internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 9-plr-119809-00 date date in re legend child date date date decedent trust will dear this is in response to your letter of date and subsequent correspondence in which you requested a ruling that the provisions of chapter of the internal_revenue_code code do not apply to any generation-skipping transfers made from the trust because decedent was under a mental_disability within the meaning of sec_26_2601-1 of the generation-skipping_transfer_tax regulations from date until her death decedent died on date the fifth clause of decedent’s will provides as follows fifth all the residue and remainder of my estate of whatsoever kind and wheresoever situate sic which i may own or be entitled to at the time of my death all such property being herein sometimes referred to as my residuary_estate i give and devise as follows a if any issue of mine survive me to my trustee in trust to divide the same into so many equal shares so that there shall be one such share set apart for each of my daughters who survive me and one such share set apart for the issue who survive me taken collectively of each of my daughters who does not survive me and i dispose_of each such share as follows plr-119809-00 decedent was survived by two children pursuant to the terms of the fifth clause of the will the trust was created for the benefit of child and an additional trust was created to benefit child 1's sibling the corpus of the trust was included in the decedent’s gross_estate the executors of decedent’s estate timely filed a federal estate_tax_return form_706 on date in accordance with the requirements of sec_26_2601-1 the executors attached to schedule r part item 9a of the form_706 i a statement to the effect that decedent was under a mental_disability to change the disposition of her property from date until her death and ii a certificate from decedent’s treating physician stating that decedent was continuously from early until her death mentally incompetent to handle her own affairs including the execution of a will the internal_revenue_service service issued an estate_tax closing letter for decedent’s estate on date the following rulings are requested the provisions of chapter of the code will not apply to any generation-skipping transfers from the trust because decedent was under a mental_disability to change the disposition of her property continuously from date until her death the service has agreed that decedent was under such mental_disability to change the disposition of her property continuously from date until the date of her death sec_2601 of the code imposes a tax on every generation-skipping_transfer made after date under section a of the tax_reform_act_of_1986 act the generation-skipping_transfer_tax generally applies to any generation-skipping_transfer made after date the date the statute was enacted however under section b c of the act the tax does not apply to any generation-skipping_transfer i under a_trust to the extent such trust consists of property included in the gross_estate of a decedent other than property transferred by the decedent during his life after the date of the enactment of this act or reinvestments thereof or ii which is a direct_skip which occurs by reason of the death of any decedent but only if such decedent was on the date of the enactment of this act date under a mental_disability to change the disposition of his property and did not regain his competence to dispose_of such property before the date of his death sec_26_2601-1 of the generation-skipping_transfer_tax regulations provides that if an individual was under a mental_disability to change the disposition of plr-119809-00 his or her property continuously from date until the date of his or her death the provisions of chapter do not apply to any generation-skipping_transfer a under a_trust as described in sec_2652 to the extent such trust consists of property or the proceeds of property the value of which was included in the gross_estate of the individual other than property transferred by or on behalf of the individual during the individual’s life after date or b which is a direct_skip other than a direct_skip from a_trust that occurs by reason of the death of the individual sec_26_2601-1 provides that for purposes of sec_26 b the term mental_disability means mental incompetence to execute an instrument governing the disposition of the individual’s property whether or not there was an adjudication of incompetence and regardless of whether there has been an appointment of a guardian fiduciary or other person charged with either the care of the individual or care of the individual’s property sec_26_2601-1 provides that if there has not been a court adjudication that the decedent was mentally incompetent on or before date the executor must file with form_706 either - a certification from a qualified physician stating that the decedent was - i mentally incompetent at all times on and after date and ii did not regain competence to modify or revoke the terms of the trust or will prior to his or her death or sufficient other evidence demonstrating that the decedent was mentally incompetent at all times on and after date as well as a statement explaining why no certification is available from a physician and any judgement or decree relating to the decedent’s incompetency that was made after date sec_26_2601-1 provides that the items in paragraphs b iii a and of this section will be considered relevant but not determinative in establishing the decedent’s state of competency according to the facts as represented the corpus of the trust consists of property that was included in decedent’s gross_estate and the decedent’s form_706 contained the physician’s certification regarding the decedent’s mental_disability as required by sec_26_2601-1 the service audited the form_706 and issued an estate_tax closing letter on date because the required physician’s statement was filed with the form_706 on date and the service issued an estate_tax closing letter on date the service has accepted that the decedent was under a mental_disability to change the disposition of her property continuously from date until the date of her death because decedent was under a mental_disability to change the disposition of her property continuously from date until her death the provisions of chapter of the code will not apply to any generation-skipping transfers from the trust established by the fifth clause of decedent’s will 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 plr-119809-00 this letter this ruling is directed only to the taxpayer s 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 the trustees of the trust the rulings contained in this letter are based upon information and representations submitted by the taxpayers 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 melissa liquerman acting branch chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------- --------------------- ------------------------------------------------------------ ----------------------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc tege eb hw plr-126219-09 date date legend taxpayer ------------------------------------------------------------- ------------------------ trust --------------------------------------------------------------------- ---------------------------------------------------- ------------------------------------------------------------- state ------------ board ----------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ plan -------------------------------------------------------------------------- dear -------------- this is in reply to your letter dated date and subsequent correspondence in which you request a ruling on behalf of taxpayer with respect to trust taxpayer is a voluntary nonprofit organization each of whose members is the board_of education of a city or county in state board each board is composed of members who are appointed by the governor of state or by the governor and mayor or are plr-126219-09 selected through public elections pursuant to state law each board has been delegated the power of eminent_domain each board is a political_subdivision of state taxpayer created trust as a vehicle to assist participating employers to provide their employees with retiree health insurance benefits each participating employer in trust must be a member of taxpayer most of the trustees of trust are selected by the participating employers each participating employer selects one trustee in addition taxpayer selects one trustee a trustee can be removed by the selecting party as a condition for joining trust each prospective participating employer must create its own member trust the income of which is excluded from gross_income under sec_115 of the internal_revenue_code the code contributions to trust are made by a participating employer through its member trust trust funds are invested in accordance with investment objectives and policies of the member trusts each participating employer has its own retiree health plan plan the income of trust consists of contributions made by the participating employers through their member trusts and investment_income distributions from trust are made to the participating employer’s member trust employee and retiree contributions are not permitted disbursements from trust are solely for the purpose of paying for retiree health insurance benefits and trust administration_expenses no part of trust’s net_earnings may inure to the benefit of any private person other than the incidental benefit to the plan participants the trustees may amend the trust agreement in addition the trustees have the right to terminate trust at any time for any reason upon termination any assets remaining in trust will be used for the exclusive benefit of retirees pursuant to the plans adopted by the participating employers in no event will assets be transferred to an entity that is not a state a political_subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 of the code law analysis sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance of some governmental function that accrued to either a state or municipality the ruling plr-126219-09 points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign to properly conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the service determined that the income of an organization formed funded and operated by political subdivisions to trust various risks casualty public liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 of the code in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization trust provides health benefits to retired employees of its members all of which are political subdivisions of state providing health insurance benefits to retired employees of a political_subdivision of a state constitutes the performance of an essential government function based upon revrul_90_74 and revrul_77_261 trust performs an essential_governmental_function within the meaning of sec_115 of the code the income of trust accrues to its members upon termination of trust its remaining assets will be used to provide health benefits to the retirees of its members pursuant to the plan adopted by each member in no case will trust assets be distributed to an entity that is not a state a political_subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 of the code based on the information submitted and representations made by taxpayer we hold that the income of trust is derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 accordingly trust’s income is excludable from gross_income under sec_115 of the code no opinion is expressed on the classification of trust as a_trust for federal tax purposes no opinion is expressed concerning the federal tax consequences to trust under any other provision of the code other than those specifically cited above this ruling concerns only the federal tax treatment of trust’s income no opinion is expressed regarding the treatment of plans under any section of the code in particular no opinion is expressed concerning the federal tax consequences of contributions to or payments from plans including but not limited to whether amounts are excludable from the gross_income of employees former employees or retirees under sec_104 sec_105 or sec_106 of the code plr-126219-09 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely harry beker chief health and welfare branch office of division counsel associate chief_counsel tax exempt government entities cc


internal_revenue_service number release date index number ----------------------- -------------------------------- ----------------------------- in re ------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no ------------ telephone number -------------------- refer reply to cc psi b04 plr-131276-07 date date legend grantor -------------------------------------------------- spouse --------------------------------------------------- corporation -------------------------------------- corporate trustee year year year year year year year year year year attorney accountant ---------------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------------------- ------------------------ trust ---------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- trust ---------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- trust ---------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ plr-131276-07 trust ---------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- trust ---------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- trust ---------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- trust ---------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- 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------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- plr-131276-07 trust ---------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ trust ---------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- date ------------------ date ---------------- dollar_figurex ------------- dear ------------ this is in response to a letter from your authorized representative dated date and prior correspondence requesting an extension of time under sec_301 of the procedure and administration regulations to make an allocation of generation- skipping transfer gst tax exemption facts the facts and representations submitted are summarized as follows grantor and spouse created trusts in year sec_1 through for the benefit of their grandchildren and charities trusts are intended to qualify as charitable_remainder unitrusts described in either sec_664 or sec_664 of the internal_revenue_code the unitrust beneficiary of each trust is a different grandchild of grantor and spouse each trust was funded with stock in corporation a publicly traded company that was transferred to each trust by grantor the provisions of each trust are substantially_similar in the case of the trusts qualifying under sec_664 sec_2 of each trust provides that the trustee shall pay to the designated grandchild beneficiary during the beneficiary’s life but not to exceed a period of years an amount equal to of the net fair_market_value of the assets valued the first business_day of the taxable_year in the case of the trusts qualifying under sec_664 sec_2 of each trust provides that the trustee shall pay to the designated grandchild beneficiary during the beneficiary’s life but not to exceed a period of years the lesser_of the trust income for the taxable_year and of the net fair_market_value of the assets valued the first business_day of the taxable_year sec_4 of each trust provides that at the end of years or the prior death of the beneficiary trustee shall distribute all of the then principal and income of trusts to any one or more charitable organizations described in sec_170 sec_170 c a and c that the individual serving as trustee designated in writing or if the plr-131276-07 individual trustee did not so designate then to such charities as the corporate trustee designates attorney prepared the form sec_709 united_states gift and generation-skipping_transfer_tax returns reporting the transfers to trust sec_1 through made in years accountant prepared the form sec_709 reporting the transfers to trust sec_15 and made in years and on each of these returns grantor and spouse elected to treat the gifts as made one-half by each spouse under sec_2513 with respect to each return noted above no gst_exemption was allocated to any of the transfers to trusts and with respect to the years in which sec_2632 was in effect under sec_2632 the deemed_allocation rules did not apply with respect to the trusts in year corporate trustee determined that grantor had failed to allocate any of her gst to the transfers to trusts grantor consulted with accountant and it was determined that grantor would not request an extension of time to make allocations of gst_exemption under sec_2642 on date1 an amended form_709 was filed that made late allocations of grantor’s available gst_exemption to trust sec_1 - the allocations were effective as of date and the grantor elected pursuant to sec_26 a to use the fair_market_value of the trust assets on date for purposes of determining the inclusion_ratio grantor allocated a total of dollar_figurex on this return distributions have been made from trust to the respective unitrust beneficiary these distributions constitute taxable_distributions as defined in sec_2612 subject_to gst tax it is represented that forms 709-gs d were filed and gst tax paid with respect to some of these distributions and forms 709-gs d are being prepared with respect o the balance of the distributions grantor had sufficient gst_exemption available to allocate to trusts in year sec_1 through you have requested the following rulings that an extension of time is granted under sec_2642 and sections sec_301_9100-1 and sec_301_9100-3 to allocate the grantor’s remaining gst_exemption to trust sec_1 -16 with respect to the transfers to these trusts in years and that the inclusion_ratio with respect to these trusts will be based upon the federal gift_tax value of the property transferred and the allocation will be effective as of the date of transfer that if the relief in ruling_request is granted and gst_exemption allocations are made with respect to trust sec_1 through the late allocations of grantor’s gst_exemption made on grantor’s amended form_709 filed on date are void or ineffective and gst_exemption in the amount of dollar_figurex is restored to grantor plr-131276-07 that if relief is granted to grantor and similar relief is granted to grantor’s spouse trusts will have a zero inclusion_ratio such that no gst tax will be due with respect to any of the distributions from trusts law and analysis sec_2601 of the internal_revenue_service imposes a tax on every generation-skipping_transfer made by a transferor to a skip_person a generation- skipping transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines aapplicable rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip sec_2631 as in effect for the tax years at issue provided that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that in general an allocation of gst_exemption to property transferred during the transferor s lifetime other than in a direct_skip is made on form_709 sec_26_2632-1 provides generally that an allocation of gst_exemption is effective as of the date of any transfer as to which the form_709 on which it is made is a timely filed return a timely return an allocation made on a form_709 filed after the due_date for reporting a transfer to the trust a late allocation is effective on the date the form_709 is filed and is deemed to precede in point of time any taxable_event occurring on that date sec_26_2632-1 provides that a late allocation to a_trust is irrevocable when made plr-131276-07 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfer of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of determining the inclusion_ratio under sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 sec_26_2642-2 provides that if a transferor makes a late allocation of gst_exemption to a_trust the value of the property transferred to the trust is the fair_market_value of the trust assets determined on the effective date of the allocation of gst_exemption if a transferor makes a late allocation of gst_exemption to a_trust the transferor may for the sole purpose of determining the fair_market_value of the trust assets elect to treat the allocation as having been made on the first day of the month during which the allocation is made an allocation is not effective until it is actually filed with the internal_revenue_service under sec_2652 if under sec_2513 one-half of a gift is treated as made by an individual and one-half of the gift is treated as made by the individual’s spouse then the gift shall be so treated for gst tax purposes sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of the section sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_transfer_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the plr-131276-07 taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 in the present case after consulting with a tax advisor regarding the appropriate course of action grantor made late allocations with respect to trusts under sec_2631 and sec_26_2632-1 these allocations were irrevocable based on the facts submitted and the representations made we conclude that grantor made a late allocation of gst_exemption to trusts and that relief under sec_301 is not available the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely william p o’shea associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc