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 intl b02 plr-114945-07 date date ty ------- ty ------- --------------------------- --------- --------------------------- --------------- ---------- ------------------- ------------------------------------------ ------------------------------------- ------------------------------------ legend taxpayer ------------------------------------------------------------ fc1 fc2 fc3 fc4 country w country x country y country z a b c d e f g year year year accounting firm accounting firm ------------------------------------------------------------------------------------------------------------ ------- --- --- ---- --- ----------- ------ ------- ------- ------- -------------------------- --------------------------------------------------------------------------------- ----------------------------- -------------------------- plr-114945-07 accountant accountant dear --------------- this is in response to your letter dated date submitted by your authorized representative requesting the consent of the commissioner to make a retroactive qualified_electing_fund qef election under sec_1_1295-3 with respect to fc1’s investments in fc2 and fc3 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 fc1 a country w company is wholly owned by taxpayer its principal activities facts consist of investment holding and provision of business consultancy services fc1 owns a percent of fc2 a county x corporation another a percent of fc2 is owned by fc4 a country y corporation which is wholly owned by a country z national the remaining b percent of fc2 is owned by a non-u s person unrelated to taxpayer fc1 fc2 and fc4 also own respectively c d and e percent of fc3 a country w corporation fc3 is a holding_company that wholly owns various subsidiaries engaged in the f industry each subsidiary owns and operates a g due to recent economic conditions and increases in the price of gs taxpayer and his country z partner decided in year to dispose_of the gs owned by the various subsidiaries the gs were sold in year year and year after each sale of a g the subsidiary that owned it remained active for at least six months to a year to cover any outstanding liabilities and costs and was then liquidated those subsidiaries that were wholly owned were liquidated pursuant to sec_332 the proceeds of the sales and excess cash were distributed to fc3 accountant with accounting firm advised taxpayer on his u s income_tax matters and prepared all of his u s federal_income_tax returns in year and year accountant represents that taxpayer provided him with access to taxpayer’s financial records in order to prepare accurate and complete u s income_tax returns accountant also represents that he is a tax professional in country y and has many years of international tax compliance experience and is competent to render u s tax_advice with respect to stock ownership of a foreign_corporation plr-114945-07 in year taxpayer hired accountant with accounting firm to advise him and prepare all of his u s federal_income_tax returns accountant reviewed the financial statements for fc2 and fc3 and determined that they were passive foreign investment companies pfics within in the meaning of sec_1297 since year taxpayer has submitted an affidavit under penalties of perjury describing the events that led to the failure to make the qef election by the election due_date including the role of accountant taxpayer represents that for all tax issues related to the ownership of fc2 and fc3 in year taxpayer relied on the advice of accountant taxpayer has also submitted an affidavit of accountant corroborating the statements made by taxpayer taxpayer represents that as of the date of this ruling_request the pfic status of taxpayer requests the consent of the commissioner of the internal revenue fc2 and fc3 has not been raised by the irs on audit for any of the taxable years ruling reqeusted service to make a retroactive qef election under sec_1_1295-3 with respect to fc1’s investments in fc2 and fc3 for his year taxable_year law and analysis sec_1295 provides that any pfic shall be treated as a qef with respect to a taxpayer if an election by the taxpayer under sec_1295 applies to such company for the taxable_year and the company complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic under sec_1_1295-3 a taxpayer may request the consent of the commissioner to make a retroactive qef election for a taxable_year however the commissioner will grant relief under sec_1_1295-3 only if four conditions are satisfied the first requirement is that the shareholder reasonably relied on a qualified_tax professional who failed to identify the foreign_corporation as a pfic or failed to advise the shareholder of the consequences of making or failing to make a sec_1295 election sec_1_1295-3 provides that a shareholder will not be considered to have reasonably relied on a qualified_tax professional if the shareholder the second requirement of sec_1_1295-3 is that granting consent will plr-114945-07 knew or reasonably should have known that the foreign_corporation was a pfic and knew of the availability of a sec_1295 election in addition a shareholder cannot claim reliance upon a qualified_tax professional if he knew or reasonably should have known that the tax professional relied upon was not competent to render tax_advice with respect to the ownership of shares of a foreign_corporation or did not have access to all relevant facts and circumstances according to the facts submitted and the representations made taxpayer relied on the advice of accountant who failed to identify fc2 and fc3 as pfics and failed to advise him of the consequences of making or failing to make qef elections accountant was competent to render tax_advice with respect to the ownership of shares of a foreign_corporation and had access to all relevant facts and circumstances additionally taxpayer did not know and should not reasonably be expected to have known that fc2 and fc3 were pfics or of the availability of a qef election thus taxpayer reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 and for year not prejudice the interests of the u s government under sec_1 f i the interests of the u s government are prejudiced if granting relief would result in the shareholder having a lower tax_liability taking into account applicable_interest charges in the aggregate for all years affected by the retroactive election other than by a de_minimis amount than the shareholder would have had if the shareholder had made the sec_1295 election by the election due_date the time_value_of_money is taken into account for purposes of this computation if granting relief would prejudice the interests of the u s government the commissioner may in his sole discretion grant consent to make the election provided the shareholder enters into a closing_agreement with the commissioner that requires the shareholder to pay an amount sufficient to eliminate any prejudice to the u s government as a consequence of the shareholder’s inability to file amended returns for closed taxable years sec_1_1295-3 currently are closed thus the interests of the u s government will not be prejudiced by allowing taxpayer to make a retroactive sec_1295 election the third requirement of sec_1_1295-3 is that the request must be made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder sec_1_1295-3 in this case the pfic status of fc2 and fc3 has not been raised upon audit requirements set forth in sec_1_1295-3 must be met these include filing in the present case neither the year taxable_year nor subsequent tax years the final requirement of sec_1_1295-3 is that the procedural plr-114945-07 a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1 f i additionally affidavits signed under penalties of perjury must be submitted by the shareholder and any qualified_tax professional upon whose advice the shareholder relied sec_1_1295-3 iii these affidavits must describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure and the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional here affidavits meeting the requirements set forth in sec_1_1295-3 and iii as to accountant 1’s failure to inform taxpayer of his need to make the qef election has been submitted and taxpayer has otherwise satisfied the procedural requirements of sec_1_1295-3 granted to taxpayer to make a retroactive election with respect to year under sec_1_1295-3 provided that taxpayer complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election based on the information submitted and representations made consent is this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling must be attached to any_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s authorized representative sincerely ethan a atticks senior technical reviewer cc intl b02 office of associate chief_counsel international cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 7-plr-101739-99 date date legend taxpayer trust company a b c d e f g h i plr-101739-99 j k l m n o dear we received your letter dated date requesting rulings concerning the federal income estate and gift_tax consequences of a proposed grantor_retained_annuity_trust this letter responds to your request the facts and representations submitted are summarized as follows taxpayer proposes to establish the trust an irrevocable_trust that will hold stock in company an s_corporation section i of the trust provides that no additional contributions to the trust under this agreement may be accepted by the trustee section ii a of the trust provides that from the date of the trust agreement until the earlier of the ath anniversary of the trust agreement or taxpayer’s death the trust term the trustee is to pay taxpayer the annuity amount the annuity amount is to be paid annually on the anniversary date the day preceding the month and day on which the trust agreement is executed for each year during the trust term and if the last date of the trust term is not the anniversary date on the last day of the trust term the annuity amount payable in each calendar_year is to be the following percentages or a pro_rata portion thereof to reflect the number of days in a partial year of the initial fair_market_value of the assets contributed to fund the trust as finally determined for federal gift_tax purposes year in which anniversary date falls l b d f h j plr-101739-99 percentage of initial fair_market_value c percent e percent g percent i percent k percent m percent taxpayer represents that the trust will be funded with n and based on the above scheduled annuity payments the remainder_interest has a value of o section ii a of the trust provides that during the trust term the trustee may pay to taxpayer so much of the net_income remaining after the annuity amount as the trustee in its sole discretion determines any net_income not so paid is to be accumulated and added to principal section ii b of the trust provides that if taxpayer is living on the expiration of the trust term the trustee is to pay the final annuity amount to taxpayer and distribute the remaining trust assets to taxpayer’s children who are then living per capita and if none then to taxpayer’s descendants who are then living per stirpes section ii c of the trust provides that if the trust term terminates due to taxpayer’s death prior to the expiration of a years then the remaining trust assets are to be distributed to or in trust for such appointees as taxpayer may appoint by will in the absence of such appointment the remaining trust assets are to be distributed to taxpayer’s estate section iii of the trust provides that if at the termination of the trust term there is no recipient identified in the trust agreement to take the trust principal the trustee is to distribute the remaining trust assets outright and free of trust to the persons and in the amounts to the persons who would have received the trust assets under laws of descent and distribution of state section iv a of the trust provides that the trustee is to prorate the annuity amount on a daily basis for any short_period of less than months of the trust term in the manner prescribed by sec_25_2702-3 under section iv a of the trust provides that the annuity amount is to be paid first from income and to the extent income is insufficient from accumulated income and to the extent accumulated income is insufficient from principal plr-101739-99 section iv a of the trust provides that the trustee is not to make any distributions from the trust to or for the benefit of anyone other than taxpayer during the trust term while taxpayer is living section iv a of the trust provides that if the trustee incorrectly determines the initial fair_market_value of the trust assets then within a reasonable period after the corrected valuation is finally determined for federal gift_tax purposes the trustee is to redetermine the annuity amount in a manner consistent with sec_1_664-2 of the income_tax regulations if the initial value is determined to have been too low the trustee is to pay the amount of the increase in the annuity amount to taxpayer if the initial value is determined to have been too high taxpayer is to pay the amount of the decrease in the annuity amount to the trustee any payment resulting from incorrect valuation is payable with interest computed at the rate applicable under sec_7520 of the internal_revenue_code on the date the trust was created section iv a of the trust provides that in addition to the payment of the foregoing amounts to taxpayer if the total of the net ordinary_income and capital_gains received by the trust during the any taxable_year exceeds the amounts paid to taxpayer in respect of such year as provided above the trustee is to reimburse taxpayer for any_tax whether federal state or otherwise paid or payable on the excess section vii a of the trust provides that at any time during the trust term taxpayer is to have the power exercisable in a nonfiduciary capacity either personally or by an attorney-in-fact under a power_of_attorney expressly referring to this power without the consent or approval of any person in any capacity to reacquire any property held by the trust by substituting other_property having the same fair_market_value determined without regard to the nature of the assets or the relative value of the asset to any person having an interest in the trust section vii b of the trust provides that commutation of taxpayer's annuity interest in any trust established under the trust agreement any time is expressly forbidden you requested the following rulings pursuant to sec_674 and sec_677 of the internal_revenue_code taxpayer will be considered the owner of the entire trust for purposes of sec_671 until the earlier of taxpayer's death or the termination of the trust no gain_or_loss will be recognized by taxpayer or the trust on taxpayer's transfer of assets to fund the trust on the transfer of any property from the trust to taxpayer in payment of any annuity amount or on taxpayer's substitution of taxpayer's assets for assets of the trust plr-101739-99 by virtue of being a grantor_trust under sec_671 the trust will be qualified to hold subchapter_s stock under sec_1362 the periodic_payments to taxpayer will constitute a qualified_interest and a qualified_annuity_interest under sec_2702 and sec_25_2702-2 of the gift_tax regulations pursuant to sec_25_2702-3 the payment of the annuity amount on the anniversary date of the trust without proration during the first taxable_year of the trust does not affect the status of taxpayer's interest as a qualified_annuity_interest the value_of_the_gift to the remaindermen equals the fair_market_value of the property transferred to the trust as finally determined for federal gift_tax purposes less the sum of the value of taxpayer's qualified_annuity_interest if taxpayer survives the trust term the value of the property in the trust will not be includible in taxpayer's gross_estate ruling sec_1 and you requested rulings that taxpayer will be considered the owner of the entire trust for purposes of sec_671 until the earlier of taxpayer's death or the termination of the trust and that no gain_or_loss will be recognized by taxpayer or the trust on taxpayer's transfer of assets to fund the trust on the transfer of any property from the trust to taxpayer in payment of any annuity amount or on taxpayer's substitution of taxpayer's assets for assets of the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_674 provides that the grantor is 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 does 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 sec_1_674_b_-1 provides that if a_trust instrument provides that the income is to be accumulated during the grantor's life and that the grantor may appoint the accumulated income by will the grantor is treated as the owner of the trust plr-101739-99 moreover if a_trust instrument provides that the income is payable to another person for his life but the grantor has a testamentary_power_of_appointment over the remainder and under the trust instrument and local law capital_gains are added to corpus the grantor is treated as the owner of a portion of the trust and capital_gains_and_losses are included in that portion sec_677 provides that the grantor is treated as the owner of any portion of a_trust whether or not he is treated as the owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or an adverse_party or both may be distributed to the grantor or the grantor's spouse revrul_85_13 1985_1_cb_184 provides that an exchange of assets between a wholly-owned trust and the owner of the trust is not recognized as a sale for federal_income_tax purposes because the same party is on both sides of the transaction a transaction cannot be recognized as a sale for federal_income_tax purposes if the same person is treated as owning the purported consideration both before and after the transaction based on the information submitted and the representations made we conclude as follows under the terms of the trust taxpayer will receive an annuity payable first from income and to the extent accumulated income is insufficient from principal in addition during the trust term the trustee a nonadverse_party will have the sole discretion to pay the taxpayer all of the trust's net_income if there is any remaining after payment of the annuity therefore under sec_677 taxpayer will be treated as the owner of the income portion of the trust during the trust term additionally capital_gains are accumulated and added to corpus and taxpayer has a general testamentary power exercisable only by will to appoint the accumulated amounts therefore under sec_674 taxpayer will be treated as the owner of the corpus_portion of the trust during the trust term accordingly taxpayer will be treated as the owner of the trust for purposes of sec_671 during the trust term in accordance with the holding in revrul_85_13 neither taxpayer not the trust will recognize gain_or_loss as a result of taxpayer's transfer of assets to the trust to fund the trust on the trust's transfer of any property to taxpayer in satisfaction of any annuity payments due taxpayer or the substitution by taxpayer of assets of taxpayer for assets of the trust ruling you requested a ruling that the trust will be qualified to hold subchapter_s stock under sec_1362 plr-101739-99 sec_1361 provides that an s_corporation may not have as a shareholder a person other than an estate and other than a_trust described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part of subchapter_j as owned by an individual who is a citizen_of_the_united_states may be an s_corporation shareholder based on the information submitted and the representations made we conclude that because the trust will be a wholly-owned grantor_trust under sec_671 the trust will be a_trust described in sec_1361 accordingly the trust will be an eligible s_corporation shareholder ruling sec_4 through you requested rulings that the periodic_payments to taxpayer will constitute a qualified_interest and a qualified_annuity_interest under sec_2702 and sec_25_2702-2 the payment of the annuity amount on the anniversary date of the trust without proration during the first taxable_year of the trust will not affect the status of taxpayer's interest as a qualified_annuity_interest and the value_of_the_gift to the remaindermen equals the fair_market_value of the property transferred to the trust as finally determined for federal gift_tax purposes less the sum of the value of taxpayer's qualified_annuity_interest sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during the calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 provides that if a donor transfers by gift less than his entire_interest in property the gift_tax is applicable to the interest transferred the tax is applicable for example to the transfer of an undivided half interest in property or to the transfer of a life_estate when the grantor retains the remainder_interest or vice versa sec_2702 provides that solely for purposes of determining whether a transfer of an interest in trust to or for the benefit of a member_of_the_transferor's_family is a gift and the value of the transfer the value of any interest in the trust retained by the transferor or any applicable_family_member as defined in sec_2702 is determined as provided in sec_2702 sec_2702 provides that plr-101739-99 a in general ---the value of any retained_interest that is not a qualified_interest is treated as being zero b valuation of qualified_interest ---the value of any retained_interest that is a qualified_interest is determined under sec_7520 sec_2702 defines the term qualified_interest to mean-- any interest that consists of the right to receive fixed amounts payable not less frequently than annually any interest that consists of the right to receive amounts that are payable not less frequently than annually and are a fixed percentage of the fair_market_value of the property in the trust determined annually and any noncontingent remainder_interest if all of the other interests in the trust consists of interests described in sec_2702 or sec_25_2702-3 sets forth the requirements that must be satisfied for an interest to be a qualified_annuity_interest sec_25_2702-3 provides that a qualified_annuity_interest is an irrevocable right to receive a fixed amount the annuity amount must be payable to or for the benefit of the holder of the annuity interest for each taxable_year of the term sec_25_2702-3 provides that a fixed amount means-- a a stated dollar amount payable periodically but not less frequently than annually but only to the extent that the amount does not exceed percent of the stated dollar amount payable in the preceding year or b a fixed fraction or percentage of the initial fair_market_value of the property transferred to the trust as finally determined for federal tax purposes payable periodically but not less frequently than annually but only to the extent that the fraction or percentage does not exceed percent of the fixed fraction or percentage payable in the preceding year sec_25_2702-3 provides that an annuity interest does not fail to be a qualified_interest merely because the trust permits income in excess of the amount required to pay the annuity to be paid to or for the benefit of the holder of the qualified_annuity_interest nevertheless the right to receive excess income is not a qualified_interest and is not taken into account in valuing the qualified_annuity_interest sec_25_2702-3 provides that if the annuity is stated in terms of a fraction or percentage of the initial fair_market_value of the trust property the governing plr-101739-99 instrument must contain provisions meeting the requirements of sec_1_664-2 relating to adjustments for any incorrect determination of the fair_market_value of the property in the trust sec_25_2702-3 provides that the governing instrument must contain provisions meeting the requirements of sec_1_664-2 relating to the computation of the annuity amount in the case of short taxable years and the last taxable_year of the term solely for purposes of sec_25_2702-3 the governing instrument meets the requirements of sec_25_2702-3 with respect to short taxable years if any and the last taxable_year of the term if the governing instrument provides that the fixed amount or a pro-rata portion thereof must be payable for the final short_period of the annuity interest sec_25_2702-3 provides that the governing instrument must prohibit additional contributions to the trust sec_25_2702-3 provides that to be a qualified annuity or unitrust_interest an interest must be a qualified_annuity_interest in every respect or a qualified_unitrust_interest in every respect to be a qualified_interest the interest must meet the definition of and function exclusively as a qualified_interest from the creation of the trust sec_25_2702-3 provides that the governing instrument must prohibit distributions from the trust to or for the benefit of any person other than the holder of the qualified annuity or unitrust_interest during the term of the qualified_interest sec_25_2702-3 provides that the governing instrument must fix the term of the annuity or unitrust_interest the term must be for the life of the term holder for a specified terms of years or for the shorter but not the longer of those periods successive term interests for the benefit of the same individual are treated as the same term_interest sec_25_2702-3 provides that the governing instrument must prohibit commutation prepayment of the interest of the term holder based on the information submitted and the representations made we conclude that only the periodic_payments to taxpayer will constitute a qualified_interest and a qualified_annuity_interest under sec_2702 and sec_25_2702-2 and the trustee’s discretionary distributions in excess of the periodic_payments will not constitute a qualified_interest or a qualified_annuity_interest the payment of the annuity amount on the anniversary date of the trust without proration during the first taxable_year of the trust will not affect the status of taxpayer's interest as a qualified_annuity_interest and the value_of_the_gift to the remaindermen equals the fair_market_value of the property transferred to the trust as finally determined for federal gift_tax purposes less the sum of the value of taxpayer's qualified_annuity_interest plr-101739-99 ruling you requested a ruling that if taxpayer survives the trust term the value of the property in the trust will not be includible in taxpayer’s gross_estate sec_2036 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in effect end before his death-- the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom in this case under the terms of the trust if taxpayer survives the trust term all of taxpayer’s interest in the trust will have terminated before taxpayer’s death accordingly based on the facts submitted and the representations made we conclude that if taxpayer survives the trust term the value of the property in the trust will not be included in taxpayer’s gross_estate for federal estate_tax purposes except as ruled above we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions of the code or any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely yours christine e ellison chief branch office of the assistant chief_counsel passthroughs and special industries


id office uilc cca_2010010815352906 ---------------- number release date from ----------------------- sent friday january pm to ------------------- cc -------------------------------------------------------------------------------------------- subject sec_6652 this e-mail responds to your question on regarding the application of sec_6652 as cross referenced in sec_142 ------------- has jurisdiction over the low-income_housing_credit under sec_42 sec_42 cross references sec_6652 for the failure to submit the report required under sec_42 in ptma ------------- concluded that a failure by a state housing agency to file a complete report as required by sec_42 results in a dollar_figure fine your question relates to whether ptma correctly interpreted sec_6652 in light of the language in the joint_committee print in the general explanation of the tax_reform_act_of_1986 jcs-10-87 which states that a separate failure to comply occurs each day after the due_date that a report is not filed ------------- forward the question to ------------ which provided the response below because sec_6652 is not worded in a way that suggests the possibility of accrual of the penalty for each day that the failure_to_file the certification continues its imposition is limited to each failure_to_file a certification rather than each day a person continually fails to file a certification sec_6652 imposes a dollar_figure penalty for failure to provide required certification for each such failure there are at least other instances in the code where a penalty is imposed for each such failure or for such failure and there is no indication including regulatory interpretation or case law that suggests any of those penalties are increased to include time periods during which a failure persists for example sec_6723 imposes a penalty of dollar_figure for each such failure to comply with a specified_information_reporting_requirement sec_301_6723-1 example describes a situation where the penalty is imposed upon an individual for failing to fulfill two separate information reporting requirements the individual is penalized once for each of the two failures for a total penalty of dollar_figure there is no indication that the penalty continues to accrue until the time that the individual complies with the information reporting requirements in contrast penalties that do continue to accrue after an initial failure contain explicit language to that effect for example sec_6652 imposes a dollar_figure penalty on exempt_organizations for failure_to_file certain returns or statements or failure to include any of the information required to be shown each day during which such failure continues if congress had intended for the sec_6652 penalty to accrue on a daily basis the statutory wording would have paralleled the statutory language of other penalties that accrue daily as a failure continues rather than use wording that parallels language in penalties that do not accrue daily see sec_6652 f h and l c a and c b a a the joint_committee print addressing the underlying legislation general explanation of the tax_reform_act_of_1986 jcs-10-87 does state that a separate failure to comply occurs each day after the due_date that a report is not filed the explanation was released on date while the tax reform act was enacted on date courts have held that joint_committee explanations when prepared after the enactment of the statute do not rise to level of legislative_history but are nonetheless entitled to great respect see 141_f3d_936 9th cir 65_f3d_687 8th cir 764_f2d_322 n 5th cir the explanations are at least instructive as to the reasonableness of an agency's interpretation of a facially ambiguous statute redlark pincite as explained above sec_6652 is not ambiguous as a result it is not necessary or appropriate to consider its legislative_history or other extrinsic evidence of congressional intent 64_fedclaims_188 403_f3d_793 6th cir u s v bdo seidman llp 492_f3d_806 7th cir the statute clearly imposes a penalty for each time a required certification is not filed and does not impose a penalty with respect to a particular certification beyond the initial failure_to_file


t c summary opinion united_states tax_court richard l and stephanie s barbee petitioners v commissioner of internal revenue respondent docket no 9408-04s filed date richard l and stephanie s barbee pro_se elke b esbjornson for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 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 respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax the sole issue for decision is whether 1unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year at issue petitioners are liable for the 10-percent additional tax under sec_72 for an early distribution from a qualified_retirement_plan some of the facts were stipulated those facts and the accompanying exhibits are so found and are incorporated herein by reference petitioners’ legal residence at the time the petition was filed was mckinney texas stephanie s barbee petitioner was employed for years by the texas workforce commission formerly the texas employment commission as an employment interviewer her agency dealt with unemployment insurance benefits petitioner as a state employee was a participant in the employees retirement_system of texas during petitioner resigned from her employment at the time she left her employment she was not eligible to draw retirement benefits from the plan she was however entitled to make withdrawals from the plan petitioner husband richard l barbee during the year at issue was a full-time_student at the university of north texas at denton texas in order to defray mr barbee’s educational expenses petitioner withdrew dollar_figure during from the employees retirement_system of texas and used those moneys exclusively for payment of mr barbee’s higher education expenses on their federal_income_tax return for pursuant to a form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc issued by the employees retirement_system of texas petitioners reported the dollar_figure as income in the notice_of_deficiency respondent determined that petitioners are liable for the sec_72 additional tax in the explanation of adjustments accompanying the notice_of_deficiency the determination is explained as follows a tax on premature_distribution it is determined that you received a distribution from a retirement_plan in the amount of dollar_figure before age which is subject_to a early withdrawal tax the distribution does not meet an exception to the early withdrawal tax although you used the funds for higher education expenses the distribution was not made from an individual_retirement_account accordingly your tax is increased dollar_figure petitioners contend that because the withdrawn amounts were used exclusively for higher education expenses they are not subject_to the sec_72 additional tax respondent agrees that the withdrawn proceeds were used exclusively for higher education expenses within the intent and meaning of sec_72 however respondent argues that the employees retirement_system of texas is not in the category of qualified_plans to which the provisions of sec_72 are applicable petitioners argue that they consulted various employees of the internal_revenue_service and were advised that the sec_72 additional tax was not applicable in their case respondent while agreeing that the proceeds withdrawn from the employees retirement_system of texas were used exclusively for higher education expenses under sec_72 contends that the distribution petitioners received was not a withdrawal from a qualified_plan to which the sec_72 exception is applicable sec_72 imposes an additional tax on distributions from a qualified_retirement_plan equal to 10-percent of the portion of such amount that is includable in gross_income unless the distribution comes within one of several statutory exceptions for purposes of the 10-percent additional tax a qualified_retirement_plan includes both a sec_401 plan and an individual_retirement_account or individual_retirement_annuity see sec_72 sec_401 k c and the 10-percent additional tax imposed on early distributions from qualified_retirement_plans does not apply to distributions from an individual_retirement_plan used for higher education expenses of the taxpayer for the taxable_year sec_72 the term individual_retirement_plan is defined as an individual_retirement_account or individual_retirement_annuity commonly referred to as iras sec_7701 retirement plans qualified under sec_401 and k however are not included in the definition of individual_retirement_plan under sec_7701 clearly congress intended the exception of sec_72 to apply only to distributions from individual retirement plans ie iras and not to all qualified_retirement_plans see sec_4974 and and a taxpayer_relief_act_of_1997 publaw_105_34 sec a 111_stat_809 this is evident in the report of the committee on the budget which provides penalty free ira withdrawals for education expenses--the bill provides that individuals may make penalty-free withdrawals from their iras to pay for the undergraduate and graduate higher education expenses of themselves their spouses their children and grandchildren or the children or grandchildren of their spouses emphasis added h rept pincite 1997_4_cb_319 the report of the committee on the budget specifically provides that only withdrawals from iras that are used for higher education expenses will qualify as withdrawals excepted from the 10-percent additional tax id no other types of qualified_plans are provided this exemption from the sec_72 additional tax a copy of the plan of the employees retirement_system of texas was offered into evidence the explanatory information about the system states expressly your retirement program is a defined_benefit_plan it is qualified under sec_401 of the internal_revenue_code petitioner therefore was not the beneficiary of an individual_retirement_plan under sec_7701 which defines an individual_retirement_plan as an individual_retirement_account under sec_408 or an individual_retirement_annuity under sec_408 in short petitioners’ claim that the withdrawal at issue is excluded from the 10-percent additional tax is incorrect the sec_72 exclusion from the additional tax does not apply to sec_401 withdrawals petitioners argue that they were led to believe by employees and agents of the internal_revenue_service that the withdrawals in question were not subject_to the 10-percent additional tax because the proceeds were used for higher educational benefits such advice or information was erroneous as relates to the facts of this case the law is well settled that the commissioner is not estopped or bound by erroneous representations of agents or employees 67_tc_612 auto club of michigan v commissioner 353_us_180 petitioners also argue that they had other individual_retirement_accounts from which they could have made withdrawals to use for mr barbee’s higher educational expenses petitioners cite no authority to support that argument nor does this court have authority to attribute the withdrawal in that manner the short answer to that argument is that petitioners are bound by the course of action they chose since they did not choose to make their withdrawals from their other iras the court can only decide the tax consequences of the course of action petitioners chose the court therefore sustains respondent reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service number release date index number --------------------------------------------------- ------------------------------------------------------------ -------------------------------------------- ----------------------------------------- -------------------------- in re -------------------------- - - department of the treasury washington dc person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi - plr-114847-04 date march ------------------------------------------------------------------------ decedent spouse trust -------------------- ---------------------------------------------------------- legend legend ---------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- trustee dear -------------- ----------------- ----------------- ----------------------- ------------------- --------------------------------------------------- ----------------------------------------- ------------- ------------- ------------- --------------------------------------- date date date date law firm law firm a b c this is in response to your letter dated date submitted on behalf of decedent’s estate requesting an extension of time under sec_301_9100-1 and sec_301 of the procedure and administration regulations to make a reverse qualified_terminable_interest_property qtip_election and to allocate decedent’s generation- skipping transfer gst_exemption facts plr-114847-04 on date decedent created trust a revocable_trust decedent died on date survived by spouse the current trustee of trust is trustee under the terms of trust upon decedent’s death trust is to be divided into separate trusts as follows a generation-skipping qualified marital_deduction_trust gst_trust consisting of that amount of property if any that had a value equal to decedent’s available gst tax exemption a family qualified marital_deduction_trust family_trust consisting of the balance of the trust estate and in the event decedent’s estate made a partial election under sec_2056 a separate trust consisting of all property for which no qtip_election was made non-qtip trust assets totaling dollar_figurea were transferred to the family_trust assets totaling dollar_figureb were transferred to the gst_trust and assets totaling dollar_figurec were transferred to the non-qtip trust the terms of trust provide that the gst_trust and the family_trust are to pay income to spouse during spouse’s life upon spouse’s death any accumulated but undistributed_income from the gst_trust is to be distributed to spouse’s estate and the balance of the gst_trust is to be divided into equal shares for decedent’s grandchildren and held in further trust until the grandchildren reach specified ages upon the death of decedent’s spouse any accumulated but undistributed_income from the family_trust is to be distributed to spouse’s estate and the remainder of the family_trust is to be divided into equal shares for decedent’s children with the issue of a deceased child taking their parent’s share the non-qtip trust is to pay income to spouse during spouse’s lifetime upon spouse’s death any property remaining in the non-qtip trust is to be distributed in accordance with and as if it were a part of the family_trust article iii of decedent’s will specifically authorized the personal representative to form_706 united_states estate and generation-skipping_transfer_tax return make any election under sec_2056 you represent that the gst_trust and the family_trust both satisfy the requirements for a marital_deduction as qtip under sec_2056 for decedent’s estate was timely filed on date on schedule m of the form_706 decedent’s personal representative made an election under sec_2056 to treat both the family_trust and the gst_trust as qtip trusts for purposes of the estate_tax_marital_deduction no schedule r was filed with decedent’s form_706 and therefore decedent’s gst tax exemption was not allocated and no reverse_qtip_election was made with respect to any of the trusts decedent’s personal representative relied on law firm for advice and to prepare decedent’s form_706 firm discovered that the reverse_qtip_election had not been made on decedent’s spouse died on date during the preparation of the form_706 for spouse law plr-114847-04 form_706 with respect to the gst_trust and that decedent’s gst_exemption had not been allocated to the gst_trust you are requesting the following rulings an extension of time in which to make a reverse_qtip_election with respect to the gst_trust in view of the grant of the extension of time to make the reverse_qtip_election for the gst_trust the decedent is treated as the transferor of the gst_trust for gst tax purposes under sec_2652 and sec_2652 an extension of time to allocate decedent’s gst tax exemption to the gst_trust thus an amount equal to dollar_figureb of decedent’s gst_exemption may be allocated to the gst_trust pursuant to sec_2632 the family_trust for which a marital_deduction was allowed under sec_2056 and for which no reverse_qtip_election was or will be made will be included in the gross_estate of spouse under sec_2044 therefore pursuant to sec_2652 spouse will be treated as the transferor of the family_trust for gst tax purposes law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall except as limited by sec_2056 be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property which passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 disallows this deduction where on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur an interest passing to the surviving_spouse will terminate or fail sec_2056 provides that in the case of qualified_terminable_interest_property for purposes of sec_2056 such property shall be treated as passing to the surviving_spouse and for purposes of sec_2056 no part of such property shall be treated as passing to any person other than the surviving_spouse sec_2056 defines the term qualified_terminable_interest_property as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii to which an election under sec_2056 plr-114847-04 applies sec_2056 provides that the surviving_spouse has a qualifying_income_interest_for_life if i the surviving_spouse is entitled to all the income from the property payable annually or at more frequent intervals or has a usufruct interest for life in the property and ii no person has a power to appoint any part of the property to any person other than the surviving_spouse sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable sec_2044 provides that the value of the gross_estate shall include the value of any property to which sec_2044 applies in which the decedent had a qualifying_income_interest_for_life sec_2044 provides in relevant part that sec_2044 applies to any property if a deduction was allowed with respect to the transfer of such property to the decedent under sec_2056 sec_2044 provides that for purposes of chapter and chapter property includible in the gross_estate of the decedent under sec_2044 shall be treated as property passing from the decedent sec_2652 provides that for purposes of chapter the term transferor means a in the case of any property subject_to the tax imposed by chapter the decedent and b in the case of any property subject_to the tax imposed by chapter the donor an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides in pertinent part that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 the estate of the decedent may elect to treat all of the property in such trust for purposes of this chapter as if the election to be treated as qualified_terminable_interest_property had not been made reverse_qtip_election sec_26_2652-2 provides in part that a reverse_qtip_election is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies sec_26_2652-2 provides that an election under sec_2652 is made on the return on which the qtip_election is made plr-114847-04 sec_26_2654-1 provides that the severance of a_trust that is included in the transferor’s gross_estate or created under the transferor’s will into two or more trusts is recognized for purposes of chapter if the trust is severed pursuant to a direction in the governing instrument providing that the trust is to be divided upon the death of the transferor sec_26_2654-1 provides that an individual's gst_exemption under sec_2632 may be allocated to the separate trusts created pursuant to this section at the discretion of the executor or trustee sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 defines the term applicable_rate with respect to any gst as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides that generally the inclusion_ratio with respect to any property transferred in a gst is the excess if any of over the applicable_fraction sec_2642 provides in part that the applicable_fraction is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust and the denominator of which is the value of the property transferred to the trust sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that 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 provides in part that except as otherwise provided in sec_26_2632-1 an allocation of a decedent’s unused gst_exemption by the executor of the decedent’s estate is made on the appropriate united_states estate and generation- skipping transfer_tax return form_706 or form 706na filed on or before the date prescribed for filing the return by sec_6075 including any extensions actually granted plr-114847-04 the due_date an allocation of gst_exemption with respect to property included in the gross_estate of a decedent is effective as of the date of death sec_2642 provides that if property is transferred as a result of the death of the transferor the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter except that if the requirements prescribed by the secretary respecting allocation of post-death changes in value are not met the value of such property shall be determined as of the time of the distribution concerned sec_2642 provides that any allocation to property transferred as a result of the death of the transferor shall be effective on and after the date of the death of the transferor sec_2642 provides generally 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 sec_2642 which was enacted into law on date 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 the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_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 gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 under sec_301_9100-1 the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin sec_301_9100-2 provides an automatic_extension of time for making certain elections sec_301_9100-3 provides in pertinent part that requests for plr-114847-04 extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides in part except as provided in sec_301 b i through iii a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides in pertinent part that the commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the government will not be prejudiced by the granting of relief in the present situation the terms of trust directed that the trust be divided at decedent’s death into the gst_trust the family_trust and the non-qtip trust as a result of the qtip elections made on decedent’s form_706 decedent’s entire gst_exemption was allocated under the automatic allocation rules of sec_2632 to the non-qtip trust the assets in the gst_trust and the family_trust would be includible in spouse’s gross_estate pursuant to sec_2044 if decedent’s estate is allowed to make a reverse_qtip_election under sec_2652 with respect to the assets of the gst_trust decedent will be treated as the transferor of those assets for gst tax purposes spouse however would continue to be treated as the transferor of the family_trust for gst tax purposes based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly an extension of time of days from the date of this letter is granted to make a reverse_qtip_election with respect to the gst_trust in addition decedent’s estate is granted an extension of time to allocate decedent’s gst_exemption to the gst_trust because the allocation of all of decedent’s available gst_exemption to the gst_trust will precede in time the automatic allocation to the non-qtip trust the deemed_allocation rules under sec_2632 will not apply to allocate any of decedent’s gst tax exemption to the non- qtip_trust provided that the amount of gst_exemption allocated to the gst_trust equals the value of the gst_trust for federal estate_tax purposes the gst_trust will have an inclusion_ratio of zero the reverse_qtip_election and the gst_exemption allocations should be made on a supplemental form_706 filed with the internal_revenue_service center cincinnati plr-114847-04 ohio a copy of this letter should be attached to the form a copy is enclosed for this purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent 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 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 heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc