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 b06 plr-105712-12 date date legend legend taxpayers date date state state year year year ------------------------------------------------------ -------------------------- ------------------- ------------ -------- ------- ------- ------- dear ----------------------------- this letter responds to a letter dated ----------------------- from taxpayers’ representative requesting permission pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations for an extension of time to make an election under sec_263 of the internal_revenue_code for the taxable_year ending date according to the information submitted taxpayers live in state are married to each other and file a joint tax_return on date taxpayers invested in a joint_venture engaged in oil_and_gas operations in state as a result taxpayers first incurred intangible_drilling_and_development_costs idcs in year and continued to incur idcs in year taxpayers hired an independent tax preparer to file its year tax_return unfortunately the tax preparer did not have experience or knowledge with respect to oil_and_gas operations and the taxation thereof as a result the tax preparer was unaware of the option to elect to currently expense idcs on taxpayers’ income_tax return for the first tax_year that idcs are incurred and did not inform taxpayers of this option consequently taxpayers did not make a timely election to currently expense idcs on taxpayers’ year tax_return plr-105712-12 in year taxpayers engaged different accountants to perform a review of the tax_accounting for its oil_and_gas interests during that review the accountants discovered that taxpayers had not elected to currently expense idcs related to oil_and_gas operations in year the accounting firm advised taxpayers to submit a request for relief under sec_301_9100-1 for an extension of time to make the election under sec_263 this request is being made pursuant to such advice taxpayers represent that had it been aware of the ability to currently deduct idcs and the need to make an election to deduct such costs on the return for the first taxable_year in which it incurred these costs taxpayers would have timely made this election on the year tax_return taxpayers represent that granting the relief requested will not result in taxpayers having a lower tax_liability in the aggregate for the tax years affected by the election than taxpayers would have had if the election had been timely made taking into account the time_value_of_money taxpayers represent that it acted in good_faith and that granting relief will not result in prejudice to the interests of the government law and analysis sec_263 allows a taxpayer an election under regulations prescribed by the secretary to deduct idcs the regulations appear under sec_1_612-4 under sec_1_612-4 the taxpayer may exercise the election by claiming idcs as a deduction on the taxpayer's return for the first taxable_year in which the taxpayer pays or incurs such costs no formal statement is necessary under sec_301_9100-1 of the procedure and administration regulations the commissioner in exercising the commissioner's discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-2 and sec_301_9100-3 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 the commissioner will grant requests for relief under sec_301_9100-3 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 sec_301_9100-3 sec_301_9100-3 provides in part that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer requests relief under sec_301_9100-3 before the failure to make the regulatory election is discovered by the plr-105712-12 internal_revenue_service and the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election sec_301_9100-3 provides in part that the government's interest is considered prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate of all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 through have been satisfied accordingly the commissioner grants taxpayers an extension of time of days from the date of this letter to make the election under sec_263 on an amended year tax_return with the appropriate service_center a copy of this letter should be attached to the amended_return alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by taxpayers and taxpayers‘ representative and accompanied by a penalty of perjury statements executed by the appropriate parties 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 set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the code and the regulations thereunder specifically we express no opinion concerning whether taxpayer satisfies the requirements of sec_263 and sec_1_612-4 this letter_ruling is directed only to the taxpayer who requested it under sec_6110 a letter_ruling may not be used or cited as precedent plr-105712-12 in accordance with the power_of_attorney on file with this office we are sending a copy of this ruling letter to your authorized representatives we also are sending a copy of this letter to the appropriate industry director lb_i sincerely associate chief_counsel passthroughs special industries by jaime c park senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


washington dc department of the treasury internal_revenue_service number release date index number person to contact telephone number refer reply to cc psi - plr-151018-02 date date legend llp a state d1 year dear this is in reply to a letter dated date and subsequent correspondence submitted on behalf of llp by llp’s authorized representative requesting a ruling that llp be given an extension of time to elect under sec_301_9100-3 of the procedure and administration regulations to be classified as an association_taxable_as_a_corporation for federal tax purposes and an extension of time to elect to be an s_corporation under sec_1362 of the internal_revenue_code the information submitted states that llp is a limited_liability partnership formed on d1 of year under the laws of state a as the president of llp represents that he intended for llp to be an s_corporation for federal tax purposes as of d1 of year however a form_2553 election by a small_business_corporation was not filed timely for llp for year in addition a form_8832 entity classification election was not filed timely for llp for year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for plr-151018-02 such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year sec_301_7701-3 provides 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 a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301 a sec_301_7701-3 provides that unless a domestic eligible_entity elects otherwise the entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed sec_301_7701-3 sec_301_9100-1 gives the commissioner discretion to grant reasonable extensions of time to make regulatory elections under the rules of sec_301_9100-2 and sec_301_9100-3 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result llp is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective d1 of year a copy of this letter should be attached to the form_8832 a copy is included for that purpose in addition based solely on the facts and the representations submitted we conclude that llp has established reasonable_cause for failing to make a timely election to be an s_corporation for llp's year taxable_year accordingly provided that llp makes an election to be an s_corporation by filing a completed form_2553 with plr-151018-02 the appropriate service_center effective d1 of year within days following the date of this letter then such election will be treated as timely made for llp's year taxable_year a copy of this letter should be attached to the form_2553 a copy is included for that purpose this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office copies of this letter are being sent to llp’s authorized representatives sincerely yours heather c maloy associate chief_counsel passthroughs and special industries enclosures copies of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------ --------------------------------------------------------------- ------- ----------------------- ------------ ---------------------------- department of the treasury washington dc person to contact ------------------ id------------------ telephone number --------------------- refer reply to cc fip b02 plr-138880-09 date date legend fund ------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------- ----------------------------------------------------------------------- trust company sub state offshore dear ---------------- ----------------------- ------------------------------------ ----------------------------------------------------- ------------- ---------------------- this is in response to a letter dated date requesting a ruling that income earned by fund from an investment in its wholly-owned subsidiary that qualifies as a controlled_foreign_corporation cfc constitutes qualifying_income under sec_851 of the internal_revenue_code facts plr-138880-09 fund will be a series of trust and plans to be classified as a corporation for federal_income_tax purposes trust is a business_trust organized under the law of state fund intends to be registered as an open-end management company under the investment_company act of u s c 80a-1 et seq the act fund intends to qualify each year as a regulated_investment_company ric under sec_851 of the code fund intends to form a wholly-owned subsidiary sub under the laws of offshore a non-united states jurisdiction under offshore’s laws sub will be formed as a company a company provides limited_liability for its shareholders it is represented that sub will be treated as a corporation for federal_income_tax purposes under default entity classification rules it is further represented that sub will file an election on form to be taxed as a corporation pursuant to sec_301_7701-3 of the procedure and administration regulations fund represents that although sub will not be registered as an investment_company under the act it will comply with the requirements of section f of the act investment_company act release no and related sec guidance pertaining to asset coverage with respect to investments that would apply if sub were registered under the act fund will invest a portion of its assets in sub subject_to the limitations set forth in sec_851 of the code fund expects that all of sub’s income will be subpart_f_income law sec_851 of the code provides that a corporation is not considered a ric for any taxable_year unless it meets an income test under this test at least percent of its gross_income must be derived from certain sources under sec_851 qualifying_income includes dividends interest payments_with_respect_to_securities_loans as defined in sec_512 and gains from the sale_or_other_disposition of stock_or_securities as defined in sec_2 of the act or foreign_currencies or other income including but not limited to gains from options futures or forward contracts derived with respect to its business of investing in such stock securities or currencies sec_2 of the act defines the term security as plr-138880-09 any note stock treasury_stock security future bond debenture evidence_of_indebtedness certificate of interest or participation in any profit-sharing agreement collateral-trust certificate preorganization certificate or subscription transferable share investment contract voting-trust certificate certificate of deposit for a security fractional undivided_interest in oil gas or other mineral rights any put call straddle option or privilege on any security including a certificate of deposit or on any group or index of securities including any interest therein or based on the value thereof or any put call straddle option or privilege entered into on a national securities exchange relating to foreign_currency or in general any interest or instrument commonly known as a security or any certificate of interest or participation in temporary or interim certificate for receipt for guarantee of or warrant or right to subscribe to or purchase any of the foregoing sec_851 of the code provides that for purposes of sec_851 the term dividends includes amounts included in gross_income under sec_951 or sec_1293 for the taxable_year to the extent that under sec_959 or sec_1293 there is a distribution out of the earnings_and_profits of the taxable_year which are attributable to the amounts so included sec_957 of the code defines a cfc as any foreign_corporation in which more than percent of the total combined voting power of all classes of stock entitled to vote or the total value of the stock is owned by united_states_shareholders on any day during the corporation’s taxable_year a united_states_shareholder is defined in sec_951 as a united_states_person who owns percent or more of the total voting power of a foreign_corporation sec_951 of the code provides that if a foreign_corporation is a cfc for an uninterrupted period of days or more during any taxable_year every person who is a united_states_shareholder of the corporation and who owns stock in it on the last day of the taxable_year in which the corporation is a cfc shall include in gross_income the sum of the shareholder’s pro_rata share of the cfc’s subpart_f_income for the taxable_year sec_952 defines subpart_f_income to include foreign_base_company_income determined under sec_954 under sec_954 foreign_base_company_income includes foreign_personal_holding_company_income determined under sec_954 sec_954 defines foreign_personal_holding_company_income to include dividends interest royalties rents and annuities plr-138880-09 sub’s investments may generate foreign_personal_holding_company_income under sec_954 which is subpart_f_income fund would therefore include in income sub’s subpart_f_income for the taxable_year in accordance with sec_951 analysis and conclusion fund has represented that sub will be a wholly-owned subsidiary of fund fund is a united_states_person based upon fund’s representations sub will qualify as a cfc under these provisions based on the facts as represented we rule that subpart_f_income of sub that is attributable to fund is income derived with respect to fund’s business of investing in the stock of sub and thus constitutes qualifying_income under sec_851 this ruling is directed only to the taxpayer who requested it and is limited to the facts as represented by the taxpayer sec_6110 provides that this letter may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely susan thompson baker susan thompson baker assistant to the branch chief branch office of associate chief_counsel financial institutions and products


internal_revenue_service number release date index numbers --------------------------------------------- ---------------------------------------------------- ------------------------- ------------------------------ ------------------------------ ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ---------------- telephone number -------------------- refer reply to cc ita b04 plr-116369-15 date date legend ------------------------------------------------------- ---------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------- -------------------------------------------------------------------------------- taxpayer llc1 llc llc3 company charity ----------------------------------------------- w x year year year date date date date city --- --- ------ ------ ------ ------------------------- ------------------ ---------------------- ------------------ ------------------- dear -------------- plr-116369-15 this refers to taxpayer’s request for an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election under sec_168 of the internal_revenue_code the election the material information submitted for consideration is summarized below taxpayer is a w member of llc1 llc1 acts as the managing member of llc2 whose business_purpose is to develop an affordable apartment project llc2 was formed on date with llc1 and company as the original members llc2 is the owner of phase which consists of a community_service_facility and affordable housing units company and charity are the co-developers charity’s mission is to develop affordable rental housing for low income persons in year llc presented charity and its related_entity with an opportunity to participate in a low_income_housing tax_credit project in an area of city that needed additional affordable housing units charity agreed and was admitted to llc1 as a w non-manager member with llc3 as the x manager member in year company advised charity that company had set up the initial structure incorrectly rather than charity being a w non-manager member in llc1 there should have been a taxable entity wholly owned by charity set up to be the member since charity would not be in a position to make an election under sec_168 of the internal_revenue_code which the investors had required as a condition of their investment thus with company’s assistance charity formed taxpayer and transferred charity’s interest in llc1 to taxpayer on date in year taxpayer charity and company began phase a similarly structured low_income_housing tax_credit project company required the taxpayer’s accountants to execute a document describing their understanding that taxpayer must make the sec_168 election with the return for taxpayer’s fiscal_year ending date no similar certification was required for phase and no explicit advice was provided regarding when the election should be made taxpayer is a tax-exempt_controlled_entity within the meaning of sec_168 under the agreement taxpayer was required to make an election under sec_168 on the return it filed for the taxable_year ending date the taxpayer acknowledges that it did not file a timely return for the year ending date which prohibited it from properly making the sec_168 election on a timely filed return for that year however taxpayer represents that it intended to make the election and that the failure to do so was inadvertent sec_168 provides that for purposes of sec_168 if any property that is not tax-exempt_use_property is owned by a partnership with both a tax-exempt_entity and a person who is not a tax-exempt_entity as partners and any allocation to the tax-exempt_entity of partnership items is not a qualified_allocation then an amount equal plr-116369-15 to the tax-exempt entity's proportionate share of such property is treated as tax-exempt_use_property sec_168 provides that for purposes of sec_168 any tax-exempt_controlled_entity is treated as a tax-exempt_entity sec_168 provides that for purposes of sec_168 a tax-exempt_controlled_entity may elect not to be treated as a tax-exempt_entity such an election is irrevocable and will bind all tax-exempt entities holding an interest in the tax-exempt_controlled_entity sec_301_9100-7t requires elections under sec_168 to be made by the due_date of the tax_return for the first taxable_year for which the election is to be effective therefore the election is a regulatory election under sec_301_9100-1 under sec_301_9100-1 and sec_301_9100-3 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i provided the taxpayer demonstrates 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 based on the facts and information submitted we conclude that taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government accordingly the requirements of the regulations for granting relief in this case have been satisfied and we grant an extension of time for taxpayer to file the election taxpayer must file an amended federal_income_tax return for year and attach to the amended_return the sec_168 election and the information set forth in sec_301_9100-7t taxpayer should also attach a copy of this letter to the return in addition pursuant to sec_301_9100-7t a copy of the election statement should also be attached to the federal_income_tax returns of each of the tax-exempt shareholders or beneficiaries of taxpayer except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-116369-15 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely michael j montemurro chief branch office of associate chief_counsel income_tax accounting


department of the treasur internal_revenue_service washington d c date mapp soar ssn 4945-dollar_figure ol-e - e0 t dear sir or madam this is in response to your ruling_request of date requesting advance approval of your scholarship program program pursuant to sec_4945 of the internal_revenue_code our records show that you are a private_foundation described in sec_509 of the code the information provided indicates that scholarships will be administered and supervised by citizens’ scholarship foundation of america csfa a publicly supported charity under the terms of the agreement you will make an annual contribution to csfa to fund scholarships to be awarded by csfa to eligible students csfa will prepare and furnish application forms receive all applications determine the recipients and amount to be awarded notify the recipients of the award and make payment of the award csfa will prepare management reports summarizing program activity and results you have agreed to ensure compliance with the appropriate percentage_test set forth in revproc_76_47 1976_2_cb_670 in the aggregate with respect to all the foundation scholarship programs which are available to the same individuals sec_4945 of the code provides for the imposition of taxes on each taxable expenaiture of a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of sec_4945 sec_4945 of the code provides that sec_4945 shall not apply to an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary if scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 it is demonstrated to the satisfaction of the secretary that the grant constitutes a revproc_76_47 sets forth guidelines for a private_foundation conducting an employer-related grant program to obtain advance approval under sec_4945 of the code section dollar_figure through dollar_figure of the rev_proc set forth seven conditions which a private_foundation must meet in order to obtain advance approval of its procedures under sec_4945 of the code sy section dollar_figure of the rev_proc further provides that a private_foundation giving scholarship awards to children of employees of a company must agree to limit these grants to of all-eligible applicants or of all those shown to be eligible in any given year the information submitted shows that the csfa program for the awarding of grants will meet the requirements of the revproc_76_47 accordingly based upon the information presented above and assuming the programs will be conducted as proposed with a view to providing objectivity and nondiscrimination in the awarding of scholarship grants we rule that your grants to csfa for the awarding of scholarship grants comply with the requirements of sec_4945 of the code thus such expenditures made in accordance with those procedures will not constitute taxable_expenditures within the meaning of sec_4945 the recipient of the scholarship is responsible for determining whether all or part of the scholarship is includible in gross_income under sec_117 of the code we understand that csfa will advise the recipient that amounts granted are taxable_income if the aggregate scholarship amounts received by the recipient exceed tuition and fees not including room and board required for enrollment or attendance at the educational_institution and fees books supplies and equipment required for courses of instruction this ruling is based on the understanding that there will be no material_change in the facts upon which it is based and that no grants will be awarded to foundation managers trustees members of the selection committee or for a purpose inconsistent with the purpose described in sec_170 of the code any change in the procedure must be reported to your area manager for exempt_organization matters this ruling will remain in effect as long as the procedures in awarding grants under your program remain in compliance with section dollar_figure through dollar_figure of revproc_76_47 above records should be maintained to show that you meet the applicable_percentage test of section dollar_figure thereof please note that this ruling is only applicable to grants awarded under the csfa scholarship program as outlined above before you enter into any other scholarship program you should submit a request for advance approval of the program this ruling is directed only to the organization that requested it sec_61 k of the code provides that it may not be used or cited as precedent sincerely yours signsa houie o respen robert c harper jr manager exempt_organizations technical group sb


internal_revenue_service number release date index number -------------------------- ------------------------ ------------------------------------------- ------------------------------------- - x - ------------------------- ----------------------- department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - plr-139430-03 date date ------- --------------------- --------------------- country entity date dear --------------- requesting a ruling that x be granted 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 treated as a disregarded_entity for federal tax purposes facts this letter responds to a letter dated date written on behalf of x according to the information submitted x is a country entity formed on date x intended to elect to be treated as a disregarded_entity for federal tax purposes effective date however the form_8832 entity classification election inadvertently was not timely filed x represents that it is an entity that is eligible to elect under sec_301_7701-3 to be a disregarded_entity for federal_income_tax purposes law and analysis classified as a corporation under sec_301_7701-2 or an sec_301_7701-3 provides in part that a business_entity that is not eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if a foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form 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 code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin 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_9100-1 sec_301_9100-2 provides automatic_extension of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the election except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transactions described above under any other provision of the code this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury int ernal revenue service washington d c date o f f i c e o f c h i e f c o u n s e l number release date tl-n-6049-00 uilc internal_revenue_service national_office field_service_advice memorandum for associate area_counsel sbse salt lake city from frances schafer counsel to the associate chief_counsel passthroughs special industries cc psi subject simple_trust charitable deductions this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent issue whether a_trust whose governing instrument does not authorize the trustee to make charitable_contributions may claim a charitable deduction for its distributive_share of a charitable_contribution made by a partnership in which the trust is a partner conclusion a_trust whose governing instrument does not authorize the trustee to make charitable_contributions may claim a charitable deduction for its distributive_share of a charitable_contribution made by a partnership provided that all other requirements of sec_642 have been met including the application of sec_681 facts t is a_trust that was validly formed pursuant to state law t's governing instrument may require that all the income be distributed currently or may provide for discretionary payments of income or for accumulation of income t's governing instrument does not authorize the trustee to make charitable_contributions t claims a charitable deduction for its distributive_share of charitable_contributions made by a passthrough_entity in which t has an interest tl-n-6049-00 law and analysis sec_642 provides that a_trust other than a_trust meeting the specifications of subpart b is allowed as a deduction in computing its taxable_income in lieu of the charitable deduction allowed by sec_170 for any amount of gross_income without limitation that pursuant to the terms of the governing instrument is during the taxable_year paid for a purpose specified in sec_170 sec_651 defines a simple_trust as a_trust the terms of which provide that all of the trust’s income is to be distributed currently and do not provide that any amounts are to be paid permanently set_aside or used for the charitable purposes specified in sec_642 with regard to the second requirement sec_1_651_a_-4 of the income_tax regulations provides that a_trust is not considered to be a_trust which may pay permanently set_aside or use any amount for charitable purposes for any taxable_year for which it is not allowed a charitable deduction under sec_642 an additional requirement to be a simple_trust is that no amounts other than trust income are distributed during the taxable_year a_trust that does not meet the requirements to be a simple_trust is a complex_trust subject_to the provisions of sec_661 sec_1_651_a_-1 provides that a_trust may be a simple_trust for one year and a complex_trust for another year sec_681 limits a trust's charitable deduction if the trust has unrelated_business_income specifically sec_681 provides that no amount otherwise allowable as a deduction under sec_642 shall be allowed as a deduction with respect to income that is allocable to the trust’s unrelated_business_income ubi for the taxable_year the term unrelated_business_income means an amount equal to the amount which if such trust were exempt from tax under sec_501 by reason of sec_501 would be computed as its unrelated_business_taxable_income under sec_512 relating to income derived from certain business activities and from certain property acquired with borrowed funds sec_1_681_a_-2 provides that for purposes of the computation under sec_512 the term unrelated_trade_or_business includes a trade_or_business carried on by a partnership of which a_trust is a member as well as one carried on by the trust itself a partial deduction is allowed for amounts paid to charity allocable to ubi by operation of sec_512 this deduction is subject_to the percentage limitations applicable to contributions made by individuals under sec_170 and b see sec_1_681_a_-2 and c for rules concerning the computation of the partial deduction one of the threshold requirements of sec_642 is that the charitable_contribution be made pursuant to the terms of the trust's governing instrument thus in order for a contribution to be deductible the trustee must be authorized by the governing instrument to make a distribution of income for a charitable purpose this statutory tl-n-6049-00 requirement is an essential element for an allowable deduction with regard to any charitable_contributions made directly by a_trust the question arises as to whether failure to meet the governing instrument requirement is automatically fatal to a deduction when the charitable_contribution has been made by a passthrough_entity in which the trust has an interest thus the issue presented is whether a_trust t may claim a charitable deduction for its share of a charitable_contribution made by a passthrough_entity where the governing instrument of the trust does not authorize the trustee to make charitable_contributions there are three possible types of entities in which t may have an interest but this memorandum focuses primarily on t owning an interest in a partnership there has been a suggestion that t is part of a tiered-trust scheme apparently the upper-tiered trust pursuant to the terms of its governing instrument contributes amounts of its gross_income to charitable organizations and attempts to pass the charitable deduction through to t a lower-tiered trust as your memorandum points out a_trust takes charitable_contributions into account in determining its own taxable_income but cannot pass charitable deductions or any other deductions with the exception of depreciation and depletion through to its beneficiary rather the amount of net_income that a_trust passes through to a beneficiary even if the beneficiary is a lower-tiered trust is in essence the amount of cash distributed to that beneficiary not to exceed the beneficiary’s share of distributable_net_income any attempt to pass a charitable deduction from one trust to another trust as its beneficiary is improper and impermissible another possibility is that the passthrough_entity is an s_corporation and the trust is an electing_small_business_trust esbt issues regarding an esbt’s deduction for its share of charitable_contributions made by the s_corporation are addressed in the proposed esbt regulations the third possibility is that the passthrough_entity is a partnership and t is claiming a deduction for its distributive_share of charitable_contributions made by the partnership we believe that the charitable deduction should not be disallowed merely because the trust’s governing instrument does not authorize the trustee to make charitable_contributions the tax_court addressed the service’s disallowance of charitable deductions taken by an estate because the decedent's will did not contain a provision for charitable_contributions in lowenstein v commissioner 12_tc_694 aff'd 183_f2d_172 sub nom first national bank of mobile v commissioner 5th cir and 15_tc_770 both of these cases dealt with sec_162 a statutory provision that provided for charitable deductions by trusts_and_estates tl-n-6049-00 sec_162 provided that the estate shall be allowed a deduction without limitation for all contributions paid pursuant to the provisions of the will while these cases dealt with the pre-1954 code sec_642 is substantially the same as former sec_162 in lowenstein the taxpayer decedent’s estate and two individuals each owned a one- third interest in a partnership subsequent to decedent’s death the partnership made charitable_contributions the amounts of the contributions were deducted in the partnership returns as ordinary and necessary business_expenses the service disallowed the taxpayer’s share of the charitable gifts reasoning that the contributions did not meet the requirements of sec_162 as the decedent’s will did not contain a provision allowing charitable_contributions the tax_court however held for the taxpayer stating it is not stipulated or otherwise shown whether the respondent allowed the deduction to the active partners as ordinary and necessary business_expenses as claimed in the partnership returns or as charitable gifts by the individual partners under sec_23 internal_revenue_code in any event we think that the deduction should have been allowed to the decedent's_estate as well as to the active partners the fact is that the estate never received the amount representing its portion of the charitable gifts they were deducted from the partnership income before its share of the earnings was ever determined under the partnership_agreement the estate was entitled to receive only its one-third share of the distributable earnings and since the active partners were charged with the management of the business it might be said that the charitable gifts they made were actually made pursuant to the partnership_agreement what the respondent has done in effect is to add to the petitioner's distributable partnership income one-third of the charitable gifts which it never received we think that the entire amount of the gifts should have been allowed as a deduction in computing the distributable income likewise in bluestein the service disallowed the charitable_contribution_deduction taken by decedent’s estate because the decedent's will did not contain a provision for charitable_contributions the decedent’s estate owned a percent partnership_interest with the decedent’s three sons owning the remainder the service argued that the contributions did not meet the requirements of sec_162 in holding for the taxpayer the court stated that because the lowenstein case was not distinguishable in principle a deduction should be allowed for the estate’s share of the charitable_contributions made by the partnership in computing the gross_income of the estate although the court did not analyze the governing instrument requirement in the above cases the basis for the court’s allowance of the deductions appears to be the fact that tl-n-6049-00 the contributions were made at the partnership level and that the estate would never receive the benefit of those amounts it is our contention that the court would reach the same conclusion today as it did in bluestein and lowenstein if the service were to argue that the charitable deduction should be disallowed because the trust’s governing instrument did not contain a provision authorizing charitable_contributions the proposed esbt regulations take an analogous position with respect to an esbt's share of charitable_contributions made by the s_corporation sec_1_641_c_-1 of the proposed income_tax regulations provides that if a deduction is attributable to a charitable_contribution paid_by the s_corporation the contribution will be deemed to be paid_by the s portion of the trust pursuant to the terms of the trust’s governing instrument within the meaning of sec_642 the other requirements of sec_642 must be met for the contribution to be deductible and the deduction cannot exceed the amount of gross_income of the s portion based on the bluestein and lowenstein cases we believe that a_trust should be allowed a deduction for its distributive_share of charitable_contributions made by a partnership even though the trust’s governing instrument does not authorize the trustee to make charitable_contributions however all the other requirements of sec_642 must be met and the limitations of sec_681 must be taken into account one of the requirements under sec_642 is that the charitable_contribution is made from gross_income for this requirement to be met with regard to a trust’s distributive_share of a contribution made by a partnership the charitable_contribution must be made from the partnership's gross_income in addition to be completely deductible the income must not be allocable to unrelated_business_income within the meaning of sec_512 unrelated_business_income includes income earned by the partnership from active trade or businesses or from certain property acquired with borrowed funds a trust’s deduction for its distributive_share of a partnership’s charitable_contribution that is allocable to unrelated_business_income is subject_to the limitations provided in sec_681 and the regulations thereunder thus a_trust should be allowed a charitable deduction under sec_642 for its distributive_share of charitable_contributions made by a partnership from the partnership’s gross_income that is not unrelated_business_income the result should be the same for both simple and complex trusts for instance assume a_trust that otherwise would be a simple_trust is a partner in a partnership assume further that the partnership contributes some of its gross_income that is not unrelated_business_income to a charitable_organization during the taxable_year the trust should be allowed a charitable deduction under sec_642 for its distributive_share of the charitable_contribution even though the trust's governing instrument does not authorize the trustee to make charitable_contributions the trust is a complex_trust for tl-n-6049-00 the taxable_year because a charitable deduction under sec_642 is allowed for that year this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call if you have any further questions associate chief_counsel passthroughs special industries by frances schafer counsel to the associate chief_counsel passthroughs special industries cc psi


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-112884-13 date date legend distributing controlled -------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- ------ shareholder a ------------------------------------------------------------------------------------------------------------- ----------------------------------- shareholder b ----------------------------------------------------------------------------------------------------- shareholder c ------------------------------------------------------------------------------------------------------------- ----------------------------------- date date date month month month -------------------- -------------------- ------------------- ----------------- --------------- ----------------- plr-112884-13 month month sub sub sub state x state y business a business a1 business a2 a b c d e f g h i j --------------- --------------- ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ ------------------------------------------- ------------------------------------------------------------------------------------------------------------- ---------------------------------- ------------------------------------------------------------------------------------------------------------- ----------------------------------- -------------- -------------- ---------------------------------------------------------------------------------------------------- --------------------------------- ----------------------------- ------------ -------- ------ ------ ---- -------- ------------ ---- ---------------- ---------------- plr-112884-13 k l m n o p q ---------------- ---------------- -------------- ---- -- ---- ---- dear ----------------------- this letter_ruling responds to your representative’s date request for rulings on certain federal_income_tax consequences of a proposed transaction the information submitted in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the facts representations and other information may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the proposed transaction as defined below i satisfies the business_purpose requirement of sec_1_355-2 ii is being used principally as a device for the distribution of earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii is part of a plan or a series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1 distributing a privately owned state x corporation is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return distributing facts plr-112884-13 and the members of its separate_affiliated_group sag as defined in sec_355 the distributing sag are engaged in business a distributing has two classes of common_stock outstanding-class a voting common_stock and class b non-voting common_stock the terms of the class a and class b stock are identical except with respect to voting rights and certain related rights eg the right to call special meetings and to modify the corporate by-laws as of date a shares of class a stock and b shares of class b stock were issued and outstanding shareholder a owns all of the class a stock shareholder b owns c of the class b stock and shareholder c owns the remaining d of the class b stock distributing has no preferred_stock outstanding distributing directly owns of the stock of both sub a state x limited_liability_company that is disregarded as separate from distributing for federal_income_tax purposes and sub a state x corporation sub and its wholly owned subsidiaries collectively the sub subgroup are engaged in business a1 distributing also directly owns approximately e of sub a state x corporation that is engaged in business a2 sub has two classes of stock outstanding-voting common_stock and non-voting preferred_stock as of date distributing owned all f shares of the sub preferred_stock and approximately e of the g outstanding shares of sub common_stock various sub employees the employee shareholders own the remaining h of sub common_stock distributing has submitted financial information indicating that each of business a1 and business a2 has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years as of date distributing or one of its wholly owned subsidiaries that is disregarded as an entity separate from distributing for federal_income_tax purposes had certain outstanding debts including but not limited to the following i debt totaling dollar_figurei that was incurred in month sec_1 and to repurchase shares from former shareholders such shareholders the former shareholder lenders and such debt the stock buy-back debt ii debt to shareholder a of dollar_figurej the shareholder debt that was incurred in month and iii a term_loan facility with a third-party bank the bank lender of approximately dollar_figurek the bank debt which was drawn down in month to refinance other distributing obligations on date sub made a payment of dollar_figurel to distributing as a return_of_capital additionally on date sub paid a regular quarterly dividend on its preferred_stock to distributing in the amount of dollar_figurem sub may pay an additional dividend on its preferred_stock to distributing prior to the contribution as defined below distributing also expects to redeem some but not all of the class b shares held by shareholder b immediately before the proposed transaction as defined below plr-112884-13 proposed transaction for what are represented to be valid business reasons distributing has undertaken or proposes to undertake the following transactions pursuant to a single_plan together the proposed transaction distributing formed a new state y corporation controlled as a direct wholly owned subsidiary in month controlled has one class of common_stock and no preferred_stock outstanding distributing will transfer all of its common and preferred sub stock to controlled in exchange for approximately e of controlled stock the contribution at the same time the employee shareholders will transfer all of their sub common_stock to controlled in exchange for the remaining h of controlled stock distributing will distribute at least n of controlled stock to distributing’s shareholders on a pro_rata basis the distribution distributing’s shareholders may contribute their shares of controlled stock to a newly formed limited_liability_company classified as a partnership for federal_income_tax purposes new llc in exchange for membership interests therein distributing will exchange any retained controlled stock which will comprise no more than o of all outstanding controlled stock the retained controlled stock for a portion of the stock buy-back debt the shareholder debt and or the bank debt more specifically a b to enter the option prior to the distribution distributing will give shareholder a and the former shareholder lenders into exchange agreements pursuant to which distributing will exchange shares of controlled stock for an amount of shareholder debt and stock buy-back debt respectively prior to the distribution one or more investment banks the investment banks acting as principals for their own account may purchase a portion of the bank debt from the bank lender the bank debt purchase if the bank debt purchase takes place distributing will enter into an exchange_agreement with the investment banks the bank debt exchange_agreement no sooner than five days after the bank debt purchase pursuant to the bank debt exchange_agreement the investment banks will exchange an amount of bank debt for shares of controlled stock the bank debt exchange the bank debt exchange_agreement will provide that the pricing for the exchange will be determined based on the fair_market_value of the bank debt and the plr-112884-13 c d controlled stock as of the date of the exchange and that the exchange will occur at least days after the bank debt purchase the investment banks are expected to sign an underwriting agreement with distributing and controlled to conduct a public offering the ipo of i the controlled stock if any to be acquired by the investment banks in the bank debt exchange ii the controlled stock if any to be acquired by the investment banks in the controlled stock purchase see step below and iii newly issued shares of controlled stock distributing will exchange the retained controlled stock if any for an amount of the shareholder debt the stock buy-back debt and or the bank debt the debt-for-equity exchange any such exchanged distributing debt the distributing debt all distributing debt will be retired at face value the debt-for-equity exchange is expected to occur approximately simultaneously with the distribution and it will occur at least days after the bank debt purchase if the bank debt purchase takes place immediately following the debt-for-equity exchange shareholder a and the former shareholder lenders are expected to sell their shares of controlled stock received in the debt-for-equity exchange to the investment banks for cash the controlled stock purchase at least one day after the distribution the investment banks are expected to issue the controlled stock described above in step c in the ipo the ipo proceeds will be used by controlled for general corporate purposes including capital expenditures the expansion of markets and services and the future acquisition of businesses or companies if controlled receives more cash in the ipo than is required for these purposes controlled may use the excess_proceeds to issue a special dividend to its shareholders of record before the ipo following the proposed transaction distributing and controlled will operate as two independent companies immediately after the proposed transaction a majority of directors on the board_of controlled will be persons that are not directors officers employees or principal shareholders of distributing no person will serve as an officer_or_employee of both distributing and controlled after the proposed transaction except as described in the following paragraph in connection with the proposed transaction distributing and controlled or their subsidiaries have entered or will enter into certain agreements and arrangements including a tax-sharing agreement and a transitional services agreement pursuant to the transitional services agreement several distributing employees will provide certain services the transitional services for controlled at cost for up to p months after the proposed transaction and the general counsel of distributing will serve as general counsel of controlled for up to q months after the proposed transaction in addition plr-112884-13 sub and sub have entered into a lease agreement with respect to real_property with sub as landlord and sub as tenant on terms intended to reflect arm’s-length negotiation including arm’s-length pricing it is expected that there will be no material changes to the lease following the proposed transaction other than the renegotiation of the lease at the end of its term to the prevailing market rate the foregoing agreements or arrangements concerning the relationship between distributing and controlled after the proposed transaction are collectively referred to herein as the continuing arrangements representations distributing has made the following representations in connection with the proposed transaction a b c d e no part of the consideration to be distributed by distributing in the distribution will be received by a shareholder of distributing as a creditor or an employee or in any capacity other than that of a shareholder of distributing in addition the distribution of controlled stock to distributing’s shareholders in the distribution is with respect to their ownership of distributing stock distributing will treat all members of its separate_affiliated_group within the meaning of sec_355 distributing sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business controlled will treat all members of its separate_affiliated_group within the meaning of sec_355 controlled sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business no intercorporate debt will exist between distributing or any member of the distributing sag and controlled or any member of the controlled sag at the time of or subsequent to the distribution other than any debt that arises under the continuing arrangements any indebtedness owed by controlled or any member of the controlled sag to distributing or any member of the distributing sag after the distribution will not constitute stock_or_securities the five years of financial information submitted by distributing with respect to each of business a1 and business a2 is representative of their present business operations and with regard to each of business a1 and business a2 there have been no substantial operational changes since the date of the last financial statements submitted plr-112884-13 f g h i j k l neither business a1 nor control of an entity conducting business a1 will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the distribution the distributing sag will have been the principal_owner of the goodwill and significant assets of business a1 and it will continue to be the principal_owner following the distribution neither business a2 nor control of an entity conducting business a2 will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the distribution the distributing sag will have been the principal_owner of the goodwill and significant assets of business a2 and the controlled sag will continue to be the principal_owner following the distribution following the distribution the distributing sag will continue the active_conduct of business a1 independently and with its separate employees except as provided pursuant to the continuing arrangements following the distribution the controlled sag will continue the active_conduct of business a2 independently and with its separate employees except as provided pursuant to the continuing arrangements the distribution is being carried out for the following corporate business purposes i enabling controlled to raise significantly more funds per share in an ipo in order to pursue its business strategies ii providing controlled with currency in the form of publicly traded stock that may be used to make future acquisitions iii enabling controlled to implement more effective customized stock-based incentive compensation packages and iv enabling distributing to reduce its debt by means of the debt-for-equity exchange the distribution is motivated in whole or substantial part by these corporate business purposes the distribution is not being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both the total adjusted_basis and the fair_market_value of the assets to be transferred to controlled by distributing in the contribution each will equal or exceed the sum of the liabilities to be assumed within the meaning of sec_357 if any by controlled plus any liabilities to which the transferred assets are subject m the liabilities if any to be assumed within the meaning of sec_357 by controlled in the contribution and the liabilities to which the transferred assets plr-112884-13 n o p q r s are subject were incurred in the ordinary course of business and are associated with the assets being transferred the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the contribution the fair_market_value of the assets transferred to controlled in the contribution will equal or exceed controlled’s aggregate basis in those assets immediately after the contribution distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the proposed transaction immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account of a member in the stock of another member that is required to be taken into account by sec_1_1502-19 will be included in income as appropriate at the time of the distribution neither distributing nor any member of distributing’s consolidated_group will have an excess_loss_account in the stock of controlled or in the stock of any subsidiary of controlled for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on ii attributable to distributions on distributing stock_or_securities that was acquired by purchase as defined in sec_355 and during the five- year period determined after applying sec_355 ending on the date of the distribution the date of the distribution or plr-112884-13 t u v w x y z in connection with all continuing payments made transactions between distributing or any of its subsidiaries and controlled or any of its subsidiaries following the distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s-length except for certain payments made for transitional services which will be provided at cost no two parties to the distribution are investment companies as defined in sec_368 and iv the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in either distributing or controlled including any predecessor of or successor to any such corporation immediately after the transaction within the meaning of sec_355 either i any person that holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 will have held such an interest in such corporation immediately before the transaction or ii neither distributing or controlled is or will be a disqualified_investment_corporation within the meaning of sec_355 distributing and controlled and their respective shareholders will each pay their own expenses if any incurred in connection with the proposed transaction the aggregate amount of distributing debt exchanged for controlled stock in the debt-for-equity exchange will not exceed the weighted quarterly average of distributing debt owed to unrelated third parties for the 12-month_period ending at the close of business on the last full business_day before the date on which the separation of business a1 and business a2 was first presented to distributing’s board_of directors the distributing debt was incurred by distributing in the ordinary course of business and was not incurred in connection with or in contemplation of the contribution the distribution or the debt-for-equity exchange aa any money property or stock contributed by distributing to controlled in the contribution will be exchanged solely for stock_or_securities in controlled bb no controlled stock is being distributed in the distribution in exchange for distributing stock rulings plr-112884-13 based solely on the information submitted and the representations set forth above and provided that i the distribution of controlled stock to distributing’s shareholders in the distribution is with respect to their ownership of distributing stock ii any money property or stock contributed by distributing to controlled in the contribution is exchanged solely for stock_or_securities in controlled and iii any other transfer of stock money or property between distributing controlled or any distributing shareholder and any person related to distributing controlled or any distributing shareholder is respected as a separate transaction we rule as follows the contribution together with the distribution will qualify as a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss on the contribution sec_357 and sec_361 controlled will recognize no gain_or_loss on the contribution sec_1032 immediately after the contribution controlled’s basis in each asset received in the contribution will equal the basis of that asset in the hands of distributing immediately before the contribution sec_362 controlled’s holding_period for each asset received in the contribution will include the period during which distributing held that asset sec_1223 distributing will recognize no gain_or_loss on the distribution sec_361 distributing will recognize no income gain deduction or loss upon the debt-for- equity exchange other than any i deductions attributable to the redemption of any distributing debt at a premium ii income attributable to the redemption of any distributing debt at a discount and iii interest_expense accrued with respect to the distributing debt sec_361 distributing’s shareholders will not recognize any gain_or_loss and will not otherwise include any amount in income upon their receipt of controlled stock in the distribution sec_355 immediately after the distribution the basis in the hands of each distributing shareholder of the distributing stock and the controlled stock that is distributed in the distribution will equal the basis of the distributing stock with respect to which the distribution is made allocated in proportion to the fair market values of the distributing and controlled stock immediately after the distribution in accordance with sec_1_358-2 sec_358 b and c plr-112884-13 the holding_period of the controlled stock received by each distributing shareholder in the distribution will include the holding_period of the distributing stock with respect to which the distribution is made provided the distributing stock is held as a capital_asset on the date of the distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1 e caveats 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 we express no opinion about the tax treatment of the proposed transaction under other provisions of the code and the treasury regulations or the tax treatment of any condition existing at the time of or effect resulting from the proposed transaction that is not specifically covered by the above rulings in particular no opinion is expressed or implied regarding i ii whether the distribution satisfies the business_purpose requirement of sec_1_355-2 whether the distribution is being used principally as a device for the distribution of the earnings_and_profits of distributing controlled or both see sec_355 and sec_1_355-2 or iii whether the distribution and any acquisition or acquisitions are part of a plan or series of related transactions under sec_355 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling plr-112884-13 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely russell g jones assistant to the branch chief branch office of associate chief_counsel corporate


internal_revenue_service department of the treasury index number u i l no washington dc person to contact telephone number refer reply to cc dom p si plr-106867-00 date date number release date legend company state shareholders a dear this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has two shareholders shareholders it is represented that company has intended to be an s_corporation since its incorporation believing itself to be an s_corporation company has operated accordingly since a after the end of its taxable_year beginning on a however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on a sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-106867-00 sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours s william p o’shea chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes