internal_revenue_service number release date index number ---------------------------- ------------------------ --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ----------------- telephone number --------------------- refer reply to cc psi plr-110265-14 date date legend date grantor_trust child child child child individual individual ------------------------- ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- --- ------------------------------------------------------------------------------------- ------------------------------------------ ------------------------------------------------------------------------------------- --------------------------------------------- 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--------------------------------------------------------------- ------------------------------------------------------------------------------------- ------------------------------------------------------------------ plr-110265-14 individual state co-trustees guardian guardian dear --------------- this responds to a letter dated date and subsequent correspondence requesting rulings under sec_671 sec_2041 sec_2501 and sec_2514 of the internal_revenue_code facts the information and representations submitted state that on date grantor created trust an irrevocable_trust for the benefit of himself his issue his spouse spouse individual individual and individual grantor will transfer property to trust the trust agreement refers to grantor’s issue individual individual and individual as beneficiaries trust is sited in state and pursuant to the trust agreement is governed by the laws of state trust provides that during grantor’s lifetime co-trustees must distribute such amounts of net_income and principal as directed by the power_of_appointment committee committee and or grantor as follows at any time the co-trustees pursuant to the direction of the majority of the committee members with the written consent of grantor shall distribute to grantor or beneficiaries such amounts of the net_income or principal as directed by committee grantor’s consent power at any time co-trustees pursuant to the direction of all of the committee members other than the grantor shall distribute to grantor or beneficiaries such amounts of the net_income or principal as directed by the committee unanimous consent power and plr-110265-14 grantor has the power in a nonfiduciary capacity at any time to appoint to any one or more of beneficiaries such amounts of the principal including the whole thereof as grantor deems advisable to provide for such beneficiary’s health maintenance support and education grantor’s sole power further upon grantor’s death the remaining balance of trust shall be distributed to such person or persons or entity or entities other than grantor his estate his creditors or the creditors of his estate as grantor may appoint by will grantor’s testamentary_power_of_appointment in default of the exercise of this limited_power_of_appointment the balance of trust will be divided into as many equal parts as are necessary to satisfy certain dispositions either outright or in trust for grantor’s then living issue individual individual and individual trust provides that committee may direct that distributions be made equally or unequally and to or for the benefit of any one or more of beneficiaries to the exclusion of others any net_income not distributed by the co-trustees will be accumulated and added to principal the members of the committee serve and act in a non-fiduciary capacity committee is initially composed of grantor child child individual individual guardian and guardian if at any time committee consists of at least three or more members other than grantor all the members of committee including grantor may by unanimous vote add one or more members to committee provided that such members are beneficiaries if at any time committee does not include at least one member other than grantor committee shall immediately cease to exist in any event committee shall cease to exist upon grantor’s death you requested the following rulings so long as the power_of_appointment committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing under sec_671 the taxable_income deductions and credits of grantor or any members of the power_of_appointment committee the contribution of property to trust by grantor will not be a completed_gift for federal gift_tax purposes any distribution_of_property by committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of committee any distribution_of_property by committee from trust to any beneficiary other than grantor will not be a completed_gift subject_to federal gift_tax by any member of committee other than grantor and plr-110265-14 committee members do not possess a general_power_of_appointment within the meaning of sec_2041 and accordingly trust will not be includible in any committee member’s gross_estate under sec_2041 ruling law and analysis sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances plr-110265-14 attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides a general_rule that a person other than a grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself based solely on the facts and representations submitted we conclude an examination of trust reveals none of the circumstances that would cause grantor or any other person to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 sec_677 or sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of grantor or any other person under sec_675 thus the circumstances attendant on the operation of trust will determine whether grantor or any other person will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides for the imposition of a gift_tax on the transfer of property by gift sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or person tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted plr-110265-14 with dominion and control as to leave the donor with no power to change the disposition of the property whether for the donor’s own benefit or for the benefit of another but if upon a transfer or property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides an example of where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor’s descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained testamentary_power_of_appointment but had instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a co-holder of a power is considered as having an adverse_interest plr-110265-14 where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer’s gift was complete in when he relinquished his right to change the beneficiaries of the trust the retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantor retained the grantor’s consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom the committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power the committee ceases to exist upon the death of grantor under sec_25_2514-3 a co-holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case committee ceases to exist upon grantor’s death accordingly the committee members do not have interests adverse to grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore grantor is considered as possessing the power to distribute income and principal to any beneficiary himself because he retained the grantor’s consent power the retention of this power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes grantor also retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries in this case the grantor’s sole power gives grantor the power to change the interests of the beneficiaries accordingly the retention of the grantor’s sole power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further grantor retained grantor’s testamentary power to appoint the property in trust to any person or persons or entity or entities other than grantor’s estate plr-110265-14 grantor’s creditors or the creditors of grantor’s estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal tax purposes finally committee possesses the unanimous member power over income and principal this power is not a condition_precedent to grantor’s powers grantor’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent grantor retains dominion and control_over the income and principal of trust until the committee members exercise their unanimous member power accordingly this power does not cause the transfer of property to be complete for federal gift_tax purposes see 37_tc_897 estate of goelet v commissioner t c accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax any distribution from trust to grantor is merely a return of grantor’s property therefore we conclude that any distribution_of_property by the committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee further upon grantor’s death the fair_market_value of the property in trust is includible in grantor’s gross_estate for federal estate_tax purposes ruling sec_4 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor’s estate the possessor’s creditors or the creditors of the individual’s estate sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor’s estate or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment plr-110265-14 sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor’s power sec_25_2514-3 provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditor or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer or property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides however that in the case of a power_of_appointment created after date which is exercisable by the decedent only in conjunction with another person if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent - such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent’s power plr-110265-14 which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent’s power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the powers held by the committee members under the grantor’s consent power are powers that are exercisable only in conjunction with the creator grantor accordingly under sec_2514 and sec_2041 the committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the committee members under the unanimous member powers are not general powers of appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and sec_20_2041-3 the committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than grantor pursuant to the exercise of these powers the grantor’s consent power and the unanimous member powers are not gifts by the committee members instead such distributions are gifts by grantor based upon the facts submitted and representations made we conclude that any distribution_of_property by the committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee further we conclude that any distribution_of_property from trust to a beneficiary other than grantor will be a completed_gift by grantor finally we conclude that the powers held by the committee members are not general powers of appointment for purposes of sec_2041 and accordingly the possession of these powers by the committee members will not cause trust property to be includible in any committee member’s gross_estate under sec_2041 plr-110265-14 except as specifically ruled herein we express 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 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 copies of this letter are being sent to the taxpayer’s authorized representative sincerely joy c spies joy c spies senior technician reviewer branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


sw -p internal_revenue_service department of the treasury washington dc contact person danny smith telephone numbet in reference to t eo ra t date oct ono b d e dear sir or madam this is in reference to your letter of date requesting advance approval of your grant procedures under sec_4945 of the internal_revenue_code the information submitted shows that the grants will be administered by f program the c and or the d option a publicly_supported_organization under its b organizations operating under the b program may elect for purposes of the c scholarship awards option f selects after the test the initial phase of the competition is the x test individual scholarship recipients in the b program through a competition which is given annually in participating high schools by high school officials students scoring in a group that represents the top two percent of graduating high school seniors nationwide and designates a number that represents less than one percent of the graduating high school seniors in each state as semifinalists semifinalists then take a second test to confirm their earlier performance those who repeat their prior performance who demonstrate high academic standing in high school and who meet other standard requirements are designated as finalists f identifies and honors the f's selection procedures in its d scholarship awards option generally parallel those applied in the c option however eligibility in the d option is limited to the top-scoring black students least four geographic regions each consisting of several states semifinalists in the d option are designated in pincite0308 according to the distribution of the black population throughout the united_states e you have entered into an agreement with f whereby you have to under the b the actual number of b scholarships to after the list of finalists is obtained f reviews agreed to sponsor a specific number of scholarships each year be awarded to children of employees and agents of program f may award scholarships only to students who are designated as finalists be supported by you will not exceed the number of employees children who qualify as finalists in their respective competitions the finalist group to determine which students are eligible for grants under an employer related scholarship program application is required from the students to enter the b program therefore neither you nor f can determine the number of eligible applicants employees' children