internal_revenue_service number release date index number ---------------------- ----------------------------------------------------- ------------------------------------- ------------------------------- ------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------ telephone number -------------------- refer reply to cc corp b03 plr-100693-09 date date legend acquiring -------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------- --------------------------------- mergersub -------------------------------------------------------------------------------------- ------------------ target ----------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------- ------------------------------- target sub -------------------------------------------------------------------- ----------------------------------------------------------- target sub ----------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------- partnership -------------------------------------------------------------------------------------- ---------------------------------------------- de -------------------------------------------------------------------------------------- ----------------------- de -------------------------------------------------------------------------------------- ------------------------ plr-100693-09 business a ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------ --------------------------------------------------------------------------------- business b ------------------------------------------------------------------------------------------------------------- ------------------------------------------------- -------------------------------------------------------------------------------- business c --------------------------------------------------------------------------------------------------------------- ------------------------------------------------------- -------------------------------------------------------------------------------- state d state e state f_r s u v w x y m date date date date date ---------- ------------ -------- ----------------------- ------------------------- ----------------------- ----------------------- ------ ----------- ------------ ------------------------------------------------------- ----------------------------------- -------------------------- ------------------------- ------------------------- -------------------------- ------------------------ plr-100693-09 date date ----------------------- ----------------------- dear ------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated date date and date the information submitted for consideration is summarized below target a state d holding_company is the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return target owns all of the outstanding_stock of target sub a state e corporation target sub a state f corporation and r percent less than percent by value and s percent less than percent by vote of acquiring a state e corporation as of the closing date and taking into account the value of the membership interests in partnership the stock of acquiring owned by target will account for more than percent by value of target’s assets target is owned u percent by m and v percent by the public target sub is a member of the target group and is engaged in business a target sub is a member of the target group and is engaged in business b acquiring is the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return acquiring is both a holding_company and an operating company engaged in business c for what are represented as valid business purposes the following transactions have been completed or will take place i on date target formed partnership and acquiring formed mergersub mergersub is disregarded as an entity separate from its owner for federal_income_tax purposes on date target formed de4 and de5 de4 and de5 are each disregarded as ii an entity separate from its owner for federal_income_tax purposes iii merged with and into de5 with de4 and de5 continuing as the surviving entities effective on date target sub merged with and into de4 and target sub on date target contributed the majority of its assets including percent of iv the interests in de4 and de5 other than acquiring shares to partnership and partnership assumed all of target’s liabilities plr-100693-09 on date target distributed percent of the membership interests in v partnership pro_rata to the target shareholders vi on or prior to the closing date acquiring will amend its certificate of incorporation to increase the number of authorized shares of acquiring class a common_stock to facilitate the issuance of shares in the downstream_merger described below to increase the number of directors entitled to be elected by the holders of acquiring common_stock and to provide for the conversion of the acquiring class a common_stock into acquiring common_stock in certain events vii on the closing date target will merge into mergersub with mergersub surviving the merger downstream_merger in the downstream_merger target’s shareholders on a pro_rata basis will receive in the aggregate w percent of the number of shares of acquiring class a common_stock and w percent of the number of shares of acquiring common_stock held by target immediately prior to the downstream_merger collectively the new acquiring shares subject_to reduction to avoid the issuance of fractional shares for which target shareholders will receive cash the new acquiring shares issuable in the downstream_merger will be registered with the securities_and_exchange_commission sec viii following the consummation of the downstream_merger acquiring will cause the cancellation of the shares of acquiring class a common_stock and acquiring common_stock received by mergersub in the downstream_merger ix y dollars of acquiring common_stock issued as merger consideration will be deposited into escrow for up to two years as indemnity protection for acquiring and mergersub the escrow arrangement x pursuant to an agreement and plan of merger among acquiring mergersub target and partnership dated date acquiring will pay former target shareholders an amount equal to the benefit actually derived by acquiring from carry forwards of losses deductions and other items of target attributable to periods prior to the closing date that are realized by acquiring after the closing date and the amount of any_tax refunds or credits received by acquiring after the closing date that relate to pre-closing tax periods of target tax_benefit sharing_agreement the former target shareholders may receive more than one payment and payments may be paid both within the first twelve months after the downstream_merger and after the first twelve months representations the following representations have been made regarding the proposed transaction plr-100693-09 a prior to and following the downstream_merger acquiring will own the sole membership interest in mergersub there is no plan or intention for mergersub to issue additional membership interests in mergersub mergersub has no plan or intention to elect to be treated as an association b the fair_market_value of the new acquiring shares and other consideration if any received by target shareholders will be approximately equal to the fair_market_value of the target stock surrendered in the exchange c taking into account the membership interests in partnership and the cash if any paid to the former target shareholders pursuant to the tax_benefit sharing_agreement at least percent of the proprietary interest in target will be exchanged for new acquiring shares and will be preserved within the meaning of sec_1_368-1 of the income_tax regulations d during the five-year period ending on the closing date neither acquiring nor any person related to acquiring within the meaning of sec_1_368-1 has acquired any target stock for consideration other than acquiring stock neither target nor any person related within the meaning of sec_1_368-1 determined without regard to sec_1_368-1 to target will have acquired or redeemed target stock with consideration other than acquiring stock or target stock and except for the membership interests in partnership target has not made any distributions with respect to its stock other than normal regular dividend distributions made pursuant to target’s historic dividend paying practices either directly or through any transaction agreement or arrangement with any other person e acquiring has no plan or intention to reacquire directly or through a related_person within the meaning of sec_1_368-1 any of the new acquiring shares issued in the transaction acquiring has an existing stock repurchase program the stock repurchase program which was adopted on date and was not a matter negotiated by the parties in connection with the downstream_merger acquiring will only make purchases pursuant to the stock repurchase program on the open market in order to comply with the sec’s safe_harbor and in such instances will not have any knowledge whether the repurchased shares were attributable to a sale of such acquiring shares by a former target shareholder f acquiring has no plan or intention to sell or otherwise dispose_of any of the assets of target acquired in the transaction except for the cancellation of the acquiring shares g the liabilities of target assumed by mergersub if any and the liabilities to which the transferred assets of target are subject if any were incurred by target in the ordinary course of its business plr-100693-09 h target will reimburse acquiring for all reasonable expenses in excess of x dollars incurred by acquiring in connection with the transaction target and its shareholders will pay their respective expenses if any incurred in connection with the transaction partnership will pay the reasonable expenses of the shareholder representative i there is no intercorporate indebtedness existing between acquiring and target j no two parties to the transaction are investment companies as defined in sec_368 and iv of the internal_revenue_code k target is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 l the fair_market_value of the assets of target transferred to acquiring will equal or exceed the sum of the liabilities if any assumed as determined under sec_357 by acquiring m the terms of the escrow arrangement will satisfy the requirements of section dollar_figure of revproc_77_37 1977_2_cb_568 as amplified by revproc_84_42 1984_1_cb_521 except that y dollars of acquiring common_stock will be subject_to the escrow arrangement n the payment of cash in lieu of fractional new acquiring shares is solely for the purpose of avoiding the expense and inconvenience to acquiring of issuing fractional shares and is not separately bargained for consideration the total cash consideration that will be paid to target shareholders in lieu of issuing fractional new acquiring shares will not exceed one percent of the total consideration that will be issued in the transaction to the target shareholders in exchange for their shares of target stock the fractional share interests of each target shareholder in new acquiring shares will be aggregated and no target shareholder will receive cash in an amount greater than the value of one full share of acquiring class a common_stock and one full share of acquiring common_stock o none of the compensation to be received by any shareholder-employees of target will be separate consideration for or allocable to any of their shares of target stock surrendered in the exchange none of the new acquiring shares received by any shareholder-employees will be separate consideration for or allocable to any employment agreement and the compensation paid to any shareholder-employees will be for services rendered and will be commensurate with amounts paid to third parties bargaining at arm’s length for similar services plr-100693-09 rulings based solely on the information submitted and the representations set forth above we hold as follows for federal_income_tax purposes the downstream_merger of target into mergersub will be treated as the transfer of target’s assets and liabilities to acquiring provided the downstream_merger qualifies as a statutory merger under applicable state law the downstream_merger will qualify as a reorganization under sec_368 each of target and acquiring will be a party to the reorganization within the meaning of sec_368 sec_1 b target will recognize no gain_or_loss on the transfer of its assets and liabilities in the downstream_merger sec_361 sec_361 and sec_357 target will recognize no gain_or_loss on the distribution of acquiring stock to its shareholders sec_361 target will recognize gain but not loss on the distribution of the membership interests in partnership as if such property were sold to the target shareholders at their fair_market_value acquiring will recognize no gain_or_loss on the deemed receipt of target’s assets and liabilities in exchange for new acquiring shares in the downstream_merger sec_1032 acquiring’s basis in the assets deemed received from target in the downstream_merger will be the same as target’s basis in such assets sec_362 acquiring’s holding_period for the assets deemed received from target in the downstream_merger will include target’s holding_period for such assets sec_1223 a portion of any cash received by a target shareholder under the tax benefit sharing_agreement is taxable as unstated_interest under sec_483 in the year of receipt see sec_1_483-4 to determine the amount of unstated_interest notwithstanding the first sentence of this ruling sec_483 will not apply if the only payment under the tax_benefit sharing_agreement is made within one year of the downstream_merger for purposes of this letter_ruling the portion of the cash received if any by a target shareholder under the tax_benefit sharing_agreement that is not taxable as unstated_interest under sec_483 shall be referred to as tax_benefit sharing cash boot or tbscb no portion of the new plr-100693-09 acquiring shares deposited into escrow is taxable as unstated_interest under sec_483 see revrul_70_120 1970_1_cb_124 gain will not be recognized by a target shareholder on the exchange of target stock for new acquiring shares including the new acquiring shares deposited into escrow and any fractional shares to which the shareholder may be entitled except to the extent of any tbscb and other_property other than new acquiring shares received by the target shareholder the amount of gain that is recognized shall not exceed the amount of the tbscb and the fair_market_value of other_property other than the new acquiring shares received in the exchange sec_356 the tbscb shall be taken into income in the year it is received by the shareholder if the exchange has the effect of the distribution of a dividend