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-140548-15 date date legend parent ------------------------------------------------------------- ------------------------------------ date date date x --------------------------- --------------------------- ---------------------------- -- company official -------------------------------------------------------------------- ----------------------------- tax professional -------------------------------------------------------------------------------------- ----------------------------- dear ----------------- this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election parent is requesting an extension of time for the consolidated_group of which parent is the common parent to elect an extended carryback period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration is summarized below plr-140548-15 parent is the common parent of a consolidated_group parent group parent group incurred a cnol in the taxable_year ending date the year cnol parent group seeks to carry back the year cnol x years to its taxable_year ending on date under sec_172 of the internal_revenue_code parent was required to file the election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on date but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election parent has represented that it is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time parent requested relief sec_172 generally permits a taxpayer to carry back a net_operating_loss nol to each of the taxable years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back an applicable net_operating_loss applicable nol to each of the or taxable years preceding the taxable_year of the applicable nol in lieu of the 2-year period provided by sec_172 sec_172 provides that an applicable nol is the taxpayer’s nol for a taxable_year ending after date and beginning before date sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected and adjusted in such manner as clearly to reflect the income_tax_liability and the various factors necessary for the determination of such liability and in order to prevent avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns sec_1_1502-21 of the income_tax regulations provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 plr-140548-15 sec_1_1502-21 provides that nol carryovers and carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1_1502-21 sec_1_1502-21t as in effect for the year at issue provided that a consolidated_group could elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 corporation application_for tentative refund sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in under sec_301_9100-1 the commissioner has discretion to 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner 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 the election by a consolidated_group to extend the carryback period under sec_172 for a cnol is a regulatory election therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent establishes to the satisfaction of the commissioner that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on plr-140548-15 a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that parent has shown it acted reasonably and in good_faith that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and that granting relief will not prejudice the interests of the government accordingly provided that and to the extent that parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for parent to file the election this letter does not extend the period of time described in sec_6511 by which a taxpayer is required to file a claim for credit or refund of an overpayment_of_tax parent may file the election under sec_172 to carry back the year cnol to its taxable_year ending on date on form 1120x amended u s_corporation income_tax return for the taxable_year ending either date or date according to the procedures set forth in revproc_2009_52 a copy of this letter must be attached to the form 1120x if parent files form 1120x electronically parent may satisfy the requirement of attaching a copy of this letter by attaching a statement to parent group’s amended_return that provides the date and control number plr-140548-15 of this letter_ruling the above extension of time is conditioned on parent group’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money we express no opinion as to parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether parent qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by parent company official and tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the plr-140548-15 election any penalties and interest that would otherwise be applicable continue to apply this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely _____________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c date cc dom fs fi p uilc dollar_figure number release date internal_revenue_service national_office field_service_advice memorandum for from carol p nachman special counsel cc dom fs fi p subject this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend taxpayer fund state a state a code year year year date date issues whether the recurring_item_exception to economic_performance provided at sec_461 is applicable to liabilities incurred for the provision of workers’ compensation insurance whether the arrangement in this case is insurance for federal_income_tax purposes conclusion although generally taxpayers may not use the recurring_item_exception with respect to liabilities payable under a workers compensation act taxpayers may use the recurring_item_exception with respect to liabilities incurred for the provision of workers’ compensation insurance that the insurance covers workers compensation liabilities does not affect this determination the arrangement in this case appears to be insurance as discussed infra however additional facts must be developed in this regard facts taxpayer is a state a corporation taxable under subchapter_s of the internal_revenue_code under the laws of state a an employer must make payments to a workers’ compensation insurance fund fund administered by state a employers are required to make two semi-annual payments to the fund on date and date the amount of each premium payment is computed with respect to the employer’s payroll for the preceding six month period premiums are determined with respect to the hazards associated with each employee’s job classification and the employer’s total payroll attributable to each such job classification in addition the employer’s specific loss experience is taken into account for the purpose of determining premiums the fund’s administrator in setting or revising rates must furnish to employers the basis for the established rates state a code state a also requires the fund’s administrator to make available to employers retrospective rating plans state a code moreover unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended under a retrospectively rated policy an insured party is required to pay additional premiums if actual losses exceed a certain threshold conversely the insured party receives a refund of premiums_paid if actual losses fall below a certain state a permits certain employers to self-insure their risks in lieu of directly participating in the fund self-insured employers however are subject_to strict requirements state a code during taxable_year sec_1 and taxpayer made payments to the fund taxpayer was a calendar_year taxpayer which reported items of income and expense on an accrual basis accordingly taxpayer claimed deductions with respect to amounts paid to the fund as those amounts accrued rather than when they were actually paid for example on its return for year taxpayer accrued as an expense payments made to the fund on date sec_1 and of year thus taxpayer claimed deductions for amounts payable to the fund for the taxable_year prior to the year in which the payments were actually made the parties dispute the timing of taxpayer’s claim for deductions with respect to its liabilities to the fund taxpayer argues that because the payments are for insurance rather than for workers’ compensation liabilities each payment constitutes a recurring item and is deductible in the year in which it is accrued as long as the payment is actually made within eight and one-half months after the close of the taxable_year see sec_461 providing that certain recurring items are deemed incurred during a taxable_year if actually paid within ½ months after close of such taxable_year the revenue_agent assigned to this case argues that regardless of whether the payments may be characterized as insurance the payments are workers’ compensation liabilities which cannot be deducted until actually paid see sec_461 providing that workers compensation liabilities cannot be considered recurring items law and analysi sec_1 timing of taxpayer’s claim for deductions relating to payments made to the fund we first turn to the question of whether payments for workers’ compensation insurance may be deducted before they are actually paid premiums_paid for insurance are deductible if directly connected with the taxpayer’s trade_or_business sec_1_162-1 sec_461 generally requires that deductions must be taken for the taxable_year which is the proper taxable_year under the taxpayer’s method_of_accounting used in computing taxable_income in this regard under sec_461 an item of expense is not deductible until all events have occurred which determine the fact of liability and the amount of such liability threshold in this case it is unclear whether taxpayer elected to participate in the fund on a retroactively-rated basis can be determined with reasonable accuracy sec_461 further provides that an item of expense cannot be deducted until economic_performance with respect to such item occurs sec_461 provides that if the taxpayer incurs a liability which requires payment to another person and such liability arises under any workers compensation act economic_performance occurs as the payments to such person are actually made sec_1_461-4 - also enumerates six classes of liabilities for which economic_performance is not deemed to occur until actual payment is made to the person to which the liability is owed sec_1_461-4 and provide in pertinent part g certain liabilities for which payment is economic_performance liabilities arising under a workers compensation act or out of any tort breach of contract or violation of law if the liability of a taxpayer requires a payment or series of payments to another person and arises under any workers compensation act or out of any tort breach of contract or violation of law economic_performance occurs as payment is made to the person to which the liability is owed insurance warranty and service contracts if the liability of a taxpayer arises out of the provision to the taxpayer of insurance economic_performance occurs as payment is made to the person to which the liability is owed for purposes of this paragraph g - ii the term_insurance has the same meaning as is used when determining the deductibility of amounts paid_or_incurred for insurance under sec_162 there is an exception to the requirement of economic_performance however which applies to certain recurring items of liability sec_461 see also sec_1_461-5 under the recurring_item_exception a taxpayer may deduct certain items of expense if the all_events_test has been met although economic_performance has not yet occurred sec_1_461-5 however provides that the recurring_item_exception is not applicable to liabilities described in sec_1_461-4 i e liabilities arising under a workers’ compensation act accordingly the recurring_item_exception is available to a taxpayer incurring a recurring liability for insurance coverage but not to a taxpayer incurring a liability arising under a workers compensation act in this case the revenue_agent relies upon sec_461 which provides that economic_performance for workers’ compensation liabilities occurs as payment is actually made and sec_461 which provides that the recurring_item_exception to economic_performance cannot apply to workers’ compensation liabilities thus the revenue_agent argues that taxpayer’s payments to the fund cannot be deducted until actually paid because they are considered workers’ compensation liabilities on the other hand taxpayer contends that the payments to the fund are for insurance rather than for actual workers’ compensation liabilities accordingly taxpayer argues that pursuant to the recurring_item_exception to the economic_performance requirement the insurance premiums_paid to the fund may be deducted before actually paid although the recurring_item_exception is not applicable to workers’ compensation liabilities the exception is applicable to liabilities incurred for insurance coverage thus assuming that the transaction in question is insurance we conclude that taxpayers are entitled to use the recurring_item_exception with respect to the premiums_paid to the fund in this regard we believe that sec_461 should not be interpreted so broadly so as to include payments for workers’ compensation insurance in so doing we recognize that sec_1_461-4 example which you cited in your request for advice explains that an expense for workers’ compensation insurance cannot be deducted until actually paid that example however assumes that the recurring_item_exception is not used by the taxpayer whether the arrangement in this case is insurance although the internal_revenue_code does not define the term_insurance courts have generally required that a transaction involve both risk shifting from the insured’s perspective and risk_distribution from the insurer’s perspective in order to be characterized as insurance 312_us_531 914_f2d_396 3rd cir the risk transferred pursuant to an insurance_contract must be a risk of economic loss 66_tc_1068 affd 572_f2d_1190 7th cir consistent with the principle enunciated in legierse taxpayer’s participation in the fund will be treated as insurance provided that the requirements of risk shifting and risk_distribution are present in this case state a established the fund as a means of assuming the workers’ compensation risks of employers in state a taxpayer pays an arm’s length actuarially determined amount to the fund in exchange for the fund’s assumption of taxpayer’s risks the premiums_paid by taxpayer depend on the amount of its payroll the nature of work provided by its employees and its past loss experience therefore taxpayer’s liability for its workers’ compensation risks for any year appears to be limited to the premium paid to the fund in this regard the laws of state a make a clear distinction between employers participating in the fund and qualified employers who elect to retain their own risks by self-insuring accordingly it appears that the arrangement in this case involves sufficient risk_transfer to constitute insurance for tax purposes as discussed infra however additional facts must be developed to determine with certainty whether risk was actually shifted case development hazards and other considerations we suggest that you develop additional facts to confirm whether risk shifting and risk_distribution are present if closer scrutiny of the arrangement reveals that taxpayer has in effect retained liability for its workers’ compensation risks then the payments to the fund will not be for insurance in this regard it is unclear whether taxpayer premiums_paid to the fund were determined on a retrospectively rated basis under such an arrangement an insured party is required to pay additional premiums if actual losses exceed a certain threshold conversely the insured party receives a refund of premiums_paid if actual losses fall below a certain threshold if taxpayer elected to do so it is necessary to examine the terms of such an arrangement to determine whether risk was shifted in this regard risk is not sufficiently shifted if the retrospective premium_adjustment effectively requires taxpayer to reimburse the fund for nearly all payments made by the fund on taxpayer’s behalf in addition risk would not be shifted if taxpayer is entitled to a refund of all premiums_paid to the extent that the premiums exceed actual losses in addition it is necessary in this case to determine whether a significant number of employers unrelated to taxpayer participated in the fund when the your request for advice concerns only the tax treatment by taxpayer of the payments it made to the fund accordingly we express no opinion concerning the fund’s status as an insurance_company for federal_income_tax purposes nor do we express an opinion concerning the manner in which the fund should report the amounts paid_by taxpayer this concern is illustrated in revrul_83_172 1983_2_cb_107 where the service addressed the tax status of a fund created by a group of unrelated employers which established the fund for the purpose of covering each member’s workers’ compensation risks no single participant provided greater than of the risks assumed by the fund at issue was whether the arrangement involved sufficient risk shifting and risk_distribution to warrant recognition of the fund as an insurance_company for tax purposes the service concluded that the arrangement was insurance for federal_income_tax purposes number of participants in an insurance fund diminishes the risk retained by each insured increases if you do not have any information available we suggest that you contact the administrator of the fund for the purposes of determining the percentage of taxpayer’s risks held by the fund relative to all of the risks held by the fund


internal_revenue_service number release date index number ----------------------------- ----------------------------- ------------------------------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-134396-12 date date re -------------------------------------------------------------------------------------------- legend settlor settlor child child child child child child gc gc gc gc gc gc gc ggc ggc ggc ggc ggc ggc ggc trust trust ----------------------------- ------------------------------------ ------------------------- -------------------------------------- ------------------------ ---------------------------------- ----------------------------------- ------------------------------------ ------------------------------ -------------------------------- -------------------------- ----------------------------- -------------------------- ----------------------- ---------------------------- -------------------------------- ------------------------ --------------------------- ----------------------------- -------------------------- ----------------------- ------------------------------- --------------------------------------------------------------------------------------------------------- ---------------- --------------------------------------------------------------------------------------------------------- -------------- plr-134396-12 --------------------------------------------------------------------------------------------------------- ---------- --------------------------------------------------------------------------------------------------------- --------- --------------------------------------------------------------------------------------------------------- -------- --------------------------------------------------------------------------------------------------------- --------- ------------------------------------------------ --------------------------------------------- -------- ----------------------------------------------------------------------- ----------------------------------------------------------- ---------------------- ---------------------- --------------------------- ----------------------- --------------------------- trust trust trust trust trustees a trustees b state act state statute date date date date date dear ----------- this letter responds to a letter from your authorized representative dated date and subsequent correspondence requesting rulings on the generation-skipping_transfer gst tax consequences resulting from the proposed division and merger of certain trusts facts you represent the facts to be as follows settlor and settlor were sisters settlor had three children child child and child on date a date prior to date settlor created three irrevocable trusts named respectively for her three children trust trust and trust collectively referred to as the m trusts the trust instruments creating each of these trusts are identical except that the initial income_beneficiary of each trust was the child of settlor for whom the trust was named article third of each m trust provides that the trust will terminate and all interests thereunder will vest years after the date of death of the last survivor of settlor child child and child all of whom are deceased therefore each m trust will terminate on date article fourth section i of each trust instrument provides that upon the death of the child for whom the trust is named the trustees subject_to the discretionary power in plr-134396-12 the trustees to accumulate net_income shall distribute the entire net_income from the trust in equal shares to settlor 1’s grandchildren with the issue of a deceased grandchild to take such grandchild’s share per stirpes state law act applies to each m trust and prohibits accumulations of income by the trustees therefore each m trust must distribute income annually the current income beneficiaries of the m trusts are settlor 1’s living grandchildren gc and gc and descendants of settlor 1’s deceased grandchildren ggc ggc ggc ggc ggc ggc and ggc article fourth section iv of each m trust provides that the trustees may pay to the beneficiary at the time entitled to receive income such sum or sums from the corpus as the trustees in their sole discretion deem necessary or advisable in the best interests of the beneficiary the trustees have the discretion to charge any such advances against future income but if principal is encroached the principal payment must be charged against the trust estate as a whole without any attempt to allocate the payment to the share of a particular beneficiary on date a date after date each m trust merged with a substantially identical trust the internal_revenue_service issued a private_letter_ruling to each m trust concluding that the merger would not affect the status of each trust as exempt from the gst tax based on the effective date of the gst tax and would have no adverse income or gift_tax consequences settlor had three children child child and child on date a date prior to date settlor created three irrevocable trusts named respectively for her three children trust trust and trust collectively referred to as the d trusts the trust instruments creating each of these trusts are identical except that the initial income_beneficiary of each trust was the child of settlor for whom the trust was named article third of each d trust provides that the trust will terminate and all interests thereunder will vest years after the date of death of the last survivor of settlor child child and child all of whom are deceased therefore each d trust will terminate on date article fourth section i of each trust instrument provides that upon the death of the child for whom the trust is named the trustees shall pay over and distribute the entire net_income from the trust in equal shares to settlor 2’s grandchildren or to the issue of a deceased grandchild per stirpes the current income beneficiaries of the d trusts are settlor 2’s living grandchildren gc gc gc gc and gc article fourth section vi of each d trust provides that the trustees may pay to the beneficiary at the time entitled to receive income such sum or sums from the corpus as the trustees in their sole discretion deem necessary or advisable in the best interests of the beneficiary the trustees have the discretion to charge any such advances plr-134396-12 against future income but if principal is encroached the principal payment must be charged against the trust estate as a whole without any attempt to allocate the payment to the share of a particular beneficiary trustees a currently serve as trustees for trust trust and trust trustees b currently serve as trustees for trust trust and trust pursuant to a severance and merger document trustees a propose to divide each m trust to create equal separate shares for each of settlor 1’s grandchildren who are now living or deceased with living descendants further pursuant to a severance and merger document trustees b propose to divide each d trust to create equal separate shares for each of settlor 2’s grandchildren who are now living or deceased with living descendants each share so provided for a deceased grandchild would be further divided in separate shares per stirpes among the deceased grandchild’s living descendants the terms of each new trust the severed trusts will be substantially identical to the terms of the original trust from which it is created therefore each severed trust will provide that the entire net_income of the trust must be distributed to the primary beneficiary and each severed trust will terminate no later than the time when the original trusts were required to terminate following the severance each primary beneficiary will have three identical trusts named for them therefore trustees a propose to merge the three m trusts named for each primary beneficiary by transfer of all assets of those trusts to a single trust named for that primary beneficiary held on terms identical to the terms of those m trusts similarly trustees b will merge the three d trusts named for each primary beneficiary by transfer of all assets of those trusts to a single trust named for that primary beneficiary held on terms identical to the terms of those d trusts trustees a and trustees b are located in state the m trusts and the d trusts are administered under the laws of state state statute provides that a trustee has the power to sever any trust estate on a fractional basis into two or more separate trusts for any reason and to consolidate two or more trusts having substantially_similar terms into a single trust you represent that no additions have been made to any m trust or to any d trust after date you have requested the following rulings the proposed division and modification of each original m trust and d trust to create the severed trusts will not subject the assets of the original m trusts and d trusts held in the severed trusts to federal gst tax under sec_2601 by forfeiting the effective date exempt status of those assets plr-134396-12 the proposed merger of i the three severed trusts named for a descendant of settlor into a single trust named for that descendant and ii the three severed trusts named for a descendant of settlor into a single trust named for that descendant will not subject the assets of the m trusts the d trusts the severed trusts or the resulting single trust held for each descendant to federal gst tax under sec_2601 by forfeiting the effective date exempt status of those assets law and analysis sec_2601 imposes a tax on every gst which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip section b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the gst tax shall not apply to any gst under a_trust that was irrevocable on date but only to the extent that such transfer was not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in settlor’s gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status in general unless specifically provided otherwise these rules are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26 b i d provides that a modification will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in a beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer furthermore a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered a shift in a beneficial_interest in a_trust plr-134396-12 sec_26_2601-1 example illustrates a situation where a_trust that is otherwise exempt from the gst tax is divided into two trusts in grantor established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a’s issue and one for the benefit of b and b’s issue the trust for a and a’s issue provides that the trustee has the discretion to distribute trust income and principal to a and a’s issue in such amounts as the trustee deems appropriate on a’s death the trust principal is to be distributed equally to a’s issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b’s issue the trust for b and b’s issue is identical except for beneficiaries and terminates at b’s death at which time the trust principal is to be distributed equally to b’s issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a’s issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter sec_26_2601-1 example considers a situation where in grantor established an irrevocable_trust for the benefit of grantor’s child a and a’s issue in grantor’s spouse also established a separate irrevocable_trust for the benefit of the same child and issue the terms of the spouse’s trust and grantor’s trust are identical in the appropriate local court approved the merger of the two trusts into one trust to save administrative costs and enhance the management of the investments the merger of the two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the merger in addition the merger does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust that resulted from the merger will not be subject_to the provisions of chapter in the present case trust trust trust trust trust and trust were irrevocable on date you have represented that no additions actual or constructive have been made to any of the trusts after that date accordingly pursuant to b a of the act and sec_26_2601-1 the trusts are not subject_to the gst tax the proposed divisions and the proposed mergers pursuant to the severance plr-134396-12 and merger documents are similar to example and example in sec_26_2601-1 state statute permits a trustee to sever any trust estate on a fractional basis into two or more separate trusts and to consolidate two or more trusts having substantially_similar terms into a single trust under these circumstances the proposed divisions and subsequent mergers will not shift a beneficial_interest to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the proposed divisions and subsequent mergers will not extend the time for vesting of any beneficial_interest in the trusts beyond the period provided for in the original trusts accordingly based on the facts submitted and the representations made we conclude the proposed division and modification of each original m trust and d trust to create the severed trusts will not subject the assets of the original m trusts and d trusts held in the severed trusts to federal gst tax under sec_2601 by forfeiting the effective date exempt status of those assets the proposed merger of i the three severed trusts named for a descendant of settlor into a single trust named for that descendant and ii the three severed trusts named for a descendant of settlor into a single trust named for that descendant will not subject the assets of the m trusts the d trusts the severed trusts or the resulting single trust held for each descendant to federal gst tax under sec_2601 by forfeiting the effective date exempt status of those assets except as specifically ruled above no opinion is expressed as to the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code or regulations the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by the appropriate parties while this office has not verified any part of the material submitted in support of the request for rulings it is subject_to verification and examination this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-134396-12 in accordance with the power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative sincerely yours james f hogan chief branch office of the associate chief_counsel passthroughs and special industries enclosure 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 plr-134880-13 date january legend taxpayer corp a corp b -------------------------- -------------------------- ----------------------------------------------------- ------------------------ --------------------------------------------- --------------------------------- ------------------ -------------------------------------- --------------- ---------- -------------- ------------ ------------- -------------- --------------------------- ------- ---------------------- --------------- ------- --------------------------- ------------- ---------------------------- corp c corp d corp e corp f city a city b state a state b state c state d date a date b date c date d date e date f process location coal seam area -------------------------- facility --------------------------------------------------- plr-134880-13 power plant --------------------------------- coop ---------------------------------------------------- dear ------ ---------- this is in response to your request for a ruling submitted by your authorized representative concerning the federal_income_tax consequences of the transaction described below and supplements a prior private_letter_ruling to you dated f facts taxpayer information a taxpayer is a state a limited_liability_company that is a wholly owned subsidiary of corp a taxpayer was formed to lease and operate two refined_coal production facilities including facility because taxpayer has not elected to be a classified as an association_taxable_as_a_corporation for federal_income_tax purposes it is disregarded as an entity separate from corp a for such purposes corp a is a state a corporation that is wholly owned by corp b corp b a state a corporation is the common parent of a consolidated_group of companies whose members include corp a b the refined_coal production proce sec_1 the facility taxpayer has leased the refined_coal_production_facility facility from corp d for a term ending on date a corp d is wholly owned by corp c facility was designed and constructed by corp c to produce a refined_coal product that reduces emissions of nitrous oxide nox and mercury hg when burned as a fuel in a coal-fired power plant facility was placed_in_service in date b and is currently located at power plant located in city a state b on land licensed to taxpayer pursuant to an agreement with coop the owner of power plant power plant is a coal-fired steam-producing power plant in regular commercial operation taxpayer has entered into a contract with coop for the sale of refined_coal produced by facility to coop for use as feedstock in power plant facility can be moved and reassembled at other power plant locations the process the technology employed to produce the refined_coal in facility is known as process it is a proprietary process which is designed to reduce nox and hg emissions in a cyclone coal-fired boiler that burns location coal feedstock location coal is a sub- bituminous low-btu low-sulfur coal with a high ash content that is mined from location in an area of state c and in an area of state d taxpayer produces refined_coal at facility using location coal from coal seam area near city b state d the rights to the technology are licensed by corp e to corp c and have been sublicensed from corp c plr-134880-13 to taxpayer for the full term of the lease of facility corp e and corp f formed corp c to develop refined_coal facilities process involves the use of two separate inorganic chemicals chemical reagents which are applied to the coal feedstock the first chemical reagent is a solid material it mixes evenly with the coal’s native ash in power plant boilers and affects the melting properties of the coal’s native ash during combustion in power plant boilers this allows adjustment of the air-fuel ratio in the boiler which reduces oxygen in the boiler and provides more favorable conditions for reduction of nox emissions the second chemical reagent is an inorganic liquid solution which reacts with the mercury in coal resulting in changes to the chemical form of the mercury oxidizing more of it as a result more of the mercury is captured with the fly-ash in the particulate control equipment resulting in a higher degree of removal facility’s equipment transports the chemical reagents to a coal conveyor belt where they are applied evenly to the coal feedstock the chemical reagents are combined with the coal at a rate proportional to the coal flow rate the application of each chemical reagent is controlled separately by computer equipment which determines the rate of application based on the flow rate of the coal on the conveyor belt the proportion of each chemical reagent to be applied per ton of coal is set based on previously verified emissions test results emissions testing corp c conducted full-scale emissions tests using continuous emission monitoring systems cems at power plant using refined_coal produced in facility from location coal in date c and again in date d before the effective date of the facility lease after the execution of the lease taxpayer has conducted periodic full-scale cems field tests at power plant using refined_coal produced in facility from location coal the emissions tests were conducted in the following manner to establish a baseline for nox and mercury emissions one unit of power plant was operated for a three-hour period at or above of full load using location coal feedstock the same power plant unit was operated for a second three-hour period under the same operating conditions except for adjustments to primary or secondary air in accordance with good air pollution control practices using refined_coal produced in the facility using the process from location coal and the chemical reagents applied at a predetermined proportion during both the baseline test and the test using refined_coal nox and mercury emissions were measured using cems equipment that conforms to applicable united_states epa standards at the power plant the nox cems device is located upstream of the selective catalytic reduction equipment scr which reduces nox emissions and the electrostatic precipitator which controls particulate emissions the mercury cems plr-134880-13 device is located in the stack downstream of the particulate control equipment and upstream of the scr the results of each cems field test indicated that burning refined_coal produced using the process in the boilers at the power plant results in a reduction of nox emissions in excess of and a reduction of mercury emissions in excess of excluding dilution caused by materials combined or added during the production process when compared to emissions resulting from burning location coal feedstock to produce the same amount of useful thermal energy the emission reductions demonstrated in each cems field test have been verified by an independent licensed professional engineer experienced in combustion and environmental engineering as required by notice_2010_54 2010_40_irb_403 notice modifications to the facility power plant has a dual coal belt system which allows coop to deliver coal to the bunkers that feed coal to both boiler units using one both or alternating coal conveyor belts in date e corp c modified the facility by adding additional equipment to separately deliver process chemicals to the second conveyor belt and to reconfigure other portions of the facility to optimize its operation date e capital improvements the date e capital improvements included the removal of two of the metering screws from the live bottom hopper at the facility thereby reducing the first chemical reagent’s feed rate to more closely match the maximum coal burn rates of the power plant and the addition of a weigh belt conveyor to more accurately control the flow rate of the first chemical reagent in addition pumps for the second chemical reagent were replaced with small pumps after the date e capital improvements were completed the fair_market_value of the used components in the facility were more than of the facility’s total value the cost of the new property plus the fair_market_value of the used_property taxpayer is planning to replace the equipment at the facility with new equipment new facility the new facility will consist of newly constructed equipment and will incorporate design improvements that are intended to increase durability less than of the facility’s existing equipment will be incorporated into the new facility taxpayer will enter into an agreement with corp c to lease the new facility in exchange for the lease of the new facility the parties will terminate the lease for the facility rulings requested based on the foregoing taxpayer has requested that we rule as follows plr-134880-13 an increase in the rate of application of a chemical reagent per ton of feedstock coal refined is not considered a change in the process of producing refined_coal from feedstock coal for purposes of section dollar_figure of notice_2010_54 law and analysis sec_45 of the code generally provides a credit against federal_income_tax for_the_use_of renewable or alternative resources to produce electricity or fuel for the generation of steam sec_45 of the code provides that in the case of a producer of refined_coal the credit available under sec_45 of the code for any taxable_year shall be increased by an amount equal to dollar_figure5 per ton of qualified refined_coal i produced_by_the_taxpayer at a refined_coal_production_facility during the 10-year period beginning on the date that the facility was originally placed_in_service and which is ii sold by the taxpayer to an unrelated_person during such 10-year period and such taxable_year for purposes of sec_45 of the code section dollar_figure of the notice provides that the term refined_coal means a fuel which -- i is a liquid gaseous or solid fuel including feedstock coal mixed with an additive or additives produced from coal including lignite or high carbon fly ash including such fuel used as a feedstock ii is sold by the taxpayer with the reasonable expectation that it will be used for purpose of producing steam and iii is certified by the taxpayer as resulting when used in the production of steam in a qualified_emission_reduction sec_45 and section dollar_figure of the notice provide that the term qualified_emission_reduction means in the case of refined_coal produced at a facility placed_in_service after date a reduction of at least twenty percent of the emissions of nitrogen oxide and at least of the emissions of either sulfur dioxide or mercury released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of date in the case of production at a facility placed_in_service before date a reduction of at least percent of the emissions of nox and at least percent of the emissions of either so2 or hg released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of date sec_45 of the code generally provides that the term refined_coal_production_facility means a facility which is placed_in_service after date and before date sections dollar_figure and dollar_figure of the notice provide that when a facility is placed_in_service is determined in accordance with sec_1_46-3 of the regulations plr-134880-13 section dollar_figure of the notice provides that the refined_coal credit is allowed for qualified refined_coal produced and sold to an unrelated_person by the taxpayer without regard to whether the taxpayer owns the refined_coal_production_facility in which the refined_coal is produced accordingly a taxpayer that leases or operates a facility owned by another person may claim the credit for refined_coal that the taxpayer produces in the facility section dollar_figure of the notice provides that a refined_coal_production_facility will not be considered to have been placed_in_service after date if more than percent of the total fair_market_value of the facility the cost of the new property plus the value of the used_property is attributable to property that was placed_in_service on or before date section dollar_figure of the notice generally provides that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as defined in sec_613 a c or i of the code if performed by the mine owner or operator accordingly in determining whether a qualified_emission_reduction has been achieved the emissions released when burning the refined_coal must be compared to the emissions that would be released when burning the feedstock coal feedstock coal is the product resulting from processes that are treated as mining and are actually applied by a taxpayer in any part of the taxpayer’s process of producing refined_coal from coal sec_613 of the code describes treatment processes that are not considered as mining unless they are provided for in sec_613 or any necessary or incidental to a process provided for in sec_613 any cleaning process such as a process that uses ash separation dewatering scrubbing though a centrifugal pump spiral concentration gravity concentration flotation application of liquid hydrocarbons or alcohol to the surface of the fuel particles or to the feed slurry provided such cleaning does not change the physical or chemical structure of the coal and drying to removed free water provided such drying does not change the physical or chemical identity of the coal will be considered as mining section of the notice provides in part that emissions reduction may be determined using continuous emission monitoring system cems field testing section a provides in part that cems field testing is testing that meets all the following requirements i the boiler used to conduct the test is coal-fired and steam-producing and is of a size and type commonly used in commercial operations ii emissions are measured using a cems iii if epa has promulgated a performance standard that applies at the time of the test to the pollutant emission being measured the cems must conform to that standard iv emissions for both the feedstock coal and the refined_coal are measured at the same operating conditions and over a period of at least hours during which the boiler is operating at a steady state at least percent of full load v a plr-134880-13 qualified_individual verifies the test results in a manner that satisfies the requirement of section b section of the notice provides that methods other than cems field testing may be used to determine the emissions reduction if a method other than cems field testing is used the service may require the taxpayer to provide additional proof that the emission reduction has been achieved the permissible methods include a testing using a demonstration pilot-scale combustion furnace if it established that the method accurately measures the emission reduction that would be achieved in a boiler described in section a a i and a qualified_individual verifies the test results in a manner that satisfies the requirements of section c i ii v and vi b a laboratory analysis of the feedstock coal and the refined_coal that complies with a currently applicable epa or astm standard and is permitted under section b i or ii section of the notice provides that a taxpayer may establish that a qualified_emission_reduction determined under section dollar_figure applies to production from a facility by a determination or redetermination that is valid at the time the production occurs a determination or redetermination is valid for the period beginning on the date of the determination or redetermination and ending with the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of feedstock coal that occurs after the date of such determination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination section of the notice provides that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure must use a method that meets the requirements of section in any other case the redetermination requirement may be satisfied by laboratory analysis establishing that - a the sulfur s or hg content of the amount of refined_coal necessary to produce an amount of useful energy has been reduced by at least percent percent in the case of facilities placed_in_service after date in comparison to the s or hg content of the amount of feedstock coal necessary to produce the same amount of useful energy excluding any dilution caused by materials combined or added during the production process b the s or hg content of both the feedstock coal and the refined_coal do not vary by more than percent from the s and hg content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of the notice finally section dollar_figure of the notice provides that the certification requirement of sec_3 c is satisfied with respect to fuel for which the refined_coal credit is claimed only if the taxpayer attached to its tax_return on which the credit is claimed a plr-134880-13 certification that contains the following a a statement that the fuel will result in a qualified emissions reduction when used in the production of steam b a statement indicating whether cems field testing was used to determine the emissions reduction if cems field testing was not used to determine the emissions reduction a description of the method used a statement that the emissions reduction was determined or redetermined within the six months preceding the production of the fuel and that there have been no changes in the source or rank of feedstock coal used or in the process of producing refined_coal from the feedstock coal since the emissions reduction was determined or was most recently determined and a declaration signed by the taxpayer in the following form under penalties of perjury i declare that i have examined this certification and to the best of my knowledge and belief it is true correct and complete with respect to the ruling requested the process involves blending the location coal with the chemical reagents in a cyclone coal-fired boiler section dollar_figure of the notice provides generally that a qualified_emission_reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as further defined in the code if performed by the mine owner or operator sec_613 of the code describes certain treatment processes that are not considered as mining unless they are provided for in sec_613 or are necessary or incidental to a process provide for in sec_613 for example provides in part that any cleaning process such as the application of liquid hydrocarbons or alcohol to the surface of the fuel particle or to the feed slurry provided such cleaning does not change the physical or chemical structure of the coal will be considered mining in the instant case the technology is not a mining process further section dollar_figure clarifies sec_45 and specifically provides that refined_coal includes feedstock coal mixed with an additive or additives thus additive processes which mix certain chemicals or other additives with the coal in order to achieve emission reductions may qualify for the production_tax_credit for refined_coal accordingly we conclude a that refined_coal produced at the facility using the process and the chemical reagents is refined_coal within the meaning of sec_45 provided the refined_coal i is sold to an unrelated_person within the meaning of sec_45 and ii meets the emission reduction requirement of sec_45 of the code and b an increase in the rate of application of a chemical reagent per ton of feedstock coal refined is not considered a change in the process of producing refined_coal from feedstock coal for purposes of section dollar_figure of notice_2010_54 no opinion is expressed regarding any other issue not specifically addressed in this ruling letter specifically no opinion is expressed whether the taxpayer lessee is the producer of refined_coal in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives a copy of this ruling must be attached to any income_tax return to which it is relevant alternatively taxpayers filing plr-134880-13 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 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent we are sending a copy of this letter_ruling to the industry director sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs special industries


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 plr-153410-09 date date legend foreign parent ------------------------------------------------------------------- --------------------------------- fsub ---------------------------------------------------------------------- -------------------------------------------------------- u s parent ----------------------------------------------------------- ----------------------------------------------------------------- --------------------------------------- seller -------------------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------------- --------------------------------------- target ------------------------ ----------------------------------------------------------- -------------------------------------------------------------------- buyer ----------------------------------------------------------- ------------------------------------------------------------------------ --------------------------------- sub ----------------------------------------------------------- ------------------------------------------- ------------------------------------------------------------- plr-153410-09 sub llc ----------------------------------------------------------- -------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- new sub llc ----------------------------------------------------------- -------------------------------------------------------------------------------------------------------- --------------------------------------------------- sub ----------------------------------------------------------- ------------------------------------------------------------------- -------------------------- sub ----------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------- sub ----------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------ sub ----------------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------- sub ----------------------------------------------------------- ------------------------------------------------------------------- ----------------------------- sub ----------------------------------------------------------- ------------------------------------------------------------------------ ---------------------------------------- sub ----------------------------------------------------------- --------------------------------------------------------------------- ----------------------------------- business a year year year -------------------------------------------------- ------- ------- ------- plr-153410-09 ------- -------------------------- ----------------------- -------------------------- --------------------------- year date a date b date c date d dear -------------- this letter responds to your date request submitted by your authorized representative for rulings on certain federal_income_tax consequences of the proposed transactions described below the information provided in that request and in later correspondence is summarized below the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process statement of facts foreign parent owned all of the stock of fsub which owned all of the stock of u s parent u s parent is the common parent of a u s consolidated_group the u s parent group that is engaged in business a u s parent owns all of the issued and outstanding member interests of seller a single-member limited_liability_company seller owns all of the issued and outstanding_stock of buyer completed transactions in year seller which was a corporation wholly owned by foreign parent at such time acquired target in a forward subsidiary merger pursuant to which target merged with and into seller with seller surviving seller treated the merger as a reorganization under sec_368 by reason of sec_368 target was the former common parent of the target consolidated_group which included sub through sub at the time of target’s acquisition seller was the common parent of the taxpayer’s consolidated_group and as a result of target’s acquisition sub through sub became members of seller’s consolidated_group plr-153410-09 as a result of the target acquisition seller obtained a carryover_basis in target’s assets which included the stock of sub through sub as part of the plan_of_reorganization seller contributed target’s assets including the stock of sub through sub to buyer in exchange for notes and buyer’s assumption of the liabilities associated with target’s business the value of the target assets exceeded the principal_amount of the notes plus the assumed_liabilities and seller treated the exchange as a sec_351 transfer with the notes constituting other_property within the meaning of sec_351 the intercompany gain transaction accordingly seller recognized gain at the time of the exchange but pursuant to sec_1_1502-13 did not take such gain into account the seller intercompany gain in year foreign parent contributed all of the shares of seller to fsub in year fsub contributed all of the shares of seller to u s parent the contribution of seller’s stock to u s parent was treated as a reverse_acquisition transaction under sec_1_1502-75 as a result seller’s consolidated_group continued with u s parent as the common parent for ease of reference u s parent group includes consolidated_return years in which seller was the common parent of the group in year sub converted to sub llc a single-member limited_liability_company that was disregarded as an entity separate from its owner buyer the sub conversion after the conversion sub which prior to the conversion was a wholly owned subsidiary of sub merged with and into buyer the sub merger at the time of the sub conversion u s parent was unaware of the potential implications that the conversion could have under sec_1_1502-13 with respect to the portion of the seller intercompany gain attributable to the shares of sub promptly upon identifying the potential triggering event u s parent requested relief under sec_301_9100-1 for an extension of time to make an effective election under sec_1_1502-13 and to effectuate the transfer of assets to a new member pursuant to sec_1_1502-13 the service granted relief under section on date a see plr-127933-08 on date b new sub llc was organized the new sub llc formation and an initial election was filed to classify new sub llc as an association_taxable_as_a_corporation for federal_income_tax purposes in accordance with the section relief buyer contributed its interest in sub llc to new sub llc new sub llc together with sub through sub collectively referred to as target subs buyer retained the assets of sub on date c seller converted under state law to a single-member limited_liability_company seller llc that is disregarded as an entity separate from its owner u s parent the seller conversion plr-153410-09 proposed transactions in order to simplify its corporate structure and reduce its compliance burden u s parent has proposed the following transactions the proposed transactions to take place on or before date d i ii iii iv seller llc will merge with and into u s parent under state law with u s parent surviving the seller llc merger u s parent will merge downstream with and into buyer under state law with buyer surviving the u s parent downstream_merger a check-the-box election will be made to classify new sub llc as an entity disregarded as separate from its owner buyer for u s federal_income_tax purposes the new sub llc check-the-box election each of the target subs will either liquidate convert to a disregarded llc pursuant to state law or merge into buyer or a disregarded_entity owned by buyer collectively the target sub liquidations representations completed transactions u s parent makes the following representations with respect to the completed transactions described above a appropriate adjustments will be made in accordance with sec_1_1502-13 to reflect buyer’s retention of the sub assets b the seller conversion qualified as a liquidation described in sec_332 seller llc merger u s parent makes the following representations with respect to the seller llc merger described above in step i c seller llc will merge with and into u s parent with u s parent surviving by operation of state law the assets and liabilities of seller llc will be transferred to u s parent and seller llc will cease its separate legal existence plr-153410-09 u s parent downstream_merger u s parent makes the following representations with respect to the u s parent downstream_merger described above in step ii d e f the u s parent downstream_merger will qualify as a reorganization described in sec_368 pursuant to sec_1_1502-75 the u s parent downstream_merger will not result in the termination of the u s parent group the u s parent downstream_merger will qualify as a group structure change under sec_1_1502-33 the earnings_and_profits of buyer will be adjusted immediately after buyer becomes the new common parent to reflect an appropriate amount of the earnings_and_profits of u s parent immediately before u s parent ceases to be the common parent new sub llc check-the-box election u s parent makes the following representations with respect to the new sub llc check-the-box election described above in step iii g the sub conversion taken together with the new sub llc formation qualified as a reorganization described in sec_368 target sub liquidations u s parent makes the following representations with respect to the target sub liquidations described above in step iv h i j other than as described above each share of the stock of each target sub that reflects intercompany gain from any of the completed transactions has been held by members of the u s parent group continuously since such gain arose and will be held by members of the u s parent group continuously until completion of the proposed transactions each target sub liquidation will qualify as a liquidation described in sec_332 immediately before the seller intercompany gain is taken into account pursuant to the proposed transactions buyer will be treated for federal_income_tax purposes as the owner of the target subs’ stock plr-153410-09 k l as a result of the target sub liquidations buyer’s basis in each of the target subs’ stock that reflects the seller intercompany gain that is taken into account will be eliminated without the recognition of gain_or_loss and such eliminated basis will not be reflected in the basis of any successor asset the u s parent group has not and will not derive any federal_income_tax benefit within the meaning of temp sec_1_1502-13t c ii c from the intercompany gain transaction that gave rise to intercompany gain or the redetermination of intercompany gain including any adjustment to basis in member stock under sec_1_1502-32 for purposes of this representation u s parent has taken into consideration any potential benefits associated with successor assets to the seller intercompany gain m the effects of the intercompany gain transaction have not previously been reflected directly or indirectly on the u s parent group’s consolidated_return within the meaning of temp sec_1_1502-13t c ii c rulings seller conversion based solely on the information submitted and the representations set forth above we rule as follows with respect to the seller conversion following the seller conversion u s parent became a successor person and succeeded to seller’s intercompany items including the seller intercompany gain within the meaning of sec_1_1502-13 none of the seller intercompany gain was required to be taken into account as a result of the seller conversion under the multiple trigger rule_of sec_1_1502-13 u s parent downstream_merger based solely on the information submitted and the representations set forth above we rule as follows with respect to the u s parent downstream_merger buyer will become a successor person and will succeed to u s parent’s intercompany items including the seller intercompany gain under sec_1_1502-13 plr-153410-09 none of the seller intercompany gain will be required to be taken into account as a result of the u s parent downstream_merger under the multiple trigger rule_of sec_1_1502-13 following the u s parent downstream_merger buyer will be the surviving common parent of the u s parent group for purposes of subsequently applying temp sec_1_1502-13t new sub llc check-the-box election based solely on the information submitted and the representations set forth above we rule as follows with respect to the new sub llc check-the-box election the membership interests of new sub llc represent successor assets to the seller intercompany gain attributable to the shares of sub pursuant to sec_1_1502-13 the new sub llc check-the-box election will not affect plr-127933-08 issued date with respect to the section relief target sub liquidations based solely on the information submitted and the representations set forth above we rule as follows with respect to the target sub liquidations the portion of the seller intercompany gain attributable to the shares of the target subs will be excluded from buyer’s gross_income pursuant to temp sec_1_1502-13t following the target sub liquidations buyer’s earnings_and_profits will not be adjusted by the amount of income excluded under temp sec_1_1502-13t caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transactions under other provisions of the code or the regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings specifically no opinion is expressed with respect to the portion of the seller intercompany gain attributable to target assets other than shares of the target subs plr-153410-09 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 gerald b fleming senior technician reviewer 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 ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-112113-08 date september x a b c legend ------------------------------------- ---------------------------------------------- ----------------------- -------------------------- ------------------------------- --------------------- country --------- d1 d2 --------------------- --------------------- dear ------------ this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_301_9100-3 of the procedure and administration regulations facts x was formed under the laws of country x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x was a wholly-owned subsidiary of a a country corporation b a country corporation plr-112113-08 acquired a through a subsidiary entity c on d1 upon b’s acquisition of a it was intended that x would be treated as a disregarded_entity effective d2 however due to inadvertence a form_8832 entity classification election to treat x as a disregarded_entity effective d2 was not timely filed law and analysis sec_301_7701-3 provides in part 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 as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an entity separate from its owner sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-2 provides the standards the commissioner will use to determine whether to grant an automatic_extension of time for making certain elections plr-112113-08 sec_301_9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301 a provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301 and sec_301_9100-3 as a result x is granted an extension of sixty days from the date of this letter to file a properly executed form_8832 with the appropriate service_center to elect to be classified as a disregarded_entity effective d2 a copy of this letter should be attached to the form_8832 except as specifically set forth above we express no opinion concerning the federal tax consequences of the above described facts under any other provision of the internal_revenue_code in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely s william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc