internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc it a plr-117340-00 date date re legend donee taxpayer taxpayer’s spouse collection x state dear this responds to your date request for rulings as supplemented by correspondence dated date on behalf of the taxpayer your request concerns the treatment of proposed gifts and loans of artwork pursuant to a gift and loan agreement gla specifically you request the following rulings income_tax rulings rulings requested any gift the taxpayer makes during the taxpayer’s life of any undivided fractional interest which for the purpose of the letter_ruling request may include any fraction equal to or exceeding in any work of the collection accepted by the donee subject_to the terms and conditions of the gla shall qualify as a charitable_contribution under sec_170 of the internal_revenue_code unless an election is made by the taxpayer under sec_170 of the code the amount of the income_tax charitable_contribution attributable to each gift by the taxpayer of an undivided fractional interest in a work of the collection to the donee shall be determined under sec_170 c i and shall equal the product of a such fraction times b the fair_market_value determined without regard to the existence of the gla of the entire work_of_art at the time of the gift of the fractional interest provided however under sec_170 the aggregate amount of all charitable_contributions described under sec_170 in such year shall not exceed percent of the taxpayer’s contribution_base as defined in sec_170 unless plr-117340-00 otherwise elected by the taxpayer under sec_170 the limitation of sec_170 for gifts of tangible_personal_property where the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under sec_501 shall be inapplicable to the subject gifts if the taxpayer makes the election under sec_170 of the code with respect to the taxpayer’s gifts of capital_gain_property for a taxable_year then the amount of the income_tax charitable_contribution attributable to any gift in that year of an undivided fractional interest in a work of the collection that is capital_gain_property shall be subject_to the limitation of sec_170 and shall equal the product of a such fraction times b another fraction the numerator of which is the taxpayer’s adjusted_basis in the taxpayer’s interest in the work immediately preceding the gift of the fractional interest and the denominator of which is the fraction representing the portion of the taxpayer’s ownership in the entire work immediately preceding the gift of the fractional interest in such case the percent limitation under sec_170 shall not apply to the subject gifts gift_tax rulings the mere execution of the gla by the taxpayer will not constitute a completed_gift of any items of artwork in the collection under sec_2511 of the code the taxpayer’s transfer during the taxpayer’s life of undivided fractional interests in any items of artwork in the collection to the donee will constitute completed gifts that qualify for the gift_tax_charitable_deduction under sec_2522 of the code the value_of_the_gift under sec_2512 of the code and the amount_of_the_gift tax charitable deduction under sec_2522 allowable for each gift by the taxpayer of an undivided fractional interest in an item of artwork will be the product of the fair_market_value of the artwork determined without regard to the existence of the gla multiplied by the fraction of the item transferred approval rights retained by the taxpayer will have no value for gift_tax purposes if during the life of the taxpayer the taxpayer transfers the ownership of an undivided fractional interest in any items of artwork in the collection to the taxpayer’s spouse in accordance with the terms of the gla then the gift of such fractional interest will qualify for the gift_tax_marital_deduction under sec_2523 of the code the value_of_the_gift under sec_2512 of the code and the amount_of_the_gift tax marital_deduction under sec_2523 allowable for each gift by the taxpayer of an undivided fractional interest in an item of artwork will be the product of the fair_market_value of the artwork determined without regard to the existence of the gla multiplied by the fractional interest of the item transferred approval rights retained by the taxpayer will have no value for gift_tax purposes if during the life of the taxpayer the taxpayer loans any items of artwork in the collection to the donee then such loan will not be treated as a gift by the taxpayer as provided under sec_2503 of the code plr-117340-00 estate_tax rulings upon the death of the taxpayer survived by the taxpayer’s spouse only the individual fractional interest of the items of artwork in the collection retained by the taxpayer will be includible in the taxpayer’s gross_estate approval rights retained by the taxpayer that pass to her successors in interest will have no value for federal estate_tax purposes under sec_2031 and sec_2033 of the code any bequest to the donee under the terms of the taxpayer’s will of the taxpayer’s retained undivided fractional interest in the items of artwork in the collection will qualify for the estate_tax charitable deduction under sec_2055 of the code the amount includible in the taxpayer’s gross_estate under sec_2031 and sec_2033 of the code with respect to such retained undivided fractional interest will be the fair_market_value of the item of artwork multiplied by the taxpayer’s fractional interest in the item the amount deductible under sec_2055 with respect to the item bequeathed to the donee will equal the value included in the gross_estate any bequest to taxpayer’s spouse of any retained fractional interest of the items of artwork in the collection included in the taxpayer’s gross_estate will qualify for the marital_deduction under sec_2056 of the code the amount includible in the taxpayer’s gross_estate and the amount deductible as an estate_tax_marital_deduction under sec_2056 of the code will be the product of the fair_market_value of the item of artwork determined without regard to the existence of the gla multiplied by the fractional interest of the item transferred facts the taxpayer and taxpayer’s spouse collectively referred to as donors residents of state currently each own an undivided one-half interest in certain specified x prints and related works_of_art x works the donors propose to establish an art collection collection at the donee consisting of the x works and certain x prints that the donors previously transferred to donee in the donors’ primary goal in establishing the collection at the donee museum is to provide for long-term public enjoyment of the collection while retaining the unity and spirit of the cohesive body of x works_of_art selected and assembled over many years by the donors the donee is exempt from federal income taxes under sec_501 of the code and is a charitable_organization described in sec_170 and sec_170 the donee desires to accept the collection to effectuate the donors’ purpose and goal and enhance its x collection in furtherance of their purpose and goal the donors transferred x works by gift to the donee in addition the donors proposed to enter into a gift and loan agreement gla under the gla the donors during their lifetimes may but have no obligation to transfer by gift all or a fractional interest in any items in the collection not previously transferred to the donee provided that each fractional interest transferred must be at least a 12th interest items previously transferred and items to be transferred in the future are referred to as gifted works if the donors transfer only a fractional interest in an item to the donee the donors can retain possession of the artwork for a period of time each year commensurate with their plr-117340-00 proportionate interest in the item at any time during the donors’ lifetimes the donors may in their discretion loan any one or more items of artwork in the collection to the donee the items of artwork to be loaned are referred to as loaned works the term of the loan is to be mutually agreed upon by the donors and the donee however the donors can refuse to loan an item of artwork or reject any proposed loan term the donors can also waive or terminate their possession right in an item of artwork under the gla as long as the donee holds and displays the gifted and loaned works in accordance with the gla the donors are not permitted to voluntarily transfer during their lifetimes or at the death of the first to die of the donors by gift or otherwise any item of artwork in the collection to any party other than to each other or the donee notwithstanding any provision in the gla in the event the donors voluntarily transfer artwork during their lifetimes to each other or at the death of the first to die of the donors the taxpayer’s spouse shall have the exclusive and unrestricted right to use the property during his or her lifetime including but not limited to the right to sell mortgage or otherwise encumber or assign the life_estate or to license or exploit any intellectual_property right pertaining the artwork during his or her lifetime the donors propose to execute codicils to each of their wills providing that the spouse shall have a life_estate in the artwork and shall have the exclusive and unrestricted right to use the property during his or her lifetime including but not