determined with the application of sec_318 then the amount of the gain recognized that is not in excess of the target shareholder’s ratable share of undistributed_earnings and profits will be treated as a dividend sec_356 no loss will be recognized pursuant to c the total basis of the new acquiring shares received by a target shareholder including the new acquiring shares deposited into escrow and any fractional shares to which the shareholder may be entitled will be the same as the basis in the target stock exchanged therefor decreased by the amount of the tbscb and the fair_market_value of other_property received by the target shareholder in the exchange and increased by the amount if any received in the exchange which was treated as a dividend and increased by the amount of gain recognized in the exchange not including any portion of the gain treated as a dividend sec_358 a target shareholder’s holding_period for the new acquiring share sec_11 received including the new acquiring shares deposited into escrow any fractional shares to which the shareholder may be entitled will include the period during which the shareholder held the target stock exchanged therefor provided the shareholder held the stock as a capital_asset on the date of the exchange sec_1223 the payment of cash in lieu of issuing fractional shares of acquiring stock will be treated as if the fractional shares were issued in the downstream_merger and then redeemed by acquiring with the cash payments treated as having been received as distributions in full payment in exchange for the redeemed fractional shares as provided in sec_302 provided the fractional share interest is a capital_asset in the hands of the recipient shareholder the gain_or_loss will constitute capital_gain or loss subject_to the provisions and limitations of subchapter_p of chapter revrul_66_365 1966_2_cb_116 revproc_77_41 1977_2_cb_574 plr-100693-09 acquiring will succeed to and take into account target’s items described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 sec_1_381_a_-1 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 no opinion is expressed whether the membership interests in partnership constitute other_property received in the exchange this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely ________________________________________ ken cohen acting chief branch office of associate chief_counsel corporate


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 ------------------ telephone number ---------------------- refer reply to cc intl b05 plr-127978-16 date date legend a -------------------------- act -------------------------------------------------- cfc ------------------------------------ country a ------------- day x ------------------- day y ---------------------------- designated institute --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - insurance rules ------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------ parent --------------------------------- regulator ---------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- sub ----------------------------------------------- us sub ---------------------------------------------------------------- x ------ x financial year -------------------------- x premium ---------------------------------------------------------------------------- x report ------------------------------------------------------------------------ dear ---------------- plr-127978-16 in a letter dated a you requested rulings allowing cfc to use certain foreign statement insurance reserves in computing foreign_personal_holding_company_income under sec_954 of the internal_revenue_code on the grounds that these insurance reserves are an appropriate means of measuring income within the meaning of sec_954 the rulings contained in this letter are based upon information and representations submitted by parent and accompanied by penalty of perjury statements executed by the appropriate parties while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination parent and us sub represent the following facts parent is a publicly-traded domestic_corporation that is engaged through its subsidiaries and affiliates in various lines of business which include life_insurance parent is the common parent of an affiliated_group of life_insurance_companies and non- life_insurance_companies that file a life non-life consolidated federal_income_tax return under sec_1504 parent directly owns all the stock of us sub a domestic_corporation that is part of parent’s u s federal consolidated_group us sub owns x of sub a country a company taxable as a corporation for federal_income_tax purposes the remainder is owned by an unrelated third party sub wholly owns cfc cfc is a controlled_foreign_corporation as defined in sec_957 both parent and us sub are u s shareholders of cfc within the meaning of sec_951 and parent is a controlling u s shareholder of cfc within the meaning of sec_1_964-1 cfc is incorporated and domiciled in country a and is engaged principally in the underwriting of life_insurance contracts annuity_contracts and accident and health contracts in country a country a’s act regulates nearly all aspects of the insurance_business in country a the act is developed and enforced by the regulator the regulator is responsible for regulating insurance_companies in country a to persons other than related_persons within the meaning of sec_954 to conduct an insurance_business in country a an insurance_company must obtain a license from the regulator cfc is licensed by the regulator to sell life_insurance and annuity_contracts to persons in country a because cfc is licensed as a life insurer in country a it is prohibited from carrying on businesses other than life_insurance and certain activities that are incidental to the life_insurance business cfc is not engaged in any insurance_business outside of country a plr-127978-16 cfc is subject_to regulation by the regulator as a life_insurance_company cfc derives more than percent of its aggregate net written premiums from the issuance of life_insurance and annuity_contracts covering risks in connection with the lives or health of residents of country a cfc derives more than percent of its net written premiums from contracts that cover country a risks no policyholder insured annuitant or beneficiary to a life_insurance or annuity_contract that cfc issues is a related_person as defined in sec_954 cfc would be subject_to tax under part i of subchapter_l if it were a domestic_corporation cfc issues contracts that are regulated as life_insurance and annuity_contracts by the regulator it also issues other contracts cfc has a few contracts in connection with the life or health of a resident_of_the_united_states as described under sec_953 or from a related_party as defined in sec_953 however the reserves related to these contracts are not covered by the requested rulings each contract covered by the requested rulings is regulated as a life_insurance or annuity_contract by country a a life_insurance_contract or an annuity_contract for federal_income_tax purposes as determined under sec_953 without regard to sec_72 sec_101 sec_817 and sec_7702 and regulated as a life_insurance or annuity_contract by the regulator in addition no policyholder insured annuitant or beneficiary with respect to any contract covered by the requested rulings is a united_states_person except with respect to separate account-type investment-linked life_insurance and annuity_contracts underwriting reserves consist of the present_value of future_benefits plus future expenses minus the present_value of future gross contract premiums all under reasonably current interest mortality morbidity and lapse assumptions with provision for moderate adverse deviation loss_reserves are reserves for outstanding claims including claims that have been incurred but not reported from life_insurance and annuity_contracts issued by cfc cfc calculates the loss_reserves using the company’s individual loss experience in accordance with the rules and regulations prescribed for these reserves by the regulator cfc has policyholders’ dividend reserves and premiums_paid in advance reserves both of which are calculated the same under the country a reserve_method as under sec_807 and respectively cfc’s other reserves related to policyholders’ dividends are not included in the requested rulings including policyholders’ profit dividend reserves policyholder_dividend reserves representing accrued dividends that will be actually paid in a subsequent year and reserves for dividends that will be credited either at the next policy anniversary date or at another future date only reserves for dividends that have been declared credited to policyholders and have not been withdrawn by policyholders are included plr-127978-16 cfc also issues separate account-type investment-linked life_insurance and annuity_contracts which are separately identified and maintained and are supported by separately identifiable pools of assets cfc is required to and does maintain and account for the assets relating to a separate account-type contract separately from its general assets and segregate the assets supporting separate account-type contracts from general creditors of the company pursuant to the insurance rules the assets in the pools are marked to market for local regulatory reporting purposes and the associated reserve follows movements in the value of the assets with very limited exceptions such as surrender charges the separate account-type contracts would be variable_contracts as defined in sec_817 except that they are segregated under country a’s laws or regulations the separate account-type contracts do not have policyholders’ dividend reserves associated with them as required by country a’s insurance rules cfc files an annual report financial statements and an annual x report with the regulator the x report must cover all business relating to the life_insurance and annuity_contracts for all years of account and include the valuation methodology and the valuation assumptions as well as certain other information the annual report contains the reserves for life_insurance and annuity_contracts is audited by external accounting auditors and is required to be filed with the regulator the accounting_records of cfc that form the basis for preparing the annual report are subject_to inspection by the regulator at any time the annual report is made available to the public the annual report is also used for financial purposes such as country a credit rating by lenders and by the public as of its x financial year cfc’s year end is day x in accordance with country a’s insurance rules cfc has appointed a qualified actuary to be involved in matters designated by the regulator as actuarial matters including the application of appropriate method of reserve calculation and the preparation of the x report the qualified actuary must have knowledge and experience concerning actuarial matters hold a fellowship in a designated institute and meet the requirements prescribed by the regulator the qualified actuary is required to certify to the regulator that the reserves relating to the insurance contracts prescribed by the regulator are established and maintained in accordance with actuarial soundness in addition to preparing the x report the insurance rules require country a insurance_companies to target a minimum level of capital to ensure that each insurer maintains a capital adequacy level that is commensurate with its risk profile at all times country a’s insurance rules generally require a company to develop a risk-based capital based on a static factor model using a rules-based approach to comply with country a’s insurance laws cfc must establish and maintain reserves for its obligations to holders of its life_insurance and annuity_contracts and must report the amount of those reserves on the country a annual report the reserves at issue in plr-127978-16 the requested rulings are limited to certain underwriting reserves loss_reserves policyholders’ dividend reserves and premiums_paid in advance reserves the act and the insurance rules prescribe rules for calculating these reserves these reserves are the measure of the legal obligations to policyholders on the financial statement used for regulatory purposes by life_insurance_companies doing business in country a whether u s -owned locally-owned or owned by companies headquartered in other foreign countries the regulator requires cfc to hold these reserves to enable it to fulfill claims owed to policyholders and beneficiaries the reserves covered by the requested rulings do not include reserves for contracts not covered by the requested rulings including reserves allocable to accident_and_health_insurance including guaranteed renewable noncancellable or cancellable contracts that are not life_insurance contracts or annuity_contracts for federal_income_tax purposes contracts that are not exempt contracts and contracts with respect to which a policyholder insured annuitant or beneficiary is a united_states_person catastrophe deficiency equalization or similar reserves contingency reserves and stabilization reserves excess_interest reserves for excess_interest credited beyond the end of the taxable_year reserves for accrued claims policyholders’ profit dividend reserves the component of the policyholders’ dividend reserves representing accrued dividends that will be actually paid in a subsequent year and dividends that will be credited or paid either at the next policy anniversary date or another future date and reserves for policyholder_dividend liabilities a reserve for any amount to protect against a future decline in value of the investment_assets any reserves for accrued liabilities that for the accrual_method meet the all_events_test as described in sec_1_446-1 or for amounts capitalized under sec_848 loss_reserves for unaccrued claims reserves related to x premium - a country a government protection scheme in the event of an insurer member failure any investment-linked capital guarantee expense reserves including the excess reserve on capital guaranteed product expense runoff reserves and expense overrun reserves unexpired risk reserves revival policies reserves reserves related to riders that are personal accident and medical and health or otherwise not treated as life_insurance_reserves under sec_816 and any other reserves not specifically included law in general a united_states_shareholder of a controlled_foreign_corporation must include in gross_income its pro_rata share of the controlled foreign corporation’s subpart_f_income for each year subpart_f_income includes among other types of income insurance_income under sec_953 and foreign_base_company_income under sec_954 sec_953 defines the term_insurance income to include any income that is attributable to the issuing or reinsuring of an insurance_or_annuity_contract and that would be taxed under subchapter_l if such income were the income of a domestic plr-127978-16 insurance_company sec_953 provides that sec_953 insurance_income does not include exempt_insurance_income derived by a qualifying_insurance_company sec_953 provides that reserves for any insurance_or_annuity_contract are determined in the same manner as under sec_954 sec_953 defines exempt_insurance_income as income derived by a qualifying_insurance_company that is attributable to the issuing or reinsuring of an exempt_contract by such company and that is treated as earned by such company in its home_country for purposes of such country’s tax laws an exempt_contract is defined under sec_953 to include an insurance_or_annuity_contract issued by a qualifying_insurance_company in connection with the lives or health of residents of a country other than the united_states but only if such company derives more than percent of its net written premiums from otherwise exempt contracts which cover applicable_home_country_risks and with respect to which no policyholder insured annuitant or beneficiary is a related_person within the meaning of sec_954 in general sec_953 defines a qualifying_insurance_company as any controlled_foreign_corporation that is subject_to regulation as an insurance_company by its home_country and is licensed authorized or regulated by the applicable_insurance_regulatory_body for its home_country to sell insurance or annuity_contracts to persons other than related_persons within the meaning of sec_954 in such home_country derives more than percent of its aggregate net written premiums from the issuance by such controlled_foreign_corporation of contracts covering applicable_home_country_risks of such corporation and with respect to which no policyholder insured annuitant or beneficiary is a related_person as defined in sec_954 and is engaged in the insurance_business and would be subject_to tax under subchapter_l if it were a domestic_corporation sec_954 defines the term foreign_base_company_income to include among other types of income foreign_personal_holding_company_income sec_954 sets forth the types of income that are considered foreign_personal_holding_company_income sec_954 provides that for purposes of sec_954 foreign_personal_holding_company_income does not include qualified_insurance_income of a qualifying_insurance_company sec_954 defines the term qualified_insurance_income to mean income of a qualifying_insurance_company falling into two categories the first category is income received from unrelated persons and derived from investments made by a qualifying_insurance_company or qualifying_insurance_company_branch collectively referred to as a qic either of its reserves allocable to exempt contracts or of percent of its unearned premiums from exempt contracts as both are determined in accordance with sec_954 the second category is income received from unrelated persons and plr-127978-16 derived from investments made by a qic of an amount of its assets allocable to exempt contracts equal to in the case of property casualty or health insurance contracts one-third of the premiums earned on those contracts during such year and in the case of life_insurance or annuity_contracts percent of the reserves described in sec_954 for such contracts sec_817 generally provides special rules for certain variable_contracts for purposes of part i of subchapter_l of the code sec_817 defines a variable_contract as any contract that provides for the allocation of all or part of the amounts received under the contract to an account which pursuant to state law is segregated from the general asset accounts of the company and either provides for the payment of annuities is a life_insurance_contract or provides funding for insurance on retired lives if a contract satisfies the variable_contract requirements and the separate_account that funds the variable_contract is treated as a segregated_asset_account sec_817 requires that certain adjustments be made to the insurance company’s asset basis and insurance tax_reserves with respect to the segregated_asset_account sec_817 provides that with respect to any variable_contract reserves are adjusted by subtracting an amount equal to the sum of the amounts added from time to time for the taxable_year to the reserves separately accounted for by reason of appreciation in value of assets whether or not the assets have been disposed of and by adding thereto an amount equal to the sum of the amounts subtracted from time to time for the taxable_year from such reserves by reason of depreciation in value of assets under sec_817 the basis of each asset in a segregated_asset_account is increased or decreased by the amount of appreciation or depreciation respectively to the extent the reserves or other items referred to in sec_817 are adjusted the asset basis and insurance tax reserve adjustments offset any realized gain loss attributable to such marked assets at the insurance_company level sec_954 imposes separate contract treatment for separate account-type contracts a term which includes contracts not meeting the requirements of sec_817 sec_954 provides that for purposes of applying sec_954 and with respect to any separate account-type contract including any variable_contract not meeting the requirements of sec_817 income credited under such contract is allocable only to such contract income not allocable to a separate account-type contract is allocated ratably among the non-separate account-type contracts sec_954 generally provides that in the case of life_insurance and annuity_contracts a qic’s reserves allocable to exempt contracts are equal to the greater of the net_surrender_value of the contract or the reserve determined under sec_954 sec_954 however provides plr-127978-16 the amount of the reserves under sec_954 shall be the foreign statement reserve for the contract less any catastrophe deficiency equalization or similar reserves if pursuant to a ruling_request submitted by the taxpayer or as provided in published guidance the secretary determines that the factors taken into account in determining the foreign statement reserve provide an appropriate means of measuring income sec_954 was originally enacted by sec_614 of the job creation and worker assistance act of under the protecting americans from tax hikes path act of p l sec_954 was permanently extended and made effective for taxable years of foreign_corporations beginning after date and for taxable years of u s shareholders with or within which such taxable years of such foreign_corporations end in its technical explanation to the path act the staff of the joint_committee on taxation explains sec_954 as follows the provision does however permit a taxpayer in certain circumstances subject_to approval by the irs through the ruling process or in published guidance to establish that the reserve for such contracts is the amount taken into account in determining the foreign statement reserve for the contract reduced by catastrophe equalization or deficiency reserve or any similar reserve irs approval is to be based on whether the method the interest rate the mortality and morbidity assumptions and any other factors taken into account in determining foreign statement reserves taken together or separately provide an appropriate means of measuring income for federal_income_tax purposes joint comm on taxation technical explanation of the revenue provisions of the protecting americans from tax hikes act of house amendment to the senate amendment to h_r rules committee print jcx-144-15 date analysis cfc is subject_to regulation as a life_insurance_company by country a cfc is licensed authorized and regulated by the regulator which is the insurance regulatory body for country a to sell life_insurance and annuity_contracts to persons other than related_persons within the meaning of sec_954 in country a parent has represented that cfc derives more than percent of its aggregate net written premiums from the issuance of life_insurance and annuity_contracts covering applicable_home_country_risks and with respect to which no policyholder insured annuitant or beneficiary is a related_person as defined in sec_954 finally parent has represented that cfc is engaged in the life_insurance business and would be subject_to tax under subchapter_l plr-127978-16 if it were a domestic_corporation accordingly cfc is a qualified_insurance_company under sec_953 cfc issues life_insurance and annuity_contracts in connection with the lives and health of residents of country a a country other than the united_states no policyholder insured annuitant or beneficiary with respect to any life_insurance or annuity_contract issued by cfc that is covered by the requested rulings is a united_states_person cfc derives more than percent of its net written premiums from contracts that cover country a risks with respect to which no policyholder insured annuitant or beneficiary is a related_person within the meaning of sec_954 the contracts that are the subject of the requested rulings therefore are exempt contracts within the meaning of sec_953 cfc must establish maintain and calculate its reserves including each of the reserves covered by the requested rulings in accordance with the insurance rules prescribed by the regulator the regulator requires a life_insurance_company to determine the amount of its reserves based on guidance provided by the regulator these reserves are the measure of the legal obligations to policyholders on the financial statement used for regulatory purposes by life_insurance_companies doing business in country a whether u s -owned locally-owned or owned by companies headquartered in other foreign countries cfc must set forth its reserves on its country a annual report and the valuation methodology and valuation assumptions on the country a x report which must be filed annually with the regulator the regulator requires cfc to hold these reserves for the fulfillment of claims owed to policyholders and beneficiaries the reserves are not catastrophe deficiency equalization or similar reserves under the insurance rules prescribed by the regulator for determining reserves required to be calculated and reported for purposes of the country a annual report the method interest rate the mortality and morbidity assumptions and other factors taken into account provide an appropriate means of measuring income within the meaning of sec_954 based on the information submitted and the representations made ruling cfc’s underwriting reserves loss_reserves policyholders’ dividend reserves as defined under sec_807 and premiums_paid in advance reserves as defined under sec_807 which are required by the regulator to be maintained for the issuance of life_insurance and annuity_contracts other than separate account-type contracts as reported by cfc on the country a annual report are an appropriate means of measuring income within the meaning of sec_954 and accordingly the amount of those reserves should be used for purposes of sec_954 and sec_953 in determining cfc’s subpart_f_income plr-127978-16 cfc’s underwriting reserves loss_reserves and premiums_paid in advance reserves as defined under sec_807 which are required by the regulator to be maintained for the issuance of life_insurance and annuity_contracts that are separate account-type contracts as reported by cfc on the country a annual report are an appropriate means of measuring income within the meaning of sec_954 and accordingly the amount of those reserves should be used for purposes of sec_954 and sec_953 in determining cfc’s subpart_f_income this ruling applies to the taxable_year ending day y caveats no opinion is expressed on any provisions of the internal_revenue_code or treasury regulations not specifically covered by the above ruling this ruling is subject_to revocation if any of the following circumstances occur a change in the material facts on which this ruling was based a material_change in the business circumstances of cfc which would impact its reserving method or a change in the applicable law or foreign rules relating to the current reserving method of cfc procedural statements 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 cfc sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-127978-16 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely d peter merkel senior technical reviewer branch office of associate chief_counsel international cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01- plr-143201-01 date july legend trust x y z date date date year dear this letter is in response to a letter dated date and subsequent correspondence submitted on behalf of trust seeking a ruling concerning the effects of trust’s judicial reformation under sec_664 and sec_4941 of the internal_revenue_code facts the information submitted states that the trust was established under an irrevocable_trust agreement made by x on date the irrevocable_trust agreement named x and y as trustees of trust z was named as the independent special trustee of trust for the specific purpose of selling shares contributed to trust the trust agreement as drafted by x’s attorney created a net_income charitable_remainder_unitrust with a make-up_provision nimcrut the trust agreement provides that the unitrust_amount each year is equal to the lessor of the trust income as defined in sec_643 and a fixed percentage of the value of trust’s assets as revalued on the first business_day of january each year the unitrust_amount also includes any income in excess of a fixed percentage of the fair_market_value of trust’s assets to the extent that prior year distributions were less than the fixed percentage of the net fair_market_value in any given year in establishing trust the primary objective of x and y was to generate a consistent income of a fixed percentage of the value of trust’s assets each year such as a charitable_remainder_trust with a fixed percentage_payout under sec_664 crut the trust represents that x and y were aware that the amount of the net_income they received each year from trust could fluctuate annually as the value of trust’s assets fluctuated trust represents that x and y were not interested in a nimcrut because it was unlikely that trust could generate income in the amount of a fixed percentage of the value of trust’s assets despite this the trust agreement was drafted by x’s attorney as establishing a nimcrut trust represents that at the time of signing x and y were unaware that the trust agreement had set up a nimcrut trust further represents that neither x nor y would have signed the trust agreement had such a fact been known to them at the time of signing following the establishment of trust z sold certain shares contributed to trust and reinvested the proceeds in various marketable_securities and other investments z who served as agent for the trustees believed that trust was established as a crut and not a nimcrut the investment counselor attended all of the meetings with x and y and their attorney and consistent with those meetings believed that trust was a crut in accordance with that belief z made distributions to x as if trust provided for a fixed percentage of the value of trust’s assets unitrust_amount from the inception of trust until the end of year it was not until date that z became aware of the net_income limitation in the trust agreement x and y as trustees filed a petition in state court requesting the judicial reformation of trust to correct and remove the net_income limitation currently in the trust agreement and replace it with a straight percentage unitrust_amount as originally intended by x upon the establishment of trust the court granted x and y’s request effective on date law and analysis sec_644 provides that the term charitable_remainder_unitrust is defined as a_trust a from which a fixed percentage which is not less than percent and not greater than percent of the initial net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in subparagraph a and other than qualified gratuitous transfers described in subparagraph c may be paid out to or for_the_use_of any person other than an organization described in sec_170 c following the termination of the payments described in subparagraph a the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in sec_170 or is to be retained by the trust for such use or to the extent the remainder_interest is in qualified_employer_securities as defined in g all or part of such securities are to be transferred to an employee_stock_ownership_plan as defined in section e in a qualified_gratuitous_transfer as defined by subsection g and d with respect to each contribution of property to the trust the value determined under sec_7520 of such remainder_interest in such property is at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust sec_664 of the code creates what is commonly referred to as a nimcrut specifically the section states that notwithstanding the provisions of sec_664 and b the trust instrument may provide that the trustee shall pay the income_beneficiary for any year a the amount of the trust income if such amount is less than the amount required to be distributed under sec_664 and b any amount of the trust income which is in excess of the amount required to be distributed under sec_664 to the extent that by reason of sec_664 the aggregate of the amounts paid in prior years was less than the aggregate of such required amounts sec_1_664-3 of the income_tax regulations provides that a_trust is not a charitable_remainder_unitrust if any person has the power to alter the amount to be paid to any named person other than an organization described in sec_170 if such power would cause any person to be treated as the owner of the trust or any portion thereof if subpart e part subchapter_j chapter subtitle a of the code were applicable to such trust sec_1_664-3 provides in part that the trust may not be subject_to a power to invade alter amend or revoke for the beneficial use of a person other than the organization described in sec_170 notwithstanding the preceding sentence the grantor may retain the power exercisable only by will to revoke or terminate the interest of any recipient other than an organization described in sec_170 sec_4941 of the code imposes an excise_tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 of the code generally imposes a tax on the participation of a foundation_manager in an act of self-dealing knowing that it is such act payable by the foundation_manager sec_4941 of the code provides that the term self-dealing means any direct or indirect transfer to or the use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4946 of the code provides the term disqualified_person with respect to a private_foundation includes a substantial_contributor to the foundation including the creator of a_trust a family_member of a substantial_contributor including children and a foundation_manager including a trustee sec_4947 of the code provides generally that split-interest_trusts are subject_to the provisions of sec_4941 in the same manner as if such trusts were private_foundations but under sec_4947 not with respect to any amounts payable under the terms of such trust to income beneficiaries unless a deduction was allowed under sec_170 sec_2055 or sec_2522 sec_53_4947-1 of the foundation and similar excise_taxes regulations provides that under sec_4947 of the code sec_4941 does not apply to any amounts payable under the terms of the a split-interest trust to income beneficiaries unless a deduction was allowed under sec_170 sec_2055 or sec_2522 with respect to the income_interest of any such beneficiary as a charitable_remainder_unitrust under sec_664 of the code the trust is a split-interest trust described in sec_4947 and therefore subject_to sec_4941 which imposes an excise_tax on acts of self-dealing under sec_4947 the self-dealing rules of sec_4941 do not apply however to any amounts payable under the terms of the split-interest trust to income beneficiaries as long as no deduction was allowed for such income_interest under sec_170 sec_2055 or sec_2522 x is a substantial_contributor to the trust and a trustee of trust and as such x is a disqualified_person with respect to the trust y is a trustee of trust and is also the spouse of a substantial_contributor to the trust accordingly y is also a disqualified_person with respect to the trust conclusions based on the facts and representations made by the taxpayer the judicial reformation of trust does not violate sec_664 or any of the applicable regulations accordingly we also conclude that the judicial reformation of the trust under state law will not adversely affect trust’s qualification as a charitable_remainder_unitrust under sec_664 and the applicable regulations further the circumstances presented by the taxpayer indicate that there is no self-dealing since the signatory parties to the trust agreement never intended to create a nimcrut this is based on facts and representations made by the taxpayer such as the consistent administration of trust using a fixed percentage of the value of trust’s assets each year in addition the taxpayers have submitted an affidavit from the investment counselor attesting to the fact that x and y never intended to have a net_income limitation consistent with this affidavit is the investment counselor’s administration of trust allowing only the fixed percentage_payout finally there appears to be a lack of evidence that x and y are reducing their own taxes or using the benefit of hindsight in making the change to the fixed percentage payment method except as provided in this ruling no other opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this ruling is being sent to the taxpayer and taxpayer’s representative s carolyn gray sincerely carolyn gray acting assistant branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court juan p gomez petitioner v commissioner of internal revenue respondent docket no filed date juan p gomez pro_se sebastian voth for respondent memorandum findings_of_fact and opinion cohen judge respondent determined deficiencies and penalties as follows year - - deficiency dollar_figure big_number big_number penalty sec_6662 dollar_figure --- after concessions the issues for decision with regard to the tax_year only are whether petitioner is entitled to dependency_exemption deductions for his mother and two nephews whether he is entitled to the earned_income_tax_credit and the additional_child_tax_credit and whether he is entitled to head_of_household filing_status unless otherwise indicated all 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 findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in california at the time his petition was filed petitioner filed hi sec_2012 federal_income_tax return and elected head_of_household as his filing_status on the return he claimed dependency_exemption deductions for his mother and two nephews and indicated that one nephew was under years of age he also claimed an earned_income_credit of dollar_figure and an additional_child_tax_credit of dollar_figure he reported adjusted_gross_income of dollar_figure an internal_revenue_service irs revenue_agent audited petitioner’ sec_2011 sec_2012 and sec_2013 tax returns during an interview the agent took down notes of what petitioner said including that his nephews lived with their mother even though they spent a lot of time with him petitioner had a tax attorney represent him during the audit in a letter to the agent dated date the attorney wrote juan’s sic did not live with the nephews for more than half of the year in therefore they are not qualifying children and they cannot be qualifying relatives because they are juan’s nephews which are not under the description of qualifying_relative juan’s mother would qualify for every test of the qualifying_relative test except for the gross_income_test she made more than dollar_figure from social_security_benefits in and therefore she cannot be a qualifying_relative juan’s mother would fail the support_test for and thus juan should only be allowed two dependents for and zero dependents for we will concede the rest of the dependents claimed on the return the irs audit resulted in a determination that for petitioner was not entitled to dependency_exemption deductions this determination consequently adjusted his filing_status to single and denied him the additional_child_tax_credit and the earned_income_credit opinion the internal_revenue_code allows as a deduction an exemption for each dependent of a taxpayer in computing taxable_income sec_151 sec_152 defines a dependent as a qualifying_child or a qualifying_relative of the taxpayer in addition to other requirements a qualifying_child must have the same principal_place_of_abode as the taxpayer for more than one-half of the tax_year sec_152 the taxpayer has the burden of proving entitlement to deductions claimed rule a 292_us_435 512_f2d_882 9th cir aff’g tcmemo_1972_133 petitioner presented no evidence as to his mother’s having been his dependent in and he appears to have abandoned that claim petitioner gave vague and uncorroborated testimony that his nephews lived with him for the school year except for weekends and he provided no record of the actual days that they allegedly lived at his home he had listed his nephews as witnesses to be called but they did not appear his evidence consisted only of unexplained school documents illegible copies of a social_security card and two printouts from google maps showing the distance between his home and the nephews’ schools his prior statements and his attorney’s concession--that the nephews did not live with petitioner for more than one-half of 2012--are more reliable petitioner failed to show his entitlement to the dependency_exemption deductions for his nephews or his mother sec_1 establishes a special income_tax rate for an individual filing as head of a household to qualify as head of a household petitioner must have been unmarried at the end of and maintained a household that was the principal_place_of_abode of at least one dependent for more than one-half of the taxable_year see sec_2 because petitioner had no dependents in he is not entitled to head_of_household filing_status subject_to limitations sec_24 allows a child_tax_credit with respect to a qualifying_child of the taxpayer as described in sec_152 a portion of this credit the additional_child_tax_credit can be refundable if certain conditions are met sec_24 because the nephews are not qualifying children under sec_152 petitioner is not entitled to the additional_child_tax_credit for sec_32 allows an eligible_individual an earned_income_credit against her or his income_tax_liability sec_32 prescribes different percentages and amounts used to calculate the credit the limitation amount is based on the taxpayer’s earned_income and adjusted_gross_income and whether the taxpayer has any qualifying children sec_32 f to be eligible for a higher earned_income_credit with respect to a child the taxpayer must establish that the child meets the definition of qualifying_child under sec_152 as modified by sec_32 because the nephews were not shown to be qualifying children under these parameters petitioner would only be eligible for the earned_income_credit on the basis of his earned_income see sec_32 c a ii for a taxpayer to qualify in part for the earned_income_tax_credit without any qualifying children for the taxpayer’s adjusted_gross_income must have been less than dollar_figure if not filing jointly sec_32 j revproc_2011_52 sec_3 2011_45_irb_701 petitioner’ sec_2012 adjusted_gross_income of dollar_figure exceeded that amount therefore he is not entitled to the earned_income_tax_credit we have considered the other arguments of the parties and they are not material to our conclusions to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury washington dc number release date index number x person to contact telephone number refer reply to cc psi - plr-124954-00 date date a d1 year dear this letter responds to a letter dated date and subsequent correspondence written on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a is the sole shareholder of x a the president of x represents that it was intended for x to be an s_corporation beginning in year its first taxable_year however no timely form_2553 election by a small_business_corporation was filed on behalf of x for year for year x filed form_1120s u s income_tax return for an s_corporation sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is mr walter e winslette expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours jeanne m sullivan assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


number release date cca-728080-08 ------------ id office uilc from ---------------------- sent wednesday date am to ------------------- cc ---------------------------- subject conflict between there is no conflict sec_6330 and sec_6331 each have an independent notice_of_intent_to_levy requirements the sec_6331 notice_of_intent_to_levy must always be given prior to levy it is the sec_6330 notice_of_intent_to_levy and right to a cdp hearing that only needs to be given after the levy in other words the taxpayer gets a pre-levy notice but not a pre-levy right to a hearing if the case is assigned to a ro it is likely the sec_6331 notice has already been issued