding under subsection a shall be required in the case of any item_of_income other than compensation_for_personal_services which is effectively connected with the conduct_of_a_trade_or_business within the united_states and which is included in the gross_income of the recipient under sec_871 for the taxable_year deciding whether a new_matter is involved that requires that the burden_of_proof be shifted to respondent see zarin v commissioner supra 67_tc_612 finally we note that petitioner itself contributed to any confusion that may have existed in respect of the applicability of sec_1442 or sec_1441 referred to in the notices of deficiency prior to the time the notices of deficiency were prepared respondent had received limited information regarding the royalty payments at issue in particular it was unclear to whom and in what amount the royalty payments were being made only just prior to the date set for trial and after prodding by the court did petitioner come forth with evidence as to whom and in what amounts the royalties were paid in sum since the essential elements of proof are the same under the circumstances herein whether sec_1441 or sec_1442 provides the key to decision there is no surprise or unfairness in rejecting petitioner's contention that the burden_of_proof should be shifted to respondent see 714_f2d_977 9th cir affg t c memo 1982-dollar_figure liability for withholding see also ruark v commissioner tcmemo_1969_48 affd per curiam 449_f2d_311 9th cir sec_881 provides that a 30-percent tax shall be imposed on the amount received from sources within the united_states by a foreign_corporation falling within certain categories of incomedollar_figure sec_1442 provides a method for collecting that tax central de gas de chihuahua s a v commissioner t c pincite sec_1442 provides in part a general_rule -- in the case of foreign_corporations subject_to taxation under this subtitle there shall be deducted and withheld at the source in the same manner and on the same items of income as is provided in sec_1441 a tax equal to percent thereof royalties are among the types of income included in sec_1441 sec_1_1441-2 income_tax regs see also sec_1_881-2 income_tax regs in addition sec_861 provides that u s source income includes rentals and royalties --rentals or royalties from property located in the united_states or from any interest in such property including rentals or royalties for_the_use_of or for the privilege of using in the united_states patents copyrights secret processes and formulas good will trade-marks trade brands franchises and other like property sec_1441 completes the picture of the statutory provisions involved herein it provides a foreign_corporation is a corporation that is not created or organized in the united_states or under the law of the united_states or of any state sec_7701 and all persons having the control receipt custody disposal or payment of any of the items of income specified in subsection b which includes royalties to the extent that any of such items constitutes gross_income from sources within the united_states of any nonresident_alien_individual or of any foreign_partnership shall deduct and withhold from such items a tax equal to percent thereof there can be no dispute that the royalty payments received by petitioner from sdi usa constitute u s source income and were received by petitioner as such within the meaning of sec_1442 see 337_us_369 see also 47_bta_184 however royalties paid_by sdi usa to petitioner are exempt from taxation by virtue of sec_894 and article ix of the united states-netherlands income_tax convention date 62_stat_1757 1950_1_cb_92 as amended by the supplementary protocol date u s t 1956_2_cb_1116 and as further amended by the united states-netherlands supplementary income_tax convention date u s t 1967_2_cb_472 u s -netherlands treaty see also sec_894 there is no comparable u s treaty exemption that would apply to royalty payments from petitioner to sdi bermuda the parties have locked horns on several aspects of the application of the statutory provisions in light of the impact of the u s -netherlands treaty exemption whether the royalties paid_by petitioner to sdi bermuda constitute income received from sources within the united_states by sdi bermuda and are thus subject_to_withholding under sec_1441 whether petitioner can be considered a withholding_agent whether there is a limitations_period that has expired in respect of respondent's right to assess a deficiency in withholding_tax against petitioner and whether petitioner is liable for additions to tax under sec_6651 for failure_to_file withholding_tax returns for reasons hereinafter set forth we resolve the first issue in petitioner's favor with the result that it is unnecessary for us to address the remaining issuesdollar_figure before proceeding with our analysis of the first issue however it is important to note that respondent does not question the existence of petitioner as a valid netherlands corporation or the application of the treaty exemption insofar as the payments by sdi usa to petitioner are concerned similarly respondent does not attack the arrangements under which petitioner had a license of the worldwide rights and sdi usa had a license of the u s rights although respondent does ask us to take into account the similarly we have no need to decide further whether any elements of proof should be placed on respondent under rule a with respect of the increases in the deficiencies for and or whether any such burden should be applied on an overall or year by year basis see 92_tc_1084 revd on other grounds 916_f2d_110 3d cir close relationship of the various corporations involved compare gaw v commissioner tcmemo_1995_531 on appeal d c cir may l996 rather respondent focuses her argument solely on the proposition that since the royalties paid_by sdi usa to petitioner were u s source income they retained that character as part of the royalties paid_by petitioner to sdi bermuda and as a matter of law constitute income received from sources within the united_states by sdi bermuda under sec_881dollar_figure respondent contends that the fact that such royalties were combined with non-u s source royalties received by petitioner to determine the amount of royalties payable by petitioner to sdi bermuda does not preclude the tracing of the royalties received by petitioner from sdi usa to u s sources to implement such tracing respondent simply applies the percentage specified in the worldwide license agreement between petitioner and sdi bermuda and utilized in computing the amount of the required_payment by petitioner to sdi bermuda to support her contention that such an allocation is permissible respondent cites 15_tc_799 14_tc_1467 rohmer v commissioner 5_tc_14 at no time has respondent contended that petitioner has failed to carry its burden_of_proof in respect of the factual foundations of this legal issue affd 153_f2d_61 2d cir 47_bta_184 156_f2d_924 2d cir affg a memorandum opinion of this court in all of these cases however the payments upon which a withholding_tax was imposed were directly from a u_s_payor and the u s withholding_tax was imposed on that payor none of them address the situation involved herein where there is a second licensing step under which royalties are being paid and upon which the u s withholding_tax is sought to be imposed thus these cases provide no guidance in respect of whether the u s source characterization of the royalties paid_by sdi usa to petitioner flows through to the royalties paid_by petitioner to sdi bermuda petitioner argues that the royalties paid_by sdi usa to petitioner and exempt from tax under the netherlands treaty became merged with the other royalties received by petitioner from non-u s sources and consequently lost their character as u s source income petitioner submits that while the royalty payments from sdi usa may be u s source income its royalty payments to sdi bermuda were made on a separate and independent basis with respect to the payments to sdi bermuda petitioner contends that they were made pursuant to a worldwide licensing agreement between two foreign_corporations and as such do not constitute income received from sources within the united_states so that no withholding is required under sec_1442 pertinent authority on the issue before us is sparse indeed respondent relies solely on revrul_80_362 1980_2_cb_208 for her flow-through position in revrul_80_362 a a resident of a country other than the united_states and the netherlands licensed the rights to a u s patent to x a netherlands corporation x agreed to pay a fixed royalty each year to a x relicenses those rights to y a u s_corporation for use in the united_states in ruling that x was liable for a withholding_tax under sec_1441 the ruling states in the present factual situation the royalties from y to x are exempt from united_states tax under article ix of the convention however the royalties from x to a are not exempt from taxation by the united_states because there is no income_tax convention between a's country of residence and the united_states providing for such an exemption since the royalties from x to a are paid in consideration for the privilege of using a patent in the united_states they are treated as income_from_sources_within_the_united_states under sec_861 of the code and are subject_to united_states income_taxation under sec_871 rev_rul c b pincite- we are not persuaded that revrul_80_362 supra provides any significant support for respondent's position herein it fails to reflect any reasoning or supporting legal authority this circumstance is particularly relevant in applying the usual rule that in any event revenue rulings are not entitled to any special deference see 105_tc_341 on appeal 7th cir march and 100_tc_216 affd without published opinion 25_f3d_1043 5th cir at this point we note that respondent has not argued that petitioner was a mere conduit or agent of sdi usa in paying royalties to sdi bermuda or that sdi bermuda was the beneficial_owner of the royalties petitioner received from sdi usa so that the u s -netherlands treaty exemption should not apply compare 56_tc_925 with northern indiana public service co v commissioner supra cf 81_tc_260 affd 738_f2d_67 2d cir presumably such an argument would have produced a situation where sdi usa rather than petitioner would have been targeted by respondent as the taxpayer liable for the withholding_tax under sec_1442dollar_figure see northern indiana public service co v commissioner t c pincite although aiken industries inc v commissioner supra and northern indiana public service co v commissioner supra given the basis for our disposition of this case we have no need to deal with the question whether petitioner even though only a conduit would meet the statutory requirements of a withholding_agent see sec_1_1441-7 income_tax regs which provides that a foreign_corporation can be a withholding_agent see also 137_f2d_731 4th cir affg 47_bta_280 gaw v commissioner tcmemo_1995_531 on appeal d c cir date involved the conduit_concept we think they provide some guidance for our disposition of the instant case we take this view because the flow-through characterization concept is in a very real sense the conduit_concept albeit in a somewhat different garb ie whether the u s source income is being received as such because of the status of the paying entity in one case and the status of the subject matter of the payment in the other in aiken industries inc v commissioner supra back-to- back loans in the identical amounts of principal and rates of interest were made between a u s_corporation and a related corporation organized under the laws of the republic of honduras and between the honduran corporation and its indirect parent respondent argued that the honduran corporation should be disregarded for tax purposes and that the parent_corporation should be deemed the true owner and recipient of the interest payment from the u s_corporation we held the honduran corporation to be a mere conduit for the passage of interest payments and imposed withholding_tax liability on the u s_corporation in northern indiana public service co v commissioner supra the taxpayer a domestic_corporation organized a finance subsidiary incorporated in curacao under the commercial code of the netherlands antilles to which the u s -netherlands treaty applied for the purpose of issuing notes in the eurobond market the finance subsidiary borrowed dollar_figure million pincite percent interest in that market and lent that amount to the taxpayer pincite percent interest respondent argued that the finance subsidiary should be ignored and that the taxpayer was liable for withholding taxes under sec_1441 on the interest payments to the foreign eurobond holders finding that the finance subsidiary engaged in substantive business activity that resulted in significant earnings we held that the finance subsidiary was not a mere conduit or agent we think the within situation falls more within the ambit of northern indiana than aiken industries in the latter case there was an identity both in terms and timing between the back to back loans as well as a close relationship between the parties involved in the former case although there was a clear connecting purpose between the borrowing and lending transactions ie to obtain the benefit of the exemption from the withholding_tax on interest under the u s -netherlands treaty there were differences in terms ie in the interest rate albeit not large and a close relationship between all the parties was not present since the borrowings by the finance subsidiary were from unrelated parties in the instant case there was a close relationship between the parties however although respondent asks us in passing to take that relationship into account she does not pursue the matter to the point where she contends that it is a significant factor given the fact that respondent recognizes the existence of all of the parties as valid corporate entities and does not attack the bona fides of the license agreements between sdi usa and petitioner on the one hand or petitioner and sdi bermuda on the other we are not disposed to allow the close relationship element to control our decision the facts of the matter are that the two license agreements had separate and distinct terms and that petitioner had an independent role as the licensee from sdi bermuda and the licensor of the other entities including but not limited to sdi usa the schedules of royalty payments provided for a spread not unlike the spread involved in northern indiana which compensated petitioner for its efforts like the finance subsidiary in northern indiana petitioner engaged in licensing activities from which it realized substantial earnings in fact on a percentage basis it earned between and percent compared to the percent earned by that finance subsidiary in northern indianadollar_figure under the circumstances herein we think these arrangements should be accorded separate status with the result that although the royalties paid_by petitioner to sdi in dollar amounts petitioner retained net royalties in the amounts of dollar_figure in dollar_figure in dollar_figure in and dollar_figure in bermuda were derived from the royalties received by petitioner from sdi usa they were separate payments we find support for our conclusion herein in that respondent's view of the law could cause a cascading_royalty_problem whereby multiple withholding taxes could be paid on the same royalty payment as it is transferred up a chain of licensors see eg isenbergh international_taxation u s taxation of foreign persons and foreign_income par pp 2d ed kuntz and peroni u s international_taxation c1-45 - c1-46 dale withholding_tax on payments to foreign persons tax l rev but for the u s -netherlands treaty the royalty payments from sdi usa could be subject_to_withholding tax twice under respondent's reasoning herein respondent argues that only one withholding_tax is being sought herein however this ignores the fact that by treaty the u s agreed to forgo taxing royalties and to allow them to be taxed by the netherlands whether or not the netherlands actually taxed the royalties is irrelevant respondent also infers that she would use her discretion not to apply more than one level of withholding_tax on multiple transfers of income that originated as u s source income we think this places an improper exercise of discretion in respondent's hands to avoid the imposition of interest and additions to tax as determined by respondent herein each payor in the chain might well feel compelled to file returns and pay withholding taxes see glicklich final regulations on conduit financing arrangements empower the irs j taxn we are not disposed to conclude in the absence of any legislative expression on the subject that congress intended the statutory provisions to permit cascading with the question of relief left to the mercy of respondent we hold that the payments by petitioner with respect to which respondent seeks to impose liability for the percent withholding_tax herein were not received from sources within the united_states by sdi bermuda under sec_881 sec_1441 and sec_1442dollar_figure decision will be entered for petitioner we note that changes in the u s -netherlands treaty applicable to years subsequent to the years before us may provide a different framework for disposing of this issue convention for the avoidance of double_taxation u s -neth date tax_treaties cch par as amended by supplementary protocol date tax_treaties cch par


internal_revenue_service number release date index numbers department of the treasury washington dc ------------------------------------------------------------ ----------- ------------------------------------------------------------ ---------------------------------------------- -------------------- ------------------------------------------------------------ ----------------------------- ---------------------------- person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b03 - plr-129915-15 date february legend x ---------------------------------------------------------- -------------------------------------------------------------------------------- country d1 d2 dear ----------------- ------- -------------------------- ------------------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes facts plr-129915-15 the information submitted discloses that x was formed on d1 under the laws of country it is represented that x is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x intended to be classified as a disregarded_entity for federal tax purposes effective d2 however x failed to timely file form_8832 entity classification election law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may 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 code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register plr-129915-15 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 consequently x is granted an extension of time of one hundred twenty days from the date of this letter to elect under sec_301_7701-3 to be treated as a disregarded_entity effective d2 x must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives plr-129915-15 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by ___ s __________________________ mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


cca_2017013010015343 id uilc number release date from sent monday date am to cc bcc subject re tefra question hi ----- you are absolutely correct that you have an invalid tmp designation on the original return because the entity named is not a member of the partnership you are also correct that only someone who has the ability under state law to bind the llc can sign on its behalf however before accepting the designation you should ensure that corp is a valid tmp you state that p has no member managers but it must if there is no one designated under state law operating_agreement with the authority alone or with others to make management decisions necessary to conduct the business of p then each member is a member-manager sec_301_6231_a_7_-2 happy to discuss at your convenience thanks ------- ---------------- ---------------------- -------------- -------------------------------- ----------------------------


cca-611452-14 id ---------- office uilc number release date from ----------- ----------- sent friday date am- to -------------------- cc subject -6694 question- hi ------- we have looked into your inquiry regarding the investigation of penalties the three year sol on the a and penalties will begin to run with the due_date filing_date of the underlying return the ------- procedures you mentioned which provide that the return preparer penalty will not generally be proposed until the exam is complete are consistent with what is provided in the irm with respect to these type of preparer penalty exams irm provides that the determination of whether the penalties are warranted is made based on all the facts and circumstances developed during the examination process of the underlying prepared return this is consistent with the fact that generally information with respect to the exam of the underlying return will be necessary to develop any potential penalty provides that in the case of preparer penalty cases based on underlying tax returns in general an unagreed penalty case will not be sent to appeals before the related tax_return is submitted to appeals now this does not specifically say that the preparer penalty investigation cannot actually begin before that time accordingly in a specific circumstance initiating an investigation of any applicable preparer penalty while the examination of the underlying taxpayer’s return continues does not appear to be specifically prohibited however the taxpayer’s underlying return will need to be sent to appeals before the preparer penalty case can be sent to appeals irm if there is a delay initiating a preparer penalty exam because of the length of time needed to complete the exam of the underlying tax_return there are procedures in the irm to deal with an impending expiring sol if the underlying exam is prolonged the irm provides specific procedures if there is little time left with respect to the year sol on the preparer penalty irm provides specific procedures for short statute preparer penalty cases specifically if the statute is about to expire and the preparer does not agree to an extension the penalty is assessed the preparer still has post-assessment_appeal rights in that situation just like an pre-assessment rights matter examiners are not to submit preparer penalty cases to appeals if less than days remains on the sol when received by appeals should seek a consent to extend the sol again if the sol is about to expire and no in such cases the examiner consent to extend can be obtained the penalty is assessed by compliance see irm dollar_figure and while there does not appear to be an explicit prohibition on beginning the preparer investigation prior to completion of the exam of the underlying return it is clear that it cannot be sent forward to appeals prior to the underlying return matter however since the determination of whether the penalty is applicable is based on the facts and circumstances developed during the underlying exam of the tax_return generally such preparer penalties exam would not begin until that process is complete and the relevant facts determined however there does not seem to be a requirement that the actual exam of any potential preparer penalty must not be started prior to the completion of the return exam to the extent an examination of the return preparer is delayed and there is not sufficient time on the sol the irm procedures mentioned above should be followed when such a short statute_of_limitations exists if you have any additional questions in this matter please let me know thanks


internal_revenue_service number release date index number -------------------------- -------------------------------- ---------------------------------------- ----------------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- id no ------------ telephone number --------------------- refer reply to cc psi b06 plr-111553-14 date date legend taxpayer -------------------------------- ----------------------- ----------------------------------- ---------------------- --------------- -------------------------- ------------------------ ------------------------ ------------------ ---------------- ----------------------------------- ----------------------------------------------- ------------ ------------- ---------------- ------------ ------------ ---------------- ---------------------- investor investor partnership investor investor investor company a company b company c company d state a state b state c state d state e state f original site original generating station -------------------------------------- site generator generating station --------------------------------------- year a date a date b date c chemical a1 chemical a2 ------ ----------------- --------------------- --------------------- ------ ----------------------------- ----------------------------- ------------------------------------------------ ------------------------ ------------------------------------------------------------------------------------------ ---------------------------------------------------------- plr-111553-14 chemical b center dear ---------------- this is in response to your request for rulings submitted by your authorized representative concerning the federal_income_tax consequences of the transaction described below background partnership is a state a limited_liability_company classified as a partnership for federal_income_tax purposes partnership is a calendar_year taxpayer and uses the accrual_method of accounting for book and tax purposes partnership is engaged in purchasing raw coal converting it to refined_coal and selling the refined_coal investor is a state b limited_liability_company that is classified as a corporation for u s federal_income_tax purposes investor is a calendar_year taxpayer and uses the accrual_method of accounting for book and tax purposes investor is a state a limited_liability_company that is classified as a corporation for u s federal_income_tax purposes investor is a calendar_year taxpayer and uses the accrual_method of accounting for book and tax purposes taxpayer is a state a corporation taxpayer is a calendar_year taxpayer and uses the accrual_method of accounting for book and tax purposes each of investor investor and investor is an individual resident in state a company a is a state a limited_liability_company that is classified as a corporation for u s federal_income_tax purposes company a is a calendar_year taxpayer and uses the accrual_method of accounting for book and tax purposes company a serves as manager of taxpayer company a is a wholly-owned subsidiary of company b a state a limited_liability_company company b is a wholly-owned subsidiary of company c a state a limited_liability_company and is disregarded as an entity separate from company c for u s federal_income_tax purposes company c is classified as a partnership for u s federal_income_tax purposes company c produces refined_coal that allows coal burning power plants to reduce nox and mercury emissions plr-111553-14 the members of partnership are investor investor taxpayer investor investor investor and company a the facility partnership owns a refined_coal facility the facility located at the generating station near the site the generating station consists of two coal-fired steam-powered electric-generating units the facility was originally placed_in_service in year a by company b at the original generating station located near the original site subsequent to the installation and operation of the facility at the original generating station company b removed the facility from operation and stored it in a secure location on the grounds of the original generating station at the request of generator the facility was installed at the generating station on date a in order for the facility to operate at the generating station company b made certain modifications to the facility the cost of these improvements together with the cost of all other capital expenditures incurred with respect to the facility since it was placed_in_service was less than four times the value of the original facility assuming the original facility remains worth at least the original cost to construct partnership acquired the facility from company b on date b as a contribution to the capital of partnership company d a state a limited_liability_company serves as contract operator of the facility technology the facility utilizes proprietary technology sublicensed from company c to produce refined_coal the technology using the technology partnership treats the feedstock coal using a manufacturing process the process in which two chemical additives are metered on to the feedstock coal as it is transported through the facility on coal belts the application rate of the chemical additives is proportional to the weight of coal as measured by coal belt scales on each coal belt the resulting refined_coal is then deposited in the bunkers that feed the boilers the composition of the first chemical additive varies depending on the type of boiler and rank of coal for which the facility is being operated to produce refined_coal for circulating fluidized-bed boilers such as the one at original generating station where the facility was placed_in_service refined_coal is produced using chemical a1 for pulverized-coal boilers such as those at the generating station refined_coal is produced using a combination of chemical a1 and chemical a2 the second chemical additive is chemical b which will increase the fraction of mercury associated with particulates that can be removed in particulate collectors and the fraction of soluble mercury that can be removed in wet scrubbers plr-111553-14 partnership anticipates that from time to time generator may request that the application rate of the chemical additives be temporarily or permanently increased to assist generator in regulatory emissions compliance or to improve plant operations thus over time the application rate for the additives may increase or decrease but at no time will it be decreased below the application rate certified as achieving a qualified emissions reduction in the most recent certification or most recent applicable redetermination all of the coal that the generating facility burns in its boilers is low-sulfur sub- bituminous coal including sub-bituminous coal fines from state c state d state e and state f the source region generator does not currently depend on a single mine for feedstock coal and therefore expects to purchase feedstock coal from a number of mines in the source region that provide low-sulfur sub-bituminous coal testing as part of placing the facility in service company b conducted a full-scale continuous emissions monitoring system cems field test to measure the reduction in nitric oxide and nitrogen dioxide collectively nox and mercury emissions nox and mercury emissions were measured as required by the cems field testing procedures described in section of notice_2010_54 the notice emissions for both the feedstock coal and refined_coal were measured under the same operating conditions over a period of at least three hours during which the boiler operated at a steady state and at least percent of full load the original generating station had no separate nox air pollution equipment so nox was measured at the stack and mercury was measured downstream of the particulate control device the cems field test demonstrated the required reductions in both nox and total mercury emissions both determined on a lb btu basis to satisfy the requirements of at least nox reduction and at least mercury reduction at the generating station partnership intends to rely on pilot-scale combustion testing under section a of the notice and coal sampling laboratory analysis for redetermination testing pursuant to section b of the notice company c has engaged the center of a prominent university the center to conduct such testing using its pilot-scale combustion furnace the pilot furnace the pilot furnace has been extensively used to research and investigate sulfur oxide and nox emissions and the transformation of toxic trace metals mercury arsenic and lead during the combustion of coal and other fuels or waste materials partnership conducted emissions testing at the pilot furnace on date c in conformance to section a of the notice the tests were conducted using coal from the source region that is the same rank as the feedstock coal used at the generating station the tested coal the center tested emissions from both the feedstock coal and the refined_coal product according to the center the boiler and plr-111553-14 combustion conditions of the pilot furnace were designed to replicate the combustion conditions of a boiler that is coal-fired and steam-producing and of a size and type commonly used in commercial operations including full-scale boilers of the same type as those at the generating station each test at the pilot furnace lasted between and minutes three different add-rates of the chemical additives were tested all three add rates tested showed emissions reductions of at least for nox and for mercury compared to emissions measured from the feedstock coal the center’s report the report indicates that it is expected that the emissions reductions reported here would be achieved at full scale by using these treatment rates during the production of refined_coal the report signed by a qualified_individual with the center concluded that the pilot furnace testing accurately measured the emission reductions that would be achieved in a full-scale boiler if the process is changed unless it is solely to increase the add rate for one or both of the chemical additives partnership expects to repeat emissions qualification test at the pilot furnace or other pilot-scale combustion furnace in accordance with section a of the notice if there has not been a change in the process partnership expects to rely on coal sampling and analysis pursuant to section b of the notice for ongoing redeterminations within six months of the most recent determination or redetermination although the precise intervals may vary eg it may be only four or five months between tests for each a test at the pilot furnace as described below the feedstock coal and refined_coal are sampled the feedstock coal and refined_coal samples are submitted separately for laboratory analysis to determine the sulfur and mercury content of each fuel during each period of up to six months constituting the redetermination period samples of both feedstock coal and refined_coal will be collected at the generating facility on a regular basis currently expected to be daily partnership intends to collect all samples for redetermination from the moving coal belts before and after the coal has passed through the facility company d personnel will collect coal samples from both edges and the center of the belt using a manual sample collection device the daily samples will be blended manually or otherwise into a multi-day gross sample two samples of approximately two pounds each will be collected using a scoop from each gross sample sealed and labeled these samples will then be sent to an independent laboratory for preparation and analysis standard laboratory techniques will be used to measure the sulfur and mercury content of these samples the testing results for sulfur and mercury content of the gross samples of feedstock and refined_coal collected during the redetermination period respectively will then be averaged using a simple arithmetic mean for comparison to the sulfur and mercury content of the coal samples collected during the test period at the pilot furnace or any more recent determination that meets the requirements of section dollar_figure of the notice plr-111553-14 partnership expects to rely primarily on redetermination tests using coal sampling and laboratory analysis under section b of the notice and to conduct pilot furnace testing under section a of the notice only when required ie because of a change in the process rulings requested based on the foregoing you have requested that we rule as follows the refined_coal produced and sold using the process and technology constitutes refined_coal within the meaning of sec_45 of the internal_revenue_code_of_1986 as amended the code provided that such refined_coal is produced from feedstock coal that is from the same source region or rank as the tested coal described herein and provided further that the refined_coal satisfies the qualified_emission_reduction test in sec_45 of the code provided that the feedstock coals used to produce refined_coal during any determination_period is from the same source region and of the same rank as the coal subject_to the most recent determination or redetermination all feedstock coal that satisfies that criteria shall be treated as feedstock coal of the same source and rank for purposes of section dollar_figure of the notice regardless of the mines from which such feedstock coal is purchased and will not require a redetermination to establish qualified emission reductions testing by the center for qualified emissions reductions as described in the report satisfies the requirements of the notice partnership may treat the required emission reductions in sec_45 of the code as having been met based on the results from the pilot furnace testing at the center or other similar pilot-scale combustion testing facilities and subsequent permitted laboratory testing as required for a redetermination described in section a or b of the notice regardless of subsequent normal fluctuations in operating conditions and emissions at the generating station increasing the amounts of chemical additives to the feedstock coal to a higher level per ton of feedstock coal than the rate shown to have produced a qualified emissions reduction in a determination or redetermination will not be construed as a change in the process of producing refined_coal from the feedstock coal requiring a redetermination under section dollar_figure of the notice nor will later resuming application at the rate used in such original determination or redetermination constitute such a change the results of a test set forth in a redetermination test report may be relied upon after the date of testing even if the report is not received until after the six-month period specified in section i of the notice or if the test was done before plr-111553-14 partnership acquired the facility pursuant to section b of the notice the redetermination requirement of section dollar_figure of the notice may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and refined_coal on average do not vary by more than percent below the bottom of nor more than percent above the top of the range of sulfur and mercury content of both the feedstock coal and refined_coal used in the most recent determination pursuant to section dollar_figure of the notice if the facility was placed_in_service prior to date within the meaning of sec_45 of the code a subsequent modification or relocation of the facility or replacement of part of the facility after that date will not result in a new placed-in-service date for the facility for purposes of sec_45 provided the fair_market_value of the original property of the modified or relocated facility is more than percent of the facility’s total fair_market_value at that time law and rationale sec_45 of the code generally provides a credit against federal_income_tax for_the_use_of renewable or alternative resources to produce electricity or fuel for the generation of steam sec_45 of the code provides that in the case of a producer of refined_coal the credit available under sec_45 of the code for any taxable_year shall be increased by an amount equal to dollar_figure5 per ton of qualified refined_coal i produced_by_the_taxpayer at a refined_coal_production_facility during the 10-year period beginning on the date that the facility was originally placed_in_service and which is ii sold by the taxpayer to an unrelated_person during such 10-year period and such taxable_year for purposes of sec_45 of the code section dollar_figure of notice_2010_54 provides that the term refined_coal means a fuel which is i a liquid gaseous or solid fuel including feedstock coal mixed with an additive or additives produced from coal including lignite or high carbon fly ash including such fuel used as a feedstock ii sold by the taxpayer with the reasonable expectation that it will be used for the purpose of producing steam and iii certified by the taxpayer as resulting when used in the production of steam in a qualified_emission_reduction section dollar_figure of the notice provides that the term qualified_emission_reduction means in the case of refined_coal produced at a facility placed_in_service after date a reduction of at least twenty percent of the emissions of nitrogen oxide and at least forty percent of the emissions of either sulfur dioxide or mercury released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of date plr-111553-14 sec_45 of the code generally provides that the term refined_coal_production_facility means a facility which is placed_in_service after date and before date section dollar_figure of notice_2010_54 provides that a refined_coal_production_facility will not be considered to have been placed_in_service after date if more than percent of the total fair_market_value of the facility the cost of the new property plus the value of the used_property is attributable to property that was placed_in_service on or before date section dollar_figure of notice_2010_54 generally provides that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as defined in sec_613 a c or i of the code if performed by the mine owner or operator accordingly in determining whether a qualified_emission_reduction has been achieved the emissions released when burning the refined_coal must be compared to the emissions that would be released when burning the feedstock coal feedstock coal is the product resulting from processes that are treated as mining including any such processes that are actually applied by a taxpayer in any part of the taxpayer’s process of producing refined_coal from coal sec_613 of the code describes treatment processes that are not considered as mining unless they are provided for in sec_613 or are necessary or incidental to a process provided for in sec_613 any cleaning process such as a process that uses ash separation dewatering scrubbing through a centrifugal pump spiral concentration gravity concentration flotation application of liquid hydrocarbons or alcohol to the surface of the fuel particles or to the feed slurry provided such cleaning does not change the physical or chemical structure of the coal and drying to remove free water provided such drying does not change the physical or chemical identity of the coal will be considered as mining section of the notice provides in part that emissions reduction may be determined using continuous emission monitoring system cems field testing section a provides in part that cems field testing is testing that meets all the following requirements i the boiler used to conduct the test is coal-fired and steam-producing and is of a size and type commonly used in commercial operations ii emissions are measured using a cems iii if epa has promulgated a performance standard that applies at the time of the test to the pollutant emission being measured the cems must conform to that standard iv emissions for both the feedstock coal and the refined_coal are measured at the same operating conditions and over a period of at least hours during which the boiler is operating at a steady state at least percent of full load and v a qualified_individual verifies the test results in a manner that satisfies the requirement of section b plr-111553-14 section of the notice provides that methods other than cems field testing may be used to determine the emission reduction the permissible methods include a testing using a demonstration pilot-scale combustion furnace if it establishes that the method accurately measures the emission reduction that would be achieved in a boiler described in section a i of the notice and a qualified_individual verifies the test results in a manner that satisfies the requirements of section c i ii v and vi of the notice and b a laboratory analysis of the feedstock coal and the refined_coal that complies with a currently applicable epa or astm standard and is permitted under section b i or ii of the notice section of the notice provides that a taxpayer may establish that a qualified_emission_reduction determined under section dollar_figure applies to production from a facility by a determination or redetermination that is valid at the time the production occurs a determination or redetermination is valid for the period beginning on the date of the determination or redetermination and ending with the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of the feedstock coal that occurs after the date of such determination or redetermination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination section of the notice provides that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure must use a method that meets the requirements of section in any other case the redetermination requirement may be satisfied by laboratory analysis establishing that a the sulfur or mercury content of the amount of refined_coal necessary to produce an amount of useful energy has been reduced by at least percent percent in the case of facilities placed_in_service after date in comparison to the sulfur or mercury content of the amount of feedstock coal necessary to produce the same amount of useful energy excluding any dilution caused by materials combined or added during the production process or b the sulfur or mercury content of both the feedstock coal and the refined_coal do not vary by more than percent from the sulfur and mercury content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of the notice section dollar_figure of the notice provides that the certification requirement of sec_3 c of the notice is satisfied with respect to fuel for which the refined_coal credit is claimed only if the taxpayer attaches to its tax_return on which the credit is claimed a certification that contains the following a statement that the fuel will result in a qualified emissions reduction when used in the production of steam a statement indicating whether cems field testing was used to determine the emissions reduction if cems field testing was not used to determine the emissions reduction a description of the method used a statement that the emissions reduction was determined or redetermined within the six months preceding the production of the fuel plr-111553-14 and that there have been no changes in the source or rank of the feedstock coal used in the process of producing refined_coal from feedstock coal since the emissions reduction was most recently determined or redetermined and a declaration signed by the taxpayer in the following form under penalties of perjury i declare that i have examined this certification and to the best of my knowledge and belief it is true correct and complete finally sec_45 of the code provides that a refined_coal_production_facility must be placed_in_service within certain timeframes for purposes of the refined_coal credit allowable with respect to refined_coal other than steel_industry_fuel the facility must be placed_in_service after date and before date section dollar_figure of the notice provides that the year in which property is placed_in_service is determined under the principles of sec_1_46-3 of the regulations ie when the property is placed in a condition or state of readiness and availability for a specifically assigned function section dollar_figure of the notice provides that a refined_coal_production_facility will not be treated a placed_in_service after date if more than percent of the facility’s total value the cost of the new property plus the value of the used_property is attributable to property placed_in_service on or before date the notice also states that the irs will not issue private letter rulings relating to when a refined_coal_production_facility has been placed_in_service with respect to the first issue the process starts with several chemical additives being added to the feedstock coal prior to its combustion in a furnace the additives provide the chemical structure that result in the reduction of emissions of nitrogen oxide and mercury during combustion section dollar_figure of the notice provides generally that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining if performed by the mine owner or operator in the instant case the process is not a mining process further section dollar_figure of the notice clarifies sec_45 of the code and specifically provides that refined_coal includes feedstock coal mixed with additives thus additive processes that mix certain chemicals or other additives with the coal in order to achieve emissions reductions may qualify for the refined_coal production_tax_credit additionally section dollar_figure of the notice defines comparable coal as coal that is of the same rank as the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal accordingly we conclude that the coal produced by using the process and technology constitutes a refined_coal within the meaning of sec_45 of the code provided that the refined_coal i is produced from feedstock coal that is the same source region or rank as the tested coal and ii satisfies the qualified_emission_reduction test stated in sec_45 of the code with respect to the second issue the emissions profile of the refined_coal product is compared to the emissions profile of either the feedstock coal or a comparable coal predominantly available in the marketplace as of date section dollar_figure of the notice provides that a comparable coal is defined as coal that is of the same rank as plr-111553-14 the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal section dollar_figure of the notice provides that a determination or redetermination of a qualified emissions reduction is valid until the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of the feedstock coal that occurs after the date of such determination or redetermination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination accordingly we conclude that provided that the feedstock coals during any determination_period are from the same coal source regions and of the same rank as the tested coal all feedstock coal that satisfies that criteria shall be treated as feedstock coal of the same source and rank for purposes of section dollar_figure of the notice regardless of the mines from which such feedstock coal is purchased with respect to the third issue section of the notice provides that any permissible testing method provided for in the notice can be used in emission testing for any pollutant that is a taxpayer can use different testing methods for each of nitrogen oxide sulfur dioxide or mercury provided the method used for any pollutant is a permissible method section of the notice provides that an emission test establishing a qualified_emission_reduction qualifies the refined_coal for a six-month period provided there is no change in the process for producing the refined_coal or in the source or rank of the feedstock coal therefore a taxpayer must redetermine the emission reductions to qualify for the succeeding six-month period using one or more approved methods in the instant case pilot-scale combustion testing will be arranged for and there will be no reliance on any continuous emissions monitoring system or other field testing which is permitted under section dollar_figure of the notice specifically the center will conduct testing including redetermination testing at the pilot furnace to determine the emissions reductions associated with burning the refined_coal product compared to the feedstock for purposes of qualifying the refined_coal produced at the facilities the center has conducted pilot-scale combustion tests at the pilot furnace as documented in the report in conducting such tests the center conducted tests on the feedstock and then mixed a separate sample of the feedstock with the additives so that it could conduct tests on the refined_coal product in each of its reports the center reported that the test results indicated that the blend of coal and additives achieved the required emissions reductions based on the foregoing we conclude that testing by the center for qualified emissions reductions as set forth in its test reports including interim reports satisfies the requirements of the notice qualified emissions reduction through testing by the center at its combustion research facility or similar pilot-scale combustion testing facilities under the notice may be relied upon with respect to the fourth issue section iii of the notice provides that a redetermination is required after a change in the process of producing refined_coal section of the notice further provides that in the case of a redetermination required by reason of a change in process any redetermination must be made using a plr-111553-14 method permitted under section dollar_figure of the notice rather than the simplified methods of section b we conclude that increasing the amounts of chemical additives to the feedstock coal will not be construed as a change in process requiring additional testing for qualified emissions reductions under section dollar_figure of the notice nor will it be construed as a change in process to later resume application at the rate used in the original test with respect to the fifth issue it is intended that redetermination testing will occur every six months or more frequently if required pursuant to the notice however the center is not always able to issue the written report required by section a of the notice within the six month period thus although redetermination testing is completed within the six month period the report may be received after the six month period nonetheless the center informed the interested parties of the results of the test on the day of the tests so that it was able to take into account the results of the redetermination within the six month period nevertheless the delay by the center in issuing its report cannot be indefinite accordingly we conclude that the results set forth by the center in a redetermination test report for production may be relied upon after the date of testing even if the report is not received until after the six-month period specified in section i of the notice so long as the written report is received within days from the date of testing however the redetermination of qualified emissions reduction must occur during the earliest of the events described in section dollar_figure of notice_2010_54 regardless of the time of the actual receipt of the center’s report with respect to the sixth issue section of the notice provides in part that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure of the notice must use a method that meets the requirements of section dollar_figure of the notice in any other case the redetermination requirement may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal do not vary by more than percent from the sulfur and mercury content of the feedstock coal and refined_coal used in the most recent redetermination that meets the requirements of the notice accordingly we conclude the redetermination requirement of section dollar_figure of the notice may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal on average do not vary by more than percent below the bottom of nor more than ten percent above the top of the range of the sulfur and mercury content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of section dollar_figure of the notice with respect to the seventh issue we understand that the facility has been relocated all of the essential components of the facility were relocated and retained similarly during the life of the facility it may be necessary to again relocate the facility or replace certain major components in the event of relocation or replacement of a component there should be no change in the placed_in_service_date of the facility as plr-111553-14 long as the test described in section dollar_figure of the notice has been met based on the foregoing we conclude that provided the facility was placed_in_service prior to date within the meaning of sec_45 of the code relocation of the facility to a different location after date or replacement of part of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_45 of the code provided the fair_market_value of the used_property is more than percent of the facility’s total fair_market_value at the time of relocation or replacement this ruling expresses no opinion regarding any issue not specifically addressed in this ruling letter including whether any person has sold refined_coal to an unrelated_person or when the facility was placed_in_service in particular we express or imply no opinion that taxpayer has sufficient risk or rewards of the production activity to qualify as the producer of the refined_coal the service may challenge an attempt to transfer the credit to a taxpayer who does not qualify as a producer including transfers structured as partnerships sales or leases that do not also transfer sufficient risks and rewards of the production activity in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives a copy of this ruling must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs special industries