who qualify as finalists the total number of scholarships to be awarded in a particular year is automatically reduced or some foundations may permit scholarships to be offered to finalists who are not children of employees f monitors participating employers to ensure a sufficiently large base of employees' children from which at least one or more b finalists would ordinarily be expected to emerge necessary since fewer than one out of one hundred seventy-five students in a senior class achieves the b finalist level if there is an insufficient number of this is no the selection of individual grant recipients is made by f confirms the individual scholarship recipient's selection committees designated by f selection committee are totally independent and separate from you enrollment at the educational_institution makes payment of the award through the appropriate financial aid office of the educational_institution and supervises and investigates the use of the grant funds by the recipients in their educational program the members of the the scholarships will not be used as a means of inducement scholarships will only be to recruit employees nor will a grant be terminated if an employee parent leaves the company awarded to students who plan to enroll in an institution that meets the requirements of sec_170 and which may further be limited by f awarded the recipient will not be restricted in his her course of study in rare cases sponsors may ask f to give preference in selection to individuals who propose to study in certain broad fields enable you to maintain the records required by rev c b a ii of the code after the scholarship is f will supply statistical information to you which will proc sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure 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 or other similar purposes by such individual unless such grant satisfies the requirements of sec_4945 a grant to an individual for travel study 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 is demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is an educational_organization described in sec_170 a ii to be used for study at it revproc_76_47 1976_2_cb_670 sets forth guidelines to a scholarship grant subject_to the provisions of section be used in determining whether a grant made by a private_foundation under an employer-related program to a child of employee of the particular employer to which the program relates i sec_117 conditions set forth in sections dollar_figure through dollar_figure of rev and meets the percentage_test described in sec_4 the service will assume the grant will be subject_to the provisions of sec_117 a private foundation's program satisfies the seven proc an if section dollar_figure of revproc_76_47 provides a percentage_test a program that awards it states that in the case of guideline grants to children of employees of a particular employer the program meets the percentage_test if the number of grants awarded under that program in any year to such children does not exceed percent of the number of employees' children who eligible ii were applicants for such grants and considered by the selection committee in selecting the recipients of grants in that year or percent of the number of employees' children who can be shown to be eligible for grants whether or not they submitted an application in that year i were iii were as stated in sec_4 of revproc_76_47 if a sponsor's program satisfies the seven conditions set forth in sections dollar_figure through but does not meet the percentage_test of section dollar_figure applicable to grants to employees’ children the question whether the grants are scholarship or fellowship grants subject_to the provisions of sec_117 of the code will be resolved on the basis of all the facts and circumstances in making this determination the service will consider as a substitute for the percentage_test of section dollar_figure all the relevant facts and circumstances to determine whether the primary purpose of the program is to provide extra compensation or other employment incentive or whether the primary purpose is recipients in their individual capacities circumstances will be considered in the context of the probability that a grant will be available to any eligible applicant these facts and to educate such relevant facts and circumstances could include the history of the program such as the source of the program's funding the courses of study for which the grants are available any eligibility requirements imposed by the program other than employment of the applicants or their parents and the age and grade level prerequisites for the studies for which the grants are available the publicity given the grant program the degree of independence of the selection committee the particular -standards used for selection the specific means used to determine whether those standards have been met nature of the employee limitation or preference the number of grants available the number of employees or their children who would be eligible for them or their children applying for grants who normally eg average basis receive grants under the program and whether and how many grants are awarded to individuals who do not qualify as employees or children of employees the percentage of eligible employees the precise on an in this instance the following facts and circumstances are no application is required aside from the employment preference f considered relevant public charity operates its private_foundation sponsored b program in a substantially_similar manner to its nationwide college scholarship program for academically talented high school students finalist status in their respective competitions recipients are chosen by selection committees totally independent of the private_foundation or the employer involved no limitations are placed on the recipients' choice of course of study after the grant is awarded number of employees' children who qualify as finalists f provided an average of one scholarship for every big_number employees’ children in its programs the number of actual grants made may not exceed the individuals must achieve in a under the facts and circumstances as stated above there is only an insignificant probability that any particular employee's child will be selected and thus the grant's primary purpose is not one of providing extra compensation or other employment incentive and the facts_and_circumstances_test of revproc_76_47 sec_4 is met e accordingly based upon the information presented and assuming your scholarship program will be conducted as proposed with a view to providing objectivity and non-discrimination in the awarding of scholarship grants we rule that your grants to f for the awarding of scholarship grants to children of employees and agents of e comply with the requirements of sec_4945 accordance with those procedures will not constitute taxable_expenditures within the meaning of sec_4945 of the code such expenditures made in of the code thus 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 that f will advise the recipient that amounts granted are taxable_income if the aggregate scholarship amounts received by the recipient exceed tuition and fees required for enrollment or attendance at the educational_institution and fees books supplies and equipment required for courses of instruction not including room and board we understand this ruling will remain in effect as long as the procedures in awarding grants under your program remain in compliance with sections dollar_figure through dollar_figure of revproc_76_47 please note that this ruling is only applicable to grants before you enter into any other awarded under the b program scholarship or educational loan program you should submit a request for advance approval of that program for awarding grants under the b program are considered to satisfy the facts_and_circumstances_test of revproc_76_47 and therefore will not be counted in determining whether the percentage_test of revproc_76_47 is met with respect to any ether such program for which prior approval has been granted your procedures we are informing the te_ge office of this ruling please keep a copy of this ruling with your organization's permanent records this ruling is directed only to the organization that requested it may not be used or cited as precedent sec_6110 of the code provides that it sincerely jrerectel v seek gerald v sack manager exempt_organizations technical group


t c summary opinion united_states tax_court juanita doby petitioner v commissioner of internal revenue respondent docket no 17756-03s filed date juanita doby pro_se noelle c white for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the taxable_year after concessions the issues for decision are whether petitioner is liable for tax on payments in the amount of dollar_figure received from the equitable benefits payment services pursuant to her deceased husband’s pepco pension_plan and whether petitioner is liable for tax on individual_retirement_account ira_distributions received during taxable_year totaling dollar_figure the amount of petitioner’s social_security_benefits received during that must be included in her gross_income is a computational matter and will be resolved by the parties after taking into account the concessions and our decision on the other issues in this case background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in 1at trial and in the stipulation of facts petitioner conceded she received dollar_figure of interest_income from educational systems federal credit_union during the tax_year she received dollar_figure interest_income from household bank during the tax_year and she was liable for tax on discharge_of_indebtedness income in the amount of dollar_figure which was the result of worldwide financial services’ canceling a debt owed by petitioner during taxable_year also at trial respondent conceded that petitioner was entitled to claim a child_care_credit and a child_tax_credit lanham maryland on the date the petition was filed in this case in taxable_year petitioner received dollar_figure in survivor annuity payments from the general retirement_plan for employees of potomac electric power company the financial_institution distributing the annuity payments the equitable benefits payment services issued a form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc to petitioner with respect to the annuity payments the form 1099-r reported dollar_figure in fully taxable benefits paid to petitioner during the tax_year in addition the form 1099-r reported no employee contributions petitioner’s spouse did not make any contributions to the plan furthermore the general retirement_plan for employees of potomac electric power company states that employee contributions to the plan are not allowed also during taxable_year petitioner received ira_distributions from educational systems employees credit_union totaling dollar_figure educational systems employees credit_union issued to petitioner a form 1099-r with respect to the ira_distributions the form 1099-r reported dollar_figure in fully taxable_distributions dispensed to petitioner during the tax_year petitioner filed a form_1040 u s individual_income_tax_return for the taxable_year in the return petitioner filed as a qualifying widow with dependent_child petitioner’s spouse died in on her form_1040 petitioner did not report the dollar_figure payments received from the equitable benefits payment services pursuant to her deceased husband’s pepco pension_plan nor did she report the ira_distributions received from educational systems employees credit_union totaling dollar_figure discussion in general the commissioner’s determination set forth in a notice_of_deficiency is presumed correct 290_us_111 in pertinent part rule a provides the general_rule that the burden_of_proof shall be upon the petitioner in certain circumstances however if the taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the proper tax_liability sec_7491 places the burden_of_proof on the commissioner sec_7491 rule a credible_evidence is ‘the quality of evidence which after critical analysis a court would find sufficient to base a decision on the issue if no contrary evidence were submitted’ 122_tc_143 quoting higbee v commissioner t c 2we interpret the quoted language as requiring the taxpayer’s evidence pertaining to any factual issue to be evidence the court would find sufficient upon which to base a decision on the issue in favor of the taxpayer see bernardo v commissioner tcmemo_2004_199 sec_7491 applies only if the taxpayer complies with substantiation requirements maintains all required records and cooperates with reasonable requests by the commissioner for witnesses information documents meetings and interviews sec_7491 although neither party alleges the applicability of sec_7491 we conclude that the burden_of_proof has not shifted to respondent with respect to any of the issues in the present case pension_plan payments sec_61 specifies that except as otherwise provided gross_income includes all income from whatever source derived the construction of sec_61 is broad and any ‘exclusions to income must be narrowly construed ’ 515_us_323 quoting 504_us_229 souter j concurring in judgment taxpayers seeking an exclusion_from_gross_income must demonstrate that they are eligible for the exclusion and bring themselves within the clear scope of the exclusion 111_tc_339 ndollar_figure sec_61 and provides that annuities and pensions are among the forms of income within the purview of sec_61 sec_72 pertaining to annuities and pensions sec_61 and sets forth specific rules applicable to taxation of inter alia annuities and distributions from qualified_employer retirement plans see also sec_402 sec_72 reiterates the general_rule of inclusion in gross_income unless otherwise provided sec_72 however provides that portions of annuity payments may be excludable from income the excludable_portion of a payment generally is that portion which bears the same ratio to such payment as the investment_in_the_contract bears to the expected_return under the contract determined at the time the annuity payments begin sec_72 while the term investment_in_the_contract is defined generally as the aggregate amount of premiums or other consideration paid for the contract sec_72 contributions made by an employer on behalf of an employee- taxpayer which were not includable in the taxpayer’s gross_income generally are not part of the taxpayer’s investment_in_the_contract sec_72 in petitioner received dollar_figure in survivor annuity payments from the general retirement_plan for employees of sec_72 annuities certain proceeds of endowment and life_insurance contracts b exclusion_ratio -- in general --gross income does not include that part of any amount_received_as_an_annuity under an annuity endowment or life_insurance_contract which bears the same ratio to such amount as the investment_in_the_contract as of the annuity_starting_date bears to the expected_return under the contract as of such date potomac electric power company the form 1099-r issued to petitioner by equitable benefits payment services with respect to the annuity payments shows that the dollar_figure benefits paid to petitioner are fully taxable and there were no employee contributions furthermore the general retirement_plan for employees of potomac electric power company provides that employee contributions to the plan are not allowed and petitioner testified that her spouse did not make any contributions to the plan petitioner did not report the annuity payments as income on her federal_income_tax return instead petitioner argues that the annuity payments are under the purview of sec_101 and therefore are not taxable prior to repeal sec_101 read as follows b employees’ death_benefits -- general_rule --gross income does not include amounts received whether in a single sum or otherwise by the beneficiaries or the estate of an employee if such amounts are paid_by or on behalf of an employer and are paid_by reason of the death of the employee however this subsection does not apply to the case at hand because it was repealed by the small_business job protection act of publaw_104_188 110_stat_1789 the death_benefit exclusion applies only to beneficiaries of decedents that died prior to date see small_business job protection act of publaw_104_188 110_stat_1791 petitioner’s spouse died in therefore the present annuity payments are not subject_to the death_benefit exclusion provided by sec_101 furthermore petitioner has not provided any evidence that she or her spouse had an investment_in_the_contract also petitioner has not demonstrated that the annuity payments she received are within any exclusion therefore the present annuity payments are taxable and respondent’s determination on this issue is sustained ira_distributions as previously stated gross_income includes all income from whatever source derived sec_61 sec_61 specifically includes items included under sec_72 relating to annuities and iras as a general_rule amounts paid or distributed out of individual retirement plans including iras are included in gross_income when received by the payee or distributee under provisions of sec_72 sec_408 the regulations provide in relevant part as follows except as otherwise provided in this section any amount actually paid or distributed or deemed paid or distributed from an individual_retirement_account or individual_retirement_annuity shall be included in the gross_income of the payee or distributee for the taxable_year in which the payment or distribution is received sec_1_408-4 income_tax regs in petitioner received ira_distributions from educational systems employees credit_union totaling dollar_figure the form 1099-r issued to petitioner by educational systems employees credit_union with respect to the ira_distributions shows that the distributions totaling dollar_figure are fully taxable petitioner does not dispute that she received the ira_distributions petitioner did not report the ira_distributions as income on her federal_income_tax return instead petitioner claims that the distributions received during are from amounts rolled over during taxable_year from her deceased spouse’s sec_401 plan into her ira with educational systems employees credit_union further petitioner claims that these amounts can be traced to after-tax contributions therefore petitioner argues a portion of the amount distributed from her ira in may be exempt from tax pursuant to sec_643 of the economic_growth_and_tax_relief_reconciliation_act_of_2001 publaw_107_16 115_stat_38 4the economic_growth_and_tax_relief_reconciliation_act_of_2001 publaw_107_16 115_stat_122 provides a rollovers from exempt trusts --paragraph of sec_402 relating to maximum amount which may be rolled over is amended by adding at the end the following the preceding sentence shall not apply to such distribution to the extent-- continued petitioner has not provided any documentary_evidence to substantiate her claim as to the origins of the ira_distributions during petitioner’s testimony she was unable to identify or recall any specific transfers from her deceased spouse’s sec_401 plan into her ira further the statutory provisions permitting the rollover of after-tax contributions from a sec_401 plan to an ira was not allowed until the economic_growth_and_tax_relief_reconciliation_act_of_2001 publaw_107_16 115_stat_123 was made effective on date the rollover in this case would have occurred during therefore under the law in effect at that time petitioner could not have rolled over after-tax contributions from a sec_401 plan into her ira thus the total amount of the ira_distributions dollar_figure made during taxable_year by educational systems employees credit_union to petitioner is required to be reported in petitioner’s gross_income respondent’s determination on this issue is sustained continued a such portion is transferred in a direct trustee-to-trustee transfer to a qualified_trust which is part of a plan which is a defined_contribution_plan and which agrees to separately account for amounts so transferred including separately accounting for the portion of such distribution which is includible in gross_income and the portion of such distribution which is not so includible or b such portion is transferred to an eligible_retirement_plan described in clause i or ii of paragraph b reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


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 b01 plr-151989-05 date date ------------------ --------------------- legend legend x --------------------- -------------------------------------------------- country d dear -------------- correspondence written on behalf of x requesting an extension of time under ' and ' of the procedure and administration regulations to elect to be treated as a partnership for federal tax purposes this letter responds to the letter dated date and related facts the information submitted states that x was incorporated under the laws of country on d x intended to file a form_8832 entity classification election to be treated as a partnership for federal tax purposes effective d however the election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an plr-151989-05 eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under ' b by filing form_8832 with the appropriate service_center under ' c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except 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 federal_register commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for 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_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of and and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as a partnership for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose plr-151989-05 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 internal_revenue_code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely enclosures heather c maloy associate chief_counsel passthroughs and special industries copy of this letter copy for ' purposes cc


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number se t eo ra t tax_exempt_and_government_entities_division number release date date date vil legend insurance_company receiver state date date date date dear we have considered your ruling_request dated date requesting a determination that insurance_company will not suffer any adverse federal tax consequences under sec_501 of the internal_revenue_code hereafter code with regard to receiver's final distributions to creditors and the closing of the receivership estate you represent that insurance_company is an insolvent insurance_company being liquidated under the supervision and control of the court appointed statutory receiver as of date insurance_company was recognized by the service as an insurance_company described in sec_501 of the code and therefore exempt from federal_income_tax you represent that insurance_company was never a life_insurance_company within the meaning of sec_816 of the code insurance_company was incorporated as a property and casualty insurance_company and at all times transacted business exclusively as a property and casualty insurer on date the state court placed insurance_company in receivership due to its financial condition you represent that during this period in which insurance_company was under the control of the court appointed statutory receiver it only administered insurance claims and did not issue any insurance contracts on date the state court found that insurance_company was insolvent and ordered receiver to liquidate insurance_company by court order dated date the state court approved receiver’s recommendations as to creditors’ claims amounts due and priorities of payment presently all assets of insurance_company have been liquidated and all creditor claims have been paid but for the final distribution of the remaining assets the record indicates that receiver has held off making a final distribution of the receivership estate pending a determination from the service that said final distribution will not result in federal tax_liability under c of the code you have requested a ruling that insurance_company will not suffer any adverse federal tax consequences under sec_501 of the code with regard to receiver's final distributions to creditors and the closing of the receivership estate under sec_501 of the code an organization described in sec_501 is exempt from federal_income_tax under sec_501 of the code an insurance_company other than a life_insurance_company was tax-exempt if its net written premiums or if greater its direct written premiums did not exceed dollar_figure under the pension funding equity act of p l hereafter act sec_501 of the code was amended by section of the act which became effective for taxable years beginning after date specifically the act amended sec_501 of the code to provide for continued tax-exemption of a insurance_companies as defined in sec_816 other than life insurers including inter-insurers and reciprocal underwriters if - i i the gross_receipts for the taxable_year do not exceed dollar_figure and ii more than percent of such gross_receipts consist of premiums under section e of the act a special transition rule was established with respect to certain insurance_companies in receivership or liquidation section e provides that in the case of a company or association which a for the taxable_year which includes date meets the requirements of sec_501 of the internal_revenue_code_of_1986 as in effect for the last taxable_year beginning before january is in a receivership liquidation or similar proceeding under the supervision of a state court the amendments made by this section shall apply to taxable years beginning after the earlier of the date such proceeding ends or date and b on april the issue to be determined is whether insurance_company meets the new requirements under sec_501 of the code as amended by the act and qualifies for recognition of exemption for any period you represent that insurance_company is an insurance_company as defined in sec_816 of the code other than a life_insurance_company you further represent that from date insurance_company was in receivership and did not issue any insurance contracts or collect any premiums because more than percent of insurance company's gross_receipts did not consist of premiums insurance_company does not meet the new requirements of sec_501 as amended by the act for its taxable years beginning after date because insurance_company does not meet sec_501 of the code the second issue to be determined is whether insurance_company meets the requirements of the transition rule under section e a and b of the act the transition rule applies to insurance_companies in receivership or liquidation and permits them to qualify for tax exemption the determination of whether an insurance_company qualifies under the transition rule is a two-step process the first step under the two-step transition rule is to determine whether for the taxable_year which includes date insurance_company meets the requirements of sec_501 of the code as in effect for the last taxable_year beginning before date see section e a of the act in order to meet the statutory language of sec_501 of the code as in effect before date insurance_company must be an insurance_company other than life insurer and its net written premiums or if greater direct written premiums must not exceed dollar_figure pursuant to the record insurance_company was at all times a property and casualty insurer and not a life insurer you represent that on date which is prior to date insurance_company went into receivership and subsequently thereafter went into liquidation with insurance_company not having any net or direct written premiums exceeding dollar_figure therefore insurance_company satisfies section e a of the act the first step of the two-step transition rule under section e of the act the second step under the two-step transition rule is to determine whether on date insurance_company was in receivership liquidation or a similar proceeding under the supervision of a state court see section e b of the act you represent that on date insurance_company was placed in receivership by state court and had remained in receivership up to and including date therefore insurance_company satisfies section e b of the act the second and last step of the two-step transition rule under section e of the act insurance_company has established that it meets both requirements of section e of the act and as a result insurance_company qualifies for the transition rule for companies in receivership or liquidation under the act therefore the act's amendments to sec_501 of the code do not apply to insurance_company until taxable years beginning after the earlier of the date insurance company's liquidation ends or date accordingly insurance_company continues to qualify as exempt from federal_income_tax under sec_501 of the code as an organization described in sec_501 until the applicable_date in the transitional rule that is date in addition to certain clarifications being made the requirements for qualification as an insurance_company under c of the code as amended by section of the act have changed insurance_company and receiver may rely on this ruling only during the period in which the transition rule for companies in receivership or liquidation is in effect under section e this ruling is based on the understanding that there will be no material changes in the facts and representations upon which it is based except as we have ruled herein we express no opinion as to the tax consequences of the transactions under other sections of the code and income_tax regulations this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolved questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


t c summary united_states tax_court rhonda hope hamilton petitioner v commissioner of internal revenue respondent ricky derrell hamilton petitioner v commissioner of internal revenue respondent docket nos 8101-02s 8545-02s filed date rhonda hope hamilton pro_se in docket no 8101-02s ricky derrell hamilton pro_se in docket no 8545-02s amy dyer seals for respondent powell special_trial_judge these consolidated case sec_1 were heard pursuant to the provisions of section of the these cases were consolidated for purposes of trial briefing and opinion because they involve common questions of fact and law arising from the residence of petitioners’ daughter unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue internal_revenue_code in effect at the time the petitions were filed the decisions to be entered are not reviewable by any other court and this opinion should not be cited as authority by separate notices of deficiency respondent determined a deficiency of dollar_figure in the federal_income_tax of petitioner rhonda hope hamilton ms hamilton at docket no 8101-02s and a deficiency of dollar_figure in the federal_income_tax of petitioner ricky derrell hamilton mr hamilton at docket no 8545-02s after concessions the issues are whether ms hamilton is entitled to an earned_income_credit eic with respect to rebecca hope hamilton rebecca petitioners’ minor daughter whether ms hamilton is entitled to use head_of_household filing_status whether mr hamilton is entitled to a dependency_exemption deduction with respect to rebecca and whether mr hamilton is entitled to a child_tax_credit with respect to rebecca ms hamilton resided in newberry south carolina and mr hamilton resided in prosperity south carolina at the time the petitions were filed background petitioners were divorced in by a consent decree dated date the family court of the county of respondent conceded that mr hamilton is entitled to claim a dependency_exemption deduction and a child_tax_credit of dollar_figure with respect to richard hamilton petitioners’ minor son and to the head_of_household filing_status as a result of these concessions mr hamilton’s deficiency is reduced to dollar_figure newberry state of south carolina entered an order awarding ms hamilton custody of rebecca while ms hamilton had legal custody during there are ambiguities with respect to where rebecca resided and the duration of rebecca’s residence she spent time with both parents and both parents contributed to her support on their separate federal_income_tax returns both petitioners claimed head_of_household filing_status and a dependency_exemption deduction and an eic with rebecca as a qualifying_child additionally mr hamilton claimed a child_tax_credit with respect to rebecca in the notice_of_deficiency issued to ms hamilton respondent determined that she was the custodial_parent of rebecca and allowed her the dependency_exemption deduction respondent however disallowed ms hamilton’s claimed head_of_household filing_status and the eic with respect to rebecca as to mr hamilton respondent disallowed the claimed dependency_exemption deduction and the child_tax_credit with respect to rebecca earned_income_credit discussion sec_32 generally provides eligible individuals with an eic against their income_tax_liability an eligible_individual is defined as an individual who has a qualifying_child for the taxable_year sec_32 sec_32 provides that a qualifying_child must have the same principal_place_of_abode as the taxpayer for more than one- half of the taxable_year respondent concedes that if rebecca had the same principal_place_of_abode as ms hamilton for more than one-half of then ms hamilton qualifies for the eic with respect to rebecca while the evidence is perhaps less than clear as to where rebecca’s abode was at any given time we believe that her principal_place_of_abode was with ms hamilton for more than one-half of head_of_household filing_status as relevant herein ms hamilton qualifies for head_of_household filing_status if she was not married at the close of the taxable_year and maintained as her home a household which constitutes for more than one-half of such taxable_year the principal_place_of_abode of a daughter sec_2 as discussed above we find that rebecca’s principal_place_of_abode was with ms hamilton and ms hamilton qualifies as head of a household for an eligible_individual also includes an individual without a qualifying_child who meets certain criteria see sec_32 respondent concedes that ms hamilton is entitled to an eic as an individual without a qualifying_child sec_7491 concerning burden_of_proof has no bearing on the underlying substantive issue dependency_exemption sec_151 and sec_152 provide that a taxpayer is entitled to deduct an exemption for a minor dependent if the taxpayer provides over half of the support for the minor dependent in the case of a minor dependent whose parents are divorced or separated and together provide over half of the support for the minor dependent sec_152 provides that the parent having custody for a greater portion of the calendar_year custodial_parent generally shall be treated as providing over half of the support for the minor dependent custody is determined by the terms of the custody decree sec_1_152-4 income_tax regs a noncustodial_parent however may be treated as providing over half of the support for the minor dependent if the requirements of sec_152 are satisfied sec_152 provides exception where custodial_parent releases claim to exemption for the year --a child received over half of his support during a calendar_year from the noncustodial_parent if-- a the custodial_parent signs a written declaration in such manner and form as the secretary may by regulations prescribe that such custodial_parent will not claim such child as a dependent for any taxable_year beginning in such calendar_year and b the noncustodial_parent attaches such written declaration to the noncustodial parent’s return for the taxable_year beginning during such calendar_year the internal_revenue_service prescribed form_8332 release of claim to exemption for child of divorced or separated parents as the appropriate form in which the noncustodial_parent may satisfy the written declaration requirement of sec_152 see 114_tc_184 affd on another ground sub nom 293_f3d_1208 10th cir sec_1_152-4t a q a-3 temporary income_tax regs fed reg date mr hamilton failed to provide a form_8332 or any other documentation to establish that ms hamilton waived her right to the dependency_exemption deduction with respect to rebecca we hold that mr hamilton is not entitled to the dependency_exemption deduction with respect to rebecca see mccarthy v commissioner tcmemo_1995_557 ferguson v commissioner tcmemo_1994_114 child_tax_credit sec_24 provides that a taxpayer may claim a credit for each qualifying_child a qualifying_child is defined inter alia as any individual if the taxpayer is allowed a deduction under sec_151 with respect to such individual for the taxable_year sec_24 for the reasons stated temporary regulations are entitled to the same weight as final regulations see peterson marital trust v commission102_tc_790 affd 78_f3d_795 2d cir 98_tc_141 see also 751_f2d_123 2d cir revg on other grounds tcmemo_1984_145 above mr hamilton may not claim a dependency_exemption deduction with respect to rebecca under sec_151 and therefore he may not claim the child_tax_credit reviewed and adopted as the report of the small_tax_case division decisions will be entered under rule


department of the treasury internal_revenue_service washington d c date number release date cc dom fs p si uil memorandum for district_counsel attn from assistant chief_counsel cc dom fs subject retirements depreciation this memorandum responds to your request for assistance in this docketed matter this memorandum is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend t assets product plr agency date date date date date year year year dollar_figure dollar_figure issue whether t’s sale of assets is properly classified as a normal or abnormal_retirement conclusion we believe that the discovery information you have forwarded does not place our initial determination in question we believe the sale of the assets was an abnormal_retirement pursuant to sec_1 a -12 d iii and a -12 d facts t filed administrative claims for refund of federal_income_tax on date for the calendar_year sec_1 and in the respective amounts of dollar_figure plus statutory interest and dollar_figure plus statutory interest the internal_revenue_service disallowed in part the claims for refund t brought a claim_for_refund in the united_states district_court on date the case is currently in discovery t was engaged primarily in the business of providing product in year sec_1 and and prior years assets were furnished to customers as part of an integrated package of equipment and services agency ruled that after date t could not lease new assets to customers but must offer them by sale through a new subsidiary and that assets in place or in stock must eventually be offered for sale t requested a ruling from the service allowing it to treat sales of previously leased assets as normal retirements of property the service denied t’s request in plr on date pursuant to plr t reported the gains from the sales of the assets as taxable_income on their returns for year sec_1 and law and analysis t argues that the sales of assets were normal retirements under 87_tc_624 and that as a result its income was overstated in year sec_1 and it is t’s position that the sales proceeds in year sec_1 and are to be credited to the depreciation_reserve as salvage rather than included in income this reduction in income would decrease tax_liability and result in a refund due for those years credit of the proceeds to the depreciation_reserve would result in a decrease in the depreciation deduction for year sec_1 and in addition but for the statute_of_limitations it would also result in a decrease in the allowable_depreciation deduction for subsequent years as explained in the field_service_advice dated date if the facts support a showing that the sale of the assets resulted from a sudden unanticipated agency mandate and or the withdrawal was outside the expected period of use the sale would appear to be an abnormal_retirement your office requested additional documentation from t to assist in the determination of whether the retirement was normal or abnormal the documents your office recently forwarded to us are a description of the t’s method_of_depreciation and the quarterly accounting_records used by t and its affiliates which detail assets added and retired from mass asset accounts a comparison of similar assets cannot be made from these documents because these records do not make reference to the expected period of use of the assets without regard to class lives furthermore we cannot determine which assets may be similar to the assets in issue these documents do not establish that the sale of the assets was a normal retirement it appears that the permanent withdrawal of the assets was due to an unanticipated event of the agency mandate and that this unanticipated event was not taken into consideration in determining a depreciation_rate case development hazards and other considerations in addition to reducing t’s income in year sec_1 and the treatment of the proceeds of the sale as a normal retirement_of_property and crediting the depreciation_reserve in the amount of the proceeds would reduce allowable_depreciation deductions in both year sec_1 and and subsequent years this reduction of depreciation_deductions would increase income_tax_liability in the affected subsequent years however assessment of any increased tax_liability for the subsequent years is barred by the statute_of_limitations sec_6501 if you have any further questions please call the branch telephone number by deborah a butler harve m lewis chief passthroughs and special industries branch