limited to the right to sell mortgage or otherwise encumber or assign the life_estate or to license or exploit any intellectual_property right pertaining the artwork during his or her lifetime in addition if the donee holds and displays the gifted and loaned works in accordance with the gla then the donors or their legal_representative is obligated at no later than the death of the last to die of the donors to transfer to donee all of the donors’ remaining ownership interests in the artwork comprising the collection the items so transferred are subject_to the terms and conditions of the gla the proposed gla is divided into two parts the first part governs gifts and the second part governs loans by the donors of portions of the collection to the donee under the first part of the gla the donee agrees that if the donors during their lives or at death gift or bequeath any items of artwork including fractional interests that will equal or exceed of the collection to the donee the donee will hold and display such works in accordance with certain conditions gift conditions the conditions require the donee to continuously display at least thirty of the gifted works on a rotating pattern the gifted works shall be displayed in a gallery named for the donors and prominently identified as such the donee shall identify the display as the collection of the donors the donee must obtain the donors’ consent to any changes in the gallery or installation design display control rights in addition the donee shall pay the costs of maintaining and conserving the artwork that is in its possession the donee shall subject_to the donors’ consent restore the artwork in its possession the donee and the donors shall pay the restoration costs proportionate to their fractional interests the conditions also require the donors and donee to pay the costs proportionate to their fractional interest to insure the artwork additional provisions require the donee to pay the costs relating to constructing the art gallery transporting the artwork and publishing a catalog the donee may deaccession any gifted work from the collection but only to the extent it is replaced with a similar item of artwork typified by the collection that is consistent with the spirit of the collection and has a value substantially equal to the value of the deaccessioned artwork in the collection any such acquired artworks are then to be subject_to the terms and conditions of plr-117340-00 the gla final editorial control_over publicity concerning the collection is granted to the donors finally the gift conditions require the donee to comply with all the loan conditions which are summarized below with respect to all the loaned works the gift conditions are divided into three stages stage i commences with the execution of the gla and runs until the death of the last to die of the donors stage ii commences on the date of death of the last to die of the donors and runs until the later of the death of the donors’ daughter or years from the date of the gla during stage ii the donor approval rights contained in the gift conditions will transfer to the donors’ daughter if she is living stage iii commences on the date stage ii ends at that time certain provisions regarding maintenance restoration conservation scholarly access and insurance apply the second part of the gla governs loans by the donors of portions of the collection to the donee museum the conditions require the donee to pay all the costs relating to transportation and maintenance the donee shall continuously display at least thirty of the loaned works on a rotating pattern unless otherwise provided in the specific loan arrangement however in all events the donee must put the loaned works to a use relating to its exemption under sec_501 of the code all the actions required of the donee by the gla must be performed in accordance with good museum practice if the donee and either of the donors or the donors’ daughter as the case may be are unable to agree on what constitutes good museum practice the gla provides for the appointment of a mutually acceptable curator to decide the issue the donee shall be deemed to be in compliance with all of the gift and loan conditions unless it has been notified on a timely basis by the donors or after their deaths by their daughter of any violation once a gift or loan condition failure notice has been received by the donee the donee shall have days to cure the violation in the event the donee breaches any of the gift conditions with respect to the gifted works and the donee fails to cure the breach after receipt of a gift condition failure notice then the donee’s ownership rights in all of the gifted works shall terminate if the uncured breach occurs during stages i or ii the ownership rights shall be transferred to another organization that is exempt from federal income taxes under sec_501 and is also a charitable_organization described in sec_170 c a and a donee’s ownership rights are not terminated if the breach occurs during stage iii in the event the donee breaches any of the loan conditions with respect to the loaned works and the donee fails to cure the breach after receipt of a loan condition failure notice then the donee shall promptly return all of the loaned works to the donors or others as directed by the donors the loan term shall also end when the donors at their discretion terminate it in this case the donee shall return the loaned work or works in which the loan term was ended to the donors if the loan term ends due to the death of both donors and the donee has met all the gift and loan conditions then the donors shall be obligated at death to transfer all of the remaining ownership interests in all the loaned works to the donee by gift if upon the death of the last to die of the donors the donee has not met the gift and loan conditions the donee shall return all the loaned works to the legal_representative of the donor’s estate or others as directed by the donor plr-117340-00 the works_of_art of the collection owned by the donors are capital_gain_property within the meaning of sec_170 because they are capital assets that if sold at fair_market_value would result in gain that would be long-term_capital_gain law and analysis ruling_request sec_170 of the code provides subject_to certain limitations a deduction for charitable_contributions described in sec_170 payment of which is made within the taxable_year sec_170 states in part that the term charitable_contribution means a contribution or gift to or for_the_use_of a qualified_organization sec_170 of the code generally restricts deductions for partial_interests in property including tangible_personal_property however sec_170 provides that the contribution not in trust of an undivided portion of the taxpayer’s entire_interest in property is deductible under sec_1_170a-7 of the income_tax regulations an undivided portion must consist of a fraction or percentage of each and every substantial interest or right owned by the donor in such property and must extend over the entire term of the donor’s interest in such property a deduction is allowable under this exception if the charitable_organization is given the right as a tenant in common with the donor to possession dominion and control of the property for a portion of each year appropriate to its interest in the property in the present situation the donors may transfer less than their entire_interest in any work in the collection to the donee provided that the fractional interest transferred is at least a 12th interest although the donors have retained certain insubstantial_rights in the interests transferred such as approval rights for the gallery design and the installation design display control rights they have not retained any ownership reversion rights if an uncured breach occurs the gifted works will not revert to the donors but instead the ownership rights will be transferred to another organization that is exempt from federal_income_tax under sec_501 and is a charitable_organization described in sec_170 and sec_170 therefore the gift of a fractional interest in any work of the collection accepted by the donee subject_to the gla qualifies as a gift of an undivided portion of the donors’ entire_interest in the work see 90_tc_733 acq c b thus the undivided fractional interest is deductible for income_tax purposes under sec_170 and sec_1_170a-7 to the extent otherwise provided in sec_170 we conclude that any gift the donors make during their lives of an undivided fractional interest in any work of the collection accepted by the donee subject_to the terms and conditions of the gla will be deductible as a charitable_contribution subject_to the limitations and restrictions of sec_170 accordingly ruling_request is granted ruling requests and sec_1_170a-1 of the regulations provides that if a charitable_contribution is made in property other than money the amount of the contribution is the fair_market_value of the property at the time of the contribution reduced as provided in sec_170 plr-117340-00 sec_170 of the code provides that the amount of any charitable_contribution of property shall be reduced by the amount of gain which would not have been long-term_capital_gain if the property contributed had been sold by the taxpayer at its fair_market_value determined at the time of the contribution ie the amount of the charitable_contribution_deduction is limited to basis in the case of ordinary_income_property and short-term_capital_gain property furthermore sec_170 states that in the case of a charitable_contribution of tangible_personal_property if the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under sec_501 then the charitable_contribution must be reduced by the amount of gain that would have been long-term_capital_gain if the property contributed had been sold by the taxpayer at its far market_value determined at the time of such contribution ie the amount of the charitable_contribution_deduction is limited to basis in the case of long-term_capital_gain property not put to a related use capital_gain_property is defined in sec_170 of the code as any capital_asset the sale of which at its fair_market_value at the time of the contribution would have resulted in gain that would have been long-term_capital_gain sec_1221 defines a capital_asset as property held by the taxpayer excluding stock_in_trade property_held_primarily_for_sale to customers in the ordinary course of the trade_or_business and certain other items not relevant here sec_1_170a-4 defines in part the term unrelated use as a use that is unrelated to the purpose or function constituting the basis of the charitable organization’s exemption under sec_501 of the code sec_1_170a-4 further explains in part that in the case of a contribution of tangible_personal_property to or for_the_use_of a museum the taxpayer may treat the property as not being put to an unrelated use by the donee if at the time of the contribution it is reasonable to anticipate this the donor’s anticipation is reasonable if the object donated to the museum is of a general type normally retained by the museum or other museums for museum purposes and the donor does not have actual knowledge that the object will not be put to an unrelated use by the donee whether or not the object is later sold or exchanged by the donee because the donors are making a contribution in property other than money we first address whether the reductions provided in sec_170 are applicable specifically the application of sec_170 must be examined because artwork is tangible_personal_property and the donors represent that the works_of_art are capital_gain_property that if sold at fair_market_value would result in gain that would be long-term_capital_gain however the donee’s public exhibition of the works of the collection is a use that is related to the purpose or function constituting the basis for the donee’s exemption under sec_501 in addition it is reasonable for the donors to anticipate that the donated artwork will not be put to an unrelated use because they have no actual knowledge to the contrary thus unless the taxpayer elects otherwise for a taxable_year under sec_170 the limitation of sec_170 does not apply sec_170 of the code imposes a limitation on the deduction allowed for any charitable_contribution described in sec_170 made by an individual of capital_gain_property to which sec_170 does not apply specifically the code section limits the amount of the charitable_contribution_deduction for any taxable_year to percent of the taxpayer’s contribution_base for such taxable_year sec_170 of the code defines contribution_base as adjusted_gross_income computed without regard to any net operating plr-117340-00 loss carry back to the taxable_year under sec_172 if the contributions of capital_gain_property exceed percent of the taxpayer’s contribution_base for any taxable_year the excess is treated as a charitable_contribution of capital_gain_property to which the percent limitation of sec_170 applies in each of the five succeeding taxable years however the taxpayer may elect under sec_170 to have sec_170 apply to all contributions of capital_gain_property made by the taxpayer during the taxable_year the effect of this election in pertinent part is to limit the amount of the charitable_contribution to the owner’s basis in the case of long-term_capital_gain property as though the property had been subject_to sec_170 additionally because the donee is an organization described in sec_170 if such election is made the percent limitation of that section will apply sec_170 of the code provides that in the case of a charitable_contribution of less than the taxpayer’s entire_interest in the property contributed the taxpayer’s adjusted_basis in such property shall be allocated between the interest contributed and any interest not contributed in accordance with the regulations sec_1_170a-4 of the regulations provides that the adjusted_basis of the contributed portion of the property shall be that portion of the adjusted_basis of the entire property that bears the same ratio to the total adjusted_basis as the fair_market_value of the contributed portion of the property bears to the fair_market_value of the entire property as stated in our response to ruling_request the donors have not retained any substantial rights if the taxpayer does not elect the application of sec_170 the amount of the charitable_contribution attributable to each gift by the taxpayer of an undivided fractional interest in a work of the collection shall be determined under sec_170 and shall equal the product of a such fraction times b the fair_market_value determined without regard to the existence of the gla of the entire work_of_art at the time of the gift of the fractional interest however under sec_170 the aggregate amount of all charitable_contributions described under sec_170 in the taxable_year shall not exceed percent of the taxpayer’s contribution_base as defined in sec_170 as previously stated the works_of_art and their display are related to the donee’s purpose or function constituting the basis for the donee’s exemption under sec_501 therefore sec_170 does not apply to reduce the amount of the charitable_contribution determined otherwise however if the donors make the election under sec_170 with respect to the gifts of capital_gain_property for a taxable_year the amount of the charitable_contribution attributable to any gift in that year of an undivided fractional interest in a work of the collection that is capital_gain_property shall be subject_to the reduction under sec_170 in calculating the reduction under sec_170 the donors’ adjusted_basis in the contributed portion of the property shall be that portion of the adjusted_basis of the entire property which bears the same ratio to the total adjusted_basis as the fair_market_value determined without regard to the existence of the gla of the contributed portion of the property bears to the fair_market_value determined without regard to the existence of the gla of the entire property if the election under sec_170 is made the percent limitation under sec_170 will not apply to the subject gifts accordingly ruling requests and are granted plr-117340-00 ruling_request sec_2501 of the code imposes a tax for each calendar_year on the transfer of property by gift during the calendar_year sec_2511 provides in part that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal and tangible or intangible however the gift must be complete before the tax will apply sec_25_2511-2 of the gift_tax regulations provides that as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in him no power to change its disposition whether for his own benefit or the benefit of another the gift is complete revrul_76_103 c b holds that the transfer of property to an irrevocable self-settled discretionary_trust does not constitute a completed_gift for gift_tax purposes if under applicable state law the trust property may be subjected to the claims of the grantor’s creditors under these circumstances the grantor has retained dominion and control_over the trust property because he can relegate his or her creditors to the trust for settlement of any claims against the grantor in the instant case under the law of state property transferred to a_trust described in revrul_76_103 would be subject_to the claims of the grantor’s creditors upon executing the gla taxpayer will be committed to transferring her interest in the x works to donee either during her lifetime or on the death of the last to die of the donors however during the period she retains ownership of the x works under state law the property would be subject_to the claims of her creditors accordingly under the facts presented in this case the mere execution of the gla will not constitute a completed_gift for gift_tax purposes ruling requests and sec_2522 of the code provides for a gift_tax_charitable_deduction for the value of property transferred to organizations described in sec_2522 however sec_2522 and sec_25_2522_c_-3 and of the gift_tax regulations provide that if a donor transfers an interest in property for charitable purposes and an interest in the same property is retained by the donor or is transferred or has been transferred for less than adequate_and_full_consideration for private purposes no gift_tax deduction is allowed under sec_2522 unless the charitable interest is in the form of certain specified deductible interests under sec_25 c - c i the term deductible_interest includes an undivided portion of the donor's entire_interest in the property under the regulation an undivided portion of the donor's entire_interest in property must consist of a fraction or percentage of each and every substantial interest or right owned by the donor in the property and must extend over the entire term of the donor's interest in the property the regulation further provides that an undivided portion of the donor's entire_interest in property in property includes an interest in property whereby the charity is given the right as a tenant in common with the donor to possession dominion and control of the property for a portion of each year appropriate to its interest in such property a similar rule contained in sec_1_170a-7 of the income_tax regulations pertaining to the income_tax charitable deduction has been held to apply to the transfer of artwork see 90_tc_733 acq 1989_1_cb_1 plr-117340-00 sec_25_2522_c_-3 provides that if as of the date of the gift a transfer for charitable purposes is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible in the instant case the taxpayer proposes to transfer an undivided fractional portion of the taxpayer’s entire_interest in particular items of artwork to the donee and retain possession of the transferred art work for an appropriate portion of each year commensurate with the retained fractional interest such undivided fractional interest will qualify as a deductible_interest under sec_25_2522_c_-3 further the items passing to the donee will be held subject_to the terms and conditions of the gla however under the gla if donee breaches the terms of the gla the items in the collection will be distributed to other organizations described in sec_170 sec_2055 and sec_2522 accordingly the requirement of sec_25_2522_c_-3 is satisfied because under the gla there is no possibility that the items of artwork subject_to the bequest will pass for other than a charitable purpose as defined in sec_2522 accordingly we conclude that assuming the terms of the gift otherwise satisfy the requirements of sec_2522 and the regulations thereunder the gift will qualify for a gift_tax_charitable_deduction under sec_2522 as discussed above under the terms of the gla the donee is authorized to sell exchange or otherwise dispose_of the items in the collection and the gla limits the use of the proceeds of sale etc to the acquisition of other examples of artworks that are typified by the collection that are consistent with the spirit of the collection and that are of a value substantially equal to the value of the deaccessioned artworks in the collection any such acquired artworks are then to be subject_to the terms and conditions under the gla under these circumstances we conclude that the value of each gift under sec_2512 with respect to the transfer of such undivided fractional interest will be the fair_market_value of the item of artwork multiplied by the fractional interest that is transferred to the donee the amount deductible under sec_2522 with respect to the item transferred to the donee will equal the value_of_the_gift approval rights retained by the taxpayer will have no value for gift_tax purposes ruling requests and sec_2523 of the code provides that in computing a donor’s taxable_gifts the donor is allowed a deduction equal to the value of any interest in property that passes by gift from the donor to the donor's spouse during the calendar_year sec_2523 provides the general_rule that no deduction is allowable for transfers to the surviving_spouse of certain terminable interests ie interests in property passing to the surviving_spouse that will terminate or fail and after such termination or failure an interest in the same property passes to someone other than the spouse sec_2523 provides an exception to this terminable_interest_rule in the case of qualified terminal interest property qtip sec_2523 defines qtip to mean property which passes from the donor in which the donee spouse has a qualifying_income_interest_for_life and to which a qtip_election under sec_2523 applies sec_2523 provides that rules similar to the rules of sec_2056 iii and iv apply to sec_2523 sec_2056 provides that a spouse has a qualifying_income_interest_for_life if the plr-117340-00 spouse is entitled to all the income from the property payable at least annually and no person has a power during the spouse’s life to appoint any part of the property to any person other than the spouse sec_25_2523_f_-1 example of the gift_tax regulations describes a situation where a donor transfers by gift a personal_residence to his spouse s and his children giving s the exclusive and unrestricted right to use the property including the right to continue to occupy the property as a personal_residence or rent the property and receive the income for her lifetime after s’s death the property is to pass to donor’s children under applicable local law s’s consent is required for any sale of the property the example concludes that if the donor elects to treat all of the personal_residence as qualified_terminable_interest_property the deductible_interest is the value of the residence on the date the residence was transferred to s and the donor’s children in this case under the gla taxpayer is authorized to transfer an undivided_interest in items of artwork to taxpayer’s spouse during her lifetime under the terms of the gla the taxpayer’s spouse will have the exclusive and unrestricted right to use the property during his lifetime including but not limited to the right to sell mortgage or otherwise encumber or assign the life_estate or to license or exploit any intellectual_property right pertaining to the artwork we conclude that if during the life of the taxpayer the taxpayer transfers the ownership of an undivided fractional interest in any items of artwork in the collection to the taxpayer’s spouse in accordance with the terms of the gla then the gift of such fractional interest will qualify for the gift_tax_marital_deduction under sec_2523 provided the election is made under sec_2523 see sec_25_2523_f_-1 example further we conclude that the value_of_the_gift under sec_2512 and the amount_of_the_gift tax marital_deduction under sec_2523 allowable will be the product of the fair_market_value of the item of artwork determined without regard to the existence of the gla multiplied by the fraction of the item transferred approval rights retained by the taxpayer will have no value for gift_tax purposes ruling_request sec_2503 of the code provides that for purposes of the estate_tax gift_tax generation-skipping_transfer_tax and special valuation rules any loan of a qualified_work_of_art shall not be treated as a transfer and the value of such qualified_work_of_art shall be determined as if such loan had not been made if- a such loan is to an organization described in sec_501 and exempt from tax under sec_501 other than a private_foundation and b the use of such work by the organization is related to the purpose of function constituting the basis for its exemption under sec_501 under sec_2503 a qualified_work_of_art is defined as any archaeological historic or creative tangible_personal_property plr-117340-00 in the instant case the items of artwork comprising the collection each constitute a qualified_work_of_art within the meaning of sec_2503 because each work is properly characterized as creative tangible_personal_property further the donee is exempt from tax under sec_501 and is not a private_foundation finally the contemplated use to which the donee will put any loaned works will be related to the purpose or function constituting the basis for its exemption under sec_501 accordingly we conclude that under sec_2503 any loan of the items of artwork in the collection from the taxpayer to the donee will not be treated as a transfer for gift_tax purposes ruling_request sec_2031 of the code provides that the value of the gross_estate of the decedent shall be determined by including the value at the time of the decedent’s death of all property real or personal tangible or intangible wherever situated sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of death upon the death of the taxpayer survived by the taxpayer’s spouse only the individual fractional interests in the items of artwork in the collection retained by the taxpayer will be includible in the taxpayer’s gross_estate approval rights retained by the taxpayer that pass to her successors in interest will have no value for federal estate_tax purposes under sec_2031 and sec_2033 ruling requests and sec_2055 of the code provides that for purposes of the federal estate_tax imposed by sec_2001 the value of the taxable_estate is determined by deducting from the value of the gross_estate all bequests to or for_the_use_of certain governmental entities certain corporations organized and operated exclusively for religious charitable scientific literary or educational_purposes and certain other fraternal and veterans organizations sec_20_2055-2 of the estate_tax regulations provides that if as of the date of the decedent’s death a transfer for charitable purposes is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible under sec_2055 and sec_20_2055-2 and where an interest in property passes or has passed from that decedent for charitable purposes and an interest other than an interest that is extinguished on the decedent's death in the same property passes or has passed_from_the_decedent for private purposes for less than an adequate_and_full_consideration in money_or_money's_worth no deduction is allowed under sec_2055 for the value of the interest that passes or has passed for charitable purposes unless the interest is a deductible_interest described in sec_20_2055-2 under sec_20_2055-2 a deductible_interest includes an undivided portion not in trust of a donor’s entire_interest in the property under the regulation an undivided portion of the donor's entire_interest in property must consist of a fraction or percentage of each and every substantial interest or right owned by the donor in the property plr-117340-00 and must extend over the entire term of the donor’s interest in the property the regulation further provides that an undivided portion of the donor’s entire_interest in property includes an interest whereby the charity is given the right as a tenant in common with the donor to possession dominion and control of the property for a portion of each year appropriate to its interest in such property sec_20_2055-1 provides that a deduction is allowed under sec_2055 for the value of property included in the decedent's gross_estate and transferred by the decedent to certain charitable entities in general the amount allowable as an estate_tax charitable deduction under sec_2055 is the fair_market_value of the property passing to charity under certain scenarios this value may not be the same as the value determined for estate_tax inclusion purposes under sec_2031 see 674_f2d_761 9th cir estate of schwan v commissioner tcmemo_2001_174 see also estate of disanto v commissioner tcmemo_1999_421 applying these principles in the case of the estate_tax_marital_deduction deukmejian v commissioner tcmemo_1981_24 cooley v commissioner t c aff'd per curiam 283_f2d_945 2nd cir dealing with the effect of restrictions on marketability on the amount of the income_tax charitable_contribution_deduction in the present case under the terms of the gla the taxpayer will unconditionally bequeath any undivided fractional interest in the items of artwork in the collection that she owns on the date of death other than items subject_to a spousal bequest to donee such undivided fractional interest will qualify as a deductible_interest under sec_20_2055-2 further the items passing to the donee will be held subject_to the terms and conditions of the gla however under the gla if donee breaches the terms of the gla the items in the collection will be distributed to other organizations described in sec_170 and sec_2055 accordingly the requirement of sec_20_2055-2 is satisfied because under the gla there is no possibility that the items of artwork subject_to the bequest will pass for other than a charitable purpose as defined in sec_2055 accordingly we conclude that assuming the terms of the bequest otherwise satisfy the requirements of sec_2055 and the regulations thereunder the value of the bequest will qualify for an estate_tax charitable deduction under sec_2055 as discussed above under the terms of the gla donee is authorized to sell exchange or otherwise dispose_of the items in the collection and the gla limits the use of the proceeds of sale etc to the acquisition of other examples of artworks that are typified by the collection that are consistent with the spirit of the collection and that are of a value substantially equal to the value of the deaccessioned artworks in the collection any such acquired artworks are then to be subject_to the terms and conditions under gla under these circumstances we conclude that the amount includible in the taxpayer’s gross_estate under sec_2031and with respect to such retained undivided fractional interests will be the fair_market_value of the item of artwork multiplied by the taxpayer’s fractional interest in the item the amount deductible under sec_2055 with respect to the item bequeathed to donee will equal the value included in the gross_estate ruling requests and sec_2056 of the code provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross plr-117340-00 estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides that 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 the interest passing to the surviving_spouse will terminate or fail no deduction is allowed under sec_2056 with respect to such interest a if an interest in the property passes or has passed for less than adequate_and_full_consideration in money_or_money's_worth from the decedent to any person other than the surviving_spouse or the estate of such spouse and b if by reason of such passing the person or his heirs or assigns may possess or enjoy any part of the property after the termination or failure of the interest passing to the surviving_spouse sec_2056 provides an exception to the terminable_interest_rule contained in sec_2056 under sec_2056 qualified_terminable_interest_property is treated as passing to the surviving_spouse for purposes of sec_2056 and no part of the property is to be treated as passing to any person other than the surviving_spouse sec_2056 defines qualified_terminable_interest_property as property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 provides that a spouse has a qualifying_income_interest_for_life if the spouse is entitled to all the income from the property payable at least annually and no person has a power during the spouse's life to appoint any part of the property to any person other than the spouse sec_20_2056_b_-7 example of the estate_tax regulations describes a situation where decedent owned a personal_residence at his death under decedent’s will the exclusive and unrestricted right to use the residence including the right to continue to occupy the property as a personal_residence or to rent the property and receive the income passes to his spouse s for life at s’s death the property passes to his children under applicable local law s must consent to any sale of the property the example concludes that if the executor elects to treat all of the personal_residence as qualified_terminable_interest_property the deductible_interest is the value of the residence for estate_tax purposes in this case taxpayer will execute a codicil to her will pursuant to which she will bequeath a life interest in any retained fractional interest in the collection to taxpayer’s spouse under the terms of the bequest the taxpayer’s spouse will have the exclusive and unrestricted right to use the property during his lifetime including but not limited to the right to sell mortgage or otherwise encumber or assign the life_estate or to license or exploit any intellectual_property right pertaining to the artwork the bequest is authorized under the terms of the gla we conclude that any bequest to taxpayer’s spouse of a life interest in any retained fractional interest of the items of artwork in the collection under the terms described above will qualify for the estate_tax_marital_deduction under sec_2056 provided the election under sec_2056 is made see sec_20_2056_b_-7 example plr-117340-00 further we conclude that the amount of the estate_tax_marital_deduction under sec_2056 allowable for each bequest by the taxpayer of an undivided fractional interest in an item of artwork will be the product of the fair_market_value of the artwork multiplied by the fraction of the item transferred determined without regard to the existence of the gla conclusion sec_1 any gift the taxpayer makes during the taxpayer’s life of any undivided fractional interest which for the purpose of the letter_ruling request may include any fraction equal to or exceeding in any work of the collection accepted by the donee subject_to the terms and conditions of the gla shall qualify as a charitable_contribution under sec_170 of the internal_revenue_code to the extent otherwise provided by sec_170 unless an election is made by the taxpayer under sec_170 of the code the amount of the income_tax charitable_contribution attributable to each gift by the taxpayer of an undivided fractional interest in a work of the collection to the donee shall be determined under sec_170 c i and shall equal the product of a such fraction times b the fair_market_value determined without regard to the existence of the gla of the entire work_of_art at the time of the gift of the fractional interest provided however under sec_170 the aggregate amount of all charitable_contributions described under sec_170 in such year shall not exceed percent of the taxpayer’s contribution_base as defined in sec_170 unless otherwise elected by the taxpayer under sec_170 the limitation of sec_170 for gifts of tangible_personal_property where the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under sec_501 shall be inapplicable to the subject gifts if the taxpayer makes the election under sec_170 of the code with respect to the taxpayer’s gifts of capital_gain_property for a taxable_year then the amount of the income_tax charitable_contribution attributable to any gift in that year of an undivided fractional interest in a work of the collection that is capital_gain_property shall be subject_to the limitation of sec_170 and shall equal the product of a such fraction times b another fraction the numerator of which is the taxpayer’s adjusted_basis in the taxpayer’s interest in the work immediately preceding the gift of the fractional interest and the denominator of which is the fraction representing the portion of the taxpayer’s ownership in the entire work immediately preceding the gift of the fractional interest in such case the percent limitation under sec_170 shall not apply to the subject gifts the mere execution of the gla by the taxpayer will not constitute a completed_gift of any items of artwork under sec_2511 of the code the taxpayer’s transfer during the taxpayer’s life of undivided fractional interests in any items of artwork in the collection to the donee will constitute completed gifts that qualify for the gift_tax_charitable_deduction under sec_2522 of the code the value_of_the_gift under sec_2512 of the code and the amount_of_the_gift tax charitable deduction under sec_2522 allowable for each gift by the taxpayer of an undivided fractional interest in an item of artwork will be the product of the fair_market_value of the artwork determined without regard to the existence of the gla multiplied by the fraction of the plr-117340-00 item transferred approval rights retained by the taxpayer will have no value for gift_tax purposes if during the life of the taxpayer the taxpayer transfers the ownership of an undivided fractional interest in any items of artwork in the collection to the taxpayer’s spouse in accordance with the terms of the gla discussed above then the gift of such fractional interest will qualify for the gift_tax_marital_deduction under sec_2523 of the code provided the election is made under sec_2523 the value_of_the_gift under sec_2512 of the code and the amount_of_the_gift tax marital_deduction under sec_2523 allowable for each gift by the taxpayer to the taxpayer’s spouse of an undivided fractional interest in an item of artwork will be the product of the fair_market_value of the artwork determined without regard to the existence fo the gla multiplied by the fraction of the item transferred approval rights retained by the taxpayer will have no value for gift_tax purposes any loan of the items of artwork in the collection from the taxpayer to the donee will not be treated as a transfer for gift_tax purposes under sec_2503 of the code upon the death of the taxpayer survived by the taxpayer’s spouse only the individual fractional interest of the items of artwork in the collection retained by the taxpayer will be includible in the taxpayer’s gross_estate approval rights retained by the taxpayer that pass to her successors in interest will have no value for federal estate_tax purposes under sec_2031 and sec_2033 of the code any bequest to the donee under the terms of the taxpayer’s will of the taxpayer’s retained undivided fractional interest in the items of artwork in the collection will qualify for the estate_tax charitable deduction under sec_2055 of the code the amount includible in the taxpayer’s gross_estate under sec_2031 and sec_2033 of the code with respect to such retained undivided fractional interest will be the fair_market_value of the item of artwork multiplied by the taxpayer’s fractional interest in the item the amount deductible under sec_2055 with respect to the item bequeathed to the donee will equal the value included in the gross_estate any bequest to the taxpayer’s spouse of any retained fractional interest in the items of artwork in the collection as provided in the proposed codicil and the gla will qualify for the marital_deduction under sec_2056 of the code provided the election is made under sec_2056 the amount includible in the taxpayer’s gross_estate and the amount deductible as an estate_tax_marital_deduction under sec_2056 of the code will be the product of the fair_market_value of the item of artwork determined without regard to the existence of the gla multiplied by the fraction of the item transferred the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this ruling is directed only to the taxpayer requesting it sec_6110 plr-117340-00 of the code provides that it may not be used or cited as precedent 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 a copy of this letter must be attached to any income_tax return to which it is relevant sincerely yours associate chief_counsel income_tax and accounting by karin g gross senior technician reviewer branch enclosures copy of letter copy for sec_6110 purposes cc


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-142900-10 date date re legend shareholder pfic state products entity a entity b entity c entity d entity e f location location a b c d e j k date date date date date date date ---------------------------------------------------------------------------- ------------------------------------------------------- ---------------- ---------------------------------------------------------------------------- ------------- ------------------------------- ---------------------------- -------------------- -------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------------------------------- ---------------------- -------------------------------------------- -------------- -------------- ---------------- -------------- -------------- -------------------- -------------------- ------------------- ---------------- ---------------------- ------------------ ----------------------- ---------------------- -------------------- plr-142900-10 ------------- ------------- ------- ------- ------- ------- ------- ------- ------- ----------- --------- ------- --------- ----------- ----------- ------------- ----------------- ----------------- ---- ---- -- -- -- ---- ------------------------ ---------------------------------------------------------------------------------------- --------------------- ---- ---- ----------------- date date year year year year year year year amount amount amount amount amount amount amount amount amount p q r s t u current gtc university w x itm dear --------------- this is in response to a letter submitted by shareholder’s authorized representative requesting the consent of the commissioner of the internal_revenue_service irs for shareholder to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to its indirect investment in pfic the ruling contained in this letter is based upon information and representations submitted by shareholder and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information plr-142900-10 representations and other data submitted may be required as part of the examination process facts shareholder a limited_liability_company formed under the laws of state and treated as a partnership for u s federal_income_tax purposes is owned a by entity a and b by entity b shareholder began operations on date through its u s and foreign subsidiaries and joint ventures shareholder manufactures and markets a wide range of products with manufacturing facilities located in several countries throughout the world pfic is an indirect subsidiary of shareholder shareholder directly owns c of the voting membership interests in entity c a limited_liability_company formed under the laws of state on date and treated as a disregarded_entity for u s federal_income_tax purposes entity c directly owns a d voting interest in the shares of entity d formed on date and treated as a partnership for u s federal_income_tax purposes the remaining e ownership_interest in the shares of entity d is owned by entity e which is unrelated to shareholder pfic is a wholly-owned subsidiary of entity d therefore shareholder indirectly owns a d interest in pfic entity d formed pfic on date to promote market and sell the f produced by entity d it is contemplated that pfic will market and sell f in various locations throughout the world pfic was expected to commence operations by the end of year in year entity d contributed amount to pfic in exchange for pfic shares these minimum share capital funds were placed on deposit with overseas banks beginning in year interest on these deposits generated passive_income within the meaning of code sec_1297 that gave rise to pfic’s passive_foreign_investment_company status in its year audited financial statements pfic reported on its statement of comprehensive income as other income an amount that shareholder now knows to be the interest_income generated by pfic’s deposit of share capital funds pfic first reported its other income specifically as finance income in its year audited financial statements the total amount of interest_income earned by pfic for the full year sec_3 and and partial year through the date of submission of shareholder’s request was approximately amount shareholder’s pro_rata share of this income is approximately amount pfic’s general and administrative expenses were amount in year amount in year amount in year and amount in partial year pfic did not report any capital expenditures during that period the projected_earnings for pfic for year and plr-142900-10 year are approximately amount and amount respectively the aggregate amount of passive_income generated by pfic from year through partial year represents j and k of pfic’s projected total earnings for year and year respectively the passive_income that was generated by pfic is insubstantial relative to pfic’s projected_earnings for such years and the passive_foreign_investment_company status that resulted from the generation of this small amount of passive_income was unexpected and unintended by shareholder since its inception on date shareholder has maintained an in-house tax department staffed with qualified and experienced tax professionals each charged with providing shareholder sound and reliable u s international tax planning and compliance for its worldwide operations the level of staffing has fluctuated between p and q tax professionals including a the general tax counsel gtc b r to s tax attorneys and c t to u tax accountants and tax analysts shareholder’s board_of directors appoints the officers of shareholder including the gtc who manages the day-to-day activities and affairs of shareholder’s in-house tax department the gtc also reports to an advisory tax committee made up of two members each from entity a and entity b the gtc’s duties include the management and oversight of the tax attorneys providing tax counseling and advice with respect to structuring shareholder’s overseas expansion projects the tax attorneys negotiating tax provisions of joint_venture and other agreements associated with shareholder’s overseas expansion projects and the u s tax compliance responsibilities of shareholder’s international tax compliance function shareholder has had two gtcs since its inception the former gtc held office from date until date and the current gtc was appointed in date prior to beginning employment at shareholder the former gtc had obtained extensive tax experience working primarily in industry in various tax counseling and tax compliance roles in date the former gtc resigned his position with shareholder between dates and the role of gtc was vacant and was in effect carried out through the joint efforts of two of shareholder’s then more senior tax attorneys effective date current gtc was appointed by shareholder prior to his current role current gtc was a lecturer with university where he taught various tax and accounting classes prior to his tenure at university current gtc spent w years with a predecessor to entity b serving in various tax counseling roles shareholder has had one manager of its international tax compliance function the international tax manager itm since its inception he was hired effective date prior to joining shareholder the itm spent x years in various financial_accounting and tax compliance positions with entity a the itm’s duties with shareholder include filing plr-142900-10 all u s tax and information returns related to shareholder’s international operations from its inception until date shareholder also employed a tax compliance manager tcm to whom the itm directly reported the role of tcm has been vacant since date in addition since its formation shareholder has had four different tax attorneys charged with responsibility at different times for providing tax counseling and planning for shareholder’s international operations by the time pfic was formed shareholder had already embarked on a highly capital-intensive expansion of its foreign operations however prior to date the itm was not directly involved in shareholder’s foreign expansion projects relying instead on the tax attorneys charged with providing tax counseling and planning on those projects for information on the tax aspects of those projects the itm’s direct role in such projects has steadily grown since then notwithstanding the considerable tax resources allocated to shareholder’s overseas expansion strategy shareholder failed to a timely file a check-the-box election to treat pfic as a disregarded_entity for u s federal_income_tax purposes as intended resulting in the classification of pfic as a corporation for u s federal_income_tax purposes and b subsequently identify that pfic could be a passive_foreign_investment_company in year when pfic first began to earn passive_income factors contributing to these failures included the reporting by pfic of its interest_income as other income the resignation of the former gtc the period of time that the gtc position was vacant and the transition of the current gtc into his role in short the tax professionals in shareholder’s in-house tax department failed to recognize that pfic began to earn passive_income and as a result of that unintended oversight shareholder reasonably believed that pfic had not become a passive_foreign_investment_company at no time prior to date did shareholder’s tax professionals inform shareholder of its need to make a qef election for pfic nor of the tax ramifications of failing to make such an election shareholder’s current gtc and itm have submitted affidavits 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 shareholder’s in-house tax professionals shareholder represents that as of the submission date of its request the passive_foreign_investment_company status of pfic had not been raised by the irs on audit for any taxable_year of shareholder ruling requested shareholder requests the consent of the commissioner to make a retroactive qef election under sec_1295 of the code and sec_1_1295-3 to treat pfic as a qef with respect to shareholder for all taxable years starting in year law plr-142900-10 sec_1295 provides that any passive_foreign_investment_company 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 a timely election because the taxpayer reasonably believed that the company was not a passive_foreign_investment_company under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional including a tax professional employed by the shareholder within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the u s government a sec_3 provided in sec_1_1295-3 the request is made before a representative of the irs raises upon audit the passive_foreign_investment_company status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements of sec_1_1295-3 include filing 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_1295-3 additionally affidavits signed under penalties of perjury must be submitted describing the events which led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion plr-142900-10 based on the information submitted and representations made we conclude that shareholder has satisfied sec_1_1295-3 accordingly consent is granted to shareholder to make a retroactive qef election with respect to shareholder’s indirect investment in pfic for year provided that shareholder complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election 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 or information_return to which it is relevant in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely jeffery g mitchell chief branch office of the associate chief_counsel international cc


department of the treasury internal_revenue_service washington d c tax exempt and eo may oe p ra ty uniform issue code xxxxxxxxxxxxx xo legend taxpayer a xxxxxxxxkxxx individual b xxxxxxkxkkxkx ira x amount d bank t xxxxxxxxxxxx xxxxxxiiok xxxxxxxxxkxxx xxxxxxxxxxkx financial_institution c xxxxxxxxxxxx date year m xxxxxxxkkxkxk xxxxxxxxxxkx dear xxxxxxxxxx this is in response to your ruling_request dated date supplemented by a letter dated date submitted by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code for a distribution from ira x the following facts and representations have been submitted under penalty of perjury in support of the ruling requested xxxxxxx xxxxxxx taxpayer a age represents that on date he received a distribution totaling amount d from ira x taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to the failure of individual b an employee of financial_institution c to follow his instructions which led to amount d being deposited into a non-ira account taxpayer a further represents that amount d has not been used for any other purpose taxpayer a maintained ra x with bank t bank t closed and required taxpayer a to take a distribution from ira x taxpayer a states that the payout was in the form of a check for amount d taxpayer a instructed individual b his investment manager of many years to take the check and roll it over into a pre-existing ira maintained at financial_institution c instead individual b deposited amount d into taxpayer a’s joint non-ira brokerage account taxpayer a was unaware that amount d had not been deposited into an ira until year m when he began preparing his federal_income_tax return in a letter dated december taxpayer a’s verbal instructions on how to invest amount d and that he did not deposit amount d into an ira at financial_institution c but erroneously deposited amount d into taxpayer a’s joint non-ira brokerage account with financial_institution c individual b states that he misunderstood based on the facts and representations a ruling is requested that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amount d sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the account is maintained if the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which he receives the payment or distribution or the entire amount received including money and other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is xxxxxxx xxxxxxxk received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the one-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 i of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was due to the failure of individual b to follow the instructions given by taxpayer a which led to amount d being deposited into a non-ira account therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount d into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount d will be considered a rollover_contribution within the meaning of sec_408 of the code xxxxxxx xxxxxxkx no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling is directed solely to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling is being sent to your authorized representative in accordance with a power_of_attorney on file with this office if you wish to inquire about this ruling please contact xxxxxxxx id number xxxxxx at xxxxxxxxxxx please address all correspondence to sincerely yours ek fe actin laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


department of the treasury internal_revenue_service number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-119790-02 date date legend a b c d e f g h i j k l m n o p plr-119790-02 q r s t u v w x y z country1 country2 country3 d1 d2 d3 d4 d5 dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of b c d e f g h i j k l m n o p q r s t u v w x y and z by their authorized representatives requesting a ruling that b c d e f g h i j k l m n o p q r s t u v w x y and z each be given an extension of time to elect under sec_301_7701-3 of the procedure and plr-119790-02 administration regulations to be classified as a disregarded_entity for federal tax purposes facts the information submitted states that a is a us partnership owned by us investors b a wholly owned subsidiary of a was formed on d1 pursuant to the laws of country1 c a wholly owned subsidiary of b was formed on d2 pursuant to the laws of country2 d a wholly owned subsidiary of c was formed on d3 pursuant to the laws of country3 e a corporation formed under the laws of country3 became a wholly owned subsidiary of d as of d4 on d4 c and d purchased f g h i j k l m n o p q r s t u v w x y and z immediately after the purchase the properties owned by the subsidiaries were transferred to e e owns f and g f owns h h owns i j k l m n o and p j owns q r s t u v w x and y p owns z b represents that pursuant to sec_301_7701-3 b is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes b has a single owner that has limited_liability as defined in sec_301_7701-3 b intended to be disregarded for federal tax purposes effective on d1 however b inadvertently failed to timely file a form_8832 entity classification election c represents that pursuant to sec_301_7701-3 c is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes c has a single owner that has limited_liability as defined in sec_301_7701-3 c intended to be disregarded for federal tax purposes effective on d2 however c inadvertently failed to timely file a form_8832 entity classification election d represents that pursuant to sec_301_7701-3 d is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes d has a single owner that has limited_liability as defined in sec_301_7701-3 d intended to be disregarded for federal tax purposes effective on d3 however d inadvertently failed to timely file a form_8832 entity classification election e f g h i j k l m n o p q r s t u v w x y and z represent that pursuant to sec_301_7701-3 e f g h i j k l m n o p q r s t u v w x y and z are each a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes e f g h i j k l m n o p q r s t u v w x y and z each has a single owner that has limited_liability as defined in sec_301_7701-3 e f g h i j k l m n o p q r s t u v w x y and z each intended to be disregarded for federal tax purposes effective on d5 however e f g h i j k l m n o p q r s t u v w x y and z each inadvertently failed to timely file a form_8832 entity classification election plr-119790-02 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides that unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owners if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that when elections under sec_301 c i for a series of tiered entities are effective on the same date the eligible entities may specify the order of elections on form_8832 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 provides that an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed under c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin sec_301_9100-1 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 plr-119790-02 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result b is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d1 c is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d2 d is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d3 e f g h i j k l m n o p q r s t u v w x y and z each is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d5 additionally in accordance with sec_301_7701-3 the entities may specify that the order of the elections of e f g h i j k l m n o p q r s t u v w x y and z be deemed made in order from the bottom subsidiary to the top subsidiary on form_8832 a copy of this letter should be attached to each form_8832 a copy is included for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-119790-02 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 heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


washington dc department of the treasury internal_revenue_service number release date index number person to contact telephone number refer reply to cc psi - plr-119780-02 date date legend a b c d e f g h i j k l m n o plr-119780-02 p q r s t u v w x y z country1 country2 country3 d1 d2 d3 d4 d5 dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of b c d e f g h i j k l m n o p q r s t u v w x y and z by their authorized representatives requesting a ruling that b c d e f g h i j k l m n o p q r s t u v w x y and z each be plr-119780-02 given an extension of time to elect under sec_301_7701-3 of the procedure and administration regulations to be classified as a disregarded_entity for federal tax purposes facts the information submitted states that a is a us partnership owned by us investors b a wholly owned subsidiary of a was formed on d1 pursuant to the laws of country1 c a wholly owned subsidiary of b was formed on d2 pursuant to the laws of country2 d a wholly owned subsidiary of c was formed on d3 pursuant to the laws of country3 e a corporation formed under the laws of country3 became a wholly owned subsidiary of d as of d4 on d4 c and d purchased f g h i j k l m n o p q r s t u v w x y and z immediately after the purchase the properties owned by the subsidiaries were transferred to e e owns f and g f owns h h owns i j k l m n o and p j owns q r s t u v w x and y p owns z b represents that pursuant to sec_301_7701-3 b is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes b has a single owner that has limited_liability as defined in sec_301_7701-3 b intended to be disregarded for federal tax purposes effective on d1 however b inadvertently failed to timely file a form_8832 entity classification election c represents that pursuant to sec_301_7701-3 c is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes c has a single owner that has limited_liability as defined in sec_301_7701-3 c intended to be disregarded for federal tax purposes effective on d2 however c inadvertently failed to timely file a form_8832 entity classification election d represents that pursuant to sec_301_7701-3 d is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes d has a single owner that has limited_liability as defined in sec_301_7701-3 d intended to be disregarded for federal tax purposes effective on d3 however d inadvertently failed to timely file a form_8832 entity classification election e f g h i j k l m n o p q r s t u v w x y and z represent that pursuant to sec_301_7701-3 e f g h i j k l m n o p q r s t u v w x y and z are each a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes e f g h i j k l m n o p q r s t u v w x y and z each has a single owner that has limited_liability as defined in sec_301_7701-3 e f g h i j k l m n o p q r s t u v w x y and z each intended to be disregarded for federal tax purposes effective on d5 however e f g h i j k l m n o p q r s t u v w x y and z each inadvertently failed to timely file a form_8832 entity classification election plr-119780-02 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides that unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owners if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that when elections under sec_301 c i for a series of tiered entities are effective on the same date the eligible entities may specify the order of elections on form_8832 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 provides that an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed under c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin sec_301_9100-1 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 plr-119780-02 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result b is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d1 c is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d2 d is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d3 e f g h i j k l m n o p q r s t u v w x y and z each is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d5 additionally in accordance with sec_301_7701-3 the entities may specify that the order of the elections of e f g h i j k l m n o p q r s t u v w x y and z be deemed made in order from the bottom subsidiary to the top subsidiary on form_8832 a copy of this letter should be attached to each form_8832 a copy is included for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-119780-02 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 heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes